Filed Pursuant to General
Instruction II.L of Form F-10;
File No. 333-115330
PROSPECTUS SUPPLEMENT
---------------------
(TO PROSPECTUS DATED MAY 17, 2004)
US$300,000,000
PRECISION DRILLING CORPORATION
5.625% NOTES DUE 2014
(PRECISION DRILLING LOGO)
The notes will bear interest at the rate of 5.625% per year. We will
pay interest on the notes on June 1 and December 1 of each year, beginning
December 1, 2004. The notes will mature on June 1, 2014. We may redeem some or
all of the notes, at any time, at the "make-whole" price described in this
prospectus supplement. We may also redeem all of the notes, at any time, if
certain changes affecting Canadian withholding taxes occur.
INVESTING IN THE SECURITIES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 6 OF THE ACCOMPANYING PROSPECTUS AND PAGE S-7 OF THIS
PROSPECTUS SUPPLEMENT.
WE ARE PERMITTED TO PREPARE THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS IN ACCORDANCE WITH CANADIAN DISCLOSURE REQUIREMENTS,
WHICH ARE DIFFERENT FROM THOSE OF THE UNITED STATES. WE PREPARE OUR FINANCIAL
STATEMENTS IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES,
AND THEY ARE SUBJECT TO CANADIAN AUDITING AND AUDITOR INDEPENDENCE STANDARDS. AS
A RESULT, THEY MAY NOT BE COMPARABLE TO FINANCIAL STATEMENTS OF UNITED STATES
COMPANIES.
OWNING THE SECURITIES MAY SUBJECT YOU TO TAX CONSEQUENCES BOTH IN THE
UNITED STATES AND IN CANADA. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS MAY NOT DESCRIBE THESE TAX CONSEQUENCES FULLY. YOU SHOULD READ THE
TAX DISCUSSION CONTAINED IN THIS PROSPECTUS SUPPLEMENT.
YOUR ABILITY TO ENFORCE CIVIL LIABILITIES UNDER THE UNITED STATES
FEDERAL SECURITIES LAWS MAY BE AFFECTED ADVERSELY BECAUSE WE ARE AMALGAMATED IN
CANADA, MOST OF OUR OFFICERS AND DIRECTORS AND SOME OF THE EXPERTS NAMED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE CANADIAN RESIDENTS,
AND MOST OF OUR ASSETS, THE ASSETS OF OUR DIRECTORS AND OFFICERS AND THE EXPERTS
ARE LOCATED OUTSIDE THE UNITED STATES.
NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PER
NOTE TOTAL
------ ------------
Public offering price..................... 99.795% US$299,385,000
Underwriting commission................... 0.650% US$ 1,950,000
Proceeds to Precision, before expenses.... 99.145% US$297,435,000
The price of the notes will also include accrued interest, if any, from
May 28, 2004 to the date of delivery.
Delivery of the notes, in book entry form only, will be made on or
about May 28, 2004.
_______________
BOOK-RUNNING MANAGER
UBS INVESTMENT BANK
_______________
RBC CAPITAL MARKETS HSBC NBF SECURITIES (USA) CORP. TD SECURITIES
CIBC WORLD MARKETS LAZARD RAYMOND JAMES WELLS FARGO INSTITUTIONAL BROKERAGE AND SALES
_______________
May 25, 2004
IMPORTANT NOTICE ABOUT INFORMATION IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
This document is in two parts. The first part is this prospectus
supplement, which describes the specific terms of the notes we are offering and
also adds to and updates certain information contained in the accompanying
prospectus and the documents incorporated by reference. The second part, the
accompanying base shelf prospectus dated May 17, 2004, gives more general
information, some of which may not apply to the notes we are offering. The
accompanying base shelf prospectus is referred to as the "prospectus" in this
document.
IF THE DESCRIPTION OF THE NOTES VARIES BETWEEN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS
PROSPECTUS SUPPLEMENT.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. WE HAVE NOT, AND THE
UNDERWRITERS HAVE NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT
INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION,
YOU SHOULD NOT RELY ON IT. WE ARE NOT, AND THE UNDERWRITERS ARE NOT, MAKING AN
OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS
NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, AS WELL AS INFORMATION WE PREVIOUSLY
FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION AND WITH THE SECURITIES
COMMISSIONS IN EACH OF THE PROVINCES OF CANADA AND INCORPORATED BY REFERENCE, IS
ACCURATE AS OF ITS RESPECTIVE DATE ONLY. OUR BUSINESS, FINANCIAL CONDITION,
RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THOSE DATES.
In this prospectus supplement, all capitalized terms used and not
otherwise defined herein have the meanings provided in the prospectus. In this
prospectus supplement, the prospectus and any document incorporated by
reference, unless otherwise specified or the context otherwise requires, all
dollar amounts are expressed in Canadian dollars, and all financial information
is determined using generally accepted accounting principles which are in effect
from time to time in Canada ("Canadian GAAP"). "U.S. GAAP" means generally
accepted accounting principles which are in effect from time to time in the
United States. For a discussion of the principal differences between our
financial results as calculated under Canadian GAAP and under U.S. GAAP, you
should refer to Note 15 of our audited consolidated financial statements for the
year ended December 31, 2003, incorporated by reference in the prospectus as
well as to the U.S. GAAP reconciliation for our unaudited comparative financial
statements for the three months ended March 31, 2004 which is included as an
exhibit to the registration statement of which the prospectus forms a part.
Unless otherwise specified or the context otherwise requires, all references in
this prospectus supplement and the prospectus to "Precision", "we", "us" and
"our" mean Precision Drilling Corporation and its consolidated subsidiaries and
partnerships. In the sections entitled "Description of the Notes" in this
prospectus supplement and "Description of Debt Securities" in the prospectus,
"we", "us", "our" or "Precision" refers only to Precision Drilling Corporation
and not any of its subsidiaries or interests in partnerships and other entities.
This prospectus supplement is deemed to be incorporated by reference
into the accompanying prospectus solely for the purposes of the offering of the
notes offered hereby. Other documents are also incorporated or deemed to be
incorporated by reference into the prospectus. See "Where You Can Find More
Information" in the prospectus.
The information concerning the land drilling business assets we
acquired from GlobalSantaFe Corporation and the information concerning Reeves
Oilfield Services Ltd. contained herein has been derived from information
provided by GlobalSantaFe and Reeves or the public disclosure filings of
GlobalSantaFe and Reeves. We have no reason, based on our investigations, to
question the material accuracy of this information or to believe that there are
material omissions therefrom. However, neither we nor the underwriters assume
any responsibility for the accuracy or completeness of this information.
ANY STATEMENT CONTAINED IN THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING
PROSPECTUS OR ANY DOCUMENT INCORPORATED OR DEEMED TO BE INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS FOR
THE PURPOSE OF THE OFFERING OF THE NOTES OFFERED HEREBY SHALL BE DEEMED TO BE
MODIFIED OR SUPERSEDED TO THE EXTENT THAT A STATEMENT CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR IN ANY OTHER SUBSEQUENTLY FILED DOCUMENT THAT ALSO IS
OR IS DEEMED TO BE INCORPORATED BY REFERENCE IN THE PROSPECTUS MODIFIES OR
SUPERSEDES THAT STATEMENT. ANY STATEMENT SO MODIFIED OR SUPERSEDED SHALL NOT BE
DEEMED, EXCEPT AS SO MODIFIED OR SUPERSEDED, TO CONSTITUTE PART OF THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THE MODIFYING OR SUPERSEDING STATEMENT
NEED NOT STATE THAT IT HAS MODIFIED OR SUPERSEDED A PRIOR STATEMENT OR INCLUDE
ANY INFORMATION SET FORTH IN THE DOCUMENT WHICH IT MODIFIES OR SUPERSEDES.
S-2
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Exchange Rate Data............................................. S-4
Summary of the Offering........................................ S-5
Forward-Looking Statements..................................... S-6
Risk Factors................................................... S-7
Precision Drilling Corporation................................. S-8
Recent Developments............................................ S-10
Use of Proceeds................................................ S-13
Selected Consolidated Financial and Operating Information...... S-14
Consolidated Capitalization.................................... S-16
Credit Ratings................................................. S-16
Interest Coverage.............................................. S-17
Description of the Notes....................................... S-18
Certain Income Tax Consequences................................ S-21
Underwriting................................................... S-25
Legal Matters.................................................. S-26
Experts........................................................ S-26
PROSPECTUS
About this Prospectus..................................... 2
Where You Can Find More Information....................... 2
Forward-Looking Statements................................ 5
Risk Factors.............................................. 6
Precision Drilling Corporation............................ 9
Use of Proceeds........................................... 9
Interest Coverage......................................... 9
Description of Debt Securities............................ 10
Description of Share Capital.............................. 22
Plan of Distribution...................................... 23
Certain Income Tax Considerations......................... 23
Legal Matters............................................. 24
Experts................................................... 24
Documents Filed as Part of the Registration Statement..... 24
Consent of KPMG LLP....................................... 25
S-3
EXCHANGE RATE DATA
We publish our consolidated financial statements in Canadian dollars.
Unless otherwise specified or the context otherwise requires, all dollar amounts
are expressed herein in Canadian dollars, references to "dollars" or "$" are to
Canadian dollars and references to "US$" are to United States dollars.
The following table sets forth certain exchange rates based on the noon
buying rate in The City of New York for cable transfers in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of New York (the
"noon buying rate"). These rates are set forth as United States dollars per
Canadian dollar and are the inverse of rates quoted by the Federal Reserve Bank
of New York. On May 25, 2004, the inverse of the noon buying rate was US$0.7266
equals $1.00.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ---------
2001 2002 2003 2003 2004
---- ---- ---- ---- ----
High....... 0.6697 0.6619 0.7738 0.6822 0.7780
Low........ 0.6241 0.6200 0.6349 0.6349 0.7418
Average(1). 0.6457 0.6369 0.7136 0.6623 0.7585
-----------
(1) The average of the inverse of the noon buying rate on the last day of each
month during the applicable period.
S-4
SUMMARY OF THE OFFERING
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION ABOUT US, THE NOTES WE ARE SELLING IN THIS OFFERING AND THE
ADDITIONAL DOCUMENTS INCORPORATED BY REFERENCE IN THE PROSPECTUS.
ISSUER......................... Precision Drilling Corporation
NOTES OFFERED.................. US$300,000,000 in principal amount of 5.625%
Notes due 2014.
MATURITY DATE.................. June 1, 2014.
INTEREST....................... 5.625% per annum, payable semi-annually in
arrears on June 1 and December 1, commencing
on December 1, 2004.
RANKING........................ The notes will be our unsecured and
unsubordinated obligations and will rank
equally with all of our other unsecured and
unsubordinated obligations. The notes will be
effectively subordinate to all existing and
future indebtedness and other liabilities of
any of our subsidiaries and partnerships. As
of March 31, 2004, the notes would have been
effectively subordinate to approximately
$304.1 million of indebtedness and other
liabilities (including trade payables) of our
subsidiaries and partnerships.
REDEMPTION..................... We may redeem some or all of the notes at any
time at the redemption prices described in
this prospectus supplement. See "Description
of the Notes--Optional Redemption" in this
prospectus supplement. We may also redeem all
of the notes at the redemption prices
described in the accompanying prospectus at
any time in the event certain changes
affecting Canadian withholding taxes occur.
See "Description of Debt Securities--Tax
Redemption" in the prospectus.
FORM AND DENOMINATIONS......... The notes will be represented by one or more
fully registered global securities
("Registered Global Securities") registered
in the name of a nominee of The Depository
Trust Company. Beneficial interests in any
Registered Global Security will be in
denominations of US$1,000 and integral
multiples thereof. Except as described under
"Description of the Notes" in this prospectus
supplement and "Description of Debt
Securities" in the prospectus, notes in
definitive form will not be issued.
ADDITIONAL AMOUNTS............. We will make payments on the notes without
withholding or deduction for Canadian taxes
unless required to be withheld or deducted by
law or the interpretation or administration
thereof in which case, subject to certain
exceptions, we will pay such additional
amounts as may be necessary so that the net
amount received by holders of the notes after
such withholding or deduction will not be
less than the amount that such holders would
have received in the absence of such
withholding or deduction. See "Description of
Debt Securities-- Additional Amounts" in the
prospectus.
USE OF PROCEEDS................ We intend to use the net proceeds of this
offering primarily to repay a portion of the
indebtedness incurred to finance the
acquisitions of the land drilling business
assets of GlobalSantaFe Corporation and all
of the outstanding shares of Reeves Oilfield
Services Ltd. See "Use of Proceeds" in this
prospectus supplement.
GOVERNING LAW.................. The notes and the indenture governing the
notes will be governed by the laws of the
State of New York.
S-5
FORWARD-LOOKING STATEMENTS
Certain statements included in this prospectus supplement, the
prospectus and the documents incorporated by reference therein constitute
forward looking statements within the meaning of the United States PRIVATE
SECURITIES LITIGATION REFORM ACT of 1995 relating to, but not limited to, our
operations, anticipated financial performance, business prospects and
strategies. Forward looking statements typically contain statements with words
such as "could", "should", "expect", "estimate", "likely", "believe", "will" and
similar expressions, including, but not limited to, statements as to: future
capital expenditures, including the amount and nature thereof; oil and gas
prices and demand; expansion and other development trends of the oil and gas
industry; business strategy; expansion and growth of our business and
operations, including our market share and position in the domestic and
international drilling markets; and beliefs, plans, objectives, assumptions or
statements about future events or performance.
You are cautioned not to place undue reliance on forward looking
statements. By their nature, forward looking statements involve numerous
assumptions, inherent risks and uncertainties, both general and specific, that
contribute to the possibility that the predicted outcomes will not occur. These
factors include, but are not limited to:
o general economic, business and market conditions including
stock market volatility;
o volatility of crude oil, natural gas and natural gas liquids
prices;
o fluctuations in currency and interest rates;
o competition;
o risks inherent in foreign operations, including political and
economic risk;
o risks of war, hostilities, civil insurrection and terrorist
threats;
o fluctuations in the level of oil and gas exploration and
development activities;
o fluctuations in the demand for well servicing, contract
drilling, directional drilling, well logging and ancillary
oilfield services;
o technological changes and developments in the oil and gas
industry;
o the ability of oil and gas companies to raise capital;
o the effects of severe and seasonal weather conditions on
operations and facilities;
o the existence of operating risks inherent in well servicing,
contract drilling, directional drilling, well logging and
ancillary oilfield services;
o political circumstances impeding the progress of work in any
of the countries in which we do business;
o identifying and acquiring suitable acquisition targets on
reasonable terms;
o changes in laws or regulations, including taxation,
environmental and currency regulations;
o our ability to integrate and manage acquired businesses;
o the lack of availability of qualified personnel or management;
o the availability of supplies and the reliability of components
used in our manufacturing processes;
o our ability to either generate sufficient cash flow to meet
current and future obligations or to obtain external debt or
equity financing;
o our ability to make capital investments and the amounts
thereof; and
o risks associated with existing and potential future lawsuits
and regulatory actions against us.
We caution that the foregoing list of important factors is not
exhaustive. Events or circumstances could cause our actual results to differ
materially from those estimated or projected and expressed in, or implied by,
these forward looking statements. You should also carefully consider the matters
discussed under "Risk Factors" in this prospectus supplement and the
accompanying prospectus. We do not undertake any obligation to update publicly
or otherwise revise any forward looking statements, whether as a result of new
information, future events or otherwise, or the foregoing list of factors
affecting this information.
S-6
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS SET FORTH BELOW AS WELL
AS THE OTHER INFORMATION CONTAINED IN AND INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS BEFORE PURCHASING THE
NOTES. IF ANY EVENT ARISING FROM THESE RISKS OCCURS, OUR BUSINESS, PROSPECTS,
FINANCIAL CONDITION, RESULTS OF OPERATIONS OR CASH FLOWS COULD BE MATERIALLY
ADVERSELY AFFECTED. ADDITIONAL RISKS AND UNCERTAINTIES NOT CURRENTLY KNOWN TO US
OR THAT WE CURRENTLY DEEM TO BE IMMATERIAL MAY ALSO MATERIALLY ADVERSELY AFFECT
OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOWS. CERTAIN
STATEMENTS UNDER THIS CAPTION CONSTITUTE FORWARD LOOKING STATEMENTS. SEE
"FORWARD LOOKING STATEMENTS."
STRUCTURAL SUBORDINATION OF THE NOTES
In the event of a bankruptcy, liquidation or reorganization of any of
our subsidiaries or partnerships, holders of their indebtedness and their trade
creditors will generally be entitled to payment of their claims from the assets
of those subsidiaries and partnerships before any assets are made available for
distribution to us. As of March 31, 2004, the notes would have been effectively
subordinate to approximately $304.1 million of indebtedness and other
liabilities (including trade payables) of our subsidiaries and partnerships. The
Indenture governing the notes does not limit the ability of our subsidiaries and
partnerships to incur secured or unsecured indebtedness. Our subsidiaries and
partnerships generated 100% of our consolidated revenues in the three month
period ended March 31, 2004 and held 98% of our consolidated assets as of March
31, 2004.
NO PRIOR PUBLIC MARKET FOR THE NOTES
Prior to this offering, there was no public market for the notes. We
have been informed by the underwriters that they intend to make a market in the
notes after this offering is completed. However, the underwriters may cease
their market making at any time. In addition, the liquidity of the trading
market in the notes, and the market price quoted for the notes, may be adversely
affected by changes in the overall market for debt securities and by changes in
our financial performance or prospects or in the prospects for companies in our
industry generally. As a result, purchasers of notes cannot be sure that an
active trading market will develop for the notes.
S-7
PRECISION DRILLING CORPORATION
We provide oilfield and industrial services to customers in Canada, the
United States and other international regions. Our principal business is the
provision of land drilling services to oil and gas exploration and production
companies. We are the leading provider in Canada of land drilling services based
on the number of wells and metres drilled. Additionally, we provide the
following: well service rigs and hydraulic well assist snubbing units;
procurement and distribution of oilfield supplies; camp and catering services;
manufacture, sale and repair of drilling equipment; open hole logging, cased
hole logging and completion services, slickline services, directional drilling
services; measurement-while-drilling ("MWD") and logging-while-drilling services
("LWD"); the manufacture, rental and sale of polycrystalline diamond compact
drill bits; controlled pressure drilling services and well testing; rental of
mobile combination office and industrial housing; rental of surface oilfield
equipment for drilling, completion and production activities; and we also
provide industrial maintenance and turnaround services, including specialized
equipment and labour services, to downstream oil and gas, petrochemical and
other process industry customers.
We have grown primarily through a series of acquisitions of related
businesses as well as reinvestment in our core businesses to become the largest
Canadian integrated oilfield service contractor. We have reinvested cash flow
from operations to grow our service and product offerings. In 2003, we derived
70% of our revenue from the Canadian market.
Our operations are managed in three segments consisting of:
o Contract Drilling which includes drilling rigs, service rigs,
hydraulic well assist snubbing units, camp and catering
services, procurement and distribution of oilfield supplies,
and manufacture, sale and repair of drilling equipment;
o Technology Services which includes wireline logging services,
slickline services, directional drilling, MWD and LWD
services, controlled pressure drilling, well testing, and the
design and manufacture of polycrystalline diamond compact
("PDC") drill bits; and
o Rental and Production which includes oilfield equipment rental
services and industrial maintenance.
Our revenue by industry and geographic segments are illustrated in the
following tables.
YEARS ENDED DECEMBER 31, (000s)
-------------------------------
2001 2002 2003
---- ---- ----
Contract Drilling........ $ 1,004,265 $ 770,147 $ 992,824
Technology Services...... 614,152 603,088 714,385
Rental and Production.... 194,567 192,840 210,724
Corporate and other...... 2,224 1,431 --
------------- ------------- -------------
Total Revenue............ $ 1,815,208 $ 1,567,506 $ 1,917,933
============= ============= =============
YEARS ENDED DECEMBER 31, (000s)
-------------------------------
2001 2002 2003
---- ---- ----
Canada......... $ 1,320,989 $ 1,022,489 $ 1,349,565
International.. 494,219 545,017 568,368
------------- ------------- -------------
Total.......... $ 1,815,208 $ 1,567,506 $ 1,917,933
============= ============= =============
CONTRACT DRILLING
Contract Drilling consists of three main categories of operations;
Canadian Contract Drilling, which includes contract drilling support,
International Drilling and Canadian Well Servicing.
S-8
Revenue generated by these operations is as follows:
YEARS ENDED DECEMBER 31, (000s)
-------------------------------
2001 2002 2003
---- ---- ----
REVENUE % REVENUE % REVENUE %
------- - ------- - ------- -
Canadian Contract Drilling $ 661,659 66% $ 474,051 61% $ 654,572 66%
International Drilling.. 113,404 11% 105,108 14% 114,131 11%
Canadian Well Servicing. 229,202 23% 190,988 25% 224,121 23%
---------- --- --------- --- --------- ---
$1,004,265 100% $ 770,147 100% $ 992,824 100%
========== === ========= === ========= ===
CANADIAN CONTRACT DRILLING
We own and operate the largest fleet of land drilling rigs in Canada
with 225 actively marketed rigs (41 of which are electrically powered) located
throughout the Western Canada Sedimentary Basin, accounting for approximately
33% of the actively marketed land drilling rigs in Canada. During 2003, we
achieved a utilization rate of 52.0% for our drilling rigs compared to the
average industry utilization rate in Canada of 53.1%. We drilled 8,451
exploration and development wells, accounting for 40.8% of industry wells in
western Canada.
INTERNATIONAL DRILLING
Our international drilling operations which are carried out through
various international subsidiaries, are focused on expansion into countries
where drilling opportunities fit our niche capabilities, and where we can attain
a strategic position in the near to medium term. In 2003, we operated 19 rigs in
Mexico, South America, the Middle East and the Asia/Pacific region.
CANADIAN WELL SERVICING
We have 239 well service rigs, the largest well service fleet in
Canada. Our diverse workover rig fleet is capable of performing service and
completion jobs in any depth range, including heavy oil wells as well as
horizontal re-entry drilling. Our service rigs are used for (i) completion
services to prepare a newly drilled well for production; (ii) workovers to,
among other things, restore or enhance production from a well, make subsurface
repairs such as casing repair or replacement, enable recovery of tubing and
removal of foreign objects, such as lost tools, in the wellbore; and (iii) well
maintenance services to ensure continuous and efficient operation of producing
wells.
TECHNOLOGY SERVICES
Technology Services carries on business through three main business
lines: wireline, directional drilling and separation services. Wireline includes
cased hole, open hole and slickline services. Directional drilling includes MWD,
LWD, directional drilling and rotary steerable services. Separation services
include well testing and controlled pressure drilling (which includes
underbalanced drilling services).
Revenue generated by Technology Services operations is as follows:
YEARS ENDED DECEMBER 31, (000s)
-------------------------------
2001 2002 2003
---- ---- ----
REVENUE % REVENUE % REVENUE %
------- - ------- - ------- -
Wireline.......... $ 308,569 50% $ 227,497 38% $ 298,568 42%
Directional
Drilling.......... 175,614 29% 178,675 29% 223,442 31%
Separation Services 85,530 14% 100,670 17% 95,426 13%
Other............. 44,439 7% 96,246 16% 96,949 14%
---------- --- --------- --- ---------- ---
$ 614,152 100% $ 603,088 100% $ 714,385 100%
========== === ========= === ========== ===
WIRELINE
Our wireline services are offered from numerous locations throughout
the world. The provision of wireline services is divided into open hole
services, cased hole services and slickline services. At our Fort Worth, Texas
facility we design, assemble and service open hole and cased hole logging tools
and surface equipment. We provide wireline and slickline services with 39 open
hole units, 175 cased hole units, 10 combination open/cased hole units, 14
slickline
S-9
and six combination slickline/cased hole units deployed from our service centres
in Canada, the United States, Mexico and other international regions.
DIRECTIONAL DRILLING
We supply specialized equipment including MWD, LWD, rotary steerable
systems and drilling motors along with experienced personnel for directional and
horizontal drilling operations. Those services are available for directional
control, slant well drilling, single and multi-lateral horizontal wells and
other directional applications. Our directional drilling equipment is engineered
and assembled in Edmonton, Alberta and our MWD and LWD tools are manufactured
and assembled in Houston, Texas.
SEPARATION SERVICES
We provide separation services, well testing and controlled pressure
drilling services to oil and gas producers. Our controlled pressure drilling
services are provided from facilities in Canada, the United States, Mexico,
South America, Europe/Africa, the Middle East and Asia/Pacific. We also sell and
rent drill bits into the Canadian market and selected international markets.
RENTAL AND PRODUCTION
Revenue generated by Rental and Production operations is as follows:
YEARS ENDED DECEMBER 31, (000s)
-------------------------------
2001 2002 2003
---- ---- ----
Rental Services....... $ 42,290 $ 24,469 $ 36,478
Production Services... 152,277 168,371 174,246
----------- ----------- -----------
$ 194,567 $ 192,840 $ 210,724
=========== =========== ===========
RENTAL SERVICES
Our rental services component of the Rental and Production segment
provides a wide array of rental products and services, including surface,
drilling, completion and production equipment; tubular and well control
equipment; and field and well site accommodations. We maintain an inventory of
rental equipment including storage tanks, high and low pressure oil and gas
separators, sump and shale tanks and related equipment. Our field and well site
accommodation business consists of a fleet of approximately 281 fully equipped
and furnished units. Our tubular and well control business consists of the
rental of specialized drilling equipment (approximately 10,000 joints of
specialty drill pipe and collars and 4,000 handling tools, valves, kellys and
floats) to hydrocarbon producers and service and drilling rig contractors
engaged in the Canadian oil and gas industry.
PRODUCTION SERVICES
The production services component of this segment provides industrial
cleaning, catalyst handling and mechanical services, usually carried out in
large plants such as refineries, gas plants, petro-chemical facilities and the
pulp and paper industry. We operate a modern fleet of equipment that includes
portable dredges, dewatering centrifuges and oil-skimming equipment capable of
assisting companies in dealing with a variety of water-related maintenance
services.
RECENT DEVELOPMENTS
AGREEMENT TO PURCHASE THE LAND DRILLING BUSINESS ASSETS OF GLOBALSANTAFE
CORPORATION
We entered into an agreement (the "GSF Purchase Agreement") dated April
1, 2004, with GlobalSantaFe Corporation ("GSF") and certain of its subsidiaries
(the "GSF Group") whereby the GSF Group agreed to sell all of its land drilling
business assets to us for US$316.5 million. We closed this transaction on May
21, 2004.
The GSF land drilling business that we acquired is carried out in
Kuwait, Saudi Arabia, Egypt, Oman and Venezuela and consists of 31 drilling rigs
and associated inventory and equipment. Most of the 31 drilling rigs are greater
than 1,500 horsepower rigs. The location of the drilling rigs is as follows: 12
rigs in Kuwait; 4 rigs in Saudi Arabia; 4 rigs in Egypt; 3 rigs in Oman; and 8
rigs in Venezuela. For the 12 month period ended December 31, 2003, the GSF land
drilling business assets that we acquired generated revenue of approximately
US$93.6 million.
S-10
In addition to the 31 drilling rigs and associated inventory and
equipment, we also acquired the infrastructure necessary to continue carrying on
GSF's land drilling business, including retaining most of the employees in the
GSF land drilling business, and taking over available drilling contracts and
leased premises pertaining to the GSF land drilling business. We also entered
into a transition services agreement whereby GSF will provide transitional
services to us to provide a smooth transition of GSF's land drilling business.
The following is a summary of the acquired GSF land drilling business
in each of the countries where it operates:
KUWAIT
GSF drills for the state owned Kuwait Oil Company. GSF has three 3,000
horsepower rigs working in Kuwait. These rigs are high horsepower rigs which are
suited for deep drilling. GSF also has four 1,500 horsepower rigs, two 1,250
horsepower rigs and three 750 horsepower rigs in Kuwait.
SAUDI ARABIA
GSF has three 3,000 horsepower rigs and one 1,700 horsepower rig in
Saudi Arabia. Saudi Aramco is the primary customer of GSF in Saudi Arabia.
OMAN
GSF has two 1,000 horsepower rigs and one 750 horsepower rig in Oman.
As Oman oil reserves are shallower than other countries in the region, these
smaller rigs are more suitable for the exploration and development drilling
which is carried out in Oman. The two 1,000 horsepower rigs are currently under
long term contracts which are in place until October 2007.
EGYPT
GSF has three 2,000 horsepower rigs and one workover rig in Egypt.
Although oil production has declined in Egypt since 1996, natural gas production
is growing in importance and there are two liquid natural gas facilities under
construction.
VENEZUELA
GSF has two 3,000 horsepower rigs and six 2,000 horsepower rigs in
Venezuela. Although Venezuela has extensive oil and gas reserves, Venezuela's
exploration efforts have been substantially hindered by political unrest for the
last two years and, as a result, GSF's eight drilling rigs in Venezuela have
been, for the most part, idle over the last two year period. Although political
uncertainty continues in Venezuela, there have been recent signs of increasing
oil and gas drilling activity. At this time, we have four rigs of our own in
Venezuela, all of which are under 1,000 horsepower. With the acquisition of the
additional eight large horsepower rigs of GSF, we will have a good mix of large
and smaller horsepower rigs in Venezuela which should put us in a favourable
position when oil and gas activity increases in Venezuela.
ACQUISITION OF REEVES OILFIELD SERVICES LTD.
We entered into an agreement with 3i Group PLC and certain other
shareholders of Reeves Oilfield Services Ltd. ("Reeves"), a United Kingdom
registered company, to make an offer to purchase all of the issued and
outstanding shares (the "Reeves Shares") of Reeves (the "Reeves Takeover
Offer"). Certain managers of Reeves and 3i Group PLC, together holding 73.6% of
the Reeves Shares, agreed to tender their Reeves Shares pursuant to the Reeves
Takeover Offer.
One of the conditions of the Reeves Takeover Offer was that at least 90% of
the Reeves Shares be tendered on or before June 10, 2004 or such later date as
agreed between the parties (the "Reeves Condition"). The Reeves Condition was
met and as of May 18, 2004, a total of 99.7% of the Reeves Shares were tendered
and paid for. Upon completion of the purchase of 100% of the Reeves Shares, the
total purchase price will amount to (pound)92.4 million (US$164.9 million based
on an exchange rate of US$1.00: (pound)0.5605). In acquiring the Reeves Shares,
we assumed a positive consolidated net cash position of approximately (pound)4.0
million taking into account outstanding operating bank loans.
For the 12 month period ended March 31, 2004, Reeves generated revenue
of US$73.7 million (based on an average exchange rate of US$1.00:
(pound)0.5848), US$23.0 million of which was generated from Reeves' Canadian
operations.
S-11
THE REEVES BUSINESS
Reeves is an international provider of open hole and cased hole logging
services to the oil and gas industry. The headquarters of Reeves is in East
Leake, Leicestershire, England and Reeves carries out field operations through
five principal operating companies in the following geographic areas:
o the western region of the United States (including Alaska and
California) through Reeves Wireline Services Inc.;
o the Appalachian region of the United States, through Allegheny
Wireline Services Inc.;
o western Canada, through Reeves Wireline Services (Canada)
Ltd.;
o Australia, through Reeves Wireline Services (Australia) Pty
Ltd. and Reeves Wireline Services (New Zealand) Ltd.; and
o Europe, the Middle East and Africa through various branches of
Reeves Wireline Services Ltd. (a United Kingdom company).
All of these operating companies (the "Reeves Operating Companies") are
directly or indirectly owned 100% by Reeves, with the exception of Allegheny
Wireline Services Inc., which is 56.5% owned by Reeves.
Another wholly owned Reeves subsidiary, Reeves Wireline Technologies Limited
(referred to herein as "RWTL"), a United Kingdom corporation, is responsible for
design and manufacture of the logging equipment used by Reeves and the Reeves
Operating Companies, which provides a smaller diameter, lighter weight, shorter
length suite of logging tools, compared to most competitors' conventional
logging tools. The compact tool system can utilize smaller winches, smaller
trucks and require fewer personnel to operate.
S-12
USE OF PROCEEDS
The net proceeds to us from this offering will be approximately
US$297,105,000, after deducting the underwriting commission and the estimated
expenses payable by us of approximately US$330,000. We will use the net proceeds
primarily to repay a portion of the indebtedness incurred to finance the
acquisitions of the land drilling business assets of GlobalSantaFe Corporation
and all of the outstanding shares of Reeves Oilfield Services Ltd. See "Recent
Developments".
S-13
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The following table sets forth our selected consolidated financial
information for the years ended December 31, 2001, 2002 and 2003 derived from
our audited consolidated financial statements which have been audited by KPMG
LLP and our unaudited consolidated financial statements for the three months
ended March 31, 2003 and 2004, which have been incorporated by reference into
the prospectus supplement. Our consolidated financial statements are prepared in
accordance with Canadian GAAP, which differs in certain respects from U.S. GAAP.
For a discussion of the principal differences between our financial results as
calculated under Canadian GAAP and under U.S. GAAP, you should refer to Note 15
of our consolidated financial statements for the year ended December 31, 2003,
incorporated by reference into the prospectus as well as to the U.S. GAAP
reconciliation for our unaudited comparative financial statements for the three
months ended March 31, 2004 which is included as an exhibit to the registration
statement of which the prospectus forms a part. You should read this selected
consolidated financial information in conjunction with our audited consolidated
financial statements and the related notes and management's discussion and
analysis for the year ended December 31, 2003 and our unaudited consolidated
interim financial statements and management's discussion and analysis for the
three months ended March 31, 2004, which are incorporated by reference in the
prospectus. Historical results are not necessarily indicative of the results
that may be expected for any future periods.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------- -----------------------
(MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS) 2003 2004 2001 2002 2003
---------------------------------------------- ---- ---- ---- ---- ----
(UNAUDITED)
INCOME STATEMENT:
Revenue
Contract Drilling...................... $ 335.3 $ 387.3 $ 1,004.2 $ 770.1 $ 992.8
Technology Services.................... 203.0 227.2 614.2 603.2 714.4
Rental and Production.................. 49.7 50.7 194.6 192.8 210.7
Corporate and Other.................... -- -- 2.2 1.4 --
-------- -------- --------- --------- ---------
588.0 665.2 1,815.2 1,567.5 1,917.9
-------- -------- --------- --------- ---------
Expenses
Operating.............................. 376.0 387.9 1,138.2 1,094.7 1,273.5
General and administrative............. 35.2 42.8 143.5 144.5 136.7
Depreciation and amortization.......... 48.9 49.7 139.3 133.4 170.8
Research and engineering............... 8.9 11.3 31.7 34.9 42.4
Foreign exchange....................... 0.1 0.3 0.7 4.4 (2.6)
-------- -------- --------- --------- ---------
469.1 492.0 1,453.4 1,411.9 1,620.8
-------- -------- --------- --------- ---------
Operating earnings........................ 118.9 173.2 361.8 155.6 297.1
Net interest expense...................... 9.3 8.2 43.1 35.1 35.1
Dividend Income........................... -- -- (1.1) -- --
Gain on disposal of investments........... -- -- (1.8) (0.9) (3.4)
Income taxes.............................. 35.2 56.7 114.5 30.7 72.5
Earnings from continuing operations
before non-controlling interest and
goodwill amortization.................. 74.4 108.3 207.2 90.7 192.9
Non-controlling interest.................. 0.3 0.9 0.9 1.2 1.8
-------- -------- --------- --------- ---------
Earnings from continuing operations
before goodwill amortization........... 74.1 107.4 206.3 89.5 191.1
Goodwill amortization, net of tax......... -- -- 30.6 -- --
Earnings from continuing operations....... 74.1 107.4 175.7 89.5 191.1
Discontinued operations, net of tax....... 9.0 (6.9) 10.8 1.8 (2.4)
-------- -------- --------- --------- ---------
Net Earnings.............................. $ 83.1 $ 100.5 $ 186.5 $ 91.3 $ 188.7
======== ======== ========= ========= =========
EPS from continuing operations............
Basic.................................. $ 1.37 $ 1.94 $ 3.31 $ 1.67 $ 3.51
Diluted................................ $ 1.34 $ 1.91 $ 3.23 $ 1.63 $ 3.46
CASH FLOW STATEMENT:
Cash flow from operations................. $ (19.8) $ 74.0 $ 432.2 $ 199.2 $ 258.4
Net capital expenditures(1)............... $ 72.5 $ 49.0 $ 340.7 $ 239.5 $ 290.5
OTHER FINANCIAL DATA:
EBITDA(2)................................. $ 167.8 $ 222.9 $ 501.1 $ 289.0 $ 467.9
S-14
AS AT AS AT
MARCH 31, DECEMBER 31,
--------- ------------
2004 2002 2003
---- ---- ----
(UNAUDITED)
BALANCE SHEET ITEMS:
Cash...................... 20.2 17.3 21.4
Total assets.............. 3,020.3 2,760.0 2,908.4
Bank indebtedness......... 79.1 95.3 147.9
Long-term debt............ 404.6 542.0 416.6
Non-controlling interest.. 4.6 2.0 3.8
Shareholders' equity...... 1,878.4 1,533.0 1,745.3
----------
(1) Excludes business acquisitions, but includes proceeds from the sale of
property, plant and equipment.
(2) EBITDA represents net earnings from operations, before depreciation and
amortization, net interest expense, dividend income, gain on disposal of
investments, income taxes, non-controlling interest, goodwill amortization,
net of tax, and discontinued operations, net of tax. EBITDA is presented
because we believe it is a useful measure of our operating performance.
However, EBITDA is not a measure of operating performance or liquidity under
Canadian GAAP or U.S. GAAP and should not be considered as an alternative to
net cash flow from operations as a measure of our liquidity or as
alternative to net earnings as an indicator of our operating performance or
any other measure of performance in accordance with Canadian GAAP or U.S.
GAAP. EBITDA, as we use the term herein, may not be comparable to EBITDA as
reported by other companies. A reconciliation of EBITDA to operating
earnings is set forth below. The numerical information required to reconcile
operating earnings to net earnings is set forth as part of the selected
income statements above.
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
----------------- --------------------------
2003 2004 2001 2002 2003
---- ---- ---- ---- ----
(UNAUDITED)
EBITDA..................... $ 167.8 $ 222.9 $ 501.1 $ 289.0 $ 467.9
Subtract:
Depreciation and
amortization............... $ 48.9 $ 49.7 $ 139.3 $ 133.4 $ 170.8
-------- -------- -------- -------- --------
Operating earnings......... $ 118.9 $ 173.2 $ 361.8 $ 155.6 $ 297.1
======== ======== ======== ======== ========
SELECTED OPERATING INFORMATION
The following table sets forth certain operating information for our
Canadian drilling operations for the three months ended March 31, 2003 and 2004.
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------------
2003 2004
------------------------------------- ------------------------------------
MARKET MARKET
PRECISION INDUSTRY(1) SHARE % PRECISION INDUSTRY(1) SHARE %
--------- ----------- ------- --------- ----------- -------
Number of drilling rigs........ 225 648 34.7 226 679 33.3
Number of operating days (spud to
release)..................... 14,641 42,024 34.8 14,768 45,189 32.7
Wells drilled.................. 2,281 5,383 42.4 2,283 6,159 37.1
Average days per well.......... 6.4 7.8 6.5 7.3
Metres drilled (000s).......... 2,391 5,950 40.2 2,571 7,087 36.3
Average metres per day......... 163 142 174 157
Average metres per well........ 1,048 1,105 1,126 1,151
Rig utilization rate (%)....... 72.3 72.1 71.9 73.2
-------------
(1) Excludes non-Canadian Association of Oil Well Drilling Contractors rigs.
S-15
CONSOLIDATED CAPITALIZATION
The following table summarizes our consolidated capitalization as at
March 31, 2004: (i) on an actual basis, (ii) on a proforma basis to give effect
to the indebtedness incurred to finance the acquisitions of the land drilling
business assets of GlobalSantaFe and all of the outstanding shares of Reeves,
and (iii) on a proforma as adjusted basis to give effect to the incurrence of
the indebtedness described in (ii) as well as the issuance of the notes and the
application of the net proceeds as described under "Use of Proceeds". You should
read this table together with our unaudited comparative consolidated financial
statements for the three month period ended March 31, 2004 which are
incorporated by reference in the prospectus.
MARCH 31, 2004
---------------------------------------------------
PROFORMA AS
ACTUAL PROFORMA ADJUSTED
------ -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(TABULAR AMOUNTS IN 000's EXCEPT NUMBER OF SHARES)
Operating Bank Loans(1)............................... $ 79,077 $ 731,174 $ 322,268
Long-term Debt
6.85% Series 1 debentures maturing June 26,
2007............................................. 200,000 200,000 200,000
7.65% Series 2 debentures maturing October 27,
2010............................................. 150,000 150,000 150,000
Notes offered by this prospectus.................... -- -- 412,890
EDC term facility maturing September 15, 2005....... 26,400 26,400 26,400
EDC extendable facility maturing October 24,
2004............................................. 27,922 27,922 27,922
Capital lease obligations........................... 268 268 268
--------------- --------------- ---------------
Total Long-term Debt.................................. $ 404,590 $ 404,590 $ 817,480
--------------- --------------- ---------------
Total Debt............................................ $ 483,667 $ 1,135,764 $ 1,139,748
--------------- --------------- ---------------
Shareholders' Equity(2)
Contributed Surplus................................. $ 15,766 $ 15,766 $ 15,766
Common Shares....................................... 967,830 967,830 967,830
(55,753,494 (55,753,494 (55,753,494
shares) shares) shares)
--------------- --------------- ---------------
Retained Earnings................................... 894,798 894,798 894,798
--------------- --------------- ---------------
Total Shareholders' Equity............................ $ 1,878,394 $ 1,878,394 $ 1,878,394
--------------- --------------- ---------------
Total Capitalization.................................. $ 2,362,061 $ 3,014,158 $ 3,018,142
=============== =============== ===============
-----------------
(1) Our operating bank loans consist of (i) a $350,000,000 syndicated extendable
unsecured credit facility (ii) a $33,000,000 (US$25,000,000) revolving
unsecured credit loan facility bearing interest at the bank's prime lending
rate less 75 basis points, and (iii) a $400,000,000 unsecured bridge
financing facility entered into to fund the acquisitions. As at March 31,
2004, we were entitled to borrow a total of $783 million under these
facilities.
(2) Based on the noon buying rate on May 25, 2004, which was US$1.00 equals
$1.3763.
(3) Additionally, there are options outstanding as of March 31, 2004, to
purchase 2,546,603 common shares at prices ranging from $16.30 to $65.90.
CREDIT RATINGS
The notes have been assigned a rating of "BBB+" by Standard & Poor's
Ratings Services ("S&P") and a rating of "BBB" by Dominion Bond Rating Service
Limited ("DBRS"). Credit ratings are intended to provide investors with an
independent measure of credit quality of any issue of securities. The credit
ratings accorded to the notes by the rating agencies are not recommendations to
purchase, hold or sell the notes inasmuch as such ratings do not comment as to
market price or suitability for a particular investor. Any rating may not remain
in effect for any given period of time or may be revised or withdrawn entirely
by a rating agency in the future if in its judgement circumstances so warrant.
If any such rating is so revised or withdrawn, we are under no obligation to
update this prospectus supplement.
S&P's credit ratings are on a long-term debt rating scale that ranges
from AAA to D, which represents the range from highest to lowest quality of such
securities rated. A rating of BBB+ by S&P is the fourth highest of eleven
categories and, according to S&P indicates that the obligor has adequate
capacity to meet its financial commitments. However, adverse conditions or
changing circumstances are more likely to lead to a weakened capacity of the
obligor
S-16
to meet commitments. The addition of a plus (+) or minus (--) designation after
a rating indicates relative standing within a particular rating category.
DBRS' credit ratings are on a long-term debt rating scale that ranges
from AAA to D, which represents the range from highest to lowest quality of such
securities rated. A rating of BBB by DBRS is the fourth highest of nine
categories and, according to DBRS is assigned to debt securities of adequate
credit quality. Protection of interest and principal is considered acceptable
but the entity is fairly susceptible to adverse changes in financial and
economic conditions, or there may be other adverse conditions present which
reduce the strength of the entity and its rated securities.
INTEREST COVERAGE
The following sets forth interest coverage ratios calculated for the
twelve month period ended December 31, 2003 based on audited financial
information and for the twelve month period ended March 31, 2004 based on
unaudited financial information. The interest coverage ratios set out below have
been prepared and included in this prospectus supplement in accordance with
Canadian disclosure requirements and Canadian GAAP. The interest coverage ratios
set out below do not purport to be indicative of interest coverage ratios for
any future periods. The ratios are adjusted to give effect to the issuance of
the notes and the application of the net proceeds, as described under "Use of
Proceeds". For further information regarding interest coverage, reference is
made to "Interest Coverage" in the prospectus.
DECEMBER 31, MARCH 31,
2003 2004
------------ ---------
Interest coverage on long-term debt:
Net earnings................................... 4.87 times 5.63 times
Cash flow...................................... 5.91 times 7.91 times
Interest coverage on long-term debt on an earnings basis is equal to
net earnings before interest and income tax expense divided by interest expense.
Interest coverage on long-term debt on a cash flow basis is equal to cash flow
from operations before interest expense and current income tax expense divided
by interest expense. For purposes of calculating the interest coverage ratios
set forth in this prospectus, long-term debt includes the current portion of
long-term debt.
S-17
DESCRIPTION OF THE NOTES
The following description of the terms of the notes (referred to in the
prospectus as the "debt securities") supplements and, to the extent inconsistent
therewith, replaces the description set forth under "Description of Debt
Securities" in the prospectus and should be read in conjunction with such
description. Capitalized terms used but not defined in this prospectus
supplement have the meanings given to them in the prospectus. In this section
only, "we", "us", "our", or "Precision" refers only to Precision Drilling
Corporation and not to any of its subsidiaries or partnerships.
GENERAL
The notes initially will be issued in an aggregate principal amount of
US$300,000,000. The notes will mature on June 1, 2014. The notes will bear
interest at the rate of 5.625% per year. Interest will be payable semi-annually
on June 1 and December 1 of each year, commencing December 1, 2004, to the
persons in whose names the notes are registered at the close of business on the
preceding May 15 or November 15, respectively.
The notes will be our unsecured senior obligations and will rank
equally and ratably with all of our other unsecured senior indebtedness from
time to time outstanding. We conduct a substantial portion of our operations
through subsidiaries and partnerships. The notes will be structurally
subordinated to all existing and future liabilities (including trade payables)
and other indebtedness, of our subsidiaries and partnerships. At March 31, 2004,
our subsidiaries and partnerships had approximately $304.1 million of
indebtedness and other liabilities (including trade payables).
Payment of the principal, premium, if any, and interest on the notes
will be made in United States dollars. The notes will not be entitled to the
benefit of any sinking fund.
The provisions of the Indenture relating to the payment of Additional
Amounts in respect of withholding taxes in certain circumstances (described
under the caption "Description of Debt Securities--Additional Amounts" in the
accompanying prospectus) and the provisions of the Indenture relating to the
redemption of notes in the event of specified changes in withholding tax law on
or after the date of this prospectus supplement (described under the caption
"Description of Debt Securities--Tax Redemption" in the prospectus) will apply
to the notes.
We may from time to time without notice to, or the consent of, the
holders of the notes, create and issue additional notes under the Indenture.
Such additional notes will have the same terms as the notes offered hereby in
all respects (except for the payment of interest accruing prior to the issue
date of the new notes, and except for the first payment of interest following
the issue date of the new notes) so that the new notes may be consolidated and
form a single series with the notes. In the event that additional notes are
issued, we will prepare a new prospectus supplement.
We may issue debt securities and incur additional indebtedness other
than through the offering of securities pursuant to this prospectus supplement.
OPTIONAL REDEMPTION
The notes will be redeemable, in whole or in part, at our option at any
time at a redemption price equal to the greater of:
o 100% of the principal amount of the notes to be redeemed; and
o as determined by the Quotation Agent (as defined below), the
sum of the present values of the remaining scheduled payments
of principal and interest on the notes to be redeemed (not
including any portion of the payments of interest accrued to
the date of redemption), discounted to the redemption date on
a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate (as
defined below) plus 15 basis points,
in either case, plus accrued interest thereon to the date of redemption.
Notice of any redemption will be delivered by first-class mail at least
30 days, but not more than 60 days, before the redemption date to each holder of
the notes to be redeemed.
Unless we default in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the notes or portions of the
notes called for redemption.
"ADJUSTED TREASURY RATE " means, with respect to any redemption date,
the rate per year equal to the semi-annual equivalent yield to maturity or
interpolated (on a day count basis) of the Comparable Treasury Issue, assuming a
price
S-18
for the Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price for the redemption date.
"COMPARABLE TREASURY ISSUE " means the United States Treasury security
or securities selected by the Quotation Agent as having an actual or
interpolated maturity comparable to the remaining term of the notes to be
redeemed that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity to the remaining term of the notes.
"COMPARABLE TREASURY PRICE " means, with respect to any redemption
date, (A) the average of the Reference Treasury Dealer Quotations for such
redemption date, after excluding the highest and lowest such Reference Treasury
Dealer Quotations, or (B) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such quotations.
"QUOTATION AGENT " means one of the Reference Treasury Dealers, which
is appointed by us.
"REFERENCE TREASURY DEALER " means (A) UBS Securities LLC or its
affiliates which are primary U.S. Government securities dealers and their
respective successors; PROVIDED, HOWEVER, that if any of the foregoing shall
cease to be a primary U.S. Government securities dealer in the United States (a
"Primary Treasury Dealer"), we shall substitute for it another Primary Treasury
Dealer; and (B) any other Primary Treasury Dealer selected by us.
"REFERENCE TREASURY DEALER QUOTATIONS " means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Quotation Agent, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Quotation Agent by such Reference Treasury Dealer at 3:30 p.m.
(New York time) on the third business day preceding such redemption date.
BOOK-ENTRY SYSTEM
The Depository Trust Company (hereinafter referred to as the
"Depositary") will act as securities depositary for the notes. The notes will be
issued as fully registered notes registered in the name of Cede & Co. (the
Depositary's nominee) or such other name as may be requested by an authorized
representative of the Depositary. One or more fully registered global notes
(hereinafter referred to as the "global notes") will be issued for each of the
notes, in the aggregate principal amount of the issue, and will be deposited
with the Depositary. The provisions set forth under "Description of Debt
Securities--Global Securities" in the prospectus will be applicable to the
notes.
The following is based on information furnished by the Depositary:
The Depositary is a limited-purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
clearing agency registered pursuant to the provisions of Section 17A of the U.S.
SECURITIES EXCHANGE ACT of 1934, as amended. The Depositary also facilitates the
settlement among participants of notes transactions, such as transfers and
pledges, in deposited notes through electronic computerized book-entry charges
in participants' accounts, thereby eliminating the need for physical movement of
notes certificates. Direct participants (hereinafter referred to as "direct
participants") include:
o securities brokers and dealers;
o banks;
o trust companies;
o depositaries for Euroclear and Clearstream;
o clearing corporations; and
o certain other organizations.
The Depositary is owned by a number of its direct participants and by
the New York Stock Exchange, Inc., the American Stock Exchange, LLC, and the
National Association of Securities Dealers, Inc. Access to the Depositary's
system is also available to others such as brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly, in the case of "indirect
participants". The rules applicable to the Depositary and its direct and
indirect participants are on file with the SEC.
S-19
Purchases of notes under the Depositary's system must be made by or
through direct participants, which will receive a credit for the notes on the
Depositary's records. The ownership interest of each "beneficial owner" is in
turn to be recorded on the direct and indirect participant's records. Beneficial
owners will not receive written confirmation from the Depositary of their
purchases but beneficial owners are expected to receive written confirmation
providing details of the transaction, as well as periodic statements of their
holdings, from the direct or indirect participants through which the beneficial
owners entered into the transaction. Transfers of ownership interests in the
global notes are to be accomplished by entries made on the books of participants
acting on behalf of beneficial owners. Beneficial owners of the global notes
representing notes will not receive notes in definitive form representing their
ownership interests, except in the event that use of the book-entry system for
the notes is discontinued. The Depositary may discontinue providing its services
as securities depositary with respect to the notes at any time by giving
reasonable notice to us or the Trustee. Under these circumstances, and in the
event that a successor depositary is not obtained, notes in definitive form are
required to be printed and delivered. We may decide to discontinue use of the
system of book-entry transfers through the Depositary (or a successor
depositary). In that event, notes in definitive form will be printed and
delivered.
To facilitate subsequent transfers, the global notes which are
deposited with the Depositary are registered in the name of the Depositary's
nominee, Cede & Co., or such other name as may be requested by an authorized
representative of the Depositary. The deposit of the global notes with the
Depositary and its registration in the name of Cede & Co. or such other nominee
effect no change in beneficial ownership. The Depositary has no knowledge of the
actual beneficial owners of the global notes representing the notes. The
Depositary's records reflect only the identity of the direct participants to
whose accounts the notes are credited, which may or may not be the beneficial
owners. The participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to
direct participants, by direct participants to indirect participants and by
direct participants and indirect participants to beneficial owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Neither the Depositary nor Cede & Co. (nor any other Depositary
nominee) will consent or vote with respect to the global notes representing the
notes. Under its usual procedures, if a consent or vote is required, the
Depositary mails an "omnibus proxy" to us as soon as possible after the
applicable record date. The omnibus proxy assigns Cede & Co.'s consenting or
voting rights to those direct participants to whose accounts the notes are
credited on the applicable record date (identified in a listing attached to the
omnibus proxy).
Any payments of principal, and premium, if any, and interest, if any,
on the global notes representing the notes will be made to the Depositary, as
the registered owner of the global notes. The Depositary's practice is to credit
direct participants' accounts on the applicable payment date in accordance with
their respective holdings shown on the Depositary's records unless the
Depositary has reason to believe that it will not receive payment on that date.
Payments by direct and indirect participants to beneficial owners will be
governed by standing instructions and customary practices, as is the case with
notes held for the account of customers registered in "street name", and will be
the responsibility of the direct or indirect participant and not of the
Depositary, the Trustee or us, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal, and
premium, if any, and interest, if any, to the Depositary is our responsibility
or the responsibility of the Trustee, disbursement of these payments to direct
participants shall be the responsibility of the Depositary, and disbursement of
these payments to the beneficial owners shall be the responsibility of direct
and indirect participants. Neither we nor the Trustee will have any
responsibility or liability for disbursements of payments in respect of
ownership interests in the notes by the Depositary or the direct or indirect
participants or for maintaining or reviewing any records of the Depositary or
the direct or indirect participants relating to ownership interests in the notes
or the disbursement of payments in respect of the notes.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that we believe to be
reliable, but is subject to any changes to the arrangements between us and the
Depositary and any changes to these procedures that may be instituted
unilaterally by the Depositary.
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CERTAIN INCOME TAX CONSEQUENCES
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the principal Canadian federal
income tax considerations generally applicable to an initial holder of notes who
acquires notes pursuant to this Offering and who, at all relevant times, for
purposes of the INCOME TAX ACT (Canada) (the "Tax Act"), holds the notes as
capital property and deals with Precision at arm's length and is not affiliated
with Precision (such a noteholder is referred to in this section of the
prospectus as a "Holder"). Generally, notes will be considered to be capital
property to a Holder provided that the Holder does not hold the notes in the
course of carrying on a business and has not acquired the notes as an adventure
in the nature of trade. Notes held by certain "financial institutions" (as
defined in the Tax Act) will generally not be capital property to such Holders
and will be subject to special "mark-to-market" rules contained in the Tax Act.
This summary does not take into account these mark-to-market rules and Holders
to whom these rules may be relevant should consult their own tax advisors. This
summary is not applicable to a Holder whose interest in the notes would be a
"tax shelter investment" as defined in the Tax Act.
This summary is based on the current provisions of the Tax Act and the
regulations promulgated thereunder and counsel's understanding of the current
published administrative practices of the Canada Revenue Agency ("CRA"). This
summary takes into account all specific proposals to amend the Tax Act and the
regulations promulgated thereunder publicly announced by or on behalf of the
Minister of Finance (Canada) prior to the date of this prospectus supplement.
This summary does not otherwise take into account or anticipate any changes in
law or practice, whether by judicial, governmental or legislative decision or
action, nor does it take into account tax legislation of any province, territory
or foreign jurisdiction. The provisions of provincial income tax legislation
vary from province to province in Canada and in some cases differ from federal
income tax legislation.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER, AND
NO REPRESENTATIONS WITH RESPECT TO THE INCOME TAX CONSEQUENCES TO ANY PARTICULAR
HOLDER ARE MADE. IT DOES NOT CONSTITUTE A COMPLETE ANALYSIS OF THE TAX
CONSIDERATIONS THAT MAY BE APPLICABLE TO ANY PARTICULAR HOLDER. ACCORDINGLY,
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN TAX ADVISORS FOR ADVICE WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF ACQUIRING, HOLDING AND DISPOSING OF
NOTES, INCLUDING THE APPLICATION AND EFFECT OF THE INCOME AND OTHER TAX LAWS OF
ANY COUNTRY, PROVINCE, STATE OR LOCAL TAX AUTHORITY.
RESIDENTS OF CANADA
The following summary is applicable to a Holder who, at all relevant
times, for the purposes of the Tax Act and any applicable tax treaty or
convention, is or is deemed to be resident in Canada and who holds notes as
capital property (a "Canadian Holder").
TAXATION OF INTEREST ON NOTES
A Canadian Holder that is a corporation, partnership, unit trust or
trust of which a corporation or partnership is a beneficiary will be required to
include in its income for a taxation year all interest on a note that accrues
(or is deemed to accrue) to the Canadian Holder to the end of that taxation year
or becomes receivable or is received by the Canadian Holder before the end of
that taxation year, to the extent that such amount was not included in its
income for a preceding taxation year.
Any other Canadian Holder, including an individual, will be required to
include in income for a taxation year any interest on a note received or
receivable by such Canadian Holder in that taxation year (depending upon the
method regularly followed by the Canadian Holder in computing income under the
Tax Act), to the extent that such amount was not otherwise included in the
Canadian Holder's income for that or any preceding taxation year. If such
Canadian Holder has not otherwise included in income interest on a note at
periodic intervals of not more than one year, such Canadian Holder will also be
required to include in income for any taxation year that includes an
"anniversary date" (as defined in the Tax Act) of the note, any interest or
amount that is considered for the purposes of the Tax Act to be interest on the
note which accrues to the holder to the end of such day, to the extent that such
interest was not otherwise included in computing income for the year or
preceding year.
In the event the notes are issued at a discount from their face value,
a Canadian Holder may be required to include an additional amount in computing
income, either in accordance with the deemed interest accrual rules contained in
the Tax Act and regulations or in the taxation year in which the discount is
received or receivable by the Canadian Holder.
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A Canadian Holder should consult his or her own tax advisor in these
circumstances, as the treatment of the discount may vary with the facts and
circumstances giving rise to the discount.
As the notes are denominated in US currency a Canadian Holder will be
required to include in computing income the Canadian dollar equivalent of the
amount determined in accordance with the foregoing rules.
A Canadian Holder that is a "Canadian-controlled private corporation"
(as defined in the Tax Act) may be liable for an additional refundable tax of 6
2/3% on investment income, including interest.
DISPOSITION OF NOTES
On a disposition or deemed disposition of notes (including a redemption
or purchase by Precision or a repayment by Precision on maturity), a Canadian
Holder will generally be required to include in income (as interest) the
aggregate amount of interest accrued (or deemed to have accrued) on the notes
from the date of the last interest payment to the date of disposition and that
is not payable until after such date, to the extent that such amount has not
otherwise been included in the Canadian Holder's income for the taxation year or
a previous taxation year. On a redemption of a note before maturity, the amount
if any, by which the redemption proceeds exceeds the principal amount of the
note may be deemed to be interest received by the Canadian Holder.
In general, a disposition or deemed disposition of notes will give rise
to a capital gain (or capital loss) to the extent that the proceeds of
disposition, net of accrued interest or any amount deemed to be interest and any
reasonable costs of disposition, exceed (or are less than) the adjusted cost
base of the notes to the Canadian Holder immediately before the disposition.
One-half of the amount of any capital gain (a "taxable capital gain")
realized by a Canadian Holder in a taxation year must be included in the
Canadian Holder's income in that year, and one-half of the amount of any capital
loss (an "allowable capital loss") realized by a Canadian Holder in a taxation
year may generally be deducted from taxable capital gains realized by the
Canadian Holder in that year. Allowable capital losses in excess of taxable
capital gains may be carried back and deducted in any of the three preceding
taxation years or carried forward and deducted in any subsequent taxation year
against net taxable capital gains realized in such years to the extent and under
the circumstances described in the Tax Act. Allowable capital losses may not
generally be deducted against other types of income such as business on
employment income. A capital gain realized by an individual (other than certain
specified trusts) may give rise to a liability for alternative minimum tax.
A Canadian Holder that is a "Canadian-controlled private corporation"
(as defined in the Tax Act) may be liable for an additional refundable tax of 6
2/3% on investment income, including taxable capital gains. For purposes of the
Tax Act the cost of a note to a Canadian Holder will be the Canadian dollar
equivalent of the cost otherwise determined and on any disposition of notes the
holder's proceeds of disposition will be the Canadian dollar equivalent of the
proceeds otherwise determined.
NON-RESIDENTS OF CANADA
The following summary is applicable to a Holder who, at all relevant
times, for purposes of the Tax Act and any applicable tax treaty or convention,
is not resident or deemed to be resident in Canada, deals with Precision at
arm's length and does not use or hold and is not deemed to use or hold a note in
carrying on business in Canada. Special rules, which are not discussed below,
may apply to a non-resident that is an insurer which carries on business in
Canada and elsewhere.
Under the Tax Act, the payment by Precision of interest, principal and
premium in respect of the notes to a Holder who is not a Canadian resident will
be exempt from Canadian withholding tax.
No other taxes on income (including taxable capital gains) will be
payable under the Tax Act by a Holder who is not a Canadian resident in respect
of the acquisition, holding, redemption or disposition of the notes, including
the receipt of interest, premium or principal thereon, solely as a consequence
of such acquisition, holding, redemption or disposition.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain U.S. federal income tax
consequences that may be relevant to the purchase, ownership and disposition of
notes by United States persons (as defined below) who purchase notes in this
offering at the issue price set forth on the cover of this prospectus supplement
and who hold the notes as capital assets
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("U.S. Holders") within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code"). This summary does not address tax consequences
applicable to subsequent purchasers of the notes. This discussion does not
purport to deal with all aspects of U.S. federal income taxation that may be
relevant to particular holders in light of their particular circumstances nor
does it deal with persons that are subject to special tax rules, such as dealers
and traders in securities or currencies, financial institutions, insurance
companies, tax-exempt organizations, persons holding the notes as a part of a
straddle, hedge, or conversion transaction or a synthetic security or other
integrated transaction, regulated investment companies, traders in securities
who elect to mark-to-market their securities, U.S. expatriates, persons subject
to the alternative minimum tax, U.S. Holders whose "functional currency" is not
the U.S. dollar, and holders who are not U.S. Holders. This discussion does not
cover any state, local, or foreign tax consequences. The discussion is based
upon the provisions of the Code and United States Treasury regulations, rulings
and judicial decisions under the Code, all as currently in effect as of the date
of this prospectus supplement, and those authorities may be repealed, revoked or
modified (possibly with retroactive effect) so as to result in U.S. federal
income tax consequences different from those discussed below. There can be no
assurance that the Internal Revenue Service (the "IRS") will take a similar view
as to any of the tax consequences described in this summary.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT
INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY
HOLDER OR PROSPECTIVE HOLDER OF NOTES OF THE COMPANY AND NO OPINION OR
REPRESENTATION WITH RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES TO ANY
HOLDER OR PROSPECTIVE HOLDER IS MADE. U.S. HOLDERS AND PERSONS CONSIDERING THE
PURCHASE, OWNERSHIP OR DISPOSITION OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE U.S. FEDERAL INCOME OR OTHER TAX CONSEQUENCES IN LIGHT
OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE
LAWS OF ANY STATE OR OF ANY LOCAL OR FOREIGN TAXING JURISDICTION.
As used in this section, the term "United States person" means a
beneficial owner of a note that is (i) a citizen or individual resident of the
United States for U.S. federal income tax purposes, (ii) a corporation, or other
entity taxable as a corporation for U.S. federal income tax purposes, created or
organized in or under the laws of the United States or any political subdivision
thereof or therein, (iii) an estate, the income of which is subject to U.S.
federal income taxation regardless of its source, or (iv) a trust (A) which is
subject to the supervision of a court within the United States and the control
of a United States person, or (B) that was in existence on August 20, 1996, was
treated as a United States person under the Code on the previous day, and
validly elected to continue to be so treated under applicable United States
Treasury regulations. If a partnership or other flow-through entity holds a
note, the U.S. federal income tax treatment of a partner or other owner
generally will depend on the status of the partner or other owner and the
activities of the partnership or other flow-through entity. A U.S. Holder that
is a partner of the partnership or an owner of another flow-through entity
holding a note should consult its own tax advisors.
PAYMENTS OF INTEREST
Interest on a note will generally be includable by a U.S. Holder as
ordinary income at the time the interest is paid or accrued, depending on the
U.S. Holder's method of accounting for U.S. federal income tax purposes. In
addition to interest on the notes, a U.S. Holder would be required to include as
income any Canadian withholding taxes and any additional amounts we may pay as a
result of the imposition of Canadian withholding taxes. As a result, a U.S.
Holder may be required to include more amounts in gross income than the amount
of cash it actually receives. A U.S. Holder may be entitled to deduct or credit
foreign withheld tax, subject to applicable limitations in the Code. For U.S.
foreign tax credit purposes, interest income on a note generally will constitute
foreign source income and be considered "passive income" or "financial services
income" (or, if the applicable rate of Canadian withholding tax is 5% or more,
interest on the notes will be treated as "high withholding tax interest"). The
rules governing the foreign tax credit are complex and investors are urged to
consult their tax advisors regarding the availability of the credit under their
particular circumstances.
ORIGINAL ISSUE DISCOUNT
It is not expected that the notes will be issued with original issue
discount. If, however, the notes are issued with more than a de minimis amount
of original issue discount, then such original issue discount would be treated
for U.S. federal income tax purposes as accruing over the notes' term as
interest income of the U.S. Holders. A U.S. Holder's adjusted tax basis in a
note would be increased by the amount of any original issue discount included in
its gross income. In compliance with United States Treasury regulations, if we
determine that the notes have original
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issue discount, we will provide certain information to the IRS and/or U.S.
Holders that is relevant to determining the amount of original issue discount in
each accrual period.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Upon the sale, exchange or retirement of a note, a U.S. Holder
generally will recognize a taxable gain or loss equal to the difference between
the amount realized on such sale, exchange, retirement, or redemption (reduced
by any amounts attributable to accrued but unpaid interest, which will be
taxable as ordinary income) and the U.S. Holder's adjusted tax basis in the
note. Such gain or loss generally will constitute a long term capital gain or
loss if the note was held by such U.S. Holder for more than one year and
otherwise will be short term capital gain or loss. Under current law, net
capital gains of non-corporate taxpayers (including individuals) are, under some
circumstances, taxed at lower rates than items of ordinary income. The
deductibility of capital losses is subject to limitations. In the case of a U.S.
Holder who is a United States resident (as defined in Section 865 of the Code),
any such gain or loss will be treated as U.S. source, unless it is attributable
to an office or other fixed place of business outside the United States and
certain other conditions are met.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to payments
of principal and interest on a note and payments of the proceeds of sale to U.S.
Holders other than certain exempt recipients (such as corporations). In
addition, a backup withholding tax may apply to such payments if such a U.S.
Holder fails to provide an accurate taxpayer identification number or otherwise
fails to comply with applicable requirements of the backup withholding rules.
Any amounts withheld under those rules will be allowed as a credit against the
U.S. Holder's U.S. federal income tax liability and may entitle the U.S. Holder
to a refund to the extent it exceeds such liability. A U.S. Holder who does not
provide a correct taxpayer identification number may be subject to penalties
imposed by the IRS.
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UNDERWRITING
Subject to the terms and conditions stated in the underwriting
agreement dated May 25, 2004, among us and each of the underwriters named below,
for whom UBS Securities LLC is acting as representative, we have agreed to sell
to the underwriters and each of the underwriters has severally agreed to
purchase from us the principal amount of notes set forth opposite the
underwriter's name.
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
UBS Securities LLC....................... US$120,000,000
RBC Capital Markets Corporation.......... 45,000,000
HSBC Securities (USA) Inc................ 30,000,000
NBF Securities (USA) Corp................ 30,000,000
TD Securities (USA) Inc.................. 30,000,000
CIBC World Markets Corp.................. 11,250,000
Lazard Freres & Co. LLC.................. 11,250,000
Raymond James & Associates, Inc.......... 11,250,000
Wells Fargo Brokerage Services, LLC...... 11,250,000
--------------
Total.................................... US$300,000,000
============
Lazard Freres & Co. LLC ("Lazard"), has entered into an agreement with
Mitsubishi Securities (USA), Inc. ("Mitsubishi"), pursuant to which Mitsubishi
provides certain advisory and/or other services to Lazard, including services in
respect of this offering. In return for the provision of such services by
Mitsubishi to Lazard, Lazard will pay to Mitsubishi a mutually agreed upon fee.
The underwriting agreement provides that the obligations of the
underwriters to purchase the notes included in this offering are subject to
approval of legal matters by counsel and to other conditions. The underwriters
are obligated to purchase all the notes if they purchase any of the notes. The
closing of the offering is expected to be on or about May 28, 2004.
The underwriters propose to offer some of the notes directly to the
public at the public offering price set forth on the cover page of this
prospectus supplement and some of the notes to dealers at the public offering
price less a concession not to exceed 0.40% of the principal amount of the
notes. The underwriters may allow, and other such dealers may reallow, a
commission not in excess of 0.25% of the principal amount of the notes on sales
to other dealers. After the initial offering of the notes to the public, the
representatives may change the public offering price and concessions.
The following table shows the underwriting commissions that we are to
pay to the underwriters in connection with this offering (expressed as a
percentage of the principal amount of the notes).
PAID BY PRECISION
-----------------
Per note......................... 0.650%
In connection with this offering, UBS Securities LLC, on behalf of the
underwriters, may purchase and sell notes in the open market. These transactions
may include over-allotment, syndicate coverings transactions and stabilizing
transactions. Over-allotment involves syndicate sales of the notes in excess of
the principal amount of the notes to be purchased by the underwriters in this
offering, which creates a syndicate short position. Syndicate covering
transactions involve purchases of the notes in the open market after the
distribution has been completed in order to cover syndicate short positions.
Stabilizing transactions consist of certain bids or purchases of the notes made
for the purpose of preventing or retarding a decline in the market price of the
notes while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when UBS
Securities LLC, in covering syndicate short positions or making stabilizing
purchases, repurchases notes originally sold by that syndicate member.
Any of these activities may have the effect of preventing or retarding
a decline in the market price of the notes. They may also cause the price of the
notes to be higher than the price that otherwise would exist in the open market
in the absence of these transactions. The underwriters may conduct these
transactions in the over-the-counter market or otherwise. If the underwriters
commence any of these transactions, they may discontinue them at any time.
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The notes are a new issue of securities with no established trading
market. The notes will not be listed on any securities exchange or on any
automated dealer quotation system. The underwriters may make a market in the
notes after completion of the offering, but will not be obligated to do so and
may discontinue any market-making activities at any time without notice. No
assurance can be given as to the liquidity of the trading market for the notes
or that an active public market for the notes will develop. If an active public
trading market for the notes does not develop, the market price and liquidity of
the notes may be adversely affected.
We estimate that our total expenses for this offering will be
US$330,000.
We have agreed not to, prior to the closing of this offering, directly
or indirectly, offer, sell, contract to sell or otherwise dispose of any debt
securities which mature more than one year after the closing of this offering
and which are substantially similar to the notes, without first obtaining the
prior written consent of the representatives of the underwriters.
Some of the underwriters have performed investment banking and advisory
services for us from time to time for which they have received customary fees
and expenses. The underwriters may, from time to time, engage in transactions
with and perform services for us in the ordinary course of their business.
Certain of the underwriters are affiliated with entities that are agents for and
members of syndicates of lenders which made available revolving and term
facilities to us.
Some of the underwriters are, directly or indirectly, a majority owned
subsidiary of a bank that is currently a lender to us (the "Lenders") and we may
be considered to be a connected issuer to each of the Lenders. We were indebted
to the Lenders for approximately $54.3 million as of April 30, 2004, under
various credit facilities, representing approximately 11.8% of our total
indebtedness as of that date. The net proceeds of the offering will be applied
toward repayment of a portion of the additional indebtedness that we incurred
pursuant to these credit facilities to finance the acquisitions of the land
drilling business assets of GlobalSantaFe Corporation and all of the outstanding
shares of Reeves Oilfield Services Ltd. We are in compliance with the terms of
such credit facilities and none of the banks affiliated with the underwriters
were involved in the decision to offer the notes or in the determination of the
terms of the distributions of the notes. See "Use of Proceeds" in this
prospectus supplement.
Because more than 10% of the proceeds of this offering, not including
underwriting compensation, may be received by members or affiliates of members
of the National Association of Securities Dealers, Inc. participating in this
offering, this offering is being conducted in compliance with the NASD Conduct
Rule 2710(h)(2).
The prospectus supplement and the prospectus in electronic format may
be made available on the websites maintained by one or more of the underwriters.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the SECURITIES ACT of 1933, as amended,
and Canadian provincial securities legislation.
LEGAL MATTERS
Certain legal matters relating to Canadian law will be passed upon for
us by Borden Ladner Gervais LLP, Calgary, Alberta, Canada. Certain legal matters
relating to United States law will be passed upon for us by Paul, Weiss,
Rifkind, Wharton & Garrison LLP, New York, New York. In addition, certain legal
matters relating to United States law will be passed upon for the underwriters
by Skadden, Arps, Slate, Meagher & Flom LLP, Toronto, Ontario, Canada and
certain legal matters relating to Canadian law will be passed upon for the
underwriters by Burnet Duckworth & Palmer LLP, Calgary, Alberta, Canada.
EXPERTS
The audited consolidated financial statements incorporated by reference
in the prospectus have been so incorporated in reliance on the reports of KPMG
LLP, Chartered Accountants, given on the authority of said firm as experts in
auditing and accounting.
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BASE SHELF PROSPECTUS
(PRECISION DRILLING LOGO)
PRECISION DRILLING CORPORATION
US$1,000,000,000
DEBT SECURITIES
COMMON SHARES
--------------------
We may offer for sale from time to time debt securities or common shares
(collectively, the "Securities") up to an aggregate initial offering price of
US$1,000,000,000 (or the equivalent in other currencies or currency units)
during the 25 month period that this prospectus, including any amendments
hereto, remains effective. Securities may be offered separately or together, in
amounts, at prices and on terms to be determined based on market conditions at
the time of sale and set forth in an accompanying prospectus supplement.
We will provide the specific terms of these Securities and all information
omitted from this prospectus in supplements to this prospectus. You should read
this prospectus and any applicable prospectus supplement carefully before you
invest.
--------------------
WE ARE PERMITTED, UNDER A MULTIJURISDICTIONAL DISCLOSURE SYSTEM ADOPTED BY THE
UNITED STATES, TO PREPARE THIS PROSPECTUS IN ACCORDANCE WITH CANADIAN DISCLOSURE
REQUIREMENTS, WHICH ARE DIFFERENT FROM THOSE OF THE UNITED STATES. WE PREPARE
OUR FINANCIAL STATEMENTS IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, AND THEY ARE SUBJECT TO CANADIAN AUDITING AND AUDITOR
INDEPENDENCE STANDARDS. THEY MAY NOT BE COMPARABLE TO FINANCIAL STATEMENTS OF
UNITED STATES COMPANIES.
OWNING THE SECURITIES MAY SUBJECT YOU TO TAX CONSEQUENCES BOTH IN THE UNITED
STATES AND CANADA. THIS PROSPECTUS OR ANY APPLICABLE PROSPECTUS SUPPLEMENT MAY
NOT DESCRIBE THESE TAX CONSEQUENCES FULLY. YOU SHOULD READ THE TAX DISCUSSION IN
ANY APPLICABLE PROSPECTUS SUPPLEMENT.
YOUR ABILITY TO ENFORCE CIVIL LIABILITIES UNDER THE UNITED STATES FEDERAL
SECURITIES LAWS MAY BE AFFECTED ADVERSELY BECAUSE WE ARE AMALGAMATED IN CANADA,
MOST OF OUR OFFICERS AND DIRECTORS AND SOME OF THE EXPERTS NAMED IN THIS
PROSPECTUS ARE CANADIAN RESIDENTS, AND MOST OF OUR ASSETS, THE ASSETS OF OUR
DIRECTORS AND OFFICERS AND THE EXPERTS ARE LOCATED OUTSIDE THE UNITED STATES.
NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENCE.
--------------------
May 17, 2004
TABLE OF CONTENTS
About This Prospectus...............................2 Description of Share Capital........................22
Where You Can Find More Information.................2 Plan of Distribution................................23
Forward Looking Statements..........................5 Certain Income Tax Considerations...................23
Risk Factors........................................6 Legal Matters.......................................24
Precision Drilling Corporation......................9 Experts.............................................24
Use of Proceeds.....................................9 Documents Filed As Part Of The
Interest Coverage...................................9 Registration Statement............................24
Description of Debt Securities......................10 Consent of KPMG LLP.................................25
ABOUT THIS PROSPECTUS
Except as set forth under "Description of Debt Securities", and unless
the context requires otherwise all references in this prospectus and any
prospectus supplement to "Precision", "we", "us" and "our" mean Precision
Drilling Corporation and its consolidated subsidiaries and partnerships.
In this prospectus and in any prospectus supplement, unless otherwise
specified or the context otherwise requires, all dollar amounts are expressed in
Canadian dollars, references to "dollars" or "$" are to Canadian dollars and
references to "US$" are to United States dollars. Unless otherwise indicated,
all financial information included and incorporated by reference in this
prospectus or included in any prospectus supplement is determined using Canadian
generally accepted accounting principles, referred to as "Canadian GAAP". "U.S.
GAAP" means generally accepted accounting principles which are in effect from
time to time in the United States. For a discussion of the principal differences
between our financial results as calculated under Canadian GAAP and under U.S.
GAAP, you should refer to Note 15 of our audited consolidated financial
statements for the year ended December 31, 2003, incorporated by reference into
this prospectus.
This prospectus is part of a registration statement on Form F-10
relating to the Securities, that we filed with the U.S. Securities and Exchange
Commission (the "SEC"). We may, from time to time, sell any combination of the
Securities described in this prospectus in one or more offerings up to an
aggregate amount of US$1,000,000,000. This prospectus provides you with a
general description of the Securities that we may offer. Each time we sell
Securities under this prospectus, we will provide a prospectus supplement that
will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. Before you invest, you should read both this prospectus and any
applicable prospectus supplement, together with additional information described
under the heading "Where You Can Find More Information". THIS PROSPECTUS DOES
NOT CONTAIN ALL OF THE INFORMATION SET FORTH IN THE REGISTRATION STATEMENT,
CERTAIN PARTS OF WHICH ARE OMITTED IN ACCORDANCE WITH THE RULES AND REGULATIONS
OF THE SEC. YOU MAY REFER TO THE REGISTRATION STATEMENT AND THE EXHIBITS TO THE
REGISTRATION STATEMENT FOR FURTHER INFORMATION WITH RESPECT TO US AND THE
SECURITIES.
WHERE YOU CAN FIND MORE INFORMATION
INFORMATION HAS BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS FROM
DOCUMENTS FILED WITH SECURITIES COMMISSIONS OR SIMILAR AUTHORITIES IN CANADA.
Copies of the documents incorporated herein by reference may be obtained on
request without charge from the Corporate Secretary of Precision, 4200, 150 -
6th Avenue S.W., Calgary, Alberta T2P 3Y7, Canada, telephone: (403) 716-4500.
For the purpose of the Province of Quebec, this simplified prospectus contains
information to be completed by consulting the permanent information record. A
copy of the permanent information record may be obtained from the Corporate
Secretary of Precision at the above-mentioned address and telephone number.
These documents are also available through the internet via the System for
Electronic Document Analysis and Retrieval ("SEDAR"), which can be accessed at
www.sedar.com.
We file with the securities commission or authority in each of the
provinces of Canada annual and quarterly reports, material change reports and
other information. In addition, we are subject to the informational requirements
of the United States Securities Exchange Act of 1934, as amended (the "Exchange
Act") and, in accordance with the Exchange Act, we also file reports with and
furnish other information to the SEC. Under a multijurisdictional disclosure
system adopted by the United States, these reports and other information
(including financial
2
information) may be prepared in accordance with the disclosure requirements of
Canada, which differ from those in the United States. As a foreign private
issuer, we are exempt from the rules under the Exchange Act prescribing the
furnishing and content of proxy statements, and our officers, directors and
principal shareholders are exempt from the reporting and short-swing profit
recovery provisions contained in Section 16 of the Exchange Act. In addition, we
are not required to publish financial statements as promptly as U.S. companies.
You may read any document we furnish to the SEC at the SEC's public reference
room at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. You may also
obtain copies of the same documents from the public reference room of the SEC at
450 Fifth Street, N.W., Washington D.C. 20549 by paying a fee. Please call the
SEC at l-800-SEC-0330 for further information on the public reference rooms. Our
filings are also electronically available from the SEC's Electronic Document
Gathering and Retrieval System, which is commonly known by the acronym EDGAR,
and which may be accessed at www.sec.gov, as well as from commercial document
retrieval services.
You are invited to read and copy any reports, statements or other
information that we file with the Canadian provincial securities commissions or
other similar regulatory authorities at their respective public reference rooms.
These filings are also electronically available from SEDAR (www.sedar.com).
Reports and other information about us are also available for inspection at the
offices of the Toronto Stock Exchange.
Under applicable securities laws in Canada and the United States, the
Canadian securities commissions and the SEC allow us to incorporate by reference
certain information that we file with them, which means that we can disclose
important information to you by referring you to those documents. Information
that is incorporated by reference is an important part of this prospectus. We
incorporate by reference the documents listed below, which were filed with the
Canadian securities commissions under the Canadian securities legislation and
with the SEC, and which form an integral part of this prospectus:
(a) our Annual Information Form dated April 26, 2004 (including
Management's Discussion and Analysis for the year ended
December 31, 2003, incorporated therein by reference);
(b) our audited comparative consolidated financial statements for
the year ended December 31, 2003, including the auditors'
report thereon;
(c) our Management Information Circular dated April 6, 2004
relating to the annual and special meeting of our shareholders
to be held on May 11, 2004, excluding those portions under the
headings "Composition and Role of Compensation Committee,
"Compensation Committee Report", "Common Share Performance -
Toronto Stock Exchange", "Common Share Performance - New York
Stock Exchange" and "Corporate Governance" (which portions
shall be deemed not to be incorporated by reference in this
prospectus); and
(d) our unaudited comparative consolidated financial statements
for the three months ended March 31, 2004 (including
Management's Discussion and Analysis for the three months
ended March 31, 2004).
Any documents of the type referred to above (including material change
reports but excluding confidential material change reports) subsequently filed
by us with securities commissions or similar authorities in the relevant
provinces of Canada after the date of this prospectus and prior to the
termination of the offering of Securities under any prospectus supplement shall
be deemed to be incorporated by reference into this prospectus. These documents
are available through the internet on SEDAR. In addition, any report filed or
furnished by us with the SEC pursuant to Section 13(a), 13(c) or 15(d) of the
Exchange Act after the date of this prospectus shall be deemed to be
incorporated by reference into this prospectus and the registration statement of
which this prospectus forms a part if and to the extent expressly provided in
such report until all of the Securities are sold.
ANY STATEMENT CONTAINED IN THIS PROSPECTUS OR IN A DOCUMENT (OR PART
THEREOF) INCORPORATED BY REFERENCE, OR DEEMED TO BE INCORPORATED BY REFERENCE,
IN THIS PROSPECTUS SHALL BE DEEMED TO BE MODIFIED OR SUPERSEDED, FOR PURPOSES OF
THIS PROSPECTUS, TO THE EXTENT THAT A STATEMENT CONTAINED IN THE PROSPECTUS OR
IN ANY SUBSEQUENTLY FILED DOCUMENT (OR PART THEREOF) THAT ALSO IS, OR IS DEEMED
TO BE, INCORPORATED BY REFERENCE IN THIS PROSPECTUS MODIFIES OR REPLACES SUCH
STATEMENT. ANY STATEMENT SO MODIFIED OR SUPERSEDED SHALL NOT BE DEEMED, EXCEPT
AS SO MODIFIED OR SUPERSEDED, TO CONSTITUTE PART OF THIS PROSPECTUS. THE
MODIFYING OR SUPERSEDING STATEMENT NEED NOT STATE THAT IT HAS MODIFIED OR
SUPERSEDED A PRIOR STATEMENT OR INCLUDE ANY OTHER INFORMATION SET FORTH IN THE
DOCUMENT WHICH IT MODIFIES OR SUPERSEDES.
Updated interest coverage ratios will be filed quarterly with the
applicable securities regulatory authorities, including the SEC, either as
prospectus supplements or exhibits to our unaudited interim consolidated
financial
3
statements and audited annual consolidated financial statements and will be
deemed to be incorporated by reference in this prospectus for the purpose of the
offering of the Securities.
Upon a new annual information form and related annual consolidated
financial statements being filed by us with, and where required, accepted by,
the applicable securities regulatory authorities during the duration of this
prospectus, the previous annual information form, the previous annual
consolidated financial statements and all interim consolidated financial
statements and the accompanying management's discussion and analysis,
information circulars and material change reports filed prior to the
commencement of our financial year in which the new annual information form is
filed shall be deemed no longer to be incorporated into this prospectus for
purposes of future offers and sales of Securities under this prospectus. Upon
interim consolidated financial statements and the accompanying management's
discussion and analysis being filed by us with the applicable securities
regulatory authorities during the duration of this prospectus, all interim
consolidated financial statements and the accompanying management's discussion
and analysis filed prior to the new interim consolidated financial statements
shall be deemed no longer to be incorporated into this prospectus for purposes
of future offers and sales of Securities under this prospectus.
A prospectus supplement or prospectus supplements containing the
specific terms for an issue of Securities will be delivered to purchasers of
such Securities together with this prospectus and will be deemed to be
incorporated by reference into this prospectus as of the date of such prospectus
supplement but only for the purposes of the Securities issued thereunder.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY APPLICABLE PROSPECTUS SUPPLEMENT AND ON THE
OTHER INFORMATION INCLUDED IN THE REGISTRATION STATEMENT OF WHICH THIS
PROSPECTUS FORMS A PART. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT OR ADDITIONAL INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER IS NOT PERMITTED BY LAW. YOU
SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY APPLICABLE
PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THOSE DOCUMENTS.
4
FORWARD LOOKING STATEMENTS
Certain statements included in this prospectus and the documents
incorporated by reference herein constitute forward looking statements within
the meaning of the United States Private Securities Litigation Reform Act of
1995 relating to, but not limited to, our operations, anticipated financial
performance, business prospects and strategies. Forward looking statements
typically contain statements with words such as "could", "should", "expect",
"estimate", "likely", "believe", "will" and similar expressions, including, but
not limited to, statements as to: future capital expenditures, including the
amount and nature thereof; oil and gas prices and demand; expansion and other
development trends of the oil and gas industry; business strategy; expansion and
growth of our business and operations, including our marketshare and position in
the domestic and international drilling markets; and beliefs, plans, objectives,
assumptions or statements about future events or performance.
You are cautioned not to place undue reliance on forward looking
statements. By their nature, forward looking statements involve numerous
assumptions, inherent risks and uncertainties, both general and specific, that
contribute to the possibility that the predicted outcomes will not occur. These
factors include, but are not limited to:
o general economic, business and market conditions including
stock market volatility;
o volatility of crude oil, natural gas and natural gas liquids
prices;
o fluctuations in currency and interest rates;
o competition;
o risks inherent in foreign operations, including political and
economic risk;
o risks of war, hostilities, civil insurrection and terrorist
threats;
o fluctuations in the level of oil and gas exploration and
development activities;
o fluctuations in the demand for well servicing, contract
drilling, directional drilling, well logging and ancillary
oilfield services;
o technological changes and developments in the oil and gas
industry;
o the ability of oil and gas companies to raise capital;
o the effects of severe and seasonal weather conditions on
operations and facilities;
o the existence of operating risks inherent in well servicing,
contract drilling, directional drilling, well logging and
ancillary oilfield services;
o political circumstances impeding the progress of work in any
of the countries in which we do business;
o identifying and acquiring suitable acquisition targets on
reasonable terms;
o changes in laws or regulations, including taxation,
environmental and currency regulations;
o the lack of availability of qualified personnel or management;
o our ability to either generate sufficient cash flow to meet
current and future obligations or to obtain external debt or
equity financing;
o our ability to make capital investments and the amounts
thereof; and
o risks associated with existing and potential future lawsuits
and regulatory actions against us.
We caution that the foregoing list of important factors is not
exhaustive. Events or circumstances could cause our actual results to differ
materially from those estimated or projected and expressed in, or implied by,
these forward looking statements. You should also carefully consider the matters
discussed under "Risk Factors" in the prospectus. We do not undertake any
obligation to update publicly or otherwise revise any forward looking
statements, whether as a result of new information, future events or otherwise,
or the foregoing list of factors affecting this information.
5
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS SET FORTH BELOW AS WELL
AS THE OTHER INFORMATION CONTAINED IN AND INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND IN THE APPLICABLE PROSPECTUS SUPPLEMENT BEFORE PURCHASING THE
SECURITIES. IF ANY EVENT ARISING FROM THESE RISKS OCCURS, OUR BUSINESS,
PROSPECTS, FINANCIAL CONDITION, RESULTS OF OPERATION OR CASH FLOWS COULD BE
MATERIALLY ADVERSELY AFFECTED. ADDITIONAL RISKS AND UNCERTAINTIES NOT CURRENTLY
KNOWN TO US OR THAT WE CURRENTLY DEEM TO BE IMMATERIAL MAY ALSO MATERIALLY
ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
CASH FLOWS. CERTAIN STATEMENTS UNDER THIS CAPTION CONSTITUTE FORWARD LOOKING
STATEMENTS. SEE "FORWARD LOOKING STATEMENTS."
OUR OPERATIONS ARE DEPENDENT ON THE PRICES OF OIL AND GAS A DECLINE OF EITHER OF
WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Our revenue, cash flow and earnings are substantially dependent upon,
and affected by, the level of activity associated with oil and gas exploration
and production. Both short-term and long-term trends in oil and gas prices
affect the level of such activity. Oil and gas prices and, therefore, the level
of drilling, exploration and production activity have been volatile over the
past few years and likely will continue to be volatile. Worldwide military,
political and economic events, including initiatives by the Organization of
Petroleum Exporting Countries, may affect both the demand for, and the supply
of, oil and gas. Weather conditions, governmental regulation (both in Canada and
elsewhere), levels of consumer demand, the availability of pipeline capacity,
and other factors beyond our control may also affect the supply of and demand
for oil and gas and thus lead to future price volatility. We believe that any
prolonged reduction in oil and gas prices would depress the level of exploration
and production activity. This would likely result in a corresponding decline in
the demand for our services and could have a material adverse effect on our
revenues, cash flows and profitability. Lower oil and gas prices could also
cause our customers to seek to terminate, renegotiate or fail to honour our
drilling contracts; affect the fair market value of our rig fleet which in turn
could trigger a writedown for accounting purposes; affect our ability to retain
skilled rig personnel; and affect our ability to obtain access to capital to
finance and grow our businesses. We cannot assure you that the future level of
demand for our services or future conditions in the oil and gas and oilfield
services industries will not decline.
WE OPERATE IN A COMPETITIVE INDUSTRY.
The oilfield services industry in which we operate is, and will
continue to be, very competitive. Contract drilling companies compete primarily
on a regional basis, and competition may vary significantly from region to
region at any particular time. Most drilling and workover contracts are awarded
on the basis of competitive bids, which results in price competition. Many
drilling, workover and well-servicing rigs can be moved from one region to
another in response to changes in levels of activity, which can result in an
oversupply of rigs in an area. In many markets in which we operate, the supply
of rigs exceeds the demand for rigs, resulting in further price competition.
Certain competitors are present in more than one of the regions in
which we operate, although no one competitor operates in all of these areas. In
the United States there are several hundred competitors with national, regional
or local rig operations. In Canada we compete with several firms of varying
size. Internationally, we compete directly with various competitors at each
location where we operate and some of our international competitors may be
better positioned in certain markets, allowing them to compete more effectively.
We cannot assure you that we will be able to continue to compete successfully or
that the level of competition and pressure on pricing will not affect our
margins.
OUR OPERATIONS ARE SUBJECT TO BUSINESS INTERRUPTION AND CASUALTY LOSSES FOR
WHICH WE MAY NOT HAVE ADEQUATE INSURANCE.
Our operations are subject to many hazards inherent in the drilling,
workover and well-servicing industries, including blowouts, cratering,
explosions, fires, loss of well control, loss of hole, damaged or lost drilling
equipment and damage or loss from inclement weather or natural disasters. Any of
these hazards could result in personal injury or death, damage to or destruction
of equipment and facilities, suspension of operations, environmental damage and
damage to the property of others. Generally, drilling contracts provide for the
division of responsibilities between a drilling company and its customer, and we
seek to obtain indemnification from our customers by contract for certain of
these risks. To the extent that we are unable to transfer such risks to
customers
6
by contract or indemnification agreements, we seek protection through insurance.
However, we cannot assure you that such insurance or indemnification agreements
will adequately protect us against liability from all of the consequences of the
hazards described above. The occurrence of an event not fully insured or
indemnified against, or the failure of a customer or insurer to meet its
indemnification or insurance obligations, could result in substantial losses. In
addition, we cannot assure you that insurance will be available to cover any or
all of these risks, or, even if available, that it will be adequate or that
insurance premiums or other costs will not rise significantly in the future, so
as to make such insurance prohibitive. This is particularly of concern in the
wake of the September 11 terrorist attacks, which have resulted in significantly
increased insurance costs, deductibles and coverage restrictions. In future
insurance renewals we may choose to increase our self insurance retentions (and
thus assume a greater degree of risk) in order to reduce insurance premiums.
WE ARE EXPOSED TO RISKS INHERENT IN FOREIGN OPERATIONS WHICH COULD NEGATIVELY
AFFECT OUR RESULTS OF OPERATIONS.
We conduct a portion of our business outside North America, including
the Middle East, Africa and South America. We are subject to risks inherent in
foreign operations, such as: loss of revenue, property and equipment as a result
of expropriation, nationalization, war, terrorist threats, civil insurrection
and other political risks; fluctuations in foreign currency and exchange
controls; increases in duties, taxes and governmental royalties and
renegotiation of contracts with governmental entities; as well as changes in
laws and policies governing operations of foreign-based companies. In addition,
in the international markets in which we operate, we are subject to various laws
and regulations that govern the operation and taxation of our businesses and the
import and export of our equipment from country to country, the imposition,
application and interpretation of which can prove to be uncertain. Since we
derive a portion of our revenues from subsidiaries outside of Canada, the
payment of dividends or the making of other cash payments or advances by these
subsidiaries to us may be subject to restrictions or exchange controls on the
transfer of funds in or out of the respective countries or result in the
imposition of taxes on such payments or advances. We have organized our foreign
operations in part based on certain assumptions about various tax laws
(including capital gains and withholding taxes), foreign currency exchange and
capital repatriation laws and other relevant laws of a variety of foreign
jurisdictions. While we believe that such assumptions are reasonable, we cannot
assure you that foreign taxing or other authorities will reach the same
conclusion. Further, if such foreign jurisdictions were to change or modify such
laws, we could suffer adverse tax and financial consequences.
OUR BUSINESS IS SUBJECT TO ENVIRONMENTAL LEGISLATION IN ALL JURISDICTIONS IN
WHICH WE OPERATE AND ANY CHANGES IN SUCH LEGISLATION COULD NEGATIVELY AFFECT OUR
RESULTS OF OPERATIONS.
Our operations are subject to numerous laws, regulations and guidelines
governing the management, transportation and disposal of hazardous substances
and other waste materials and otherwise relating to the protection of the
environment and health and safety. These laws, regulations and guidelines
include those relating to spills, releases, emissions and discharges of
hazardous substances or other waste materials into the environment, requiring
removal or remediation of pollutants or contaminants and imposing civil and
criminal penalties for violations. Some of the laws, regulations and guidelines
that apply to our operations also authorize the recovery of natural resource
damages by the government, injunctive relief and the imposition of stop,
control, remediation and abandonment orders. The costs arising from compliance
with such laws, regulations and guidelines may be material to us.
The trend in environmental regulation has been to impose more
restrictions and limitations on activities that may impact the environment,
including the generation and disposal of wastes and the use and handling of
chemical substances. These restrictions and limitations have increased operating
costs for both us and our customers. Any regulatory changes that impose
additional environmental restrictions or requirements on us or our customers
could adversely affect us through increased operating costs and potential
decreased demand for our services.
While we maintain liability insurance, including insurance for
environmental claims, the insurance is subject to coverage limits and certain of
our policies exclude coverage for damages resulting from environmental
contamination. There can be no assurance that insurance will continue to be
available to us on commercially reasonable terms, that the possible types of
liabilities that may be incurred by us will be covered by our insurance, or that
the dollar amount of such liabilities will not exceed our policy limits. Even a
partially uninsured claim, if
7
successful and of sufficient magnitude, could have a material adverse effect on
our business, results of operations and prospects.
OUR BUSINESS IS SEASONAL AND IS INFLUENCED BY WEATHER PATTERNS.
In Canada, the level of activity in the oilfield service industry is
influenced by seasonal weather patterns. During the spring months, wet weather
and the spring thaw make the ground unstable. Consequently, municipalities and
provincial transportation departments enforce road bans that restrict the
movement of rigs and other heavy equipment, thereby reducing activity levels and
placing an increased level of importance on the location of our equipment prior
to imposition of the road bans. Additionally, certain oil and gas producing
areas are located in sections of the Western Canadian Sedimentary Basin that are
inaccessible, other than during the winter months, because the ground
surrounding or containing the drilling sites in these areas consists of terrain
known as muskeg. Until the muskeg freezes, the rigs and other necessary
equipment cannot cross the terrain to reach the drilling site. Moreover, once
the rigs and other equipment have been moved to a drilling site, they may become
stranded or otherwise unable to relocate to another site should the muskeg thaw
unexpectedly. Our financial results depend, at least in part, upon the severity
and duration of the Canadian winter.
WE INCUR SIGNIFICANT EXPENDITURES ON RESEARCH AND DEVELOPMENT EFFORTS TO OFFER
ADVANCED TECHNOLOGY TO OUR CUSTOMERS.
The continued development and growth of our Technology Services segment
is dependent on the success of our research and development efforts. A number of
new products have been commercialized and others are progressing to that stage.
Of particular note is the Rotary Steerable tool currently under development. The
research and engineering team is focusing on issues related to the reliability
of tool performance and increasing the mean time between physical failures.
The Rotary Steerable tool is a key component of the new suite of down
hole tools being introduced to the market by the Technology Services segment and
as such is important to the continued growth of the segment's business
worldwide. However, as with any research efforts, we cannot assure you that this
new product will be successfully developed and marketed.
The carrying value of Technology Services long-lived assets is reviewed
annually for impairment with the assistance of independent valuation experts.
The most recent review was completed in the fourth quarter of 2003 at which time
it was concluded that there was no impairment of the carrying value. Should the
segment's research and development efforts not be successful, assumptions with
respect to the growth of the business may change such that a write-down of
long-lived assets would be necessary.
WE ARE EXPOSED TO CURRENCY EXCHANGE RISK WHICH COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR OPERATING RESULTS.
Although our financial results are reported in Canadian dollars, a
portion of our sales and operating costs are denominated in U.S. dollars. In
addition, we are exposed to currency exchange risk on those of our assets
denominated in U.S. dollars. Since we present our financial statements in
Canadian dollars, any change in the value of the Canadian dollar relative to the
U.S. dollar during a given financial reporting period would result in a foreign
currency loss or gain on the translation of our U.S. dollar assets into Canadian
dollars. Consequently, our reported earnings could fluctuate materially as a
result of foreign exchange translation gains or losses. While it is not our
normal practice to enter into significant hedging arrangements, we may use
futures and forward contracts to partially hedge against short-term fluctuations
in currency; however, such activities provide only short-term protection against
a limited portion of our currency exposure. We may, from time to time, hedge a
portion of our net exchange rate exposure by way of one or more swap
transactions to Canadian dollars, to the extent our management considers it
reasonable to do so having regard to the then prevailing levels of our net
assets denominated in U.S. dollars and our U.S. dollar revenues, and to the
extent available on reasonable terms; however, such activities provide only
short-term protection and we cannot assure you that such transactions will be
effective in insulating us against exchange rate fluctuations.
YOUR ABILITY TO ENFORCE CIVIL LIABILITIES IN CANADA UNDER U.S. SECURITIES LAWS
MAY BE LIMITED.
We are incorporated under the laws of Canada and a substantial portion
of our assets are located in Canada. Most of our directors and officers reside
in Canada and most of their assets are located in Canada. It may not be
8
possible, therefore, for you to effect service of process within the United
States upon us or our directors and officers. There is uncertainty as to the
enforceability (1) in an original action in Canadian courts of liabilities
predicated solely upon United States federal securities laws and (2) of
judgments of United States courts obtained in actions predicated upon the civil
liability provisions of United States federal securities laws in Canadian
courts. Therefore, you may not be able to secure judgment against us or our
directors and officers in a Canadian court or, if successful in securing a
judgment against us or them in a U.S. court, you may not be able to enforce such
judgment in Canada.
PRECISION DRILLING CORPORATION
We provide oilfield and industrial services to customers in Canada, the
United States and other international regions. Our principal business is the
provision of land drilling services to oil and gas exploration and production
companies. We are the leading provider in Canada of land drilling services based
on the number of wells and metres drilled. Additionally, we provide the
following: well service rigs and hydraulic well assist snubbing units;
procurement and distribution of oilfield supplies; camp and catering services;
manufacture, sale and repair of drilling equipment; open hole logging, cased
hole logging and completion services, slickline services, directional drilling
services; measurement-while-drilling and logging-while-drilling services; the
manufacture, rental and sale of polycrystalline diamond compact drill bits;
controlled pressure drilling services and well testing services; rental of
mobile combination office and industrial housing; rental of surface oilfield
equipment for drilling, completion and production activities; and we also
provide industrial maintenance and turnaround services, including specialized
equipment and labour services, to downstream oil and gas, petrochemical and
other process industry customers.
We have grown primarily through a series of acquisitions of related
businesses as well as reinvestment in our core business to become the largest
Canadian integrated oilfield service contractor. We have reinvested cash flow
from operations to grow our service and product offerings.
Our principal executive and registered offices are located at 4200, 150
- 6th Avenue S.W., Calgary, Alberta, Canada T2P 3Y7.
USE OF PROCEEDS
Unless otherwise indicated in the applicable prospectus supplement
relating to an offering of Securities, we will use the net proceeds we receive
from the sale of Securities for general corporate purposes relating to our
operations in North America, South America and Europe that may include capital
expenditures, the repayment of indebtedness and the financing of acquisitions.
The amount of net proceeds to be used for any such purpose will be described in
an applicable prospectus supplement.
INTEREST COVERAGE
The following consolidated financial ratios are calculated for the
twelve month periods ended December 31, 2003 and March 31, 2004, based on
audited, in the case of December 31, 2003, and unaudited, in the case of March
31, 2004, financial information. The interest coverage ratios set out below have
been prepared and included in this prospectus in accordance with Canadian
disclosure requirements and have been calculated based on information prepared
in accordance with Canadian GAAP.
DECEMBER 31, MARCH 31,
2003 2004
------------ -----------
Interest coverage on long-term debt:
Earnings........................................... 8.07 times 9.47 times
Cash flow.......................................... 9.79 times 13.31 times
Interest coverage on long-term debt on an earnings basis is equal to
earnings before interest and income tax expense divided by interest expense.
Interest coverage on long-term debt on a cash flow basis is equal to cash flow
from operations before interest expense and current income tax expense divided
by interest expense. For purposes of calculating the interest coverage ratios
set forth in this prospectus, long-term debt includes the current portion of
long-term debt.
9
DESCRIPTION OF DEBT SECURITIES
In this section, "we", "us", "our" or "Precision" refers only to
Precision Drilling Corporation and not any of its subsidiaries or interests in
partnerships and other entities. The following description sets forth certain
general terms and provisions of the debt securities. We will provide the
particular terms and provisions of a series of debt securities and a description
of how the general terms and provisions described below apply to that series in
a prospectus supplement. Accordingly, for a description of the terms of a
particular series of debt securities, you must refer to both the applicable
prospectus supplement relating to the series and the description of the debt
securities set forth in this prospectus.
The debt securities will be issued under an indenture (the "Indenture")
to be entered into between us and The Bank of Nova Scotia Trust Company of New
York, as trustee (the "Trustee"). The Indenture will be subject to and governed
by the U.S. Trust Indenture Act of 1939, as amended. A copy of the form of
Indenture has been filed with the SEC as an exhibit to the registration
statement of which this prospectus is a part.
The following is a summary of the Indenture which sets forth certain
general terms and provisions of the debt securities and is not intended to be
complete. For a more complete description, including the definition of
capitalized terms used but not defined in this summary, you should refer to the
Indenture. Whenever we refer in this summary to particular provisions of the
Indenture, those provisions are qualified in their entirety by reference to the
Indenture. It is the Indenture, and not this summary, that governs the rights of
holders of debt securities.
We may from time to time issue debt securities and incur additional
indebtedness other than through an offering of debt securities under this
prospectus.
GENERAL
The Indenture does not limit the aggregate principal amount of debt
securities (which may include debentures, notes and other evidences of
indebtedness) that we may issue under the Indenture and does not limit the
amount of other indebtedness we may incur. The Indenture provides that debt
securities may be issued from time to time in one or more series and may be
denominated and payable in U.S. dollars or any other currency. Special Canadian
and United States Federal income tax considerations applicable to any debt
securities so denominated will be described in the prospectus supplement
relating thereto. Unless otherwise indicated in an applicable prospectus
supplement, the debt securities will be unsecured obligations. The debt
securities offered pursuant to this prospectus will be issued in an aggregate
principal amount of up to US$1,000,000,000 or the equivalent in a foreign
currency. The Indenture also permits us to increase the principal amount of any
series of the debt securities previously issued and to issue that increased
principal amount.
The applicable prospectus supplement will describe the specific terms
of the debt securities being offered and may include, but is not limited to, any
of the following:
o the title and the aggregate principal amount of the debt
securities;
o any limit on the aggregate principal amount of the debt
securities of such series;
o the date or dates, or the method by which such date or dates
will be determined or extended, on which the principal of, and
premium, if any, on the debt securities will be payable and
the portion (if less than the principal amount) to be payable
upon a declaration of acceleration of maturity;
o the rate or rates (whether fixed or variable) at which the
debt securities will bear interest, if any, or the method by
which such rate or rates will be determined and the date or
dates from which such interest will accrue and on which such
interest will be payable and the regular record date or dates
for the payment of interest on the debt securities in
registered form, or the method by which such date or dates
will be determined;
o the place or places where the principal of, and premium, if
any, and interest, if any, on the debt securities will be
payable and each office or agency where the debt securities
may be presented for registration of transfer or exchange;
o the period or periods within which, the price or prices at
which, the currency in which, and other terms and conditions
upon which the debt securities may be redeemed or purchased,
in whole or in part, by us;
o the terms and conditions upon which you may redeem the debt
securities prior to maturity and the price or prices at which
and the currency in which the debt securities are payable;
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o the terms, if any, on which the debt securities may be
converted or exchanged for other of our debt securities or
debt securities of other entities;
o if payment of the debt securities will be guaranteed by any
other person;
o the extent and manner, if any, in which payment on or in
respect of the debt securities will be secured, or will rank
senior, or will be subordinated to the prior payment of our
other liabilities and obligations;
o if the series of debt securities will be issuable in the form
of one or more global securities and, if so, the identity of
the depository for the global securities;
o any applicable Canadian and U.S. federal income tax
consequences;
o the terms and conditions of any sinking fund or analogous
provisions;
o if the debt securities may be issued bearing no interest or at
a discount below their stated principal amount, and special
considerations applicable to any such discounted debt
securities or other debt securities offered and sold at par
which are treated as having been issued at a discount for
Canadian and/or U.S. federal income tax purposes;
o if the debt securities are to be registered securities, bearer
securities (with or without coupons) or both;
o if other than denominations of US$1,000 and any integral
multiple thereof, the denomination or denominations in which
any definitive securities of the series shall be issuable and,
if other than the denomination of US$1,000, the denomination
or denominations in which any bearer debt securities of the
series shall be issuable;
o if other than U.S. dollars, the currency or currency unit in
which the debt securities are denominated or in which currency
payment of the principal of, and premium, if any, or interest,
if any, on such debt securities will be payable;
o any index formula or other method used to determine the amount
of payments of principal of, and premium, if any, or interest,
if any, on the debt securities;
o whether and under what circumstances we will be required to
pay any Additional Amounts (defined below under "Additional
Amounts") for withholding or deduction for Canadian taxes with
respect to the debt securities, and whether we will have the
option to redeem the debt securities rather than pay the
Additional Amounts; and
o any other terms, conditions, rights and preferences (or
limitations on such rights and preferences) of the debt
securities including covenants and events of default which
apply solely to a particular series of the debt securities
being offered which do not apply generally to other debt
securities, or any covenants or events of default generally
applicable to the debt securities which do not apply to a
particular series of the debt securities.
Unless otherwise indicated in the applicable prospectus supplement, the
Indenture does not afford holders of the debt securities the right to tender
such debt securities to us for repurchase in the event we experience a change in
control.
RANKING AND OTHER INDEBTEDNESS
Unless otherwise indicated in any applicable prospectus supplement, the
debt securities will be our unsecured senior obligations and will rank equally
and ratably with all of our other unsecured senior indebtedness from time to
time outstanding. Unless otherwise indicated in any applicable prospectus
supplement, the debt securities will be structurally subordinated to all
existing and future liabilities, including trade payables and other
indebtedness, of our subsidiaries, partnerships and other entities. We will
specify in a prospectus supplement at the time we issue a series of debt
securities the amount of our subsidiaries' and partnerships' then existing
liabilities, including trade payables and other indebtedness.
DEBT SECURITIES IN GLOBAL FORM
Unless otherwise indicated in a prospectus supplement, a series of the
debt securities will be issued in global form as one or more "global securities"
and will be registered in the name of and be deposited with a depositary, or its
nominee, each of which will be identified in the prospectus supplement relating
to that series. Unless and
11
until exchanged, in whole or in part, for debt securities in definitive form, a
global security may not be transferred except as a whole by the depositary for
such global security to a nominee of the depositary, by a nominee of the
depositary to the depositary or another nominee of the depositary or by the
depositary or any such nominee to a successor of the depositary or a nominee of
the successor.
The specific terms of the depositary arrangement with respect to any
series or portion of a series of the debt securities to be represented by a
global security will be described in the prospectus supplement relating to such
series. We anticipate that the following provisions will apply to all depositary
arrangements.
Upon the issuance of a global security, the depositary therefor or its
nominee will credit, on its book entry and registration system, the respective
principal amounts of the debt securities represented by the global security to
the accounts of such persons, designated as "participants", having accounts with
such depositary or its nominee. Such accounts shall be designated by the
underwriters, dealers or agents participating in the distribution of the debt
securities or by us if such debt securities are offered or sold directly by us.
Ownership of beneficial interests in a global security will be limited to
participants or persons that may hold beneficial interests through participants.
Ownership of beneficial interests in a global security will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the depositary therefor or its nominee (with respect to beneficial interests of
participants) or by participants or persons that hold through participants (with
respect to beneficial interests of persons other than participants).
So long as the depositary for a global security or its nominee is the
registered owner of the global security, such depositary or such nominee, as the
case may be, will be considered the sole owner or holder of the debt securities
represented by the global security for all purposes under the Indenture. Except
as provided below, owners of beneficial interests in a global security will not
be entitled to have a series of the debt securities represented by the global
security registered in their names, will not receive or be entitled to receive
physical delivery of such series of the debt securities in definitive form and
will not be considered the owners or holders thereof under the Indenture.
The laws of some states in the United States require that certain
purchasers of debt securities take physical delivery of such debt securities in
definitive form. These depositary arrangements and these laws may impair the
ability to transfer beneficial interests in a global security.
Any payments of principal, and premium, if any, and interest, if any,
on a global security registered in the name of a depositary or its nominee will
be made to the depositary or its nominee, as the case may be, as the registered
owner of the global security representing such debt securities. None of us, the
Trustee or any paying agent for the debt securities represented by the global
security will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in a
global security or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
We expect that the depositary for a global security or its nominee,
upon receipt of any payment of principal, and premium, if any, or interest, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the global security
as shown on the records of such depositary or its nominee. We also expect that
payments by participants to owners of beneficial interests in a global security
held through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in "street name", and will be the responsibility of such
participants.
If a depositary for a global security representing a particular series
of the debt securities is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by us within 90 days, we
will issue such series of debt securities in definitive form in exchange for the
global security representing such series of debt securities. In addition, we may
at any time and in our sole discretion determine not to have a series of debt
securities represented by a global security and, in such event, will issue a
series of debt securities in definitive form in exchange for the global security
representing such series of debt securities.
DEBT SECURITIES IN DEFINITIVE FORM
If indicated in a prospectus supplement, the debt securities may be
issued in definitive form without coupons or in bearer form with or without
coupons, or in both forms. Debt securities in definitive form may be presented
for exchange and for registration of transfer in the manner, at the places and,
subject to the restrictions set forth in
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the Indenture and in the applicable prospectus supplement, without service
charge, but upon payment of any taxes or other governmental charges due in
connection therewith. We have initially appointed the Trustee as security
registrar. Debt securities in bearer form and the coupons appertaining thereto,
if any, will be transferable by delivery.
Unless otherwise indicated in a prospectus supplement, payment of
principal, and premium, if any, and interest on any debt securities in
definitive form will be made at the office or agency of the Trustee, at One
Liberty Plaza, 23rd Floor, New York, New York 10006, or at our option we can pay
principal and any premium and interest on the debt securities by (1) check
mailed or delivered to the address of the person entitled to receive payments
appearing in the security register of the Trustee or (2) wire transfer to an
account in the United States of the person entitled to receive payments if such
person is a holder of US$1.0 million or more in aggregate principal amount of
the debt securities of a particular series.
COVENANTS
LIMITATION ON LIENS
The Indenture includes a covenant of Precision to the effect that, so
long as any debt securities are outstanding and subject to the provisions of the
Indenture, Precision will not, and will not permit any Restricted Subsidiary to,
create, incur, assume or otherwise have outstanding any Security Interest in, on
or over any of its or their interest in any property, present or future,
securing any Indebtedness of any person, other than Permitted Encumbrances,
unless at the time thereof or prior thereto the debt securities then outstanding
under the Indenture are equally and ratably secured with such Indebtedness for
so long as such Indebtedness is so secured.
CONSOLIDATION, AMALGAMATION, MERGER AND SALE OF ASSETS
The Indenture includes a covenant of Precision to the effect that it
may not in a single transaction or a series of transactions consolidate or
amalgamate with or merge with or into or enter into any statutory arrangement
with any other corporation, or, directly or indirectly, convey, transfer, sell,
lease or otherwise dispose of all or substantially all of its property to any
person, unless:
o the entity formed by or continuing from such consolidation or
amalgamation or into which Precision is merged or with which
Precision enters into such arrangement, or the person which
acquires or leases all or substantially all of Precision's
property, is organized and existing under the laws of the
United States, any state thereof or the District of Columbia,
the laws of Canada or any province or territory thereof, or,
if such consolidation, amalgamation, merger, arrangement or
other transaction would not impair the rights of holders of
the debt securities, in any other jurisdiction, PROVIDED THAT,
if such successor entity is organized under the laws of a
jurisdiction other than Canada or the United States, the
successor entity assumes our obligations under the debt
securities and the Indenture to pay Additional Amounts,
substituting the name of such successor jurisdiction for
Canada in each place that Canada appears in "Description of
Debt Securities--Additional Amounts", below and submits to the
jurisdiction of U.S. federal and state courts in the manner
and to the extent provided in the Indenture;
o the successor entity expressly assumes or assumes by operation
of law all of Precision's obligations under the debt
securities and under the Indenture;
o immediately after giving effect to such transaction, no event
of default, and no event which, after notice or lapse of time
or both, would become an event of default, shall have happened
and be continuing; and
o an officer's certificate and legal opinion covering such
conditions will be delivered to the Trustee.
If, as a result of any such transaction, any property of Precision or
any Restricted Subsidiary becomes subject to a Security Interest, then, unless
such Security Interest could be created pursuant to the Indenture provisions
described under the "LIMITATION ON LIENS" covenant above without equally and
ratably securing the debt securities, Precision or such Restricted Subsidiary,
simultaneously with or prior to such transaction, will cause the debt securities
to be secured equally and ratably with or prior to the Indebtedness secured by
such Security Interest.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in
the Indenture. Reference is made to the Indenture for the full definition of all
such terms.
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"CAPITAL LEASE OBLIGATION" means the obligation of a person, as lessee,
to pay rent or other amounts to the lessor under a lease of property which is
required to be classified and accounted for as a capital lease on the
consolidated balance sheet of such person in accordance with GAAP.
"CONSOLIDATED NET TANGIBLE ASSETS" means the total amount of assets of
any person on a consolidated basis (less applicable reserves and other properly
deductible items) after deducting therefrom:
o all current liabilities (excluding any current liabilities
which are by their terms extendible or renewable at the option
of the obligor thereon to a time more than 12 months after the
time as of which the amount thereof is being computed);
o all goodwill, trade names, trademarks, patents, unamortized
debt discounts and expenses and other like intangibles; and
o appropriate adjustments on account of minority interests of
other persons holding shares of the subsidiaries of such
person,
in each case, as shown on the most recent annual audited or quarterly unaudited
consolidated balance sheet of such person computed in accordance with GAAP.
"CURRENT ASSETS" means current assets as determined in accordance with
GAAP.
"FINANCIAL INSTRUMENT OBLIGATIONS" means obligations (entered into for
risk management and not for speculative purposes) arising under:
o interest rate swap agreements, forward rate agreements, floor,
cap or collar agreements, futures or options, insurance or
other similar agreements or arrangements, or any combination
thereof, entered into by a person relating to interest rates
or pursuant to which the price, value or amount payable
thereunder is dependent or based upon interest rates in effect
from time to time or fluctuations in interest rates occurring
from time to time;
o currency swap agreements, cross-currency agreements, forward
agreements, floor, cap or collar agreements, futures or
options, insurance or other similar agreements or
arrangements, or any combination thereof, entered into by a
person relating to currency exchange rates or pursuant to
which the price, value or amount payable thereunder is
dependent or based upon currency exchange rates in effect from
time to time or fluctuations in currency exchange rates
occurring from time to time; and
o commodity swap or hedging agreements, floor, cap or collar
agreements, commodity futures or options or other similar
agreements or arrangements, or any combination thereof,
entered into by a person relating to one or more commodities
or pursuant to which the price, value or amount payable
thereunder is dependent or based upon the price of one or more
commodities in effect from time to time or fluctuations in the
price of one or more commodities occurring from time to time.
"GAAP" means generally accepted accounting principles in Canada in
effect from time to time, unless Precision's most recent audited or quarterly
unaudited financial statements are not prepared in accordance with generally
accepted accounting principles in Canada, in which case GAAP shall mean
generally accepted accounting principles in the United States in effect from
time to time.
"INDEBTEDNESS" means liability for money borrowed or accrued and unpaid
interest thereon, obligations for payment of money under any Capital Lease
Obligation and any guarantees (without duplication);
"ISSUE DATE" means the date that any series of debt securities is first
issued under the Indenture.
"NON-RECOURSE DEBT" means Indebtedness to finance the creation,
development, construction or acquisition of assets and any increases in or
extension, renewals or refundings of such Indebtedness, provided that the
recourse of the lender thereof (including any agent, trustee, receiver or other
person acting on behalf of such entity) in respect of such Indebtedness is
limited in all circumstances to the assets created, developed, constructed or
acquired in respect of which such Indebtedness has been incurred and to the
receivables, inventory, equipment, chattels payable, contracts, intangibles and
other assets, rights or collateral connected with the assets created, developed,
constructed or acquired and to which such lender has recourse;
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"PERMITTED ENCUMBRANCES" means:
o any Security Interest existing as of the Issue Date;
o any Security Interest to secure a Purchase Money Obligation,
provided that the Security Interest does not extend to any
property other than the property acquired, constructed or
improved;
o any Security Interest existing on the property of any person
immediately prior to the time that (i) such person becomes a
Restricted Subsidiary, or (ii) such person is merged with or
into, liquidated into, or amalgamated or consolidated with
Precision or a Restricted Subsidiary, PROVIDED that such
Security Interest was not incurred in anticipation of such
person becoming a Restricted Subsidiary or of such merger,
liquidation, amalgamation or consolidation, and PROVIDED
FURTHER that such Security Interest does not extend to any
property other than the property of such person secured by
such Security Interest immediately prior to the time that such
person becomes a Restricted Subsidiary or the time of such
merger, liquidation, amalgamation or consolidation;
o any Security Interest existing on property at the time of
acquisition (including by way of lease) by Precision or a
Restricted Subsidiary, provided that such Security Interest
was not incurred in anticipation of the financing of such
acquisition;
o any Security Interest on property acquired by Precision or a
Restricted Subsidiary after the Issue Date given in connection
with a Capital Lease Obligation;
o any Security Interest in favour of Precision or any Restricted
Subsidiary;
o any Security Interest in Current Assets given to secure any
Indebtedness repayable on demand or maturing, including any
right of extension or renewal, within 12 months after the date
such Indebtedness is incurred;
o any Security Interest granted in connection with Financial
Instrument Obligations;
o any Security Interest on cash or securities deposited with a
trustee or collateral agent to defease Indebtedness secured by
such Security Interest;
o any Security Interest referred to in the foregoing clauses or
this clause securing any extension, renewal, alteration or
replacement of all or part of any Indebtedness secured by such
Security Interest, PROVIDED THAT:
o the principal amount of such Indebtedness is not
increased by an amount exceeding the cost of such
extension, renewal, alteration or replacement,
including but not limited to all fees and expenses
incurred in connection therewith; and
o the Security Interest is limited to all or part of
the property which secured the Indebtedness prior to
it being extended, renewed, altered or replaced, plus
improvements on such property and the proceeds
thereof and all rights associated therewith; and
o any Security Interest that would otherwise be prohibited,
provided that the aggregate of all Indebtedness outstanding
and secured under this clause does not (calculated at the time
of the granting of the Security Interest) exceed an amount
equal to 10% of Consolidated Net Tangible Assets.
"PERSON" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof;
"PURCHASE MONEY OBLIGATION" means any Indebtedness incurred in respect
of, and not exceeding, the cost of acquisition of any property or of the cost of
construction or improvements (but not costs of refurbishment) of any property
acquired, constructed or improved after the Issue Date, which Indebtedness
existed at the time of acquisition or was created, issued, incurred, assumed or
guaranteed contemporaneously with the acquisition, construction or improvement
or within 180 days after the completion thereof;
"RESTRICTED SUBSIDIARY" means, on any date, any Subsidiary of
Precision; provided, however, such term shall not include a Subsidiary of
Precision if the amount of Precision's share of shareholders' equity of such
Subsidiary constitutes, at the time of determination, less than 2% of
Precision's Consolidated Net Tangible Assets;
"SECURITY INTEREST" means with respect to any property, any security by
way of an assignment, mortgage, charge, pledge, lien, encumbrance, easement,
preference, priority, title retention agreement or other security interest
15
of any kind or nature whatsoever, howsoever created or arising, whether absolute
or contingent, fixed or floating, perfected or not, but not including any
security interest that may be deemed to arise solely as a result of entering
into an agreement not in violation of the Indenture to sell or otherwise
transfer property.
"SHAREHOLDERS' EQUITY" means shareholders' equity of Precision as shown
on the most recent annual audited or quarterly unaudited consolidated balance
sheet of Precision and computed in accordance with GAAP.
"SIGNIFICANT SUBSIDIARY" means a Restricted Subsidiary that constitutes
a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X of the
Exchange Act.
"SUBSIDIARY" means any corporation or other person of which Voting
Shares or other interests carrying more than 50% of the voting rights attached
to all outstanding Voting Shares or other interests are owned, directly or
indirectly, by Precision or by one or more Subsidiaries of Precision, or by
Precision and one or more Subsidiaries of Precision.
"VOTING SHARES" means shares of any class of a corporation which
ordinarily have the right to vote for the election of the directors of such
corporation, PROVIDED THAT, for the purpose of this definition, shares which
only carry the right to vote conditionally on the happening of an event shall
not be considered Voting Shares whether or not such event shall have happened.
ADDITIONAL AMOUNTS
Unless otherwise specified in a prospectus supplement, all payments
made by us under or with respect to the debt securities will be made free and
clear of and without withholding or deduction for or on account of any present
or future tax, duty, levy, impost, assessment or other governmental charge
(including penalties, interest and other liabilities related thereto) imposed or
levied by or on behalf of the Government of Canada or any province or territory
thereof or by any authority or agency therein or thereof having power to tax
("Canadian Taxes"), unless we are required to withhold or deduct Canadian Taxes
by law or by the interpretation or administration thereof. If we are so required
to withhold or deduct any amount for or on account of Canadian Taxes from any
payment made under or with respect to the debt securities, we will pay to each
holder of such debt securities as additional interest such additional amounts
("Additional Amounts") as may be necessary so that the net amount received by
each such holder after such withholding or deduction (and after deducting any
Canadian Taxes on such Additional Amounts) will not be less than the amount such
holder would have received if such Canadian Taxes had not been withheld or
deducted. However, no Additional Amounts will be payable with respect to a
payment made to a debt securities holder (such holder, an "Excluded Holder") in
respect of the beneficial owner thereof:
o with which we do not deal at arm's length (within the meaning
of the INCOME TAX ACT (Canada)) at the time of making such
payment;
o which is subject to such Canadian Taxes by reason of the
holder of the debt securities being a resident, domicile or
national of, or engaged in business or maintaining a permanent
establishment or other physical presence in or otherwise
having some connection with Canada or any province or
territory thereof otherwise than by the mere holding of debt
securities or the receipt of payments thereunder;
o which is subject to such Canadian Taxes by reason of the
holder's failure to comply with any certification,
identification, documentation or other reporting requirements
if compliance is required by law, regulation, administrative
practice or an applicable treaty as a precondition to
exemption from, or a reduction in the rate of deduction or
withholding of, such Canadian Taxes; or
o which by reason of the legal nature of the holder of the debt
securities is disentitled to the benefit of an applicable
treaty.
We will also make such withholding or deduction and remit the full
amount deducted or withheld to the relevant authority in accordance with
applicable law.
We will furnish to the holders of the debt securities, within 60 days
after the date the payment of any Canadian Taxes is due pursuant to applicable
law, certified copies of tax receipts or other documents evidencing such payment
by us.
We will indemnify and hold harmless each holder of debt securities
(other than an Excluded Holder) and upon written request reimburse each such
holder for the amount, excluding any payment of Additional Amounts that have
previously been made by us, of:
16
o any Canadian Taxes levied or imposed and paid by such holder
as a result of payments made under or with respect to the debt
securities;
o any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto; and
o any Canadian Taxes imposed with respect to any reimbursement
under the preceding two bullet points, but excluding any such
Canadian Taxes on such holder's net income.
At least 15 days prior to each date on which any payment under or with
respect to any of the debt securities is due and payable, if we are aware that
we will be obligated to pay Additional Amounts with respect to such payment, we
will deliver to the Trustee an Officers' Certificate stating the fact that such
Additional Amounts will be payable, the amounts so payable and will set forth
such other information necessary to enable the Trustee to pay such Additional
Amounts to holders on the payment date. Wherever in the Indenture there is
mentioned, in any context, the payment of principal, and premium, if any,
interest or any other amount payable under or with respect to a debt security,
such mention shall be deemed to include mention of the payment of Additional
Amounts to the extent that, in such context, Additional Amounts are, were or
would be payable in respect thereof.
TAX REDEMPTION
Unless otherwise specified in a prospectus supplement, a series of debt
securities will be subject to redemption at any time, in whole but not in part,
at a redemption price equal to the principal amount thereof together with
accrued and unpaid interest to the date fixed for redemption, upon the giving of
a notice as described below, if we (or our successor) determine that (i) as a
result of (A) any amendment to or change (including any announced prospective
change) in the laws (or any regulations thereunder) of Canada (or our
successor's jurisdiction of organization) or of any political subdivision or
taxing authority thereof or therein affecting taxation, as applicable, or (B)
any amendment to or change in an interpretation or application of such laws or
regulations by any legislative body, court, governmental agency or regulatory
authority (including the enactment of any legislation and the publication of any
judicial decision or regulatory determination), which amendment or change is
announced or becomes effective on or after the date specified in the applicable
prospectus supplement (or the date a party organized in a jurisdiction other
than Canada or the United States becomes our successor), we have or will become
obligated to pay, on the next succeeding date on which interest is due,
additional amounts with respect to any debt security of such series as described
under "Additional Amounts", or (ii) on or after the date specified in the
applicable prospectus supplement (or the date a party organized in a
jurisdiction other than Canada or the United States becomes our successor), any
action has been taken by any taxing authority of, or any decision has been
rendered by a court of competent jurisdiction in, Canada (or our successor's
jurisdiction of organization) or any political subdivision or taxing authority
thereof or therein, including any of those actions specified in (i) above,
whether or not such action was taken or decision was rendered with respect to
us, or any change, amendment, application or interpretation shall be officially
proposed, which, in any such case, in the written opinion to us of legal counsel
of recognized standing, will result in our becoming obligated to pay, on the
next succeeding date on which interest is due, Additional Amounts with respect
to any debt security of such series.
In the event that we elect to redeem a series of the debt securities
pursuant to the provisions set forth in the preceding paragraph, we shall
deliver to the Trustee a certificate, signed by an authorized officer, stating
that we are entitled to redeem such series of the debt securities pursuant to
their terms.
Notice of intention to redeem such series of our debt securities will
be given not more than 60 nor less than 30 days prior to the date fixed for
redemption and will specify the date fixed for redemption.
PROVISION OF FINANCIAL INFORMATION
We will furnish to the Trustee, within 30 days after we file them with
or furnish them to the SEC, copies (which may be electronic copies) of our
annual and quarterly reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which we are required to file with or furnish to the SEC
pursuant to Section 13 or 15(d) of the Exchange Act.
In the event that we may not remain subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on
an annual and quarterly basis on forms provided for such annual
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and quarterly reporting pursuant to rules and regulations promulgated by the
SEC, we will continue to furnish to the Trustee:
o within the time periods required for the filing of annual
information forms and annual financial statements (or similar
annual filings) by the Canadian securities regulatory
authorities, the information required to be contained in
annual reports on Form 40-F (or any successor form); and
o within the time periods for filing interim reports by the
Canadian securities regulatory authorities, the information
required to be contained in reports on Form 6-K (or any
successor form) which, regardless of applicable requirements
shall, at a minimum, contain such information required to be
provided in quarterly reports under the laws of Canada or any
province thereof to security holders of a corporation with
securities listed on the Toronto Stock Exchange, whether or
not we have any of our securities listed on such exchange.
Such information will be prepared in accordance with Canadian
disclosure requirements and GAAP; PROVIDED, HOWEVER, that we
shall not be obligated to file such report with the SEC if the
SEC does not permit such filings.
EVENTS OF DEFAULT
The following are summaries of events with respect to any series of our
debt securities which will constitute an event of default with respect to the
debt securities of that series:
o default in the payment of the principal of, or premium, if
any, on, any debt security when it becomes due and payable;
o default in the payment of any interest on any debt security,
when it becomes due and payable, and continuance of such
default for a period of 30 days;
o default in the performance, or breach, of any covenant or
warranty in the Indenture, and continuance of such default or
breach for a period of 60 days after written notice has been
given to us by the Trustee or by the holders of at least 25%
in principal amount of all outstanding debt securities of any
series affected thereby;
o default in the performance of any covenant of Precision or any
Restricted Subsidiary contained in any instrument (other than
the Indenture) under which Indebtedness (other than
Non-Recourse Debt) is created or issued if such Indebtedness
has an outstanding principal amount in excess of the greater
of US$40 million and 2.5% of Shareholders' Equity at the time
of default and the holders of such Indebtedness, or a trustee,
if any, for those holders, declare such Indebtedness to be due
and payable prior to the stated maturity of such Indebtedness,
and such acceleration shall not be rescinded or annulled, or
such default shall not be remedied or cured, whether by
payment or otherwise, or waived by the holders of such
accelerated Indebtedness within a period of seven days after
such Indebtedness has been accelerated (or, if such
acceleration is the result of an event of default which is not
related to the failure to pay principal or interest, within 30
days after such Indebtedness has been accelerated);
o certain events in bankruptcy, insolvency, assignment for the
benefit of creditors or analogous process relating to
Precision or any Significant Subsidiary of Precision, as
described in the Indenture; or
o any other events of default provided with respect to debt
securities of that series.
If an event of default occurs and is continuing with respect to debt
securities of any series, unless the principal of all of the debt securities of
that series shall have already become due and payable, the Trustee may, in its
discretion, and shall upon request in writing made by the holders of not less
than 25% in principal amount of all outstanding debt securities affected by such
event of default, declare the principal of, and premium, if any, on, all the
outstanding debt securities of that series and the interest accrued thereon and
all other money, if any, owing under the provisions of the Indenture in respect
of those debt securities, to be immediately due and payable.
The indenture governing our 6.85% Debentures due June 2007 and our
7.65% Debentures due October 2010 provides that an event of default shall have
occurred with respect to such debentures if there is a default by us or by a
material subsidiary of ours in respect of any indebtedness for borrowed money in
excess of $20 million if such default consists of a failure to pay the
indebtedness when due or results in the acceleration of such indebtedness. Since
the similar event of default described in the fourth bullet point in the above
paragraph provides for an event of default with respect to the debt securities
only if there is a default with respect to other
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Indebtedness having a principal amount in excess of the greater of US$40 million
or 2.5% of Shareholders' Equity, it is possible that holders of such debentures
could accelerate payment of those debentures as a result of a default in other
indebtedness while the holders of the debt securities would not be entitled to
accelerate payment of the debt securities.
Subject to certain conditions contained in the Indenture, the holders
of a majority of the aggregate principal amount of the debt securities of the
affected series can rescind this accelerated payment requirement. Subject to
certain limitations contained in the Indenture, the holders of a majority in
principal amount of the outstanding debt securities of all series affected by an
event of default shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, with respect to the debt securities
of all series affected by such event of default.
No holder of a debt security of any series will have any right to
institute any proceeding with respect to the Indenture, or for the appointment
of a receiver or a trustee, or for any other remedy thereunder, unless:
o such holder has previously given to the Trustee written notice
of a continuing event of default with respect to the debt
securities of such series affected by such event of default;
o the holders of at least 25% in aggregate principal amount of
the outstanding debt securities of such series (voting as one
class) affected by such event of default have made written
request, and such holder or holders have offered reasonable
indemnity, to the Trustee to institute such proceeding as
Trustee; and
o the Trustee has failed to institute such proceeding, and has
not received from the holders of a majority in aggregate
principal amount of the outstanding debt securities of such
series affected by such event of default a direction
inconsistent with such request, within 60 days after such
notice, request and offer.
However, such above-mentioned limitations do not apply to a suit
instituted by the holder of a debt security for the enforcement of payment of
the principal of or any premium or interest on such debt security on or after
the applicable due date specified in such debt security.
The Indenture requires that we annually furnish to the Trustee a
statement by certain of our officers as to whether or not Precision, to the best
of their knowledge, is in compliance with all conditions and covenants of the
Indenture and, if not, specifying all such known defaults. We will also be
required under the Indenture to notify the Trustee as soon as practicable upon
becoming aware of any event of default.
DEFEASANCE
Unless otherwise specified in the applicable prospectus supplement, the
Indenture provides that, at our option, we will be discharged from any and all
obligations in respect of the outstanding debt securities of any series upon
irrevocable deposit with the Trustee, in trust, of money and/or government
securities which will provide money in an amount sufficient in the opinion of a
nationally recognized firm of independent chartered accountants to pay the
principal of and premium, if any, and each installment of interest on the
outstanding debt securities of such series ("Defeasance") (except with respect
to the authentication, transfer, exchange or replacement of our debt securities
or
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the maintenance of a place of payment and certain other obligations set forth in
the Indenture). Such trust may only be established if, among other things:
o we have delivered to the Trustee an opinion of counsel in the
United States stating that Precision has received from, or
there has been published by, the Internal Revenue Service a
ruling or, since the Issue Date, there has been a change in
the applicable U.S. federal income tax law, in either case to
the effect that the holders of the outstanding debt securities
of such series will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such
Defeasance and will be subject to U.S. federal income tax on
the same amounts, in the same manner and at the same times as
would have been the case if such Defeasance had not occurred;
o we have delivered to the Trustee an opinion of counsel in
Canada or a ruling from Canada Revenue Agency to the effect
that the holders of the outstanding debt securities of such
series will not recognize income, gain or loss for Canadian
federal or provincial income or other tax purposes as a result
of such Defeasance and will be subject to Canadian federal or
provincial income and other tax on the same amounts, in the
same manner and at the same times as would have been the case
had such Defeasance not occurred (and for the purposes of such
opinion, such Canadian counsel shall assume that holders of
the outstanding debt securities of such series include holders
who are not resident in Canada);
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o we are not an "insolvent person" within the meaning of the
BANKRUPTCY AND INSOLVENCY ACT (Canada) on the date of such
deposit or at any time during the period ending on the 91st
day following such deposit; and
o no event of default or event that, with the passing of time or
the giving of notice, or both, shall constitute an event of
default, shall have occurred and be continuing on the date of
such deposit.
We may exercise our Defeasance option notwithstanding our prior
exercise of our Covenant Defeasance option described in the following paragraph
if we meet the conditions described in the preceding sentence at the time we
exercise the Defeasance option.
The Indenture provides that, at our option, unless and until we have
exercised our Defeasance option described in the preceding paragraph, we may
omit to comply with the "Limitation on Liens" and "Consolidation, Amalgamation,
Merger and Sale of Assets" covenants and certain other covenants and such
omission shall not be deemed to be an event of default under the Indenture upon
irrevocable deposit with the Trustee, in trust, of money and/or government
securities which will provide money in an amount sufficient in the opinion of a
nationally recognized firm of independent chartered accountants to pay the
principal of and premium, if any, and each installment of interest, if any, on
the outstanding debt securities ("Covenant Defeasance"). If we exercise our
Covenant Defeasance option, the obligations under the Indenture other than with
respect to such covenants and the events of default with respect to such
covenants shall remain in full force and effect. Such trust may only be
established if, among other things:
o we have delivered to the Trustee an opinion of counsel in the
United States to the effect that the holders of the
outstanding debt securities will not recognize income, gain or
loss for U.S. federal income tax purposes as a result of such
Covenant Defeasance and will be subject to U.S. federal income
tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance
had not occurred;
o we have delivered to the Trustee an opinion of counsel in
Canada or a ruling from Canada Revenue Agency to the effect
that the holders of the outstanding debt securities will not
recognize income, gain or loss for Canadian federal or
provincial income or other tax purposes as a result of such
Covenant Defeasance and will be subject to Canadian federal or
provincial income and other tax on the same amounts, in the
same manner and at the same times as would have been the case
had such Covenant Defeasance not occurred (and for the
purposes of such opinion, such Canadian counsel shall assume
that holders of our outstanding debt securities include
holders who are not resident in Canada);
o we are not an "insolvent person" within the meaning of the
Bankruptcy and Insolvency Act (Canada) on the date of such
deposit or at any time during the period ending on the 91st
day following such deposit; and
o no event of default or event that, with the passing of time or
the giving of notice, or both, shall constitute an event of
default, shall have occurred and be continuing on the date of
such deposit.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by us and the
Trustee with the consent of the holders of a majority in principal amount of the
outstanding debt securities of each series issued under the Indenture affected
by such modification or amendment (voting as one class); provided that no such
modification or amendment may, without the consent of the holder of each
outstanding debt security of such affected series:
o change the stated maturity of the principal of, or extend the
scheduled time of payment of any instalment of interest, if
any, on any debt security;
o reduce the principal amount of, or premium, if any, or
interest rate, if any, on any debt security;
o change the place of payment;
o change the currency of payment of principal of, or premium, if
any, or interest, if any, on any debt security;
o impair the right to institute suit for the enforcement of any
payment on or with respect to any debt security;
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o reduce the percentage of principal amount of outstanding debt
securities of such series, the consent of the holders of which
is required for modification or amendment of Indenture
provisions or for waiver of compliance with provisions of the
Indenture or for waiver of defaults; or
o modify any provisions of the Indenture relating to the
modification and amendment of the Indenture or the waiver of
past defaults or covenants, except as otherwise specified in
the Indenture.
The holders of a majority in principal amount of the outstanding debt
securities of any series may on behalf of the holders of all debt securities of
that series waive, insofar as that series is concerned, compliance by us with
certain restrictive provisions of the Indenture. The holders of a majority in
principal amount of outstanding debt securities of any series may waive any past
default under the Indenture with respect to that series, except a default in the
payment of the principal of, or premium, if any, and interest, if any, on any
debt security of that series or in respect of a provision which under the
Indenture cannot be modified or amended without the consent of the holder of
each outstanding debt security of that series.
The Indenture or the debt securities may be amended or supplemented,
without the consent of any holder of such debt securities, in order to, among
other things, cure any ambiguity or inconsistency that, in each case, does not
materially adversely affect the rights of any holder of such debt securities.
RESIGNATION OF TRUSTEE
The Trustee may resign or be removed with respect to one or more series
of debt securities and a successor Trustee may be appointed to act with respect
to such series. In the event that two or more persons are acting as Trustee with
respect to different series of debt securities, each such Trustee shall be a
Trustee of a trust under the Indenture separate and apart from the trust
administered by any other such Trustee, and any action described herein to be
taken by the "Trustee" may then be taken by each such Trustee with respect to,
and only with respect to, the one or more series of debt securities for which it
is Trustee.
GOVERNING LAW
Our debt securities and the Indenture will be governed by and construed
in accordance with the laws of the State of New York.
CONSENT TO JURISDICTION AND SERVICE
Under the Indenture, we have irrevocably appointed CT Corporation
System, 111 8th Avenue, 13th Floor, New York, New York 10011, as our authorized
agent for service of process in any suit or proceeding arising out of or
relating to the debt securities or the Indenture and for actions brought under
U.S. federal or state securities laws in any U.S. federal or state court located
in the Borough of Manhattan in The City of New York, New York, and we have
irrevocably submitted to the non-exclusive jurisdiction of such courts.
ENFORCEABILITY OF JUDGMENTS
Since most of our assets, as well as the assets of a number of our
directors and officers, are outside the United States, any judgment obtained in
the United States against us or certain of our directors or officers, including
judgments with respect to the payment of principal on any debt securities, may
not be collectible within the United States.
We have been informed by Borden Ladner Gervais LLP, our Canadian
counsel, that the laws of the Province of Alberta and the federal laws of Canada
applicable therein permit an action to be brought in a court of competent
jurisdiction in the Province of Alberta on any final and conclusive judgment IN
PERSONAM of any federal or state court located in the State of New York (a "New
York Court") against us, which judgment is subsisting and unsatisfied for a sum
certain with respect to the enforcement of the Indenture and the debt securities
that is not impeachable as void or voidable under the internal laws of the State
of New York if: (i) the New York Court rendering such judgment had jurisdiction
over the judgment debtor, as recognized by the courts of the Province of Alberta
(and submission by us in the Indenture to the jurisdiction of the New York Court
will be sufficient for that purpose); (ii) such judgment was not obtained by
fraud or in a manner contrary to natural justice and the enforcement thereof
would not be inconsistent with public policy, as such terms are understood under
the laws of the Province of Alberta or contrary to any order made by the
Attorney General of Canada under the FOREIGN EXTRATERRITORIAL MEASURES ACT
(Canada) or by the Competition Tribunal under the COMPETITION ACT (Canada);
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(iii) the enforcement of such judgment would not be contrary to the laws of
general application limiting the enforcement of creditors' rights including
bankruptcy, reorganization, winding up, moratorium and similar laws and does not
constitute, directly or indirectly, the enforcement of foreign revenue,
expropriatory or penal laws in the Province of Alberta; (iv) no new admissible
evidence relevant to the action is discovered prior to the rendering of judgment
by the court in the Province of Alberta; (v) interest payable on the debt
securities is not characterized by a court in the Province of Alberta as
interest payable at a criminal rate within the meaning of Section 347 of the
CRIMINAL CODE (Canada); and (vi) the action to enforce such judgment is
commenced within the appropriate limitation period, except that any court in the
Province of Alberta may only give judgment in Canadian dollars.
In the opinion of such counsel, there are no reasons under present laws of the
Province of Alberta for avoiding recognition of such judgments of New York
Courts under the Indenture or on the debt securities based upon public policy.
We have been advised by such counsel that there is doubt as to the
enforceability in Canada by a court in original actions, or in actions to
enforce judgments of United States courts, of civil liabilities predicated
solely upon the United States federal securities laws.
DESCRIPTION OF SHARE CAPITAL
AUTHORIZED CAPITAL
Our authorized capital consists of an unlimited number of common shares
without nominal or par value and an unlimited number of non-voting, cumulative,
convertible, redeemable preferred shares ("Preferred Shares") without nominal or
par value, issuable in series. As at April 30, 2004, 55,897,119 common shares
are issued and outstanding and no Preferred Shares have been issued.
COMMON SHARES
Each common share entitles the holder to receive notice of and to
attend all meetings of our shareholders, other than meetings at which only the
holders of another class or series are entitled to vote. Each common share
entitles the holder to one vote. The holders of common shares, in the discretion
of the board of directors, are entitled to receive out of any monies properly
applicable to the payment of dividends, and after the payment of any dividends
payable on the Preferred Shares of any series or any other series ranking prior
to the common shares as to the payment of dividends, any dividends declared and
payable on the common shares. Upon any liquidation, dissolution or winding-up of
Precision, or other distribution of our assets among our shareholders for the
purposes of winding-up our affairs, the holders of the common shares are
entitled to share on a share-for-share basis in the distribution, except for the
prior rights of the holders of the Preferred Share of any series, or any other
class ranking prior to the common shares. There are no pre-emptive or conversion
rights, and the common shares are not subject to redemption. All common shares
currently outstanding and to be outstanding upon exercise of outstanding options
are, or will be, fully paid and non-assessable.
Our by-laws provide for certain rights of holders of our common shares
in accordance with the provisions of the BUSINESS CORPORATIONS ACT (Alberta).
Such by-laws may be amended either by a majority vote of the holders of common
shares or by a majority vote of the board of directors. Any amendment of the
by-laws by action of the board of directors must be submitted to the next
meeting of our shareholders whereupon the by-law amendment must be confirmed,
confirmed as amended or replaced by a majority of the vote of the shareholders
voting on such matter.
Our shareholders do not have cumulative voting rights on the election
of our directors. Therefore, the holder of more than 50% of the common shares
voting for the election of our directors could, if they chose to do so, elect
all of the directors and, in such event, the holders of the remaining common
shares would not be able to elect any director.
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PLAN OF DISTRIBUTION
We may sell Securities to or through underwriters or dealers and also
may sell Securities directly to purchasers or through agents. These Securities
may be sold in Canada, the United States and elsewhere where permitted by law.
The distribution of Securities of any series may be effected from time
to time in one or more transactions:
o at a fixed price or prices, which may be changed;
o at market prices prevailing at the time of sale; or
o at prices related to such prevailing market prices to be
negotiated with purchasers.
In connection with the sale of Securities, underwriters may receive
compensation from us or from purchasers of Securities for whom they may act as
agents in the form of concessions or commissions. Underwriters, dealers and
agents that participate in the distribution of Securities may be deemed to be
underwriters and any commissions received by them from us and any profit on the
resale of Securities by them may be deemed to be underwriting commissions under
the United States Securities Act of 1933, as amended (the "Securities Act").
The prospectus supplement will also set forth the terms of the offering
of the Securities, including to the extent applicable, the initial offering
price, our proceeds from the offering, the underwriting concessions or
commissions, and any other discounts or concessions to be allowed or reallowed
to dealers. Underwriters with respect to each series sold to or through
underwriters will be named in the prospectus supplement relating to such series.
Under agreements which may be entered into by us, underwriters, dealers
and agents who participate in the distribution of debt securities may be
entitled to indemnification by us against certain liabilities, including
liabilities under the Securities Act. The underwriters, dealers and agents with
whom we enter into agreements may be customers of, engage in transactions with
or perform services for us in the ordinary course of business.
Each series of debt securities will be a new issue of securities with
no established trading market. Unless otherwise specified in a prospectus
supplement relating to a series of debt securities, the debt securities will not
be listed on any securities exchange or on any automated dealer quotation
system. Certain broker-dealers may make a market in the debt securities, but
will not be obligated to do so and may discontinue any market making at any time
without notice. We cannot assure you that any broker-dealer will make a market
in the debt securities of any series or as to the liquidity of the trading
market, if any, for the debt securities of any series.
CERTAIN INCOME TAX CONSIDERATIONS
The applicable prospectus supplement will describe certain Canadian
federal income tax consequences to an investor who is a resident of Canada or
who is a non-resident of Canada of acquiring any Securities offered thereunder,
including to the extent applicable, whether the payments of principal of,
premium, if any, and interest on the debt securities will be subject to Canadian
non-resident withholding tax.
The applicable prospectus supplement will also describe certain United
States federal income tax consequences of the acquisition, ownership and
disposition of any Securities offered under this prospectus by an initial
investor who is a United States person (within the meaning of the United States
Internal Revenue Code), including, to the extent applicable, any such
consequences relating to debt securities payable in a currency other than the
United States dollar, issued at an original issue discount for United States
federal income tax purposes or containing early redemption provisions or other
special terms.
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LEGAL MATTERS
Unless otherwise specified in the prospectus supplement certain legal
matters relating to Canadian law will be passed upon for us by Borden Ladner
Gervais LLP, Calgary, Alberta, Canada. Certain legal matters in connection with
the offering relating to United States law will be passed upon for us by Paul,
Weiss, Rifkind, Wharton & Garrison LLP, New York, New York. Certain legal
matters relating to Canadian law will be passed upon for any underwriters,
dealers or agents by Burnet Duckworth & Palmer LLP, Calgary, Alberta, Canada. In
addition, certain legal matters relating to United States law will be passed
upon for any underwriters, dealers or agents by Skadden, Arps, Slate, Meagher &
Flom LLP, Toronto, Ontario, Canada.
The partners and associates of Borden Ladner Gervais LLP and Paul,
Weiss, Rifkind, Wharton & Garrison LLP as a group beneficially own, directly or
indirectly, less than 1% of any class of Precision's securities.
EXPERTS
The audited consolidated financial statements incorporated by reference
in this prospectus have been so incorporated in reliance on the reports of KPMG
LLP, Chartered Accountants, given on the authority of said firm, as experts in
auditing and accounting.
DOCUMENTS FILED AS PART OF THE REGISTRATION STATEMENT
The following documents have been filed with the SEC as part of the
registration statement of which this prospectus is a part insofar as required by
the SEC's Form F-10:
o the documents listed in the third paragraph under "Where You
Can Find More Information" in this prospectus;
o U.S. GAAP Reconciliation for our unaudited comparative
consolidated financial statements for the three months ended
March 31, 2004;
o the consent of our accountants, KPMG LLP;
o the consent of our counsel, Borden Ladner Gervais LLP;
o powers of attorney from our directors and officers;
o the form of trust indenture relating to the debt securities;
o the statement of eligibility of the trustee on Form T- 1; and
o interest coverage ratios.
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CONSENT OF KPMG LLP
We have read the short form base shelf prospectus of Precision Drilling
Corporation (the "Corporation") dated May 17, 2004 relating to the offer for
sale from time to time of up to US$1,000,000,000 of debt securities or common
shares of the Corporation. We have complied with Canadian generally accepted
standards for an auditor's involvement with offering documents.
We consent to the incorporation by reference in the above-mentioned
short form base shelf prospectus of our report to the shareholders of the
Corporation on the consolidated balance sheets of the Corporation as at December
31, 2003 and 2002 and the consolidated statements of earnings and retained
earnings and cash flow for each of the years in the three-year period ended
December 31, 2003. Our report is dated February 10, 2004.
"KPMG LLP"
Chartered Accountants
May 17, 2004
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