Filed Pursuant to Rule 424(b)(3)
Registration No. 333-40627
[FALCON DRILLING LETTERHEAD]
November 20, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of
Stockholders of Falcon Drilling Company, Inc. ("Falcon") to be held at
the Omni Houston Hotel, Four Riverway, Houston, Texas, on December 23,
1997 at 9:00 a.m., Central Time.
At the Special Meeting you will be asked to approve and adopt
the Agreement and Plan of Merger, dated as of July 10, 1997 (the "Merger
Agreement"), among R&B Falcon Corporation ("Parent"), FDC Acquisition
Corp. ("Falcon Sub"), Reading & Bates Acquisition Corp. ("R&B Sub"),
Falcon and Reading & Bates Corporation ("R&B") pursuant to which (i)
Falcon Sub will be merged with and into Falcon (the "Falcon Merger"),
(ii) each outstanding share of Falcon Common Stock will be converted into
one share of Parent Common Stock, (iii) R&B Sub will be merged with and
into R&B (the "R&B Merger" and, together with the Falcon Merger, the
"Mergers"), and (iv) each outstanding share of R&B Common Stock will be
converted into 1.18 shares of Parent Common Stock. Upon consummation of
the transactions contemplated by the Merger Agreement, each of Falcon and
R&B will become a wholly owned subsidiary of a new holding company named
R&B Falcon Corporation. The shares of Parent Common Stock have been
approved for listing on the New York Stock Exchange, Inc., subject to
official notice of issuance, and will trade under the symbol "FLC."
The proposed Mergers are contingent upon, among other things,
the approval of the stockholders of Falcon and R&B and will be
consummated shortly after such approvals are obtained and the other
conditions to the Mergers are satisfied or waived.
Your Board of Directors has carefully reviewed and considered
the terms and conditions of the proposed Mergers. ACCORDINGLY, YOUR BOARD
OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT THE MERGER AGREEMENT IS FAIR
TO, AND IN THE BEST INTERESTS OF, FALCON AND ITS STOCKHOLDERS, AND
UNANIMOUSLY RECOMMENDS THAT FALCON STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
The attached Joint Proxy Statement/Prospectus describes the
proposed transaction more fully and includes other information about
Falcon, R&B and Parent. Please give this information your thoughtful
attention.
To ensure your representation at the Special Meeting, please
promptly complete, sign and date the enclosed proxy and return it in the
envelope provided. If you plan to attend the Special Meeting, you may
vote in person at that time, even though you have previously turned in
your proxy.
Sincerely,
/s/ Steven A. Webster
Steven A. Webster
Chairman of the Board
and Chief Executive Officer
FALCON DRILLING COMPANY, INC.
1900 WEST LOOP SOUTH
SUITE 1800
HOUSTON, TEXAS 77027
-----------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
DECEMBER 23, 1997
-----------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Falcon Drilling Company, Inc., a Delaware corporation ("Falcon"), will be
held at the Omni Houston Hotel, Four Riverway, Houston, Texas, on
December 23, 1997, at 9:00 a.m., Central Time, for the following
purposes:
(1) To consider and vote upon a proposal to approve and adopt
the Agreement and Plan of Merger, dated as of July 10, 1997 (the "Merger
Agreement"), among R&B Falcon Corporation ("Parent"), FDC Acquisition
Corp. ("Falcon Sub"), Reading & Bates Acquisition Corp. ("R&B Sub"),
Falcon and Reading & Bates Corporation ("R&B"), a copy of which is set
forth as Annex A to the attached Joint Proxy Statement/Prospectus.
Pursuant to the Merger Agreement, (i) Falcon Sub will be merged with and
into Falcon and R&B Sub will be merged with and into R&B, with the result
that each of Falcon and R&B will become a wholly owned subsidiary of
Parent, (ii) each outstanding share of Falcon Common Stock will be
converted into one share of Parent Common Stock, and (iii) each
outstanding share of R&B Common Stock will be converted into 1.18 shares
of Parent Common Stock, all as more fully set forth in the Merger
Agreement and described in the attached Joint Proxy Statement/Prospectus.
(2) To consider and act upon any other matters which may
properly come before the meeting or any adjournments or postponements
thereof.
Only stockholders of record at the close of business on November
20, 1997 are entitled to notice of and to vote at the meeting or at any
adjournments or postponements thereof. A list of such stockholders will
be available for examination at the offices of Falcon during normal
business hours by any holder of Falcon Common Stock for any purpose
relevant to the Special Meeting for a period of 10 days prior to the
Special Meeting.
By Order of the Board of Directors
Houston, Texas
November 20, 1997
-------------------
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL
MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY, WHICH IS
SOLICITED BY THE BOARD OF DIRECTORS OF FALCON, AND RETURN IT TO FALCON IN
THE PREADDRESSED ENVELOPE PROVIDED FOR THAT PURPOSE. ANY STOCKHOLDER MAY
REVOKE HIS PROXY AT ANY TIME BEFORE THE MEETING BY WRITTEN NOTICE TO SUCH
EFFECT, BY SUBMITTING A SUBSEQUENTLY DATED PROXY OR BY ATTENDING THE
MEETING AND VOTING IN PERSON.
READING & BATES CORPORATION
901 THREADNEEDLE, SUITE 200
HOUSTON, TEXAS 77079-2902
November 20, 1997
Dear Stockholder,
You are cordially invited to attend a Special Meeting of
Stockholders (the "R&B Special Meeting") of Reading & Bates Corporation
("R&B") to be held at the Omni Houston Hotel, Four Riverway, Houston,
Texas, on December 23, 1997, at 9:00 a.m., Central Time.
At the R&B Special Meeting, you will be asked to approve and
adopt the Agreement and Plan of Merger, dated as of July 10, 1997 (the
"Merger Agreement"), that provides for the combination of R&B and Falcon
Drilling Company, Inc. ("Falcon"). Upon consummation of the transactions
contemplated by the Merger Agreement, (i) each of Falcon and R&B will
become a wholly owned subsidiary of a new holding company named R&B
Falcon Corporation ("Parent"), (ii) each outstanding share of R&B Common
Stock will be converted into 1.18 shares of Parent Common Stock, and
(iii) each outstanding share of R&B Class A Stock will be converted into
either (a) 1.18 shares of Parent Common Stock or (b) the right to receive
an amount in cash equal to the sum of $12.00 plus all accrued and unpaid
cumulative dividends.
The proposed mergers are contingent upon, among other things,
the approval of the stockholders of Falcon and R&B and will be
consummated shortly after such approvals are obtained and the other
conditions to the mergers are satisfied or waived. Detailed descriptions
of the Merger Agreement and these transactions are set forth in the
accompanying Joint Proxy Statement/Prospectus, which you should read
carefully.
Your Board of Directors has carefully reviewed and considered
the terms and conditions of the proposed mergers. ACCORDINGLY, YOUR BOARD
OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, HAS
DETERMINED THAT THE R&B MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF,
R&B AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT R&B STOCKHOLDERS
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
To ensure your representation at the R&B Special Meeting, please
promptly complete, sign and date the enclosed proxy and return it in the
envelope provided. If you plan to attend the R&B Special Meeting, you may
vote in person at that time, even though you have previously turned in
your proxy.
Yours truly,
/s/ Paul B. Loyd, Jr.
Paul B. Loyd, Jr.
Chairman of the Board and
Chief Executive Officer
READING & BATES CORPORATION
901 THREADNEEDLE, SUITE 200
HOUSTON, TEXAS 77079-2902
---------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
DECEMBER 23, 1997
---------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Reading & Bates Corporation, a Delaware corporation ("R&B"), will be held
at the Omni Houston Hotel, Four Riverway, Houston, Texas, on December 23,
1997, at 9:00 a.m., Central Time, for the following purposes:
(1) To consider and vote upon a proposal to approve and adopt
the Agreement and Plan of Merger, dated as of July 10, 1997 (the "Merger
Agreement"), among R&B Falcon Corporation ("Parent"), FDC Acquisition
Corp. ("Falcon Sub"), Reading & Bates Acquisition Corp. ("R&B Sub"),
Falcon Drilling Company, Inc. and R&B, a copy of which is set forth as
Annex A to the attached Joint Proxy Statement/Prospectus. Pursuant to the
Merger Agreement, among other things, (i) Falcon Sub will be merged with
and into Falcon and R&B Sub will be merged with and into R&B, with the
result that each of Falcon and R&B will become a wholly owned subsidiary
of Parent, (ii) each outstanding share of Falcon Common Stock will be
converted into one share of Parent Common Stock, (iii) each outstanding
share of R&B Common Stock will be converted into 1.18 shares of Parent
Common Stock and (iv) each outstanding share of R&B Class A Stock will be
converted into either (a) 1.18 shares of Parent Common Stock or (b) the
right to receive an amount in cash equal to the sum of $12.00 plus all
accrued and unpaid cumulative dividends, all as more fully set forth in
the Merger Agreement and described in the attached Joint Proxy
Statement/Prospectus.
(2) To consider and act upon any other matters which may
properly come before the meeting or any adjournments or postponements
thereof.
The proposal to approve and adopt the Merger Agreement will be
voted upon (i) by the holders of R&B Common Stock and R&B Class A Stock,
voting together as a single class, and (ii) by the holders of R&B Class A
Stock, voting separately. The consummation of the mergers contemplated by
the Merger Agreement (the "Mergers") is conditioned upon, among other
things, the affirmative vote of the holders of shares of R&B Common Stock
and R&B Class A Stock representing a majority of the votes entitled to be
cast by the holders of the outstanding shares of R&B Common Stock and R&B
Class A Stock, voting together as a single class. Consummation of the
Mergers is not conditioned upon an affirmative vote of the holders of
shares of R&B Class A Stock voting separately, but if the holders of at
least two-thirds of the shares of R&B Class A Stock do not approve the
Merger Agreement each share of R&B Class A Stock will be converted into
the right to receive cash, as summarized above. If the holders of at
least two-thirds of the shares of R&B Class A Stock approve the Merger
Agreement, each share of R&B Class A Stock will be converted into 1.18
shares of Parent Common Stock. Notwithstanding the foregoing, holders of
shares of R&B Class A Stock who do not vote to approve the Merger
Agreement and who otherwise comply with the applicable requirements of
Delaware law will be entitled to appraisal rights in connection with the
Mergers (although R&B believes the amount received in any such appraisal
proceeding would be limited to the cash amount described above).
Only stockholders of record at the close of business on November
20, 1997 are entitled to notice of and to vote at the meeting or at any
adjournments or postponements thereof. A list of stockholders will be
available for examination at the offices of R&B during normal business
hours by any holder of R&B Common Stock or R&B Class A Stock for any
purpose relevant to the Special Meeting for a period of 10 days prior to
the Special Meeting.
By Order of the Board of Directors,
/s/ Wayne K. Hillin
Wayne K. Hillin
Secretary
Houston, Texas
November 20, 1997
---------------------
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL
MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY, WHICH IS
SOLICITED BY THE BOARD OF DIRECTORS OF R&B, AND RETURN IT TO R&B IN THE
PREADDRESSED ENVELOPE PROVIDED FOR THAT PURPOSE. ANY STOCKHOLDER MAY
REVOKE HIS PROXY AT ANY TIME BEFORE THE MEETING BY WRITTEN NOTICE TO SUCH
EFFECT, BY SUBMITTING A SUBSEQUENTLY DATED PROXY OR BY ATTENDING THE
MEETING AND VOTING IN PERSON.
FALCON DRILLING COMPANY, INC.
AND
READING & BATES CORPORATION
JOINT PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS OF
FALCON DRILLING COMPANY, INC.
TO BE HELD ON DECEMBER 23, 1997
AND
SPECIAL MEETING OF STOCKHOLDERS OF
READING & BATES CORPORATION
TO BE HELD ON DECEMBER 23, 1997
-----------------------
R&B FALCON CORPORATION
PROSPECTUS
-----------------------
This Joint Proxy Statement/Prospectus is being furnished to
holders of common stock, par value $.01 per share ("Falcon Common
Stock"), of Falcon Drilling Company, Inc., a Delaware corporation
("Falcon"), in connection with the solicitation of proxies by its Board
of Directors, and holders of common stock, par value $.05 per share ("R&B
Common Stock"), of Reading & Bates Corporation, a Delaware corporation
("R&B"), and holders of Class A (Cumulative Convertible) Capital Stock,
no par value ("R&B Class A Stock"), of R&B, in connection with the
solicitation of proxies by its Board of Directors, for use at (i) the
special meeting of stockholders of Falcon, or any adjournments or
postponements thereof (the "Falcon Special Meeting"), and (ii) the
special meeting of stockholders of R&B, or any adjournments or
postponements thereof (the "R&B Special Meeting" and, together with the
Falcon Special Meeting, the "Stockholder Meetings"). The Stockholder
Meetings are being called to consider and vote upon a proposal to approve
and adopt the Agreement and Plan of Merger, dated as of July 10, 1997
(the "Merger Agreement"), among R&B Falcon Corporation, a Delaware
corporation ("Parent"), FDC Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of Parent ("Falcon Sub"), Reading & Bates
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of
Parent ("R&B Sub"), Falcon and R&B, and the consummation of the
transactions contemplated thereby. The Merger Agreement is attached as
Annex A and is incorporated herein by reference.
The Merger Agreement provides for, among other things, the
merger of Falcon Sub with and into Falcon (the "Falcon Merger") and the
merger of R&B Sub with and into R&B (the "R&B Merger" and, together with
the Falcon Merger, the "Mergers"), with the result that each of Falcon
and R&B will become a wholly owned subsidiary of Parent. Upon
consummation of the Mergers, (i) each outstanding share of R&B Common
Stock will be converted into 1.18 fully paid and nonassessable shares of
common stock, par value $.01 per share, of Parent ("Parent Common
Stock"); (ii) if the holders of at least two-thirds of the R&B Class A
Stock vote to approve the R&B Merger, each outstanding share of R&B Class
A Stock will be converted into 1.18 fully paid and nonassessable shares
of Parent Common Stock; (iii) if the holders of R&B Class A Stock do not
grant such two-thirds voting approval of the R&B Merger, each outstanding
share of R&B Class A Stock will be converted into the right to receive an
amount in cash equal to the sum of $12.00 plus all accrued and unpaid
cumulative dividends; and (iv) each outstanding share of Falcon Common
Stock will be converted into one share of Parent Common Stock. The
consummation of the Mergers is subject to various conditions, including
approval by the stockholders of each of Falcon and R&B and the receipt of
required regulatory approvals.
Parent has filed a registration statement on Form S-4 (together
with all amendments, exhibits and schedules thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the shares of Parent Common Stock that are proposed to
be issued in connection with the Mergers to holders of outstanding shares
of R&B Common Stock, R&B Class A Stock and Falcon Common Stock. This
Joint Proxy Statement/Prospectus also constitutes the prospectus of
Parent with respect to shares of Parent Common Stock to be issued in
connection with the Mergers. For a description of the Parent Common
Stock, see "DESCRIPTION OF PARENT CAPITAL STOCK."
The shares of Parent Common Stock issued in the Mergers will be
issued with attached rights (each, a "Right") issued pursuant to the
Rights Agreement (the "Rights Agreement") to be entered into by Parent
and American Stock Transfer & Trust Company, as Rights Agent, effective
as of the date of the consummation of the Mergers. For a description of
the Rights, see "DESCRIPTION OF PARENT CAPITAL STOCK."
This Joint Proxy Statement/Prospectus and the accompanying forms
of proxy are first being mailed to stockholders of each of Falcon and R&B
on or about November 24, 1997.
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE MERGERS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Joint Proxy Statement/Prospectus is November 20, 1997.
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION ............................................. iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ................... iv
CAUTIONARY STATEMENT .............................................. vi
SUMMARY ........................................................... 1
MARKET PRICES ..................................................... 8
SELECTED HISTORICAL FINANCIAL DATA ................................ 9
UNAUDITED SELECTED COMBINED PRO FORMA FINANCIAL INFORMATION ....... 11
UNAUDITED COMPARATIVE PER SHARE DATA .............................. 12
INTRODUCTION ...................................................... 13
RISK FACTORS ...................................................... 13
THE COMPANIES ..................................................... 17
Falcon Drilling Company, Inc. .................................. 17
Reading & Bates Corporation .................................... 17
R&B Falcon Corporation ......................................... 18
THE FALCON SPECIAL MEETING ........................................ 19
Purpose of the Falcon Special Meeting .......................... 19
Date, Place and Time ........................................... 19
Record Date .................................................... 19
Required Vote .................................................. 19
Security Ownership of Management and Certain Beneficial
Owners ....................................................... 20
Voting and Revocation of Proxies ............................... 23
Solicitation of Proxies ........................................ 23
THE R&B SPECIAL MEETING ........................................... 24
Purpose of the R&B Special Meeting ............................. 24
Date, Place and Time ........................................... 24
Record Date .................................................... 24
Required Vote .................................................. 24
Security Ownership of Management and Certain Beneficial
Owners ....................................................... 24
Voting and Revocation of Proxies ............................... 28
Solicitation of Proxies ........................................ 28
THE MERGERS ....................................................... 29
Background of the Mergers ...................................... 29
Recommendations of the Boards of Directors and Reasons
for the Mergers .............................................. 31
Opinions of Financial Advisors ................................. 35
Merger Consideration ........................................... 44
Effective Time ................................................. 45
Dividends ...................................................... 45
Stock Exchange Listing ......................................... 45
Interests of Certain Persons in the Mergers .................... 45
Anticipated Accounting Treatment ............................... 49
Material Federal Income Tax Considerations ..................... 49
Appraisal Rights ............................................... 51
THE MERGER AGREEMENT .............................................. 55
General ........................................................ 55
Consideration to be Received in the Mergers .................... 55
Exchange Agent; Procedures for Exchange of Certificates ........ 56
No Fractional Shares ........................................... 58
Representations and Warranties ................................. 59
Conduct of Business Pending the Mergers ........................ 59
No Solicitation ................................................ 62
Conditions Precedent to the Mergers ............................ 63
Stock Options .................................................. 64
Employee Benefits and Restricted Stock ......................... 64
Indemnification; Directors' and Officers' Insurance ............ 65
Termination .................................................... 65
Termination Fees ............................................... 66
Fees and Expenses .............................................. 67
Amendment ...................................................... 67
Waiver ......................................................... 67
CERTAIN RELATED TRANSACTIONS ...................................... 68
Reciprocal Stock Option Agreements ............................. 68
UNAUDITED PRO FORMA FINANCIAL INFORMATION ......................... 70
OTHER MATTERS ..................................................... 76
Regulatory Approvals ........................................... 76
DESCRIPTION OF PARENT CAPITAL STOCK ............................... 77
Parent Common Stock ............................................ 77
Parent Preferred Stock ......................................... 77
Parent Rights .................................................. 77
MANAGEMENT ........................................................ 81
Directors and Executive Officers ............................... 81
Compensation of Executive Officers ............................. 81
Compensation of Directors ...................................... 81
COMPARISON OF RIGHTS OF FALCON STOCKHOLDERS
AND R&B STOCKHOLDERS .............................................. 82
Authorized Capital Stock ....................................... 82
Board of Directors ............................................. 83
Monetary Liability of Directors ................................ 83
Voting Rights .................................................. 84
Foreign Ownership Limitation ................................... 84
Interested Stockholders ........................................ 84
Removal of Directors and Filling Vacancies on the Board
of Directors ................................................ 85
Stockholder Action Without a Meeting ........................... 85
Special Meetings of Stockholders ............................... 86
Charter and Bylaw Amendments ................................... 86
EXPERTS ........................................................... 87
LEGAL MATTERS ..................................................... 87
STOCKHOLDER PROPOSALS ............................................. 87
ANNEX A AGREEMENT AND PLAN OF MERGER
ANNEX B OPINION OF CREDIT SUISSE FIRST BOSTON CORPORATION
ANNEX C OPINION OF MORGAN STANLEY & CO. INCORPORATED
ANNEX D FALCON STOCK OPTION AGREEMENT
ANNEX E READING & BATES STOCK OPTION AGREEMENT
ANNEX F SECTION 262 DGCL APPRAISAL RIGHTS
ANNEX G FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF R&B FALCON CORPORATION
ANNEX H FORM OF AMENDED AND RESTATED BYLAWS OF R&B FALCON CORPORATION
AVAILABLE INFORMATION
Each of Falcon and R&B is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange
Commission (the "Commission"). The reports, proxy statements and other
information filed by each of Falcon and R&B with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and should be available at the Commission's Regional Offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
7 World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material may also be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington D.C. 20549, at
prescribed rates. Certain of such reports, proxy statements and other
information are also available from the Commission over the Internet at
http://www.sec.gov. The periodic reports, proxy statements and other
information filed by Falcon and R&B may be inspected at the offices of
the New York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street, New
York, New York 10005.
This Joint Proxy Statement/Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits
thereto filed by Parent, certain portions of which have been omitted
pursuant to the rules and regulations of the Commission and to which
portions reference is hereby made for further information with respect to
Parent, Falcon, R&B, the Mergers, the securities offered hereby and
related matters. The Registration Statement and the exhibits thereto may
be inspected without charge at the offices of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies may be obtained from the
Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission
(Commission file number 0-26388) by Falcon pursuant to the Exchange Act
are incorporated by reference in this Joint Proxy Statement/Prospectus:
1. Falcon's Annual Report on Form 10-K for the year ended
December 31, 1996 (which incorporates by reference certain
information from Falcon's Proxy Statement relating to the 1996
Annual Meeting of Stockholders) (the "1996 Falcon Form 10-K");
2. Falcon's Current Reports on Form 8-K dated June 25, 1997, July
16, 1997 and August 8, 1997;
3. Falcon's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997; and
4. The description of the Falcon Common Stock and the Falcon
Series C Junior Participating Preferred Stock set forth in
registration statements filed by Falcon pursuant to Section 12
of the Exchange Act including any amendment or report filed
for purposes of updating any such description.
The following documents previously filed with the Commission
(Commission file number 1-5587) by R&B pursuant to the Exchange Act are
incorporated by reference in this Joint Proxy Statement/Prospectus:
1. R&B's Annual Report on Form 10-K for the year ended December
31, 1996 (which incorporates by reference certain information
from R&B's Proxy Statement relating to the 1996 Annual Meeting
of Stockholders) (the "1996 R&B Form 10-K");
2. R&B's Current Reports on Form 8-K dated January 7, 1997,
January 21, 1997, January 28, 1997, February 19, 1997,
February 26, 1997, March 17, 1997, March 26, 1997, April 16,
1997, April 21, 1997, May 2, 1997, May 13, 1997, May 28, 1997,
June 18, 1997, June 30, 1997, July 2, 1997, July 11, 1997,
July 15, 1997, August 6, 1997, August 22, 1997, August 27,
1997, September 11, 1997, September 12, 1997, September 26,
1997, October 3, 1997, October 14, 1997, October 16, 1997,
October 27, 1997, October 29, 1997, November 4, 1997 and
November 6, 1997;
3. R&B's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997; and
4. The description of the R&B Common Stock, the R&B Class A Stock
and the R&B Series B Junior Participating Preferred Stock set
forth in registration statements filed by R&B pursuant to
Section 12 of the Exchange Act including any amendment or
report filed for purposes of updating any such description.
The information relating to Falcon and R&B contained in this
Joint Proxy Statement/Prospectus does not purport to be comprehensive and
should be read together with the information in the documents
incorporated by reference herein.
All documents filed by Falcon and R&B pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the date of the Stockholder Meetings
shall be deemed to be incorporated by reference in this Joint Proxy
Statement/Prospectus and to be a part hereof from the dates of filing
such documents or reports. Any statement contained herein or in a
document incorporated or deemed to be incorporated herein by reference
shall be deemed to be modified or superseded for purposes of this Joint
Proxy Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which is also
incorporated or deemed to be incorporated herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
---------------------
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE
DOCUMENTS (OTHER THAN CERTAIN EXHIBITS TO DOCUMENTS UNLESS SUCH EXHIBITS
ARE SPECIFICALLY INCORPORATED HEREIN BY REFERENCE) ARE AVAILABLE WITHOUT
CHARGE TO ANY PERSON TO WHOM A COPY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS HAS BEEN DELIVERED UPON WRITTEN OR ORAL REQUEST, IN
THE CASE OF FALCON DOCUMENTS, TO FALCON DRILLING COMPANY, INC., 1900 WEST
LOOP SOUTH, SUITE 1800, HOUSTON, TEXAS 77027, ATTENTION: LEIGHTON E.
MOSS, TELEPHONE NUMBER (713) 623-8984, AND IN THE CASE OF R&B DOCUMENTS,
TO READING & BATES CORPORATION, 901 THREADNEEDLE, SUITE 200, HOUSTON,
TEXAS 77079, ATTENTION: WAYNE K. HILLIN, SECRETARY, TELEPHONE NUMBER
(281) 496-5000. IN ORDER TO ENSURE TIMELY DELIVERY PRIOR TO THE
STOCKHOLDER MEETINGS, REQUESTS SHOULD BE RECEIVED BY DECEMBER 8, 1997.
---------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT
PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY INFERENCE THAT THERE HAS NOT BEEN ANY CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF EITHER FALCON OR R&B
SINCE THE DATE HEREOF.
CAUTIONARY STATEMENT
When used in this Joint Proxy Statement/Prospectus with respect
to Falcon, the words "estimate," "project," "intend," "expect" and
similar expressions are intended to identify forward-looking statements.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Joint
Proxy Statement/Prospectus. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from
those contemplated in such forward-looking statements. Falcon does not
undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
When used in this Joint Proxy Statement/Prospectus with respect
to R&B, the words "estimate," "projects," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Joint Proxy
Statement/Prospectus. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from
those contemplated in such forward-looking statements. R&B does not
undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
------------------
As used in this Joint Proxy Statement/Prospectus, unless the
context otherwise clearly requires: "Falcon" refers to Falcon Drilling
Company, Inc. and "R&B" refers to Reading & Bates Corporation. All
information contained in this Joint Proxy Statement/Prospectus with
respect to Falcon and Falcon Sub has been provided by Falcon. All
information contained in this Joint Proxy Statement/Prospectus with
respect to R&B and R&B Sub has been provided by R&B.
SUMMARY
The following is a summary of certain information contained
elsewhere in this Joint Proxy Statement/Prospectus. This summary is not,
and is not intended to be, complete by itself. This summary is qualified
in its entirety by reference to the more detailed information contained
elsewhere in this Joint Proxy Statement/Prospectus, the Annexes attached
hereto and the documents referred to or incorporated herein by reference.
Stockholders of Falcon and R&B are urged to review carefully all of the
information contained in this Joint Proxy Statement/Prospectus, the
Merger Agreement attached as Annex A and the other Annexes attached
hereto. Certain capitalized terms which are used but not defined in this
Summary are defined elsewhere in this Joint Proxy Statement/Prospectus.
THE COMPANIES
FALCON DRILLING COMPANY, INC.
Falcon Drilling Company, Inc., a Delaware corporation, is a
provider of contract drilling and workover services for the domestic and
international oil and gas industry. Falcon's rig fleet consists of barge
drilling rigs, barge workover rigs, jackup rigs, submersible rigs and
drillships. Falcon's barge rig fleet is the largest in the world. Falcon
also owns tugboats, crewboats and utility barges, which are primarily
used in conjunction with its barge drilling and workover operations.
Falcon markets its rigs and vessels to oil and gas companies and turnkey
operators. Falcon's fleet operates in the U.S. Gulf Coast and Gulf of
Mexico, Venezuela, Brazil, West Africa, India and Southeast Asia.
For more information about Falcon, reference is made to the 1996
Falcon Form 10-K which is incorporated herein by reference. See "THE
COMPANIES--Falcon Drilling Company, Inc.," "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
READING & BATES CORPORATION
Reading & Bates Corporation, a Delaware corporation, provides
contract drilling and other related services in major offshore oil and
gas producing areas worldwide. R&B's mobile offshore fleet currently
consists of three fourth-generation and two third-generation
semisubmersible drilling units, a third-generation deepwater
semisubmersible support vessel, two second-generation semisubmersible
drilling units, nine international-class 300 foot cantilever jackups, two
self-erecting tenders and one floating production vessel. R&B's drilling
units are located in the Gulf of Mexico and in waters offshore Europe,
Africa, Australia and other parts of the world.
For more information about R&B, reference is made to the 1996
R&B Form 10-K which is incorporated herein by reference. See "THE
COMPANIES--Reading & Bates Corporation," "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
R&B FALCON CORPORATION
R&B Falcon Corporation is a newly formed Delaware corporation
that has not, to date, conducted any activities other than those incident
to its formation, its execution of the Agreement and Plan of Merger,
dated as of July 10, 1997 (the "Merger Agreement"), among Parent, FDC
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of
Parent, Reading & Bates Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of Parent, Falcon and R&B, and related
agreements, and its participation in the preparation of this Joint Proxy
Statement/Prospectus. As a result of the Mergers (as hereinafter
defined), each of Falcon and R&B will become a wholly owned subsidiary of
Parent. Accordingly, the business of Parent, through its wholly owned
subsidiaries Falcon and R&B, will be the businesses currently conducted
by Falcon and R&B. Immediately upon consummation of the Mergers, based
upon the number of shares issued and outstanding on the record dates, the
former stockholders of Falcon will own approximately 48% and the former
stockholders of R&B will own approximately 52% of the outstanding Parent
Common Stock. The headquarters of Parent will be located at 1900 West
Loop South, Suite 1800, Houston, Texas. See "THE COMPANIES--R&B Falcon
Corporation."
THE FALCON SPECIAL MEETING
TIME, DATE AND PLACE
The special meeting of stockholders of Falcon (the "Falcon
Special Meeting") will be held at the Omni Houston Hotel, Four Riverway,
Houston, Texas, on December 23, 1997 at 9:00 a.m., Central Time.
PURPOSE OF THE FALCON SPECIAL MEETING
The purpose of the Falcon Special Meeting is to consider and
vote upon a proposal to approve and adopt the Merger Agreement, which is
attached as Annex A to this Joint Proxy Statement/Prospectus.
RECORD DATE; SHARES OUTSTANDING AND ENTITLED TO VOTE; REQUIRED VOTE
Only holders of record of common stock, par value $.01 per
share, of Falcon (the "Falcon Common Stock") at the close of business on
November 20, 1997 (the "Falcon Record Date") will be entitled to vote at
the Falcon Special Meeting. Each holder of record of shares Falcon Common
Stock on the Falcon Record Date is entitled to cast one vote per share on
the proposal to approve and adopt the Merger Agreement and on any other
matter properly submitted for the vote of the Falcon stockholders at the
Falcon Special Meeting. The presence, in person or by proxy, of the
holders of at least a majority of the shares entitled to vote at the
Falcon Meeting is necessary to constitute a quorum. As of the Falcon
Record Date, there were 79,350,778 shares of Falcon Common Stock
outstanding and entitled to vote at the Falcon Special Meeting. The
affirmative vote of a majority of the outstanding shares of Falcon Common
Stock is required to approve and adopt the Merger Agreement.
SECURITY OWNERSHIP OF MANAGEMENT
As of the Falcon Record Date, directors and executive officers
of Falcon and their affiliates owned an aggregate of 30,535,515 shares of
Falcon Common Stock (approximately 38.4% of the shares of Falcon Common
Stock then outstanding).
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGERS
THE FALCON BOARD OF DIRECTORS (THE "FALCON BOARD") HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT, HAS DETERMINED THAT THE FALCON
MERGER (AS HEREINAFTER DEFINED) IS FAIR TO, AND IN THE BEST INTERESTS OF,
FALCON AND ITS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT FALCON
STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
For a discussion of the factors considered by the Falcon Board
in approving the Merger Agreement, see "THE MERGERS--Recommendations of
the Boards of Directors and Reasons for the Mergers."
OPINION OF FALCON'S FINANCIAL ADVISOR
On July 10, 1997, Credit Suisse First Boston Corporation
("CSFB") delivered to the Falcon Board an oral opinion (which was
subsequently confirmed in writing) that, as of such date, and based upon
and subject to the matters set forth therein, the Combination Ratio
(which was defined for purposes of the opinion as the exchange ratio of
one share of Parent Common Stock for each share of Falcon Common Stock,
together with the exchange ratio of 0.59 shares of Parent Common Stock
for each share of R&B Common Stock, and which did not take into account
the two-for-one stock split of Falcon Common Stock effected on July 15,
1997) was fair to the holders of Falcon Common Stock from a financial
point of view. As discussed in "THE MERGERS--Recommendations of the
Boards of Directors and Reasons for the Mergers," CSFB's opinion and
presentation to the Falcon Board were among the factors considered by the
Falcon Board in reaching its determination to approve the Falcon Merger.
CSFB subsequently confirmed its July 10, 1997 opinion by delivering to
the Falcon Board its written opinion, dated the date hereof (the "CSFB
Opinion"), that, as of such date and based upon and subject to the
matters set forth therein, the Combination Ratio (as defined therein) was
fair to the holders of Falcon Common Stock from a financial point of
view. A copy of the CSFB Opinion is attached as Annex B to this Joint
Proxy Statement/Prospectus and is incorporated herein by reference. CSFB
has consented to the use of the CSFB Opinion in this Joint Proxy
Statement/Prospectus, and a copy of its consent has been filed as an
exhibit to the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part. Stockholders are urged to read such
opinion in its entirety for a description of the procedures followed,
assumptions made, matters considered and limitations on the review
undertaken by CSFB in connection therewith and to consider such opinion
carefully. See "THE MERGERS--Opinions of Financial Advisors."
THE R&B SPECIAL MEETING
TIME, DATE AND PLACE
The special meeting of stockholders of R&B (the "R&B Special
Meeting") will be held at the Omni Houston Hotel, Four Riverway, Houston,
Texas, on December 23, 1997 at 9:00 a.m., Central Time.
PURPOSE OF THE R&B SPECIAL MEETING
The purpose of the R&B Special Meeting is to consider and vote
upon a proposal to approve and adopt the Merger Agreement, which is
attached as Annex A to this Joint Proxy Statement/Prospectus. The
proposal to approve and adopt the Merger Agreement will be voted on by
(i) the holders of the outstanding R&B Common Stock and outstanding R&B
Class A Stock, voting together as a single class, and (ii) the holders of
the outstanding R&B Class A Stock voting separately.
RECORD DATE; SHARES OUTSTANDING AND ENTITLED TO VOTE; REQUIRED VOTE
Only holders of record of R&B Common Stock and R&B Class A Stock
at the close of business on November 20, 1997 (the "R&B Record Date")
will be entitled to vote at the R&B Special Meeting. Each holder of
record of R&B Common Stock on the R&B Record Date is entitled to cast one
vote per share of R&B Common Stock, and each holder of record of R&B
Class A Stock on the R&B Record Date is entitled to cast four votes per
share of R&B Class A Stock, on the proposal to approve and adopt the
Merger Agreement and on any other matter properly submitted for the vote
of the R&B stockholders at the R&B Special Meeting. As of the R&B Record
Date, there were 72,230,879 shares of R&B Common Stock and 50 shares of
R&B Class A Stock outstanding and entitled to vote at the R&B Special
Meeting. The affirmative vote of the holders of shares of R&B Common
Stock and R&B Class A Stock representing a majority of the votes entitled
to be cast by the holders of the outstanding R&B Common Stock and R&B
Class A Stock, voting together as a class, is required to approve and
adopt the Merger Agreement.
SECURITY OWNERSHIP OF MANAGEMENT
As of the R&B Record Date, directors and executive officers of
R&B and their affiliates owned an aggregate of 1,762,673 shares of R&B
Common Stock (approximately 2.44% of the shares of R&B Common Stock then
outstanding).
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGERS
THE R&B BOARD OF DIRECTORS (THE "R&B BOARD") HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT, HAS DETERMINED THAT THE R&B MERGER (AS
HEREINAFTER DEFINED) IS FAIR TO, AND IN THE BEST INTERESTS OF, R&B AND
ITS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT THE R&B STOCKHOLDERS
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
For a discussion of the factors considered by the R&B Board in
approving the Merger Agreement, see "THE MERGERS--Recommendations of the
Boards of Directors and Reasons for the Mergers."
OPINION OF R&B'S FINANCIAL ADVISOR
Morgan Stanley & Co. Incorporated ("Morgan Stanley") has
rendered a written opinion to the R&B Board, dated as of July 10, 1997,
to the effect that, as of such date, and subject to the assumptions made,
matters considered and limits on review specified therein, the Merger
Consideration (which was defined for purposes of the opinion as the
exchange ratio of 1.18 shares of Parent Common Stock for each share of
R&B Common Stock), pursuant to the Merger Agreement, is fair, from a
financial point of view, to the holders of shares of R&B Common Stock. As
discussed in "THE MERGERS--Recommendations of the Boards of Directors and
Reasons for the Mergers," Morgan Stanley's opinion and presentation to
the R&B Board were among the factors considered by the R&B Board in
reaching its determination to approve the R&B Merger. The opinion of
Morgan Stanley is attached as Annex C to this Joint Proxy
Statement/Prospectus. Stockholders of R&B are urged to read such opinion
in its entirety for a description of the procedures followed, assumptions
made, matters considered and qualifications on the review undertaken by
Morgan Stanley in connection therewith. See "THE MERGERS--Opinions of
Financial Advisors."
THE MERGERS
EFFECTIVE TIME
The Mergers will become effective at the date and time set forth
in the Certificates of Merger which will be filed with the Secretary of
State of the State of Delaware (the "Effective Time"). At the Effective
Time of the Mergers, Falcon Sub will be merged with and into Falcon (the
"Falcon Merger"), and R&B Sub will be merged with and into R&B (the "R&B
Merger" and, together with the Falcon Merger, the "Mergers"), with the
result that each of Falcon and R&B will become a wholly owned subsidiary
of Parent.
EFFECT ON FALCON STOCKHOLDERS
At the Effective Time, each issued and outstanding share of
Falcon Common Stock will be converted into one share of Parent Common
Stock. Prior to the Effective Time, there has been no public market for
the Parent Common Stock. For a description of the Parent Common Stock and
the Rights, see "DESCRIPTION OF PARENT CAPITAL STOCK."
EFFECT ON FALCON OPTION HOLDERS
At the Effective Time, each outstanding option to purchase or
acquire a share of Falcon Common Stock will be converted into an option
to purchase a share of Parent Common Stock at the same exercise price.
For a further description of the treatment of such options, see "THE
MERGER AGREEMENT--Stock Options."
EFFECT ON R&B STOCKHOLDERS
At the Effective Time, (i) each issued and outstanding share of
R&B Common Stock will be converted into 1.18 shares of Parent Common
Stock, (ii) if the holders of at least two-thirds of the R&B Class A
Stock vote to approve the R&B Merger, each outstanding share of R&B Class
A Stock will be converted into 1.18 fully paid and nonassessable shares
of Parent Common Stock, and (iii) if the holders of R&B Class A Stock do
not grant such two-thirds voting approval of the R&B Merger, each
outstanding share of R&B Class A Stock will be converted into the right
to receive an amount in cash equal to the sum of $12.00 plus all accrued
and unpaid cumulative dividends. Prior to the Effective Time, there has
been no public market for the Parent Common Stock. For a description of
the Parent Common Stock and the Rights, see "DESCRIPTION OF PARENT
CAPITAL STOCK."
EFFECT ON R&B OPTION HOLDERS
At the Effective Time, each outstanding option to purchase or
acquire a share of R&B Common Stock will be converted into an option to
purchase a number of shares of Parent Common Stock equal to 1.18 times
the number of shares of R&B Common Stock which could have been obtained
prior to the Effective Time upon the exercise of each such option at an
exercise price per share of Parent Common Stock equal to the R&B Common
Stock option exercise price divided by 1.18. For a further description of
the treatment of such options, see "THE MERGER AGREEMENT--Stock Options."
CONDITIONS TO THE MERGERS
Consummation of the Mergers is subject to various conditions,
including, among others, receipt of the stockholder approvals solicited
hereby, receipt of necessary regulatory approvals, receipt of opinions of
counsel regarding material federal income tax consequences of the Mergers
and the satisfaction of other customary closing conditions. See "THE
MERGER AGREEMENT--Conditions Precedent to the Merger."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the
Effective Time by the mutual consent of Falcon and R&B and by either of
them individually under certain specified circumstances, including if the
Mergers have not been consummated on or before January 31, 1998. See "THE
MERGER AGREEMENT--Termination."
BOARD OF DIRECTORS AFTER THE MERGERS
Upon consummation of the Mergers, the Board of Directors of
Parent will consist of 10 members, five of whom will be designated by the
R&B Board and five of whom will designated by the Falcon Board. See "THE
MERGERS--Interests of Certain Persons in the Mergers" and
"MANAGEMENT--Directors and Executive Officers."
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In considering the recommendation of the Mergers by the Falcon
Board and the R&B Board, the stockholders of each of Falcon and R&B,
respectively, should be aware that certain directors and executive
officers of Falcon and R&B have interests with respect to the Mergers
that may be different than those of the stockholders of Falcon or R&B,
respectively. In connection with the consummation of the Mergers, the
employment of certain officers of R&B and Reading & Bates Drilling Co., a
wholly owned subsidiary of R&B, will be terminated and such officers will
receive benefits pursuant to their respective Employment Agreements. The
cash amounts expected to be paid to these officers, assuming the Mergers
are consummated on December 31, 1997, are as follows: P. B. Loyd, Jr.,
$10,789,397; T. W. Nagle, $3,812,746; W. K. Hillin, $2,974,650; C. R.
Ofner, $2,916,813; D. L. McIntire, $1,891,857; and A. Bakonyi,
$2,995,924. For further information on these and other arrangements with
executive officers of Falcon and R&B, see "THE MERGERS--Interests of
Certain Persons in the Mergers."
APPRAISAL RIGHTS
Under the Delaware General Corporation Law (the "DGCL"), neither
the holders of R&B Common Stock nor the holders of Falcon Common Stock
will have appraisal rights with respect to the Mergers. Holders of R&B
Class A Stock who do not vote in favor of approval and adoption of the
Merger Agreement and who otherwise comply with the applicable
requirements of the DGCL will have appraisal rights. However, R&B
believes, based upon legal advice, that a holder of R&B Class A Stock
will not be entitled to receive in any appraisal proceeding more than the
sum of $12.00 plus accrued and unpaid cumulative dividends per share of
R&B Class A Stock. See "THE MERGERS--Appraisal Rights."
STOCK EXCHANGE LISTING
The Parent Common Stock to be issued in the Mergers has been
approved for listing on the NYSE, subject to official notice of issuance,
and will trade under the symbol "FLC." Prior to the Effective Time, there
has been no public market for the Parent Common Stock. See "THE MERGER
AGREEMENT--Conditions Precedent to the Merger."
ANTICIPATED ACCOUNTING TREATMENT
Prior to entering into the Merger Agreement, each of Falcon and
R&B reviewed relevant data and consulted their respective independent
accounting firms to determine the appropriate accounting method for the
Mergers under Accounting Principles Board Opinion No. 16 ("APB Opinion
No. 16"). Based upon that review and consultation, Falcon and R&B
concluded that they are required to account for the Mergers as a pooling
of interests and will do so in accordance with APB Opinion No. 16. See
"THE MERGERS--Anticipated Accounting Treatment."
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
Except with respect to cash received by holders of R&B Common
Stock in lieu of fractional shares of Parent Common Stock, the Mergers
have been structured to qualify as tax-free transactions for United
States federal income tax purposes. The obligations of Falcon and R&B to
effect the Mergers are conditioned upon delivery of an opinion to Falcon
from Skadden, Arps, Slate, Meagher & Flom LLP, its counsel, and to R&B
from Cravath, Swaine & Moore, its counsel, each dated as of the Effective
Time, based upon certain customary representations and assumptions set
forth therein, that the Mergers so qualify. See "THE MERGERS--Material
Federal Income Tax Considerations." Holders of Falcon Common Stock and
R&B Common Stock are urged to consult their tax advisors as to the
specific tax consequences to them of the Mergers.
RECIPROCAL STOCK OPTION AGREEMENTS; TERMINATION FEES
Pursuant to the Stock Option Agreement, dated as of July 10,
1997, between Falcon and R&B (the "Falcon Stock Option Agreement"),
Falcon granted R&B an option (the "R&B Option") to purchase 15,753,823
shares of Falcon Common Stock at an exercise price of $27.78 per share
which was the closing price of the Falcon Common Stock on July 9, 1997,
the day prior to the public announcement of the proposed Mergers (after
giving effect to the two-for-one stock split to holders of record of
Falcon Common Stock effected on July 15, 1997), subject to the terms and
conditions set forth therein. The R&B Option may only be exercised upon
the occurrence of certain events (none of which has occurred) generally
relating to an attempt by a third party to acquire all of or a
significant interest in Falcon. In addition, pursuant to the Stock Option
Agreement, dated as of July 10, 1997, between R&B and Falcon (the "R&B
Common Stock Option Agreement" and together with the Falcon Stock Option
Agreement, the "Stock Option Agreements"), R&B granted Falcon an option
(the "Falcon Option") to purchase 14,340,154 shares of R&B Common Stock
at an exercise price of $34.00 per share, subject to the terms and
conditions set forth therein. The Falcon Option may only be exercised
upon the occurrence of certain events (none of which has occurred)
generally relating to an attempt by a third party to acquire all of or a
significant interest in R&B.
The Merger Agreement provides for the payment of fees (the
"Termination Fees") in the amount of $100 million following a termination
of the Merger Agreement under certain circumstances. See "THE MERGER
AGREEMENT--Termination Fees."
The Stock Option Agreements and the Termination Fees are
intended to increase the likelihood that the Mergers will be consummated
in accordance with the terms of the Merger Agreement. Certain aspects of
the Stock Option Agreements and the Termination Fees may have the effect
of discouraging persons who might now or prior to the Effective Time be
interested in acquiring all of or a significant interest in Falcon or R&B
from considering or proposing such an acquisition, even if such persons
were prepared to pay a higher price per share for Falcon Common Stock or
R&B Common Stock than the price per share implicit in the Merger
Consideration. See "THE MERGERS--Recommendations of the Board of
Directors and Reasons for the Mergers."
The Stock Option Agreements are attached as Annex D and Annex E,
respectively, to this Joint Proxy Statement/Prospectus and are
incorporated herein by reference. See "CERTAIN RELATED
TRANSACTIONS--Reciprocal Stock Option Agreements."
MARKET PRICES
The Falcon Common Stock is listed on the NYSE under the symbol
"FLC." The R&B Common Stock is listed on the NYSE under the symbol "RB."
The following table sets forth, for the calendar periods indicated, the
high and low sales prices per share of Falcon Common Stock and R&B Common
Stock as reported by the NYSE Composite Tape for the periods indicated.
All share price information for Falcon Common Stock has been adjusted to
reflect the two-for-one stock split effected on July 15, 1997. Neither
Falcon nor R&B have declared any dividends on the Falcon Common Stock or
R&B Common Stock, respectively, for the periods indicated. The R&B Class
A Stock is not listed on any securities exchange.
<TABLE>
<CAPTION>
FALCON R&B
COMMON STOCK COMMON STOCK
HIGH LOW HIGH LOW
1995 ---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter .............................. $ -- $ -- $ 8.13 $ 5.50
Second Quarter ............................. -- -- 9.38 7.00
Third Quarter .............................. 6.75 4.63 13.13 8.63
Fourth Quarter ............................. 7.63 4.94 15.38 10.75
1996
First Quarter .............................. $ 12.81 $ 6.00 $ 20.38 $ 14.25
Second Quarter ............................. 14.25 11.13 26.13 19.75
Third Quarter .............................. 13.94 10.00 27.88 20.00
Fourth Quarter ............................. 21.63 12.88 31.13 25.00
1997
First Quarter .............................. $ 21.50 $ 15.13 $ 32.25 $ 22.50
Second Quarter ............................. 28.81 15.56 28.25 20.13
Third Quarter .............................. 38.13 25.44 44.63 26.75
Fourth Quarter (through November 19, 1997).. 42.81 30.00 49.81 35.33
</TABLE>
The following table sets forth the closing price per share of
Falcon and R&B as reported on the NYSE Composite Tape, and the equivalent
price per share of R&B Common Stock (which is the closing sale price of
Falcon Common Stock multiplied by the Combination Ratio) as of (i) July
9, 1997 (the last full trading day before the announcement of the
proposed Mergers); and (ii) November 19, 1997 (the last trading day prior
to the date of the filing with the Commission of the Registration
Statement of which this Joint Proxy Statement/Prospectus forms a part):
EQUIVALENT PRICE
FALCON R&B PER SHARE OF R&B
COMMON STOCK COMMON STOCK COMMON STOCK
------------ ------------ ----------------
July 9, 1997 ....... $27.78 $28.13 $32.78
November 19, 1997 .. $31.75 $36.88 $37.47
FALCON STOCKHOLDERS AND R&B STOCKHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR THE FALCON COMMON STOCK AND THE R&B COMMON
STOCK.
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth selected historical consolidated
financial data of Falcon and R&B for the last five years and for the nine
month periods ended September 30, 1997 and 1996. The selected historical
consolidated financial data of Falcon and R&B have been derived from, and
should be read in conjunction with, the historical consolidated financial
data of Falcon or R&B, as the case may be, including the notes thereto,
which are incorporated herein by reference. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" and "AVAILABLE INFORMATION."
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
OF FALCON DRILLING COMPANY, INC. AND SUBSIDIARIES
(in millions, except per share data)
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------- -----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues $367.3 $220.9 $319.3 $177.5 $138.5 $61.8 $9.7
Operating expenses 196.2 141.3 198.8 120.9 95.3 46.1 9.7
General and administrative
expenses 20.9 13.2 18.1 13.9 11.9 5.5 1.6
Depreciation and amortization 27.2 20.8 28.9 16.5 9.4 3.0 1.7
-------- -------- -------- -------- -------- -------- --------
Operating income (loss) 123.0 45.6 73.5 26.2 21.9 7.2 (3.3)
Other income (expense) (13.7) (17.0) (22.0) (16.3) (10.7) (2.3) (2.0)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes and minority
interest 109.3 28.6 51.5 9.9 11.2 4.9 (5.3)
Income taxes 40.1 10.6 19.1 3.5 3.2 1.0 -
Minority interest - - - 1.3 3.5 - -
-------- -------- -------- -------- -------- -------- --------
Net income (loss) 69.2 18.0 32.4 5.1 4.5 3.9 (5.3)
Dividends and accretion on
preferred stock - - - 0.4 0.6 0.7 -
-------- -------- -------- -------- -------- -------- --------
Net income (loss) applicable
to common stockholders $69.2 $18.0 $32.4 $4.7 $3.9 $3.2 ($5.3)
======== ======== ======== ======== ======== ======== ========
Weighted average shares
outstanding (1) 79.9 72.0 72.5 59.1 53.8 43.8 23.4
======== ======== ======== ======== ======== ======== ========
Net income (loss) per common
share $0.87 $0.25 $0.45 $0.08 $0.07 $0.07 ($0.23)
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets $793.0 $513.7 $652.0 $341.0 $224.1 $110.0 $42.5
Total liabilities 446.0 379.1 378.3 225.5 184.5 58.9 41.5
Total minority interest - - - - 1.4 12.7 -
Redeemable Preferred Stock - - - - 4.1 7.4 -
Total stockholders' equity 347.0 134.6 273.7 115.5 34.1 31.0 1.0
</TABLE>
- ---------------------
(1) All share and per share amounts have been adjusted to reflect the
two-for-one stock split of Falcon that was effected on July 15, 1997.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
OF READING & BATES CORPORATION AND SUBSIDIARIES
(in millions, except per share data)
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues $291.4 $199.3 $290.2 $212.8 $169.1 $183.8 $156.7
Operating expenses 170.5 90.8 126.7 127.1 123.0 117.6 114.0
General and administrative
expenses 17.3 15.4 22.6 17.1 18.0 18.1 16.8
Depreciation and amortization 31.1 24.0 33.5 30.4 28.9 29.8 33.0
-------- -------- -------- -------- -------- -------- --------
Operating income (loss) 72.5 69.1 107.4 38.2 (0.8) 18.3 (7.1)
Other income (expense) (11.8) (10.1) (14.9) (15.5) (13.1) (12.3) 1.9
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes, minority interest
and extraordinary gain 60.7 59.0 92.5 22.7 (13.9) 6.0 (5.2)
Income taxes 5.4 3.4 7.9 2.8 4.1 4.0 0.1
Minority interest 6.8 3.7 6.7 1.5 (0.9) (2.6) (8.7)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary gain 48.5 51.9 77.9 18.4 (17.1) 4.6 3.4
Extraordinary gain - - - 3.4 - - -
-------- -------- -------- -------- -------- -------- --------
Net income (loss) 48.5 51.9 77.9 21.8 (17.1) 4.6 3.4
Dividends and accretion on
preferred stock - 3.6 3.6 4.8 4.9 2.0 5.3
-------- -------- -------- -------- -------- -------- --------
Net income (loss) applicable
to common stockholders $48.5 $48.3 $74.3 $17.0 ($22.0) $2.6 ($1.9)
======== ======== ======== ======== ======== ======== ========
Weighted average shares
outstanding:
Primary 72.1 62.3 64.6 60.2 56.9 55.5 49.0
-------- -------- -------- -------- -------- -------- --------
Fully diluted N/A 70.7 71.0 N/A N/A N/A N/A
======== ======== ======== ======== ======== ======== ========
Primary net income (loss)
per common share:
Income (loss) before
extraordinary gain $0.67 $0.78 $1.15 $0.22 ($0.39) $0.05 ($0.04)
Extraordinary gain - - - 0.06 - - -
-------- -------- -------- -------- -------- -------- --------
Net income (loss) per
common share $0.67 $0.78 $1.15 $0.28 ($0.39) $0.05 ($0.04)
======== ======== ======== ======== ======== ======== ========
Fully diluted net income per
common share:
Income before
extraordinary gain N/A $0.74 $1.10 N/A N/A N/A N/A
Extraordinary gain N/A - - N/A N/A N/A N/A
-------- -------- -------- -------- -------- -------- --------
Net income per common share N/A $0.74 $1.10 N/A N/A N/A N/A
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets $1,034.7 $738.7 $808.1 $605.8 $586.8 $612.4 $614.6
Total liabilities 477.0 284.0 315.4 204.2 220.8 224.4 261.7
Total minority interest 53.1 43.1 46.1 44.5 43.9 68.5 107.5
Total stockholders' equity 504.6 411.6 446.6 357.1 322.2 319.5 245.4
</TABLE>
UNAUDITED SELECTED COMBINED PRO FORMA FINANCIAL INFORMATION
The following unaudited selected combined pro forma financial
information for Parent gives effect to the Mergers and related
transactions, as if combined for all periods presented and is derived
from the unaudited pro forma financial information appearing elsewhere in
this Joint Proxy Statement/Prospectus.
UNAUDITED SELECTED COMBINED PRO FORMA FINANCIAL INFORMATION
OF READING & BATES CORPORATION AND FALCON DRILLING COMPANY, INC.
(in millions, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: (1)
Operating revenues $658.7 $420.2 $609.6 $390.3 $307.6 $245.6 $166.3
Operating expenses 369.8 238.3 331.8 249.3 217.0 162.8 123.7
General and administrative
expenses 33.0 25.8 37.0 29.2 29.8 23.6 18.4
Depreciation and amortization 58.3 44.8 62.5 46.9 38.4 32.8 34.7
-------- -------- -------- -------- -------- -------- --------
Operating income (loss) 197.6 111.3 178.3 64.9 22.4 26.4 (10.5)
Other income (expense) (27.6) (27.3) (38.0) (32.3) (25.2) (15.5) (0.1)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes, minority interest
and extraordinary gain 170.0 84.0 140.3 32.6 (2.8) 10.9 (10.6)
Income taxes 45.4 14.0 27.0 6.3 7.3 5.0 0.1
Minority interest 6.9 3.6 6.7 2.8 2.6 (2.6) (8.8)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary gain 117.7 66.4 106.6 23.5 (12.7) 8.5 (1.9)
Extraordinary gain - - - 3.4 - - -
-------- -------- -------- -------- -------- -------- --------
Net income (loss) 117.7 66.4 106.6 26.9 (12.7) 8.5 (1.9)
Dividends and accretion on
preferred stock - 3.6 3.6 5.2 5.4 2.8 5.3
-------- -------- -------- -------- -------- -------- --------
Net income (loss) applicable
to common stockholders $117.7 $62.8 $103.0 $21.7 ($18.1) $5.7 ($7.2)
========= ========= ========= ======== ======== ======== ========
Weighted average shares
outstanding 164.9 145.5 148.7 130.2 120.9 109.3 81.2
========= ========= ========= ======== ======== ======== ========
Net income (loss) per common
share:
Income (loss) before
extraordinary gain $0.71 $0.43 $0.69 $0.14 ($0.15) $0.05 ($0.09)
Extraordinary gain - - - 0.03 - - -
--------- --------- --------- -------- -------- -------- --------
Net income (loss) per common
share $0.71 $0.43 $0.69 $0.17 ($0.15) $0.05 ($0.09)
========= ========= ========= ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets $1,823.9 $1,248.8 $1,456.3 $946.8 $810.9 $722.4 $657.1
Total liabilities 923.0 663.1 693.7 429.7 405.3 283.3 303.2
Total minority interest 53.1 43.1 46.1 44.5 45.3 81.2 107.5
Redeemable Preferred Stock - - - - 4.1 7.4 -
Total stockholders' equity 847.8 542.6 716.5 472.6 356.3 350.5 246.4
</TABLE>
- ----------------
(1) Certain prior period amounts in the selected historical financial
data have been reclassified for comparative purposes. Such
reclassification had no effect on the net income (loss) or the
overall financial condition of R&B and Falcon combined.
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth for Falcon and R&B certain
historical and pro forma equivalent per share data at September 30, 1997
and for the nine months ended September 30, 1997 and for the twelve
months ended December 31, 1996, 1995 and 1994. The information presented
herein should be read in conjunction with the selected historical
financial data and the unaudited pro forma financial information
appearing elsewhere in this Joint Proxy Statement/Prospectus. See
"SELECTED HISTORICAL FINANCIAL DATA" and "UNAUDITED PRO FORMA FINANCIAL
INFORMATION."
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS AT OR FOR THE TWELVE MONTHS
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------
1997 1996 1995 1994
-------------- ---- ---- ----
<S> <C> <C> <C> <C>
FALCON DRILLING COMPANY, INC.
COMMON STOCK (1)
Income (loss) from continuing
operations per common share:
Historical ......................... $0.87 $0.45 $0.08 $0.07
Combined pro forma ................. 0.71 0.69 0.14 (0.15)
Book value per share:
Historical ........................ $4.38 $3.48
Combined pro forma ................ 5.16 4.39
Cash dividends per share:
Historical ........................ - - - -
Combined pro forma ................ - - - -
READING & BATES CORPORATION
COMMON STOCK (2)
Income (loss) from continuing
operations per common share:
Historical ........................ $0.67 $1.15 $0.22 ($0.39)
Combined pro forma ................ 0.84 0.82 0.17 (0.18)
Book value per share:
Historical ........................ $6.99 $6.21
Combined pro forma ................ 6.08 5.17
Cash dividends per share:
Historical ........................ - - - -
Combined pro forma ................ - - - -
</TABLE>
- --------------------
(1) For purposes of calculating combined pro forma per share data, it
has been assumed that each share of Falcon Common Stock is exchanged
for one share of Parent Common Stock and that each share of R&B
Common Stock and R&B Class A Stock is exchanged for 1.18 shares of
Parent Common Stock.
(2) For purposes of calculating combined pro forma per share data, it
has been assumed that each share of R&B Common Stock and R&B Class A
Stock is exchanged for one share of Parent Common Stock and that
each share of Falcon Common Stock is exchanged for .85 shares of
Parent Common Stock.
INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished to
stockholders of Falcon in connection with the solicitation of proxies by
Falcon for use at the Falcon Special Meeting to be held at the Omni
Houston Hotel, Four Riverway, on December 23, 1997 at 9:00 a.m., Central
Time, or at any adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of R&B in connection with the solicitation of proxies by R&B
for use at the R&B Special Meeting to be held at the Omni Houston Hotel,
Four Riverway, on December 23, 1997 at 9:00 a.m., Central Time, or at any
adjournments or postponements thereof.
At the Stockholder Meetings, the holders of Falcon Common Stock
and the holders of R&B Common Stock and R&B Class A Stock, respectively,
will be asked to approve and adopt the Merger Agreement pursuant to which
Falcon Sub will be merged with and into Falcon and R&B Sub will be merged
with and into R&B with the result that each of Falcon and R&B will become
a wholly owned subsidiary of Parent.
This Joint Proxy Statement/Prospectus and the accompanying forms
of proxy are first being mailed to stockholders of Falcon and R&B on or
about November 24, 1997.
RISK FACTORS
In addition to the other information contained in this Joint
Proxy Statement/Prospectus and incorporated herein by reference, in
deciding whether to vote in favor of approval and adoption of the Merger
Agreement, the stockholders of Falcon and R&B should carefully consider
the following factors.
DEPENDENCE ON OIL AND NATURAL GAS INDUSTRY; INDUSTRY CONDITIONS
The business and operations of Parent will depend principally
upon the condition of the oil and gas industry and, specifically, the
exploration and production expenditures of oil and gas companies.
Historically, the offshore contract drilling industry has been highly
competitive and cyclical, with periods of high demand, short rig supply
and high dayrates followed by periods of low demand, excess rig supply
and low dayrates. The offshore contract drilling business is influenced
by a number of factors, including the current and anticipated prices of
oil and natural gas, the expenditures by oil and gas companies for
exploration and production and the availability of drilling rigs. For a
number of years, depressed oil and natural gas prices and an oversupply
of rigs have adversely affected the offshore drilling market,
particularly in the Gulf of Mexico, where the prolonged weakness and
uncertainty in the demand for and price of natural gas resulted in a
significant decline in exploration and production activities. Demand for
drilling services outside the United States, excluding the North Sea, has
been less volatile in recent years, but remains dependent on a variety of
political and economic factors beyond the control of Parent, including
worldwide demand for oil and natural gas, the ability of the Organization
of Petroleum Exporting Countries ("OPEC") to set and maintain production
levels and pricing, the level of production of non-OPEC countries and the
policies of the various governments regarding exploration and development
of their oil and natural gas reserves.
COMPETITION
The contract drilling industry is highly competitive. Customers
often award contracts on a competitive bid basis, and although a customer
selecting a rig may consider, among other things, a contractor's safety
record, crew quality and quality of service and equipment, the oversupply
of rigs in the recent past has created an intensely competitive market in
which price is the primary factor in determining the selection of a
drilling contractor. From approximately 1983 until 1996, the number of
available drilling rigs exceeded demand, with the result that utilization
of rigs and dayrates were depressed. While demand for rigs currently
approximates supply, there is no assurance that this will continue to be
the case. Demand for drilling rigs can change quickly, and any decrease
in drilling activity could rapidly result in material declines in
utilization rates and dayrates.
ENVIRONMENTAL MATTERS
The operations of Parent will be subject to numerous U.S. and
foreign federal, state and local environmental laws and regulations that
relate directly or indirectly to its operations, including certain
regulations controlling the discharge of materials into the environment,
requiring removal and clean-up under certain circumstances, or otherwise
relating to the protection of the environment. For example, Parent may be
liable for damages and costs incurred in connection with oil spills for
which it is held responsible. Laws and regulations protecting the
environment have become increasingly stringent in recent years and may in
certain circumstances impose "strict liability" and render a company
liable for environmental damage without regard to negligence or fault on
the part of such company. Such laws and regulations may expose Parent to
liability for the conduct of or conditions caused by others, or for acts
of Parent that were in compliance with all applicable laws at the time
such acts were performed. The application of these requirements or the
adoption of new requirements could have a material adverse effect on
Parent.
OPERATIONAL HAZARDS
The operations of Parent will be subject to hazards inherent in
the drilling of oil and gas wells such as blowouts, reservoir damage,
loss of production, loss of well control, cratering or fires, the
occurrence of which could result in the suspension of drilling
operations, injury to or death of personnel and damage to or destruction
of Parent's, its customer's or a third party's property or equipment.
Damage to the environment could also result from the operations of
Parent, particularly through oil spillage or uncontrolled wells or fires.
In addition, offshore drilling operations are subject to perils peculiar
to marine operations, including capsizing, grounding, collision and loss
or damage from severe weather. Parent has insurance coverage and
contractual indemnification for certain risks but there can be no
assurance that such coverage or indemnification will exist or adequately
cover Parent's loss or liability in many circumstances or that Parent
will obtain or continue to carry such insurance or receive such
indemnification.
GOVERNMENTAL REGULATION AND TAX POLICY
Parent's operations will be subject to numerous U.S. and foreign
governmental laws and regulations. In addition, demand for services in
the drilling industry is dependent on the oil and gas exploration
industry and, accordingly, is affected by changes in tax and other laws
relating to the energy business generally.
Significant capital expenditures may be required to comply with
governmental laws and regulations applicable to Parent and such
compliance could materially adversely affect the earnings or competitive
position of Parent. It is possible that such regulations may in the
future add significantly to the cost of operating offshore drilling
equipment or may significantly limit drilling activity.
OPERATIONS OUTSIDE THE UNITED STATES
Operations outside the United States accounted for approximately
55%, 56% and 51% of Falcon and R&B combined pro forma consolidated
revenue for fiscal years 1996, 1995 and 1994, respectively. Parent's
non-U.S. operations will accordingly be subject to certain political,
economic and other uncertainties not encountered in U.S. operations,
including risks of war and civil disturbances (or other risks that may
limit or disrupt markets), expropriations and the general hazards
associated with the assertions of national sovereignty over certain areas
in which operations are conducted. Parent's operations outside the United
States may face the additional risk of fluctuating currency values, hard
currency shortages, controls of currency exchange and repatriations of
income or capital. No prediction can be made as to what governmental
regulations may be enacted in the future that could adversely affect the
international drilling industry.
TURNKEY CONTRACTS
Under turnkey drilling contracts a contractor agrees to drill a
well to a specified depth for a fixed price. Generally the contractor is
not entitled to payment unless the well is drilled to the specified
depth. The contractor must bear the costs of performing drilling services
until the well has been drilled and, accordingly, turnkey projects
typically require significant cash commitments by the contractor. In
addition, profitability of the contract is dependent upon keeping
expenses within the estimates used by the contractor in determining the
contract price. Drilling a well under a turnkey contract offers the
possibility of financial gains and losses that are substantially greater
than those which would ordinarily result from drilling such well under a
conventional dayrate contract, since the contractor retains any excess of
the fixed price over its expenses (including the drilling unit dayrate)
but must pay any excess of expenses over such price. Parent has no
present intention to engage in turnkey operations, but may consider doing
so if market conditions warrant and Parent believes it is appropriate to
offer turnkey services in order to compete effectively for drilling
contracts.
LIMITATION ON OWNERSHIP BY NON-U.S. CITIZENS
Parent, as the owner of United States flag vessels engaging in
coastwise and foreign trade, is subject to the Shipping Act, 1916, which
limits the interest in Parent that may be acquired by non-U.S. citizens
without the consent of the U.S. Secretary of Transportation, acting
through the United States Maritime Administration ("MARAD"). If the
foreign ownership limitation is exceeded without MARAD's consent, MARAD
would have the right to exercise various remedies under the Shipping Act,
1916, including the seizure of vessels, civil penalties and certain
misdemeanor criminal penalties.
FIXED EXCHANGE RATIO
Pursuant to the terms of the Merger Agreement, upon consummation
of the Mergers, each outstanding share of Falcon Common Stock will be
converted into one share of Parent Common Stock and each outstanding
share of R&B Common Stock will be converted into 1.18 shares of Parent
Common Stock. The Merger Agreement does not contain any provisions for
adjustment of the Combination Ratio based upon fluctuations in the price
of the Falcon Common Stock or the R&B Common Stock. Accordingly, the
value of the stock consideration to be received by the holders of R&B
Common Stock and the holders of the Falcon Common Stock upon the
consummation of the Mergers is not presently ascertainable and will
depend upon the market price of the Parent Common Stock at the Effective
Time, which in turn will be affected by the market price of the Falcon
Common Stock at the Effective Time. On July 9, 1997, the last full
trading day prior to the public announcement of the proposed Mergers, the
closing prices of the Falcon Common Stock and the R&B Common Stock on the
NYSE Composite Tape were $27.78 and $28.13, respectively, which
constituted a ratio of 1 to 1.01. On November 19, 1997, the last trading
day prior to the date of the filing with the Commission of the
Registration Statement of which this Joint Proxy Statement/Prospectus
forms a part, the closing prices of the Falcon Common Stock and the R&B
Common Stock on the NYSE Composite Tape were $31.75 and $36.88,
respectively, which constituted a ratio of 1 to 1.16. HOLDERS OF FALCON
COMMON STOCK AND R&B COMMON STOCK ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS PRIOR TO MAKING ANY DECISIONS WITH RESPECT TO THE MERGERS. The
Merger Agreement does not provide Falcon or R&B the right to terminate
the agreement based upon fluctuations in the price of Falcon Common Stock
or R&B Common Stock.
AVAILABILITY OF FINANCING
Falcon and R&B expect that the combined company will require
additional capital in order to pursue the continued capital expansion
strategy contemplated by Falcon and R&B. The Mergers may constitute an
event of default under the existing credit agreements of Falcon and R&B.
Falcon and R&B expect to enter into new credit agreements or, in the
alternative, to obtain waivers from their respective lenders with regard
to any event of default which may occur as a result of the Mergers and to
seek additional financing to implement that strategy. Nevertheless, the
Mergers may adversely affect Parent's ability to obtain capital to
implement its contemplated capital expenditure program.
INTERESTS OF MANAGEMENT
Certain members of R&B's management have interests in the Mergers
that are in addition to the interests of Falcon stockholders and R&B
stockholders generally. The Mergers will give rise to certain
entitlements and benefits pursuant to the R&B Employment Agreements (as
hereinafter defined). It is estimated that certain members of R&B's
management will receive in the aggregate approximately $25 million in
cash upon consummation of the Mergers. See "THE MERGERS--Interests of
Certain Persons in the Mergers."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Parent Certificate, the Parent Bylaws,
the Rights Agreement and the DGCL could discourage potential acquisition
proposals and delay or prevent a change in control of Parent. The
provisions of the Parent Certificate and Parent Bylaws include a
classified Board of Directors, prohibiting stockholder action by written
consent, prohibiting Parent stockholders from calling special meetings of
the Board of Directors and imposing certain supermajority voting
requirements on Parent stockholders. In addition, the Rights Agreement,
to be adopted at or prior to the Effective Time of the Mergers, will
cause substantial dilution to a person or group that attempts to acquire
15% or more of the outstanding shares of the Parent Common Stock.
Moreover, the Parent Board of Directors, without further stockholder
approval, may fix the rights and preferences of one or more series of a
class of Parent Preferred Stock that could have the effect of delaying,
deterring or preventing a change in control of Parent. Parent also is
subject to Section 203 of the DGCL which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in a broad range of
business combinations with any "interested stockholder" for a period of
three years following the date that such stockholder became an interested
stockholder. See "DESCRIPTION OF PARENT CAPITAL STOCK--Parent Rights" and
"--Parent Preferred Stock" and "COMPARISON OF RIGHTS OF FALCON
STOCKHOLDERS AND R&B STOCKHOLDERS."
THE COMPANIES
FALCON DRILLING COMPANY, INC.
Falcon is a provider of contract drilling and workover services
for the domestic and international oil and gas industry. Falcon's rig
fleet consists of barge drilling rigs, barge workover rigs, jackup rigs,
submersible rigs and drillships. Falcon's barge rig fleet is the largest
in the world. Falcon also owns tugboats, crewboats and utility barges,
which are primarily used in conjunction with its barge drilling and
workover operations. Falcon markets its rigs and vessels to oil and gas
companies and turnkey operators. Falcon's fleet operates in the U.S. Gulf
Coast and Gulf of Mexico, Venezuela, Brazil, West Africa, India, and
Southeast Asia.
At September 30, 1997, Falcon had total assets of $793.0 million
and stockholders' equity of $347 million.
For the three months ended September 30, 1997, Falcon reported
revenues of $136.7 million, net income of $28.5 million and net income
per common share of $.36, compared with $90.9 million, $11.0 million and
$.15, respectively, for the three months ended September 30, 1996.
Falcon's continued earnings growth for the third quarter of 1997
reflected high utilization and increasing dayrates in Falcon's domestic
offshore and barge drilling divisions. For more information about
Falcon's results of operations for the quarter ended September 30, 1997,
reference is made to the Falcon Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1997, which is incorporated herein by
reference. See "AVAILABLE INFORMATION " and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
Falcon was incorporated as a Delaware corporation in October
1991. Falcon's principal executive offices are located at 1900 West Loop
South, Suite 1800, Houston, Texas 77027 and its telephone number is (713)
623-8984.
For more information about Falcon, reference is made to the 1996
Falcon Form 10-K which is incorporated herein by reference. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
READING & BATES CORPORATION
R&B, a Delaware corporation organized in 1955, provides contract
drilling and other related services in major offshore oil and gas
producing areas worldwide. R&B began as one of the first offshore
contract drillers in 1956, and considers itself one of the most
experienced offshore drilling contractors in the world. R&B's mobile
offshore fleet currently consists of three fourth-generation and two
third-generation semisubmersible drilling units, a third-generation
deepwater semisubmersible support vessel, two second-generation
semisubmersible drilling units, nine international-class 300 foot
cantilever jackups, two self-erecting tenders and one floating production
vessel.
R&B's fleet is internationally diversified. Three of R&B's
drilling units are located in the Gulf of Mexico. The remainder of R&B's
units are located in various parts of the world, including in waters
offshore Angola, Australia, Egypt, India, Indonesia, Ireland, Italy, The
Netherlands, Nigeria and the United Kingdom.
At September 30, 1997, R&B had total assets of $1.03 billion and
shareholders' equity of $504.6 million.
For the three months ended September 30, 1997, R&B reported
operating revenues of $109.6 million, net income of $6.4 million
applicable to common stockholders and primary net income per common share
of $.09, compared with $76.4 million, $21.4 million and $.34,
respectively, for the three months ended September 30, 1996. R&B's
financial performance for the third quarter of 1997 reflected continuing
strength in R&B's contract drilling business, partially offset by
dry-hole expenses in its oil and gas exploration business. For more
information about R&B's results of operations for the quarter ended
September 30, 1997, reference is made to the R&B Quarterly Report on Form
10-Q for the Quarter Ended September 30, 1997, which is incorporated
herein by reference. See "AVAILABLE INFORMATION" and "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE."
The principal executive offices of R&B are located at 901
Threadneedle, Suite 200, Houston, Texas 77079. R&B's telephone number is
(281) 496-5000. For more information about R&B, reference is made to the
1996 R&B Form 10-K which is incorporated herein by reference. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
R&B FALCON CORPORATION
Parent, a newly formed Delaware corporation, has not conducted
any business activities to date, other than those incident to its
formation, its execution of the Merger Agreement and related agreements
and its participation in the preparation of this Joint Proxy
Statement/Prospectus. Accordingly, Parent has no assets, operations or
expenses to date other than incident to those activities. Immediately
following the consummation of the Mergers, Parent will become a holding
company for Falcon and R&B and their respective subsidiaries.
Accordingly, the business of Parent, through its wholly owned
subsidiaries Falcon and R&B and their respective subsidiaries, will be
the businesses currently conducted by Falcon and R&B and their respective
subsidiaries. Immediately upon consummation of the Mergers, based upon
the number of shares outstanding on the record dates, the former
stockholders of Falcon will own approximately 48% of the outstanding
Parent Common Stock and the former stockholders of R&B will own
approximately 52% of the outstanding Parent Common Stock.
The principal executive offices of Parent are located at 1900
West Loop South, Suite 1800, Houston, Texas 77027. Parent's telephone
number is (713) 623-8984.
THE FALCON SPECIAL MEETING
PURPOSE OF THE FALCON SPECIAL MEETING
The purpose of the Falcon Special Meeting is to consider and vote
upon a proposal to approve and adopt the Merger Agreement, which is
attached as Annex A to this Joint Proxy Statement/Prospectus.
THE FALCON BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT,
HAS DETERMINED THAT THE FALCON MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, FALCON AND ITS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS
THAT FALCON STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
DATE, PLACE AND TIME
The Falcon Special Meeting will be held at the Omni Houston
Hotel, Four Riverway, Houston, Texas, on December 23, 1997, commencing at
9:00 a.m., Central Time.
RECORD DATE
The Falcon Board has fixed the close of business on November 20,
1997 (the "Falcon Record Date") as the record date for the determination
of stockholders entitled to notice of and to vote at the Falcon Special
Meeting. As of the Falcon Record Date, there were issued and outstanding
and entitled to vote 79,350,778 shares of Falcon Common Stock.
REQUIRED VOTE
The affirmative vote of a majority of the shares of Falcon Common
Stock outstanding on the Falcon Record Date is required to approve and
adopt the Merger Agreement. Each share of Falcon Common Stock is entitled
to one vote on each matter on which the respective holders of such shares
are entitled to vote as set forth above at the Falcon Special Meeting.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to the
shares of Falcon Common Stock owned of record and beneficially as of
October 14, 1997 (except as indicated in note 3 to the table) and the
anticipated beneficial ownership, after giving effect to the Mergers, of
Parent Common Stock, by (i) each current director of Falcon, (ii) each
executive officer of Falcon, and (iii) all directors and executive
officers of Falcon as a group (all share information for the Falcon
Common Stock has been adjusted to reflect the two-for-one stock split
effected on July 15, 1997 (the "Split")).
<TABLE>
<CAPTION>
Percent of Percent of
Falcon Common Parent Common
Number of Shares of Stock Prior Stock After
Name Falcon Common Stock to Mergers (1) Mergers
---- -------------------- ------------------------------
<S> <C> <C> <C>
Purnendu Chatterjee................. 19,422,056(2) 24.5% 11.8%
Robert F. Fulton.................... 80,000(3) * *
Douglas A.P. Hamilton............... 316,140 * *
Kenneth H. Hannan, Jr............... -- -- --
James R. Latimer, III............... 14,200(4) * *
Leighton E. Moss.................... 13,332(5) * *
Michael E. Porter................... 25,000 * *
Robert H. Reeves, Jr................ 60,000(6) * *
Bernie W. Stewart................... 30,000(7) -- --
Steven A. Webster................... 5,306,242(8) 6.7% 3.2%
William R. Ziegler.................. 3,842,600(9) 4.8% 2.3%
Executive officers and directors
as a group (15 persons).......... 30,485,515(10) 38.4% 18.5%
- -------------------------
* Less than one percent.
(1) Based upon a total of 79,350,778 shares of Falcon Common Stock
outstanding on the Falcon Record Date, before taking into account
any outstanding options, warrants or convertible securities of
Falcon or other commitments with respect to the issuance of
Falcon Common Stock.
(2) Includes 18,360,786 shares of Falcon Common Stock beneficially
owned by S-C Rig Investments, L.P., the sole general partner of
which is S-C Rig Co., a company owned and controlled by Dr.
Chatterjee.
(3) Includes 80,000 shares issuable upon the exercise of vested
options. Does not include 60,000 shares issuable upon the
exercise of options that do not vest until February 1998.
(4) Does not include 10,000 shares issuable upon the exercise of
options that do not vest until February 1998.
(5) Does not include 13,336 shares issuable upon the exercise of
options that do not vest until January 1998 and thereafter.
(6) Includes 60,000 shares issuable upon the exercise of vested stock
options.
(7) Includes 7,500 shares issuable upon the exercise of vested
options. Does not include 120,000 shares issuable upon the
exercise of stock options that vest as to 30,000 shares on April
15, 1998 and each anniversary thereof.
(8) Includes (i) 885,000 shares owned by Linda M. Webster, the spouse
of Steven A. Webster, (ii) 1,838,600 shares owned by FDI Marine,
Inc., of which Mr. Webster is an officer and director and of
which Linda Webster is a principal stockholder, (iii) 1,089,600
shares owned by Falcon Drilling Services, Inc., of which Mr.
Webster is an officer and director and of which Linda Webster is
a principal stockholder, (iv) 86,400 shares owned beneficially by
Taladro Associates, of which Mr. Webster is a partner, (v)
559,800 shares owned by NFM Gulf Enterprises, Inc., of which Mr.
Webster is an officer, director and principal stockholder, (vi)
50,000 shares owned by Cerrito Partners, 57,360 shares
beneficially owned by Cerrito Investments I-A, L.P., and 11,880
shares owned by Webster Family Investments, investment
partnerships of which Mr. Webster is the general partner or an
officer of the general partner, and (vii) 133,332 shares issuable
upon exercise of vested stock options awarded under Falcon's 1995
Stock Option Plan. Does not include 66,668 shares issuable upon
the exercise of stock options awarded under Falcon's 1995 Stock
Option Plan that do not vest until January 1998.
(9) Includes (i) 1,838,600 shares owned by FDI Marine, Inc., of which
Mr. Ziegler is an officer, director and principal stockholder,
(ii) 1,089,600 shares owned by Falcon Drilling Services, Inc., of
which Mr. Ziegler is an officer, director and principal
stockholder, (iii) 86,400 shares owned beneficially by Taladro
Associates, of which Mr. Ziegler is a partner, (iv) 559,800
shares owned by NFM Gulf Enterprises, Inc., of which Mr. Ziegler
is an officer, director and principal stockholder, and (v) 63,000
shares issuable upon exercise of vested stock options.
(10) Includes (i) an aggregate of 1,315,942 shares owned by executive
officers that are not named executive officers and (ii) 60,000
shares issuable upon exercise of vested stock options to
executive officers that are not named executive officers.
Excludes 13,336 shares issuable upon exercise of options to an
executive officer that is not a named executive officer, which
options do not vest until January 1998 or later.
The following table sets forth information as to stockholders
known to Falcon to be the beneficial owners of more than 5% of Falcon
Common Stock. The information with respect to Falcon Common Stock is
based on information known to Falcon as of October 14, 1997 regarding the
beneficial ownership of voting securities of Falcon.
</TABLE>
<TABLE>
<CAPTION>
Shares of Percent of Percent of
Falcon Common Falcon Stock Parent Common
Name and Address of Stock Owned Prior to Stock After
Beneficial Owners Beneficially Mergers Mergers
- ------------------- -------------- ------------ -------------
<S> <C> <C> <C>
Purnendu Chatterjee................. 19,422,056(1) 24.5% 11.8%
888 Seventh Avenue
Suite 3000
New York, New York 10106
FMR Corporation..................... 6,339,200(2) 8.0% 3.9%
82 Devonshire Street
Boston, Massachusetts 02109
S-C Rig Investments, L.P............ 18,360,786(3) 23.1% 11.2%
888 Seventh Avenue
Suite 3000
New York, New York 10106
Steven A. Webster.................. 5,306,242(4) 6.7% 3.2%
1900 West Loop South
Suite 1800
Houston, Texas 77027
William R. Ziegler................. 3,842,600(5) 4.8% 2.3%
666 Third Avenue
New York, New York 10017
</TABLE>
- --------------------
(1) Includes 18,360,786 shares of Falcon Common Stock beneficially
owned by S-C Rig Investments, L.P., the sole general partner of
which is S-C Rig Co., a company owned and controlled by Dr.
Chatterjee.
(2) The number of shares owned by FMR is as of March 31, 1997. FMR
has sole dispositive power for all of such shares and sole voting
power with respect to 375,200 of such shares.
(3) Does not include 3,016 shares issuable upon exercise of a warrant
that is exercisable only to the extent that certain other
outstanding options and warrants to purchase Falcon Common Stock
are exercised.
(4) Includes (i) 885,000 shares owned by Linda M. Webster, the spouse
of Steven A. Webster, (ii) 1,838,600 shares owned by FDI Marine,
Inc., of which Mr. Webster is an officer and director and of
which Linda Webster is a principal stockholder, (iii) 1,089,600
shares owned by Falcon Drilling Services, Inc., of which Mr.
Webster is an officer and director and of which Linda Webster is
a principal stockholder, (iv) 86,400 shares owned beneficially by
Taladro Associates, of which Mr. Webster is a partner, (v)
559,800 shares owned by NFM Gulf Enterprises, Inc., of which Mr.
Webster is an officer, director and principal stockholder, (vi)
50,000 shares owned by Cerrito Partners, 57,360 shares
beneficially owned by Cerrito Investments I-A, L.P., and 11,880
shares owned by Webster Family Investments, investment
partnerships of which Mr. Webster is the general partner or an
officer of the general partner, and (vii) 133,332 shares issuable
upon exercise of vested stock options awarded under Falcon's 1995
Stock Option Plan. Does not include 66,668 shares issuable upon
the exercise of stock options awarded under Falcon's 1995 Stock
Option Plan that do not vest until January 1998.
(5) Includes (i) 1,838,600 shares owned by FDI Marine, Inc., of which
Mr. Ziegler is an officer, director and principal stockholder,
(ii) 1,089,600 shares owned by Falcon Drilling Services, Inc., of
which Mr. Ziegler is an officer, director and principal
stockholder, (iii) 86,400 shares owned beneficially by Taladro
Associates, of which Mr. Ziegler is a partner, (iv) 559,800
shares owned by NFM Gulf Enterprises, Inc., of which Mr. Ziegler
is an officer, director and principal stockholder, and (v) 63,000
shares issuable upon exercise of vested stock options.
VOTING AND REVOCATION OF PROXIES
Proxy cards for use at the Falcon Special Meeting accompany this
Joint Proxy Statement/Prospectus. A stockholder may use the proxy card if
he or she is unable to attend the meeting in person or wishes to have his
or her shares voted by proxy even if he or she does attend the meeting. A
proxy may be revoked by the person giving it at any time before it is
exercised by providing written notice of such revocation to the Secretary
of Falcon, by submitting a proxy having a later date or by appearing at
the meeting and electing to vote in person. Any proxy validly submitted
and not revoked will be voted in the manner specified therein by the
stockholder. IF NO SPECIFICATION IS MADE, SHARES OF FALCON COMMON STOCK
REPRESENTED BY PROXY WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT. Abstentions and broker non-votes will have the effect
of a vote against approval of the Merger Agreement. The Falcon Board
knows of no other matter that will be presented for action at the Falcon
Special Meeting. If, however, any other matter properly comes before the
Falcon Special Meeting, the persons named in the proxy or their
substitutes will vote thereon in accordance with their best judgment.
Discretionary authority granted in proxy cards voting against the
approval and adoption of the Merger Agreement will not be used to adjourn
the Falcon Special Meeting in order to solicit additional votes in favor
of the Merger Agreement.
SOLICITATION OF PROXIES
Falcon will bear the cost of the solicitation of proxies from its
stockholders, except that Falcon and R&B will share equally the cost of
printing and mailing this Joint Proxy Statement/Prospectus. In addition
to solicitation by mail, the directors, officers and employees of Falcon
and its subsidiaries may solicit proxies from Falcon stockholders by
telephone or telegram or in person. Such directors, officers and
employees will not be additionally compensated for such solicitation but
may be reimbursed for out-of-pocket expenses in connection therewith.
Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of shares held of record by such
persons, and Falcon will reimburse such custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses in connection
therewith.
McKenzie Partners of New York, New York, will assist in the
solicitation of proxies by Falcon for a fee of $20,000 plus reasonable
out-of-pocket expenses. If you require additional copies of either this
Joint Proxy Statement/Prospectus or the Falcon proxy card, or you have
questions, please contact McKenzie Partners at 1-800-322-2885 (toll
free).
THE R&B SPECIAL MEETING
PURPOSE OF THE R&B SPECIAL MEETING
The purpose of the R&B Special Meeting is to consider and vote
upon a proposal to approve and adopt the Merger Agreement, which is
attached as Annex A to this Joint Proxy Statement/Prospectus.
THE R&B BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, HAS
DETERMINED THAT THE R&B MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF,
R&B AND ITS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT R&B
STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
DATE, PLACE AND TIME
The R&B Special Meeting will be held at the Omni Houston Hotel,
Four Riverway, Houston, Texas, on December 23, 1997 commencing at 9:00
a.m., Central Time.
RECORD DATE
The R&B Board has fixed the close of business on November 20,
1997 (the "R&B Record Date") as the record date for the determination of
stockholders entitled to notice of and to vote at the R&B Special
Meeting. As of the R&B Record Date, there were issued and outstanding and
entitled to vote 72,230,879 shares of R&B Common Stock and 50 shares of
R&B Class A Stock.
REQUIRED VOTE
The affirmative vote of the holders of shares of R&B Common Stock
and R&B Class A Stock representing a majority of the votes entitled to be
cast by the holders of the shares of R&B Common Stock and R&B Class A
Stock outstanding on the R&B Record Date, voting together as a single
class, is required to approve and adopt the Merger Agreement.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, based on information as of
October 14, 1997, the beneficial ownership of R&B Common Stock and the
anticipated beneficial ownership, after giving effect to the Mergers, of
R&B Common Stock, as to (a) each R&B director, (b) each of the five most
highly compensated executive officers of R&B, based on 1996 compensation
of R&B executive officers, and (c) all current R&B directors and
executive officers, as a group.
<TABLE>
<CAPTION>
Percent of Percent of
Shares of R&B R&B Common Parent Common
Common Stock Stock Prior Stock After
Name Owned Beneficially to Mergers Mergers
---- ------------------ ----------- -------------
<S> <C> <C> <C>
A.L. Chavkin........................ 24,000 (1)(2) * *
C.A. Donabedian..................... 14,760 (2) * *
T. Kalborg.......................... 9,000 (2) * *
M.A.E. Laqueur...................... 327,168(2)(3) * *
P.B. Loyd, Jr....................... 1,022,915(4)(5)(7) 1.4% *
J.W. McLean......................... 10,000 (2) * *
C.K. Rhein, Jr.(Deceased)........... 5,920 (4)(6) * *
R.L. Sandmeyer...................... 9,020 (2) * *
L.E. Voss, Jr....................... 24,000 (8) * *
T.W. Nagle.......................... 170,847 (7) * *
W.K. Hillin......................... 36,146 (7) * *
C.R. Ofner.......................... 91,679 (7) * *
D.L. McIntire....................... 17,218 (7) * *
Directors and Executive Officers as a
Group (including those listed above -
13 persons).................... 1,762,673 (7) 2.4% 1.1%
</TABLE>
- -------------------
* less than 1 percent
(1) Mr. Chavkin is President of Chemical Investments, Inc.
("Chemical"), an affiliate of Chase Capital Partners and Chase
Manhattan Corporation. Chemical is a stockholder of R&B holding
547,309 shares of R&B Common Stock as of March 14, 1997. No
beneficial ownership amount is included in the table for Mr.
Chavkin with respect to Chemical's ownership of R&B Common Stock
and beneficial ownership is disclaimed by Mr. Chavkin.
(2) The number set forth in the table includes options to purchase
15,000 shares of R&B Common Stock granted to non-employee
directors pursuant to R&B's 1995 Director Stock Option Plan (the
"R&B 1995 Director Plan") at a price of $7.375 per share held by
each of Messrs. Chavkin and Laqueur and 5,000 of such options held
by Mr. Donabedian. The number set forth in the table also includes
9,000 shares of restricted stock granted to each non-employee
director (Messrs. Chavkin, Donabedian, Kalborg, Laqueur, McLean
and Sandmeyer) pursuant to R&B's 1996 Director Stock Option Plan
(the "R&B 1996 Director Plan").
(3) The shares listed for Mr. Laqueur include those beneficially owned
by him through his control of Workships Intermediaries N.V., a
stockholder of R&B.
(4) R&B granted restricted stock awards under R&B's 1992 Long-Term
Incentive Plan (the "R&B 1992 LTIP") to each of Messrs. Loyd and
Rhein, of 120,000 shares and 90,000 shares of R&B Common Stock,
respectively. Such shares awarded are restricted as to transfer
until vested pursuant to a schedule whereby 1/24th of the total
number of shares is vested per calendar quarter through March 31,
1998 (subject to certain conditions including the occurrence of a
change of control of R&B and/or continued employment). The shares
listed for Mr. Loyd include such 120,000 shares, net of 35,750
shares that Mr. Loyd has surrendered to R&B to satisfy certain tax
withholding obligations. Pursuant to an agreement between R&B and
R&B Investment Partnership, L.P., such 90,000 shares awarded to
Mr. Rhein were payable to and beneficially owned by WHR Management
Company, L.P., and such shares are not included in the shares
listed for Mr. Rhein. Restrictions as to transfer with respect to
such 90,000 shares granted to Mr. Rhein terminated, and the
balance of such shares became vested, upon Mr. Rhein's resignation
as Vice Chairman of R&B in May 1996. Mr. Rhein was killed in an
aircraft accident in July 1996.
(5) The shares of R&B Common Stock listed for Mr. Loyd include those
reported as beneficially owned by Greenwing Investments, Inc. Mr.
Loyd controls Greenwing Investments, Inc. and may be deemed to
have voting and dispositive power with respect to the 1,733 shares
of R&B Common Stock beneficially owned by Greenwing Investments,
Inc. as of March 14, 1997.
(6) Mr. Rhein resigned as Vice Chairman of R&B in May 1996 and was
killed in an aircraft accident in July 1996. The shares listed for
Mr. Rhein include 5,920 shares of R&B Common Stock owned by a
trust for the benefit of Mr. Rhein's children.
(7) R&B has granted options to purchase and restricted shares of R&B
Common Stock to certain key employees pursuant to its 1990 Stock
Option Plan (the "R&B 1990 Plan"), the R&B 1992 LTIP and R&B's
1995 Long-Term Incentive Plan (the "R&B 1995 LTIP " and together
with the R&B 1992 LTIP, the "R&B LTIPs") and options to purchase
and restricted shares of R&B Common Stock to non-employee
directors pursuant to the R&B 1995 Director Plan and the R&B 1996
Director Plan (see Footnote (2) above). The shares listed for
Messrs. Loyd, Nagle and Ofner include 900,000, 150,000 and 60,000
shares, respectively, the beneficial ownership of which each such
officer has the right to acquire pursuant to currently exercisable
options granted under the R&B 1990 Plan, the R&B 1992 LTIP and/or
the R&B 1995 LTIP. The shares listed for Mr. Nagle include 150,000
shares which he has the right to acquire under options granted
under the R&B 1995 LTIP which vest as to 50,000 shares each on
December 5, 1997, 1998 and 1999. The shares listed also include
restricted stock awards of 85,000 to Mr. Loyd under the R&B 1995
LTIP which vest on December 3, 1999, restricted stock awards to
Messrs. Nagle, Hillin, Ofner and McIntire of 20,000, 19,000,
17,000 and 12,000 shares, respectively, under the R&B 1995 LTIP
which vest on December 5, 1998, and restricted stock awards to
Messrs. Hillin, Ofner and McIntire, of 9,000, 9,000 and 5,200
shares, respectively, under the R&B 1995 LTIP which vest on
December 3, 1999. The shares listed for directors and executive
officers as a group include a total of 1,145,000 shares, the
beneficial ownership of which such directors and officers have the
right to acquire pursuant to currently exercisable options granted
under the R&B 1990 Plan, the R&B 1992 LTIP, the R&B 1995 LTIP and
the R&B 1995 Director Plan.
(8) Mr. Voss resigned from R&B in November 1996.
The following table sets forth information as to (a) the
beneficial ownership of each person known to R&B to own more than 5% of
the outstanding shares of R&B Common Stock and (b) the anticipated
beneficial ownership of each person expected by R&B to own more than 5%
of the outstanding shares of Parent Common Stock. The information with
respect to R&B Common Stock is based on information known to R&B as of
October 14, 1997 regarding the beneficial ownership of voting securities
of R&B.
<TABLE>
<CAPTION>
Percent of Percent of
Shares of R&B R&B Common Parent Common
Name and Address of Common Stock Stock Prior Stock After
Beneficial Owner Owned Beneficially to Mergers Mergers
------------------- ------------------ ----------- -------------
<S> <C> <C> <C>
Nicholas-Applegate Capital
Management...................... 4,947,867 (1) 6.9% 3.0%
600 West Broadway, 29th Floor
San Diego, California 92101
FMR Corp., Edward C. Johnson 3d;
Fidelity Management & Research
Company; Fidelity Magellan Fund
and Fidelity Management Trust
Company......................... 4,452,600 (2) 6.2% 2.7%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- ------------------------
(1) Based upon information contained in a Schedule 13G dated February
3, 1997, filed by Nicholas-Applegate Capital Management
("Nicholas-Applegate"). The Schedule 13G indicates that
Nicholas-Applegate has the sole power to direct the disposition
of 4,947,867 of such shares of R&B Common Stock and the sole
power to vote 4,183,333 of such shares of R&B Common Stock.
(2) Based upon information contained in a Schedule 13G, as amended as
of February 14, 1997, filed by FMR Corp. Such Schedule 13G sets
forth the following information: FMR Corp., a Massachusetts
corporation, is the beneficial owner of 4,452,600 shares of R&B
Common Stock. Fidelity Management & Research Company
("Fidelity"), a wholly-owned subsidiary of FMR Corp. and an
investment adviser registered under the Investment Advisers Act
of 1940, is the beneficial owner of 3,007,700 shares of R&B
Common Stock as a result of acting as investment adviser to
several investment companies (the "Funds") registered under the
Investment Company Act of 1940. The Chairman of FMR Corp., Edward
C. Johnson 3d, FMR Corp., through its control of Fidelity, and
the Funds have power to dispose of 2,935,400 shares of R&B Common
Stock listed in the table. Neither FMR Corp. nor Mr. Johnson has
the sole power to vote or direct the voting of the shares owned
directly by the Funds, which power resides with the Funds'
respective Boards of Trustees. Fidelity carries out the voting of
the shares under written guidelines established by the Funds'
Board of Trustees. Fidelity Management Trust Company, a
wholly-owned subsidiary of FMR Corp. and a bank as defined in
Section 3(a)(6) of the Exchange Act, is the beneficial owner of
1,444,900 shares of the Common Stock listed in the table as a
result of its serving as investment manager of several
institutional accounts. Mr. Johnson and FMR Corp., through its
control of Fidelity Management Trust Company, each has sole
dispositive power over 1,444,900 shares of R&B Common Stock
listed in the table and sole power to vote or to direct the
voting of 1,444,900 of such shares. Mr. Johnson owns 12.0%, and
Abigail P. Johnson owns 24.5% of the outstanding voting common
stock of FMR Corp. Various Johnson family members and trusts for
the benefit of Johnson family members own FMR Corp. voting common
stock. These Johnson family members, through their ownership of
such common stock and a voting agreement, form a controlling
group with respect to FMR Corp.
VOTING AND REVOCATION OF PROXIES
Proxy cards for use at the R&B Special Meeting accompany this
Joint Proxy Statement/Prospectus. A stockholder may use the proxy card if
he or she is unable to attend the meeting in person or wishes to have his
or her shares voted by proxy even if he or she does attend the meeting. A
proxy may be revoked by the person giving it at any time before it is
exercised by providing written notice of such revocation to the Secretary
of R&B, by submitting a proxy having a later date or by appearing at the
meeting and electing to vote in person. Any proxy validly submitted and
not revoked will be voted in the manner specified therein by the
stockholder. IF NO SPECIFICATION IS MADE, R&B COMMON STOCK OR R&B CLASS A
STOCK, AS APPLICABLE, REPRESENTED BY PROXY WILL BE VOTED FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT. Because approval of the Merger
Agreement by R&B stockholders requires the affirmative vote of the
holders of shares of R&B Common Stock and R&B Class A Stock representing
a majority of the votes entitled to be cast by the holders of the shares
of R&B Common Stock and R&B Class A Stock outstanding on the R&B Record
Date, voting together as a single class, abstentions and broker non-votes
will have the effect of a vote against approval and adoption of the
Merger Agreement. The R&B Board knows of no other matter that will be
presented for action at the R&B Special Meeting. If, however, any other
matter properly comes before the R&B Special Meeting, the persons named
in the proxy or their substitutes will vote thereon in accordance with
their best judgment. Discretionary authority granted in proxy cards
voting against the approval and adoption of the Merger Agreement will not
be used to adjourn the R&B Special Meeting in order to solicit additional
votes in favor of the Merger Agreement.
SOLICITATION OF PROXIES
R&B will bear the cost of the solicitation of proxies from its
stockholders, except that Falcon and R&B will share equally the cost of
printing and mailing this Joint Proxy Statement/Prospectus. In addition
to solicitation by mail, the directors, officers and employees of R&B and
its subsidiaries may solicit proxies from R&B stockholders by telephone
or telegram or in person. Such directors, officers and employees will not
be additionally compensated for such solicitation but may be reimbursed
for out-of-pocket expenses in connection therewith. Arrangements will
also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation materials to the
beneficial owners of shares held of record by such persons, and R&B will
reimburse such custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in connection therewith.
Georgeson & Company Inc. of New York, New York will assist in the
solicitation of proxies by R&B for a fee of $10,000 plus reasonable
out-of-pocket expenses. If you require additional copies of either this
Joint Proxy Statement/Prospectus or the R&B proxy card, or you have
questions, please contact Georgeson at 1-800-223-2064 (toll free).
THE MERGERS
BACKGROUND OF THE MERGERS
The terms of the Merger Agreement are the result of arm's length
negotiations between representatives of Falcon and R&B. The following is
a brief discussion of the background of these negotiations, the Mergers
and related transactions.
In the middle of April 1997, the chief executive officers of
Falcon and R&B discussed a possible merger between the two companies. The
chief executive officer of Falcon initiated merger discussions with the
chief executive officer of R&B in furtherance of Falcon's business
strategy to increase Falcon's presence in the deepwater drilling market.
In light of the familiarity of the chief executive officers of both
Falcon and R&B with the operations of the other, and because both Falcon
and R&B viewed the proposed transaction as a strategic merger of equals
and not as an acquisition, neither Falcon nor R&B reviewed other possible
merger candidates. Over the succeeding weeks, they met and held telephone
conversations to discuss further a possible business combination. On
April 15, 1997, R&B management notified Morgan Stanley, its financial
advisor, of the possibility of a combination between Falcon and R&B and
requested its assistance in analyzing such a combination. On April 29,
1997, Falcon and R&B entered into confidentiality agreements and began
reviewing additional information. Thereafter, CSFB, Falcon's financial
advisor, and Morgan Stanley, R&B's financial advisor, commenced a
preliminary review of information on each company's operations. Over the
next several weeks, both companies and their financial advisors continued
their review.
At the end of May 1997, representatives of CSFB and Morgan
Stanley met and discussed various aspects of a proposed transaction and
preliminarily discussed the economic terms of a proposed combination.
Throughout the month of June, representatives of Falcon and R&B
and their respective financial advisors met several times to continue
their due diligence investigation and to discuss further various aspects
of a possible combination, including the economic terms of a potential
combination. During the first week of July, representatives of Falcon and
R&B and their respective financial and legal advisors had more detailed
discussions with respect to the terms on which a possible combination
between Falcon and R&B might be effected.
On July 8, 1997, the Board of Directors of R&B met to consider
the proposed combination of R&B and Falcon. The R&B Board received a
presentation from R&B management on the strategic implications of the
proposed transaction for R&B and the combined company. Morgan Stanley
reviewed with the R&B Board various financial aspects of the proposed
transaction. The R&B Board also discussed the various terms of the
proposed combination with R&B management, Morgan Stanley and R&B's legal
counsel, including the structure of the transaction and proposed
management of the combined entity. R&B management noted that substantial
issues remained open, including final agreement on the merger
consideration.
Also that day, certain members of Falcon management met with the
Falcon Board (two of whom participated by telephone) to provide them with
a status report concerning the progress of the negotiations between the
two companies. On July 8, 1997 and July 9, 1997 representatives of the
two companies and their respective advisors continued to meet to discuss
open issues and the details of the proposed merger but were unable to
reach agreement with respect to the economic terms of a potential
combination.
Prior to the meetings of the Boards of Directors of Falcon and
R&B on July 10, 1997, representatives of R&B and their respective
advisors continued negotiations regarding the economic terms of a
potential transaction as well as the specific terms of the proposed
merger agreement relating to permitted solicitations of and responses to
competing offers, termination of the merger agreement, fees payable in
the event of a termination of the merger agreement and the proposed stock
option agreements described under the caption "CERTAIN RELATED
TRANSACTIONS." At the conclusion of these discussions, such
representatives agreed on the economic terms in the proposed merger
agreement (including the Combination Ratio of 1.18 shares of Parent
Common Stock for each share of R&B Common Stock and 1 share of Parent
Common Stock for each share of Falcon Common Stock) and reciprocal stock
option agreements that would be recommended to the respective Boards of
Directors.
On July 10, 1997, the Boards of Directors of Falcon and R&B met
separately to discuss the proposed merger agreement and related
transactions. After a period of deliberation during which the Falcon
Board considered, among other things, the oral opinion (which was
subsequently confirmed in writing) of CSFB that, as of such date, and
based upon and subject to the matters set forth therein, the Combination
Ratio (which was defined for purposes of the opinion as the exchange
ratio of one share of Parent Common Stock for each share of Falcon Common
Stock, together with the exchange ratio of 0.59 shares of Parent Common
Stock for each share of R&B Common Stock, and which did not take into
account the two-for-one stock split of Falcon Common Stock effected on
July 15, 1997) was fair to the holders of Falcon Common Stock from a
financial point of view, the Falcon Board unanimously approved the Merger
Agreement and the related transactions. See "--Opinions of Financial
Advisors--Falcon" below for a discussion of CSFB's opinion and
presentation to the Falcon Board.
At its meeting on July 10, 1997, the R&B Board received a further
presentation from R&B management regarding the strategic implications of
the proposed combination, and engaged in a detailed review of the
material terms of the proposed merger agreement. The R&B Board also
discussed the financial and accounting implications of the proposed
transaction with R&B management and its advisors. The independent
directors of the R&B Board also met, in executive session, to review the
implications of the proposed transaction for the executive officers of
R&B. At this meeting, the R&B Board also received the written opinion of
Morgan Stanley that, as of such date, and subject to the assumptions
made, matters considered and limits on review set forth therein, the
Merger Consideration (which was defined for purposes of the opinion as
the exchange ratio of 1.18 shares of Parent Common Stock for each share
of R&B Common Stock), pursuant to the Merger Agreement is fair, from a
financial point of view, to the holders of shares of R&B Common Stock and
unanimously approved the Merger Agreement and the related transactions.
See "--Opinions of Financial Advisors--R&B" below for a discussion of
Morgan Stanley's opinion and presentations to the R&B Board.
The Combination Ratio was the result of intense negotiations over
the course of the time the proposed Mergers were being negotiated. The
key principles which governed the negotiations included the following:
(1) the transaction would be a strategic merger of equals with the
combination ratio based on the market ratio of the two stocks; (2) the
market ratio could be adjusted to reflect the anticipated after-tax cash
flow contribution of each of Falcon and R&B to the combined entity in
1998; and (3) the market ratio could also be adjusted to reflect a
perceived market discount to the R&B Common Stock because of the
relatively undeveloped stage of its exploration and production business.
The market ratio varied somewhat depending upon the time frame over which
it was computed, but it was approximately 1.06 at the time that economic
discussions commenced and had ranged from an average of 1.03 for the 30
days preceding July 10 to an average of 1.12 for the 60 days preceding
July 10 to an average of 1.19 for the 90 days preceding July 10. The
remaining factors exerted significant influence over the negotiations in
the direction of increasing it above the market ratio, but the precise
degree of that influence cannot be quantified in view of the range of
average market ratios over time. The parties' completion of the
negotiations incorporated the conclusion that the Combination Ratio
basically reflected a market-to-market exchange with some adjustment for
a perceived discount in R&B's market price for its exploration and
production business.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGERS
Falcon
At a special meeting held on July 10, 1997, the Falcon Board
unanimously (i) determined that the terms of the Merger Agreement and the
transactions contemplated thereby are fair to, and in the best interests
of, Falcon and its stockholders and (ii) approved the Merger Agreement
and the transactions contemplated thereby. At such meeting, the Falcon
Board recommended that the Falcon stockholders approve and adopt the
Merger Agreement. In reaching these determinations, the Falcon Board
consulted with management of Falcon, as well as Falcon's financial and
legal advisors.
The Falcon Board and Falcon senior management have continually
reviewed the current and future state of Falcon's strategic position and
its short-term and long-term prospects. In particular, the Falcon Board
believed that it would likely be in the best interests of Falcon and its
stockholders to enter into a strategic business combination that would
provide diversification of Falcon into different marine drilling markets.
In light of, among other things, the review described in the
immediately preceding paragraph, the Falcon Board determined that it
would be in the best interests of Falcon and its stockholders to approve
the Merger Agreement and the transactions contemplated thereby. In
approving the Merger Agreement and the transactions contemplated thereby,
the Falcon Board considered a number of positive and negative factors,
including, but not limited to, the following:
(i) the Mergers will diversify Falcon's offshore drilling
fleet, making the combined company's overall results of operations less
affected by fluctuations in the strength of individual drilling markets;
(ii) R&B, which has been involved in the offshore drilling
business for approximately forty years, will provide added credibility
and established relationships with major oil and gas companies engaged in
offshore exploration;
(iii) the market capitalization of the combined company will be
almost double that of Falcon's current market capitalization, providing
enhanced liquidity for Falcon's stockholders;
(iv) the technical expertise of R&B in the deepwater area will
provide support to Falcon in the planned expansion of Falcon's deepwater
operations;
(v) the belief that the combined company would be better able
to respond to the needs of customers, the increased competitiveness of
the drilling industry and the opportunities that changes in the drilling
industry might bring;
(vi) the conservative capitalization and near-term cash flow of
R&B will, over time, enhance the overall credit quality of Falcon;
(vii) information with respect to the financial condition,
business, operations and prospects of both Falcon and R&B on both a
historical and prospective basis, including certain information
reflecting the two companies on a pro forma combined basis;
(viii) the presentations made by CSFB at the July 10, 1997 Falcon
Board meeting and the oral opinion of CSFB (which was subsequently
confirmed in writing) that, as of such date and based upon and subject to
the matters set forth therein, the Combination Ratio was fair to the
holders of Falcon Common Stock from a financial point of view (see
"--Opinions of Financial Advisors--Falcon" below for a discussion of
CSFB's presentations to the Falcon Board);
(ix) the burden of integrating the personnel of the two
companies, including the possibility that it would be necessary to
relocate the headquarters of both companies to a single facility that
could accommodate the personnel of the combined companies;
(x) the loss of autonomy of Falcon, in light of the fact that
the Parent Board of Directors would be composed of ten directors, five of
which would be appointed by R&B;
(xi) R&B's commitment to its exploration business which diverges
from Falcon's focus in the contract drilling business;
(xii) the significant costs that would be incurred in the form
of termination payments to R&B officers and directors upon consummation
of the Mergers; and
(xiii) the disparity in compensation and benefits afforded to R&B
executives compared to Falcon executives.
The foregoing discussion of the information and factors
considered by the Falcon Board is not intended to be exhaustive but
includes all material factors considered by the Falcon Board. The Falcon
Board did not assign relative weights to the above factors or determine
that any factor was of particular importance. A determination of various
weightings would, in the view of the Falcon Board, be impractical.
Rather, the Falcon Board viewed its position and recommendations as being
based on the totality of the information presented to, and considered by,
it. In addition, individual members of the Falcon Board may have given
different weight to different factors.
The Falcon Board recognized that, while there can be no assurance
as to the level of growth or profits to be attained by Parent in the
future and there can be no assurance that the requisite antitrust
approvals for the Mergers will be obtained, the Mergers and the
transactions contemplated thereby give Falcon stockholders the
opportunity to receive Parent Common Stock pursuant to the Falcon Merger
and thereby benefit from the expected future growth and profits of the
combined company.
It is expected that if the Mergers are not consummated, Falcon's
current management, under the general direction of the Falcon Board, will
continue to manage Falcon as an ongoing business.
FOR THE REASONS DESCRIBED ABOVE, THE FALCON BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT, HAS DETERMINED THAT THE FALCON MERGER IS
FAIR TO, AND IN THE BEST INTERESTS OF, FALCON AND ITS STOCKHOLDERS, AND
UNANIMOUSLY RECOMMENDS THAT FALCON STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
R&B
The R&B Board believes that the offshore drilling industry is
entering an era of change as enhanced technology lowers finding costs and
enables development of the deepwater drilling business. However, the R&B
Board also believes that the ability to compete effectively in this
environment will require technological leadership, the capital resources
necessary to finance the construction of new generations of deepwater
vessels, and the management expertise required to operate in an
increasingly sophisticated environment. The R&B Board believes that the
new management challenges include customer relationships that are
evolving into new patterns, including partnering, and the fact that
drilling activity is increasingly international in scope.
The R&B Board believes that the Mergers represent a unique
opportunity to create a preeminent offshore drilling company with broad
diversification and strong growth potential and the ability to compete
effectively in the new environment. The Mergers will create one of the
largest offshore drilling companies in the world, with a leading position
in international, deepwater and consolidated transition zone drilling.
The combined entity will benefit from the combination of the technical
and engineering skills, financial resources and diverse customer
relationships of each company. In particular, the R&B Board believes that
the combined company's capital structure should facilitate access to
financing and that the combined company should benefit from the
availability of the experienced management teams and employees of both
companies given the tight labor market affecting the industry.
Parent will have one of the largest fleets in the world capable
of drilling in more than 3,000 feet of water, with 5 vessels currently in
service, and another 6 vessels scheduled for construction or upgrade.
Parent will also possess one of the world's largest jack-up fleets with
25 rigs, with capabilities ranging from 200 to 300 feet. The R&B Board
believes that, with this fleet, the combined entity will be positioned to
benefit from the expected increase in exploration and development in West
Africa, South America, the North Sea, the Gulf of Mexico and Southeast
Asia. The R&B Board also believes that Parent will be a leading
competitor in consolidated transition zone drilling. With 41 domestic
drilling barges, 10 domestic workover barges, three Maracaibo barges and
101 inland marine service units, the R&B Board believes Parent will have
the ability to deploy to growing international markets and develop
complementary marine services operations. The Mergers will also create a
company with the largest construction program in the industry, with
long-term contracts for three drillship conversions, two new drillships
and a new generation semisubmersible.
For the foregoing reasons, the R&B Board believes that the
Mergers and the Merger Agreement are in the best interests of R&B and its
stockholders. The following are the material factors considered by the
R&B Board in reaching its conclusions, certain of which factors contained
both positive and negative elements:
(i) the judgment, advice and analyses of its management with
respect to the conditions in the offshore drilling industry, the
strategic options available to R&B, the likelihood of future
consolidation in the offshore drilling industry and the strategic,
financial and operational benefits of the Mergers, which benefits
include, among others, the enhanced ability of Parent to compete in the
emerging offshore drilling environment, the availability to Parent of the
capital resources to produce new generations of drilling equipment, the
potential for flexible and rapid growth, the creation of broader, more
diverse customer relationships, the availability of experienced
management and employee teams and increased liquidity and access to
financing on the part of Parent;
(ii) information concerning the business, results of operations,
financial position and prospects of each of R&B and Falcon;
(iii) current economic and market conditions;
(iv) information concerning the current and historical stock price
performance of R&B and Falcon;
(v) the terms and conditions of the Merger Agreement
(including the Merger Consideration and the fact that the transaction is
structured as a merger of equals with R&B designating five of the ten
directors of the combined entity and the combined entity including the
"R&B" name), which were viewed as providing an equitable basis for the
Mergers from the standpoint of R&B;
(vi) the fact that Paul Loyd, Jr., the Chairman and Chief
Executive Officer of R&B, would be the Chairman and Steven Webster, the
Chairman and Chief Executive Officer of Falcon and a former member of the
R&B Board who is known to the members of the current R&B Board, would be
the Chief Executive Officer of the combined company;
(vii) the advice of its counsel that the transaction could be
accomplished on a tax-free basis for federal income tax purposes;
(viii) presentations from officers of R&B, representatives of
outside counsel and representatives of Morgan Stanley with respect to the
business, financial, accounting and legal due diligence investigations
performed with respect to Falcon (see "--Opinions of Financial
Advisors--R&B" below for a discussion of Morgan Stanley's presentations
to the R&B Board);
(ix) the fact that the Merger Agreement provides that the
employment of certain officers of R&B and Reading & Bates Drilling Co., a
wholly owned subsidiary of R&B, including Messrs. Loyd, Nagle, Hillin,
Ofner, Bakonyi and McIntire, would be terminated at the consummation of
the Mergers (although Parent would not be prohibited from offering
employment to any of such officers after the consummation of the
Mergers), thus resulting in those individuals receiving lump sum payments
and other benefits under their employment contracts with R&B with an
aggregate value of approximately $25 million (see "--Interests of Certain
Persons in the Mergers --R&B" for a more detailed discussion of the
amounts to be paid to these employees, as well as a description of the
other material interests of these employees in the Mergers);
(x) analysis and advice from R&B management, Morgan Stanley
and R&B's independent auditors with respect to the pro forma impact of
the Mergers on the combined financial statements of Falcon and R&B, and
the expected effects of such pro forma impacts;
(xi) the opinion of Morgan Stanley, as of the date of its
opinion, and subject to certain considerations as set forth therein as to
the fairness, from a financial point of view, of the Merger
Consideration, pursuant to the Merger Agreement;
(xii) financial information indicating that the Merger
Consideration provided for each share of R&B Common Stock $32.78 in the
form of Parent Common Stock, based on the last reported sale price of
Falcon Common Stock as reported on the NYSE Composite Tape on Wednesday,
July 9, 1997, the last trading day prior to approval and execution of the
Merger Agreement, representing a premium of 16.0% over the last reported
sale price of R&B Common Stock on that date; and
(xiii) the provisions of the Merger Agreement that would restrict
the ability of the R&B Board to solicit or negotiate alternative
proposals, would require the R&B Board to recommend the R&B Merger to its
stockholders, would (under certain limited circumstances) allow R&B to
terminate the Merger Agreement and would require R&B under certain
circumstances to pay a termination fee to Falcon, and the related
provisions of the Stock Option Agreements.
The foregoing discussion of the information and factors
considered by the R&B Board is not intended to be exhaustive. In view of
the variety of factors considered in connection with its evaluation of
the Mergers, the R&B Board did not find it practicable to and did not
attempt to rank or assign relative weights to the foregoing factors.
Moreover, individual members of the R&B Board may have given different
weights to different factors.
FOR THE REASONS DESCRIBED ABOVE, THE R&B BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT, HAS DETERMINED THAT THE R&B MERGER IS FAIR
TO, AND IN THE BEST INTERESTS OF, R&B AND ITS STOCKHOLDERS, AND
UNANIMOUSLY RECOMMENDS THAT R&B STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
OPINIONS OF FINANCIAL ADVISORS
Falcon
Opinion of CSFB
CSFB has acted as financial advisor to Falcon in connection with
the Mergers. CSFB was selected by Falcon based on CSFB's experience,
expertise and familiarity with Falcon and its business. CSFB is an
internationally recognized investment banking firm and is regularly
engaged in the valuation of businesses and securities in connection with
mergers and acquisitions, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other
purposes.
In connection with CSFB's engagement, Falcon requested that CSFB
evaluate the fairness of the Combination Ratio from a financial point of
view. On July 10, 1997, CSFB delivered to the Falcon Board an oral
opinion (which was subsequently confirmed in writing) that, as of such
date and based upon and subject to the matters set forth therein, the
Combination Ratio (which was defined for purposes of the opinion as the
exchange ratio of one share of Parent Common Stock for each share of
Falcon Common Stock, together with the exchange ratio of 0.59 shares of
Parent Common Stock for each share of R&B Common Stock, and which did not
take into account the Split) was fair to the holders of Falcon Common
Stock from a financial point of view. CSFB subsequently confirmed its
July 10, 1997 opinion by delivering to the Falcon Board its written
opinion dated the date hereof (the "CSFB Opinion"), that, as of such date
and based upon and subject to the matters set forth therein, the
Combination Ratio was fair to the holders of Falcon Common Stock from a
financial point of view.
A COPY OF THE CSFB OPINION, WHICH SETS FORTH THE PROCEDURES
FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY CSFB, IS ATTACHED AS ANNEX B TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. CSFB HAS
CONSENTED TO THE USE OF THE CSFB OPINION IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND A COPY OF ITS CONSENT HAS BEEN FILED AS AN
EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS JOINT PROXY
STATEMENT/PROSPECTUS FORMS A PART. STOCKHOLDERS OF FALCON ARE URGED TO
READ THE CSFB OPINION CAREFULLY IN ITS ENTIRETY. THE CSFB OPINION IS
ADDRESSED TO THE FALCON BOARD AND RELATES ONLY TO THE FAIRNESS OF THE
COMBINATION RATIO FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF FALCON
COMMON STOCK, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGERS AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE FALCON SPECIAL MEETING. THE SUMMARY OF THE
CSFB OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE CSFB
OPINION.
In arriving at its opinion, CSFB reviewed certain publicly
available business and financial information relating to Falcon and R&B,
as well as the Merger Agreement and the Stock Option Agreements. CSFB
also reviewed certain other information, including financial forecasts
for Falcon and R&B and for the synergistic values and operating cost
savings expected to be achieved through the combination of operations of
Falcon and R&B, provided to CSFB by Falcon and R&B, and met with the
managements of Falcon and R&B to discuss the businesses and prospects of
Falcon and R&B as well as such synergistic values and operating cost
savings. CSFB also considered certain financial and stock market data of
Falcon and R&B and compared that data with similar data for other
publicly held companies in businesses similar to Falcon and R&B, and
considered the financial terms of certain other business combinations and
other transactions that had recently been effected. CSFB also considered
such other information, financial studies, analyses and investigations
and financial, economic and market criteria which CSFB deemed relevant.
In connection with its review, CSFB did not assume any
responsibility for independent verification of any of the foregoing
information and relied on such information being complete and accurate in
all material respects. With respect to the financial forecasts, CSFB
assumed that they had been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the managements of
Falcon and R&B as to the future financial performance of Falcon and R&B
as well as the synergistic values and operating cost savings expected to
be achieved through the combination of the operations of Falcon and R&B.
In addition, CSFB did not make an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of Falcon or R&B, nor
was CSFB furnished with any such evaluations or appraisals. The CSFB
Opinion was necessarily based upon information available to CSFB, and
financial, economic, market and other conditions as they existed and
could be evaluated on the date of the CSFB Opinion. CSFB did not express
any opinion as to the actual value of the Parent Common Stock when issued
pursuant to the Mergers or the prices at which the Parent Common Stock
will trade subsequent to the Mergers. CSFB assumed, with the consent of
Falcon, that each of the Mergers will be treated as a tax-free
reorganization pursuant to Sections 351 and/or 368 of the Internal
Revenue Code of 1986, as amended. Although CSFB evaluated the Combination
Ratio from a financial point of view, CSFB was not requested to, and did
not, recommend the specific consideration payable in the Mergers, which
consideration was determined through negotiations between Falcon and R&B.
No other limitations were imposed on CSFB with respect to the
investigations made or procedures followed by CSFB in rendering its
opinions.
In preparing its opinion dated July 10, 1997, CSFB performed a
variety of financial and comparative analyses, including those described
below. The summary of CSFB's analyses set forth below does not purport to
be a complete description of the analyses underlying CSFB's opinion. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible
to summary description. In arriving at its opinion, CSFB did not
attribute any particular weight to any analysis or factor considered by
it, but rather made qualitative judgments as to the significance and
relevance of each analysis and factor. Accordingly, CSFB believes that
its analyses must be considered as a whole and that selecting portions of
its analyses and factors, without considering all analyses and factors,
could create a misleading or incomplete view of the processes underlying
such analyses and its opinion.
In performing its analyses, CSFB made numerous assumptions with
respect to Falcon, R&B, industry performance, regulatory, general
business, economic, market and financial conditions and other matters,
many of which are beyond the control of Falcon or R&B. No company,
transaction or business used in such analyses as a comparison is
identical to Falcon or R&B or the Mergers, nor is an evaluation of the
results of such analyses entirely mathematical; rather, such analyses
involve complex considerations and judgments concerning financial and
operating characteristics and other factors that could affect the
acquisition, public trading or other values of the companies, business
segments or transactions being analyzed. The estimates contained in such
analyses and the ranges of valuations resulting from any particular
analysis are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses
relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities
actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. CSFB's opinion dated July
10, 1997 and the presentation made by it to the Falcon Board on that date
were among several factors considered by the Falcon Board in its
evaluation of the Mergers and should not be viewed as, and were not,
determinative of the decision of the Falcon Board with respect to the
Combination Ratio.
The following is a summary of the analyses performed by CSFB in
connection with the preparation of its opinion dated July 10, 1997. On
July 3, 1997, Falcon announced the Split. CSFB performed its analyses and
rendered its opinion dated July 10, 1997 on a pre-Split basis. The
summary also provides, in parentheses, adjustments for the Split. CSFB
reviewed and updated its analyses in connection with the preparation of
the CSFB Opinion.
Discounted Cash Flow Analysis. Based on certain financial
forecasts provided by the managements of Falcon and R&B, CSFB estimated
the present value of forecasted streams of unlevered free cash flows that
each of Falcon and R&B could produce on a stand-alone basis for the
fiscal years 1997 through 2006. The unlevered free cash flows were
developed based on certain operating and financial assumptions, estimates
and other information regarding the respective businesses of Falcon and
R&B, including estimated dayrate, utilization, operating costs and
related capital expenditures of the respective rigs of Falcon and R&B
which were discussed with the managements of Falcon and R&B. This
analysis indicated an implied reference range of enterprise value (which
was defined by CSFB as equity value plus debt, minority interest and
preferred stock minus cash) and an implied fully diluted common equity
reference range for Falcon of approximately $2.4 billion to $2.9 billion
and $54.07 to $66.57 per share ($27.04 to $33.29 per share adjusted for
the Split), respectively. For R&B, this analysis indicated an implied
enterprise reference range and an implied fully diluted common equity
reference range of approximately $2.6 billion to $3.0 billion and $32.44
to $37.90 per share, respectively.
Selected Companies Analysis. CSFB also compared certain publicly
available financial, operating and stock market data of Falcon and R&B to
corresponding data of selected publicly traded companies in the offshore
drilling industry (based on estimates generated internally by CSFB equity
research or compiled by First Call Corporation or the Institutional
Brokers Estimate System). The companies reviewed were Atwood Oceanics
Inc., Cliffs Drilling Co., Diamond Offshore Drilling Inc., Ensco
International Inc., Global Marine Inc., Marine Drilling Companies, Inc.,
Noble Drilling Corp., Rowan Companies, Inc. and Transocean Offshore Inc.
(collectively, the "Selected Companies"). CSFB then calculated multiples
for each of the selected Companies based on their closing stock prices on
July 9, 1997. This analysis indicated, for the Selected Companies,
multiples of (i) enterprise value to estimated 1997 and 1998 earnings
before interest, taxes, depreciation and amortization ("EBITDA") ranging
from 10.0x to 12.5x and 7.0x to 9.0x, respectively, (ii) equity value to
estimated 1997 and 1998 net income ranging from 18.0x to 22.0x and 12.0x
to 15.0x, respectively, and (iii) equity value to after-tax cash flow
(which was defined by CSFB as net income plus depreciation) ranging from
13.0x to 16.0x and 8.5x to 11.0x, respectively. CSFB then calculated
imputed enterprise and per share equity reference ranges for Falcon and
R&B by applying these multiples to corresponding financial data of Falcon
and R&B. This analysis indicated an implied enterprise reference range
and fully diluted common equity reference range for Falcon of
approximately $2.2 billion to $2.9 billion and $49.07 to $66.57 per share
($24.54 to $33.29 per share adjusted for the Split), respectively. For
R&B, this analysis indicated an implied enterprise reference range and
fully diluted common equity reference range of approximately $2.4 billion
to $3.0 billion and $29.71 to $37.90 per share, respectively.
Selected Acquisitions Analysis. Using publicly available
information, CSFB analyzed the purchase prices and implied transaction
multiples paid in the following selected transactions in the offshore
drilling industry since April 1996: the acquisition by Pride Petroleum
Services Inc. of certain rigs owned by Noble Drilling Corp., the
acquisition by Parker Drilling Corp. of Mallard Bay Drilling Co., the
acquisition by Sonat Offshore Drilling Inc. of Transocean ASA, the
acquisition by Ensco International Inc. of Dual Drilling Co., the
acquisition by Noble Drilling Co. of Neddrill Holding B.V., the
acquisition by Cliffs Drilling Co. of Southwestern Offshore Corp. and the
acquisition by Diamond Offshore Drilling Inc. of Arethusa (Off-Shore)
Limited (collectively, the "Selected Transactions"). All multiples were
based upon historical financial information available at the time of
announcement of the transaction. This analysis indicated a range of
multiples for the Selected Transactions of enterprise value relative to
latest 12 months' revenues, EBITDA and earnings before interest and taxes
("EBIT") of 3.0x to 5.0x, 18.0x to 22.0x and 20.0x to 23.0x,
respectively. CSFB then calculated imputed enterprise and fully diluted
common equity reference ranges for Falcon and R&B by applying these
multiples to corresponding financial data of Falcon and R&B. This
analysis resulted in an implied enterprise reference range and fully
diluted common equity reference range for Falcon of approximately $2.3
billion to $2.8 billion and $51.57 to $64.07 per share ($25.79 to $32.04
per share adjusted for the Split), respectively. For R&B, this analysis
resulted in an implied enterprise reference range and fully diluted
common equity reference range of approximately $2.6 billion to $3.2
billion and $32.44 to $40.63 per share, respectively.
Aggregate Reference Ranges. On the basis of the valuation
methodologies employed in the analyses described above, CSFB derived an
aggregate enterprise reference range and fully diluted common equity
reference range for Falcon of approximately $2.4 billion to $2.9 billion
and $54.07 to $66.57 per share ($27.04 to $33.29 per share adjusted for
the Split), respectively. CSFB derived an aggregate enterprise reference
range and fully diluted common equity reference range for R&B of
approximately $2.6 billion to $3.0 billion and $32.44 to $37.90 per
share, respectively. CSFB noted that, based on the closing stock price of
Falcon Common Stock on July 9, 1997 (the day before the Mergers were
announced) of $55.56, the Combination Ratio implied a per share value for
R&B of approximately $32.78 compared to the closing price of R&B on that
day of $28.13, reflecting a premium of approximately 16.6%.
Exchange Ratio Analyses. CSFB also conducted the following
relative valuation analyses and compared the Combination Ratio of 0.59
(1.18 adjusted for the Split) with the exchange ratios implied by such
analyses:
Historical Stock Trading Exchange Ratio Analysis. CSFB
performed an exchange ratio analysis comparing the average
closing stock prices for Falcon and R&B during the one day, one
week, one month, three months and one year periods preceding July
9, 1997. This comparison yielded implied exchange ratios ranging
from 0.49 to 0.74 (0.98 to 1.48 adjusted for the Split).
Aggregate Reference Ranges Exchange Ratio Analysis. CSFB
performed an exchange ratio analysis comparing the aggregate per
share equity reference ranges derived from the discounted cash
flow analysis, the selected companies analysis and the selected
acquisitions analysis described above of approximately $54.07 to
$66.57 for Falcon ($27.04 to $33.29 adjusted for the Split) and
approximately $32.44 to $37.90 for R&B. Based on the midpoint of
the aggregate reference range for Falcon, or $60.33 ($30.17
adjusted for the Split), this comparison resulted in implied
exchange ratios ranging from 0.54 to 0.63 (1.08 to 1.26 adjusted
for the Split).
Contribution Exchange Ratio Analysis. Using estimated
calendar years 1997 and 1998 financial data for Falcon and R&B,
CSFB performed an exchange ratio analysis comparing the relative
contributions of Falcon and R&B to the revenues, EBITDA, EBIT,
net income and after-tax cash flow of the combined company. This
analysis yielded implied exchange ratios ranging from 0.43 to
0.66 (0.86 to 1.32 adjusted for the Split).
Pro Forma Merger Analysis. CSFB analyzed the potential pro forma
effect of the Mergers on Falcon's earnings per share ("EPS") for the
years 1997 and 1998 that the managements of Falcon and R&B anticipated
could result from the Mergers, based upon financial forecasts provided by
Falcon and R&B management and after giving effect to Falcon management's
pre-tax cost savings estimates. This analysis indicated that the proposed
Mergers could be accretive to Falcon's EPS in 1997 and 1998 assuming the
transaction receives pooling of interests accounting treatment. If the
Mergers were accounted for as a purchase under generally accepted
accounting principles, this analysis indicated that the Mergers could be
dilutive to Falcon's EPS in 1997 and 1998. CSFB also analyzed the
potential pro forma effect of the Mergers on Falcon's cash flow per share
and reviewed certain 1997 estimated pro forma credit statistics of the
combined entity resulting from the Mergers, including EBITDA to estimated
interest expense, total debt to EBITDA and total debt to total book
capitalization. The actual results achieved by the combined company may
vary from projected results and the variations may be material.
Other Factors and Analyses. In the course of preparing its
opinion, CSFB performed certain other analyses and considered certain
other information and data, including, among other things, (i) the
trading characteristics of Falcon Common Stock and R&B Common Stock, (ii)
the share price premiums paid in certain offshore drilling transactions,
(iii) the profile of the stockholders of Falcon and R&B and (iv) equity
research coverage of Falcon and R&B provided by securities analysts.
Miscellaneous. Pursuant to the terms of CSFB's engagement, set
forth in a letter agreement between Falcon and CSFB dated May 20, 1997,
Falcon has agreed to pay CSFB the following fees, as compensation for its
services in connection with the Mergers: (i) a financial advisory fee of
$100,000, (ii) an announcement fee of $500,000, payable upon public
announcement of the Mergers and (iii) a transaction fee in an amount
equal to 0.45% of the aggregate consideration received by Falcon or its
stockholders in connection with the Mergers, as calculated and payable
upon the closing of the Mergers. The financial advisory fee and the
announcement fee will be creditable against the transaction fee. Falcon
has also agreed to reimburse CSFB for reasonable out-of-pocket expenses
incurred by CSFB in performing its services, including reasonable fees
and expenses of CSFB's legal counsel, and to indemnify CSFB and certain
related persons and entities against certain liabilities, including
liabilities under the federal securities laws, arising out of CSFB's
engagement.
In the ordinary course of its business, CSFB and its affiliates
may actively trade the debt and equity securities of both Falcon and R&B
for their own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities. CSFB
also acted as lead manager for Falcon's public offering of the Falcon
Common Stock in December 1996.
R&B
Opinion of Morgan Stanley
R&B retained Morgan Stanley to act as its financial advisor in
connection with the Mergers. Morgan Stanley was selected by the R&B Board
to act as R&B's financial advisor based on Morgan Stanley's
qualifications, expertise and reputation, as well as Morgan Stanley's
investment banking relationship and familiarity with R&B.
Morgan Stanley has delivered its written opinion dated July 10,
1997, to the R&B Board of Directors, to the effect that, on and as of the
date of such opinion, and based on assumptions made, matters considered,
and limits of review, as set forth in the opinion, the Merger
Consideration (which was defined for the purposes of the opinion as the
exchange ratio of 1.18 shares of Parent Common Stock for each share of
R&B Common Stock), pursuant to the Merger Agreement is fair from a
financial point of view to holders of shares of R&B Common Stock.
THE FULL TEXT OF MORGAN STANLEY'S OPINION, WHICH SETS FORTH,
AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX
C TO THIS JOINT PROXY STATEMENT/PROSPECTUS. R&B STOCKHOLDERS ARE URGED
TO, AND SHOULD, READ THE MORGAN STANLEY OPINION CAREFULLY AND IN ITS
ENTIRETY. MORGAN STANLEY'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF
THE MERGER CONSIDERATION PURSUANT TO THE MERGER AGREEMENT FROM A
FINANCIAL POINT OF VIEW TO THE HOLDERS OF R&B COMMON STOCK AND IT DOES
NOT ADDRESS ANY OTHER ASPECT OF THE MERGERS AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF R&B COMMON STOCK AS TO HOW TO VOTE AT THE
R&B SPECIAL MEETING. THE SUMMARY OF THE MATERIAL ELEMENTS OF MORGAN
STANLEY'S OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with rendering its opinion, Morgan Stanley: (i)
reviewed certain publicly available financial statements and other
information of R&B and Falcon; (ii) reviewed certain internal financial
statements and other financial and operating data concerning R&B and
Falcon prepared by the managements of R&B and Falcon, respectively; (iii)
analyzed certain financial forecasts prepared by the managements of R&B
and Falcon, respectively; (iv) discussed the past and current operations
and financial condition and the prospects of R&B and Falcon with senior
executives of R&B and Falcon, respectively; (v) reviewed the reported
prices and trading activity for the R&B Common Stock and Falcon Common
Stock; (vi) compared the financial performance of R&B and Falcon and the
prices and trading activity of R&B Common Stock and Falcon Common Stock
with that of certain other comparable publicly traded companies and their
securities; (vii) reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition transactions; (viii)
participated in discussions and negotiations among representatives of R&B
and Falcon and their financial and legal advisors; (ix) reviewed the
draft Merger Agreement and certain related documents; and (x) performed
such other analyses and considered such other factors as it deemed
appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon,
without independent verification, the accuracy and completeness of the
information reviewed by Morgan Stanley for the purposes of its opinion.
In addition, Morgan Stanley assumed that the financial forecasts were
reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performances of R&B and
Falcon. Morgan Stanley did not make any independent valuation or
appraisal of the assets or liabilities of R&B and Falcon nor was Morgan
Stanley furnished with any such appraisals. Morgan Stanley's opinion was
necessarily based on economic, market and other conditions as in effect
on, and the information made available to Morgan Stanley as of, the date
thereof.
In arriving at its opinion, Morgan Stanley was not authorized to
solicit, and did not solicit, interest from any party with respect to the
acquisition of R&B or any of its assets, nor did Morgan Stanley negotiate
with any of the parties, other than Falcon, which expressed interest to
Morgan Stanley in the possible acquisition of, or merger with R&B or
certain of its constituent business.
The following is a summary of the material analyses and
examinations performed by Morgan Stanley in preparation of its opinion
dated July 10, 1997 and reviewed with the R&B Board on the same day:
Peer Group Comparison. As part of its analysis, Morgan Stanley
compared certain financial information of R&B and Falcon with that of a
group of offshore drilling companies, consisting of Diamond Offshore
Drilling, Inc., Ensco International Incorporated, Global Marine Inc.,
Noble Drilling Corp., Rowan Companies, Inc., Santa Fe International Corp.
and Transocean Offshore Inc. (collectively, the "Offshore Drilling
Comparables"). Such financial information included the price to earnings
multiple, price to cash flow multiple and market capitalization to
EBITDA. In particular, such analyses indicated that as of July 9, 1997
based on a compilation of earnings projections by securities research
analysts, R&B traded at 11.7 and 9.8 times forecasted earnings and 9.2
and 8.0 times forecasted cash flow for the calendar years 1998 and 1999,
respectively, and R&B market capitalization represented 6.9 times 1998
forecasted EBITDA and Falcon traded at 14.3 and 9.0 times forecasted
earnings and 11.3 and 7.7 times forecasted cash flow for the calendar
years 1998 and 1999, respectively, and Falcon market capitalization
represented 8.0 times 1998 forecasted EBITDA compared to a range of 12.1
to 13.9 times 1998 earnings, 10.0 to 11.6 times 1999 earnings, 8.4 to
11.1 times 1998 cash flow and, 7.4 to 9.6 times 1999 cash flow and a
market capitalization of 6.9 to 11.6 times 1998 EBITDA for the Offshore
Drilling Comparables.
No company utilized as a comparison in the comparable companies
analysis is identical to R&B or Falcon. In evaluating the comparable
companies, Morgan Stanley made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of R&B
and Falcon, such as the impact of competition on R&B or Falcon and the
industry generally, industry growth and the absence of any adverse
material change in the financial condition and prospects of R&B or Falcon
or the industry or in the financial markets in general.
Historical Exchange Ratio Analysis. Morgan Stanley also reviewed
the ratio of R&B Common Stock to Falcon Common Stock trading prices over
the latest one month, three month, six month and one year periods. These
ratios ranged from approximately 1.000 to 1.560 times and, based on the
closing price of R&B Common Stock and Falcon Common Stock on July 9, 1997
of $28.25 and $27.78, respectively, the ratio was 1.017 times. Morgan
Stanley noted that the exchange ratio represented by the Merger
Consideration for R&B Common Stock represents approximately a 16.0%
premium to the ratio based on the July 9, 1997 closing prices.
Contribution Analysis. Morgan Stanley analyzed the pro forma
contribution of each of R&B and Falcon to Parent. Such analysis included,
among other things, relative contributions of EBITDA, net income and cash
flow. In particular, such analysis showed that R&B would contribute
approximately 46.9% of the 1997 EBITDA, 52.2% of the 1997 net income and
50.9% of the 1997 cash flow. Morgan Stanley noted that the Merger
Consideration for R&B Common Stock represented 52% of the combined
ownership of Parent on a fully diluted basis.
Net Asset Value Analysis. Morgan Stanley performed a net asset
value calculation for R&B and Falcon based on estimates of the market
value of each company's drilling fleets prepared by the respective
managements of each company. Morgan Stanley reviewed the total market
value of each fleet provided by R&B and Falcon and then adjusted these
values for each company's other assets and liabilities including debt and
cash to arrive at the market net asset values. Morgan Stanley also
performed a similar analysis of the net asset value of R&B and Falcon
based on estimates of the replacement cost of each company's drilling
fleet. Based on this analysis, Morgan Stanley calculated per share market
net asset values of $20.26 and $17.51 for R&B and Falcon, respectively.
These values represented an implied exchange ratio of 1.16 compared to
the exchange ratio represented by the Merger Consideration pursuant to
the Merger Agreement of 1.18. Morgan Stanley calculated per share
replacement cost net asset values of $34.52 and $38.63 for R&B and
Falcon, respectively. These values represented an implied exchange ratio
of 0.89.
Discounted Cash Flow Analysis. Morgan Stanley performed a
discounted cash flow analysis of R&B and Falcon based on certain
financial forecasts based on estimated future dayrates, utilization rates
and remaining useful lives of the drilling fleet of R&B and Falcon
(including planned upgrades and new builds) prepared in consultation with
the respective managements of each company for the fiscal years 1997
through 2022. Morgan Stanley discounted the unlevered free cash flows of
each drilling fleet over the forecast period at a range of discount rates
of 10.0% to 12.0%, representing an estimated weighted average cost of
capital range for R&B and Falcon, and terminal values based on perpetual
growth rates of 3% to arrive at a range of present values for the
drilling fleet. Such present values were then adjusted for each company's
other assets and long-term liabilities including debt, net of cash and
option proceeds, to arrive at a net asset value. Based on this analysis,
Morgan Stanley calculated per share values for R&B ranging from
approximately $22.86 to $32.85 and for Falcon ranging from approximately
$22.26 to $27.86. These values represented implied exchange ratios of
1.03 to 1.18 compared to the exchange ratio represented by the Merger
Consideration pursuant to the Merger Agreement of 1.18.
Pro Forma Analysis of the Mergers. Morgan Stanley analyzed the
pro forma impact of the Mergers on Parent's earnings per share for the
fiscal years 1998 and 1999. The year of the analysis period is based on
the assumption that 1998 constitutes the first full year subsequent to
the Mergers. Such analysis was based on cash flow and earnings estimates
for the aforementioned fiscal year projections for R&B and Falcon
prepared by the respective managements of each company. Morgan Stanley
noted that the Mergers would be slightly dilutive to R&B shareholders in
1998 but accretive in 1999 with respect to cash flow per share and,
assuming the Mergers would be treated as a pooling of interests for
accounting purposes, the Mergers would be modestly dilutive to R&B
shareholders in 1998 and 1999 with respect to earnings per share.
The preparation of a fairness opinion is a complex process and is
not necessarily susceptible to partial analysis or summary description.
Morgan Stanley believes that its analyses must be considered as a whole
and that selecting portions of its analyses and of the factors considered
by it, without considering all analyses and factors, would create an
incomplete view of the processes underlying its opinion. The range of
valuations resulting from any particular analysis described above should
therefore not be taken to be Morgan Stanley's view of the actual value of
R&B or Falcon.
In performing its analyses, Morgan Stanley made numerous
assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the
control of R&B or Falcon. The analyses performed by Morgan Stanley are
not necessarily indicative of actual values, which may be significantly
more or less favorable than suggested by such analyses. Such analyses
were prepared solely as part of Morgan Stanley's analysis of the fairness
from a financial point of view to holders of R&B Common Stock of the
Merger Consideration pursuant to the Merger Agreement in the Mergers and
were provided to the R&B Board of Directors in connection with the
delivery of Morgan Stanley's opinion dated July 10, 1997. The analyses do
not purport to be appraisals or to reflect the prices at which R&B or
Falcon might actually be sold. In addition, as described above, Morgan
Stanley's opinion and presentation to the R&B Board was one of the many
factors taken into consideration by the R&B Board in making its
determination to approve the Mergers. Consequently, the Morgan Stanley
analyses described above should not be viewed as determinative of the R&B
Board's or R&B management's opinion with respect to the value of R&B or
of whether the R&B Board or R&B management would have been willing to
agree to a different conversion ratio pursuant to the Merger Agreement.
The consideration to be received by the shareholders of R&B
pursuant to the Mergers was determined through negotiations between R&B
and Falcon and was approved by the R&B Board of Directors. Morgan Stanley
provided advice to R&B during the course of such negotiations; however,
the decision to enter into the Merger Agreement and to accept the
conversion ratio of 1.18 shares of Parent Common Stock for each share of
R&B Common Stock was solely that of the R&B Board.
R&B retained Morgan Stanley because of its experience and
expertise. Morgan Stanley is an internationally recognized investment
banking and advisory firm. Morgan Stanley, as part of its investment
banking business, is regularly engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed
and unlisted securities, private placements and valuations for corporate
and other purposes. In the course of its market-making and other trading
activities, Morgan Stanley may, from time to time, have a long or short
position in, and buy and sell, securities of R&B or Falcon. In the past,
Morgan Stanley and its affiliates have provided financial advisory
service to R&B and have received customary fees in connection with these
services.
R&B has agreed to pay Morgan Stanley a fee for its financial
advisory services in connection with the Mergers. R&B has agreed to pay
Morgan Stanley (i) an advisory fee estimated to be between $250,000 and
$300,000 which is payable in the event that the Mergers are not completed
and (ii) if the Mergers are successfully completed, a transaction fee
between 0.37% to 0.415% of the aggregate value of R&B at the time of
closing of the Mergers, against which any advisory fee paid will be
credited. In addition, R&B has agreed to reimburse Morgan Stanley for its
expenses related to the engagement and to indemnify Morgan Stanley and
its affiliates, their respective directors, officers, agents and
employees and each person, if any, controlling Morgan Stanley, or any of
its affiliates against certain liabilities and expenses, including
liabilities under federal securities laws, in connection with Morgan
Stanley's engagement.
MERGER CONSIDERATION
R&B. Upon consummation of the R&B Merger, each share of R&B Class
A Stock (provided the holders of R&B Class A Stock grant the requisite
two-thirds approval of the R&B Merger) and each share of R&B Common Stock
(collectively, the "R&B Stock") outstanding immediately prior to the
Effective Time shall be converted into 1.18 shares of Parent Common
Stock. If the holders of R&B Class A Stock do not grant the requisite
two-thirds approval, each issued and outstanding share of R&B Class A
Stock will be converted into the right to receive an amount of money in
cash equal to the sum of $12.00 plus all unpaid and cumulative dividends
accrued or in arrears to the Effective Time. Prior to the Effective Time,
there has been no public market for the Parent Common Stock.
Notwithstanding the foregoing, holders of R&B Stock otherwise
entitled to fractional shares of Parent Common Stock will be entitled to
receive, from American Stock Transfer & Trust Company, as exchange agent
(the "Exchange Agent"), in accordance with the Merger Agreement, a cash
payment in lieu of such fractional shares, representing such holder's
proportionate interest, if any, in the net proceeds from the sale by the
Exchange Agent in one or more transactions (which sale transactions shall
be made at such times, in such manner and on such terms as the Exchange
Agent shall determine in its reasonable discretion) on behalf of all such
holders of the aggregate of the fractional shares of Parent Common Stock,
as applicable, which would otherwise have been issued.
Following the R&B Merger, all shares of R&B Stock outstanding
prior to the R&B Merger will no longer be outstanding and will
automatically be canceled and retired and will cease to exist, and each
holder of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of R&B Stock (the "R&B
Certificates") shall cease to have any rights with respect thereto,
except the right to receive (i) certificates ("Parent Certificates")
representing the number of whole shares of Parent Common Stock, if any,
into which such shares have been converted, (ii) certain dividends and
other distributions, (iii) cash in lieu of fractional shares of Parent
Common Stock, if any, without interest, and (iv) in the case of shares of
R&B Class A Stock, if the holders of R&B Class A Stock do not grant the
requisite two-thirds approval of the Merger Agreement, cash in an amount
per share equal to the sum of $12.00 plus all accrued and unpaid
cumulative dividends.
Falcon. Upon consummation of the Falcon Merger, each share of
Falcon Common Stock outstanding immediately prior to the Effective Time
shall be converted into one share of Parent Common Stock. Prior to the
Effective Time, there has been no public market for the Parent Common
Stock.
Following the Falcon Merger, all shares of Falcon Common Stock
will no longer be outstanding and will automatically be canceled and
retired and will cease to exist, and each holder of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Falcon Common Stock (the "Falcon Certificates" and
together with the R&B Certificates, the "Certificates") shall cease to
have any rights with respect thereto, except the right to receive (i)
Parent Certificates representing the number of whole shares of Parent
Common Stock into which such shares have been converted and (ii) certain
dividends and other distributions.
Stock Options and Benefit Plans. For a description of the
treatment of the R&B and Falcon stock options and employee benefit plans.
See "THE MERGER AGREEMENT--Stock Options; --Employee Benefits and
Restricted Stock."
Appraisal Rights. See "--Appraisal Rights."
EFFECTIVE TIME
The Mergers will become effective at such time as is specified in
the certificates of merger for each of the R&B Merger and the Falcon
Merger (together, the "Certificates of Merger") which are to be filed
with the Secretary of the State of the State of Delaware. Such filings
are anticipated to take place as soon as practicable after receipt of
stockholder approval, all required regulatory approvals and the
satisfaction or waiver of the other conditions to the Mergers. It is
currently anticipated that the Effective Time will occur during the
fourth quarter of 1997. There can be no assurance, however, that the
required regulatory approvals will be obtained, or that the other
conditions to the Mergers will be satisfied by such date. See "THE MERGER
AGREEMENT--Conditions Precedent to the Mergers" and "OTHER
MATTERS--Regulatory Approvals."
DIVIDENDS
Parent has no current intention to pay dividends with respect to
the Parent Common Stock. See "DESCRIPTION OF PARENT CAPITAL STOCK--Parent
Common Stock."
STOCK EXCHANGE LISTING
The Parent Common Stock to be issued in the Mergers has been
approved for listing on the NYSE, subject to official notice of issuance,
and will trade on the NYSE under the symbol "FLC." Prior to the Effective
Time, there has been no public market for Parent Common Stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
Parent Board
As of the Effective Time, the Parent Board will have 10 members,
with five members designated by the R&B Board and five members designated
by the Falcon Board. R&B and Falcon will select their designees from
among the current members of the Board of Directors of R&B and Falcon,
respectively. If an individual so selected consents to serve as a
director, such individual shall be elected as a director of Parent,
effective as of the Effective Time. Mr. Loyd and Mr. Webster will serve
on the Parent Board. Mr. Webster was a director of R&B and Mr. Loyd was a
director of Falcon, until they resigned their respective directorships in
June 1996. To date, Falcon and R&B have not decided who, in addition to
Messrs. Webster and Loyd, will be designated to serve on the Parent
Board.
Falcon
Equity Awards
See "THE MERGER AGREEMENT--Stock Options" for information
concerning the treatment of options to purchase shares of Falcon Common
Stock upon consummation of the Mergers.
Additional information relating to executive compensation and
various benefit arrangements of Falcon is set forth in, and incorporated
herein by reference to, Falcon's 1996 Proxy Statement (the relevant
portions of which are incorporated into the 1996 Falcon Form 10-K). See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
R&B
Equity Awards
See "THE MERGER AGREEMENT--Stock Options" for information
concerning the treatment of options to purchase shares of R&B Common
Stock upon consummation of the Mergers.
Additional information relating to executive compensation and
various benefit arrangements of R&B is set forth in, and incorporated
herein by reference to, R&B's 1996 Proxy Statement (the relevant portions
of which are incorporated into the R&B Form 10-K). See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
R&B Employment Agreements
Each of Messrs. Loyd, Nagle, Hillin, Ofner, Bakonyi and McIntire
is a party to an employment agreement with R&B (as amended through the
date hereof, collectively, the "R&B Employment Agreements") providing for
a continuing three-year employment period. Pursuant to the R&B Employment
Agreements, if any such officer terminates his employment for good reason
or without any reason during a "window period" (as defined below), R&B
will (a) make a lump sum payment in cash to him, within 30 days after the
date of termination, equal to the sum of (i) the officer's annual base
salary earned through the date of termination, (ii) a bonus based on the
highest annual bonus paid or accrued for the benefit of the officer
during the three-year period preceding the date of termination, prorated
in accordance with the period in the current year prior to the date of
termination, and (iii) any compensation previously deferred or earned by
the officer (together with any accrued interest or earnings thereon), any
unreimbursed expenses and any accrued vacation paid, (b) make a lump sum
payment in cash to him, within 30 days after the date of termination,
equal to an amount determined by multiplying 1.25 times the sum of the
highest aggregate annual base salary and annual bonus paid to the officer
with respect to any one fiscal year ending within the three-year period
ending on the date of termination times three and (c) continue to provide
certain benefits for a period of three years following the date of
termination or as long as such plan or benefits allow. As used in the R&B
Employment Agreements, "window period" means the period commencing with
the date of any change of control (which would be deemed to occur for
purposes of the R&B Employment Agreements upon the consummation of the
Mergers) and expiring (x) 180 days immediately following any change of
control or (y) the date on or following any change of control that the
resulting surviving entity expressly assumes the obligations of R&B and
assigns the officer a position with such surviving entity with the
authority, duties and responsibilities commensurate in all material
respects as those in effect immediately prior to such change of control.
The 1996 base salaries under the R&B Employment Agreements were as
follows: P. B. Loyd, Jr., $450,000; T. W. Nagle, $240,000; W. K. Hillin,
$205,000; C. R. Ofner, $185,000; A. Bakonyi, $162,000; and D. L.
McIntire, $129,000.
The consummation of the Mergers constitutes a "change of control"
under the R&B Employment Agreements and will entitle each officer to
terminate his employment during the "window period" and receive a lump
sum payment of all amounts specified therein. As of the Effective Time,
the employment of each such R&B officer will be terminated. Accordingly,
each such officer will be entitled to receive from and be paid by R&B the
amounts provided for in his R&B Employment Agreement. The Merger
Agreement does contemplate that Parent may offer employment to any or all
such officers upon such terms and conditions as Parent deems appropriate.
None of such officers has any assurance that he will be offered
employment following the Mergers or regarding the terms of any such
employment, although Mr. Loyd will be Chairman of Parent immediately
following the Mergers.
In its consideration of the Mergers and the Merger Agreement, the
R&B Board determined that the termination of the R&B Employment
Agreements was a reasonable and appropriate way of facilitating selection
and retention of the best management team for the combined company going
forward.
The R&B Employment Agreements also provide that if any payment to
one of these employees will be subject to any excise tax under Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), a
"gross-up" payment will be made to place the officer in the same net
after-tax position as would have been the case if no excise tax had been
payable. Such "gross-up" payment, if required, will also compensate such
officers for any tax under Section 4999 with respect to the acceleration
of certain Stock Options and restricted stock awards described under
"--Equity Arrangements" below.
The following table sets forth the names, position and expected
cash amounts payable (including any "gross-up" payments) under the R&B
Employment Agreements (calculated as if the Mergers had been consummated
on December 31, 1997) to the R&B officers who are expected to receive
benefits under the R&B Employment Agreements.
MAXIMUM CASH
NAME POSITION AMOUNT PAYABLE
---- -------- --------------
P. B. Loyd, Jr. President and Chief Executive Officer $10,789,397
T. W. Nagle Executive Vice President, Finance and $ 3,812,746
Administration
W. K. Hillin Senior Vice President, General Counsel $ 2,974,650
and Secretary
C. R. Ofner Vice President - Business Development $ 2,916,813
D. L. McIntire Vice President - Human Resources $ 1,891,857
A. Bakonyi President - Reading & Bates Drilling $ 2,995,924
Co., a wholly owned subsidiary of R&B
In connection with the Option Rescission (as defined under
"--Other Arrangements" below), each of these officers will become
entitled to an expected 1997 bonus described under "--Other Arrangements"
below. An estimate of such 1997 bonus is included in the above table.
Equity Arrangements
Pursuant to the Merger Agreement, all outstanding Stock Options
will be converted into options to purchase Parent Common Stock. See "THE
MERGER AGREEMENT--Stock Options." Under the terms of the R&B LTIPs, the
vesting of all Stock Options outstanding under the R&B LTIPs will be
accelerated at the Effective Time in accordance with their preexisting
terms. On the date of this Joint Proxy Statement/Prospectus, the
following R&B employees held the following unvested R&B Employee Stock
Options under the R&B LTIPs: P. B. Loyd, Jr., none; T. W. Nagle, 150,000
options with an average exercise price of $28.00 per share of R&B Common
Stock; W. K. Hillin, none; C. R. Ofner, none; D. L. McIntire, none; and
A. Bakonyi, 4,000 options with an average exercise price of $9.00 per
share of R&B Common Stock.
Under the R&B LTIPs, the vesting of all grants of restricted R&B
Common Stock will be accelerated at the Effective Time in accordance with
their preexisting terms. On the date of this Joint Proxy
Statement/Prospectus, the following R&B employees held the following
numbers of shares of restricted R&B Common Stock under the R&B LTIPs: P.
B. Loyd, Jr., 85,000 shares; T. W. Nagle, 20,000 shares; W. K. Hillin,
28,000 shares; C. R. Ofner, 26,000 shares; D. L. McIntire, 17,200 shares;
and A. Bakonyi, 25,000 shares.
Under the R&B 1995 Director Plan, the vesting of all options to
purchase R&B Common Stock will be accelerated at the Effective Time. On
the date of this Joint Proxy Statement/Prospectus, the non-executive
directors of R&B (who are the only eligible participants) as a group held
under this Plan unvested options to purchase 5,000 shares of R&B Common
Stock at an average price of $7.375 per share of R&B Common Stock.
Under the R&B 1996 Director Plan, the vesting of restricted
shares of R&B Common Stock will be accelerated at the Effective Time. On
the date of this Joint Proxy Statement/Prospectus, the non-executive
directors of R&B (who are the only eligible participants) as a group held
under this Plan 54,000 restricted shares of R&B Common Stock.
Other Arrangements
In April 1997, each of Messrs. Loyd, Nagle, Hillin, Ofner,
McIntire and Bakonyi agreed to forego (a) any increase in his annual base
salary awarded in fiscal year 1997 and effective for fiscal year 1998,
(b) any annual bonus for fiscal year 1997, and (c) any restricted stock
grants awarded in fiscal year 1997 in consideration for receiving in the
aggregate 770,000 options to purchase shares of R&B Common Stock at an
exercise price of $23.75 per share of R&B Common Stock. In connection
with the Mergers, each of these persons and R&B have agreed, subject to
consummation of the Mergers on a "pooling of interests" basis, to rescind
such option grants (the "Option Rescission") and restore the foregone
compensation.
Based on their current compensation levels, the amount of the
expected 1997 cash bonus will be: P. B. Loyd, Jr., approximately
$1,040,000; T. W. Nagle, approximately $302,500; W. K. Hillin,
approximately $247,500; C. R. Ofner, approximately $233,200; D. L.
McIntire, approximately $155,100; and A. Bakonyi, approximately $242,000.
Based on an exercise price of $23.75 per share of R&B Common Stock for
each rescinded option and a closing sale price per share of R&B Common
Stock of $40.125 as of November 17, 1997, the aggregate positive
difference between the exercise price of such options and the value of
the R&B Common Stock that may be purchased pursuant to such options for
each employee is: P. B. Loyd, Jr., approximately $5,076,250; T. W. Nagle,
approximately $1,965,000; W. K. Hillin, approximately $1,637,500; C. R.
Ofner, approximately $1,637,500; D. L. McIntire, approximately $655,000;
and A. Bakonyi, approximately $1,637,500.
In connection with the Mergers, the non-employee directors of R&B
will receive cash payments pursuant to R&B's director pension plan. The
expected amounts of these payments are as follows: J. McLean, $114,917;
R. Sandmeyer, $146,888; C. Donabedian, $123,832; T. Kalborg, $70,487; A.
Chavkin, $69,303; and M. Laqueur, $105,462.
Indemnification and Insurance
Pursuant to the Merger Agreement, Parent will, for six years from
the Effective Time, indemnify all the current or former directors or
officers of R&B and Falcon for acts or omissions occurring prior to the
Effective Time to the same extent as such indemnified parties are
entitled to indemnification under each of R&B's and Falcon's charter or
bylaws or in any agreement. In addition, for three years from the
Effective Time, Parent shall maintain in effect R&B's current directors'
and officers' liability insurance policy and Falcon's directors' and
officers' liability insurance policy. See "THE MERGER
AGREEMENT--Indemnification; Directors' and Officers' Insurance."
ANTICIPATED ACCOUNTING TREATMENT
Prior to entering into the Merger Agreement, each of Falcon and
R&B reviewed relevant data and consulted their respective independent
accounting firms to determine the appropriate accounting method for the
Mergers under APB Opinion No. 16. Based upon that review and
consultation, Falcon and R&B concluded that they are required to account
for the Mergers as a pooling of interests and will do so in accordance
with APB Opinion No. 16. Accordingly, under generally accepted accounting
principles, the assets and liabilities of Falcon and R&B will be recorded
on the books of Parent at their values on the books of Falcon and R&B at
the time of the consummation of the Mergers. If completed as proposed, no
goodwill will be created as a result of the Mergers.
Pursuant to the Merger Agreement, each of Falcon and R&B are
required to use its reasonable best efforts to deliver from each party
who may be deemed to be an "affiliate" of such party (collectively, the
"Affiliates") for purposes of SEC Accounting Series Release No. 130, as
amended by Release No. 135, to the other party an Affiliate Letter,
pursuant to which, among other things, each Affiliate agrees, with
certain limited exceptions, not to sell, transfer or otherwise dispose of
any interest in, or reduce such party's risk with respect to, the Falcon
Common Stock or the R&B Common Stock during the period commencing 30 days
preceding the Effective Time until such time as consolidated financial
results covering at least 30 days of post-Mergers combined results of
operations of Falcon and R&B have been published.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal
income tax considerations of the Mergers to holders of Falcon Common
Stock and R&B Common Stock who hold such common stock as a capital asset
(generally, property held for investment). The summary is based upon the
Code, as currently in effect, applicable Treasury Regulations promulgated
thereunder, judicial decisions and current administrative rulings, any of
which may be changed at any time with retroactive effect. The summary
does not address all aspects of United States federal income taxation
that may be relevant to particular taxpayers in light of their personal
investment circumstances or to taxpayers subject to special treatment
under United States federal income tax laws (including, for example, life
insurance companies, foreign persons, tax-exempt entities and holders who
acquired their Falcon Common Stock or R&B Common Stock pursuant to the
exercise of employee stock options or otherwise as compensation). In
addition, the summary does not address any aspect of state, local or
foreign taxation.
The obligations of Falcon and R&B to effect the Mergers are
conditioned on delivery of an opinion to Falcon from Skadden, Arps,
Slate, Meagher & Flom LLP, its counsel, and to R&B from Cravath, Swaine &
Moore, its counsel, each dated as of the Effective Time, based upon
certain customary representations and assumptions set forth therein, that
the Mergers qualify under Sections 351 and/or 368(a) of the Code as
tax-free transactions for United States federal income tax purposes.
Opinions of counsel are not binding on the Internal Revenue Service
("IRS") or the courts, and the parties do not intend to request a ruling
from the IRS with respect to the Mergers. Accordingly, there can be no
assurance that the IRS will not challenge such conclusion or that a court
will not sustain such challenge. In the opinion of Skadden, Arps, Slate,
Meagher & Flom LLP and Cravath, Swaine & Moore, as of the date hereof,
the material U.S. federal income tax consequences of the Mergers will be:
(i) No gain or loss will be recognized by Parent, Falcon, R&B,
Falcon Sub or R&B Sub in connection with Mergers.
(ii) No gain or loss will be recognized by holders of Falcon
Common Stock or R&B Common Stock who exchange their common stock for
Parent Common Stock pursuant to the Mergers (except with respect to cash
received by holders of R&B Common Stock in lieu of fractional shares of
Parent Common Stock).
(iii) The aggregate tax basis of the Parent Common Stock received
in the Mergers will equal the aggregate tax basis of the Falcon Common
Stock or R&B Common Stock surrendered in exchange therefor (reduced by
any amount allocable to the fractional share interests in Parent Common
Stock for which cash is received).
(iv) The holding period for the Parent Common Stock received in
the Mergers will include the holding period for the Falcon Common Stock
or R&B Common Stock surrendered in exchange therefor.
A holder of R&B Common Stock who receives cash in lieu of a
fractional share of Parent Common Stock will recognize capital gain or
loss equal to the difference between the tax basis of such fractional
share (as calculated above) and the cash received in lieu thereof.
Pursuant to recently enacted legislation, in the case of an individual
holder of R&B Common Stock, any such capital gain will be subject to a
maximum federal income tax rate of (i) 20% if the holder's holding period
in such shares was more than 18 months at the Effective Time, and (ii)
28% if the holder's holding period was more than one year but not more
than 18 months at the Effective Time.
In the event that Falcon or R&B is unable to obtain its
respective opinion of counsel, dated as of the Effective Time,
substantially to the effect set forth above, each of Falcon and R&B
expects that it would assess the reasons for the failure to obtain such
opinion and the anticipated tax treatment of the Mergers in light of such
failure, and make a determination at such time, consistent with the
fiduciary duties of its respective Board of Directors and its obligations
under applicable law, as to whether such condition should be waived. The
votes of stockholders will be resolicited in the event of such a failure
to obtain tax opinions substantially to the effect set forth above, if
the parties determine to waive such conditions to the consummation of the
Mergers. As of the date of this Joint Proxy Statement/Prospectus, neither
Falcon or R&B has any intention of waiving the condition as to the
receipt of opinions of counsel substantially similar to the effect set
forth herein.
THIS UNITED STATES FEDERAL INCOME TAX DISCUSSION MAY NOT APPLY TO
ALL HOLDERS OF FALCON COMMON STOCK OR R&B COMMON STOCK. SUCH HOLDERS ARE
URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES
TO THEM OF THE MERGERS.
APPRAISAL RIGHTS
Under the DGCL, holders of R&B Common Stock and Falcon Common
Stock are not entitled to appraisal rights in connection with the
Mergers.
Holders of record of R&B Class A Stock who do not vote in favor
of the Merger Agreement and who otherwise comply with the applicable
statutory procedures summarized herein will be entitled to appraisal
rights under Section 262 of the DGCL ("Section 262"). A person having a
beneficial interest in shares of R&B Class A Stock held of record in the
name of another person, such as a broker or nominee, must act promptly to
cause the record holder to follow the steps summarized below properly and
in a timely manner to perfect appraisal rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW
PERTAINING TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS
ENTIRETY BY THE FULL TEXT OF SECTION 262 WHICH IS REPRINTED IN ITS
ENTIRETY AS APPENDIX F. ALL REFERENCES IN SECTION 262 AND IN THIS SUMMARY
TO A "STOCKHOLDER" OR "HOLDER" ARE TO THE RECORD HOLDER OF THE SHARES OF
R&B CLASS A STOCK AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED. AS DESCRIBED
MORE FULLY BELOW, NOTWITHSTANDING THE AVAILABILITY OF APPRAISAL RIGHTS TO
HOLDERS OF R&B CLASS A STOCK, IT IS R&B'S VIEW THAT THE AMOUNT PER SHARE
OF R&B CLASS A STOCK RECEIVED IN AN APPRAISAL PROCEEDING SHOULD BE
LIMITED TO $12.00 PLUS ACCRUED AND UNPAID CUMULATIVE DIVIDENDS (AND ANY
INTEREST DETERMINED APPROPRIATE BY THE DELAWARE CHANCERY COURT).
In general, under the DGCL, a stockholder entitled to appraisal
rights who follows the procedures set forth in Section 262 will be
entitled to have his shares appraised by the Delaware Chancery Court and
to receive payment in cash of the "fair value" of such shares, exclusive
of any element of value arising from the accomplishment or expectation of
the Mergers, together with a fair rate of interest, if any, as determined
by such court.
Under Section 262, where a proposed merger is to be submitted for
approval at a meeting of stockholders, the corporation, not less than 20
days prior to the meeting, must notify each of its stockholders who was
such on the record date for such meeting with respect to shares for which
appraisal rights are available, that appraisal rights are so available,
and must include in such notice a copy of Section 262.
This Joint Proxy Statement/Prospectus constitutes such notice to
the holders of R&B Class A Stock and the applicable statutory provisions
of the DGCL are attached to this Joint Proxy Statement/Prospectus as
Appendix F. Any holder of shares of R&B Class A Stock who wishes to
exercise such appraisal rights or who wishes to preserve his right to do
so should review the following discussion and Appendix F carefully,
because failure to timely and properly comply with the procedures
specified will result in the loss of appraisal rights under the DGCL.
A holder of R&B Class A Stock (hereinafter "Appraisal Shares")
wishing to exercise such holder's appraisal rights (a) must not vote in
favor of the Merger Agreement and (b) must deliver to R&B prior to the
vote on the Merger Agreement at the R&B Special Meeting, a written demand
for appraisal of such holder's Appraisal Shares. A holder of Appraisal
Shares wishing to exercise such holder's appraisal rights must be the
record holder of such Appraisal Shares on the date the written demand for
appraisal is made and must continue to hold such Appraisal Shares of
record until the consummation of the R&B Merger. Accordingly, a holder of
Appraisal Shares who is the record holder of Appraisal Shares on the date
the written demand for appraisal is made, but who thereafter transfers
such Appraisal Shares prior to the consummation of the R&B Merger, will
lose any right to appraisal in respect of such Appraisal Shares.
Only a holder of record of Appraisal Shares is entitled to assert
appraisal rights for the Appraisal Shares registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the
holder of record, fully and correctly, as such holder's name appears on
such holder's stock certificates. If the Appraisal Shares are owned of
record in a fiduciary capacity, such as by a trustee, guardian or
custodian, execution of the demand should be made in that capacity, and
if the Appraisal Shares are owned of record by more than one person as in
a joint tenancy or tenancy in common, the demand should be executed by or
on behalf of all joint owners. An authorized agent, including one or more
joint owners, may execute a demand for appraisal on behalf of a holder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is
agent for such owner or owners. A record holder such as a broker who
holds Appraisal Shares as nominee for several beneficial owners may
exercise appraisal rights with respect to the Appraisal Shares held for
one or more beneficial owners while not exercising such rights with
respect to the Appraisal Shares held for other beneficial owners; in such
case, the written demand should set forth the number of Appraisal Shares
as to which appraisal is sought. When no number of Appraisal Shares is
expressly mentioned the demand will be presumed to cover all Appraisal
Shares held in the name of the record owner. Stockholders who hold their
Appraisal Shares in brokerage accounts or other nominee forms and who
wish to exercise appraisal rights are urged to consult with their brokers
to determine the appropriate procedures for the making of a demand for
appraisal by such a nominee.
ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE SENT OR DELIVERED TO
READING & BATES CORPORATION, 901 THREADNEEDLE, SUITE 200, HOUSTON, TEXAS,
77079-2902, ATTENTION: SECRETARY.
Within 10 days after the consummation of the R&B Merger, R&B will
notify each holder of Appraisal Shares who has properly asserted
appraisal rights under Section 262 and who has not voted in favor of the
Merger Agreement of the date the R&B Merger became effective.
Within 120 days after the consummation of the R&B Merger, but not
thereafter, R&B or any holder of Appraisal Shares who has complied with
the statutory requirements summarized above may file a petition in the
Delaware Chancery Court demanding a determination of the fair value of
the Appraisal Shares. R&B is under no obligation to and has no present
intention to file a petition with respect to the appraisal of the fair
value of the Appraisal Shares. Accordingly, it is the obligation of the
stockholders to initiate all necessary action to perfect their appraisal
rights within the time prescribed in Section 262.
Within 120 days after the consummation of the R&B Merger, any
holder of Appraisal Shares who has complied with the requirements for
exercise of appraisal rights will be entitled, upon written request, to
receive from R&B a statement setting forth the aggregate number of
Appraisal Shares not voted in favor of adoption of the Merger Agreement
and with respect to which demands for appraisal have been received and
the aggregate number of holders of such Appraisal Shares. Such statements
must be mailed within ten days after a written request therefor has been
received by R&B.
Section 262 provides that, if a petition for an appraisal is
timely filed, after a hearing on such petition the Delaware Chancery
Court will determine the stockholders entitled to appraisal rights and
will appraise the "fair value" of their shares, exclusive of any element
of value arising from the accomplishment or expectation of the R&B
Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the "fair value." The "fair value " of their
shares as determined under Section 262 could be more than, the same as or
less than the value of the consideration a holder would receive in a
merger absent seeking appraisal, and investment banking opinions as to
fairness from a financial point of view are not necessarily opinions as
to "fair value" under Section 262. The Delaware Supreme Court has stated
that, in general, "proof of value by any techniques or methods which are
generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in the appraisal proceedings.
R&B's Restated Certificate of Incorporation provides that "in the event
of a merger or consolidation of the Corporation, the value of the Class A
Stock of the Corporation (for all purposes, including the requirement of
payment of such value as provided in the General Corporation Law of the
State of Delaware) shall be deemed to be (and each purchaser or holder of
Class A Stock by virtue of such purchase or holding shall agree that such
value shall be) not in excess of an amount per share equal to the
aggregate of (a) $12.00, plus (b) the amount of all unpaid cumulative
dividends accrued or in arrears to the date" of the merger. On the basis
of this provision and the Delaware Chancery Court's 1997 decision in In
the Matter of the Appraisal of Ford Holdings, Inc. Preferred Stock, it is
R&B's view, based on advice of Cravath, Swaine & Moore, counsel to R&B,
that any stockholders who properly demand appraisal of Appraisal Shares
will only be entitled to receive an amount of money in cash equal to the
sum of $12.00 plus all accrued unpaid cumulative dividends (and any
interest on such sum determined as described below).
The Delaware Chancery Court will determine the amount of
interest, if any, to be paid upon the amounts to be received by persons
whose Appraisal Shares have been appraised. The costs of the action may
be determined by the Delaware Chancery Court and taxed upon the parties
as the Delaware Chancery Court deems equitable. The Delaware Chancery
Court may also order that all or a portion of the expenses incurred by
any stockholder in connection with an appraisal, including, without
limitation, reasonable attorneys' fees and the fees and expenses of
experts utilized in the appraisal proceeding, be charged pro rata against
the value of all of the Appraisal Shares entitled to appraisal.
Any holder of Appraisal Shares who has duly demanded an appraisal
in compliance with Section 262 will not, after the consummation of the
R&B Merger, be entitled to vote the Appraisal Shares subject to such
demand for any purpose or be entitled to the payment of dividends or
other distributions on those Appraisal Shares (except dividends or other
distributions payable to holders of record of Appraisal Shares as of a
record date prior to the consummation of the R&B Merger).
If any stockholder who properly demands appraisal of his
Appraisal Shares under Section 262 fails to perfect, or effectively
withdraws or loses, his right to appraisal, as provided in the DGCL the
Appraisal Shares of such stockholder will be converted into the right to
receive the consideration receivable with respect to such Appraisal
Shares in accordance with the Merger Agreement. A stockholder will fail
to perfect, or effectively lose or withdraw, his right to appraisal if,
among other things, no petition for appraisal is filed within 120 days
after the consummation of the R&B Merger, or if the stockholder delivers
to R&B a written withdrawal of his demand for appraisal. Any such attempt
to withdraw an appraisal demand more than 60 days after the consummation
of the R&B Merger will require the written approval of R&B, and no
appraisal proceeding may be dismissed as to any stockholder without
approval of the Court.
Failure to follow the steps required by Section 262 for
perfecting appraisal rights may result in the loss of such rights (in
which event a stockholder will be entitled to receive the consideration
receivable with respect to such Appraisal Shares in accordance with the
Merger Agreement).
THE MERGER AGREEMENT
GENERAL
The following description of the Merger Agreement is qualified in
its entirety by reference to the complete text of the Merger Agreement,
which is incorporated herein by reference and a copy of which is annexed
to this Joint Proxy Statement/Prospectus as Annex A. Capitalized terms
not defined herein shall have the meanings set forth in the Merger
Agreement.
The Merger Agreement provides for the merger of R&B Sub with and
into R&B and the merger of Falcon Sub with and into Falcon. As a result
of the Mergers, each of Falcon and R&B will become a wholly owned
subsidiary of Parent. In the Mergers, stockholders of Falcon and R&B will
receive the consideration described below. The Mergers will become
effective at such time as is specified in the Certificates of Merger for
each of the Mergers which are to be filed with the Secretary of the State
of the State of Delaware. Such filings are anticipated to take place as
soon as practicable after receipt of all required regulatory approvals
and the satisfaction or waiver of the other conditions to the Mergers. It
is currently anticipated that the Effective Time will occur during the
fourth quarter of 1997. There can be no assurance, however, that the
required regulatory approvals will be obtained, or that the other
conditions to the Mergers will be satisfied, by such date. See
"--Conditions Precedent to the Mergers" and "OTHER MATTERS--Regulatory
Approvals."
CONSIDERATION TO BE RECEIVED IN THE MERGERS
R&B Merger. Upon consummation of the R&B Merger, each share of
R&B Common Stock and each share of R&B Class A Stock (provided the
holders of R&B Class A Stock grant the requisite two-thirds approval of
the R&B Merger), outstanding immediately prior to the Effective Time
shall be converted into 1.18 shares of Parent Common Stock. If holders of
R&B Class A Stock do not grant the requisite two-thirds approval, each
issued and outstanding share of R&B Class A Stock will be converted into
the right to receive an amount of money in cash from R&B equal to the sum
of $12.00 plus all unpaid cumulative dividends accrued or in arrears to
the Effective Time.
Notwithstanding the foregoing, holders of R&B Stock otherwise
entitled to fractional shares of Parent Common Stock will be entitled to
receive, from the Exchange Agent in accordance with the Merger Agreement,
a cash payment in lieu of such fractional shares, representing such
holders' proportionate interests, if any, in the net proceeds from the
sale by the Exchange Agent in one or more transactions (which sale
transactions shall be made at such times in such manner and on such terms
as the Exchange Agent shall determine in its sole judgment) on behalf of
all such holders of the aggregate of the fractional shares of Parent
Common Stock which would otherwise have been issued.
All such shares of R&B Stock converted as provided in the
preceding paragraphs will no longer be outstanding and will automatically
be canceled and retired and will cease to exist, and each holder of R&B
Certificates shall cease to have any rights with respect thereto, except
the right to receive (i) Parent Certificates representing the number of
whole shares of Parent Common Stock into which such shares have been
converted, if applicable, (ii) certain dividends and other distributions,
(iii) cash in lieu of fractional shares of Parent Common Stock, if
applicable, and (iv) in the case of R&B Class A Stock, if the holders of
R&B Class A Stock do not grant the requisite two-thirds voting approval
of the Merger Agreement, cash equal to the sum of $12.00 plus all unpaid
cumulative dividends accrued or in arrears to the Effective Time, in each
case without interest.
Falcon Merger. Upon consummation of the Falcon Merger, pursuant
to the Merger Agreement, each share of Falcon Common Stock outstanding
immediately prior to the Effective Time shall be converted into one share
of Parent Common Stock.
All such shares of Falcon Common Stock converted as provided in
the preceding paragraph will no longer be outstanding and will
automatically be canceled and retired and will cease to exist, and each
holder of Falcon Certificates shall cease to have any rights with respect
thereto, except the right to receive (i) Parent Certificates representing
the number of whole shares of Parent Common Stock into which such shares
have been converted, (ii) certain dividends and other distributions, and
(iii) cash in lieu of fractional shares of Parent Common Stock, in each
case without interest.
EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF CERTIFICATES
Falcon and R&B have authorized American Stock Transfer & Trust
Company to act as Exchange Agent under the Merger Agreement. As of the
Effective Time, Parent will deposit with the Exchange Agent, for the
benefit of the holders of the Certificates, Parent Certificates
representing the number of whole shares of Parent Common Stock issuable
pursuant to the Merger Agreement in exchange for outstanding shares of
Falcon Common Stock or R&B Stock, as the case may be. Such shares of
Parent Common Stock, together with any dividends or distributions with
respect thereto with a record date after the Effective Time, any Excess
Shares (as hereinafter defined) and any cash (including cash proceeds
from the sale of the Excess Shares) payable in lieu of any fractional
shares of Parent Common Stock are hereinafter referred to as the
"Exchange Fund." The Exchange Agent will deliver Parent Certificates upon
the surrender for exchange of the Certificates.
As soon as reasonably practicable after the Effective Time, the
Exchange Agent will mail to each record holder of a Certificate a packet
of information about exchanging Certificates for the property described
below. The packet will include a form of letter of transmittal for the
record holder to use to transmit the Certificates to the Exchange Agent,
which letter of transmittal will specify that delivery will be effected,
and risk of loss and title to the Certificates will pass, only upon
actual delivery thereof to the Exchange Agent and will be in such form
and have such other provisions as Falcon and R&B reasonably specify. Upon
surrender for cancellation to the Exchange Agent of Certificates held by
any record holder, together with such letter of transmittal duly executed
and such other documents as are reasonably required by the Exchange
Agent, such holder will be entitled to receive in exchange therefor: (i)
a Parent Certificate representing the number of whole shares of Parent
Common Stock, if any, into which the shares of Falcon Common Stock or R&B
Stock, as applicable, represented by the surrendered Certificate(s) have
been converted at the Effective Time, (ii) cash in lieu of any fractional
share of Parent Common Stock (see "--No Fractional Shares"), (iii) the
dividends and other distributions described in the next paragraph, and
(iv) any cash consideration payable to holders of R&B Class A Stock. All
Certificates so surrendered will be canceled. All shares of Parent Common
Stock issued upon the surrender for exchange of any Certificate in
accordance with the terms of the Merger Agreement (including the cash
paid in respect of any such fractional share or of any such dividends or
distributions) will be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of Falcon Common
Stock or R&B Stock, as the case may be, represented by such surrendered
Certificate; provided, however, that each of Falcon and R&B is obligated
to pay any dividends or make any other distributions with a record date
prior to the Effective Time which may have been authorized or made by
Falcon and R&B, as the case may be, on such shares of Falcon Common Stock
or R&B Stock, as the case may be, which remain unpaid at the Effective
Time.
No dividends or other distributions with respect to Parent Common
Stock with a record date after the Effective Time will be paid to the
holder of any unsurrendered Certificate with respect to the shares of
Parent Common Stock represented thereby, and no cash payment in lieu of
fractional shares will be paid to any such holder pursuant to the Merger
Agreement, and all such dividends, other distributions and cash in lieu
of fractional shares of Parent Common Stock will be paid by Parent to the
Exchange Agent and will be included in the Exchange Fund, in each case
until the surrender of such Certificate in accordance with the exchange
procedures set forth in the Merger Agreement. Subject to the effect of
applicable escheat or similar laws, following surrender of any such
Certificate there will be paid to the holder of the Parent Certificate
representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount
of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of
Parent Common Stock and the amount of any cash payable in lieu of a
fractional share of Parent Common Stock to which such holder is entitled
pursuant to the Merger Agreement and (ii) at the appropriate payment date
the amount of dividends or other distributions with a record date after
the Effective Time but prior to such surrender and with a payment date
subsequent to such surrender payable with respect to such whole shares of
Parent Common Stock. Parent will make available to the Exchange Agent
cash for these purposes.
If after the Effective Time, Certificates are presented to either
Parent, Falcon or R&B or the Exchange Agent for any reason, they will be
canceled and exchanged as described in the three preceding paragraphs,
except as otherwise provided by law. There will be no further
registration of transfers on the stock transfer books of Falcon or R&B of
the shares of Falcon Common Stock and R&B Stock which were outstanding
immediately prior to the Effective Time.
Any portion of the Exchange Fund that remains undistributed to
the holders of the Certificates for six months after the Effective Time
will be delivered to Parent upon demand, and any holders of the
Certificates who have not theretofore complied with the exchange
provisions of the Merger Agreement may thereafter look only to Parent for
payment of their claim for Merger Consideration, any cash in lieu of
fractional shares of Parent Common Stock and any dividends or
distributions with respect to Parent Common Stock.
None of Parent, Falcon, R&B or the Exchange Agent will be liable
to any person in respect of any shares of Parent Common Stock (or
dividends or distributions with respect thereto) or cash from the
Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificate has not
been surrendered prior to seven years after the Effective Time (or
immediately prior to such earlier date on which any Merger Consideration,
any cash payable to the holder of such Certificate pursuant to the Merger
Agreement or any dividends or distributions payable to the holder of such
Certificate would otherwise escheat to or become the property of any
governmental body or authority) any such Merger Consideration or cash,
dividends or distributions in respect of such Certificate will, to the
extent permitted by applicable law, become the property of the Parent,
Falcon or R&B, as appropriate, free and clear of all claims or interest
of any person previously entitled thereto.
The Exchange Agent will invest any cash included in the Exchange
Fund, as directed by Parent, on a daily basis. Any interest and other
income resulting from such investments will be paid to Parent.
STOCKHOLDERS OF FALCON AND R&B SHOULD NOT FORWARD CERTIFICATES
WITH THE ENCLOSED PROXY CARD, NOR SHOULD THEY FORWARD CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED THE PACKET OF INFORMATION
DESCRIBED ABOVE, INCLUDING THE LETTER OF TRANSMITTAL.
NO FRACTIONAL SHARES
No Parent Certificates or scrip representing fractional shares of
Parent Common Stock will be issued upon the surrender of Certificates for
exchange; no Parent dividend or other distribution will relate to any
such fractional shares; and no such fractional shares will entitle the
owner thereof to any voting or other rights of a shareholder of Parent.
In lieu of any such fractional shares, each holder of shares of Falcon
Common Stock and R&B Stock who would otherwise have been entitled thereto
upon the surrender of Certificates for exchange will be paid cash (as
described below).
As promptly as practicable following the Effective Time, the
Exchange Agent will determine the excess of (i) the number of whole
shares of Parent Common Stock delivered to the Exchange Agent by Parent
pursuant to the Merger Agreement over (ii) the aggregate number of whole
shares of Parent Common Stock to be distributed to holders of Falcon
Common Stock, R&B Common Stock and R&B Class A Stock pursuant to the
Merger Agreement (such excess being herein called the "Excess Shares").
Following the Effective Time, the Exchange Agent will, on behalf of
former shareholders of Falcon, if any, and R&B, sell the Excess Shares at
then prevailing prices on the NYSE, all in the manner provided for in the
Merger Agreement (as described in the paragraph immediately below).
The sale of the Excess Shares by the Exchange Agent will be
executed on the NYSE through one or more member firms of the NYSE and
will be executed in round lots to the extent practicable. The Exchange
Agent will use reasonable efforts to complete the sale of the Excess
Shares as promptly following the Effective Time as, in the Exchange
Agent's sole judgment, is practicable consistent with obtaining the best
execution of such sales in light of prevailing market conditions. Until
the net proceeds of such sale or sales have been distributed to the
holders of Falcon Common Stock and R&B Stock, the Exchange Agent will
hold such proceeds in trust for the holders of Falcon Common Stock and
R&B Stock (the "Common Shares Trust"). Falcon and R&B will pay all
commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent incurred in
connection with such sale of the Excess Shares. The Exchange Agent will
determine the portion of the Common Shares Trust to which each holder of
Falcon Common Stock and R&B Stock is entitled, if any, by multiplying the
amount of the aggregate net proceeds comprising the Common Shares Trust
by a fraction, the numerator of which will be the amount of the
fractional share interest to which such holder of Falcon Common Stock or
R&B Stock is entitled (after taking into account all shares of Falcon
Common Stock or R&B Stock held at the Effective Time by such holder) and
the denominator of which will be the aggregate amount of fractional share
interests to which all holders of Falcon Common Stock and R&B Stock are
entitled.
Notwithstanding the provisions of the Merger Agreement described
in the two preceding paragraphs, Parent, Falcon and R&B may elect at
their option, exercised prior to the Effective Time, in lieu of the
issuance and sale of Excess Shares and the making of the payments above
contemplated, to pay each holder of Falcon Common Stock or R&B Stock an
amount in cash equal to the product obtained by multiplying (i) the
fractional share interest to which such holder (after taking into account
all shares of Falcon Common Stock or R&B Stock held at the Effective Time
by such holder) would otherwise be entitled by (ii) the closing price for
a share of Parent Common Stock as reported on the NYSE Composite
Transactions Tape (as reported in The Wall Street Journal or, if not
reported thereby, any other authoritative source) on the closing date of
the Mergers.
As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Falcon Common Stock and R&B Stock
with respect to any fractional share interest, the Exchange Agent will
make available such amounts to such holders of Falcon Common Stock and
R&B Stock, subject to and in accordance with the Merger Agreement. See
"--Exchange Agent; Procedures for Exchange of Certificates."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and
warranties of Falcon and R&B relating, among other things, to the
following: (i) their incorporation, existence, good standing, corporate
power and similar corporate matters; (ii) their capitalization; (iii)
their authorization, execution, delivery and performance and the
enforceability of the Merger Agreement and related matters; (iv) the
absence of conflicts, violations and defaults under their certificate or
articles of incorporation and bylaws and certain other agreements and
documents; (v) the documents and reports filed with the Commission and
the accuracy and completeness of the information contained therein; (vi)
the absence of undisclosed liabilities; (vii) compliance with laws,
ordinances and regulations; (viii) environmental matters; (ix) employee
benefit matters; (x) the absence of certain material changes or events
since December 31, 1996; (xi) pending or threatened investigations or
litigation; (xii) the Registration Statement and this Joint Proxy
Statement/Prospectus and the accuracy and completeness of the information
contained therein and herein; (xiii) the inapplicability of their
shareholder rights plans to the Mergers; (xiv) the lack of ownership of
each other's stock; (xv) tax matters; (xvi) the receipt of fairness
opinions from financial advisors; (xvii) the stockholders' votes of R&B
(the "R&B Stockholder Approval") and of Falcon (the "Falcon Stockholder
Approval") required to adopt the Merger Agreement; and (xviii) certain
acts that may affect the accounting treatment of the Mergers. All
representations and warranties of Falcon and R&B expire at the Effective
Time.
CONDUCT OF BUSINESS PENDING THE MERGERS
Each of Falcon and R&B has agreed that during the period from the
date of the Merger Agreement through the Effective Time or the date on
which the Merger Agreement terminates in accordance with its terms (the
"Termination Date"), except as otherwise agreed to by the other parties
to, or permitted by, the Merger Agreement, it will, and will cause each
of its subsidiaries to, conduct its business operations according to
their ordinary and usual course of business in substantially the same
manner as conducted prior to the Merger Agreement, use its reasonable
best efforts, and cause each of its subsidiaries to use its reasonable
best efforts, to preserve intact its business organizations and goodwill
(except that any of its Subsidiaries may be merged with or into, or be
consolidated with any of its other Subsidiaries or may be liquidated into
it or any of its Subsidiaries), keep available the services of its
current officers and other key employees and preserve its relationships
with those persons having business dealings with it and its subsidiaries.
Each of Falcon and R&B has agreed to notify the other of any change or
event which would have a Material Adverse Effect on Falcon or R&B, as the
case may be, and to confer, at such times as the other may reasonably
request, concerning its material operational matters and the general
status of its ongoing operations, with representatives of the other. As
used in the Merger Agreement and this Joint Proxy Statement/Prospectus,
subsidiary means any corporation or other form of legal entity of which
more than 50% of the outstanding voting securities are owned directly or
indirectly by Falcon or R&B, as the case may be, as of the date of the
Merger Agreement.
Without limiting the generality of the foregoing, and except as
otherwise agreed to by the parties to, or permitted by, the Merger
Agreement, each of Falcon and R&B has agreed that it will not: (i) and
will not (except in the ordinary course of business consistent with past
practice) permit any of its subsidiaries that is not wholly owned to,
authorize or pay any dividends on or make any distribution with respect
to its outstanding shares of stock; other than, in the case of
subsidiaries of R&B, Arcade Drilling AS ("Arcade") in accordance with and
to the extent permitted by the Facility Agreement, dated as of February
21, 1991, as amended to date, between Arcade, Chase Investment Bank
Limited, The Chase Manhattan Bank, N.A., and the other parties thereto
and other than, in the case of Falcon, for the stock dividend to holders
of record on July 9, 1997, and the distribution of Rights to holders of
record on July 16, 1997; (ii) propose or adopt any amendments to its
corporate charter or by-laws; and (iii) and will not permit any of its
Significant Subsidiaries (as defined in Rule 405 under the Securities
Act), to issue or authorize the issuance of, or agree to issue or sell
any shares of their capital stock of any class (whether through the
issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase or otherwise), except as specifically set forth in
Sections 4.2 and 5.2 of the Merger Agreement and the R&B Disclosure
Schedule and the Falcon Disclosure Schedule relating thereto and except,
in the case of R&B, with respect to the previously authorized grants of
options under the Reading & Bates Development Co. ("Devco") 1997
Incentive Plan.
Except as otherwise agreed to by the parties to, or permitted by,
the Merger Agreement, each of Falcon and R&B also has agreed that it will
not, and that it will not permit any of its subsidiaries to: (i) except
(a) in the ordinary course of business consistent with past practice or
(b) as otherwise provided in the Merger Agreement, enter into or amend
any employment, severance or similar agreements or arrangements with any
of their respective directors or executive officers or enter into, adopt
or amend any bonus, deferred compensation, stock purchase, stock option,
pension, retirement or other employee benefit plan, program, agreement or
arrangement other than, as to R&B, with respect to the previously
authorized grants of options under the Devco 1997 Incentive Plan; (ii)
authorize, propose or announce an intention to authorize or propose, or
enter into an agreement with respect to, any merger, consolidation or
business combination (other than the Mergers and any mergers,
consolidations or business combinations with its subsidiaries entered
into in the ordinary course of business consistent with past practice),
any acquisition of a material amount of assets or securities, any
disposition of a material amount of assets or securities or any release
or relinquishment of any material contract rights, in each case not in
the ordinary course of business; (iii) except in the ordinary course of
business in connection with employee incentive and benefit plans,
programs or arrangements in existence on the date of the Merger
Agreement, purchase or redeem any shares of its stock (other than, in the
case of R&B, R&B Class A Stock) or any rights, warrants or options to
acquire any such shares; (iv) take any actions which would, or would be
reasonably likely to, prevent accounting for the Mergers in accordance
with the pooling of interests method of accounting under the requirements
of Opinion No. 16 "Business Combinations" of the Accounting Principles
Board of the American Institute of Certified Public Accountants, as
amended by applicable pronouncements by the Financial Accounting
Standards Board; (v) incur, assume or prepay any indebtedness or any
other material liabilities, other than in the ordinary course of business
consistent with past practice (except that R&B shall have the right to
conclude definitive agreements, and financing and liens related thereto,
with respect to: (a) agreements in principle with Shell Deepwater
Development Inc. with respect to the acquisition of an RBS-6 design
semi-submersible drilling unit and with Statoil with respect to a
deepwater drillship; and (b) financings (and related guarantees and
liens) for two joint ventures with affiliates of Conoco Inc. for two
deepwater drillships and Maritime Administration Title XI financing for
the upgrade of RIG 41; and except that Falcon shall have the right to
enter into a credit facility or facilities in an aggregate amount not to
exceed $400 million (the "Falcon Credit Facility")); (vi) sell, lease,
license, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets (including
securitizations), other than in the ordinary course of business
consistent with past practice (except that R&B shall have the right to
conclude definitive agreements, and financing and liens related thereto,
with respect to: (a) agreements in principle with Shell Deepwater
Development Inc. with respect to the acquisition of an RBS-6 design
semi-submersible drilling unit and with Statoil with respect to a
deepwater drillship; and (b) financings (and related guarantees and
liens) for two joint ventures with affiliates of Conoco Inc. for two
deepwater drillships and Maritime Administration Title XI financing for
the upgrade of RIG 41); and except that in connection with the Falcon
Credit Facility, Falcon shall have the right to subject its properties or
assets to Liens); (vii) make any material tax election or settle or
compromise any material tax liability, other than in connection with
currently pending proceedings or other than in the ordinary course of
business; and (viii) agree, in writing or otherwise, to take any of the
foregoing actions or take any action which would (y) make any of its
representations or warranties contained in the Merger Agreement untrue or
incorrect or (z) result in any of the conditions to the Mergers set forth
in the Merger Agreement not being satisfied.
Each of Falcon and R&B also has agreed that, subject to legal
restrictions applicable to it, it will afford, during normal business
hours during the period prior to the earlier of the Effective Time or the
Termination Date, to one another's accountants, counsel, employees,
officers and other authorized representatives full and complete access to
its and its subsidiaries' rigs, vessels, properties, books, contracts,
commitments and records (including, but not limited to, tax returns) and
any report, schedule or other document filed or received by it pursuant
to the requirements of federal or state securities laws, and Falcon and
R&B each will use its reasonable best efforts to cause its
representatives to furnish promptly to one another such additional
financial and operating data and other information as to its and its
subsidiaries' respective businesses and properties as the other or its
duly authorized representatives may from time to time reasonably request;
provided, however, that neither Falcon nor R&B nor any of their
respective subsidiaries will be required to disclose information to the
other that would cause significant competitive harm to such disclosing
party or its affiliates if the transactions contemplated in the Merger
Agreement are not consummated. All confidential information obtained by
Falcon or R&B, as the case may be, will be kept confidential pursuant to
the Confidentiality Agreement (as defined in the Merger Agreement).
Each of Falcon and R&B further has agreed that they will
together, or pursuant to an allocation of responsibility to be agreed
upon between them, (i) prepare and file with the Commission, as soon as
is reasonably practicable, this Joint Proxy Statement/Prospectus and the
Registration Statement, and will use their reasonable best efforts to
have the Joint Proxy Statement cleared by the Commission under the
Exchange Act and the Registration Statement declared effective by the
Commission under the Securities Act; (ii) as soon as is reasonably
practicable take all actions as may be required under state blue sky or
securities laws in connection with the issuance of shares of Parent
Common Stock in the Mergers and as contemplated by the Merger Agreement;
(iii) promptly prepare and file with the NYSE and such other stock
exchanges as shall be agreed upon listing applications covering the
shares of Parent Common Stock issuable in the Mergers or upon exercise of
R&B and Falcon stock options, warrants, conversion rights or other rights
or vesting or payment of other R&B and Falcon equity-based awards and use
its reasonable best efforts to obtain, prior to the Effective Time,
approval for the listing of such Parent Common Stock, subject only to
official notice of issuance; (iv) cooperate with one another in order to
lift any injunctions or remove any other impediment to the consummation
of the transactions contemplated herein; and (v) cooperate with one
another in obtaining opinions of Cravath, Swaine & Moore, counsel to R&B
and Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Falcon,
concerning certain tax matters.
Each of R&B and Falcon have agreed to cause the Joint Proxy
Statement to be mailed to each of their stockholders, in each case as
promptly as practicable after the Registration Statement is declared
effective under the Securities Act. In addition, each of R&B and Falcon
have agreed to, as soon as practicable following the date of the Merger
Agreement, to duly call, give notice of, convene and hold a meeting of
its stockholders for the purpose of obtaining the R&B Stockholder
Approval and the Falcon Stockholder Approval and to, through its Board of
Directors, recommend to its stockholders the adoption of the Merger
Agreement, the R&B Merger or the Falcon Merger, as applicable, and the
other transactions contemplated by the Merger Agreement. Both R&B and
Falcon agreed that, subject to each of their rights to terminate the
Merger Agreement, each of their obligations to call a meeting of their
stockholders shall not be affected by the commencement, public proposal,
public disclosure or communication to R&B or Falcon of any R&B Takeover
Proposal or Falcon Takeover Proposal (as each is defined in the Merger
Agreement). Each of R&B and Falcon has agreed to use their best efforts
to hold their stockholders meetings on the same date and as soon as
practicable after the date of the Merger Agreement. Further, each of
Falcon and R&B have agreed to cause Parent to adopt the Merger Agreement
and to take all additional actions as may be necessary to cause Parent to
effect the transactions contemplated thereby.
NO SOLICITATION
The Merger Agreement provides that R&B and Falcon will not, nor
will they authorize or permit any of their respective directors or
officers (or employees in the case of Falcon) or any investment banker,
financial advisor, attorney, accountant or other representative retained
by it to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or
take any other action designed to facilitate, any inquiries or the making
of any proposal which constitutes any Takeover Proposal (as defined
below) or (ii) participate in any discussions or negotiations regarding
any Takeover Proposal; provided, however, that if, at any time during the
20 business days prior to the publicly announced date of the Stockholders
Meetings, as applicable (the "Applicable Period"), the Board of Directors
of R&B or Falcon determines in good faith, after consultation with
outside counsel, that it is necessary to do so in order to comply with
its fiduciary duties to its stockholders under applicable law, each of
R&B and Falcon may, in response to a Superior Proposal (as defined below)
which was not solicited by it, subject to providing prior written notice
of its decision to do so to the other party, for a period of five
business days (x) furnish information with respect to it and its
subsidiaries to any person making a Superior Proposal pursuant to a
customary confidentiality agreement and (y) participate in discussions or
negotiations regarding such Superior Proposal.
A "Takeover Proposal" means any inquiry, proposal or offer (or
any improvement, restatement, amendment, renewal or reiteration thereof)
from any person relating to any direct or indirect acquisition or
purchase of a business or shares of any class of equity securities of a
party or any of its subsidiaries (in the case of R&B, other than Devco),
any tender offer or exchange offer that if consummated would result in
any person beneficially owning any class of equity securities of a party
or any of its subsidiaries (in the case of R&B, other than Devco), or any
merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving a party or any
of its subsidiaries (in the case of R&B, other than Devco), other than
the transactions contemplated by the Merger Agreement. A "Superior
Proposal" means any proposal made by a third party to acquire, directly
or indirectly, including pursuant to a tender offer, exchange offer,
merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction, for consideration
consisting of cash and/or securities, all outstanding shares of a party's
common stock then outstanding or all or substantially all of the assets
of such party, and otherwise on terms which the Board of Directors of
such party determines in its good faith judgment (based on the advice of
a financial advisor of nationally recognized reputation) to be more
favorable to such party's stockholders than the R&B Merger or the Falcon
Merger, as applicable, and for which financing, to the extent required,
is then committed or as to which the Board of Directors of such party has
received a "highly confident letter" from a nationally recognized
investment bank or financial institution.
Except as expressly permitted by the Merger Agreement, neither
the Board of Directors of R&B or Falcon nor any committee thereof will
(i) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to the other party, the approval or recommendation by such
Board of Directors or such committee of the Mergers or the Merger
Agreement, (ii) approve or recommend, or propose publicly to approve or
recommend, any Takeover Proposal, or (iii) cause such party to enter into
any letter of intent, agreement in principle, acquisition agreement or
other similar agreement related to any Takeover Proposal. Notwithstanding
the foregoing, in the event that during the Applicable Period the Board
of Directors of R&B or Falcon determines in good faith that there is a
substantial probability that the adoption of the Merger Agreement by
holders of R&B Common Stock will not be obtained due to the existence of
a Superior Proposal, the Board of Directors of such party may terminate
the Merger Agreement, but only at a time that is during the Applicable
Period and is after the fifth business day following the other party's
receipt of written notice advising such other party that the Board of
Directors of such party is prepared to accept a Superior Proposal,
specifying the material terms and conditions of such Superior Proposal
and identifying the person making such Superior Proposal. The terminating
party must pay a fee in the amount of $100 million (the "Termination
Fee") to the nonterminating party upon such termination. See
"--Termination" and "--Termination Fees."
CONDITIONS PRECEDENT TO THE MERGERS
The respective obligations of each party to effect the Mergers
are subject, among other things, to the fulfillment or waiver of the
following conditions at or prior to the Effective Time: (i) the R&B
Stockholder Approval and the Falcon Stockholder Approval will have been
obtained all in accordance with applicable law; (ii) no statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or enforced by any court or other tribunal
or governmental body or authority which prohibits the consummation of the
Mergers substantially on the terms contemplated by the Merger Agreement;
(iii) the approval for listing on the NYSE, subject only to official
notice of issuance, of the shares of Parent Common Stock issuable in the
Mergers; (iv) expiration or termination of any waiting period applicable
to the consummation of the Mergers under the HSR Act, and the obtaining
of all other approvals required to be obtained by Falcon and R&B, except
where the failure to obtain such approvals would not have a Material
Adverse Effect on Falcon or R&B, as the case may be; (v) the
effectiveness of the Registration Statement and the absence of a stop
order suspending such effectiveness; and (vi) Falcon and R&B having
received an opinion of Skadden, Arps, Slate, Meagher & Flom LLP and
Cravath, Swaine & Moore, respectively, relating to certain tax matters.
See "THE MERGERS--Material Federal Income Tax Considerations."
The obligation of R&B to effect the R&B Merger is also subject to
the fulfillment or waiver of the following additional conditions: (i) the
representations and warranties of Falcon contained in the Merger
Agreement being true and correct in all respects (but without regard to
any materiality qualifications or references to Material Adverse Effect
contained in any specific representation or warranty) as of the Effective
Time with the same effect as though made as of the Effective Time except
(A) for changes specifically permitted by the terms of the Merger
Agreement, (B) that the accuracy of representations and warranties that
by their terms speak as of the date of the Merger Agreement or some other
date will be determined as of such date, and (C) where any such failure
of the representations and warranties in the aggregate to be true and
correct in all respects would not have a Material Adverse Effect on
Falcon and (ii) Falcon having performed in all material respects all
obligations and having complied with all covenants required by the Merger
Agreement to be performed or complied with by it prior to the Effective
Time.
The obligation of Falcon to effect the Falcon Merger is also
subject to the fulfillment or waiver of the following additional
conditions: (i) the representations and warranties of R&B contained in
the Merger Agreement being true and correct in all respects (but without
regard to any materiality qualifications or references to Material
Adverse Effect contained in any specific representation or warranty) as
of the Effective Time with the same effect as though made as of the
Effective Time except (A) for changes specifically permitted by the terms
of the Merger Agreement, (B) that the accuracy of representations and
warranties that by their terms speak as of the date of the Merger
Agreement or some other date will be determined as of such date, and (C)
where any such failure of the representations and warranties in the
aggregate to be true and correct in all respects would not have a
Material Adverse Effect on R&B and (ii) R&B having performed in all
material respects all obligations and having complied with all covenants
required by the Merger Agreement to be performed or complied with by it
prior to the Effective Time.
STOCK OPTIONS
At the Effective Time of the Mergers, each outstanding option
will be converted into an option to acquire (i) in the case of options to
purchase Falcon Common Stock, one share of Parent Common Stock and (ii)
in the case of options to purchase R&B Common Stock, 1.18 shares of
Parent Common Stock. In the case of an option to purchase Falcon Common
Stock, the aggregate exercise price and the exercise price per share of
Parent Common Stock will not be adjusted at the Effective Time of the
Mergers. In the case of options to purchase R&B Common Stock, the options
will be adjusted to put the holder thereof in the same economic position
as such holder would have been in had the options been exercised
immediately prior to the Effective Time. Accordingly, each option to
purchase a share of R&B Common Stock outstanding at the Effective Time
will become an option to purchase that number of shares of Parent Common
Stock equal to 1.18 times the number of shares of R&B Common Stock which
could have been obtained upon the exercise thereof immediately prior to
the Effective Time at an exercise price per share equal to the exercise
price for such option (as in effect immediately prior to the Effective
Time of the Mergers) divided by 1.18. Parent will assume the obligations
of Falcon and R&B with respect to such options. Except as described
above, the terms of such options shall continue to apply in accordance
with the terms of the plans and agreements under which they were issued,
including any provisions for acceleration.
EMPLOYEE BENEFITS AND RESTRICTED STOCK
Simultaneously with each of the R&B Merger and the Falcon Merger,
each outstanding award (including restricted stock, stock equivalents and
stock units) ("Award") under any employee incentive or benefit plans,
programs or arrangements and non-employee director plans presently
maintained by R&B or Falcon which provide for grants of equity-based
awards shall be amended or converted into a similar instrument of Parent,
in each case with such adjustments to the terms of such Awards as are
appropriate to preserve the value inherent in such Awards with no
detrimental effects on the holders thereof. The other terms of each
Award, and the plans or agreements under which they were issued, shall
continue to apply in accordance with their terms, including any
provisions providing for acceleration. With respect to any restricted
stock awards as to which the restrictions shall have lapsed on or prior
to the Effective Time in accordance with the terms of the applicable
plans or award agreements, shares of such previously restricted stock
shall be converted in accordance with the conversion provisions of the
Merger Agreement.
Falcon and R&B agreed that each of their respective employee
incentive or benefit plans, programs and arrangements and non-employee
director plans will be amended, to the extent necessary and appropriate,
to reflect the transactions contemplated by the Merger Agreement,
including, but not limited to, the conversion of shares of Falcon Common
Stock and R&B Common Stock held or to be awarded or paid pursuant to such
benefit plans, programs or arrangements into shares of Parent Common
Stock on a basis consistent with the transactions contemplated by the
Merger Agreement.
The employment of each of P. B. Loyd, Jr., T. W. Nagle, C. R.
Ofner, A. Bakonyi, D. L. McIntire and W. K. Hillin, all of whom are
officers of R&B and/or Reading & Bates Drilling Co., a wholly owned
subsidiary of R&B, will be terminated as of the Effective Time. As a
consequence, Falcon and R&B agreed that R&B will pay the total amount due
under such agreements to all such executive officers at the Effective
Time. See "THE MERGERS--Interests of Certain Persons in the Mergers."
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
Parent has agreed that all rights to exculpation and
indemnification for acts or omissions occurring prior to the Effective
Time now existing in favor of the current or former directors or officers
(the "Indemnified Parties") of each of Falcon or R&B as provided in its
charter or by-laws or in any agreement will survive the Mergers and will
continue in full force and effect in accordance with their terms. Parent
has agreed that, for six years from the Effective Time, it will indemnify
the Indemnified Parties to the same extent as such Indemnified Parties
are entitled to indemnification pursuant to the preceding sentence.
Parent has also agreed that, for three years from the Effective
Time, it will maintain in effect (i) R&B's current director and officers'
liability insurance policy (the "R&B Policy") covering those persons who
are currently covered by the R&B Policy and (ii) Falcon's directors' and
officers' liability insurance policy (the "Falcon Policy"), which policy
Falcon will obtain prior to the Effective Time and which policy will be
substantially similar to the R&B Policy, covering those persons who are
covered by the Falcon Policy and persons who are directors of Parent;
provided, however, that in no event will Parent be required to expend in
any one year an amount in excess of 150% of (i) the annual premiums
currently paid by R&B for the R&B Policy, or (ii) the annual premiums to
be paid by Falcon for the Falcon Policy, for such insurance; and,
provided further, however, that if the annual premiums of such insurance
coverage exceed such amount, Parent will be obligated to obtain a policy
with the greatest coverage available for a cost not exceeding such
amount.
TERMINATION
The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after any approval of the matters
presented in connection with the Mergers by the respective stockholders
of R&B and Falcon: (i) by the mutual written consent of R&B and Falcon;
(ii) by either Falcon or R&B if the Effective Time has not occurred on or
before January 31, 1998; provided, that the party seeking to so terminate
the Merger Agreement has not breached in any material respect its
obligations under the Merger Agreement in any manner that has proximately
contributed to the failure to consummate the Mergers on or before such
date; (iii) by either Falcon or R&B if (a) a statute, rule, regulation or
executive order has been enacted, entered or promulgated prohibiting the
consummation of the Mergers substantially on the terms contemplated by
the Merger Agreement or (b) an order, decree, ruling or injunction has
been entered permanently restraining, enjoining or otherwise prohibiting
the consummation of the Mergers substantially on the terms contemplated
by the Merger Agreement and such order, decree, ruling or injunction has
become final and non-appealable; provided, that the party seeking to so
terminate the Merger Agreement has used its reasonable best efforts to
remove such injunction, order or decree; (iv) by either Falcon or R&B, if
the R&B Stockholder Approval or the Falcon Stockholder Approval have not
been obtained by reason of the failure to obtain the required vote at a
duly held meeting of stockholders or of any adjournment thereof; (v) by
R&B or Falcon if there shall have been a material breach by the other of
any of its representations, warranties, covenants or agreements contained
in this Agreement and such breach shall not have been cured within 30
days after notice thereof shall have been received by the party alleged
to be in breach; (vi) by either Falcon, on the one hand, or R&B, on the
other hand, if during the Applicable Period, its Board of Directors
determines in good faith that there is a substantial probability that its
stockholders will not approve and adopt the Merger Agreement due to the
existence of a Superior Proposal and if such terminating party has
complied with certain notice requirements; or (vii) by either Falcon, on
the one hand, or R&B, on the other hand, if the other party or any of its
officers and directors has taken any of the actions that would be
prohibited by the covenant described under "--No Solicitation" above.
TERMINATION FEES
Each of Falcon and R&B is liable to the other for a Termination
Fee of $100 million if the Merger Agreement is terminated under certain
circumstances.
In general, the Termination Fee is payable by Falcon if the R&B
stockholders have not voted to disapprove the Mergers and: (i) R&B
terminates the Merger Agreement due to Falcon's breach of its covenant
not to solicit or negotiate the acquisition by a third party of stock or
assets of Falcon; (ii) either party terminates the Merger Agreement due
to failure to obtain the necessary stockholder approvals or to consummate
the Mergers prior to January 31, 1998, and Falcon has received a proposal
from a third party to acquire the stock or substantially all of the
assets of Falcon; or (iii) Falcon terminates the Merger Agreement because
it has received a proposal from a third party to purchase the stock or
substantially all of the assets of Falcon, and the Falcon Board
determines that such proposal is more favorable to Falcon stockholders
than the Mergers and creates a substantial probability that the Falcon
stockholders will not approve the Mergers; provided, in the case of (i)
and (ii) above, no Termination Fee is payable unless within eighteen
months of the termination Falcon enters into an agreement for or
consummates a transaction whereby a third party acquires twenty percent
of any class of stock of Falcon, or a business, that constitutes twenty
percent or more of the revenues, net income or assets of Falcon.
In general, the Termination Fee is payable by R&B if the Falcon
stockholders have not voted to disapprove the Mergers and: (i) Falcon
terminates the Merger Agreement due to R&B's breach of its covenant not
to solicit or negotiate the acquisition by a third party of stock or
assets of R&B; (ii) either party terminates the Merger Agreement due to
failure to obtain the necessary stockholder approvals or to consummate
the Mergers prior to January 31, 1998, and R&B has received a proposal
from a third party to acquire the stock or substantially all of the
assets of R&B; or (iii) R&B terminates the Merger Agreement because it
has received a proposal from a third party to purchase the stock or
substantially all of the assets of R&B, and the R&B Board determines that
such proposal is more favorable to R&B stockholders than the Mergers and
creates a substantial probability that the R&B stockholders will not
approve the Mergers; provided, in the case of (i) and (ii) above, no
Termination Fee is payable unless within eighteen months of the
termination R&B enters into an agreement for or consummates a transaction
whereby a third party acquires twenty percent of any class of stock of
R&B, or a business, that constitutes twenty percent or more of the
revenues, net income or assets of R&B.
The Merger Agreement further provides that if one party should
fail to pay any Termination Fee due, the defaulting party must pay the
costs and expenses in connection with any action taken to collect
payment, together with interest on the amount of the Termination Fee.
FEES AND EXPENSES
Except for (i) the filing fee in connection with any HSR Act
filing, (ii) the commissions and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent, incurred
in connection with the sale of Excess Shares, (iii) the expenses incurred
in connection with the printing and mailing of this Joint Proxy
Statement, and (iv) all transfer taxes, which will be shared equally by
R&B and Falcon, R&B and Falcon will each pay its own costs and expenses
in connection with the Merger Agreement and the transactions contemplated
thereby, whether or not the Mergers are consummated.
AMENDMENT
At any time before or after approval of the matters presented in
connection with the Mergers by the respective stockholders of Falcon and
R&B and prior to the Effective Time, the Merger Agreement may be amended
or supplemented in writing by Falcon and R&B with respect to any of the
terms contained in the Merger Agreement, except, that following approval
by the stockholders of Falcon and R&B there may be no amendment or change
to the provisions of the Merger Agreement with respect to the conversion
ratio of shares of R&B Common Stock, R&B Class A Stock or Falcon Common
Stock into shares of Parent Common Stock as provided in the Merger
Agreement, without further approval by the stockholders of Falcon and
R&B.
WAIVER
The Merger Agreement permits Falcon and R&B at any time prior to
the Effective Time, to: (i) extend the time for the performance of any of
the obligations or other acts of the other party; (ii) waive any
inaccuracies in the representations and warranties of the other party
contained therein or in any document delivered pursuant thereto; and
(iii) waive compliance with any of the agreements or conditions of the
other party contained therein, in each case pursuant to a written
instrument.
CERTAIN RELATED TRANSACTIONS
RECIPROCAL STOCK OPTION AGREEMENTS
The following description of the Stock Option Agreements is
qualified in its entirety by reference to the complete text of each of
the Stock Option Agreements, which are incorporated herein by reference
and copies of which are annexed to this Joint Proxy/Prospectus as Annex D
and Annex E. The terms of the Stock Option Agreements are identical in
all material respects other than with respect to the shares that may be
purchased pursuant thereto and the exercise prices thereof. Capitalized
terms not defined herein shall have the meanings set forth in the Stock
Option Agreements.
Immediately following the execution and delivery of the Merger
Agreement, R&B and Falcon entered into (i) the R&B Stock Option Agreement
pursuant to which R&B granted Falcon an option to purchase up to
14,340,154 shares of R&B Common Stock (or such number of shares of R&B
Common Stock as represents 19.9% of the then-outstanding shares of R&B
Common Stock) at a price per share of $34.00 and (ii) the Falcon Stock
Option Agreement pursuant to which Falcon granted R&B an option to
purchase up to 15,753,823 shares of Falcon Common Stock (or such number
of shares of Falcon Common Stock as represents 19.9% of the
then-outstanding shares of Falcon Common Stock) at a price per share of
$27.78.
The options are exercisable with respect to any or all of the
shares subject thereto at any one time (except as described below), after
a Takeover Proposal shall have been made known to either Falcon or R&B or
any of their respective subsidiaries or has been made directly to the
Falcon or R&B stockholders generally or any person shall have publicly
announced an intention to make a Takeover Proposal. The right to purchase
shares under each Stock Option Agreement will terminate and be of no
further force and effect upon the earliest to occur of (i) the Effective
Time, (ii) six months after the first occurrence of a Purchase Event (as
defined herein) occurs and (iii) termination of the Merger Agreement in
accordance with its terms prior to the occurrence of a Purchase Event
(unless the grantee under the Stock Option Agreements (the "Grantee") has
the right to receive a Termination Fee following such termination upon
the occurrence of certain events, in which case the option will not
terminate until the later of (a) six months following the time such
Termination Fee becomes payable and (b) the expiration of the period in
which the Grantee has such right to receive a Termination Fee). Any
purchase of shares upon exercise of an option is subject to compliance
with the HSR Act and the obtaining or making of any consents, approvals,
orders, notifications or authorizations, the failure of which to have
obtained or made would have the effect of making the issuance of shares
subject to the option illegal. In the event that any such action has not
yet been obtained or made at the time the option is exercisable, which
prohibits the exercise of the entire option, the option may be exercised
for a lesser amount of shares than may be then acquired without such
action. If the Grantee receives official notice that such action will not
be issued or granted or it is not granted within six months after a
partial exercise in accordance with the preceding sentence, then the
Grantee may exercise the Cash-Out Right (as defined below) for any
remaining shares subject to the option.
The number and type of securities subject to the options and the
purchase price therefor will be adjusted for any change in the common
stock of the issuer under the Stock Option Agreements (the "Issuer") by
reason of a stock dividend, reverse stock split, merger,
recapitalization, combination, exchange of shares or similar transaction,
such that the Grantee will receive (upon exercise of the option) the
number and class of Shares or other securities or property that the
Grantee would have received if the option had been exercised immediately
prior to the occurrence of such event (or the record date therefore). The
number of shares of common stock subject to each option will also be
adjusted in the event the Issuer issues additional shares of common
stock, such that the number of shares of common stock subject to the
option after such issuance represents 19.9% of the shares of the Issuer's
common stock then outstanding, without giving effect to shares subject to
or issued pursuant to the option. In the event that the Issuer enters
into an agreement to consolidate with or merge into any person other than
the Grantee or one of its subsidiaries, to permit any person other than
the Grantee or one of its subsidiaries to merge into the Issuer, or to
sell or otherwise transfer all or substantially all of its assets to any
person other than the Grantee or one of its subsidiaries, then such
transaction agreement will provide that the option will, upon the
consummation of such transaction, be converted into or exchanged for an
option with identical terms appropriately adjusted to acquire the number
and class of shares or other securities or property the Grantee would
have received in respect of Issuer common stock if the option had been
exercised immediately prior to such consolidation, merger, sale or
transfer (or the record date therefor).
If, at any time during the period commencing on the occurrence of
an event as a result of which Grantee is entitled to receive the
Termination Fee pursuant to Section 8.3 of the Merger Agreement as
described in "THE MERGER AGREEMENT--Termination Fees" (the "Purchase
Event") and ending on the termination of the Option, the Grantee may
exercise its right (the "Cash-Out Right") to have the Issuer pay to the
Grantee an amount per share of Issuer common stock equal to the number of
shares of Issuer common stock subject to the Cash-Out Right multiplied by
the difference between (i) the average closing price on the NYSE of the
Issuer's common stock for a 10-day trading period commencing on the
twelfth NYSE trading day prior to the exercise of such right and (ii) the
exercise price of the option.
The Grantee has certain rights to require registration by the
Issuer of any shares purchased pursuant to the option under the
securities laws if necessary for the Grantee to be able to sell such
shares and to require the listing of such shares on the NYSE or other
national securities exchange.
The Stock Option Agreements may not be assigned or delegated by
the Grantee or Issuer thereunder without the prior written consent of the
other. The shares subject to the options pursuant to the Stock Option
Agreements may not be sold, assigned, transferred or otherwise disposed
of except in an underwritten public offering or to a purchaser or
transferee who would not, to the knowledge of the Grantee after
reasonable inquiry, immediately after such sale, assignment, transfer or
disposal, beneficially own more than 4.9% of the then-outstanding voting
power of the Issuer; provided, however, that the Grantee shall be
permitted to sell any such shares if the sale is made pursuant to a
tender or exchange offer that has been approved or recommended by a
majority of the members of the Issuer's board of directors.
The Stock Option Agreements are intended to increase the
likelihood that the Mergers will be consummated on the terms set forth in
the Merger Agreement. Consequently, certain aspects of the Stock Option
Agreements may have the effect of discouraging persons who might now or
prior to the Effective Time be interested in acquiring all of or a
significant interest in either Falcon or R&B from considering or
proposing such an acquisition, even if such persons were prepared to
offer higher consideration per share for Falcon Common Stock or R&B
Common Stock than that implicit in the Merger Consideration or a higher
price per share for Falcon Common Stock or R&B Common Stock than the
market price.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial
statements are presented assuming the Mergers will be accounted for as a
pooling of interests and reflect the combination of the historical
consolidated financial statements of R&B and Falcon. The unaudited pro
forma condensed combined statements of operations and balance sheet are
presented as if the Mergers were consummated at January 1, 1994 and
September 30, 1997, respectively. The unaudited pro forma condensed
combined financial statements do not reflect expenses expected to be
incurred by R&B and Falcon in connection with the Mergers, nor do they
reflect any anticipated cost savings which may be realized by Parent
after consummation of the Mergers.
The pro forma information does not purport to represent what
R&B's and Falcon's combined results of operations actually would have
been if the Mergers had occurred as of the date indicated or will be for
any future periods. The pro forma condensed combined financial statements
should be read in conjunction with the historical financial statements
and the notes thereto of R&B and Falcon contained elsewhere or
incorporated by reference in this Joint Proxy Statement.
READING & BATES CORPORATION AND FALCON DRILLING COMPANY, INC.
COMBINED UNAUDITED PRO FORMA CONDENSED STATEMENT
OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
1997 1996 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Operating revenues $658,702 $420,268 $609,564 $390,300 $307,561
-------- -------- -------- -------- --------
Costs and expenses:
Operating expenses 369,798 238,308 331,821 249,286 216,985
General and administrative expenses 33,050 25,803 36,967 29,208 29,795
Depreciation and amortization 58,294 44,831 62,459 46,896 38,354
------ ------ ------ ------ ------
Total costs and expenses 461,142 308,942 431,247 325,390 285,134
------- -------- ------- ------- -------
Operating income 197,560 111,326 178,317 64,910 22,427
------- ------- ------- ------ ------
Other income (expense):
Interest expense, net of
capitalized interest (30,649) (29,448) (40,489) (34,617) (26,430)
Interest income 4,429 2,431 3,447 3,031 4,299
Other, net (1,366) (253) (1,001) (759) (3,051)
------- ----- ------- ----- -------
Total other income (expense) (27,586) (27,270) (38,043) (32,345) (25,182)
-------- -------- -------- -------- --------
Income (loss) before income
taxes, minority interest and
extraordinary gain 169,974 84,056 140,274 32,565 (2,755)
Income taxes 45,435 13,966 26,959 6,305 7,325
Minority interest income 6,851 3,642 6,684 2,813 2,636
----- ----- ----- ----- -----
Income (loss) before
extraordinary gain 117,688 66,448 106,631 23,447 (12,716)
Extraordinary gain - - - 3,430 -
-------- -------- -------- -------- --------
Net income (loss) 117,688 66,448 106,631 26,877 (12,716)
Dividends and accretion on
preferred stock - 3,631 3,631 5,229 5,424
-------- -------- -------- -------- --------
Net income (loss) applicable to
common stockholders $117,688 $62,817 $103,000 $21,648 ($18,140)
-------- ------- -------- ------- ---------
Weighted average common shares 164,932 145,511 148,728 130,231 120,902
outstanding ------- ------- ------- ------- -------
Net income (loss) per common share:
Income (loss) before
extraordinary gain $0.71 $0.43 $0.69 $0.14 ($0.15)
Extraordinary gain - - - 0.03 -
-------- -------- -------- -------- --------
Net income (loss) $0.71 $0.43 $0.69 $0.17 ($0.15)
-------- -------- -------- -------- --------
</TABLE>
READING & BATES CORPORATION AND FALCON DRILLING COMPANY, INC.
COMBINED UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(in thousands)
<TABLE>
<CAPTION>
R&B FALCON ADJUSTMENTS PARENT
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash and cash equivalents $31,631 $22,452 $ - $54,083
Short-term investments 35,425 - - 35,425
Accounts receivable 94,688 89,886 - 184,574
Other current assets 19,509 16,478 - 35,987
--------- ------- ------ -------
Total current assets 181,253 128,816 - 310,069
--------- ------- ------ -------
PROPERTY & EQUIPMENT:
Drilling Rigs and equipment 1,059,771 680,214 (3,764) 1,736,221
Vessels and other equipment 60,119 49,506 - 109,625
--------- ------- ------ -------
Total property and equipment 1,119,890 729,720 (3,764) 1,845,846
Accumulated depreciation (324,980) (85,437) - (410,417)
--------- ------- ------ -------
Net property and equipment 794,910 644,283 (3,764) 1,435,429
--------- ------- ------ -------
DEFERRED CHARGES AND OTHER ASSETS 58,520 19,856 - 78,376
--------- ------- ------ -------
TOTAL ASSETS $1,034,683 $792,955 ($3,764) $1,823,874
--------- ------- ------ -------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Long-term obligations due within one $13,499 $1,411 $ - $14,910
year
Accounts Payable and Accrued 45,424 41,873 - 87,297
Liabilities
Income taxes 5,288 3,537 - 8,825
--------- ------- ------ -------
Total current liabilities 64,211 46,821 - 111,032
Long-term obligations 360,088 340,718 - 700,806
Other noncurrent liabilities 54,786 - - 54,786
Deferred income taxes (2,051) 58,475 - 56,424
--------- ------- ------ -------
Total liabilities 477,034 446,014 - 923,048
--------- ------- ------ -------
MINORITY INTEREST 53,035 - - 53,035
--------- ------- ------ -------
STOCKHOLDERS' EQUITY:
Common stock 3,608 793 (2,755) 1,646
Capital in excess of par value 393,794 242,122 2,755 638,671
Retained earnings 119,721 104,026 (3,764) 219,983
Other (12,509) - - (12,509)
--------- ------- ------ -------
Total stockholders' equity 504,614 346,941 (3,764) 847,791
--------- ------- ------ -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,034,683 $792,955 ($3,764) $1,823,874
--------- ------- ------ -------
</TABLE>
READING & BATES CORPORATION AND FALCON DRILLING COMPANY, INC.
NOTES TO COMBINED UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
PRO FORMA ADJUSTMENTS
a) All share and per share amounts have been adjusted to
reflect the Split. Common stock outstanding as of
September 30, 1997 was as follows (in thousands):
R&B Falcon Parent
------- ------- ------
Historical (post Split) 72,157 79,284 151,441
Adjust for 1.18 conversion
factor 12,988 - 12,988
------ ------ -------
Pro forma 85,145 79,284 164,429
------ ------ -------
b) In 1996 R&B sold the drilling unit, the "D.K. McIntosh" to
Falcon. The resulting gain of $3.8 million recorded by R&B
has been eliminated from the accompanying pro forma
condensed financial statements by decreasing drilling
property and equipment, net income and retained earnings.
c) Certain prior period amounts in the historical
consolidated financial statements of R&B and Falcon have
been reclassified for comparative purposes in the combined
unaudited pro forma condensed financial statements. These
result in the reclassification of gains and losses from
property dispositions as a component of operating expense;
the reclassification of amortization of deferred financing
costs as an interest expense and the reclassification of
foreign currency translation gain as other, net.
Additionally, certain reclassifications have been made to
general and administrative expenses and operating expenses
to conform the classification of these costs by R&B and
Falcon. Such reclassifications had no effect on the net
income (loss) or the overall financial condition of
Parent. A summary by year of the reclassification entries,
increase (decrease), made to Falcon's statement of
operations to conform to the classification by R&B follows
(in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Years Ended December 31,
September 30,
----------------- ------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
Foreign currency translation gain - - - 1,023 -
Other, net - - - (1,023) -
(Reclassify foreign currency translation gains as other, net to conform with R&B
classification.)
Amortization of deferred costs (460) (604) (1,088) (847) -
Operating expenses 460 604 1,088 847 -
(Reclassify amortization of deferred mobilization expense as operating expenses to
conform with R&B classification.)
Amortization of deferred costs (1,384) (1,504) (1,814) (1,293) (690)
Interest expense, net of 1,384 1,504 1,814 1,293 690
capitalized interest
(Reclassify amortization of deferred financing charges to interest expense to
conform with R&B classification.)
Other, net 1,467 897 (1,262) (1,199) (1,036)
Interest income (1,467) (897) 1,262 1,199 1,036
(Reclassify interest income to interest income from other, net to conform with R&B
classification.)
Operating expenses (2,504) (775) (2,282) (1,425) (1,337)
Other, net 2,504 775 2,282 1,425 1,337
(Reclassify gains on asset disposals to operating expense from other, net to
conform with R&B classification.)
Operating expenses 5,157 2,783 3,788 1,802 85
General and administrative (5,157) (2,783) (3,788) (1,802) (85)
expenses
</TABLE>
(Reclassify shore based support expenses from general and administrative
expenses to operating expenses to conform with R&B classification.)
d) Merger expenses, not included in the pro forma statements,
are expected to be approximately $70.0 million which
includes financial advisor, attorney and audit fees, and
expenses associated with R&B executive terminations and
acceleration of vesting of R&B's employee stock grants.
PRO FORMA EARNINGS (LOSS) PER SHARE
a) All share and per share amounts have been adjusted to
reflect the Split.
b) The pro forma average common shares have been computed by
adjusting the historical outstanding common and common
equivalent shares of Falcon (adjusted for the Split) at a
ratio of one-to-one and those of R&B at a ratio of 1.18 to
one.
The following is a reconciliation of the historical average
common and common equivalent shares outstanding to the pro forma amounts
(in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
----------------- ------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Falcon historical 79,896 35,991 36,238 29,593 26,880
Adjust for 2 for 1 stock split - 35,991 36,238 29,593 26,880
------ ------ ------ ------ ------
Adjusted totals for Falcon 79,896 71,982 72,476 59,186 53,760
------ ------ ------ ------ ------
R&B historical 72,064 62,313 64,620 60,208 56,900
Adjust for 1.18 conversion factor 12,972 11,216 11,632 10,837 10,242
------ ------ ------ ------ ------
Adjusted totals for R&B 85,036 73,529 76,252 71,045 67,142
------ ------ ------ ------ ------
Pro forma weighted average
common shares outstanding 164,932 145,511 148,728 130,231 120,902
------ ------ ------ ------ ------
</TABLE>
ADDITIONAL PRO FORMA INFORMATION
The consummation of the Mergers will cause a "change of control"
as defined in Falcon's bond indentures representing outstanding principal
indebtedness of $290 million at September 30, 1997. Accordingly, within
thirty days after the Mergers, Falcon will be required to make a purchase
offer to each bond holder at a price equal to 101% of the aggregate
principal amount outstanding or approximately $293 million, plus accrued
interest. The number of bond holders which will tender their bonds and
the amount of principal tendered for redemption is primarily dependent on
the credit market conditions and Falcon's credit rating during the period
(up to 60 days) that the purchase offer remains open. Several of Falcon's
bond indentures provide Falcon with an option to redeem such obligations
at a premium at varying times and premium rates prior to maturity which
may also affect the amount tendered for payment. Of the $290 million of
outstanding principal indebtedness at September 30, 1997 which is subject
to the "change in control" provisions, $280 million have fixed rates of
interest and have recently been trading at amounts in excess of the
redemption price Falcon is required to offer. Because credit market
conditions and Falcon's credit rating are subject to change, it is
difficult to predict the amount of bonds which may be tendered following
the consummation of the Mergers. Management estimates that it is probable
that bonds with an aggregate principal balance outstanding ranging from
$0 to $55 million will be tendered representing up to 50% of the
outstanding principal balance of the $110 million 9 3/4% Senior Notes due
2001 (the "Senior Notes"), due to Falcon's early redemption option and
the relatively low redemption price provided by this indenture. Also
considering the above factors, management believes it is reasonably
possible that bonds with an aggregate principal balance of $110 million
will be tendered consisting of the Senior Notes. Should the amounts be
tendered, management believes the redemption will be funded through a
commitment Falcon has received from a financial institution for a $300
million short-term credit facility. Management believes Falcon would be
able to subsequently refinance any borrowing pursuant to the $300 million
short-term credit facility with long-term public debt.
Assuming that $55 million of the Senior Notes had been redeemed
and $55 million of the $300 million short-term credit facility had been
borrowed on January 1, 1996, the pro forma effects are not material to
the combined pro forma condensed statements of operations of R&B and
Falcon for the year ended December 31, 1996 and for the nine months ended
September 30, 1997.
Assuming that $55 million of the Senior Notes now repaid from
borrowing against the $300 million short-term credit facility on
September 30, 1997, the combined pro forma condensed balance sheet as of
September 30, 1997 would reflect an increase in long-term obligations due
within one year of $55 million to $69.9 million and long-term obligations
would decrease by $55 million to $645.8 million.
OTHER MATTERS
REGULATORY APPROVALS
Under the HSR Act and the regulations promulgated thereunder by
the FTC, certain acquisition transactions may not be consummated unless
notice has been given and certain information has been furnished to the
Antitrust Division of the United States Department of Justice (the
"Antitrust Division") and the FTC and specified waiting period
requirements have been satisfied. Falcon and R&B each filed a
Notification and Report Form with respect to the Mergers on August 8,
1997 with the Antitrust Division and the FTC. The waiting period under
the HSR Act expired on September 6, 1997. The clearance process does not
confer antitrust immunity and therefore it is possible that, at any time
before or after the Effective Time, the FTC or the Antitrust Division
could take such additional action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to
enjoin the Mergers or seeking the divestiture of Falcon or R&B by Parent,
in whole or in part, or the divestiture of substantial assets of Falcon,
R&B, Parent or their respective subsidiaries. State Attorneys General and
private parties may also bring legal action under Federal or state
antitrust laws in certain circumstances. Based on an examination of
information available to Falcon, R&B and Parent relating to the
businesses in which Falcon, R&B, Parent and their respective subsidiaries
are engaged, Falcon, R&B and Parent believe that such further legal
actions are unlikely and that the consummation of the Mergers will not
violate the antitrust laws.
DESCRIPTION OF PARENT CAPITAL STOCK
The authorized capital stock of Parent consists of 550,000,000
shares of Parent Common Stock, par value $.01 per share and 50,000,000
shares of preferred stock of Parent, par value $.01 per share (the
"Parent Preferred Stock") issuable from time to time in series by
resolution of the Parent Board. It is anticipated that approximately
164,583,216 shares of Parent Common Stock will be issued and outstanding
immediately after completion of the Mergers. The following description of
Parent's capital stock does not purport to be complete and is qualified
in its entirety by reference to Delaware law and Parent's Certificate of
Incorporation.
PARENT COMMON STOCK
The shares of Parent Common Stock to be issued in the Mergers,
when issued pursuant to the Merger Agreement, will be fully paid and
nonassessable. Each holder of Parent Common Stock will be entitled to one
vote per share in the election of directors and on all other matters
submitted to a vote of stockholders. Each share of Parent Common Stock
will have an equal and ratable right to receive dividends as may be
declared by the Board of Directors of Parent out of funds legally
available therefor and to share equally and ratably in all assets
available for distribution to stockholders upon dissolution or
liquidation. No holder of Parent Common Stock has any preemptive right to
subscribe for any securities of Parent.
The Transfer Agent and Registrar for the Parent Common Stock is
American Stock Transfer & Trust Company.
PARENT PREFERRED STOCK
The Parent Board will be authorized, pursuant to Parent's
Certificate of Incorporation, to issue Parent Preferred Stock from time
to time in one or more series, each of which will have such designation
or title fixed by the Parent Board prior to the issuance of any shares
thereof. Each such class or series of Parent Preferred Stock will have
such voting powers, full or limited, or no voting powers, and such
preferences and relative, participating, optional or other special rights
and such qualifications, limitations or restrictions thereof, as will be
stated in such resolution or resolutions providing for the issue of such
series of preferred stock as may be adopted from time to time by the
Parent Board prior to the issuance of any shares thereof pursuant to the
authority vested in it. No Parent Preferred Stock will be issued in the
Mergers, however, 1,688,000 shares of Parent Preferred Stock have been
designated Series A Junior Participating Preferred Stock, par value $.01
per share (the "Series A Preferred Stock"), for issuance in connection
with the exercise of the Rights described below.
PARENT RIGHTS
At or prior to the Effective Time of the Mergers, Parent will
adopt the Rights Agreement and distribute one Right for each share of
Parent Common Stock outstanding. Accordingly, each share of Parent Common
Stock issued in connection with the Mergers will have associated
therewith one Right. Pursuant to the Rights Agreement, each Right will
entitle the registered holder to purchase from Parent one one-hundredth
of a share of Series A Preferred Stock, at a purchase price of $150 per
one one-hundredth of a share, subject to adjustment. The following
description of the Rights Agreement is a summary of the material terms
thereof and is qualified in its entirety by reference to the complete
text of the Rights Agreement, which is incorporated by reference and a
copy of which is filed as an exhibit to the Registration Statement of
which this Joint Proxy Statement/Prospectus forms a part.
At the Effective Time, the Rights will be attached to all
outstanding shares of Parent Common Stock and will be represented by the
certificates representing such shares. No separate certificates
evidencing the Rights (the "Rights Certificates") will be distributed
prior to the Distribution Date (as defined below). The Rights will
separate from the Parent Common Stock and a "Distribution Date" will
occur upon the earlier of (i) 10 business days following a public
announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of Parent
Common Stock (the "Stock Acquisition Date"), or (ii) 10 business days (or
such later date as the Board of Directors shall determine) following the
commencement of a tender or exchange offer that would result in a person
or group beneficially owning 15% or more of such outstanding shares of
Parent Common Stock (the "Tender Offer Date"). Until the Distribution
Date, (i) the Rights will be evidenced by the Parent Common Stock
certificates and will be transferred with and only with such Parent
Common Stock certificates, (ii) Parent Common Stock certificates will
contain a notation incorporating the Rights Agreement by reference, and
(iii) the surrender for transfer of any certificates for Parent Common
Stock outstanding will also constitute the transfer of the Rights
associated with the Parent Common Stock represented by such certificates.
Pursuant to the Rights Agreement, Parent reserves the right to require
prior to the occurrence of a Triggering Event (as defined below) that,
upon any exercise of Rights, a number of Rights be exercised so that only
whole shares of Series A Preferred Stock will be issued (or fractions
that are integral multiples of one one-hundredth of a share).
The Rights are not exercisable until the Distribution Date and
will expire at the close of business on November 1, 2007, or such later
date as the Board of Directors establishes under certain circumstances,
unless earlier redeemed by Parent as described below.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of Parent Common Stock
as of the close of business on the Distribution Date and, thereafter, the
separate Rights Certificates alone will represent the Rights. Except as
otherwise determined by the Board of Directors, only shares of Parent
Common Stock outstanding prior to the Distribution Date will be issued
with Rights.
Each share of Series A Preferred Stock purchased upon exercise of
the Rights will be entitled to a minimum preferential quarterly dividend
payment equal to the greater of (i) $1.00 per share, and (ii) 100 times
the dividend, if any, declared per share of Parent Common Stock. In the
event of liquidation, the holders of the Series A Preferred Stock will be
entitled to a minimum preferential liquidation payment equal to 100 times
the par value per share plus an amount equal to accrued and unpaid
dividends and distributions to the date of such payment. Each share of
Series A Preferred Stock will have 100 votes and will vote together with
the Parent Common Stock. In the event of any merger, consolidation or
other transaction in which shares of Parent Common Stock are exchanged,
each share of Series A Preferred Stock will be entitled to receive 100
times the amount per share of Parent Common Stock received in such
merger, consolidation or other transaction. These rights are protected by
customary antidilution provisions. The shares of Series A Preferred Stock
will, if issued, be junior to any other series of Preferred Stock which
may be authorized and issued by Parent, unless the terms of any such
other series provide otherwise. Because of the nature of the Series A
Preferred Stock's dividend, liquidation and voting rights, the value of
one one-hundredth of a share of Series A Preferred Stock purchasable upon
the exercise of each Right should approximate the value of one share of
Parent Common Stock.
In the event that any Person becomes the beneficial owner of 15%
or more of the then outstanding shares of Parent Common Stock (unless
such acquisition is made pursuant to a tender or exchange offer for all
outstanding shares of Parent Common Stock, upon terms and conditions
determined by a majority of the Continuing Directors (as defined below)
to be in the best interests of Parent and its stockholders (a "Qualifying
Offer")), each holder of a Right (other than an Acquiring Person, certain
related parties and transferees) will thereafter have the right to
receive, upon exercise, Parent Common Stock (or, in certain
circumstances, cash, property or other securities of Parent), having a
value equal to two times the exercise price of the Right. For example, at
an exercise price of $150 per Right, each Right not owned by an Acquiring
Person (or by certain related parties or transferees) following the event
set forth above would entitle its holder to purchase $300 worth of Parent
Common Stock (or other consideration, as noted above) for $150. Assuming
that the Parent Common Stock had a per share market price of $300 at such
time, the holder of each valid Right would be entitled to purchase 10
shares of Parent Common Stock for $150. The Rights are not exercisable
following the occurrence of any of the events described above until such
time as the Rights are no longer redeemable by Parent as described below.
Notwithstanding any of the foregoing, following the occurrence of any of
the events set forth in this paragraph, all Rights that are, or (under
certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person will be null and void.
In the event that at any time following the Stock Acquisition
Date, (i) Parent is acquired in a merger or business combination
transaction in which it is not the surviving corporation (other than a
merger consummated pursuant to a Qualifying Offer); (ii) Parent is the
surviving corporation in a business combination transaction (other than
such a transaction consummated pursuant to a Qualifying Offer) but all or
part of the outstanding shares of Parent Common Stock are changed or
exchanged for stock or other securities of any person or cash or any
other property; or (iii) more than 50% of the combined assets or earning
power is sold or transferred (in each case other than certain
consolidations with, mergers with and into, or sales of assets or earning
power by or to subsidiaries of Parent as specified in the Rights
Agreement), each holder of a Right (except Rights which have previously
been voided as set forth above) shall thereafter have the right to
receive, upon exercise thereof, common stock of the acquiring company
having a value equal to two times the exercise price of the Right. The
events described in this paragraph and in the preceding paragraph are
referred to as the "Triggering Events."
In order to prevent dilution, the Purchase Price payable, the
number and kind of shares covered by each Right and the number of Rights
outstanding are subject to adjustment from time to time (x) in the event
of a stock dividend on, or a subdivision, combination or reclassification
of, the Series A Preferred Stock, (y) if holders of the Series A
Preferred Stock are granted certain rights or warrants to subscribe for
Series A Preferred Stock or securities convertible into Series A
Preferred Stock at less than the current market price of the Series A
Preferred Stock, or (z) upon the distribution to holders of the Series A
Preferred Stock of evidences of indebtedness, cash (excluding regular
quarterly cash dividends), assets (other than dividends payable in Series
A Preferred Stock) or subscription rights or warrants (other than those
referred to in clause (y) above).
With certain exceptions, no adjustments in the Purchase Price
will be required until cumulative adjustments amount to at least 1% of
the Purchase Price. No fractional shares of Series A Preferred Stock are
required to be issued (other than fractions which are integral multiples
of one one-hundredth of a share of Series A Preferred Stock) and, in lieu
thereof, Parent may make an adjustment in cash based on the market price
of the Series A Preferred Stock on the trading day prior to the date of
exercise.
At any time until ten business days following the Stock
Acquisition Date, Parent may redeem the Rights in whole, but not in part,
at a price of $.01 per Right (payable in cash, shares of Parent Common
Stock or other consideration deemed appropriate by the Board of
Directors). Immediately upon the action of the Board of Directors
ordering redemption of the Rights, the Rights will terminate and the only
right of the holders of Rights will be to receive the $.01 redemption
price.
For purposes of the Rights Agreement, the term "Continuing
Director" means any member of the Board of Directors of Parent who was a
member of the Board at the Effective Time, and any person who is
subsequently elected to the Board if such person is recommended or
approved by a majority of the Continuing Directors, but shall not include
an Acquiring Person, or an affiliate or associate of an Acquiring Person,
or any representative of the foregoing entities.
Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of Parent, including, without limitation,
the right to vote or to receive dividends.
Any of the provisions of the Rights Agreement may be amended by
the Board of Directors of Parent prior to the Distribution Date, other
than the redemption price and the number of one one-hundredths of a share
of Series A Preferred Stock for which a right is exercisable, and the
Purchase Price may not be reduced. After the Distribution Date, the
provisions of the Rights Agreement may be amended by the Board in order
to cure any ambiguity, to make changes which do not adversely affect the
interests of holders of Rights or to shorten or lengthen any time period
under the Rights Agreement, except that no amendment to adjust the time
period governing redemption may be made at such time as the Rights are
not redeemable. The Final Expiration Date (as defined in the Rights
Agreement) may be changed and the Purchase Price may be increased at any
time prior to a Stock Acquisition Date or a Tender Offer Date.
The Rights have certain anti-takeover effects. They may reduce or
eliminate (i) "two-tiered" or other partial offers which do not offer
fair value for all of the Parent Common Stock; (ii) the accumulation by a
third party of 15% or more of the Parent Common Stock in open-market or
private purchases in order to influence or control the business and
affairs of Parent without paying an appropriate premium for a controlling
position in Parent; and (iii) the accumulation of shares of Parent Common
Stock by third parties in market transactions for the primary purpose of
attempting to cause Parent to be sold. In addition, the Rights will cause
substantial dilution to a person or group that attempts to acquire Parent
in a manner defined as a Triggering Event unless the offer is conditioned
on a substantial number of Rights being acquired. The Rights should not,
however, affect any prospective offeror willing to make an offer for all
outstanding shares of Parent Common Stock and other voting securities at
a price and on terms which are in the best interests of Parent and its
stockholders as determined by the Board of Directors or affect any
prospective offeror willing to negotiate with the Board of Directors
because as part of any negotiated transaction the Rights would either be
redeemed or otherwise made inapplicable to the transaction. The Rights
should not interfere with any merger or other business combination
approved by the Board of Directors since the Board of Directors may, at
its option, at any time until ten business days following a Stock
Acquisition Date, redeem all, but not less than all, of the then
outstanding Rights at the $.01 redemption price.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
As of the Effective Time, the Parent Board will have 10 members,
with five members designated by the R&B Board and five members designated
by the Falcon Board. R&B and Falcon will select their designees from
among the current members of the Board of Directors of R&B and Falcon,
respectively. If an individual so selected consents to serve as a
director, such individual shall be elected as a director of Parent,
effective as of the Effective Time. Mr. Loyd will be a director and
Chairman of the Board of Parent and Mr. Webster will be a director and
the Chief Executive Officer and President of Parent. To date, Falcon and
R&B have not determined any other directors who will be designated to
serve on the Parent Board and have not determined any other officers who
will serve as officers of Parent.
COMPENSATION OF EXECUTIVE OFFICERS
Parent has not yet paid any compensation to its chief executive
officer or any of its other executive officers and the compensation of
such executive officers has not yet been determined. The Parent Board
expects to form a Compensation Committee composed of non-employee members
of the Parent Board to recommend the form and amount of compensation to
be paid to the executive officers of Parent.
It is anticipated that when the Compensation Committee meets to
determine such compensation, which meeting is not expected to occur until
after the Effective Time, the Compensation Committee will generally
adhere to compensation policies which reflect the belief that (i) Parent
must attract and retain individuals of outstanding ability and motivate
and reward such individuals for sustained performance, (ii) a substantial
portion of an executive's compensation should be at risk based upon the
executive's performance and that of Parent, (iii) within these
parameters, levels of compensation should generally be in line with that
offered by comparable corporations. On an ongoing basis, subject to any
existing employment agreement, the type and amount of compensation to be
paid by Parent to its officers will be entirely discretionary and within
the subjective judgment of the Compensation Committee.
For information concerning the compensation paid to the chief
executive officer and the other four most highly compensated executive
officers of Falcon for the 1996 fiscal year, see the 1997 Proxy Statement
for Falcon. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
For information concerning the compensation paid to the chief
executive officer and the other four most highly compensated executive
officers of R&B for the 1996 fiscal year, see the 1997 Proxy Statement
for R&B. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
COMPENSATION OF DIRECTORS
Compensation for non-employee Directors will be reviewed annually
by the Compensation Committee of the Parent Board of Directors. The
Committee's goal of attracting and retaining qualified Directors is
supported through a competitive compensation program that provides
remuneration (including stock-based compensation) which strengthens the
mutuality of interests with other stockholders.
Parent expects to pay its non-employee directors an annual
retainer fee for membership on the Board of Directors as well as fees for
attendance at each Board and Committee meeting the amounts of which will
be determined by the Board.
COMPARISON OF RIGHTS OF FALCON STOCKHOLDERS
AND R&B STOCKHOLDERS
Falcon and R&B are both incorporated under the laws of the State
of Delaware. Upon consummation of the Mergers, the holders of Falcon
Common Stock and R&B Common Stock upon exchange of their respective
shares of stock will become holders of Parent Common Stock, and their
rights as such will be governed by the DGCL, the Amended and Restated
Certificate of Incorporation of Parent and the Parent Bylaws (the "Parent
Certificate" and "the Parent Bylaws," respectively) as in effect at the
Effective Time. The following is a comparison of the material rights of
the holders of Falcon Common Stock. R&B Common Stock and Parent Common
Stock.
The following summary does not purport to be a complete
statement of the provisions affecting, and the differences between, the
rights of holders of Falcon Common Stock, R&B Common Stock and Parent
Common Stock. This summary is qualified in its entirety by reference to
the DGCL, the Parent Certificate and the Parent Bylaws, the Restated
Certificate of Incorporation and Bylaws of Falcon (the "Falcon
Certificate" and the "Falcon Bylaws," respectively), and the Restated
Certificate of Incorporation and Bylaws of R&B (the "R&B Certificate" and
the "R&B Bylaws," respectively). Copies of the Parent Certificate and the
Parent Bylaws are attached to this Joint Proxy Statement/Prospectus as
Appendix G and Appendix H, respectively.
AUTHORIZED CAPITAL STOCK
Falcon
The Falcon Certificate authorizes 100,000,000 shares of Falcon
Common Stock and 526,489 shares of Falcon preferred stock, no par value
per share.
R&B
The R&B Certificate authorizes 425,000,000 shares of R&B Common
Stock, 285 shares of R&B Class A Stock (less those which have been
converted into R&B Common Stock) and 10,000,000 shares of R&B preferred
stock, par value $1.00 per share.
Parent
The Parent Certificate authorizes 550,000,000 shares of Parent
Common Stock and 50,000,000 Shares of Parent Preferred Stock, par value
$.01 per share.
BOARD OF DIRECTORS
Falcon
The Falcon Certificate provides that the number of directors
comprising the Falcon Board shall be as stated in the Falcon Bylaws. The
Falcon Board can amend the Falcon Bylaws to change the number of
directors without stockholder approval. The Falcon Bylaws currently
provide that the Falcon Board consist of not less than one (1) nor more
than fifteen (15) persons. The Falcon Board currently consists of seven
(7) directors. The Falcon Board is divided into three classes of
directors as equal in number as possible. The term of office of each
class is three (3) years, each term expiring in a different year. The
Falcon Certificate also requires that no more than a minority of the
directors necessary to constitute a quorum of the Falcon Board may be
non-United States citizens.
R&B
The R&B Certificate provides that the number of directors
comprising the R&B Board shall not be less than three (3) persons nor
more than eighteen (18) persons, the exact number thereof to be
determined from time to time by resolution of the R&B Board. The R&B
Board currently consists of seven (7) directors. The R&B Board is divided
into three classes of as equal a number of directors as possible. The
term of office of each different class is three (3) years, each term
expiring in a different year.
Parent
The Parent Certificate provides that the number of directors
shall be fixed from time to time by, or in the manner provided in, the
Parent Bylaws. The Parent Bylaws are substantially similar to the current
Falcon Bylaws with respect to the number of Directors. The Parent Board
of Directors shall initially have ten (10) members, with five (5)
directors being nominated by Falcon and five (5) directors being
nominated by R&B. The Parent Certificate also provides for a staggered
Board of Directors consisting of three classes, Class I, Class II and
Class III. The initial directors in Classes I, II and III will be elected
for terms expiring, respectively, on the first, second and third annual
stockholders meetings following the Effective Time. Directors elected
thereafter will serve for terms expiring on the third annual stockholders
meeting following the stockholders meeting at which they are elected.
Directors elected to fill a vacancy or newly created directorship shall
serve the unexpired portion of the term of the class to which they are
elected. The Parent Certificate also requires that no more than a
minority of the directors necessary to constitute a quorum of the Falcon
Board may be non-United States citizens.
MONETARY LIABILITY OF DIRECTORS
Falcon, R&B and Parent
The Falcon Certificate, the R&B Certificate and the Parent
Certificate each provide for the elimination of personal monetary
liability of directors to the fullest extent permissible under DGCL.
VOTING RIGHTS
Falcon and Parent
Each share of Falcon Common Stock and Parent Common Stock is
entitled to one vote.
R&B
Each share of R&B Common Stock is entitled to one vote, and each
share of R&B Class A Stock is entitled to four votes. The R&B Certificate
also provides for cumulative voting of the shares of R&B Class A Stock in
the election of directors.
FOREIGN OWNERSHIP LIMITATION
Falcon
The Falcon Certificate provides that transfers of any class of
Falcon Common Stock that would result in persons who are not citizens of
the United States owning in excess of 45% of the outstanding shares of
stock of Falcon will be void and ineffective.
R&B
The R&B Certificate does not contain any restrictions on the
foreign ownership of the stock of R&B.
Parent
The Parent Certificate contains a provision similar to the
provision in the Falcon Certificate with respect to the ownership of
Parent Common Stock by persons who are not citizens of the United States
except that the Parent Certificate limits ownership of Parent Common
Stock by persons who are not citizens of the United States to 24%.
INTERESTED STOCKHOLDERS
R&B
The R&B Certificate prohibits, except under certain
circumstances, R&B (or any subsidiary of R&B) from engaging in certain
significant business transactions with an "Interested Stockholder"
(defined as a person who acquires beneficial ownership of 10% or more of
the outstanding shares of R&B's voting stock). Prohibited transactions
include, among others, any merger with an Interested Stockholder; any
disposition of assets of R&B, having an aggregate fair market value of
$10,000,000 or more, to an Interested Stockholder; any reclassification
of the voting stock of R&B or of any subsidiary beneficially owned by an
Interested Stockholder which increases the proportionate share of the
outstanding stock held by the Interested Stockholder; and any plan for
the dissolution or liquidation of R&B, or any subsidiary, proposed by or
on behalf of an Interested Stockholder. The above prohibitions do not
apply, in general, if (i) the transaction is approved by 80% of the
voting power of outstanding shares of R&B voting stock; or (ii) the
specific transaction is approved by a majority of the R&B "Continuing
Directors" and certain "fair price" provisions are complied with.
Falcon and Parent
Neither the Falcon Certificate nor the Parent Certificate
contains a similar provision with respect to transactions with Interested
Stockholders.
REMOVAL OF DIRECTORS AND FILLING VACANCIES ON THE BOARD OF DIRECTORS
Falcon
Under the DGCL, a director of a corporation with a classified
board may be removed only for cause, unless the certificate of
incorporation provides otherwise. The Falcon Certificate provides that
directors may be removed only for cause by the affirmative vote of 66 2/3%
or more of the voting power of the outstanding capital stock of Falcon
entitled to vote at an election of directors. The Falcon Bylaws provide
further that a director may be removed for cause only upon a finding that
(i) the director engaged in fraudulent or dishonest conduct, or gross
abuse of authority or discretion, and (ii) removal is in the best
interest of Falcon.
The Falcon Certificate provides that any vacancy, whether arising
through death, resignation or removal of a director, or through an
increase in the number of directors of any class, shall be filled by a
majority vote of the remaining directors then in office, even if less
than a quorum exists.
R&B
The R&B Certificate is silent on the removal of directors, and
under the DGCL, R&B stockholders representing a majority of the voting
power of the outstanding shares entitled to vote at an election of
directors may remove an R&B director, but only for cause.
The R&B Certificate is substantially similar to the Falcon
Certificate with respect to the filling of vacancies on the Board of
Directors except that the R&B Certificate provides that a sole remaining
director has the power to fill any vacancy.
Parent
The Parent Certificate is substantially similar to the R&B
Certificate with respect to the removal of directors and the filling of
vacancies, except that, similar to Falcon, the Parent Certificate
provides that vacancies on the Parent Board, however created, may only be
filled by a majority vote of the remaining directors then in office, even
if less than a quorum exists.
STOCKHOLDER ACTION WITHOUT A MEETING
Falcon
The Falcon Bylaws provide that any stockholder action required or
permitted at any annual or special stockholder meeting may not be taken
by written consent without a meeting unless such written consent is
signed by the holders of outstanding shares of Falcon constituting not
less than the minimum number of votes required to authorize or take such
action at a properly called stockholder meeting. The Falcon Bylaws
provide further that no consent of stockholders shall be effective unless
the action taken thereby has been previously authorized by a majority of
the Falcon Board.
R&B
The R&B Certificate provides that no action required or permitted
to be taken at an annual meeting or special meeting of stockholders may
be taken by written consent without a meeting except (i) any action which
may be taken solely upon the vote or consent of holders of R&B Class A
Stock or any series of preferred stock of R&B, or (ii) any action taken
upon the written consent of all stockholders of R&B entitled to vote
thereon.
Parent
The Parent Certificate prohibits action by written consent of
stockholders.
SPECIAL MEETINGS OF STOCKHOLDERS
Falcon
The Falcon Certificate provides that a special meeting of
stockholders may be called by a majority of the Falcon Board and shall be
called at the written request of persons holding at least 20% of the
issued and outstanding stock of Falcon entitled to vote.
R&B
The R&B Bylaws provide that a special meeting of stockholders may
be called by the Chairman or the President and shall be called by the
Chairman, the President or the Secretary at the request in writing of a
majority of the R&B Board.
Parent
The Parent Certificate is substantially similar to the R&B Bylaws
with respect to the calling of special meetings of stockholders.
CHARTER AND BYLAW AMENDMENTS
Falcon and Parent
The Falcon Certificate provides that the affirmative vote of the
holders of 66 2/3% of all classes of capital stock entitled to vote in the
election of directors is required to alter, amend or adopt any charter
provisions inconsistent with Article EIGHTH (which contains, among other
things, provisions with respect to the supermajority stockholder vote
required for Bylaw amendments, the staggered board, removal and
replacement of directors, written consent and the calling of special
stockholder meetings). The Falcon Certificate also provides that a
majority of the total number of authorized directors has the power to
adopt, amend or repeal the Falcon Bylaws and that the affirmative vote of
the holders of 66 2/3% of the voting power of the then issued and
outstanding shares of capital stock entitled to vote in the election of
directors is required to adopt, amend or repeal the Falcon Bylaws. The
Parent Certificate is substantially similar to the Falcon Certificate.
R&B
The R&B Certificate provides that the affirmative vote of the
holders of 80% of the outstanding shares of capital stock entitled to
vote in the election of directors is required to amend, modify or repeal
any the provisions set forth in Section 1 of Article FIFTH (which
contains, among other things, provisions with respect to the staggered
board and the filling of vacancies and newly created directorships). In
addition, the R&B Certificate requires the affirmative vote of the
holders of at least 80% of the voting power of the outstanding shares of
capital stock to amend, modify or repeal the charter provisions with
respect to (i) business combination transactions with "Interested
Stockholders," and (ii) unanimous written consent of stockholders. See
"--Interested Stockholders" and "--Stockholder Action Without a Meeting"
above.
The R&B Bylaws provide that they may be altered or repealed by
the affirmative vote of a majority of the stock entitled to vote at such
meeting and present or represented thereat or by the affirmative vote of
a majority of the R&B Board.
EXPERTS
The consolidated balance sheets of Falcon as of December 31, 1996
and 1995, and the related statements of operations, stockholders' equity
and cash flows for each of the years in the three year period ended
December 31, 1996, have been incorporated by reference in this Joint
Proxy Statement/Prospectus in reliance upon the report of Arthur Andersen
LLP, independent certified public accountants, and upon the authority of
said firm as experts in giving said reports.
The consolidated financial statements of R&B have been
incorporated by reference in this Joint Proxy Statement/Prospectus in
reliance upon the report of Arthur Andersen LLP, independent certified
public accountants, and upon the authority of such firm as experts in
giving said reports.
Representatives of Arthur Andersen LLP are expected to be present
at the R&B Special Meeting and at the Falcon Special Meeting, where they
will have the opportunity to make a statement if they desire to do so and
will be available to respond to appropriate questions.
LEGAL MATTERS
The validity of the Parent Common Stock offered hereby will be
passed upon by Skadden, Arps, Slate, Meagher & Flom LLP. In addition,
Cravath, Swaine & Moore and Skadden, Arps, Slate, Meagher & Flom LLP have
delivered opinions to R&B and Falcon, respectively, as to certain tax
matters.
STOCKHOLDER PROPOSALS
If the Mergers are consummated, neither Falcon nor R&B will hold
an annual meeting of stockholders in 1998. In the event 1998 annual
meetings of stockholders are held for Falcon and R&B, stockholder
proposals must be received by Falcon and R&B at their respective
principal executive offices not later than January 1, 1998 and November
29, 1997, respectively. Any stockholder proposal must satisfy the
conditions established by the Commission for the stockholder proposals to
be included in either Falcon's or R&B's proxy materials for their
respective meetings.
ANNEX A
AGREEMENT AND PLAN OF MERGER
among
R&B FALCON CORPORATION
FDC ACQUISITION CORP.
READING & BATES ACQUISITION CORP.
FALCON DRILLING COMPANY, INC.
and
READING & BATES CORPORATION
Dated as of July 10, 1997
TABLE OF CONTENTS
ARTICLE I
The Mergers . . . . . . . . . . . . . . . . . . . . . 3
Section 1.1. The FDC Merger . . . . . . . . . . 3
Section 1.2. The R&B Merger . . . . . . . . . . 4
Section 1.3. Closing . . . . . . . . . . . . . 4
Section 1.4. Effective Time . . . . . . . . . . 4
Section 1.5. Effects of the Mergers . . . . . . 5
Section 1.6. Directors . . . . . . . . . . . . 5
Section 1.7. Parent Charter Documents . . . . . 5
ARTICLE II
Effect of the Mergers on the Stock of
FDC and R&B; Exchange of Certificates . . . . . . . 6
Section 2.1. Effect on FDC Stock . . . . . . . 6
Section 2.2. Effect on R&B Stock . . . . . . . 6
Section 2.3. Exchange of Certificates . . . . . 8
ARTICLE III
Governance . . . . . . . . . . . . . . . . . . . . . 14
Section 3.1. Board of Directors of Parent . . . 14
Section 3.2. Key Executive Officers of Parent . 14
Section 3.3. Name . . . . . . . . . . . . . . . 14
ARTICLE IV
Representations and Warranties of R&B . . . . . . . . 15
Section 4.1. Organization, Qualification,
Etc. . . . . . . . . . . . . . . 15
Section 4.2. Capital Stock . . . . . . . . . . 16
Section 4.3. Corporate Authority Relative to
this Agreement; No Violation . . 17
Section 4.4. Reports and Financial
Statements. . . . . . . . . . . . 18
Section 4.5. No Undisclosed Liabilities. . . . 19
Section 4.6. No Violation of Law. . . . . . . . 19
Section 4.7. Environmental Laws and
Regulations. . . . . . . . . . . 20
Section 4.8. No Undisclosed Employee Benefit
Plan Liabilities or Severance
Arrangements . . . . . . . . . . 20
Section 4.9. Absence of Certain Changes or
Events. . . . . . . . . . . . . . 21
Section 4.10. Litigation. . . . . . . . . . . . 21
Section 4.11. Joint Proxy Statement; Regis-
tration Statement; Other
Information . . . . . . . . . . . 21
Section 4.12. R&B Rights Plan . . . . . . . . . 22
Section 4.13. Lack of Ownership of FDC Common
Stock . . . . . . . . . . . . . . 22
Section 4.14. Tax Matters . . . . . . . . . . . 22
Section 4.15. Opinion of Financial Advisor . . . 24
Section 4.16. Required Vote of R&B Stock-
holders . . . . . . . . . . . . . 24
Section 4.17. Pooling of Interests . . . . . . . 24
ARTICLE V
Representations and Warranties of FDC . . . . . . . . 24
Section 5.1. Organization, Qualification,
Etc. . . . . . . . . . . . . . . 25
Section 5.2. Capital Stock . . . . . . . . . . 25
Section 5.3. Corporate Authority Relative to
this Agreement; No Violation . . 26
Section 5.4. Reports and Financial Statements . 28
Section 5.5. No Undisclosed Liabilities . . . . 29
Section 5.6. No Violation of Law . . . . . . . 29
Section 5.7. Environmental Laws and Regu-
lations . . . . . . . . . . . . . 29
Section 5.8. No Undisclosed Employee Benefit
Plan Liabilities or Severance
Arrangements . . . . . . . . . . 29
Section 5.9. Absence of Certain Changes or
Events . . . . . . . . . . . . . 30
Section 5.10. Litigation . . . . . . . . . . . . 30
Section 5.11. Joint Proxy Statement;
Registration Statement; Other
Information . . . . . . . . . . . 30
Section 5.12. Lack of Ownership of R&B Common
Stock . . . . . . . . . . . . . . 31
Section 5.13. FDC Rights Plan . . . . . . . . . 31
Section 5.14. Tax Matters . . . . . . . . . . . 31
Section 5.15. Opinion of Financial Advisor . . . 32
Section 5.16. Required Vote of FDC Stock-
holders . . . . . . . . . . . . . 33
Section 5.17. Pooling of Interests . . . . . . . 33
ARTICLE VI
Covenants and Agreements . . . . . . . . . . . . . . 33
Section 6.1. Conduct of Business by R&B and
FDC . . . . . . . . . . . . . . . 33
Section 6.2. Investigation . . . . . . . . . . 39
Section 6.3. Cooperation . . . . . . . . . . . 40
Section 6.4. Affiliate Agreements . . . . . . . 42
Section 6.5. R&B Employee Stock Options,
Incentive and Benefit Plans . . . 43
Section 6.6. FDC Employee Stock Options,
Incentive and Benefit Plans . . . 44
Section 6.7. Filings; Other Action . . . . . . 46
Section 6.8. Further Assurances . . . . . . . . 46
Section 6.9. Takeover Statute . . . . . . . . . 46
Section 6.10. No Solicitation by R&B . . . . . . 47
Section 6.11. No Solicitation by FDC . . . . . . 49
Section 6.12. Public Announcements . . . . . . . 52
Section 6.13. Indemnification and Insurance . . 52
Section 6.14. Accountants' "Comfort" Letters . . 53
Section 6.15. Additional Reports . . . . . . . . 53
Section 6.16. Stockholder Rights Plans . . . . . 54
Section 6.17. Stockholder Litigation . . . . . . 54
ARTICLE VII
Conditions to the Mergers . . . . . . . . . . . . . . 54
Section 7.1. Conditions to Each Party's
Obligation to Effect the Merger . 54
Section 7.2. Conditions to Obligations of R&B
to Effect the R&B Merger. . . . . 55
Section 7.3. Conditions to Obligations of FDC
to Effect the FDC Merger . . . . 56
ARTICLE VIII
Termination, Waiver, Amendment and Closing . . . . . 57
Section 8.1. Termination or Abandonment . . . . 57
Section 8.2. Effect of Termination . . . . . . 58
Section 8.3. Termination Fee . . . . . . . . . 58
Section 8.4. Amendment or Supplement . . . . . 61
Section 8.5. Extension of Time, Waiver, Etc. . 61
ARTICLE IX
Miscellaneous . . . . . . . . . . . . . . . . . . . . 62
Section 9.1. No Survival of Representations
and Warranties . . . . . . . . . 62
Section 9.2. Expenses . . . . . . . . . . . . . 62
Section 9.3. Counterparts; Effectiveness . . . 62
Section 9.4. Governing Law . . . . . . . . . . 62
Section 9.5. Notices . . . . . . . . . . . . . 62
Section 9.6. Assignment; Binding Effect . . . . 63
Section 9.7. Severability . . . . . . . . . . . 64
Section 9.8. Enforcement of Agreement . . . . . 64
Section 9.9. Entire Agreement; No Third-Party
Beneficiaries . . . . . . . . . . 64
Section 9.10. Headings . . . . . . . . . . . . . 64
Section 9.11. Definitions. . . . . . . . . . . . 64
Section 9.12. Finders or Brokers . . . . . . . . 65
Exhibit A -- Form of R&B Affiliate Letter
Exhibit B -- Form of FDC Affiliate Letter
THIS AGREEMENT AND PLAN OF MERGER, dated as of
July 10, 1997 (the "Agreement"), among R&B FALCON
CORPORATION, a Delaware corporation ("Parent"), FDC
ACQUISITION CORP., a Delaware corporation ("SubF"),
READING & BATES ACQUISITION CORP., a Delaware corporation
("SubR"), FALCON DRILLING COMPANY, INC., a Delaware
corporation ("FDC"), and READING & BATES CORPORATION, a
Delaware corporation ("R&B").
WHEREAS, (i) Parent is a newly formed
corporation organized and existing under the laws of the
State of Delaware, one-half of the issued and outstanding
capital stock of which is owned by each of FDC and R&B;
(ii) FDC is a corporation organized and existing under
the laws of the State of Delaware; and (iii) R&B is a
corporation organized and existing under the laws of the
State of Delaware;
WHEREAS, FDC and R&B have caused Parent to form
SubF and SubR, each a wholly owned subsidiary of Parent,
and all the outstanding capital stock of each of SubF and
SubR is owned by Parent; and
WHEREAS, the Board of Directors of each of FDC
and R&B deem it advisable and in the best interests of
their stockholders that each of FDC and R&B become
subsidiaries of Parent pursuant to the Mergers (as
hereinafter defined) as provided for in this Agreement;
WHEREAS, the parties desire to make certain
representations, warranties, covenants and agreements in
connection with the Mergers and also to prescribe various
conditions to the Mergers;
WHEREAS, for federal income tax purposes, it is
intended that the transactions contemplated hereby
constitute transactions described in Section 351 and/or
Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code");
WHEREAS, for financial accounting purposes, it
is intended that the transactions contemplated by this
Agreement will be accounted for as a pooling of interests
transaction;
WHEREAS, immediately following the execution
and delivery of this Agreement, FDC and R&B will enter
into a stock option agreement (the "R&B Stock Option
Agreement"), pursuant to which R&B will grant FDC the
option (the "R&B Option") to purchase shares of R&B
Common Stock (as hereinafter defined), upon the terms and
subject to the conditions set forth therein;
WHEREAS, immediately following the execution
and delivery of this Agreement, FDC and R&B will enter
into a stock option agreement (the "FDC Stock Option
Agreement" and, together with the R&B Stock Option
Agreement, the "Option Agreements"), pursuant to which
FDC will grant R&B the option (the "FDC Option") to
purchase shares of FDC Common Stock, upon the terms and
subject to the conditions set forth therein.
NOW, THEREFORE, in consideration of the
representations, warranties, covenants and agreements
contained in this Agreement, the parties agree as
follows:
ARTICLE I
The Mergers
Section 1.1. The FDC Merger. (a) Upon the
terms and subject to the conditions set forth in this
Agreement, and in accordance with the Delaware General
Corporation Law (the "DGCL"), SubF shall merge with and
into FDC (the "FDC Merger") at the Effective Time (as
defined in Section 1.4), and each outstanding share of
FDC Common Stock shall be converted into one share of
common stock, par value $.01 per share, of Parent (the
"Parent Common Stock"). FDC shall be the surviving
corporation in the FDC Merger (the "FDC Surviving
Corporation") and shall become a wholly owned subsidiary
of Parent. From and after the Effective Time, the
identity and separate existence of SubF shall cease.
(b) In connection with the FDC Merger, FDC and
R&B shall take such actions as may be necessary to cause
Parent to reserve sufficient shares of Parent Common
Stock, prior to the FDC Merger, to permit the issuance of
shares of Parent Common Stock (i) to the holders of FDC
Common Stock as of the Effective Time in accordance with
the terms of this Agreement and (ii) upon the exercise of
FDC Stock Options (as defined in Section 6.6(a)) to be
assumed by Parent in accordance with Section 6.6 hereof.
Section 1.2. The R&B Merger. (a) Upon the
terms and subject to the conditions set forth in this
Agreement and in accordance with the DGCL, SubR shall
merge with and into R&B (the "R&B Merger," and together
with the FDC Merger, the "Mergers") at the Effective
Time, and each outstanding share of R&B Common Stock
shall be converted into 1.18 share of Parent Common
Stock. R&B shall be the surviving corporation in the R&B
Merger (the "R&B Surviving Corporation" and together
with the FDC Surviving Corporation, the "Surviving
Corporations") and shall become a wholly owned subsidiary
of Parent. From and after the Effective Time, the
identity and separate existence of SubR shall cease.
(b) In connection with the R&B Merger, R&B and
FDC shall take such actions as may be necessary to cause
Parent to reserve sufficient shares of Parent Common
Stock prior to the R&B Merger to permit the issuance of
shares of Parent Common Stock (i) to the holders of R&B
Common Stock as of the Effective Time in accordance with
the terms of this Agreement and (ii) upon the exercise of
R&B Stock Options (as defined in Section 6.5(a)) to be
assumed by Parent in accordance with Section 6.5 hereof.
Section 1.3. Closing. The closing of the
Mergers (the "Closing") will take place at 10:00 a.m. on
a date to be specified by the parties (the "Closing
Date"), which shall be no later than the second business
day after satisfaction or waiver of the conditions set
forth in Article VIII, unless another time or date is
agreed to by the parties hereto. The Closing will be
held at such location as is agreed to by the parties
hereto.
Section 1.4. Effective Time. Subject to the
provisions of this Agreement, as soon as practicable on
or after the Closing Date, the parties shall file a
certificate of merger (individually, a "Certificate of
Merger" with respect to one of the Mergers, and
collectively with respect to both Mergers, the
"Certificates of Merger") executed in accordance with the
relevant provisions of the DGCL and shall make all other
filings or recordings required under the DGCL in order to
effect both Mergers. Each Merger shall become effective
at such time as is specified in the Certificate of Merger
(the time at which both Mergers have become fully
effective being hereinafter referred to as the "Effective
Time").
Section 1.5. Effects of the Mergers.
(a) DGCL. Each of the Mergers shall have the
effects set forth in Section 259 of the DGCL.
(b) Names of Surviving Corporations. The
names of the Surviving Corporations from and after the
Effective Time shall be "Falcon Drilling Company, Inc."
and "Reading & Bates Corporation," respectively, until
changed or amended in accordance with applicable law.
(c) Charter Documents. At the Effective Time
(i) the Certificate of Incorporation and Bylaws of SubF,
as in effect immediately prior to the Effective Time,
shall be the Certificate of Incorporation and Bylaws,
respectively, of the FDC Surviving Corporation, and (ii)
the Certificate of Incorporation and Bylaws of SubR, as
in effect immediately prior to the Effective Time shall
be the Certificate of Incorporation and Bylaws,
respectively, of the R&B Surviving Corporation.
Section 1.6. Directors. (a) SubF. The
directors of SubF at the Effective Time shall be the
directors of the FDC Surviving Corporation until the next
annual meeting of stockholders of FDC (or their earlier
resignation or removal) and until their respective
successors are duly elected and qualified, as the case
may be.
(b) SubR. The directors of SubR at the
Effective Time shall be the directors of the R&B
Surviving Corporation until the next annual meeting of
stockholders of R&B (or their earlier resignation or
removal) and until their respective successors are duly
elected and qualified, as the case may be.
Section 1.7. Parent Charter Documents. At the
Effective Time (i) the Certificate of Incorporation and
Bylaws of Parent shall be in form and substance
satisfactory to each of FDC and R&B prior to the mailing
of the Joint Proxy Statement (as defined in Section
4.11), and (ii) Parent shall adopt a stockholder rights
plan in a customary form, satisfactory to each of FDC and
R&B (the "Parent Rights Plan").
ARTICLE II
Effect of the Mergers on the Stock of
FDC and R&B; Exchange of Certificates
Section 2.1. Effect on FDC Stock. As of the
Effective Time, by virtue of the FDC Merger and without
any action on the part of SubF, FDC or the holders of any
securities of SubF or FDC:
(a) Cancellation of Treasury Stock and R&B
Owned Stock. Each share of FDC Common Stock that is
owned directly by FDC or by R&B shall automatically be
cancelled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
(b) Conversion of FDC Common Stock. Subject
to Section 2.3(e), each issued and outstanding share of
FDC Common Stock (other than shares to be cancelled in
accordance with Section 2.1(a)) shall be converted into
one fully paid and nonassessable share of Parent Common
Stock (the "FDC Merger Consideration"). As of the
Effective Time, all such shares of FDC Common Stock shall
no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each
holder of a certificate or certificates which immediately
prior to the Effective Time represented outstanding
shares of FDC Common Stock (the "FDC Certificates") shall
cease to have any rights with respect thereto, except the
right to receive (i) certificates ("Parent Certificates")
representing the number of whole shares of Parent Common
Stock into which such shares have been converted, (ii)
certain dividends and other distributions in accordance
with Section 2.3(c), and (iii) cash in lieu of fractional
shares of Parent Common Stock in accordance with Section
2.3(e), without interest.
(c) Conversion of Common Stock of SubF. Each
issued and outstanding share of common stock, par value
$.01 per share, of SubF shall be converted into one
validly issued, fully paid and nonassessable share of
common stock of the FDC Surviving Corporation.
Section 2.2. Effect on R&B Stock. As of the
Effective Time, by virtue of the R&B Merger and without
any action on the part of SubR, R&B or the holders of any
securities of SubR or R&B:
(a) Cancellation of Treasury Stock and FDC
Owned Stock. Each share of R&B Common Stock that is
owned directly by R&B or by FDC shall automatically be
cancelled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
(b) Conversion of R&B Common Stock. Subject
to Section 2.3(e), each issued and outstanding share of
R&B Common Stock (other than shares to be cancelled in
accordance with Section 2.2(a)) shall be converted into
1.18 fully paid and nonassessable share of Parent Common
Stock (the "R&B Merger Consideration"). As of the
Effective Time, all such shares of R&B Common Stock shall
no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each
holder of a certificate or certificates which immediately
prior to the Effective Time represented outstanding
shares of R&B Common Stock (the "R&B Certificates") shall
cease to have any rights with respect thereto, except the
right to receive (i) Parent Certificates, (ii) certain
dividends and other distributions in accordance with
Section 2.3(c), and (iii) cash in lieu of fractional
shares of Parent Common Stock in accordance with Section
2.3(e), without interest.
(c) Conversion of R&B Class A Stock. If the
holders thereof grant the requisite voting approval of
the R&B Merger specified in the R&B Certificate of
Incorporation, each issued and outstanding share of R&B
Class A Stock (as defined in Section 4.2) shall be
converted into 1.18 of a fully paid and nonassessable
share of Parent Common Stock. If such holders do not
grant such approval, each issued and outstanding share of
R&B Class A Stock shall be converted into the right to
receive an amount of money in cash from R&B equal to the
sum of (i) $12 plus (ii) the amount of all unpaid
cumulative dividends accrued or in arrears to the
Effective Time. In the event the holders of R&B Class A
Stock are entitled to receive Parent Common Stock upon
conversion of their shares of R&B Class A Stock, such
stockholders shall be subject to the same exchange
procedures as holders of R&B Common Stock set forth in
Section 2.3. As of the Effective Time, all such shares
of R&B Class A Stock shall no longer be outstanding and
shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate or
certificates which immediately prior to the Effective
Time represented outstanding shares of R&B Class A Stock
(the "R&B Class A Certificates," and together with the
R&B Certificates and the FDC Certificates, the
"Certificates") shall cease to have any rights with
respect thereto, except the right to receive (i) Parent
Certificates or cash in the amount described in this
Section 2.2(c), (ii) certain dividends and other
distributions in accordance with Section 2.3(c), and
(iii) cash in lieu of fractional shares of Parent Common
Stock in accordance with Section 2.3(e), without
interest.
(d) Conversion of Common Stock of SubR. Each
issued and outstanding share of common stock, par value
$.01 per share, of SubR shall be converted into one
validly issued, fully paid and nonassessable share of
common stock of the R&B Surviving Corporation.
Section 2.3. Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time,
Parent shall enter into an agreement with such bank or
trust company as may be designated by FDC and R&B (the
"Exchange Agent"), which shall provide that Parent shall
deposit with the Exchange Agent as of the Effective Time,
for the benefit of the holders of shares of FDC Common
Stock and shares of R&B Common Stock, for exchange in
accordance with this Article II, through the Exchange
Agent, Parent Certificates representing the number of
whole shares of Parent Common Stock (such shares of
Parent Common Stock, together with any dividends or
distributions with respect thereto with a record date
after the Effective Time, any Excess Shares (as defined
in Section 2.3(e)) and any cash (including cash proceeds
from the sale of the Excess Shares) payable in lieu of
any fractional shares of Parent Common Stock being
hereinafter referred to as the "Exchange Fund") issuable
pursuant to Section 2.1 in exchange for outstanding
shares of FDC Common Stock and pursuant to Section 2.2 in
exchange for outstanding shares of R&B Common Stock.
(b) Exchange Procedures. As soon as
reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of a
Certificate whose shares were converted into the FDC
Merger Consideration, pursuant to Section 2.1, or the R&B
Merger Consideration, pursuant to Section 2.2
(collectively, the "Merger Consideration") (i) a letter
of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such
form and have such other provisions as FDC and R&B may
reasonably specify), and (ii) instructions for use in
effecting the surrender of the Certificates in exchange
for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal, duly executed,
and such other documents as may reasonably be required by
the Exchange Agent, the holder of such Certificate shall
be entitled to receive in exchange therefor a Parent
Certificate representing that number of whole shares of
Parent Common Stock which such holder has the right to
receive pursuant to the provisions of this Article II,
certain dividends or other distributions in accordance
with Section 2.3(c) and cash in lieu of any fractional
share in accordance with Section 2.3(e), and the
Certificate so surrendered shall forthwith be cancelled.
In the event of a transfer of ownership of FDC Common
Stock not registered in the transfer records of FDC or of
R&B Common Stock not registered in the transfer records
of R&B, a Parent Certificate representing the proper
number of shares of Parent Common Stock may be issued to
a person other than the person in whose name the
Certificate so surrendered is registered if such
Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such
issuance shall pay any transfer or other non-income taxes
required by reason of the issuance of shares of Parent
Common Stock to a person other than the registered holder
of such Certificate or establish to the satisfaction of
Parent that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.3,
each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive
upon such surrender Parent Certificates representing the
number of whole shares of Parent Common Stock into which
the shares of FDC Common Stock or R&B Common Stock
formerly represented by such Certificate have been
converted, certain dividends or other distributions in
accordance with Section 2.3(c) and cash in lieu of any
fractional share in accordance with Section 2.3(e). No
interest will be paid or will accrue on any cash payable
to holders of Certificates pursuant to the provisions of
this Article II.
(c) Distributions with Respect to Unexchanged
Shares. No dividends or other distributions with respect
to Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of
Parent Common Stock represented thereby, and no cash
payment in lieu of fractional shares shall be paid to any
such holder pursuant to Section 2.3(e), and all such
dividends, other distributions and cash in lieu of
fractional shares of Parent Common Stock shall be paid by
Parent to the Exchange Agent and shall be included in the
Exchange Fund, in each case until the surrender of such
Certificate in accordance with this Article II. Subject
to the effect of applicable escheat or similar laws,
following surrender of any such Certificate there shall
be paid to the holder of the Parent Certificate
representing whole shares of Parent Common Stock issued
in exchange therefor, without interest, (i) at the time
of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of
Parent Common Stock and the amount of any cash payable in
lieu of a fractional share of Parent Common Stock to
which such holder is entitled pursuant to Section 2.3(e)
and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after
the Effective Time but prior to such surrender and with a
payment date subsequent to such surrender payable with
respect to such whole shares of Parent Common Stock.
Parent shall make available to the Exchange Agent cash
for these purposes.
(d) No Further Ownership Rights in FDC Common
Stock and R&B Common Stock. All shares of Parent Common
Stock issued upon the surrender for exchange of
Certificates in accordance with the terms of this Article
II (including any cash paid pursuant to this Article II)
shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of
FDC Common Stock and R&B Common Stock theretofore
represented by such Certificates, subject, however, to
the Surviving Corporation's obligation to pay any
dividends or make any other distributions with a record
date prior to the Effective Time which may have been
authorized or made by FDC on such shares of FDC Common
Stock or by R&B on such shares of R&B Common Stock, as
the case may be, which remain unpaid at the Effective
Time, and there shall be no further registration of
transfers on the stock transfer books of the applicable
Surviving Corporation of the shares of FDC Common Stock
and R&B Common Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective
Time, Certificates are presented to a Surviving
Corporation or the Exchange Agent for any reason, they
shall be cancelled and exchanged as provided in this
Article II, except as otherwise provided by law.
(e) No Fractional Shares. (i) No Parent
Certificates or scrip representing fractional shares of
Parent Common Stock shall be issued upon the surrender
for exchange of Certificates, no dividend or distribution
of Parent shall relate to such fractional share interests
and such fractional share interests will not entitle the
owner thereof to vote or to any rights of a stockholder
of Parent.
(ii) As promptly as practicable following the
Effective Time, the Exchange Agent will determine the
excess of (A) the number of whole shares of Parent Common
Stock delivered to the Exchange Agent by Parent pursuant
to Section 2.3(a) over (B) the aggregate number of whole
shares of Parent Common Stock to be distributed to
holders of FDC Common Stock, R&B Common Stock and R&B
Class A Stock pursuant to Section 2.3(b) (such excess
being herein called the "Excess Shares"). Following the
Effective Time, the Exchange Agent will, on behalf of
former stockholders of FDC, if any, and R&B, sell the
Excess Shares at then-prevailing prices on the New York
Stock Exchange, Inc. (the "NYSE"), all in the manner
provided in Section 2.3(e)(iii).
(iii) The sale of the Excess Shares by the
Exchange Agent will be executed on the NYSE through one
or more member firms of the NYSE and will be executed in
round lots to the extent practicable. The Exchange Agent
will use reasonable efforts to complete the sale of the
Excess Shares as promptly following the Effective Time
as, in the Exchange Agent's sole judgment, is practicable
consistent with obtaining the best execution of such
sales in light of prevailing market conditions. Until
the net proceeds of such sale or sales have been
distributed to the holders of FDC Common Stock and R&B
Common Stock, the Exchange Agent will hold such proceeds
in trust for the holders of FDC Common Stock and R&B
Common Stock (the "Common Shares Trust"). The Surviving
Corporations will pay all commissions, transfer taxes and
other out-of-pocket transaction costs, including the
expenses and compensation of the Exchange Agent incurred
in connection with such sale of the Excess Shares. The
Exchange Agent will determine the portion of the Common
Shares Trust to which each holder of FDC Common Stock and
R&B Common Stock is entitled, if any, by multiplying the
amount of the aggregate net proceeds comprising the
Common Shares Trust by a fraction, the numerator of which
is the amount of the fractional share interest to which
such holder of FDC Common Stock or R&B Common Stock is
entitled (after taking into account all shares of FDC
Common Stock or R&B Common Stock held at the Effective
Time by such holder) and the denominator of which is the
aggregate amount of fractional share interests to which
all holders of FDC Common Stock and R&B Common Stock are
entitled.
(iv) Notwithstanding the provisions of Section
2.3(e)(ii) and (iii), the Surviving Corporations may
elect at their option, exercised prior to the Effective
Time, in lieu of the issuance and sale of Excess Shares
and the making of the payments hereinabove contemplated,
to pay each holder of FDC Common Stock or R&B Common
Stock an amount in cash equal to the product obtained by
multiplying (A) the fractional share interest to which
such holder (after taking into account all shares of FDC
Common Stock or R&B Common Stock held at the Effective
Time by such holder) would otherwise be entitled by (B)
the closing price for a share of Parent Common Stock as
reported on the NYSE Composite Transactions Tape (as
reported in The Wall Street Journal, or, if not reported
thereby, any other authoritative source) on the Closing
Date, and, in such case, all references herein to the
cash proceeds of the sale of the Excess Shares and
similar references will be deemed to mean and refer to
the payments calculated as set forth in this Section
2.3(e)(iv).
(v) As soon as practicable after the
determination of the amount of cash, if any, to be paid
to holders of FDC Common Stock and R&B Common Stock with
respect to any fractional share interests, the Exchange
Agent will make available such amounts to such holders of
FDC Common Stock and R&B Common Stock subject to and in
accordance with the terms of Section 2.3(c).
(f) Termination of Exchange Fund. Any portion
of the Exchange Fund which remains undistributed to the
holders of the Certificates for six months after the
Effective Time shall be delivered to Parent upon demand,
and any holders of the Certificates who have not
theretofore complied with this Article II shall
thereafter look only to Parent for payment of their claim
for Merger Consideration, any cash in lieu of fractional
shares of Parent Common Stock and any dividends or
distributions with respect to Parent Common Stock.
(g) No Liability. None of Parent, FDC, R&B or
the Exchange Agent shall be liable to any person in
respect of any shares of Parent Common Stock (or
dividends or distributions with respect thereto) or cash
from the Exchange Fund in each case delivered to a public
official pursuant to any applicable abandoned property,
escheat or similar law. If any Certificate shall not
have been surrendered prior to seven years after the
Effective Time (or immediately prior to such earlier date
on which any Merger Consideration, any cash payable to
the holder of such Certificate pursuant to this Article
II or any dividends or distributions payable to the
holder of such Certificate would otherwise escheat to or
become the property of any governmental body or
authority) any such Merger Consideration or cash,
dividends or distributions in respect of such Certificate
shall, to the extent permitted by applicable law, become
the property of the related Surviving Corporation, free
and clear of all claims or interest of any person
previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange
Agent shall invest any cash included in the Exchange
Fund, as directed by Parent, on a daily basis. Any
interest and other income resulting from such investments
shall be paid to Parent.
(i) Lost Certificates. If any Certificate
shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed
and, if required by the related Surviving Corporation,
the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as
indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration and, if applicable,
any cash in lieu of fractional shares, and unpaid
dividends and distributions on shares of Parent Common
Stock deliverable in respect thereof, pursuant to this
Agreement.
ARTICLE III
Governance
Section 3.1. Board of Directors of Parent.
The Board of Directors of Parent shall have 10 members
and shall be divided into three classes, Class I, Class
II and Class III, with the term of Class I expiring at
Parent's first annual meeting following the Effective
Time (the "Annual Meeting"), the term of Class II
expiring one year following the Annual Meeting and the
term of Class III expiring two years following the Annual
Meeting. The Board of Directors of each of R&B and FDC
shall select from among the current members of the Board
of Directors of R&B and FDC, respectively, five
individuals for nomination as directors of Parent. If an
individual so selected consents to serve as a director,
such individual shall be elected as a director of Parent,
effective as of the Effective Time, for a term expiring
at Parent's next annual meeting of stockholders following
the Effective Time at which the term of the class to
which such director belongs expires, subject to being
renominated as a director at the discretion of Parent's
Board of Directors. Two designees of FDC and one
designee of R&B shall be in Class I, two designees of R&B
and one designee of FDC shall be in Class II, and Mr.
Loyd, one other designee of R&B, Mr. Webster and one
other designee of FDC shall be in Class III. Each
committee of the Board of Directors shall consist of an
equal number of designees of FDC and of R&B.
Section 3.2. Key Executive Officers of Parent.
Immediately following the Effective Time, Mr. Paul B.
Loyd shall be the Chairman of the Board of Parent, and
Mr. Steven A. Webster shall be the Chief Executive
Officer and President of Parent. Mr. Loyd shall also be
the Chairman and Chief Executive Officer of Reading &
Bates Development Co. ("Devco").
Section 3.3. Name. Effective as of the
Effective Time the name of Parent shall be R&B Falcon
Corporation. FDC and R&B agree that, after the Effective
Time, Parent will, in connection with its business
operations, use the name "Falcon" in connection with its
domestic operations and the name "Reading & Bates" in
connection with its international and deep water
operations.
ARTICLE IV
Representations and Warranties of R&B
Except as set forth on the Disclosure Schedule
delivered by R&B to FDC prior to the execution of this
Agreement (the "R&B Disclosure Schedule"), R&B represents
and warrants to FDC that:
Section 4.1. Organization, Qualification, Etc.
R&B is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware
and has the corporate power and authority to own its
properties and assets and to carry on its business as it
is now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction in
which the ownership of its properties or the conduct of
its business requires such qualification, except for
jurisdictions in which the failure to be so qualified or
in good standing would not, individually or in the
aggregate, have a Material Adverse Effect (as hereinafter
defined) on R&B. As used in this Agreement, any
reference to any state of facts, event, change or effect
having a "Material Adverse Effect" on or with respect to
R&B or Parent, as the case may be, means such state of
facts, event, change or effect that has had, or would
reasonably be expected to have, a material adverse effect
on the business, results of operations or financial
condition of R&B and its Subsidiaries (as defined in
Section 10.11), taken as a whole, or Parent and its
Subsidiaries, taken as a whole, as the case may be. The
copies of R&B's certificate of incorporation and by-laws
which have been delivered to FDC are complete and correct
and in full force and effect on the date hereof. Each of
R&B's Significant Subsidiaries (as defined in Section
10.11) is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction
of incorporation or organization, has the power and
authority to own its properties and to carry on its
business as it is now being conducted, and is duly
qualified to do business and is in good standing in each
jurisdiction in which the ownership of its property or
the conduct of its business requires such qualification,
except for jurisdictions in which the failure to be so
qualified or in good standing would not, individually or
in the aggregate, have a Material Adverse Effect on R&B.
All the outstanding shares of capital stock of, or other
ownership interests in, R&B's Significant Subsidiaries
are validly issued, fully paid and non-assessable and are
owned by R&B, directly or indirectly, free and clear of
all liens, claims, charges or encumbrances, except for
restrictions contained in credit agreements and similar
instruments to which R&B is a party under which no event
of default has occurred or arisen. There are no existing
options, rights of first refusal, preemptive rights,
calls or commitments of any character relating to the
issued or unissued capital stock or other securities of,
or other ownership interests in, any Significant
Subsidiary of R&B other than options to purchase common
stock of Devco issued pursuant to the Reading & Bates
Development Co. 1997 Incentive Plan (the "Devco Plan").
Section 4.2. Capital Stock. The authorized
stock of R&B consists of 425,000,000 shares of common
stock, par value $.05 per share ("R&B Common Stock"),
10,000,000 shares of preferred stock, par value $1.00 per
share ("R&B Preferred Stock"), of which 1,000,000 shares
have been designated as Series B Junior Participating
Preferred Stock ("R&B Series B Preferred Stock") and 285
shares of Class A Cumulative Convertible Capital Stock,
no par value ("R&B Class A Stock"). As of June 30, 1997,
72,061,079 shares of R&B Common Stock, and 60 shares of
R&B Class A Stock were issued and outstanding and no
shares of R&B Preferred Stock were issued or outstanding.
All the outstanding shares of R&B Common Stock have been
validly issued and are fully paid and non-assessable. As
of July 10, 1997, there were no outstanding
subscriptions, options, warrants, rights or other
arrangements or commitments obligating R&B to issue any
shares of its stock other than:
(a) rights to acquire shares of R&B Series B
Preferred Stock pursuant to the Rights Agreement, dated
as of March 15, 1995, between R&B and American Stock
Transfer & Trust Company (the "R&B Rights Plan");
(b) rights to convert shares of R&B Class A
Stock into an aggregate of 81 shares of R&B Common Stock;
(c) options and other rights to receive or
acquire 2,567,400 shares of R&B Common Stock granted on
or prior to July 10, 1997, pursuant to employee incentive
or benefit plans, programs and arrangements and non-
employee director plans; and
(d) rights to acquire shares of R&B Common
Stock upon conversion of R&B's 8% Senior Subordinated
Convertible Debentures due December 31, 1998.
Except for the issuance of shares of R&B Common
Stock pursuant to the options and other rights referred
to in clauses 4.2(b), (c) and (d), since June 30, 1997,
no shares of R&B Common Stock or R&B Preferred Stock have
been issued.
Section 4.3. Corporate Authority Relative to
this Agreement; No Violation. R&B has the corporate
power and authority to enter into this Agreement and the
R&B Stock Option Agreement and to carry out its
obligations hereunder and thereunder. The execution and
delivery of this Agreement and the R&B Stock Option
Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly and
validly authorized by the Board of Directors of R&B and,
except for the adoption of this Agreement by its
stockholders, no other corporate proceedings on the part
of R&B are necessary to authorize the consummation of the
transactions contemplated hereby and thereby. The Board
of Directors of R&B has taken all appropriate action so
that none of Parent, R&B or SubR will be an "interested
stockholder" within the meaning of Section 203 of the
DGCL by virtue of Parent, R&B and SubR entering into this
Agreement or R&B entering into the R&B Stock Option
Agreement and consummating the transactions contemplated
hereby and thereby. The Board of Directors of R&B has
determined that the transactions contemplated by this
Agreement and the R&B Stock Option Agreement are in the
best interest of R&B and its stockholders and to
recommend to such stockholders that they adopt this
Agreement. This Agreement and the R&B Stock Option
Agreement have been duly and validly executed and
delivered by R&B and, assuming this Agreement and the R&B
Stock Option Agreement, as applicable, constitutes a
valid and binding agreement of the other parties hereto
and thereto, this Agreement and the R&B Stock Option
Agreement constitute valid and binding agreements of R&B,
enforceable against R&B in accordance with their terms
(except insofar as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of
equitable remedies). R&B is not subject to or obligated
under any charter, by-law or contract provision or any
license, franchise or permit, or subject to any order or
decree, which would be breached or violated by its
executing or, subject to the adoption of this Agreement
by its stockholders, carrying out the transactions
contemplated by this Agreement and the R&B Stock Option
Agreement, except for any breaches or violations which
would not, individually or in the aggregate, have a
Material Adverse Effect on R&B. Other than in connection
with or in compliance with the provisions of the DGCL,
the Securities Act of 1933, as amended (the "Securities
Act"), the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"),
Section 4043 of ERISA (as defined in Section 4.8), and
any non-United States competition, antitrust and
investment laws and the securities or blue sky laws of
the various states (collectively, the "R&B Required
Approvals"), no authorization, consent or approval of, or
filing with, any governmental body or authority is
necessary for the consummation by R&B of the transactions
contemplated by this Agreement, except for such
authorizations, consents, approvals or filings, the
failure to obtain or make which would not, individually
or in the aggregate, have a Material Adverse Effect on
R&B or substantially impair or delay the consummation of
the transactions contemplated hereby.
Section 4.4. Reports and Financial Statements.
R&B has previously furnished to FDC true and complete
copies of:
(a) R&B's Annual Reports on Form 10-K filed
with the Securities and Exchange Commission (the "SEC")
for each of the years ended December 31, 1994 through
1996;
(b) R&B's Quarterly Report on Form 10-Q filed
with the SEC for the quarter ended March 31, 1997;
(c) each definitive proxy statement filed by
R&B with the SEC since December 31, 1994;
(d) each final prospectus filed by R&B with
the SEC since December 31, 1994, except any final
prospectus on Form S-8; and
(e) all Current Reports on Form 8-K filed by
R&B with the SEC since January 1, 1997.
As of their respective dates, such reports,
proxy statements and prospectuses (collectively, the "R&B
SEC Reports") (i) complied as to form in all material
respects with the applicable requirements of the
Securities Act, the Exchange Act and the rules and
regulations promulgated thereunder and (ii) did not
contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Except to the extent that information contained in any
R&B SEC Report has been revised or superseded by a later
filed R&B SEC Report, none of the R&B SEC Reports
contains any untrue statement of a material fact or omits
to state any material fact required to be stated therein
or necessary in order to make the statements therein, in
light of the circumstances under which they were made,
not misleading. The audited consolidated financial
statements and unaudited consolidated interim financial
statements included in the R&B SEC Reports (including any
related notes and schedules) fairly present the financial
position of R&B and its consolidated Subsidiaries as of
the dates thereof and the results of operations and cash
flows for the periods or as of the dates then ended
(subject, where appropriate, to normal year-end
adjustments), in each case in accordance with past
practice and generally accepted accounting principles in
the United States ("GAAP") consistently applied during
the periods involved (except as otherwise disclosed in
the notes thereto). Since January 1, 1996, R&B has
timely filed all material reports, registration
statements and other filings required to be filed by it
with the SEC under the rules and regulations of the SEC.
Section 4.5. No Undisclosed Liabilities.
Neither R&B nor any of its Subsidiaries has any
liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, except (a) liabilities
or obligations reflected in the R&B SEC Reports filed
prior to the date hereof ("R&B Filed SEC Reports") and
(b) liabilities or obligations which would not,
individually or in the aggregate, have a Material Adverse
Effect on R&B.
Section 4.6. No Violation of Law. The
businesses of R&B and its Subsidiaries are not being
conducted in violation of any law, ordinance or
regulation of any governmental body or authority
(provided that no representation or warranty is made in
this Section 4.6 with respect to Environmental Laws (as
hereinafter defined)) except (a) as described in the R&B
Filed SEC Reports and (b) for violations or possible
violations which would not, individually or in the
aggregate, have a Material Adverse Effect on R&B.
Section 4.7. Environmental Laws and Regulations.
Except as described in the R&B Filed SEC Reports, (a) R&B
and each of its Subsidiaries is in compliance with all
applicable international, federal, state, local and
foreign laws and regulations relating to pollution or
protection of human health or the environment (including,
without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) (collectively,
"Environmental Laws"), which compliance includes, but is
not limited to, the possession by R&B and its
Subsidiaries of all material permits and other
governmental authorizations required under applicable
Environmental Laws, and compliance with the terms and
conditions thereof, except for non-compliance which would
not, individually or in the aggregate, have a Material
Adverse Effect on R&B; (b) neither R&B nor any of its
Subsidiaries has received written notice of, or, to the
knowledge of R&B, is the subject of, any actions, causes
of action, claims, investigations, demands or notices by
any Person asserting an obligation to conduct
investigations or clean-up activities under Environmental
Law or alleging liability under or non-compliance with
any Environmental Law (collectively, "Environmental
Claims") which would, individually or in the aggregate,
have a Material Adverse Effect on R&B; and (c) to the
knowledge of R&B, there are no facts, circumstances or
conditions in connection with the operation of its
business or any currently or formerly owned, leased or
operated facilities that are reasonably likely to lead to
any such Environmental Claims in the future.
Section 4.8. No Undisclosed Employee Benefit
Plan Liabilities or Severance Arrangements. Except as
described in the R&B Filed SEC Reports, all "employee
benefit plans," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), maintained or contributed to by R&B or
its Subsidiaries are in compliance with all applicable
provisions of ERISA and the Code, and R&B and its
Subsidiaries do not have any liabilities or obligations
with respect to any such employee benefit plans, whether
or not accrued, contingent or otherwise, except (a) as
described in the R&B Filed SEC Reports, and (b) for
instances of noncompliance or liabilities or obligations
that would not, individually or in the aggregate, have a
Material Adverse Effect on R&B. No employee of R&B will
be entitled to any additional benefits or any
acceleration of the time of payment or vesting of any
benefits under any employee incentive or benefit plan,
program or arrangement as a result of the transactions
contemplated by this Agreement.
Section 4.9. Absence of Certain Changes or
Events. Other than as disclosed in the R&B Filed SEC
Reports, since December 31, 1996 the businesses of R&B
and its Subsidiaries have been conducted in all material
respects in the ordinary course consistent with past
practice, and there has not been any event, occurrence,
development or state of circumstances or facts that has
had, or would have, a Material Adverse Effect on R&B.
Section 4.10. Litigation. Except as described
in the R&B Filed SEC Reports, there are no actions, suits
or proceedings pending (or, to R&B's knowledge,
threatened) against or affecting R&B or its Subsidiaries,
or any of their respective properties at law or in
equity, or before any federal, state, local or foreign
governmental body or authority, which, individually or in
the aggregate, are reasonably likely to have a Material
Adverse Effect on R&B.
Section 4.11. Joint Proxy Statement;
Registration Statement; Other Information. None of the
information with respect to R&B or its Subsidiaries to be
included in the Joint Proxy Statement or the Registration
Statement (as defined in Section 7.3(a)(i)) will, in the
case of the Joint Proxy Statement or any amendments
thereof or supplements thereto, at the time of the
mailing of the Joint Proxy Statement or any amendments or
supplements thereto, and at the time of the R&B Meeting
and the FDC Meeting, or, in the case of the Registration
Statement, at the time it becomes effective, contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading,
except that no representation is made by R&B with respect
to information supplied in writing by FDC or any
affiliate of FDC specifically for inclusion in the Joint
Proxy Statement. The Joint Proxy Statement will comply
as to form in all material respects with the provisions
of the Exchange Act and the rules and regulations
promulgated thereunder. The letters to stockholders,
notices of meeting, joint proxy statement and forms of
proxies to be distributed to stockholders in connection
with the Mergers and any schedules required to be filed
with the SEC in connection therewith are collectively
referred to herein as the "Joint Proxy Statement".
Section 4.12. R&B Rights Plan. Under the
terms of the R&B Rights Plan, as amended prior to the
execution of this Agreement and the R&B Option Agreement,
the transactions contemplated by this Agreement will not
cause a Distribution Date (as such term is defined in the
FDC Rights Plan) to occur or cause the rights issued
pursuant to the R&B Rights Plan to become exercisable.
R&B shall cause the R&B Rights Plan to be amended such
that the "Final Expiration Date" (as defined in the R&B
Rights Plan) shall occur immediately prior to the
Effective Time.
Section 4.13. Lack of Ownership of FDC Common
Stock. Except for the FDC Option, neither R&B nor any of
its Subsidiaries owns any shares of FDC Common Stock or
other securities convertible into shares of FDC Common
Stock (exclusive of any shares owned by R&B's employee
benefit plans).
Section 4.14. Tax Matters. (a) All federal,
state, local and foreign Tax Returns required to be filed
by or on behalf of R&B, each of its Subsidiaries, and
each affiliated, combined, consolidated or unitary group
of which R&B or any of its Subsidiaries (i) is a member
(a "Current R&B Group") or (ii) has been a member within
six years prior to the date hereof but is not currently a
member, but only insofar as any such Tax relates to a
taxable period ending on a date within the last six years
(a "Past R&B Group", together with Current R&B Groups, an
"R&B Affiliated Group") have been timely filed, and all
returns filed are complete and accurate except to the
extent any failure to file or any inaccuracies in filed
returns would not, individually or in the aggregate, have
a Material Adverse Effect on R&B (it being understood
that the representations made in this Section, to the
extent that they relate to Past R&B Groups, are made to
the knowledge of R&B). All Taxes due and owing by R&B,
any Subsidiary of R&B or any R&B Affiliated Group have
been paid, or adequately reserved for, except to the
extent any failure to pay or reserve would not,
individually or in the aggregate, have a Material Adverse
Effect on R&B. There is no audit examination,
deficiency, refund litigation, proposed adjustment or
matter in controversy with respect to any Taxes due and
owing by R&B, any Subsidiary of R&B or any R&B Affiliated
Group which would, individually or in the aggregate, have
a Material Adverse Effect on R&B. All assessments for
Taxes due and owing by R&B, any Subsidiary of R&B or any
R&B Affiliated Group with respect to completed and
settled examinations or concluded litigation have been
paid. As soon as practicable after the public
announcement of the execution of the Merger Agreement,
R&B will provide FDC with written schedules of (i) the
taxable years of R&B for which the statutes of
limitations with respect to federal income Taxes have not
expired, and (ii) with respect to federal income Taxes,
those years for which examinations have been completed,
those years for which examinations are presently being
conducted, and those years for which examinations have
not yet been initiated. R&B and each of its Subsidiaries
have complied in all material respects with all rules and
regulations relating to the withholding of Taxes, except
to the extent any such failure to comply would not,
individually or in the aggregate, have a Material Adverse
Effect on R&B.
(b) Neither R&B nor any of its Subsidiaries
knows of any fact or has taken any action that could
reasonably be expected to prevent the Mergers from
constituting transactions described in Sections 351
and/or 368(a) of the Code.
(c) Any amount or other entitlement that could
be received (whether in cash or property or the vesting
of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer
or director of R&B or any of its affiliates who is a
"disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any
employee benefit plan or other compensation arrangement
currently in effect would not be characterized as an
"excess parachute payment" or a "parachute payment" (as
such terms are defined in Section 280G(b)(1) of the
Code).
For purposes of this Agreement: (i) "Taxes"
means any and all federal, state, local, foreign or other
taxes of any kind (together with any and all interest,
penalties, additions to tax and additional amounts
imposed with respect thereto) imposed by any taxing
authority, including, without limitation, taxes or other
charges on or with respect to income, franchises,
windfall or other profits, gross receipts, property,
sales, use, capital stock, payroll, employment, social
security, workers' compensation, unemployment
compensation, or net worth, and taxes or other charges in
the nature of excise, withholding, ad valorem or value
added, and (ii) "Tax Return" means any return, report or
similar statement (including the attached schedules)
required to be filed with respect to any Tax, including,
without limitation, any information return, claim for
refund, amended return or declaration of estimated Tax.
Section 4.15. Opinion of Financial Advisor.
The Board of Directors of R&B has received the opinion of
Morgan Stanley & Co. Incorporated, dated the date of this
Agreement, substantially to the effect that, as of such
date, the R&B Merger Consideration is fair to the holders
of R&B Common Stock from a financial point of view.
Section 4.16. Required Vote of R&B
Stockholders. The affirmative vote of the holders of
shares of R&B Common Stock and R&B Class A Stock
representing a majority of the votes entitled to be cast
by the holders of the outstanding shares of R&B Common
Stock and R&B Class A Stock, voting together as a class
(the "R&B Stockholder Approval") is required to adopt the
Merger Agreement. No other vote of the stockholders of
R&B is required by law, the charter or by-laws of R&B or
otherwise in order for R&B to consummate the R&B Merger
and the transactions contemplated hereby and by the R&B
Stock Option Agreement.
Section 4.17. Pooling of Interests. To the
knowledge of R&B, neither it nor any of its Subsidiaries
has taken any action or failed to take any action which
action or failure (without giving effect to any actions
or failures to act by FDC or any of its Subsidiaries)
would prevent the treatment of the transactions
contemplated hereby as a pooling of interests for
accounting purposes.
ARTICLE V
Representations and Warranties of FDC
Except as set forth on the Disclosure Schedule
delivered by FDC to R&B prior to the execution of this
Agreement (the "FDC Disclosure Schedule," together with
the R&B Disclosure Schedule, the "Disclosure Schedule"),
FDC represents and warrants to R&B that:
Section 5.1. Organization, Qualification, Etc.
FDC is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware
and has the corporate power and authority to own its
properties and assets and to carry on its business as it
is now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction in
which the ownership of its properties or the conduct of
its business requires such qualification, except for
jurisdictions in which the failure to be so qualified or
in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on FDC. The
copies of FDC's Restated Certificate of Incorporation and
by-laws which have been delivered to R&B are complete and
correct and in full force and effect on the date hereof.
Each of FDC's Significant Subsidiaries is duly organized,
validly existing and in good standing under the laws of
its jurisdiction of incorporation or organization, has
the power and authority to own its properties and to
carry on its business as it is now being conducted, and
is duly qualified to do business and is in good standing
in each jurisdiction in which the ownership of its
property or the conduct of its business requires such
qualification, except for jurisdictions in which the
failure to be so qualified or in good standing would not,
individually or in the aggregate, have a Material Adverse
Effect on FDC. All the outstanding shares of capital
stock of, or other ownership interests in, FDC's
Significant Subsidiaries are validly issued, fully paid
and non-assessable and are owned by FDC, directly or
indirectly, free and clear of all liens, claims, charges
or encumbrances, except for restrictions contained in
credit agreements and similar instruments to which FDC is
a party under which no event of default has occurred or
arisen. There are no existing options, rights of first
refusal, preemptive rights, calls or commitments of any
character relating to the issued or unissued capital
stock or other securities of, or other ownership
interests in, any Significant Subsidiary of FDC.
Section 5.2. Capital Stock. The authorized
capital stock of FDC consists of 100,000,000 shares of
common stock, par value $0.01 per share ("FDC Common
Stock"), and 526,489 shares of preferred stock, no par
value ("FDC Preferred Stock") of which 100,000 shares
have been designated as Series C Junior Participating
Preferred Stock ("FDC Series C Preferred Stock"). As of
July 9, 1997, 79,164,944 shares (after giving effect to
the two-for-one stock split referred to in Section
5.2(a)) of FDC Common Stock and no shares of FDC
Preferred Stock were issued and outstanding, and no
shares of FDC Common Stock were held in FDC's treasury.
All the outstanding shares of FDC Common Stock have been
validly issued and are fully paid and non-assessable. As
of July 10, 1997, there were no outstanding
subscriptions, options, warrants, rights or other
arrangements or commitments obligating FDC to issue any
shares of its capital stock other than:
(a) shares of FDC Common Stock issuable to
holders of record of FDC Common Stock on July 9, 1997, to
effect a two-for-one stock split;
(b) rights ("FDC Rights") to acquire shares of
FDC Series C Preferred Stock pursuant to the Rights
Agreement, dated as of June 25, 1997, between FDC and
American Stock Transfer & Trust Company (the "FDC Rights
Plan") to be distributed to holders of record of FDC
Common Stock on July 16, 1997; and
(c) options and other rights to receive or
acquire 1,171,878 shares (after giving effect to the two-
for-one stock split referred to in Section 5.2(a)) of FDC
Common Stock granted on or prior to July 10, 1997,
pursuant to employee incentive or benefit plans, programs
and arrangements and non-employee director plans.
Except for the issuance of shares of FDC Common
Stock pursuant to the options and other rights referred
to in clause 5.2 (a), (b) and (c), since June 30, 1997,
no shares of FDC Common Stock or FDC Preferred Stock have
been issued.
Section 5.3. Corporate Authority Relative to
this Agreement; No Violation. FDC has the corporate
power and authority to enter into this Agreement and the
FDC Stock Option Agreement, and to carry out its
obligations hereunder and thereunder. The execution and
delivery of this Agreement and the FDC Stock Option
Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly and
validly authorized by the Board of Directors of FDC and,
except for the adoption of this Agreement by its
stockholders, no other corporate proceedings on the part
of FDC are necessary to authorize the consummation of the
transactions contemplated hereby and thereby. The Board
of Directors of FDC has taken all appropriate action so
that none of Parent, FDC or SubF will be an "interested
stockholder" within the meaning of Section 203 of the
DGCL by virtue of Parent, FDC and SubF entering into this
Agreement or FDC entering into the FDC Stock Option
Agreement and consummating the transactions contemplated
hereby and thereby. The Board of Directors of FDC has
determined that the transactions contemplated by this
Agreement are in the best interest of FDC and its
stockholders and to recommend to such stockholders that
they adopt this Agreement. This Agreement and the FDC
Stock Option Agreement have been duly and validly
executed and delivered by FDC and, assuming this
Agreement and the FDC Stock Option Agreement, as
applicable, constitutes a valid and binding agreement of
the other parties hereto and thereto, this Agreement and
the FDC Stock Option Agreement constitute valid and
binding agreements of FDC, enforceable against FDC in
accordance with their terms (except insofar as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting creditors, rights generally, or by principles
governing the availability of equitable remedies). FDC
is not subject to or obligated under any charter, by-law
or contract provision or any license, franchise or
permit, or subject to any order or decree, which would be
breached or violated by its executing or, subject to the
adoption of this Agreement by its stockholders, carrying
out the transactions contemplated by this Agreement and
the FDC Stock Option Agreement, except for any breaches
or violations which would not, individually or in the
aggregate, have a Material Adverse Effect on FDC. Other
than in connection with or in compliance with the
provisions of the DGCL, the Securities Act, the Exchange
Act, the HSR Act, The Shipping Act (46 U.S.C. SECTIONS 801 et
seq), Section 4043 of ERISA and any non-United States
competition, antitrust and investments laws and the
securities or blue sky laws of the various states
(collectively, the "FDC Required Approvals"), no
authorization, consent or approval of, or filing with,
any governmental body or authority is necessary for the
consummation by FDC of the transactions contemplated by
this Agreement, except for such authorizations, consents,
approvals or filings, the failure to obtain or make which
would not, individually or in the aggregate, have a
Material Adverse Effect on FDC or substantially impair or
delay the consummation of the transactions contemplated
hereby.
Section 5.4. Reports and Financial Statements.
FDC has previously furnished to R&B true and complete
copies of:
(a) FDC's Annual Reports on Form 10-K filed
with the SEC for each of the years ended December 31,
1994 through 1996;
(b) FDC's Quarterly Report on Form 10-Q filed
with the SEC for the quarter ended March 31, 1997;
(c) each definitive proxy statement filed by
FDC with the SEC since December 31, 1994;
(d) each final prospectus filed by FDC with
the SEC since December 31, 1994, except any final
prospectus on Form S-8; and
(e) all Current Reports on Form 8-K filed by
FDC with the SEC since January 1, 1997.
As of their respective dates, such reports,
proxy statements and prospectuses (collectively, "FDC SEC
Reports") (i) complied as to form in all material
respects with the applicable requirements of the
Securities Act, the Exchange Act, and the rules and
regulations promulgated thereunder and (ii) did not
contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Except to the extent that information contained in any
FDC SEC Report has been revised or superseded by a later
filed FDC SEC Report, none of the FDC SEC Reports
contains any untrue statement of a material fact or omits
to state any material fact required to be stated therein
or necessary in order to make the statement therein, in
light of the circumstances under which they were made,
not misleading. The audited consolidated financial
statements and unaudited consolidated interim financial
statements included in the FDC SEC Reports (including any
related notes and schedules) fairly present the financial
position of FDC and its consolidated Subsidiaries as of
the dates thereof and the results of their operations and
their cash flows for the periods or as of the dates then
ended (subject, where appropriate, to normal year-end
adjustments), in each case in accordance with past
practice and GAAP consistently applied during the periods
involved (except as otherwise disclosed in the notes
thereto). Since January 1, 1996, FDC has timely filed
all material reports, registration statements and other
filings required to be filed by it with the SEC under the
rules and regulations of the SEC.
Section 5.5. No Undisclosed Liabilities.
Neither FDC nor any of its Subsidiaries has any
liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, except (a) liabilities
or obligations reflected in the FDC SEC Reports filed
prior to the date hereof ("FDC Filed SEC Reports") and
(b) liabilities or obligations which would not,
individually or in the aggregate, have a Material Adverse
Effect on FDC.
Section 5.6. No Violation of Law. The
businesses of FDC and its Subsidiaries are not being
conducted in violation of any law, ordinance or
regulation of any governmental body or authority
(provided that no representation or warranty is made in
this Section 5.6 with respect to Environmental Laws)
except (a) as described in the FDC Filed SEC Reports and
(b) for violations or possible violations which would
not, individually or in the aggregate, have a Material
Adverse Effect on FDC.
Section 5.7. Environmental Laws and
Regulations. Except as described in the FDC Filed SEC
Reports, (a) FDC and each of its Subsidiaries is in
compliance with all applicable Environmental Laws, which
compliance includes, but is not limited to, the
possession by FDC and its Subsidiaries of all material
permits and other governmental authorizations required
under applicable Environmental Laws, and compliance with
the terms and conditions thereof, except for non-
compliance which would not, individually or in the
aggregate, have a Material Adverse Effect on FDC; (b)
neither FDC nor any of its Subsidiaries has received
written notice of, or, to the knowledge of FDC, is the
subject of, any Environmental Claims which would,
individually or in the aggregate, have a Material Adverse
Effect on FDC; and (c) to the knowledge of FDC, there are
no facts, circumstances or conditions in connection with
the operation of its business or any currently or
formerly owned, leased or operated facilities that are
reasonably likely to lead to any such Environmental
Claims in the future.
Section 5.8. No Undisclosed Employee Benefit
Plan Liabilities or Severance Arrangements. Except as
described in the FDC Filed SEC Reports, all "employee
benefit plans," as defined in Section 3(3) of ERISA,
maintained or contributed to by FDC or its Subsidiaries
are in compliance with all applicable provisions of ERISA
and the Code, and FDC and its Subsidiaries do not have
any liabilities or obligations with respect to any such
employee benefit plans, whether or not accrued,
contingent or otherwise, except (a) as described in the
FDC Filed SEC Reports and (b) for instances of non-
compliance or liabilities or obligations that would not,
individually or in the aggregate, have a Material Adverse
Effect on FDC. No employee of FDC will be entitled to
any additional benefits or any acceleration of the time
of payment or vesting of any benefits under any employee
incentive or benefit plan, program or arrangement as a
result of the transactions contemplated by this Agreement.
Section 5.9. Absence of Certain Changes or
Events. Other than as disclosed in the FDC Filed SEC
Reports, since December 31, 1996 the businesses of FDC
and its Subsidiaries have been conducted in all material
respects in the ordinary course consistent with past
practice, and there has not been any event, occurrence,
development or state of circumstances or facts that has
had, or would have, a Material Adverse Effect on FDC.
Section 5.10. Litigation. Except as described
in the FDC Filed SEC Reports or previously disclosed in
writing to R&B, there are no actions, suits or
proceedings pending (or, to FDC's knowledge, threatened)
against or affecting FDC or its Subsidiaries, or any of
their respective properties at law or in equity, or
before any federal, state, local or foreign governmental
body or authority which, individually or in the
aggregate, are reasonably likely to have a Material
Adverse Effect on FDC.
Section 5.11. Joint Proxy Statement;
Registration Statement; Other Information. None of the
information with respect to FDC to be included in the
Joint Proxy Statement or the Registration Statement will,
in the case of the Joint Proxy Statement or any
amendments thereof or supplements thereto, at the time of
the mailing of the Joint Proxy Statement or any
amendments or supplements thereto, and at the time of the
R&B Meeting and the FDC Meeting, or, in the case of the
Registration Statement, at the time it becomes effective,
contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein
or necessary in order to make the statements therein, in
light of the circumstances under which they were made,
not misleading, except that no representation is made by
FDC with respect to information supplied in writing by
R&B or any affiliate of R&B specifically for inclusion in
the Joint Proxy Statement. The Joint Proxy Statement
will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and
regulations promulgated thereunder.
Section 5.12. Lack of Ownership of R&B Common
Stock. Except for the R&B Option, neither FDC nor any of
its Subsidiaries owns any shares of R&B Common Stock or
other securities convertible into shares of R&B Common
Stock (exclusive of any shares owned by FDC's employee
benefit plans).
Section 5.13. FDC Rights Plan. Under the
terms of the FDC Rights Plan, as amended prior to the
execution of this Agreement and the FDC Option Agreement,
the transactions contemplated by this Agreement will not
cause a Distribution Date (as such term is defined in the
FDC Rights Plan) to occur or cause the rights issued
pursuant to the FDC Rights Plan to become exercisable.
Section 5.14. Tax Matters. (a) All federal,
state, local and foreign Tax Returns required to be filed
by or on behalf of FDC, each of its Subsidiaries, and
each affiliated, combined, consolidated or unitary group
of which FDC or any of its Subsidiaries (i) is a member
(a "Current FDC Group") or (ii) has been a member within
six years prior to the date hereof but is not currently a
member, but only insofar as any such Tax relates to a
taxable period ending on a date within the last six years
(a "Past FDC Group", together with Current FDC Groups, a
"FDC Affiliated Group") have been timely filed, and all
returns filed are complete and accurate except to the
extent any failure to file or any inaccuracies in filed
returns would not, individually or in the aggregate, have
a Material Adverse Effect on FDC (it being understood
that the representations made in this Section, to the
extent that they relate to Past FDC Groups, are made to
the knowledge of FDC). All Taxes due and owing by FDC,
any Subsidiary of FDC or any FDC Affiliated Group have
been paid, or adequately reserved for, except to the
extent any failure to pay or reserve would not,
individually or in the aggregate, have a Material Adverse
Effect on FDC. There is no audit examination,
deficiency, refund litigation, proposed adjustment or
matter in controversy with respect to any Taxes due and
owing by FDC, any Subsidiary of FDC or any FDC Affiliated
Group which would, individually or in the aggregate, have
a Material Adverse Effect on FDC. All assessments for
Taxes due and owing by FDC, any Subsidiary of FDC or any
FDC consolidated group with respect to completed and
settled examinations or concluded litigation have been
paid. As soon as practicable after the public
announcement of the execution of the Merger Agreement,
FDC will provide R&B with written schedules of (i) the
taxable years of FDC for which the statutes of
limitations with respect to federal income Taxes have not
expired, and (ii) with respect to federal income Taxes,
those years for which examinations have been completed,
those years for which examinations are presently being
conducted, and those years for which examinations have
not yet been initiated. FDC and each of its Subsidiaries
have complied in all material respects with all rules and
regulations relating to the withholding of Taxes, except
to the extent any such failure to comply would not,
individually or in the aggregate, have a Material Adverse
Effect on FDC.
(b) Neither FDC nor any of its Subsidiaries
knows of any fact or has taken any action that could
reasonably be expected to prevent the Mergers from
constituting transactions described in Sections 351
and/or 368(a) of the Code.
(c) Any amount or other entitlement that could
be received (whether in cash or property or the vesting
of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer
or director of FDC or any of its affiliates who is a
"disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any
employee benefit plan or other compensation arrangement
currently in effect would not be characterized as an
"excess parachute payment" or a "parachute payment" (as
such terms are defined in Section 280G(b)(1) of the
Code).
Section 5.15. Opinion of Financial Advisor.
The Board of Directors of FDC has received the opinion of
Credit Suisse First Boston Corporation dated the date of
this Agreement that, as of such date and based upon and
subject to the matters set forth therein, the FDC Merger
Consideration was fair to FDC's stockholders from a
financial point of view.
Section 5.16. Required Vote of FDC
Stockholders. The affirmative vote of the holders of a
majority of the outstanding shares of FDC Common Stock
(the "FDC Stockholder Approval") is required to adopt the
Merger Agreement. No other vote of the stockholders of
FDC is required by law, the charter or by-laws of FDC or
otherwise in order for FDC to consummate the FDC Merger
and the transactions contemplated hereby and by the FDC
Stock Option Agreement.
Section 5.17. Pooling of Interests. To the
knowledge of FDC, neither it nor any of its Subsidiaries
has taken any action or failed to take any action which
action or failure (without giving effect to any actions
or failures to act by R&B or any of its Subsidiaries)
would prevent the treatment of the transactions
contemplated hereby as a pooling of interests for
accounting purposes.
ARTICLE VI
Covenants and Agreements
It is further agreed as follows:
Section 6.1. Conduct of Business by R&B and
FDC. From and after the date hereof and prior to the
Effective Time or the date, if any, on which this
Agreement is earlier terminated pursuant to Section 8.1
(the "Termination Date"), and except as may be agreed in
writing by the other parties hereto or as may be
permitted pursuant to this Agreement:
(a) R&B:
(i) shall, and shall cause each of its
Subsidiaries to, conduct its operations according to
their ordinary and usual course of business in
substantially the same manner as heretofore conducted;
(ii) shall use its reasonable best efforts,
and cause each of its Subsidiaries to use its reasonable
best efforts, to preserve intact its business
organizations and goodwill (except that any of its
Subsidiaries may be merged with or into, or be
consolidated with any of its other Subsidiaries or may be
liquidated into R&B or any of its Subsidiaries), keep
available the services of its current officers and other
key employees and preserve its relationships with those
persons having business dealings with R&B and its
Subsidiaries;
(iii) shall confer at such times as FDC may
reasonably request with one or more representatives of
FDC to report material operational matters and the
general status of ongoing operations (to the extent FDC
reasonably requires such information);
(iv) shall notify FDC of any emergency or
other change in the normal course of its or its
Subsidiaries, respective businesses or in the operation
of its or its Subsidiaries, respective properties and of
any complaints or hearings (or communications indicating
that the same may be contemplated) of any governmental
body or authority if such emergency, change, complaint,
investigation or hearing would have a Material Adverse
Effect on R&B;
(v) shall not, and shall not (except in the
ordinary course of business consistent with past
practice) permit any of its Subsidiaries that is not
wholly owned to, authorize or pay any dividends on or
make any distribution with respect to its outstanding
shares of stock (other than Arcade Drilling AS ("Arcade")
in accordance with and to the extent permitted by the
Facility Agreement, dated as of February 21, 1991, as
amended to date, between Arcade, Chase Investment Bank
Limited, The Chase Manhattan Bank, N.A., and the other
parties thereto);
(vi) shall not, and shall not permit any of
its Subsidiaries to, except (i) in the ordinary course of
business consistent with past practice or (ii) as
otherwise provided in this Agreement, enter into or amend
any employment, severance or similar agreements or
arrangements with any of their respective directors or
executive officers or enter into, adopt or amend any
bonus, deferred compensation, stock purchase, stock
option, pension, retirement or other employee benefit
plan, program, agreement or arrangement ("Plan") other
than with respect to the previously authorized grants of
options under the Devco Plan;
(vii) shall not, and shall not permit any of
its Subsidiaries to, authorize, propose or announce an
intention to authorize or propose, or enter into an
agreement with respect to, any merger, consolidation or
business combination (other than the R&B Merger and any
mergers, consolidations or business combinations with
R&B's Subsidiaries entered into in the ordinary course of
business consistent with past practice), any acquisition
of a material amount of assets or securities, any
disposition of a material amount of assets or securities
or any release or relinquishment of any material contract
rights, in each case not in the ordinary course of
business;
(viii) shall not propose or adopt any
amendments to its corporate charter or by-laws;
(ix) shall not, and shall not permit any of
its Significant Subsidiaries to, issue or authorize the
issuance of, or agree to issue or sell any shares of
their capital stock of any class (whether through the
issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), except
as specifically set forth in Section 4.2 and the R&B
Disclosure Schedule relating thereto and except with
respect to the previously authorized grants of options
under the Devco Plan;
(x) shall not, and shall not permit any of its
Subsidiaries to, except in the ordinary course of
business in connection with employee incentive and
benefit plans, programs or arrangements in existence on
the date hereof, purchase or redeem any shares of its
stock (other than R&B Class A Stock) or any rights,
warrants or options to acquire any such shares;
(xi) shall not, and shall not permit any of
its Subsidiaries to, take any actions which would, or
would be reasonably likely to, prevent accounting for the
Mergers in accordance with the pooling of interests
method of accounting under the requirements of Opinion
No. 16 "Business Combinations" of the Accounting
Principles Board of the American Institute of Certified
Public Accountants, as amended by applicable
pronouncements by the Financial Accounting Standards
Board ("APB No. 16");
(xii) shall not, and shall not permit any of
its Subsidiaries to, incur, assume or prepay any
indebtedness or any other material liabilities, other
than in the ordinary course of business consistent with
past practice (except that R&B shall have the right to
conclude definitive agreements, and financing and liens
related thereto, with respect to: (a) agreements in
principle with Shell Deepwater Development Inc. with
respect to the acquisition of an RBS-6 design semi-
submersible drilling unit and with Statoil with respect
to a deepwater drillship; and (b) financings (and related
guarantees and liens) for two joint ventures with
affiliates of Conoco Inc. for two deepwater drillships
and Maritime Administration Title XI financing for the
upgrade of RIG 41);
(xiii) shall not sell, lease, license,
mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets
(including securitizations), other than in the ordinary
course of business consistent with past practice (except
that R&B shall have the right to conclude definitive
agreements, and financing and liens related thereto, with
respect to: (a) agreements in principle with Shell
Deepwater Development Inc. with respect to the
acquisition of an RBS-6 design semi-submersible drilling
unit and with Statoil with respect to a deepwater
drillship; and (b) financings (and related guarantees and
liens) for two joint ventures with affiliates of Conoco
Inc. for two deepwater drillships and Maritime
Administration Title XI financing for the upgrade of RIG
41);
(xiv) shall not, and shall not permit any of
its Subsidiaries to make any material Tax election or
settle or compromise any material Tax liability, other
than in connection with currently pending proceedings or
other than in the ordinary course of business; and
(xv) shall not, and shall not permit any of
its Subsidiaries to, agree, in writing or otherwise, to
take any of the foregoing actions or take any action
which would (y) make any representation or warranty in
Article IV hereof untrue or incorrect or (z) result in
any of the conditions to the Mergers set forth in Article
VIII not being satisfied.
(b) FDC:
(i) shall, and shall cause each of its
Subsidiaries to, conduct its operations according to
their ordinary and usual course of business in
substantially the same manner as heretofore conducted;
(ii) shall use its reasonable best efforts,
and cause each of its Subsidiaries to use its reasonable
best efforts, to preserve intact its business
organizations and goodwill (except that any of its
Subsidiaries may be merged with or into, or be
consolidated with any of its other Subsidiaries or may be
liquidated into FDC or any of its Subsidiaries), keep
available the services of its current officers and other
key employees, and preserve its relationships with those
persons having business dealings with FDC and its
Subsidiaries;
(iii) shall confer at such times as R&B may
reasonably request with one or more representatives of
R&B to report material operational matters and the
general status of ongoing operations (to the extent R&B
reasonably requires such information);
(iv) shall notify R&B of any emergency or
other change in the normal course of its or its
Subsidiaries, respective businesses or in the operation
of its or its Subsidiaries, respective properties and of
any complaints or hearings (or communications indicating
that the same may be contemplated) of any governmental
body or authority if such emergency, change, complaint,
investigation or hearing would have a Material Adverse
Effect on FDC;
(v) shall not, and shall not (except in the
ordinary course of business consistent with past
practice) permit any of its Subsidiaries that is not
wholly owned to, declare or pay any dividends on or make
any distribution with respect to their outstanding shares
of capital stock, other than in the case of FDC for the
stock dividend to holders of record on July 9, 1997, and
the distribution of Rights to holders of record on July
16, 1997;
(vi) shall not, and shall not permit any of
its Subsidiaries to, except (i) in the ordinary course of
business consistent with past practice or (ii) as
otherwise provided in this Agreement, enter into or amend
any Plan;
(vii) shall not, and shall not permit any of
its Subsidiaries to, authorize, propose or announce an
intention to authorize or propose, or enter into an
agreement with respect to, any merger, consolidation or
business combination (other than the FDC Merger and any
mergers, consolidations or business combinations with
FDC's Subsidiaries entered into in the ordinary course of
business consistent with past practice), any acquisition
of a material amount of assets or securities, any
disposition of a material amount of assets or securities
or any release or relinquishment of any material contract
rights, in each case not in the ordinary course of
business;
(viii) shall not propose or adopt any
amendments to its corporate charter or by-laws;
(ix) shall not, and shall not permit any of
its Significant Subsidiaries to, issue or authorize the
issuance of, or agree to issue or sell any shares of
their capital stock of any class (whether through the
issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), except
as specifically set forth in Section 5.2 and the FDC
Disclosure Schedule relating thereto;
(x) shall not, and shall not permit any of its
Subsidiaries to, except in the ordinary course of
business in connection with employee incentive and
benefit plans, programs or arrangements in existence on
the date hereof, purchase or redeem any shares of its
stock or any rights, warrants or options to acquire any
such shares;
(xi) shall not, and shall not permit any of
its Subsidiaries to, take any actions which would, or
would be reasonably likely, to, prevent accounting for
the Mergers in accordance with the pooling of interests
method of accounting under the requirements of APB No.
16;
(xii) shall not, and shall not permit any of
its Subsidiaries to, incur, assume or prepay any
indebtedness or any other material liabilities, other
than in the ordinary course of business consistent with
past practice (except that FDC shall have the right to
enter into a credit facility or facilities in an
aggregate amount not to exceed $400 million (the "FDC
Credit Facility"));
(xiii) shall not sell, lease, license, mortgage
or otherwise encumber or subject to any Lien or otherwise
dispose of any of its properties or assets (including
securitizations), other than in the ordinary course of
business consistent with past practice (except that in
connection with the FDC Credit Facility, FDC shall have
the right to subject its properties or assets to Liens);
(xiv) shall not, and shall not permit any of
its Subsidiaries to make any material Tax election or
settle or compromise any material Tax liability, other
than in connection with currently pending proceedings or
other than in the ordinary course of business; and
(xv) shall not, and shall not permit any of
its Subsidiaries to, agree, in writing or otherwise, to
take any of the foregoing actions or take any action
which would (y) make any representation or warranty in
Article V hereof untrue or incorrect or (z) result in any
of the conditions to the Mergers set forth in Article VII
not being satisfied.
Section 6.2. Investigation. Each of R&B and
FDC shall afford to one another and to one another's
officers, employees, accountants, counsel and other
authorized representatives full and complete access
during normal business hours, throughout the period prior
to the earlier of the Effective Time or the date of
termination of this Agreement, to its and its
Subsidiaries' rigs, vessels, properties, contracts,
commitments, books, and records (including but not
limited to Tax Returns) and any report, schedule or other
document filed or received by it pursuant to the
requirements of federal or state securities laws and
shall use their reasonable best efforts to cause their
respective representatives to furnish promptly to one
another such additional financial and operating data and
other information as to its and its Subsidiaries'
respective businesses and properties as the other or its
duly authorized representatives may from time to time
reasonably request; provided, that nothing herein shall
require either R&B or FDC or any of their respective
Subsidiaries to disclose any information to the other
that would cause significant competitive harm to such
disclosing party or its affiliates if the transactions
contemplated by this Agreement are not consummated. The
parties hereby agree that each of them will treat any
such information in accordance with the Confidentiality
Agreements, dated as of April 29, 1997, between R&B and
FDC (the "Confidentiality Agreements"). Notwithstanding
any provision of this Agreement to the contrary, no party
shall be obligated to make any disclosure in violation of
applicable laws or regulations, including any such laws
or regulations, including any such laws or regulations
pertaining to the treatment of classified information.
Section 6.3. Cooperation (a) R&B and FDC
shall together, or pursuant to an allocation of
responsibility to be agreed upon between them:
(i) prepare and file with the SEC as soon as
is reasonably practicable the Joint Proxy Statement and
promptly prepare and cause Parent to file with the SEC a
registration statement on Form S-4 under the Securities
Act with respect to the Parent Common Stock issuable in
the Mergers (the "Registration Statement"), and shall use
their reasonable best efforts to have the Joint Proxy
Statement cleared by the SEC under the Exchange Act and
the Registration Statement declared effective by the SEC
under the Securities Act;
(ii) as soon as is reasonably practicable
cause Parent to take all such action as may be required
under state blue sky or securities laws in connection
with the issuance of shares of Parent Common Stock in the
Mergers and as contemplated by this Agreement;
(iii) promptly prepare and file with the NYSE
and such other stock exchanges as shall be agreed upon
listing applications covering the shares of Parent Common
Stock issuable in the Mergers or upon exercise of R&B and
FDC stock options, warrants, conversion rights or other
rights or vesting or payment of other R&B and FDC equity-
based awards and use its reasonable best efforts to
obtain, prior to the Effective Time, approval for the
listing of such Parent Common Stock, subject only to
official notice of issuance;
(iv) cooperate with one another in order to
lift any injunctions or remove any other impediment to
the consummation of the transactions contemplated herein;
and
(v) cooperate with one another in obtaining
opinions of Cravath, Swaine & Moore, counsel to R&B and
Skadden, Arps, Slate, Meagher & Flom LLP, counsel to FDC,
dated as of the Effective Time, to the effect that the
Mergers will constitute transactions described in
Sections 351 and/or 368(a) of the Code. In connection
therewith, each of R&B, FDC and Parent shall deliver to
Cravath, Swaine & Moore and Skadden, Arps, Slate, Meagher
& Flom LLP customary representation letters in form and
substance reasonably satisfactory to such counsel and R&B
and FDC shall use their reasonable best efforts to obtain
any representation letters drafted by their counsel from
their respective appropriate stockholders and shall
deliver any such letters obtained to Cravath, Swaine &
Moore and Skadden, Arps, Slate, Meagher & Flom LLP (the
representation letters referred to in this sentence are
collectively, the "Tax Certificates").
(b) Subject to the limitations contained in
Section 6.2, R&B and FDC shall each furnish to one
another and to one another's counsel all such information
as may be required in order to effect the foregoing
actions and each represents and warrants to the other
that no information furnished by it in connection with
such actions or otherwise in connection with the
consummation of the transactions contemplated by this
Agreement will contain any untrue statement of a material
fact or omit to state a material fact required to be
stated in order to make any information so furnished, in
light of the circumstances under which it is so
furnished, not misleading.
(c)(i) R&B shall cause the Joint Proxy
Statement to be mailed to R&B's stockholders, and FDC
shall cause the Joint Proxy Statement to be mailed to
FDC's stockholders, in each case as promptly as
practicable after the Registration Statement is declared
effective under the Securities Act.
(ii) R&B shall, as soon as practicable
following the date of this Agreement, duly call, give
notice of, convene and hold a meeting of its stockholders
(the "R&B Stockholders Meeting") for the purpose of
obtaining the R&B Stockholder Approval and shall, through
its Board of Directors, recommend to its stockholders the
adoption of this Agreement, the R&B Merger and the other
transactions contemplated hereby. Without limiting the
generality of the foregoing but subject to its rights to
terminate this Agreement pursuant to Section 6.10(b), R&B
agrees that its obligations pursuant to the first
sentence of this Section 6.3(c)(ii) shall not be affected
by the commencement, public proposal, public disclosure
or communication to R&B of any R&B Takeover Proposal.
(iii) FDC shall, as soon as practicable
following the date of this Agreement, duly call, give
notice of, convene and hold a meeting of its stockholders
(the "FDC Stockholders Meeting") for the purpose of
obtaining the FDC Stockholder Approval and shall, through
its Board of Directors, recommend to its stockholders the
adoption of this Agreement, the FDC Merger and the other
transactions contemplated hereby. Without limiting the
generality of the foregoing but subject to its rights to
terminate this Agreement pursuant to Section 6.11(b), FDC
agrees that its obligations pursuant to the first
sentence of this Section 6.3(c)(iii) shall not be
affected by the commencement, public proposal, public
disclosure or communication to FDC of any FDC Takeover
Proposal.
(iv) Each of FDC and R&B will use their best
efforts to hold the R&B Stockholders Meeting and the FDC
Stockholders Meeting on the same date and as soon as
practicable after the date hereof.
(v) Each of FDC and R&B shall cause Parent to
adopt this Agreement and take all additional actions as
may be necessary to cause Parent to effect the
transactions contemplated hereby.
Section 6.4. Affiliate Agreements. (a) R&B
shall, as soon as practicable, deliver to FDC a list
(reasonably satisfactory to counsel for FDC), setting
forth the names and addresses of all persons who will be,
at the time of the R&B Meeting, in R&B's reasonable
judgment, "affiliates" of R&B for purposes of Rule 145
under the Securities Act or under applicable SEC
accounting releases with respect to pooling of interests
accounting treatment. R&B shall furnish such information
and documents as FDC may reasonably request for the
purpose of reviewing such list. R&B shall use its
reasonable best efforts to cause each person who is
identified as an "affiliate" in the list furnished
pursuant to this Section 6.4 to execute a written
agreement on or prior to the mailing of the Joint Proxy
Statement, in substantially the form of Exhibit A hereto.
(b) FDC shall, as soon as practicable, deliver
to R&B a list (reasonably satisfactory to counsel for
R&B) setting forth the names and addresses of all persons
who will be, at the time of the FDC Meeting, in FDC's
reasonable judgment, "affiliates" of FDC for purposes of
Rule 145 under the Securities Act or under applicable SEC
accounting releases with respect to pooling of interests
accounting treatment. FDC shall furnish such information
and documents as R&B may reasonably request for the
purpose of reviewing such list. FDC shall use its
reasonable best efforts to cause each person who is
identified as an "affiliate" in the list furnished
pursuant to this Section 6.4 to execute a written
agreement on or prior to the mailing of the Joint Proxy
Statement, in substantially the form of Exhibit B hereto.
Section 6.5. R&B Employee Stock Options,
Incentive and Benefit Plans. (a) Simultaneously with the
R&B Merger, (i) each outstanding option ("R&B Stock
Options")(and related stock appreciation right ("R&B
SAR"), if any) to purchase or acquire a share of R&B
Common Stock under employee incentive or benefit plans,
programs or arrangements and non-employee director plans
presently maintained by R&B ("R&B Option Plans") shall be
converted into an option (together with a related stock
appreciation right of Parent, if applicable) to purchase
the number of shares of Parent Common Stock equal to 1.18
times the number of shares of R&B Common Stock which
could have been obtained prior to the Effective Time upon
the exercise of each such option, at an exercise price
per share equal to the exercise price for each such share
of R&B Common Stock subject to an option (and related R&B
SAR, if any) under the R&B Option Plans divided by 1.18,
and all references in each such option (and related R&B
SAR, if any) to R&B shall be deemed to refer to Parent,
where appropriate, and (ii) Parent shall assume the
obligations of R&B under the R&B Option Plans. The other
terms of each such option and R&B SAR, and the plans
under which they were issued, shall continue to apply in
accordance with their terms, including any provisions
providing for acceleration.
(b) Simultaneously with the R&B Merger, each
outstanding award (including restricted stock, stock
equivalents and stock units) ("R&B Award") under any
employee incentive or benefit plans, programs or
arrangements and non-employee director plans presently
maintained by R&B which provide for grants of equity-
based awards shall be amended or converted into a similar
instrument of Parent, in each case with such adjustments
to the terms of such R&B Awards as are appropriate to
preserve the value inherent in such R&B Awards with no
detrimental effects on the holders thereof. The other
terms of each R&B Award, and the plans or agreements
under which they were issued, shall continue to apply in
accordance with their terms, including any provisions
providing for acceleration. With respect to any
restricted stock awards as to which the restrictions
shall have lapsed on or prior to the Effective Time in
accordance with the terms of the applicable plans or
award agreements, shares of such previously restricted
stock shall be converted in accordance with the
provisions of Section 2.2(b).
(c) R&B agrees that employee incentive or
benefit plans, programs and arrangements and non-employee
director plans shall be amended, to the extent necessary
and appropriate, to reflect the transactions contemplated
by this Agreement, including, but not limited to the
conversion of shares of R&B Common Stock held or to be
awarded or paid pursuant to such benefit plans, programs
or arrangements into shares of Parent Common Stock on a
basis consistent with the transactions contemplated by
this Agreement. The actions to be taken by R&B pursuant
to this Section 6.5(c) shall include the submission by
R&B of the amendments to the plans, programs or
arrangements referred to herein to its stockholders at
the R&B Meeting, if such submission is determined to be
necessary or advisable by counsel to R&B; provided,
however, that such approval shall not be a condition to
the consummation of the R&B Merger.
(d) FDC and R&B agree that each officer
subject to an employment agreement set forth in Section
4.8 of the R&B Disclosure Schedule shall be treated by
R&B as if such officer was involuntarily terminated
without cause by R&B as of the Effective Time for
purposes of such agreement and for purposes of any
agreement relating to the purchase of options to purchase
R&B Common Stock. FDC and R&B agree that R&B shall pay
the total amount due under such agreements to all such
executive officers at the Effective Time.
Notwithstanding the foregoing, following the Effective
Time, Parent or R&B may offer continuing employment to
any or all of the officers covered by such employment
agreements upon such terms and conditions as Parent or
R&B deems appropriate.
Section 6.6. FDC Employee Stock Options,
Incentive and Benefit Plans. (a) Simultaneously with the
FDC Merger, (i) each outstanding option ("FDC Stock
Options")(and related stock appreciation right ("FDC
SAR"), if any) to purchase or acquire a share of FDC
Common Stock under employee incentive or benefit plans,
programs or arrangements and non-employee director plans
presently maintained by FDC ("FDC Option Plans") shall be
converted into an option (together with a related stock
appreciation right of FDC, if applicable) to purchase the
number of shares of Parent Common Stock equal to the
number of shares of FDC Common Stock which could have
been obtained prior to the Effective Time upon the
exercise of each such option, at an exercise price per
share equal to the exercise price for each such share of
FDC Common Stock subject to an option (and related FDC
SAR, if any) under the FDC Option Plans, and all
references in each such option (and related FDC SAR, if
any) to FDC shall be deemed to refer to Parent, where
appropriate, and (ii) Parent shall assume the obligations
of FDC under the FDC Option Plans. The other terms of
each such option and FDC SAR, and the plans under which
they were issued, shall continue to apply in accordance
with their terms, including any provisions providing for
acceleration.
(b) Simultaneously with the FDC Merger, each
outstanding award (including restricted stock, stock
equivalents and stock units) ("FDC Award") under any
employee incentive or benefit plans, programs or
arrangements and non-employee director plans presently
maintained by FDC which provide for grants of equity-
based awards shall be amended or converted into a similar
instrument of Parent, in each case with such adjustments
to the terms of such FDC Awards as are appropriate to
preserve the value inherent in such FDC Awards with no
detrimental effects on the holders thereof. The other
terms of each FDC Award, and the plans or agreements
under which they were issued, shall continue to apply in
accordance with their terms, including any provisions
providing for acceleration. With respect to any
restricted stock awards as to which the restrictions
shall have lapsed on or prior to the Effective Time in
accordance with the terms of the applicable plans or
award agreements, shares of such previously restricted
stock shall be converted in accordance with the
provisions of Section 2.1(b).
(c) FDC agrees that its employee incentive or
benefit plans, programs and arrangements and non-employee
director plans shall be amended, to the extent necessary
and appropriate, to reflect the transactions contemplated
by this Agreement, including, but not limited to the
conversion of shares of FDC Common Stock held or to be
awarded or paid pursuant to such benefit plans, programs
or arrangements into shares of Parent Common Stock on a
basis consistent with the transactions contemplated by
this Agreement. The actions to be taken by FDC pursuant
to this Section 6.6(c) shall include the submission by
FDC of the amendments to the plans, programs or
arrangements referred to herein to its stockholders at
the FDC Meeting, if such submission is determined to be
necessary or advisable by counsel to FDC; provided,
however, that such approval shall not be a condition to
the consummation of the FDC Merger.
Section 6.7. Filings; Other Action. Subject to
the terms and conditions herein provided, R&B and FDC
shall (a) promptly make their respective filings and
thereafter make any other required submissions under the
HSR Act, (b) use reasonable efforts to cooperate with one
another in (i) determining whether any filings are
required to be made with, or consents, permits,
authorizations or approvals are required to be obtained
from, any third party or other governmental or regulatory
bodies or authorities of federal, state, local and
foreign jurisdictions in connection with the execution
and delivery of this Agreement and the consummation of
the transactions contemplated hereby and thereby and (ii)
timely making all such filings and timely seeking all
such consents, permits, authorizations or approvals, and
(c) use reasonable efforts to take, or cause to be taken,
all other actions and do, or cause to be done, all other
things necessary, proper or advisable to consummate and
make effective the transactions contemplated hereby,
including, without limitation, taking all such further
action as reasonably may be necessary to resolve such
objections, if any, as the Federal Trade Commission, the
Antitrust Division of the Department of Justice, state
antitrust enforcement authorities or competition
authorities of any other nation or other jurisdiction or
any other person may assert under relevant antitrust or
competition laws with respect to the transactions
contemplated hereby and to ensure that it is a "poolable
entity" eligible to participate in a transaction to be
accounted for under the pooling of interests method of
accounting.
Section 6.8. Further Assurances. In case at
any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this
Agreement, the proper officers of R&B and FDC shall take
all such necessary action.
Section 6.9. Takeover Statute. If any "fair
price," "moratorium," "control share acquisition" or
other form of antitakeover statute or regulation shall
become applicable to the transactions contemplated
hereby, each of R&B and FDC and the members of their
respective Boards of Directors shall grant such approvals
and take such actions as are reasonably necessary so that
the transactions contemplated hereby may be consummated
as promptly as practicable on the terms contemplated
hereby and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions
contemplated hereby.
Section 6.10. No Solicitation by R&B. (a)
R&B shall not, nor shall it authorize or permit any of
its directors or officers or any investment banker,
financial advisor, attorney, accountant or other
representative retained by it to, directly or indirectly
through another person, (i) solicit, initiate or
encourage (including by way of furnishing information),
or take any other action designed to facilitate, any
inquiries or the making of any proposal which constitutes
any R&B Takeover Proposal (as defined below) or (ii)
participate in any discussions or negotiations regarding
any R&B Takeover Proposal; provided, however, that if, at
any time during the 20 business days prior to the
publicly announced date of the R&B Stockholders Meeting
(as defined in Section 6.3(c)(ii)) (the "R&B Applicable
Period"), the Board of Directors of R&B determines in
good faith, after consultation with outside counsel, that
it is necessary to do so in order to comply with its
fiduciary duties to R&B's stockholders under applicable
law, R&B may, in response to an R&B Superior Proposal (as
defined in Section 6.10(b)) which was not solicited by it
or which did not otherwise result from a breach of this
Section 6.10(a), and subject to providing prior written
notice of its decision to take such action to FDC (the
"R&B Notice") and compliance with Section 6.10(c), for a
period of five business days following delivery of the
R&B Notice (x) furnish information with respect to R&B
and its subsidiaries to any person making an R&B Superior
Proposal pursuant to a customary confidentiality
agreement (as determined by R&B after consultation with
its outside counsel) and (y) participate in discussions
or negotiations regarding such R&B Superior Proposal.
For purposes of this Agreement, "R&B Takeover Proposal"
means any inquiry, proposal or offer (or any improvement,
restatement, amendment, renewal or reiteration thereof)
from any person relating to any direct or indirect
acquisition or purchase of a business or shares of any
class of equity securities of R&B or any of its
subsidiaries (other than Devco), any tender offer or
exchange offer that if consummated would result in any
person beneficially owning any class of equity securities
of R&B or any of its subsidiaries (other than Devco), or
any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar
transaction involving R&B or any of its subsidiaries
(other than Devco), other than the transactions
contemplated by this Agreement. R&B shall be permitted
to deliver only one R&B Notice with respect to each
person making an R&B Superior Proposal.
(b) Except as expressly permitted by this
Section 6.10, neither the Board of Directors of R&B nor
any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner
adverse to FDC, the approval or recommendation by such
Board of Directors or such committee of the R&B Merger or
this Agreement, (ii) approve or recommend, or propose
publicly to approve or recommend, any R&B Takeover
Proposal, or (iii) cause R&B to enter into any letter of
intent, agreement in principle, acquisition agreement or
other similar agreement (each, a "R&B Acquisition
Agreement") related to any R&B Takeover Proposal.
Notwithstanding the foregoing, in the event that during
the R&B Applicable Period the Board of Directors of R&B
determines in good faith that there is a substantial
probability that the adoption of this Agreement by
holders of R&B Common Stock will not be obtained due to
the existence of an R&B Superior Proposal, the Board of
Directors of R&B may (subject to this and the following
sentences) terminate this Agreement (and concurrently
with or after such termination, if it so chooses, cause
R&B to enter into any R&B Acquisition Agreement with
respect to any R&B Superior Proposal), but only at a time
that is during the R&B Applicable Period and is after the
fifth business day following FDC's receipt of written
notice advising FDC that the Board of Directors of R&B is
prepared to accept an R&B Superior Proposal, specifying
the material terms and conditions of such R&B Superior
Proposal and identifying the person making such R&B
Superior Proposal. For purposes of this Agreement, a
"R&B Superior Proposal" means any proposal made by a
third party to acquire, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction, for
consideration consisting of cash and/or securities, all
outstanding shares of R&B Common Stock then outstanding
or all or substantially all of the assets of R&B and
otherwise on terms which the Board of Directors of R&B
determines in its good faith judgment (based on the
advice of a financial advisor of nationally recognized
reputation) to be more favorable to R&B's stockholders
than the R&B Merger and for which financing, to the
extent required, is then committed or as to which the
Board of Directors of R&B has received a "highly
confident letter" from a nationally recognized investment
bank or financial institution.
(c) In addition to the obligations of R&B set
forth in paragraphs (a) and (b) of this Section 6.10, R&B
shall immediately advise FDC orally and in writing of any
request for information or of any R&B Takeover Proposal,
the material terms and conditions of such request or R&B
Takeover Proposal and the identity of the person making
such request or R&B Takeover Proposal. R&B will keep
Parent reasonably informed of the status and details
(including amendments or proposed amendments) of any such
request or R&B Takeover Proposal.
(d) Nothing contained in this Section 6.10
shall prohibit R&B from taking and disclosing to its
stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any
disclosure to R&B's stockholders if, in the good faith
judgment of the Board of Directors of R&B, after
consultation with outside counsel, failure so to disclose
would be inconsistent with its obligations under
applicable law; provided, however, that neither R&B nor
its Board of Directors nor any committee thereof shall
withdraw or modify, or propose publicly to withdraw or
modify, its position with respect to this Agreement, the
R&B Merger, the issuance of Parent Common Stock in
connection with the R&B Merger, or approve or recommend,
or propose publicly to approve or recommend, an R&B
Takeover Proposal.
Section 6.11. No Solicitation by FDC. (a) FDC
shall not, nor shall it permit any of its subsidiaries
to, nor shall it authorize or permit any of its
directors, officers or employees or any investment
banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries
to, directly or indirectly through another person, (i)
solicit, initiate or encourage (including by way of
furnishing information), or take any other action
designed to facilitate, any inquiries or the making of
any proposal which constitutes any FDC Takeover Proposal
(as defined below) or (ii) participate in any discussions
or negotiations regarding any FDC Takeover Proposal;
provided, however, that if, at any time during the 20
business days prior to the publicly announced date of the
FDC Stockholders Meeting (as defined in Section
6.3(c)(iii) (the "FDC Applicable Period"), the Board of
Directors of FDC determines in good faith, after
consultation with outside counsel, that it is necessary
to do so in order to comply with its fiduciary duties to
FDC's stockholders under applicable law, FDC may, in
response to an FDC Superior Proposal (as defined in
Section 6.11(b)) which was not solicited by it or which
did not otherwise result from a breach of this Section
6.11(a), and subject to providing prior written notice of
its decision to take such action to R&B (the "FDC
Notice") and compliance with Section 6.11(c), for a
period of five business days following delivery of the
FDC Notice (x) furnish information with respect to FDC
and its subsidiaries to any person making an FDC Superior
Proposal pursuant to a customary confidentiality
agreement (as determined by FDC after consultation with
its outside counsel) and (y) participate in discussions
or negotiations regarding such FDC Superior Proposal.
For purposes of this Agreement, "FDC Takeover Proposal"
means any inquiry, proposal or offer (or any improvement,
restatement, amendment, renewal or reiteration thereof)
from any person relating to any direct or indirect
acquisition or purchase of a business, or shares of any
class of equity securities of FDC or any of its
subsidiaries, any tender offer or exchange offer that if
consummated would result in any person beneficially owing
any class of equity securities of FDC or any of its
subsidiaries, or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution
or similar transaction involving FDC or any of its
subsidiaries, other than the transactions contemplated by
this Agreement. FDC shall be permitted to deliver only
one FDC Notice with respect to each person making an FDC
Superior Proposal.
(b) Except as expressly permitted by this
Section 6.11, neither the Board of Directors of FDC nor
any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner
adverse to FDC, the approval or recommendation by such
Board of Directors or such committee of the FDC Merger or
this Agreement, (ii) approve or recommend, or propose
publicly to approve or recommend, any FDC Takeover
Proposal, or (iii) cause FDC to enter into any letter of
intent, agreement in principle, acquisition agreement or
other similar agreement (each, a "FDC Acquisition
Agreement") related to any FDC Takeover Proposal.
Notwithstanding the foregoing, in the event that during
the FDC Applicable Period the Board of Directors of FDC
determines in good faith that there is a substantial
probability that the adoption of this Agreement by
holders of FDC Common Stock will not be obtained due to
the existence of an FDC Superior Proposal, the Board of
Directors of FDC may (subject to this and the following
sentences) terminate this Agreement (and concurrently
with or after such termination, if it so chooses, cause
FDC to enter into any FDC Acquisition Agreement with
respect to any FDC Superior Proposal), but only at a time
that is during the FDC Applicable Period and is after the
fifth business day following R&B's receipt of written
notice advising R&B that the Board of Directors of FDC is
prepared to accept an FDC Superior Proposal, specifying
the material terms and conditions of such FDC Superior
Proposal and identifying the person making such FDC
Superior Proposal. For purposes of this Agreement, a
"FDC Superior Proposal" means any proposal made by a
third party to acquire, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction, for
consideration consisting of cash and/or securities, all
outstanding shares of FDC Common Stock then outstanding
or all or substantially all the assets of FDC and
otherwise on terms which the Board of Directors of FDC
determine in its good faith judgement (based on the
advice of a financial adviser of nationally recognized
reputation) to be more favorable to FDC's stockholders
than the FDC Merger and for which financing, to the
extent required, is then committed or as to which the
Board of Directors of FDC has received a "highly
confident letter" from a nationally recognized investment
bank or financial institution.
(c) In addition to the obligations of FDC set
forth in paragraphs (a) and (b) of this Section 6.11, FDC
shall immediately advise R&B orally and in writing of any
request for information or of any FDC Takeover Proposal,
the material terms and conditions of such request or FDC
Takeover Proposal and the identity of the person making
such request or FDC Takeover Proposal. FDC will keep R&B
reasonably informed of the status and details (including
amendments or proposed amendments) of any such request or
FDC Takeover Proposal.
(d) Nothing contained in this Section 6.11,
shall prohibit FDC from taking and disclosing to its
stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any
disclosure to FDC's stockholders if, in the good faith
judgement of the Board of Directors of FDC, after
consultation with outside counsel, failure so to disclose
would be inconsistent with its obligations under
applicable law; provided, however, that neither FDC nor
its Board of Directors nor any committee thereof shall
withdraw or modify, or propose publicly to withdraw or
modify, its position with respect to this Agreement, the
FDC Merger, the issuance of Parent Common Stock in
connection with the FDC Merger, or approve or recommend,
or propose publicly to approve or recommend, an FDC
Takeover Proposal.
Section 6.12. Public Announcements. R&B and
FDC will consult with and provide each other the
opportunity to review and comment upon any press release
prior to the issuance of any press release relating to
this Agreement or the transactions contemplated herein
and shall not issue any such press release prior to such
consultation except as may be required by law or by
obligations pursuant to any listing agreement with any
national securities exchange.
Section 6.13. Indemnification and Insurance.
(a) Parent agrees that all rights to
exculpation and indemnification for acts or omissions
occurring prior to the Effective Time now existing in
favor of the current or former directors or officers (the
"R&B Indemnified Parties") of R&B as provided in its
charter or by-laws or in any agreement shall survive the
R&B Merger and shall continue in full force and effect in
accordance with their terms. For six years from the
Effective Time, Parent shall indemnify the R&B
Indemnified Parties to the same extent as such R&B
Indemnified Parties are entitled to indemnification
pursuant to the preceding sentence.
(b) For three years from the Effective Time,
Parent shall maintain in effect R&B's current directors'
and officers' liability insurance policy (the "R&B
Policy") covering those persons who are currently covered
by the R&B Policy (a copy of which has been heretofore
delivered to Parent); provided, however, that in no event
shall Parent be required to expend in any one year an
amount in excess of 150% of the annual premiums currently
paid by R&B for such insurance, and, provided, further,
that if the annual premiums of such insurance coverage
exceed such amount, Parent shall be obligated to obtain a
policy with the greatest coverage available for a cost
not exceeding such amount.
(c) Parent agrees that all rights to
exculpation and indemnification for acts or omissions
occurring prior to the Effective Time now existing in
favor of the current or former directors or officers (the
"FDC Indemnified Parties") of FDC as provided in its
charter or by-laws or in any agreement shall survive the
FDC Merger and shall continue in full force and effect in
accordance with their terms. For six years from the
Effective Time, Parent shall indemnify the FDC
Indemnified Parties to the same extent as such FDC
Indemnified Parties are entitled to indemnification
pursuant to the preceding sentence.
(d) For three years from the Effective Time,
Parent shall maintain in effect FDC's directors' and
officers' liability insurance policy (the "FDC Policy"),
which policy FDC shall obtain prior to the Effective Time
and which policy shall be substantially similar to the
R&B Policy, covering those persons who are covered by the
FDC Policy and persons who are directors of Parent;
provided, however, that in no event shall Parent be
required to expend in any one year an amount in excess of
150% of the annual premiums to be paid by FDC for such
insurance, and, provided, further, that if the annual
premiums of such insurance coverage exceed such amount,
Parent shall be obligated to obtain a policy with the
greatest coverage available for a cost not exceeding such
amount.
Section 6.14. Accountants' "Comfort" Letters.
R&B and FDC will each use reasonable best efforts to
cause to be delivered to each other letters from their
respective independent accountants, dated a date within
two business days before the date of the Registration
Statement, in form reasonably satisfactory to the
recipient and customary in scope for comfort letters
delivered by independent accountants in connection with
registration statements on Form S-4 under the Securities
Act.
Section 6.15. Additional Reports. R&B and FDC
shall each furnish to the other copies of any reports of
the type referred to in Sections 4.4 and 5.4 which it
files with the SEC on or after the date hereof, and each
of R&B and FDC, as the case may be, represents and
warrants that as of the respective dates thereof, such
reports will not contain any untrue statement of a
material fact or omit to state a material fact required
to be stated therein or necessary to make the statement
therein, in light of the circumstances under which they
were made, not misleading. Any unaudited consolidated
interim financial statements included in such reports
(including any related notes and schedules) will fairly
present the financial position of R&B and its
consolidated Subsidiaries or FDC and its consolidated
Subsidiaries, as the case may be, as of the dates thereof
and the results of operations and changes in financial
position or other information included therein for the
periods or as of the date then ended (subject, where
appropriate, to normal year-end adjustments), in each
case in accordance with past practice and GAAP
consistently applied during the periods involved (except
as otherwise disclosed in the notes thereto).
Section 6.16. Stockholder Rights Plans. (a)
R&B will take all actions necessary to ensure that the
R&B Rights Plan is amended in accordance with Section
4.12 prior to the Effective Time.
(b) R&B and FDC will take all actions
necessary to cause Parent to adopt the Parent Rights Plan
prior to the Effective Time.
Section 6.17. Stockholder Litigation. Each of
R&B and FDC shall give the other the reasonable
opportunity to participate in the defense of any
stockholder litigation against R&B or FDC, as applicable,
and its directors relating to the transactions
contemplated by this Agreement and the Option Agreements.
ARTICLE VII
Conditions to the Mergers
Section 7.1. Conditions to Each Party's
Obligation to Effect the Mergers. The respective
obligations of each party to effect the Mergers shall be
subject to the fulfillment at or prior to the Effective
Time of the following conditions:
(a) The R&B Stockholder Approval and the FDC
Stockholder Approval shall have been obtained all in
accordance with applicable law.
(b) No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been
enacted, entered, promulgated or enforced by any court or
other tribunal or governmental body or authority which
prohibits the consummation of the Mergers substantially
on the terms contemplated hereby. In the event any
order, decree or injunction shall have been issued, each
party shall use its reasonable efforts to remove any such
order, decree or injunction.
(c) The Registration Statement shall have
become effective in accordance with the provisions of the
Securities Act and no stop order suspending such
effectiveness shall have been issued and remain in
effect.
(d) The shares of Parent Common Stock issuable
in the Mergers shall have been approved for listing on
the NYSE, subject only to official notice of issuance.
(e) Any applicable waiting period under the
HSR Act shall have expired or been terminated and any
other R&B Required Approvals and FDC Required Approvals
shall have been obtained, except where the failure to
obtain such other R&B Required Approvals and FDC Required
Approvals would not have a Material Adverse Effect on R&B
or FDC, as the case may be.
(f) Each of FDC and R&B shall have received an
opinion of its tax counsel, Skadden, Arps, Slate, Meagher
& Flom LLP and Cravath, Swaine & Moore, respectively, in
form and substance reasonably satisfactory to it, and
dated as of the Effective Time, to the effect that the
Mergers will constitute transactions described in
Sections 351 and/or Section 368(a) of the Code and that
none of FDC, R&B, holders of FDC Common Stock or holders
of R&B Common Stock shall recognize gain or loss for
federal income tax purposes as a result of the Mergers
(other than with respect to any cash paid in lieu of
fractional shares of FDC Common Stock or R&B Common
Stock). In rendering such opinions, Skadden, Arps,
Slate, Meagher & Flom LLP and Cravath, Swaine & Moore may
require delivery of and rely upon the Tax Certificates.
Section 7.2. Conditions to Obligations of R&B
to Effect the R&B Merger. The obligation of R&B to
effect the R&B Merger is further subject to the
conditions that (a) the representations and warranties of
FDC contained herein shall be true and correct in all
respects (but without regard to any materiality
qualifications or references to Material Adverse Effect
contained in any specific representation or warranty) as
of the Effective Time with the same effect as though made
as of the Effective Time except (i) for changes
specifically permitted by the terms of this Agreement,
(ii) that the accuracy of representations and warranties
that by their terms speak as of the date of this
Agreement or some other date will be determined as of
such date and (iii) where any such failure of the
representations and warranties in the aggregate to be
true and correct in all respects would not have a
Material Adverse Effect on FDC, (b) FDC shall have
performed in all material respects all obligations and
complied with all covenants required by this Agreement to
be performed or complied with by it prior to the
Effective Time and (c) FDC shall have delivered to R&B a
certificate, dated the Effective Time and signed by its
Chairman of the Board and Chief Executive Officer or a
Senior Vice President, certifying to both such effects.
Section 7.3. Conditions to Obligations of FDC
to Effect the FDC Merger. The obligation of FDC to
effect the FDC Merger is further subject to the
conditions that (a) the representations and warranties of
R&B contained herein shall be true and correct in all
respects (but without regard to any materiality
qualifications or references to Material Adverse Effect
contained in any specific representation or warranty) as
of the Effective Time with the same effect as though made
as of the Effective Time except (i) for changes
specifically permitted by the terms of this Agreement,
(ii) that the accuracy of representations and warranties
that by their terms speak as of the date of this
Agreement or some other date will be determined as of
such date and (iii) where any such failure of the
representations and warranties in the aggregate to be
true and correct in all respects would not have a
Material Adverse Effect on R&B, (b) R&B shall have
performed in all material respects all obligations and
complied with all covenants required by this Agreement to
be performed or complied with by it prior to the
Effective Time and (c) R&B shall have delivered to FDC a
certificate, dated the Effective Time and signed by its
Chairman of the Board, Chief Executive officer and
President or a Senior Vice President, certifying to both
such effects.
ARTICLE VIII
Termination, Waiver, Amendment and Closing
Section 8.1. Termination or Abandonment. This
Agreement may be terminated at any time prior to the
Effective Time, whether before or after any approval of
the matters presented in connection with the Mergers by
the respective stockholders of R&B and FDC:
(a) by the mutual written consent of R&B and
FDC;
(b) by either FDC or R&B if the Effective Time
shall not have occurred on or before January 31, 1998;
provided, that the party seeking to terminate this
Agreement pursuant to this clause 8.1(b) shall not have
breached in any material respect its obligations under
this Agreement in any manner that shall have proximately
contributed to the failure to consummate the Mergers on
or before such date;
(c) by either FDC or R&B if (i) a statute,
rule, regulation or executive order shall have been
enacted, entered or promulgated prohibiting the
consummation of the Mergers substantially on the terms
contemplated hereby or (ii) an order, decree, ruling or
injunction shall have been entered permanently
restraining, enjoining or otherwise prohibiting the
consummation of the Mergers substantially on the terms
contemplated hereby and such order, decree, ruling or
injunction shall have become final and non-appealable;
provided, that the party seeking to terminate this
Agreement pursuant to this clause 8.1(c)(ii) shall have
used its reasonable best efforts to remove such
injunction, order or decree;
(d) by either FDC or R&B, if the approvals of
the stockholders of either FDC or R&B contemplated by
this Agreement shall not have been obtained by reason of
the failure to obtain the required vote at a duly held
meeting of stockholders or of any adjournment thereof;
(e) by FDC in accordance with Section 6.11(b);
provided that, in order for the termination of this
Agreement pursuant to this paragraph (e) to be deemed
effective, FDC shall have complied with all provisions
contained in Section 6.11, including the notice
provisions therein, and with applicable requirements,
including the payment of the Termination Fee, of Section
8.3;
(f) by FDC, if R&B or any of its directors or
officers shall participate in discussion or negotiations
in breach of Section 6.10;
(g) by R&B in accordance with Section 6.10(b);
provided that, in order for the termination of this
Agreement pursuant to this paragraph (g) to be deemed
effective, R&B shall have complied with all provisions of
Section 6.10, including the notice provisions therein,
and with applicable requirements, including the payment
of the Termination Fee, of Section 8.3;
(h) by R&B, if FDC or any of its directions or
officers shall participate in discussions or negotiations
in breach of Section 6.11; or
(i) by R&B or FDC if there shall have been a
material breach by the other of any of its
representations, warranties, covenants or agreements
contained in this Agreement and such breach shall not
have been cured within 30 days after notice thereof shall
have been received by the party alleged to be in breach.
Section 8.2. Effect of Termination. In the
event of termination of this Agreement pursuant to
Section 8.1, this Agreement shall terminate (except for
the provisions of Sections 6.2, 8.3 and 9.2), and there
shall be no other liability on the part of FDC or R&B to
the other except liability arising out of a willful and
material breach of this Agreement or as provided for in
the Confidentiality Agreements.
Section 8.3. Termination Fee. (a) In the event
that (i) after the date hereof and prior to the R&B
Stockholders Meeting an R&B Takeover Proposal shall have
been made known to R&B or shall have been made directly
to its stockholders generally or any person shall have
publicly announced an intention (whether or not
conditional) to make an R&B Takeover Proposal and
thereafter this Agreement is terminated by either FDC or
R&B pursuant to Section 8.1(b) or 8.1(d) (provided that
the basis for such termination is that the R&B
Stockholder Approval shall not have been obtained and
provided, further, that the FDC stockholders shall not
have voted to disapprove this Agreement) or (ii) this
Agreement is terminated (x) by R&B pursuant to Section
8.1(g) or (y) by FDC pursuant to Section 8.1(f), then R&B
shall promptly, but in no event later than two days after
the date of such termination, pay FDC a fee equal to $100
million (the "Termination Fee"), payable by wire transfer
of same day funds (for purposes of the foregoing, the
references to 20% in the exception in the parenthetical
to the next succeeding proviso shall be deemed to be
references to 15%); provided, however, that no
Termination Fee shall be payable to FDC in any
circumstance in which FDC stockholders vote to disapprove
this Agreement and provided further, that no Termination
Fee shall be payable to FDC pursuant to clause (i) of
this paragraph (a) or pursuant to a termination by FDC
pursuant to Section 8.1(f) unless and until within 18
months of such termination R&B or any of its subsidiaries
enters into any R&B Acquisition Agreement or consummates
any R&B Takeover Proposal (for the purposes of the
foregoing proviso the terms "R&B Acquisition Agreement"
and "R&B Takeover Proposal" shall have the meanings
assigned to such terms in Section 6.10 (except that the
reference to the "acquisition or purchase of a business
or shares of any class of equity securities of R&B or any
of its subsidiaries" in the definition of "R&B Takeover
Proposal" in Section 6.10 shall be deemed to be a
reference to the "acquisition or purchase of a business
that constitutes 20% or more of the net revenues, net
income or the assets of R&B and its subsidiaries, taken
as a whole, or 20% of any class of equity securities of
R&B or any of its subsidiaries")) in which event the
Termination Fee shall be payable upon the first to occur
of such events. R&B acknowledges that the agreements
contained in this Section 8.3(a) are an integral part of
the transactions contemplated by this Agreement, and
that, without these agreements, FDC would not enter into
this Agreement; accordingly, if R&B fails promptly to pay
the amount due pursuant to this Section 8.3(a), and, in
order to obtain such payment, FDC commences a suit which
results in a judgment against R&B for the fee set forth
in this Section 8.3(a), R&B shall pay to FDC its costs
and expenses (including attorneys' fees and expenses) in
connection with such suit, together with interest on the
amount of the fee at the prime rate of Citibank N.A. in
effect on the date such payment was required to be made.
(b) In the event that (i) after the date
hereof and prior to the FDC Stockholders Meeting an FDC
Takeover Proposal shall have been made known to FDC or
any of its subsidiaries or shall have been made directly
to its stockholders generally or any person shall have
publicly announced an intention (whether or not
conditional) to make an FDC Takeover Proposal and
thereafter this Agreement is terminated by either FDC or
R&B pursuant to Section 8.1(b) or 8.1(d) (provided that
the basis for such termination is that the FDC
Stockholder Approval shall not have been obtained and
provided, further, that the R&B stockholders shall not
have voted to disapprove this Agreement) or (ii) this
Agreement is terminated (x) by FDC pursuant to Section
8.1(e) or (y) by R&B pursuant to Section 8.1(h), then FDC
shall promptly, but in no event later than two days after
the date of such termination, pay R&B the Termination
Fee, payable by wire transfer of same day funds (for
purposes of the foregoing, the references to 20% in the
exception in the parenthetical to the next succeeding
proviso shall be deemed to be references to 15%);
provided, however, that no Termination Fee shall be
payable to R&B in any circumstance in which R&B
stockholders vote to disapprove this Agreement and
provided further, that no Termination Fee shall be
payable to R&B pursuant to clause (i) of this paragraph
(b) or pursuant to a termination by R&B pursuant to
Section 8.1(h) unless and until within 18 months of such
termination FDC or any of its subsidiaries enters into
any FDC Acquisition Agreement or consummates any FDC
Takeover Proposal (for the purposes of the foregoing
proviso the terms "FDC Acquisition Agreement" and "FDC
Takeover Proposal" shall have the meanings assigned to
such terms in Section 6.11 (except that the reference to
the "acquisition or purchase of a business or shares of
any class of equity securities of FDC or any of its
subsidiaries" in the definition of "FDC Takeover
Proposal" in Section 6.11 shall be deemed to be a
reference to the "acquisition or purchase of a business
that constitutes 20% or more of the net revenues, net
income or the assets of FDC and its subsidiaries, taken
as a whole, or 20% of any class of equity securities of
FDC or any of its subsidiaries"), in which event the
Termination Fee shall be payable upon the first to occur
of such events. FDC acknowledges that the agreements
contained in this Section 8.3(b) are an integral part of
the transactions contemplated by this Agreement, and
that, without these agreements, R&B would not enter into
this Agreement; accordingly, if FDC fails promptly to pay
the amount due pursuant to this Section 8.3(b), and, in
order to obtain such payment, R&B commences a suit which
results in a judgment against FDC for the fee set forth
in this Section 8.3(b), FDC shall pay to R&B its costs
and expenses (including attorneys' fees and expenses) in
connection with such suit, together with interest on the
amount of the fee at the prime rate of Citibank N.A. in
effect on the date such payment was required to be made.
Section 8.4. Amendment or Supplement. At any
time before or after approval of the matters presented in
connection with the Mergers by the respective
stockholders of R&B and FDC and prior to the Effective
Time, this Agreement may be amended or supplemented in
writing by R&B and FDC with respect to any of the terms
contained in this Agreement; provided, however that
following approval by the stockholders of R&B and FDC
there shall be no amendment or change to the provisions
hereof with respect to the conversion ratio of shares of
R&B Common Stock, R&B Class A Stock or FDC Common Stock
into shares of Parent Common Stock as provided herein nor
any amendment or change not permitted under applicable
law, without further approval by the stockholders of R&B
and FDC.
Section 8.5. Extension of Time, Waiver, Etc.
At any time prior to the Effective Time, and party may:
(a) extend the time for the performance of any
of the obligations or acts of the other party;
(b) waive any inaccuracies in the
representations and warranties of the other party
contained herein or in any document delivered pursuant
hereto; or
(c) subject to the proviso of Section 8.4
waive compliance with any of the agreements or conditions
of the other party contained herein.
Notwithstanding the foregoing no failure or
delay by R&B or Parent in exercising any right hereunder
shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right
hereunder. Any agreement on the part of a party hereto
to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of
such party.
ARTICLE IX
Miscellaneous
Section 9.1. No Survival of Representations and
Warranties. None of the representations, warranties and
agreements in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the
Mergers, except for the agreements set forth in Article
II and Article III, the agreements of "affiliates" of R&B
and FDC to be delivered pursuant to Section 6.4, the
provisions of Sections 6.5, 6.6, 6.12 and 6.13 and this
Article IX.
Section 9.2. Expenses. Whether or not the
Mergers are consummated, all costs and expenses incurred
in connection with the Mergers, this Agreement and the
Option Agreements and the transactions contemplated
hereby and thereby shall be paid by the party incurring
such expenses, except that (a)(i) the filing fee in
connection with any HSR Act filing, (ii) the commissions
and other out-of-pocket transaction costs, including the
expenses and compensation of the Exchange Agent, incurred
in connection with the sale of Excess Shares, (iii) the
expenses incurred in connection with the printing and
mailing of the Joint Proxy Statement, and (iv) all
transfer taxes shall be shared equally by R&B and FDC.
Section 9.3. Counterparts; Effectiveness. This
Agreement may be executed in two or more consecutive
counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto
were upon the same instrument, and shall become effective
when one or more counterparts have been signed by each of
the parties and delivered (by telecopy or otherwise) to
the other parties.
Section 9.4. Governing Law. This Agreement
shall be governed by and construed in accordance with the
laws of the State of Delaware, without regard to the
principles of conflicts of laws thereof.
Section 9.5. Notices. All notices and other
communications hereunder shall be in writing (including
telecopy or similar writing) and shall be effective (a)
if given by telecopy, when such telecopy is transmitted
to the telecopy number specified in this Section 9.5 and
the appropriate telecopy confirmation is received or (b)
if given by any other means, when delivered at the
address specified in this Section 9.5:
To FDC:
Falcon Drilling Company, Inc.
1900 West Loop South
Suite 1800
Houston, Texas 77027
Attention: Chairman and Chief
Executive Officer
Telecopy: (713) 623-8103
copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: J. Michael Schell, Esq.
Telecopy: (212) 735-2000
To R&B:
Reading & Bates Corporation
901 Threadneedle
Suite 200
Houston, Texas 77079
Attention: Chairman and Chief Executive
Officer
Telecopy: (281) 496-0285
copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Allen Finkelson, Esq.
Telecopy: (212) 474-3700
Section 9.6. Assignment; Binding Effect.
Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties.
Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and
assigns.
Section 9.7. Severability. Any term or
provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such
invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of
this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be
unenforceable, such provision shall be interpreted to be
only so broad as is enforceable.
Section 9.8. Enforcement of Agreement. The
parties hereto agree that money damages or other remedy
at law would not be sufficient or adequate remedy for any
breach or violation of, or a default under, this
Agreement by them and that in addition to all other
remedies available to them, each of them shall be
entitled to the fullest extent permitted by law to an
injunction restraining such breach, violation or default
or threatened breach, violation or default and to any
other equitable relief, including, without limitation,
specific performance, without bond or other security
being required.
Section 9.9. Entire Agreement; No Third-Party
Beneficiaries. This Agreement, the Confidentiality
Agreements and the Option Agreements constitute the
entire agreement, and supersede all other prior
agreements and understandings, both written and oral,
between the parties, or any of them, with respect to the
subject matter hereof and thereof and except for the
provisions of Sections 6.5, 6.6, and 6.13 hereof, is not
intended to and shall not confer upon any Person other
than the parties hereto any rights or remedies hereunder.
Section 9.10. Headings. Headings of the
Articles and Sections of this Agreement are for
convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
Section 9.11. Definitions. References in this
Agreement to "Subsidiaries" of R&B or FDC shall mean any
corporation or other form of legal entity of which more
than 50% of the outstanding voting securities are on the
date hereof directly or indirectly owned by R&B or FDC,
as the case may be. References in this Agreement to
"Significant Subsidiaries" shall mean Subsidiaries (as
defined above) which constitute "significant
subsidiaries" under Rule 405 promulgated by the SEC under
the Securities Act. References in this Agreement (except
as specifically otherwise defined) to "affiliates" shall
mean, as to any person, any other person which, directly
or indirectly, controls, or is controlled by, or is under
common control with, such person. As used in this
definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control
with") shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of
management or policies of a Person, whether through the
ownership of securities or partnership of other ownership
interests, by contract or otherwise. References in the
Agreement to "person" shall mean an individual, a
corporation, a partnership, an association, a trust or
any other entity or organization, including, without
limitation, a governmental body or authority.
Notwithstanding the foregoing, Parent shall not be deemed
to be an "affiliate" or a "subsidiary" of either FDC or
R&B.
Section 9.12. Finders or Brokers. Except for
Morgan Stanley & Co. Incorporated with respect to R&B, a
copy of whose engagement agreement has been or will be
provided to FDC, and Credit Suisse First Boston
Corporation with respect to FDC, a copy of whose
engagement agreement has been or will be provided to R&B,
neither R&B nor FDC nor any of their respective
Subsidiaries has employed any investment banker, broker,
finder or intermediary in connection with the
transactions contemplated hereby who might be entitled to
any fee or any commission in connection with or upon
consummation of the Mergers.
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be duly executed and delivered
as of the date first above written.
R&B FALCON CORPORATION
By: /s/ Steven A. Webster
Name: Steven A. Webster
Title: Chief Executive Officer
FDC ACQUISITION CORP.
By: /s/ Steven A. Webster
Name: Steven A. Webster
Title: President
READING & BATES ACQUISITION CORP.
By: /s/ Steven A. Webster
Name: Steven A. Webster
Title: President
FALCON DRILLING COMPANY, INC.
By: /s/ Steven A. Webster
Name: Steven A. Webster
Title: Chief Executive Officer
READING & BATES CORPORATION
By: /s/ Paul B. Loyd, Jr.
Name: Paul B. Loyd, Jr.
Title: Chief Executive Officer
EXHIBIT A to ANNEX A
FORM OF AFFILIATE LETTER FOR AFFILIATES OF R&B
R&B Falcon Corporation
1900 West Loop South
Suite 1800
Houston, Texas 77027
Falcon Drilling Company, Inc.
1900 West Loop South
Suite 1800
Houston, Texas 77027
Reading & Bates Corporation
901 Threadneedle
Suite 2000
Houston, Texas 77079
Ladies and Gentlemen:
I have been advised that as of the date of this
letter I may be deemed to be an "affiliate" of Reading &
Bates Corporation, a Delaware corporation ("R&B"), as the
term "affiliate" is (i) defined for purposes of
paragraphs (c) and (d) of Rule 145 of the rules and
regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"),
and/or (ii) used in and for purposes of Accounting Series
Releases No. 130 and No. 135, as amended, of the
Commission. Pursuant to the terms of the Agreement and
Plan of Merger, dated as of July 10, 1997 (the "Merger
Agreement"), among R&B Falcon Corporation, a Delaware
corporation ("Parent"), FDC Acquisition Corp., a Delaware
corporation ("SubF"), Reading & Bates Acquisition Corp.,
a Delaware corporation ("SubR"), Falcon Drilling Company,
Inc., a Delaware corporation ("FDC"), and R&B, pursuant
to which (i) SubR will be merged with and into R&B, with
R&B continuing as the surviving corporation (the "R&B
Merger"), (ii) SubF will be merged with and into FDC,
with FDC continuing as the surviving corporation (the
"FDC Merger" and together with the R&B Merger, the
"Mergers"), and (iii) each of FDC and R&B will become a
subsidiary of Parent and stockholders of each of FDC and
R&B will become stockholders of Parent. Capitalized
terms used in this letter without definition shall have
the meanings assigned to them in the Merger Agreement.
As a result of the R&B Merger, I may receive
shares of common stock, par value $.01 per share, of
Parent (the "Parent Common Stock"). I would receive such
Parent Stock in exchange for shares (or upon exercise of
options for shares) owned by me of common stock, par
value $.01 per share of R&B (the "R&B Common Stock").
1. I hereby represent, warrant and covenant to
Parent, FDC and R&B that in the event I receive any
shares of Parent Common Stock as a result of the R&B
Merger:
A. I shall not make any offer, sale, pledge,
transfer or other disposition of the shares of
Parent Common Stock in violation of the Act or the
Rules and Regulations.
B. I have carefully read this letter and the
Merger Agreement and discussed the requirements of
such documents and other applicable limitations upon
my ability to sell, transfer or otherwise dispose of
the shares of Parent Common Stock, to the extent I
felt necessary, with my counsel or counsel for R&B.
C. I have been advised that the issuance of
the shares of Parent Common Stock to me pursuant to
the R&B Merger has been registered with the
Commission under the Act on a Registration Statement
on Form S-4. However, I have also been advised
that, because at the time the Merger is submitted
for a vote of the stockholders of R&B, (a) I may be
deemed to be an affiliate of R&B and (b) the
distribution by me of the shares of Parent Common
Stock has not been registered under the Act, I may
not sell, transfer or otherwise dispose of the
shares of Parent Common Stock issued to me in the
R&B Merger unless (i) such sale, transfer or other
disposition is made in conformity with the volume
and other limitations of Rule 145 promulgated by the
Commission under the Act, (ii) such sale, transfer
or other disposition has been registered under the
Act or (iii) in the opinion of counsel reasonably
acceptable to Parent, or a "no action" letter
obtained by the undersigned from the staff of the
Commission such sale, transfer or other disposition
is otherwise exempt from registration under the Act.
D. I understand that except as provided for in
the Merger Agreement, Parent is under no obligation
to register the sale, transfer or other disposition
of the Parent Stock by me or on my behalf under the
Act or, except as provided in paragraph 2(A) below,
to take any other action necessary in order to make
compliance with an exemption from such registration
available.
E. I also understand that stop transfer
instructions will be given to R&B's transfer agent
with respect to the shares of R&B Common Stock
currently held and to Parent's transfer agent with
respect to the shares of Parent Common Stock issued
to me in the R&B Merger, and there will be placed on
the certificates for such shares of Parent Common
Stock, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS
CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933 APPLIES. THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY
ONLY BE TRANSFERRED IN ACCORDANCE WITH THE
TERMS OF AN AGREEMENT DATED [ ],
1997 BETWEEN THE REGISTERED HOLDER HEREOF,
FALCON DRILLING COMPANY, INC., READING &
BATES CORPORATION AND R&B FALCON
CORPORATION, A COPY OF WHICH AGREEMENT IS
ON FILE AT THE PRINCIPAL OFFICES OF R&B
FALCON CORPORATION."
F. I also understand that unless a sale or
transfer is made in conformity with the provisions
of Rule 145, or pursuant to a registration
statement, Parent reserves the right to put the
following legend on the certificates issued to my
transferee:
"THE SHARES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND WERE
ACQUIRED FROM A PERSON WHO RECEIVED SUCH
SHARES IN A TRANSACTION TO WHICH RULE 145
PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES HAVE BEEN
ACQUIRED BY THE HOLDER NOT WITH A VIEW TO,
OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF
THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT IN ACCORDANCE WITH AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
G. I further represent to, and covenant with
Parent, FDC and R&B that I will not, during the 30
days prior to the Effective Time, sell, transfer or
otherwise dispose of or reduce my risk (as
contemplated by the SEC Accounting Series Release
No. 135) with respect to shares of R&B Common Stock
that I may hold and, furthermore, that I will not
sell, transfer or otherwise dispose of or reduce my
risk (as contemplated by SEC Accounting Series
Release No. 135) with respect to the shares of
Parent Common Stock received by me in the R&B
Merger or any other shares of the capital stock of
Parent until after such time as results covering at
least 30 days of operations of Parent have been
published by Parent, in the form of a quarterly
earnings report, an effective registration statement
filed with the Commission, a report to the
Commission on Form 10-K, 10-Q or 8-K, or any other
public filing or announcement which includes the
combined results of operations of FDC and R&B (the
period commencing 30 days prior to the Effective
Time and ending on the date of the publication of
the post-Mergers financial results is referred to
herein as the "Pooling Period"). Parent shall
notify the "affiliates" of the publication of such
results. Notwithstanding the foregoing, I
understand that during the aforementioned period,
subject to providing written notice to Parent, I
will not be prohibited from selling up to 10% of the
shares of Parent Common Stock (the "10% Shares")
received by me or the shares of R&B Common Stock
owned by me or making charitable contributions or
bona fide gifts of the shares of Parent Common Stock
received by me or the shares of R&B Common Stock
owned by me, subject to the same restrictions. The
10% Shares shall be calculated in accordance with
SEC Accounting Series Release No. 135 as amended by
Staff Accounting Bulletin No. 76. I covenant with
Parent that I will not sell, transfer or otherwise
dispose of any 10% Shares during the period
commencing from the Effective Time and ending on the
last day of the Pooling Period except in compliance
with Rule 145(d)(i) under the Act or pursuant to
charitable contributions or bona fide gifts.
H. Execution of this letter should not be
considered an admission on my part that I am an
"affiliate" of R&B as described in the first
paragraph of this letter, nor as a waiver of any
rights I may have to object to any claim that I am
such an affiliate on or after the date of this
letter.
2. By Parent's acceptance of this letter,
Parent hereby agrees with me as follows:
A. For so long as and to the extent necessary
to permit me to sell the shares of Parent Common
Stock pursuant to Rule 145 and, to the extent
applicable, Rule 144 under the Act, Parent shall (a)
use its reasonable best efforts to (i) file, on a
timely basis, all reports and data required to be
filed with the Commission by it pursuant to Section
13 of the Securities Exchange Act of 1934, as
amended, and (ii) furnish to me upon request a
written statement as to whether Parent has complied
with such reporting requirements during the 12
months preceding any proposed sale of the shares of
Parent Common Stock by me under Rule 145, and (b)
otherwise use its reasonable efforts to permit such
sales pursuant to Rule 145 and Rule 144.
B. It is understood and agreed that
certificates with the legends set forth in
paragraphs E and F above will be substituted by
delivery of certificates without such legend if (i)
one year shall have elapsed from the date the
undersigned acquired the Parent Stock received in
the R&B Merger and the provisions of Rule 145(d)(2)
are then available to the undersigned, (ii) two
years shall have elapsed from the date the
undersigned acquired the shares of Parent Common
Stock received in the R&B Merger and the provisions
of Rule 145(d)(3) are then applicable to the
undersigned, or (iii) Parent has received either an
opinion of counsel, which opinion and counsel shall
be reasonably satisfactory to FDC and Parent, or a
"no-action" letter obtained by the undersigned from
the staff of the Commission, to the effect that the
restrictions imposed by Rule 144 and Rule 145 under
the Act no longer apply to the undersigned.
Very truly yours,
Name:
Agreed and accepted this __ day
of ___________, 1997, by
R&B FALCON CORPORATION
By:
Name:
Title:
READING & BATES CORPORATION
By:
Name:
Title:
FALCON DRILLING COMPANY, INC.
By: ________________________________
Name:
Title:
EXHIBIT B to ANNEX A
FORM OF AFFILIATE LETTER FOR AFFILIATES OF FDC
R&B Falcon Corporation
1900 West Loop South
Suite 1800
Houston, Texas 77027
Falcon Drilling Company, Inc.
1900 West Loop South
Suite 1800
Houston, Texas 77027
Reading & Bates Corporation
901 Threadneedle
Suite 2000
Houston, Texas 77079
Ladies and Gentlemen:
I have been advised that as of the date of this
letter I may be deemed to be an "affiliate" of Falcon
Drilling Company, Inc., a Delaware corporation ("FDC"),
as the term "affiliate" is (i) defined for purposes of
paragraphs (c) and (d) of Rule 145 of the rules and
regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"),
and/or (ii) used in and for purposes of Accounting Series
Releases No. 130 and No. 135, as amended, of the
Commission. Pursuant to the terms of the Agreement and
Plan of Merger, dated as of July 10, 1997 (the "Merger
Agreement"), among R&B Falcon Corporation, a Delaware
corporation ("Parent"), FDC Acquisition Corp., a Delaware
corporation ("SubF"), Reading & Bates Acquisition Corp.,
a Delaware corporation ("SubR"), FDC and Reading & Bates
Corporation, a Delaware corporation ("R&B"), pursuant to
which (i) SubF will be merged with and into FDC, with FDC
continuing as the surviving corporation (the "FDC
Merger"), (ii) SubR will be merged with and into R&B,
with R&B continuing as the surviving corporation (the
"R&B Merger" and together with the FDC Merger, the
"Mergers"), and (iii) each of FDC and R&B will become a
subsidiary of Parent and stockholders of each of FDC and
R&B will become stockholders of Parent. Capitalized
terms used in this letter without definition shall have
the meanings assigned to them in the Merger Agreement.
As a result of the FDC Merger, I may receive
shares of common stock, par value $.01 per share, of
Parent (the "Parent Common Stock"). I would receive such
Parent Stock in exchange for shares (or upon exercise of
options for shares) owned by me of common stock, par
value $.01 per share of FDC (the "FDC Common Stock").
1. I hereby represent, warrant and covenant to
Parent, FDC and R&B that in the event I receive any
shares of Parent Common Stock as a result of the FDC
Merger:
A. I shall not make any offer, sale, pledge,
transfer or other disposition of the shares of
Parent Common Stock in violation of the Act or the
Rules and Regulations.
B. I have carefully read this letter and the
Merger Agreement and discussed the requirements of
such documents and other applicable limitations upon
my ability to sell, transfer or otherwise dispose of
the shares of Parent Common Stock, to the extent I
felt necessary, with my counsel or counsel for FDC.
C. I have been advised that the issuance of
the shares of Parent Common Stock to me pursuant to
the FDC Merger has been registered with the
Commission under the Act on a Registration Statement
on Form S-4. However, I have also been advised
that, because at the time the Merger is submitted
for a vote of the stockholders of FDC, (a) I may be
deemed to be an affiliate of FDC and (b) the
distribution by me of the shares of Parent Common
Stock has not been registered under the Act, I may
not sell, transfer or otherwise dispose of the
shares of Parent Common Stock issued to me in the
FDC Merger unless (i) such sale, transfer or other
disposition is made in conformity with the volume
and other limitations of Rule 145 promulgated by the
Commission under the Act, (ii) such sale, transfer
or other disposition has been registered under the
Act or (iii) in the opinion of counsel reasonably
acceptable to Parent, or a "no action" letter
obtained by the undersigned from the staff of the
Commission such sale, transfer or other disposition
is otherwise exempt from registration under the Act.
D. I understand that except as provided for in
the Merger Agreement, Parent is under no obligation
to register the sale, transfer or other disposition
of the Parent Stock by me or on my behalf under the
Act or, except as provided in paragraph 2(A) below,
to take any other action necessary in order to make
compliance with an exemption from such registration
available.
E. I also understand that stop transfer
instructions will be given to FDC's transfer agent
with respect to the shares of FDC Common Stock
currently held and to Parent's transfer agent with
respect to the shares of Parent Common Stock issued
to me in the FDC Merger, and there will be placed on
the certificates for such shares of Parent Common
Stock, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS
CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933 APPLIES. THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY
ONLY BE TRANSFERRED IN ACCORDANCE WITH THE
TERMS OF AN AGREEMENT DATED [ ],
1997 BETWEEN THE REGISTERED HOLDER HEREOF,
FALCON DRILLING COMPANY, INC., READING &
BATES CORPORATION AND R&B FALCON
CORPORATION, A COPY OF WHICH AGREEMENT IS
ON FILE AT THE PRINCIPAL OFFICES OF R&B
FALCON CORPORATION."
F. I also understand that unless a sale or
transfer is made in conformity with the provisions
of Rule 145, or pursuant to a registration
statement, Parent reserves the right to put the
following legend on the certificates issued to my
transferee:
"THE SHARES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND WERE
ACQUIRED FROM A PERSON WHO RECEIVED SUCH
SHARES IN A TRANSACTION TO WHICH RULE 145
PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES HAVE BEEN
ACQUIRED BY THE HOLDER NOT WITH A VIEW TO,
OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF
THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT IN ACCORDANCE WITH AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
G. I further represent to, and covenant with
Parent, FDC and R&B that I will not, during the 30
days prior to the Effective Time, sell, transfer or
otherwise dispose of or reduce my risk (as
contemplated by the SEC Accounting Series Release
No. 135) with respect to shares of FDC Common Stock
that I may hold and, furthermore, that I will not
sell, transfer or otherwise dispose of or reduce my
risk (as contemplated by SEC Accounting Series
Release No. 135) with respect to the shares of
Parent Common Stock received by me in the FDC
Merger or any other shares of the capital stock of
Parent until after such time as results covering at
least 30 days of operations of Parent have been
published by Parent, in the form of a quarterly
earnings report, an effective registration statement
filed with the Commission, a report to the
Commission on Form 10-K, 10-Q or 8-K, or any other
public filing or announcement which includes the
combined results of operations of FDC and R&B (the
period commencing 30 days prior to the Effective
Time and ending on the date of the publication of
the post-Mergers financial results is referred to
herein as the "Pooling Period"). Parent shall
notify the "affiliates" of the publication of such
results. Notwithstanding the foregoing, I
understand that during the aforementioned period,
subject to providing written notice to Parent, I
will not be prohibited from selling up to 10% of the
shares of Parent Common Stock (the "10% Shares")
received by me or the shares of FDC Common Stock
owned by me or making charitable contributions or
bona fide gifts of the shares of Parent Common Stock
received by me or the shares of FDC Common Stock
owned by me, subject to the same restrictions. The
10% Shares shall be calculated in accordance with
SEC Accounting Series Release No. 135 as amended by
Staff Accounting Bulletin No. 76. I covenant with
Parent that I will not sell, transfer or otherwise
dispose of any 10% Shares during the period
commencing from the Effective Time and ending on the
last day of the Pooling Period except in compliance
with Rule 145(d)(i) under the Act or pursuant to
charitable contributions or bona fide gifts.
H. Execution of this letter should not be
considered an admission on my part that I am an
"affiliate" of FDC as described in the first
paragraph of this letter, nor as a waiver of any
rights I may have to object to any claim that I am
such an affiliate on or after the date of this
letter.
2. By Parent's acceptance of this letter,
Parent hereby agrees with me as follows:
A. For so long as and to the extent necessary
to permit me to sell the shares of Parent Common
Stock pursuant to Rule 145 and, to the extent
applicable, Rule 144 under the Act, Parent shall (a)
use its reasonable best efforts to (i) file, on a
timely basis, all reports and data required to be
filed with the Commission by it pursuant to Section
13 of the Securities Exchange Act of 1934, as
amended and (ii) furnish to me upon request a
written statement as to whether Parent has complied
with such reporting requirements during the 12
months preceding any proposed sale of the shares of
Parent Common Stock by me under Rule 145, and (b)
otherwise use its reasonable efforts to permit such
sales pursuant to Rule 145 and Rule 144.
B. It is understood and agreed that
certificates with the legends set forth in
paragraphs E and F above will be substituted by
delivery of certificates without such legend if (i)
one year shall have elapsed from the date the
undersigned acquired the Parent Stock received in
the FDC Merger and the provisions of Rule 145(d)(2)
are then available to the undersigned, (ii) two
years shall have elapsed from the date the
undersigned acquired the shares of Parent Common
Stock received in the FDC Merger and the provisions
of Rule 145(d)(3) are then applicable to the
undersigned, or (iii) Parent has received either an
opinion of counsel, which opinion and counsel shall
be reasonably satisfactory to R&B and Parent, or a
"no-action" letter obtained by the undersigned from
the staff of the Commission, to the effect that the
restrictions imposed by Rule 144 and Rule 145 under
the Act no longer apply to the undersigned.
Very truly yours,
Name:
Agreed and accepted this __ day
of ___________, 1997, by
R&B FALCON CORPORATION
By:
Name:
Title:
READING & BATES CORPORATION
By:
Name:
Title:
FALCON DRILLING COMPANY, INC.
By: ________________________________
Name:
Title:
ANNEX B
CREDIT SUISSE FIRST BOSTON CORPORATION
Eleven Madison Avenue Telephone 212 325 0000
New York, NY 10010-3629
November 20, 1997
Board of Directors
Falcon Drilling Company, Inc.
1900 West Loop South, Suite 1800
Houston, Texas 77027
Members of the Board:
You have asked us to advise you with respect to the fairness from a
financial point of view to the stockholders of Falcon Drilling Company,
Inc. ("FDC") of the Combination Ratio (as defined below) provided for in
the agreement and plan of merger dated as of July 10, 1997 (the "Merger
Agreement") among R&B Falcon Corporation ("Parent"), FDC Acquisition Corp.,
a wholly owned subsidiary of Parent ("SubF"), Reading & Bates Acquisition
Corp., a wholly owned subsidiary of Parent ("SubR"), FDC and Reading &
Bates Corporation ("R&B"). The Merger Agreement provides for, among other
things, (i) the merger of SubF with and into FDC pursuant to which FDC will
become a wholly owned subsidiary of Parent (the "FDC Merger") and each
outstanding share of common stock, $0.01 par value, of FDC will be
converted into one share (the "FDC Exchange Ratio") of the common stock of
Parent (the "Parent Common Stock") and (ii) the merger of SubR with and
into R&B pursuant to which R&B will become a wholly owned subsidiary of
Parent (the "R&B Merger" and, together with the FDC Merger, the "Mergers")
and each outstanding share of common stock, $.05 par value, of R&B will be
converted into 1.18 shares (the "R&B Exchange Ratio") of Parent Common
Stock. The FDC Exchange Ratio, together with the R&B Exchange Ratio, is
hereinafter referred to as the Combination Ratio. In connection with the
Mergers, each of FDC and R&B also entered into agreements (the "Option
Agreements") pursuant to which each of FDC and R&B granted to the other an
option to acquire up to 19.9% of its outstanding shares of common stock.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to FDC and R&B, as well as the
Merger Agreement and the Option Agreements. We have also reviewed certain
other information, including financial forecasts for FDC and R&B and the
synergistic values and operating cost savings expected to be achieved
through the combination of operations of FDC and R&B, provided to us by FDC
and R&B, and have met with the managements of FDC and R&B to discuss the
businesses and prospects of FDC and R&B as well as such synergistic values
and operating cost savings.
We have also considered certain financial and stock market data of FDC and
R&B, and we have compared those data with similar data for other publicly
held companies in businesses similar to FDC and R&B, and we have considered
the financial terms of certain other business combinations and other
transactions which have recently been effected. We have also considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria which we have deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing and have relied on its
being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of FDC and R&B as to the future financial
performance of FDC and R&B as well as the synergistic values and operating
cost savings expected to be achieved through the combination of the
operations of FDC and R&B. In addition, we have not made an independent
evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of FDC or R&B, nor have we been furnished with any such
evaluations or appraisals. Our opinion is necessarily based upon
information available to us, and financial, economic, market and other
conditions as they exist and can be evaluated on the date hereof. We are
not expressing any opinion as to the actual value of the Parent Common
Stock when issued pursuant to the Mergers or the prices at which the Parent
Common Stock will trade subsequent to the Mergers. We have assumed, with
your consent, that the Mergers will qualify as tax-free reorganizations
pursuant to sections 351 and 368 of the Internal Revenue Code of 1986, as
amended.
We have acted as financial advisor to FDC in connection with the Mergers
and will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Mergers. We also acted as lead
manager for FDC's public offering of its common stock in December 1996. In
the ordinary course of its business, Credit Suisse First Boston Corporation
and its affiliates may actively trade the debt and equity securities of
both FDC and R&B for their own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
It is understood that this letter is for the information of the Board of
Directors of FDC in connection with its evaluation of the Mergers, does not
constitute a recommendation to any stockholder of FDC as to how such
stockholder should vote with respect to the FDC Merger, and is not to be
quoted or referred to, in whole or in part, in any registration statement,
prospectus or proxy statement, or in any other document used in connection
with the offering or sale of securities, nor shall this letter be used for
any other purposes, without our prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Combination Ratio is fair to the stockholders of FDC from
a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
ANNEX C
[Letterhead of Morgan Stanley & Co. Incorporated]
July 10, 1997
Board of Directors
Reading & Bates Corporation
901 Threadneedle, Suite 200
Houston, Texas 77079-2902
Members of the Board:
We understand that Reading & Bates Corporation ("R&B" or
the "Company"), Falcon Drilling Company, Inc. ("Falcon"),
R&B Falcon Corporation ("Parent"), FDC Acquisition Corp.
("SubF") and R&B Acquisition Corp. ("SubR"), both wholly
owned subsidiaries of Parent, propose to enter into an
Agreement and Plan of Merger, substantially in the form
of the draft dated as of July 10, 1997 (the "Merger
Agreement"), which provides, among other things, for (i)
the merger of SubF with and into Falcon (the "Falcon
Merger"), whereby each outstanding share of common stock,
par value $0.01 per share, of Falcon (the "Falcon Common
Stock"), other than shares held in treasury or by R&B
will be converted into one share of common stock, par
value $0.01 per share, of Parent (the "Parent Common
Stock") (the "Falcon Merger Consideration"), and (ii) the
merger of SubR with and into R&B (the "R&B Merger", and
together with the Falcon Merger, the "Mergers"), whereby
each outstanding share of common stock, par value $0.05,
per share, of R&B (the "R&B Common Stock"), other than
shares held in treasury or by Falcon will be converted
into 1.18 shares of Parent Common Stock (the "R&B Merger
Consideration"). The terms and conditions of the Mergers
are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the R&B
Merger Consideration pursuant to the Merger Agreement is
fair from a financial point of view to holders of R&B
Common Stock.
For purposes of the opinion set forth herein, we have:
i) reviewed certain publicly available financial
statements and other information of R&B and
Falcon;
ii) reviewed certain internal financial statements
and other financial and operating data
concerning R&B and Falcon prepared by the
managements of R&B and Falcon, respectively;
iii) analyzed certain financial projections prepared
by the managements of R&B and Falcon,
respectively;
iv) discussed the past and current operations and
financial condition and the prospects of R&B
and Falcon with senior executives of R&B and
Falcon, respectively;
v) reviewed the reported prices and trading
activity for the R&B Common Stock and Falcon
Common Stock;
vi) compared the financial performance of R&B and
Falcon and the prices and trading activity R&B
Common Stock and Falcon Common Stock with that
of certain other comparable publicly-traded
companies and their securities;
vii) reviewed the financial terms, to the extent
public available, of certain comparable
acquisition transactions;
viii) participated in discussions and
negotiations among representatives of R&B
and Falcon and their financial and legal
advisors;
ix) reviewed the draft Merger Agreement and certain
related documents; and
x) performed such other analyses and considered
such other factors as we have deemed
appropriate.
We have assumed and relied upon without independent
verification the accuracy and completeness of the
information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we
have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates
and judgments of the future financial performance of R&B
and Falcon. We have not made any independent valuation
or appraisal of the assets or liabilities of R&B or
Falcon, nor have we have been furnished with any such
appraisals. Our opinion is necessarily based on
economic, market and other conditions as in effect on,
and the information made available to us as of, the date
hereof.
In arriving at our opinion, we were not authorized to
solicit, and did not solicit, interest from any party
with respect to the acquisition of the Company or any of
its assets, nor did we negotiate with any of the parties,
other than Falcon, which expressed interest to us in the
possible acquisition of or merger with the Company or
certain of its constituent businesses.
We have acted as financial advisor to the Board of
Directors of the Company in connection with this
transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its
affiliates have provided financial advisory services for
the Company and have received fees for the rendering of
these services.
It is understood that this letter is for the information
of the Board of Directors of the Company except that this
opinion may be included in its entirety in any filing
made by R&B with the Securities and Exchange Commission
with respect to the Mergers. In addition, we express no
opinion or recommendation as to how the holders of R&B
Common Stock should vote at the stockholder's meeting
held in connection with the Mergers.
Based on the foregoing, we are of the opinion on the date
hereof that the R&B Merger Consideration pursuant to the
Merger Agreement is fair from a financial point of view
to holders of R&B Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
ANNEX D
FALCON STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of July 10, 1997
(the "Agreement"), between FALCON DRILLING COMPANY, INC.,
a Delaware corporation ("Issuer"), and READING & BATES
CORPORATION, a Delaware corporation ("Grantee").
RECITALS
A. Issuer and Grantee have entered into an
Agreement and Plan of Merger, dated as of the date hereof
(the "Merger Agreement"; defined terms used but not
defined herein have the meanings set forth in the Merger
Agreement), providing for, among other things, each of
FDC and R&B to become subsidiaries of Parent pursuant to
the Mergers;
B. As a condition and inducement to Grantee's
willingness to enter into the Merger Agreement and the
R&B Option Agreement (as defined below), Grantee has
requested that Issuer agree, and Issuer has agreed, to
grant Grantee the Option (as defined below); and
C. As a condition and inducement to Issuer's
willingness to enter into the Merger Agreement and this
Agreement, Issuer has requested that Grantee agree, and
Grantee has agreed to, grant Issuer an option to purchase
shares of Grantee's common stock on substantially the
same terms as the Option (the "R&B Option Agreement");
NOW, THEREFORE, in consideration of the foregoing
and the respective representations, warranties, covenants
and agreements set forth herein, Issuer and Grantee agree
as follows:
1. Grant of Option. Subject to the terms and
conditions set forth herein, Issuer hereby grants to
Grantee an irrevocable option (the "Option") to purchase
up to 15,753,823 (after giving effect to the two-for-one
stock split to holders of record of FDC Common Stock on
July 9, 1997) (as adjusted as set forth herein) shares
(the "Option Shares") of Common Stock, par value $0.01
per share ("Issuer Common Stock"), of Issuer at a
purchase price of $27.78 (as adjusted as set forth
herein) per Option Share (the "Purchase Price").
2. Exercise of Option. (a) Grantee may exercise
the Option, with respect to any or all of the Option
Shares at any one time, subject to the provisions of
Section 2(c), after an FDC Takeover Proposal shall have
been made known to FDC or any of its subsidiaries or has
been made directly to its stockholders generally or any
person shall have publicly announced an intention
(whether or not conditional) to make an FDC Takeover
Proposal; provided, however, that (i) except as provided
in the last sentence of this Section 2(a), the Option
will terminate and be of no further force and effect upon
the earliest to occur of (A) the Effective Time, (B) six
months after the first occurrence of a Purchase Event (as
defined herein) occurs, and (C) termination of the Merger
Agreement in accordance with its terms prior to the
occurrence of a Purchase Event, unless, in the case of
clause (C), the Grantee has the right to receive a
Termination Fee following such termination upon the
occurrence of certain events, in which case the Option
will not terminate until the later of (x) six months
following the time such Termination Fee becomes payable
and (y) the expiration of the period in which the Grantee
has such right to receive a Termination Fee, and (ii) any
purchase of Option Shares upon exercise of the Option
will be subject to compliance with HSR and the obtaining
or making of any consents, approvals, orders,
notifications or authorizations, the failure of which to
have obtained or made would have the effect of making the
issuance of Option Shares illegal (the "Regulatory
Approvals"). Notwithstanding the termination of the
Option, Grantee will be entitled to purchase the Option
Shares if it has exercised the Option in accordance with
the terms hereof prior to the termination of the Option,
and the termination of the Option will not affect any
rights hereunder which by their terms do not terminate or
expire prior to or as of such termination.
(b) In the event that Grantee wishes to
exercise the Option, it will send to Issuer a written
notice (an "Exercise Notice"; the date of which being
herein referred to as the "Notice Date") to that effect
which Exercise Notice also specifies the number of Option
Shares, if any, Grantee wishes to purchase pursuant to
this Section 2(b), the number of Option Shares, if any,
with respect to which Grantee wishes to exercise its
Cash-Out Right (as defined herein) pursuant to Section
6(c), the denominations of the certificate or
certificates evidencing the Option Shares which Grantee
wishes to purchase pursuant to this Section 2(b) and a
date not earlier than three business days nor later than
20 business days from the Notice Date for the closing of
such purchase (an "Option Closing Date"). Any Option
Closing will be at an agreed location and time in New
York, New York on the applicable Option Closing Date or
at such later date as may be necessary so as to comply
with clause (ii) of Section 2(a).
(c) Notwithstanding anything to the contrary
contained herein, any exercise of the Option and purchase
of Option Shares shall be subject to compliance with
applicable laws and regulations, which may prohibit the
purchase of all the Option Shares specified in the
Exercise Notice without first obtaining or making certain
Regulatory Approvals. In such event, if the Option is
otherwise exercisable and Grantee wishes to exercise the
Option, the Option may be exercised in accordance with
Section 2(b) and Grantee shall acquire the maximum number
of Option Shares specified in the Exercise Notice that
Grantee is then permitted to acquire under the applicable
laws and regulations, and if Grantee thereafter obtains
the Regulatory Approvals to acquire the remaining balance
of the Option Shares specified in the Exercise Notice,
then Grantee shall be entitled to acquire such remaining
balance. Issuer agrees to use its best efforts to assist
Grantee in seeking the Regulatory Approvals.
In the event (i) Grantee receives official notice
that a Regulatory Approval required for the purchase of
any Option Shares will not be issued or granted or (ii)
such Regulatory Approval has not been issued or granted
within six months of the date of the Exercise Notice,
Grantee shall have the right to exercise its Cash-Out
Right pursuant to Section 6(c) with respect to the Option
Shares for which such Regulatory Approval will not be
issued or granted or has not been issued or granted.
3. Payment and Delivery of Certificates. (a) At
any Option Closing, Grantee will pay to Issuer in
immediately available funds by wire transfer to a bank
account designated in writing by Issuer an amount equal
to the Purchase Price multiplied by the number of Option
Shares to be purchased at such Option Closing.
(b) At any Option Closing, simultaneously with
the delivery of immediately available funds as provided
in Section 3(a), Issuer will deliver to Grantee a
certificate or certificates representing the Option
Shares to be purchased at such Option Closing, which
Option Shares will be free and clear of all liens,
claims, charges and encumbrances of any kind whatsoever.
If at the time of issuance of Option Shares pursuant to
an exercise of the Option hereunder, Issuer shall not
have issued any securities similar to rights under a
shareholder rights plan, then each Option Share issued
pursuant to such exercise will also represent such a
corresponding right with terms substantially the same as
and at least as favorable to Grantee as are provided
under any Issuer shareholder rights agreement or any
similar agreement then in effect.
(c) Certificates for the Option Shares
delivered at an Option Closing will have typed or printed
thereon a restrictive legend which will read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD ONLY
IF SO REGISTERED OR IF ANY EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS
SET FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF
JULY 10, 1997, A COPY OF WHICH MAY BE OBTAINED FROM
THE SECRETARY OF FALCON DRILLING COMPANY, INC. AT
ITS PRINCIPAL EXECUTIVE OFFICES."
It is understood and agreed that (i) the reference to
restrictions arising under the Securities Act in the
above legend will be removed by delivery of substitute
certificate(s) without such reference if such Option
Shares have been registered pursuant to the Securities
Act, such Option Shares have been sold in reliance on and
in accordance with Rule 144 under the Securities Act or
Grantee has delivered to Issuer a copy of a letter from
the staff of the SEC, or an opinion of counsel in form
and substance reasonably satisfactory to Issuer and its
counsel, to the effect that such legend is not required
for purposes of the Securities Act and (ii) the reference
to restrictions pursuant to this Agreement in the above
legend will be removed by delivery of substitute
certificate(s) without such reference if the Option
Shares evidenced by certificate(s) containing such
reference have been sold or transferred in compliance
with the provisions of this Agreement under circumstances
that do not require the retention of such reference.
4. Representations and Warranties of Issuer.
Issuer hereby represents and warrants to Grantee as
follows:
(a) Corporate Authorization. Issuer has the
corporate power and authority to enter into this
Agreement and to carry out its obligations
hereunder. The execution and delivery of this
Agreement and the consummation of the transactions
contemplated hereby have been duly and validly
authorized by the Board of Directors of Issuer, and
no other corporate proceedings on the part of Issuer
are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by
Issuer, and assuming this Agreement constitutes a
valid and binding agreement of Grantee, this
Agreement constitutes a valid and binding agreement
of Issuer, enforceable against Issuer in accordance
with its terms (except insofar as enforceability may
be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
creditors' rights generally, or by principles
governing the availability of equitable remedies).
(b) Authorized Stock. Issuer has taken all
necessary corporate and other action to authorize
and reserve and, subject to the expiration or
termination of any required waiting period under the
HSR Act, to permit it to issue, and, at all times
from the date hereof until the obligation to deliver
Option Shares upon the exercise of the Option
terminates, shall have reserved for issuance, upon
exercise of the Option, shares of Issuer Common
Stock necessary for Grantee to exercise the Option,
and Issuer will take all necessary corporate action
to authorize and reserve for issuance all additional
shares of Issuer Common Stock or other securities
which may be issued pursuant to Section 6 upon
exercise of the Option. The shares of Issuer Common
Stock to be issued upon due exercise of the Option,
including all additional shares of Issuer Common
Stock or other securities which may be issuable upon
exercise of the Option or any other securities which
may be issued pursuant to Section 6, upon issuance
pursuant hereto, will be duly and validly issued,
fully paid and nonassessable, and will be delivered
free and clear of all liens, claims, charges and
encumbrances of any kind or nature whatsoever,
including without limitation any preemptive rights
of any stockholder of Issuer.
5. Representations and Warranties of Grantee.
Grantee hereby represents and warrants to Issuer that:
(a) Corporate Authorization. Grantee has the
corporate power and authority to enter into this
Agreement and to carry out its obligations
hereunder. The execution and delivery of this
Agreement and the consummation of the transactions
contemplated hereby have been duly and validly
authorized by the Board of Directors of Grantee, and
no other corporate proceedings on the part of
Grantee are necessary to authorize this Agreement
and the transactions contemplated hereby. This
Agreement has been duly and validly executed and
delivered by Grantee, and assuming this Agreement
constitutes a valid and binding agreement of Issuer,
this Agreement constitutes a valid and binding
agreement of Grantee, enforceable against Grantee in
accordance with its terms (except insofar as
enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights
generally, or by principles governing the
availability of equitable remedies).
(b) Purchase Not for Distribution. Any Option
Shares or other securities acquired by Grantee upon
exercise of the Option will not be transferred or
otherwise disposed of except in a transaction
registered, or exempt from registration, under the
Securities Act.
6. Adjustment upon Changes in Capitalization, Etc.
(a) In the event of any changes in Issuer Common Stock
by reason of a stock dividend, reverse stock split,
merger, recapitalization, combination, exchange of
shares, or similar transaction, the type and number of
shares or securities subject to the Option, and the
Purchase Price therefor, will be adjusted appropriately,
and proper provision will be made in the agreements
governing such transaction, so that Grantee will receive
upon exercise of the Option the number and class of
shares or other securities or property that Grantee would
have received with respect to Issuer Common Stock if the
Option had been exercised immediately prior to such event
or the record date therefor, as applicable. Subject to
Section 1, and without limiting the parties' relative
rights and obligations under the Merger Agreement, if any
additional shares of Issuer Common Stock are issued after
the date of this Agreement (other than pursuant to an
event described in the first sentence of this Section
6(a)), the number of shares of Issuer Common Stock
subject to the Option will be adjusted so that, after
such issuance, it equals 19.9% of the number of shares of
Issuer Common Stock then issued and outstanding, without
giving effect to any shares subject to or issued pursuant
to the Option.
(b) Without limiting the parties' relative rights
and obligations under the Merger Agreement, in the event
that the Issuer enters into an agreement (i) to
consolidate with or merge into any person, other than
Grantee or one of its subsidiaries, and Issuer will not
be the continuing or surviving corporation in such
consolidation or merger, (ii) to permit any person, other
than Grantee or one of its subsidiaries, to merge into
Issuer and Issuer will be the continuing or surviving
corporation, but in connection with such merger, the
shares of Issuer Common Stock outstanding immediately
prior to the consummation of such merger will be changed
into or exchanged for stock or other securities of Issuer
or any other person or cash or any other property, or the
shares of Issuer Common Stock outstanding immediately
prior to the consummation of such merger will, after such
merger represent less than 50% of the outstanding voting
securities of the merged company, or (iii) to sell or
otherwise transfer all or substantially all of its assets
to any person, other than Grantee or one of its
subsidiaries, then, and in each such case, the agreement
governing such transaction will make proper provision so
that the Option will, upon the consummation of any such
transaction and upon the terms and condition set forth
herein, be converted into, or exchanged for, an option
with identical terms appropriately adjusted to acquire
the number and class of shares or other securities or
property that Grantee would have received in respect of
Issuer Common Stock if the Option had been exercised
immediately prior to such consolidation, merger, sale, or
transfer, or the record date therefor, as applicable and
make any other necessary adjustments.
(c) If, at any time during the period commencing
on the occurrence of an event as a result of which
Grantee is entitled to receive the Termination Fee
pursuant to Section 8.3 of the Merger Agreement (the
"Purchase Event") and ending on the termination of the
Option in accordance with Section 2, Grantee sends to
Issuer an Exercise Notice indicating Grantee's election
to exercise its right (the "Cash-Out-Right") pursuant to
this Section 6(c), then Issuer shall pay to Grantee, on
the Option Closing Date, in exchange for the cancellation
of the Option with respect to such number of Option
Shares as Grantee specifies in the Exercise Notice, an
amount in cash equal to such number of Option Shares
multiplied by the difference between (i) the average
closing price, for the 10 NYSE trading days commencing on
the 12th NYSE trading day immediately preceding the
Notice Date, per share of Issuer Common Stock as reported
on the NYSE Composite Transactions Tape (or, if not
listed on the NYSE, as reported on any other national
securities exchange or national securities quotation
system on which the Issuer Common Stock is listed or
quoted, as reported in The Wall Street Journal (Northeast
edition), or, if not reported thereby, any other
authoritative source) (the "Closing Price") and (ii) the
Purchase Price. Notwithstanding the termination of the
Option, Grantee will be entitled to exercise its rights
under this Section 6(c) if it has exercised such rights
in accordance with the terms hereof prior to the
termination of the Option.
7. Registration Rights. Issuer will, if requested
by Grantee at any time and from time to time within three
years of the exercise of the Option, as expeditiously as
possible prepare and file up to three registration
statements under the Securities Act if such registration
is necessary in order to permit the sale or other
disposition of any or all shares of securities that have
been acquired by or are issuable to Grantee upon exercise
of the Option in accordance with the intended method of
sale or other disposition stated by Grantee, including a
"shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and Issuer
will use its best efforts to qualify such shares or other
securities under any applicable state securities laws.
Grantee agrees to use reasonable efforts to cause, and to
cause any underwriters of any sale or other disposition
to cause, any sale or other disposition pursuant to such
registration statement to be effected on a widely
distributed basis so that upon consummation thereof no
purchaser or transferee will own beneficially more than
4.9% of the then outstanding voting power of Issuer.
Issuer will use reasonable efforts to cause each such
registration statement to become effective, to obtain all
consents or waivers of other parties which are required
therefor, and to keep such registration statement
effective for such period not in excess of 180 calendar
days from the day such registration statement first
becomes effective as may be reasonably necessary to
effect such sale or other disposition. The obligations
of Issuer hereunder to file a registration statement and
to maintain its effectiveness may be suspended for up to
60 calendar days in the aggregate if the Board of
Directors of Issuer shall have determined that the filing
of such registration statement or the maintenance of its
effectiveness would require premature disclosure of
material nonpublic information that would materially and
adversely affect Issuer or otherwise interfere with or
adversely affect any pending or proposed offering of
securities of Issuer or any other material transaction
involving Issuer. Any registration statement prepared
and filed under this Section 7, and any sale covered
thereby, will be at Issuer's expense except for
underwriting discounts or commissions, brokers' fees and
the fees and disbursements of Grantee's counsel related
thereto. Grantee will provide all information reasonably
requested by Issuer for inclusion in any registration
statement to be filed hereunder. If, during the time
periods referred to in the first sentence of this Section
7, Issuer effects a registration under the Securities Act
of Issuer Common Stock for its own account or for any
other stockholders of Issuer (other than on Form S-4 or
Form S-8, or any successor form), it will allow Grantee
the right to participate in such registration, and such
participation will not affect the obligation of Issuer to
effect demand registration statements for Grantee under
this Section 7; provided that, if the managing
underwriters of such offering advise Issuer in writing
that in their opinion the number of shares of Issuer
Common Stock requested to be included in such
registration exceeds the number which can be sold in such
offering, Issuer will include the shares requested to be
included therein by Grantee pro rata with the shares
intended to be included therein by Issuer. In connection
with any registration pursuant to this Section 7, Issuer
and Grantee will provide each other and any underwriter
of the offering with customary representations,
warranties, covenants, indemnification, and contribution
in connection with such registration.
8. Transfers. The Option Shares may not be sold,
assigned, transferred, or otherwise disposed of except
(i) in an underwritten public offering as provided in
Section 7 or (ii) to any purchaser or transferee who
would not, to the knowledge of the Grantee after
reasonable inquiry, immediately following such sale,
assignment, transfer or disposal beneficially own more
than 4.9% of the then-outstanding voting power of the
Issuer; provided, however, that Grantee shall be
permitted to sell any Option Shares if such sale is made
pursuant to a tender or exchange offer that has been
approved or recommended by a majority of the members of
the Board of Directors of Issuer (which majority shall
include a majority of directors who were directors as of
the date hereof).
9. Listing. If Issuer Common Stock or any other
securities to be acquired upon exercise of the Option are
then listed on the NYSE (or any other national securities
exchange or national securities quotation system),
Issuer, upon the request of Grantee, will promptly file
an application to list the shares of Issuer Common Stock
or other securities to be acquired upon exercise of the
Option on the NYSE (and any such other national
securities exchange or national securities quotation
system) and will use reasonable efforts to obtain
approval of such listing as promptly as practicable.
10. Miscellaneous. (a) Expenses. Except as
otherwise provided in the Merger Agreement, each of the
parties hereto will pay all costs and expenses incurred
by it or on its behalf in connection with the
transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment
bankers, accountants and counsel.
(b) Amendment. This Agreement may not be
amended, except by an instrument in writing signed on
behalf of each of the parties.
(c) Extension; Waiver. Any agreement on the part
of a party to waive any provision of this Agreement, or
to extend the time for performance, will be valid only if
set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement
to assert any of its rights under this Agreement or
otherwise will not constitute a waiver of such rights.
(d) Entire Agreement; No Third-Party
Beneficiaries. This Agreement, the Merger Agreement
(including the documents and instruments attached thereto
as exhibits or schedules or delivered in connection
therewith) and the Confidentiality Agreement (i)
constitute the entire agreement, and supersede all prior
agreements and understandings, both written and oral,
between the parties with respect to the subject matter of
this Agreement, and (ii) except as provided in Section
9.9 of the Merger Agreement, are not intended to confer
upon any person other than the parties any rights or
remedies.
(e) Governing Law. This Agreement will be
governed by, and construed in accordance with, the laws
of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of
conflict of laws thereof.
(f) Notices. All notices, requests, claims,
demands, and other communications under this Agreement
must be in writing and will be deemed given if delivered
personally, telecopied (which is confirmed), or sent by
overnight courier (providing proof of delivery) to the
parties at the following addresses (or at such other
address for a party as shall be specified by like
notice):
If to Issuer to:
Falcon Drilling Company, Inc.
1900 West Loop South
Suite 1800
Houston, Texas 77027
Attention: Chairman and Chief Executive Officer
Fax: (713) 623-8103
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: J. Michael Schell
Fax: (212) 735-2000
If to Grantee to:
Reading & Bates Corporation
901 Threadneedle
Suite 200
Houston, Texas 77079
Attention: Chairman and Chief Executive Officer
Fax: (281) 496-0285
with copies to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Allen Finkelson
Fax: (212) 474-3700
(g) Assignment. Neither this Agreement, the
Option nor any of the rights, interests, or obligations
under this Agreement may be assigned, transferred or
delegated, in whole or in part, by operation of law or
otherwise, by Issuer or Grantee without the prior written
consent of the other. Any assignment, transfer or
delegation in violation of the preceding sentence will be
void. Subject to the first and second sentences of this
Section 10(g), this Agreement will be binding upon, inure
to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
(h) Further Assurances. In the event of any
exercise of the Option by Grantee, Issuer and Grantee
will execute and deliver all other documents and
instruments and take all other action that may be
reasonably necessary in order to consummate the
transactions provided for by such exercise.
(i) Enforcement. The parties agree that
irreparable damage would occur and that the parties would
not have any adequate remedy at law in the event that any
of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties will
be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal
court located in the State of Delaware or in Delaware
state court, the foregoing being in addition to any other
remedy to which they are entitled at law or in equity.
In addition, each of the parties hereto (i) consents to
submit itself to the personal jurisdiction of any Federal
court located in the State of Delaware or any Delaware
state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this
Agreement, (ii) agrees that it will not attempt to deny
or defeat such personal jurisdiction by motion or other
request for leave from any such court, and (iii) agrees
that it will not bring any action relating to this
Agreement or any of the transactions contemplated by this
Agreement in any court other than a Federal court sitting
in the State of Delaware or a Delaware state court.
IN WITNESS WHEREOF, Issuer and Grantee have caused
this Agreement to be signed by their respective officers
thereunto duly authorized as of the day and year first
written above.
FALCON DRILLING COMPANY, INC.
By: /s/ Steven A. Webster
Name: Steven A. Webster
Title: Chief Executive Officer
READING & BATES CORPORATION
By: /s/ Paul B. Loyd, Jr.
Name: Paul B. Loyd, Jr.
Title: Chief Executive Officer
ANNEX E
READING & BATES STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of July 10, 1997
(the "Agreement"), between READING & BATES CORPORATION, a
Delaware corporation ("Issuer"), and FALCON DRILLING
COMPANY, INC., a Delaware corporation ("Grantee").
RECITALS
A. Issuer and Grantee have entered into an
Agreement and Plan of Merger, dated as of the date hereof
(the "Merger Agreement"; defined terms used but not
defined herein have the meanings set forth in the Merger
Agreement), providing for, among other things, each of
FDC and R&B to become subsidiaries of Parent pursuant to
the Mergers ;
B. As a condition and inducement to Grantee's
willingness to enter into the Merger Agreement and the
FDC Option Agreement (as defined below), Grantee has
requested that Issuer agree, and Issuer has agreed, to
grant Grantee the Option (as defined below); and
C. As a condition and inducement to Issuer's
willingness to enter into the Merger Agreement and this
Agreement, Issuer has requested that Grantee agree, and
Grantee has agreed to, grant Issuer an option to purchase
shares of Grantee's common stock on substantially the
same terms as the Option (the "FDC Option Agreement");
NOW, THEREFORE, in consideration of the foregoing
and the respective representations, warranties, covenants
and agreements set forth herein, Issuer and Grantee agree
as follows:
1. Grant of Option. Subject to the terms and
conditions set forth herein, Issuer hereby grants to
Grantee an irrevocable option (the "Option") to purchase
up to 14,340,154 (as adjusted as set forth herein) shares
(the "Option Shares") of Common Stock, par value $0.05
per share ("Issuer Common Stock"), of Issuer at a
purchase price of $34.00 (as adjusted as set forth
herein) per Option Share (the "Purchase Price").
2. Exercise of Option. (a) Grantee may exercise
the Option, with respect to any or all of the Option
Shares at any one time, subject to the provisions of
Section 2(c), after an R&B Takeover Proposal shall have
been made known to R&B or any of its subsidiaries or has
been made directly to its stockholders generally or any
person shall have publicly announced an intention
(whether or not conditional) to make an R&B Takeover
Proposal; provided, however, that (i) except as provided
in the last sentence of this Section 2(a), the Option
will terminate and be of no further force and effect upon
the earliest to occur of (A) the Effective Time, (B) six
months after the date on which the Purchase Event (as
defined herein) occurs, and (C) termination of the Merger
Agreement in accordance with its terms prior to the
occurrence of a Purchase Event, unless, in the case of
clause (C), the Grantee has the right to receive a
Termination Fee following such termination upon the
occurrence of certain events, in which case the Option
will not terminate until the later of (x) six months
following the time such Termination Fee becomes payable
and (y) the expiration of the period in which the Grantee
has such right to receive a Termination Fee, and (ii) any
purchase of Option Shares upon exercise of the Option
will be subject to compliance with HSR and the obtaining
or making of any consents, approvals, orders,
notifications or authorizations, the failure of which to
have obtained or made would have the effect of making the
issuance of Option Shares illegal (the "Regulatory
Approvals"). Notwithstanding the termination of the
Option, Grantee will be entitled to purchase the Option
Shares if it has exercised the Option in accordance with
the terms hereof prior to the termination of the Option,
and the termination of the Option will not affect any
rights hereunder which by their terms do not terminate or
expire prior to or as of such termination.
(b) In the event that Grantee wishes to
exercise the Option, it will send to Issuer a written
notice (an "Exercise Notice"; the date of which being
herein referred to as the "Notice Date") to that effect
which Exercise Notice also specifies the number of Option
Shares, if any, Grantee wishes to purchase pursuant to
this Section 2(b), the number of Option Shares, if any,
with respect to which Grantee wishes to exercise its
Cash-Out Right (as defined herein) pursuant to Section
6(c), the denominations of the certificate or
certificates evidencing the Option Shares which Grantee
wishes to purchase pursuant to this Section 2(b) and a
date not earlier than three business days nor later than
20 business days from the Notice Date for the closing of
such purchase (an "Option Closing Date"). Any Option
Closing will be at an agreed location and time in New
York, New York on the applicable Option Closing Date or
at such later date as may be necessary so as to comply
with clause (ii) of Section 2(a).
(c) Notwithstanding anything to the contrary
contained herein, any exercise of the Option and purchase
of Option Shares shall be subject to compliance with
applicable laws and regulations, which may prohibit the
purchase of all the Option Shares specified in the
Exercise Notice without first obtaining or making certain
Regulatory Approvals. In such event, if the Option is
otherwise exercisable and Grantee wishes to exercise the
Option, the Option may be exercised in accordance with
Section 2(b) and Grantee shall acquire the maximum number
of Option Shares specified in the Exercise Notice that
Grantee is then permitted to acquire under the applicable
laws and regulations, and if Grantee thereafter obtains
the Regulatory Approvals to acquire the remaining balance
of the Option Shares specified in the Exercise Notice,
then Grantee shall be entitled to acquire such remaining
balance. Issuer agrees to use its best efforts to assist
Grantee in seeking the Regulatory Approvals.
In the event (i) Grantee receives official notice
that a Regulatory Approval required for the purchase of
any Option Shares will not be issued or granted or (ii)
such Regulatory Approval has not been issued or granted
within six months of the date of the Exercise Notice,
Grantee shall have the right to exercise its Cash-Out
Right pursuant to Section 6(c) with respect to the Option
Shares for which such Regulatory Approval will not be
issued or granted or has not been issued or granted.
3. Payment and Delivery of Certificates. (a) At
any Option Closing, Grantee will pay to Issuer in
immediately available funds by wire transfer to a bank
account designated in writing by Issuer an amount equal
to the Purchase Price multiplied by the number of Option
Shares to be purchased at such Option Closing.
(b) At any Option Closing, simultaneously with
the delivery of immediately available funds as provided
in Section 3(a), Issuer will deliver to Grantee a
certificate or certificates representing the Option
Shares to be purchased at such Option Closing, which
Option Shares will be free and clear of all liens,
claims, charges and encumbrances of any kind whatsoever.
If at the time of issuance of Option Shares pursuant to
an exercise of the Option hereunder, Issuer shall not
have issued any securities similar to rights under a
shareholder rights plan, then each Option Share issued
pursuant to such exercise will also represent such a
corresponding right with terms substantially the same as
and at least as favorable to Grantee as are provided
under any Issuer shareholder rights agreement or any
similar agreement then in effect.
(c) Certificates for the Option Shares
delivered at an Option Closing will have typed or printed
thereon a restrictive legend which will read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD ONLY
IF SO REGISTERED OR IF ANY EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS
SET FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF
JULY 10, 1997, A COPY OF WHICH MAY BE OBTAINED FROM
THE SECRETARY OF READING & BATES CORPORATION AT ITS
PRINCIPAL EXECUTIVE OFFICES."
It is understood and agreed that (i) the reference to
restrictions arising under the Securities Act in the
above legend will be removed by delivery of substitute
certificate(s) without such reference if such Option
Shares have been registered pursuant to the Securities
Act, such Option Shares have been sold in reliance on and
in accordance with Rule 144 under the Securities Act or
Grantee has delivered to Issuer a copy of a letter from
the staff of the SEC, or an opinion of counsel in form
and substance reasonably satisfactory to Issuer and its
counsel, to the effect that such legend is not required
for purposes of the Securities Act and (ii) the reference
to restrictions pursuant to this Agreement in the above
legend will be removed by delivery of substitute
certificate(s) without such reference if the Option
Shares evidenced by certificate(s) containing such
reference have been sold or transferred in compliance
with the provisions of this Agreement under circumstances
that do not require the retention of such reference.
4. Representations and Warranties of Issuer.
Issuer hereby represents and warrants to Grantee as
follows:
(a) Corporate Authorization. Issuer has the
corporate power and authority to enter into this
Agreement and to carry out its obligations
hereunder. The execution and delivery of this
Agreement and the consummation of the transactions
contemplated hereby have been duly and validly
authorized by the Board of Directors of Issuer, and
no other corporate proceedings on the part of Issuer
are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by
Issuer, and assuming this Agreement constitutes a
valid and binding agreement of Grantee, this
Agreement constitutes a valid and binding agreement
of Issuer, enforceable against Issuer in accordance
with its terms (except insofar as enforceability may
be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
creditors' rights generally, or by principles
governing the availability of equitable remedies).
(b) Authorized Stock. Issuer has taken all
necessary corporate and other action to authorize
and reserve and, subject to the expiration or
termination of any required waiting period under the
HSR Act, to permit it to issue, and, at all times
from the date hereof until the obligation to deliver
Option Shares upon the exercise of the Option
terminates, shall have reserved for issuance, upon
exercise of the Option, shares of Issuer Common
Stock necessary for Grantee to exercise the Option,
and Issuer will take all necessary corporate action
to authorize and reserve for issuance all additional
shares of Issuer Common Stock or other securities
which may be issued pursuant to Section 6 upon
exercise of the Option. The shares of Issuer Common
Stock to be issued upon due exercise of the Option,
including all additional shares of Issuer Common
Stock or other securities which may be issuable upon
exercise of the Option or any other securities which
may be issued pursuant to Section 6, upon issuance
pursuant hereto, will be duly and validly issued,
fully paid and nonassessable, and will be delivered
free and clear of all liens, claims, charges and
encumbrances of any kind or nature whatsoever,
including without limitation any preemptive rights
of any stockholder of Issuer.
5. Representations and Warranties of Grantee.
Grantee hereby represents and warrants to Issuer that:
(a) Corporate Authorization. Grantee has the
corporate power and authority to enter into this
Agreement and to carry out its obligations
hereunder. The execution and delivery of this
Agreement and the consummation of the transactions
contemplated hereby have been duly and validly
authorized by the Board of Directors of Grantee, and
no other corporate proceedings on the part of
Grantee are necessary to authorize this Agreement
and the transactions contemplated hereby. This
Agreement has been duly and validly executed and
delivered by Grantee, and assuming this Agreement
constitutes a valid and binding agreement of Issuer,
this Agreement constitutes a valid and binding
agreement of Grantee, enforceable against Grantee in
accordance with its terms (except insofar as
enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights
generally, or by principles governing the
availability of equitable remedies).
(b) Purchase Not for Distribution. Any Option
Shares or other securities acquired by Grantee upon
exercise of the Option will not be transferred or
otherwise disposed of except in a transaction
registered, or exempt from registration, under the
Securities Act.
6. Adjustment upon Changes in Capitalization, Etc.
(a) In the event of any changes in Issuer Common Stock
by reason of a stock dividend, reverse stock split,
merger, recapitalization, combination, exchange of
shares, or similar transaction, the type and number of
shares or securities subject to the Option, and the
Purchase Price therefor, will be adjusted appropriately,
and proper provision will be made in the agreements
governing such transaction, so that Grantee will receive
upon exercise of the Option the number and class of
shares or other securities or property that Grantee would
have received with respect to Issuer Common Stock if the
Option had been exercised immediately prior to such event
or the record date therefor, as applicable. Subject to
Section 1, and without limiting the parties' relative
rights and obligations under the Merger Agreement, if any
additional shares of Issuer Common Stock are issued after
the date of this Agreement (other than pursuant to an
event described in the first sentence of this Section
6(a)), the number of shares of Issuer Common Stock
subject to the Option will be adjusted so that, after
such issuance, it equals 19.9% of the number of shares of
Issuer Common Stock then issued and outstanding, without
giving effect to any shares subject to or issued pursuant
to the Option.
(b) Without limiting the parties' relative rights
and obligations under the Merger Agreement, in the event
that the Issuer enters into an agreement (i) to
consolidate with or merge into any person, other than
Grantee or one of its subsidiaries, and Issuer will not
be the continuing or surviving corporation in such
consolidation or merger, (ii) to permit any person, other
than Grantee or one of its subsidiaries, to merge into
Issuer and Issuer will be the continuing or surviving
corporation, but in connection with such merger, the
shares of Issuer Common Stock outstanding immediately
prior to the consummation of such merger will be changed
into or exchanged for stock or other securities of Issuer
or any other person or cash or any other property, or the
shares of Issuer Common Stock outstanding immediately
prior to the consummation of such merger will, after such
merger represent less than 50% of the outstanding voting
securities of the merged company, or (iii) to sell or
otherwise transfer all or substantially all of its assets
to any person, other than Grantee or one of its
subsidiaries, then, and in each such case, the agreement
governing such transaction will make proper provision so
that the Option will, upon the consummation of any such
transaction and upon the terms and condition set forth
herein, be converted into, or exchanged for, an option
with identical terms appropriately adjusted to acquire
the number and class of shares or other securities or
property that Grantee would have received in respect of
Issuer Common Stock if the Option had been exercised
immediately prior to such consolidation, merger, sale, or
transfer, or the record date therefor, as applicable and
make any other necessary adjustments.
(c) If, at any time during the period commencing
on the occurrence of an event as a result of which
Grantee is entitled to receive the Termination Fee
pursuant to Section 8.3 of the Merger Agreement (the
"Purchase Event") and ending on the termination of the
Option in accordance with Section 2, Grantee sends to
Issuer an Exercise Notice indicating Grantee's election
to exercise its right (the "Cash-Out-Right") pursuant to
this Section 6(c), then Issuer shall pay to Grantee, on
the Option Closing Date, in exchange for the cancellation
of the Option with respect to such number of Option
Shares as Grantee specifies in the Exercise Notice, an
amount in cash equal to such number of Option Shares
multiplied by the difference between (i) the average
closing price, for the 10 NYSE trading days commencing on
the 12th NYSE trading day immediately preceding the
Notice Date, per share of Issuer Common Stock as reported
on the NYSE Composite Transactions Tape (or, if not
listed on the NYSE, as reported on any other national
securities exchange or national securities quotation
system on which the Issuer Common Stock is listed or
quoted, as reported in The Wall Street Journal (Northeast
edition), or, if not reported thereby, any other
authoritative source) (the "Closing Price") and (ii) the
Purchase Price. Notwithstanding the termination of the
Option, Grantee will be entitled to exercise its rights
under this Section 6(c) if it has exercised such rights
in accordance with the terms hereof prior to the
termination of the Option.
7. Registration Rights. Issuer will, if requested
by Grantee at any time and from time to time within three
years of the exercise of the Option, as expeditiously as
possible prepare and file up to three registration
statements under the Securities Act if such registration
is necessary in order to permit the sale or other
disposition of any or all shares of securities that have
been acquired by or are issuable to Grantee upon exercise
of the Option in accordance with the intended method of
sale or other disposition stated by Grantee, including a
"shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and Issuer
will use its best efforts to qualify such shares or other
securities under any applicable state securities laws.
Grantee agrees to use reasonable efforts to cause, and to
cause any underwriters of any sale or other disposition
to cause, any sale or other disposition pursuant to such
registration statement to be effected on a widely
distributed basis so that upon consummation thereof no
purchaser or transferee will own beneficially more than
4.9% of the then outstanding voting power of Issuer.
Issuer will use reasonable efforts to cause each such
registration statement to become effective, to obtain all
consents or waivers of other parties which are required
therefor, and to keep such registration statement
effective for such period not in excess of 180 calendar
days from the day such registration statement first
becomes effective as may be reasonably necessary to
effect such sale or other disposition. The obligations
of Issuer hereunder to file a registration statement and
to maintain its effectiveness may be suspended for up to
60 calendar days in the aggregate if the Board of
Directors of Issuer shall have determined that the filing
of such registration statement or the maintenance of its
effectiveness would require premature disclosure of
material nonpublic information that would materially and
adversely affect Issuer or otherwise interfere with or
adversely affect any pending or proposed offering of
securities of Issuer or any other material transaction
involving Issuer. Any registration statement prepared
and filed under this Section 7, and any sale covered
thereby, will be at Issuer's expense except for
underwriting discounts or commissions, brokers' fees and
the fees and disbursements of Grantee's counsel related
thereto. Grantee will provide all information reasonably
requested by Issuer for inclusion in any registration
statement to be filed hereunder. If, during the time
periods referred to in the first sentence of this Section
7, Issuer effects a registration under the Securities Act
of Issuer Common Stock for its own account or for any
other stockholders of Issuer (other than on Form S-4 or
Form S-8, or any successor form), it will allow Grantee
the right to participate in such registration, and such
participation will not affect the obligation of Issuer to
effect demand registration statements for Grantee under
this Section 7; provided that, if the managing
underwriters of such offering advise Issuer in writing
that in their opinion the number of shares of Issuer
Common Stock requested to be included in such
registration exceeds the number which can be sold in such
offering, Issuer will include the shares requested to be
included therein by Grantee pro rata with the shares
intended to be included therein by Issuer. In connection
with any registration pursuant to this Section 7, Issuer
and Grantee will provide each other and any underwriter
of the offering with customary representations,
warranties, covenants, indemnification, and contribution
in connection with such registration.
8. Transfers. The Option Shares may not be sold,
assigned, transferred, or otherwise disposed of except
(i) in an underwritten public offering as provided in
Section 7 or (ii) to any purchaser or transferee who
would not, to the knowledge of the Grantee after
reasonable inquiry, immediately following such sale,
assignment, transfer or disposal beneficially own more
than 4.9% of the then-outstanding voting power of the
Issuer; provided, however, that Grantee shall be
permitted to sell any Option Shares if such sale is made
pursuant to a tender or exchange offer that has been
approved or recommended by a majority of the members of
the Board of Directors of Issuer (which majority shall
include a majority of directors who were directors as of
the date hereof).
9. Listing. If Issuer Common Stock or any other
securities to be acquired upon exercise of the Option are
then listed on the NYSE (or any other national securities
exchange or national securities quotation system), Issuer,
upon the request of Grantee, will promptly file an
application to list the shares of Issuer Common Stock or
other securities to be acquired upon exercise of the Option
on the NYSE (and any such other national securities exchange
or national securities quotation system) and will use
reasonable efforts to obtain approval of such listing as
promptly as practicable.
10. Miscellaneous. (a) Expenses. Except as
otherwise provided in the Merger Agreement, each of the
parties hereto will pay all costs and expenses incurred by
it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its
own financial consultants, investment bankers, accountants
and counsel.
(b) Amendment. This Agreement may not be amended,
except by an instrument in writing signed on behalf of each
of the parties.
(c) Extension; Waiver. Any agreement on the part of
a party to waive any provision of this Agreement, or to
extend the time for performance, will be valid only if set
forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert
any of its rights under this Agreement or otherwise will not
constitute a waiver of such rights.
(d) Entire Agreement; No Third-Party Beneficiaries.
This Agreement, the Merger Agreement (including the
documents and instruments attached thereto as exhibits or
schedules or delivered in connection therewith) and the
Confidentiality Agreement (i) constitute the entire
agreement, and supersede all prior agreements and
understandings, both written and oral, between the parties
with respect to the subject matter of this Agreement, and
(ii) except as provided in Section 9.9 of the Merger
Agreement, are not intended to confer upon any person other
than the parties any rights or remedies.
(e) Governing Law. This Agreement will be governed
by, and construed in accordance with, the laws of the State
of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflict of laws
thereof.
(f) Notices. All notices, requests, claims,
demands, and other communications under this Agreement must
be in writing and will be deemed given if delivered
personally, telecopied (which is confirmed), or sent by
overnight courier (providing proof of delivery) to the parties
at the following addresses (or at such other address for a
party as shall be specified by like notice):
If to Issuer to:
Reading & Bates Corporation
901 Threadneedle
Suite 200
Houston, Texas 77079
Attention: Chairman and Chief Executive Officer
Fax: (281) 496-0285
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Allen Finkelson
Fax: (212) 474-3700
If to Grantee to:
Falcon Drilling Company, Inc.
1900 West Loop South
Suite 1800
Houston, Texas 77027
Attention: Chairman and Chief Executive Officer
Fax: (713) 623-8103
with copies to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: J. Michael Schell
Fax: (212) 735-2000
(g) Assignment. Neither this Agreement, the
Option nor any of the rights, interests, or obligations
under this Agreement may be assigned, transferred or
delegated, in whole or in part, by operation of law or
otherwise, by Issuer or Grantee without the prior written
consent of the other. Any assignment, transfer or
delegation in violation of the preceding sentence will be
void. Subject to the first and second sentences of this
Section 10(g), this Agreement will be binding upon, inure
to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
(h) Further Assurances. In the event of any
exercise of the Option by Grantee, Issuer and Grantee
will execute and deliver all other documents and
instruments and take all other action that may be
reasonably necessary in order to consummate the
transactions provided for by such exercise.
(i) Enforcement. The parties agree that
irreparable damage would occur and that the parties would
not have any adequate remedy at law in the event that any
of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties will
be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal
court located in the State of Delaware or in Delaware
state court, the foregoing being in addition to any other
remedy to which they are entitled at law or in equity.
In addition, each of the parties hereto (i) consents to
submit itself to the personal jurisdiction of any Federal
court located in the State of Delaware or any Delaware
state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this
Agreement, (ii) agrees that it will not attempt to deny
or defeat such personal jurisdiction by motion or other
request for leave from any such court, and (iii) agrees
that it will not bring any action relating to this
Agreement or any of the transactions contemplated by this
Agreement in any court other than a Federal court sitting
in the State of Delaware or a Delaware state court.
IN WITNESS WHEREOF, Issuer and Grantee have caused
this Agreement to be signed by their respective officers
thereunto duly authorized as of the day and year first
written above.
READING & BATES CORPORATION
By: /s/ Paul B. Loyd, Jr.
Name: Paul B. Loyd, Jr.
Title: Chief Executive Officer
FALCON DRILLING COMPANY, INC.
By: /s/ Steven A. Webster
Name: Steven A. Webster
Title: Chief Executive Officer
ANNEX F
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a
demand pursuant to subsection (d) of this section with
respect to such shares, who continuously holds such
shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection
(d) of this section and who has neither voted in favor of
the merger or consolidation nor consented thereto in
writing pursuant to SECTION 228 of this title shall be entitled
to an appraisal by the Court of Chancery of the fair
value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As
used in this section, the word "stockholder" means a
holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words
"stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership
interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other
instrument issued by a depository representing an
interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the
shares of any class or series of stock of a constituent
corporation in a merger or consolidation to be effected
pursuant to SECTION 251 (other than a merger effected pursuant
to subsection (g) of Section 251), 252, 254, 257, 258,
263 or 264 of this title:
(1) Provided, however, that no appraisal rights
under this section shall be available for the shares of
any class or series of stock, which stock, or depository
receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of
and to vote at the meeting of stockholders to act upon
the agreement of merger or consolidation, were either (i)
listed on a national securities exchange or designated as
a national market system security on an interdealer
quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of
stock of the constituent corporation surviving a merger
if the merger did not require for its approval the vote
of the holders of the surviving corporation as provided
in subsection (f) of SECTION 251 of this title.
(2) Notwithstanding paragraph (1) of this
subsection, appraisal rights under this section shall be
available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or
consolidation pursuant to SECTIONS 251, 252, 254, 257,
258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation
surviving or resulting from such merger or consolidation,
or any depository receipts in respect thereof;
b. Shares of stock of any other
corporation, or depository receipts in respect thereof,
which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of
the merger or consolidation will be either listed on a
national securities exchange or designated as a national
market system security on an interdealer quotation system
by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or
fractional depository receipts described in the foregoing
subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of
stock, depository receipts and cash in lieu of fractional
shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event of the stock of a subsidiary
Delaware corporation party to a merger effected under
SECTION 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the
subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate
of incorporation that appraisal rights under this section
shall be available for the shares of any class or series
of its stock as a result of an amendment to is
certificate of incorporation, any merger or consolidation
in which the corporation is a constituent corporation or
the sale of all or substantially all of the assets of the
corporation. If the certificate of incorporation
contains such a provision, the procedures of this
section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for
which appraisal rights are provided under this section is
to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its
stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights
are available pursuant to subsections (b) or (c) hereof
that appraisal rights are available for any or all of the
shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall
deliver to the corporation, before the taking of the vote
on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares. A proxy
or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take
such action must do so by the separate written demand as
herein provided. Within 10 days after the effective date
of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of
each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger
or consolidation has become effective; or
(2) If the merger or consolidation was approved
pursuant to SECTION 228 or SECTION 253 of this title, each
constituent corporation, either before the effective date
of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class
or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the
merger or consolidation and that appraisal rights are
available for any or all shares of such class or series
of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided
that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be
given by the surviving or resulting corporation to all
such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall also
notify such stockholders of the effective date of the
merger or consolidation. Any stockholder entitled to
appraisal rights may, within twenty days after the date
of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date
of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before
the effective date of the merger or consolidation
notifying each of the holders of any class or series of
stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger
or consolidation or (ii) the surviving or resulting
corporation shall send such second notice to all such
holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent
more than 20 days following the sending of the first
notice, such second notice need only to be sent to each
stockholder who is entitled to appraisal rights and who
has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent
of the corporation that is required to give either notice
that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders
entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall
be not more than 10 days prior to the date the notice is
given; provided that, if the notice is given on or after
the effective date of the merger or consolidation, the
record date shall be such effective date. If no record
date is fixed and the notice is given prior to the
effective date, the record date shall be the close of
business on the day next preceding the day on which the
notice is given.
(e) Within 120 days after the effective date of the
merger or consolidation, the surviving or resulting
corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the
Court of Chancery demanding a determination of the value
of the stock of all such stockholders. Notwithstanding
the foregoing, at any time within 60 days after the
effective date of the merger or consolidation, any
stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any
stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request,
shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation
a statement setting forth the aggregate number of shares
not voted in favor of the merger or consolidation and
with respect to which demands for appraisal have been
received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for
such a statement is received by the surviving or
resulting corporation or within 10 days after expiration
of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a
stockholder, service of a copy thereof shall be made upon
the surviving or resulting corporation, which shall
within 20 days after such service file in the office of
the Register in Chancery in which the petition was filed
a duly verified list containing the names and addresses
of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their
shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by
the surviving or resulting corporation, the petition
shall be accompanied by such a duly verified list. The
Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing
of such petition by registered or certified mail to the
surviving or resulting corporation and to the
stockholders shown on the list at the addresses therein
stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published
in the City of Wilmington, Delaware or such publication
as the Court deems advisable. The forms of the notices
by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court
shall determine the stockholders who have complied with
this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock
represented by certificates to submit their certificates
of stock to the Register in Chancery for notation thereon
of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the
Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to
an appraisal, the Court shall appraise the shares,
determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of
the merger or consolidation, together with a fair rate of
interest, if any, to be paid upon the amount determined
to be the fair value. In determining such fair value,
the Court shall take into account all relevant factors.
In determining the fair rate of interest, the Court may
consider all relevant factors, including the rate of
interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency
of the proceeding. Upon application by the surviving or
resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial
proceedings any may proceed to trial upon the appraisal
prior to the final determination of the stockholder
entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section
and who has submitted his certificates of stock to the
Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair
value of the shares, together with interest, if any, by
the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so
made to each such stockholder, in the case of holders of
uncertificated stock forthwith, and the case of holders
of shares represented by certificates upon the surrender
to the corporation of the certificates representing such
stock. The Court's decree may be enforced as other
decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation
of this State or of any state.
(j) The costs of the proceeding may be determined
by the Court and taxed upon the parties as the Court
deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of
the expenses incurred by any stockholder in connection
with the appraisal proceeding, including, without
limitation, reasonable attorney's fees and the fees and
expenses of experts, to be charged pro rata against the
value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger
or consolidation, no stockholder who has demanded his
appraisal rights as provided in subsection (d) of this
section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other
distributions on the stock (except dividends or other
distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or
consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided
in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a
written withdrawal of his demand for an appraisal and an
acceptance of the merger or consolidation, either within
60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this
section or thereafter with the written approval of the
corporation, then the right of such stockholder to an
appraisal shall cease. Notwithstanding the foregoing,no
appraisal proceeding in the Court of Chancery shall be
dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such
terms as the Court deems just.
(l) The shares of the surviving or resulting
corporation to which the shares of such objecting
stockholders would have been converted had they assented
to the merger or consolidation shall have the status of
authorized and unissued shares of the surviving or
resulting corporation.
ANNEX G
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
R&B FALCON CORPORATION
The undersigned, Steven A. Webster, certifies that
he is the Chief Executive Officer and President, of R&B
Falcon Corporation, a corporation organized under the
laws of the State of Delaware (the "Corporation"), and
does hereby further certify as follows:
1. The name of the Corporation is R&B Falcon
Corporation.
2. The name of the Corporation under which it
was originally incorporated was "R&B&F
Corporation."
3. The original Certificate of Incorporation
of the Corporation was filed in the Office
of the Secretary of State of the State of
Delaware on July 7, 1997.
4. The Amended and Restated Certificate of
Incorporation was duly adopted by
stockholder written consent in accordance
with Sections 228, 242 and 245 of the
General Corporation Law of the State of
Delaware.
5. The text of the Certificate of
Incorporation of the Corporation as
amended hereby is restated to read in its
entirety as follows:
FIRST: The name of the corporation is R&B Falcon
Corporation (hereinafter the "Corporation").
SECOND: The address of the registered office of the
Corporation in the State of Delaware is Corporation
Service Company, 1013 Centre Road, in the City of
Wilmington, County of New Castle. The name of its
registered agent at such address is Corporation Service
Company.
THIRD: The purpose of the Corporation is to engage
in any lawful act or activity for which a corporation may
be organized under the General Corporation Law of the
State of Delaware as set forth in Title 8 of the Delaware
Code ("GCL"). FOURTH: The total number of shares
of all classes of capital stock which the Corporation
shall have authority to issue is 600,000,000 shares which
shall be divided into (a) 550,000,000 shares of common
stock having a par value of $.01 per share (the "Common
Stock") and (b) 50,000,000 shares of preferred stock
having a par value of $.01 per share (the "Preferred
Stock").
A description of the different classes of capital
stock of the Corporation, a statement of the relative
rights of the holders of stock of such classes, and a
statement of the voting powers and the designations,
preferences and relative, participating, optional or
other special rights, and qualifications, limitations or
restrictions thereof, of the various classes of capital
stock are as follows:
A. Subject to limitations prescribed by applicable law
and the provisions of this Article FOURTH, shares of
the Preferred Stock may be issued by the Board of
Directors of the Corporation with such voting
powers, full or limited and without voting powers,
and in such classes and series and with such
designations, preferences and relative,
participating, optional or other special rights, and
qualifications, limitations or restrictions thereon,
as shall be stated and expressed in the resolution
or resolutions providing for the issue of such stock
adopted by the Board of Directors of the
corporation, which resolutions shall be set forth in
a Certificate of Designation which shall be filed
with the Secretary of State of the State of Delaware
pursuant to the GCL.
The authority of the Board of Directors with respect
to each series shall include, but not be limited to,
determination of the following: (i) the number of
shares constituting that series and the distinctive
designation of that series; (ii) the dividend rate
on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or
dates, and the relative rights of priority, if any,
of payment of dividends on shares of that series;
(iii) whether that series shall have voting rights,
in addition to the voting rights provided by law,
and, if so, the terms of such voting rights; (iv)
whether that series shall have conversion
privileges, and, if so, the terms and conditions of
such conversion, including provisions for adjustment
of the conversion rate in such events as the Board
of Directors shall determine; (v) whether or not the
shares of that series shall be redeemable, and, if
so, the terms and conditions of such redemption,
including the date or dates upon or after which they
shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary
under different conditions and at different
redemption dates; (vi) whether that series shall
have a sinking fund for the redemption or purchase
of shares of that series, and, if so, the terms and
amount of such sinking fund; (vii) the rights of the
shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up
of the Corporation, and the relative rights of
priority, if any, of payment of shares of that
series; and (viii) any other relative rights,
preferences and limitations of that series.
B. A holder of shares of Common Stock of the
Corporation shall be entitled to one vote for each
and every share of Common Stock standing in his name
at any and all meetings of stockholders of the
Corporation.
C. There shall be set forth on the face or back of each
certificate for shares of capital stock of the
Corporation a statement that the Corporation will
furnish without charge to each stockholder who so
requests, the designations, preferences and
relative, participating, optional or other special
rights of each class of capital stock or series
thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
D. The designation, voting powers, preferences and
relative, participating, optional and other special
rights of the shares of an initial series of
Preferred Stock, and the qualifications, limitations
or restrictions thereof shall be, in addition to
those set forth above, as follows:
1. Designation and Amount. The shares of such
series shall be designated as "Series A Junior
Participating Preferred Stock," par value $.01 per share
(the "Series A Junior Preferred Stock"), and the number
of shares constituting such series shall be 1,687,081.
2. Dividends and Distributions. (a) Subject
to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and
superior to the shares of Series A Junior Preferred Stock
with respect to dividends, the holders of shares of
Series A Junior Preferred Stock in preference to the
holders of Common Stock and of any other junior stock,
shall be entitled to receive, when, as and if declared by
the Board of Directors out of funds legally available
therefor, dividends payable quarterly on the first day of
January, April, July and October (each such date being
referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Preferred Stock,
in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1.00 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times
the aggregate per share amount of all cash dividends, and
100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions
other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the
Common Stock, since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Junior
Preferred Stock. In the event the Corporation shall at
any time after the record date for the initial
distribution of the Corporation's Preferred Stock
Purchase Rights pursuant to the Rights Agreement between
the Corporation and American Stock Transfer & Trust Company,
as Rights Agent (the "Rights Declaration Date"), (i) declare
any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number
of shares, then in each such case the amount to which
holders of shares of Series A Junior Preferred Stock were
entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which
is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend
or distribution on the Series A Junior Preferred Stock as
provided in paragraph (a) above immediately after it
declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common
Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $1.00 per share on the Series A
Junior Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be
cumulative on outstanding shares of Series A Junior
Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series
A Junior Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends
on such shares shall begin to accrue from the date of
issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of
Series A Junior Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the
shares of Series A Junior Preferred Stock in an amount
less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of
Series A Junior Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon,
which record date shall be no more than 60 days prior to
the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of
Series A Junior Preferred Stock shall have the following
voting rights:
(a) Subject to the provision for adjustment
hereinafter set forth, each share of Series A Junior
Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the
Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares,
then in each such case the number of votes per share to
which holders of shares of Series A Junior Preferred
Stock were entitled immediately prior to such event shall
be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such
event.
(b) Except as otherwise provided herein, or
under applicable law, the holders of shares of Series A
Junior Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all
matters submitted to a vote of stockholders of the
Corporation.
(c)(i) If at any time dividends on any Series
A Junior Preferred Stock shall be in arrears in an amount
equal to six (6) quarterly dividends thereon, the
occurrence of such contingency shall mark the beginning
of a period (a "default period") that shall extend until
such time when all accrued and unpaid dividends for all
previous quarterly dividend periods and for the current
quarterly dividend period on all shares of Series A
Junior Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each
default period, all holders of shares of Series A Junior
Preferred Stock together with any other series of
Preferred Stock then entitled to such a vote under the
terms of the Amended and Restated Certificate of
Incorporation, voting as a separate class, shall be
entitled to elect two members of the Board of Directors
of the Corporation.
(ii) During any default period, such voting
right of the holders of Preferred Stock may be exercised
initially at a special meeting called pursuant to
subparagraph (iii) of this Subsection 3(c) or at any
annual meeting of stockholders, and thereafter at annual
meetings of stockholders, provided that neither such
voting rights nor the rights of holders of Preferred
Stock as hereinafter provided to increase in certain
cases the authorized number of Directors shall be
exercised unless the holders of 25% in number of shares
of Preferred Stock outstanding shall be present in person
or by proxy. The absence of a quorum of the holders of
Common Stock shall not affect the exercise by the holders
of Preferred Stock of such voting right. At any meeting
at which the holders of Preferred Stock shall exercise
such voting right initially during an existing default
period, they shall have the right, voting as a separate
class, to elect Directors to fill such vacancies, if any,
in the Board of Directors as may then exist up to two (2)
Directors, or, if such right is exercised at an annual
meeting, to elect two (2) Directors. If the number that
may be so elected at any special meeting does not amount
to the required number, the holders of the Preferred
Stock shall have the right to make such increase in the
number of Directors as shall be necessary to permit the
election by them of the required number. After the
holders of the Preferred Stock shall have exercised their
right to elect Directors in any default period and during
the continuance of such period, the number of Directors
shall not be increased or decreased except by vote of the
holders of Preferred Stock as herein provided or pursuant
to the rights of any equity securities ranking senior to
or pari passu with the Series A Junior Preferred Stock.
(iii) Unless the holders of Preferred Stock
shall, during an existing default period, have previously
exercised their right to elect Directors, the Board of
Directors may order, or any stockholder or stockholders
owning in the aggregate not less than 10% of the total
number of shares of Preferred Stock outstanding,
irrespective of series, may request the Chairman or the
Chief Executive Officer call a special meeting of the
holders of Preferred Stock, which meeting shall thereupon
be called by such person. Notice of such meeting and of
any annual meeting at which holders of Preferred Stock
are entitled to vote pursuant to this Section 3(c)(iii)
shall be given to each holder of record of Preferred
Stock by mailing a copy of such notice to him at his last
address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not
earlier than 10 days and not later than 60 days after
such order or request. In the event such meeting is not
called within 60 days after such order or request, such
meeting may be called on a similar notice by any
stockholder or stockholders owning in the aggregate not
less than 10% of the total number of shares of Preferred
Stock outstanding. Notwithstanding the provisions of
this Section 3(c)(iii), no such special meeting shall be
called during the period within 60 days immediately
preceding the date fixed for the next annual meeting of
the stockholders.
(iv) In any default period, the holders of
Common Stock, and other classes of stock of the
Corporation if applicable, shall continue to be entitled
to elect the whole number of Directors until the holders
of Preferred Stock shall have exercised their right to
elect two (2) Directors voting as a separate class, after
the exercise of which right (x) the Directors so elected
by the holders of Preferred Stock shall continue in
office until their successors shall have been elected by
such holders or until the expiration of the default
period, and (y) any vacancy in the Board of Directors may
(except as provided in Section 3(c)(ii)) be filled by
vote of a majority of the remaining Directors theretofore
elected by the class which elected the Director whose
office shall have become vacant. References in this
Section 3(c)(iv) to Directors elected by a particular
class shall include Directors elected by such Directors
to fill vacancies as provided in clause (y) of the
foregoing sentence.
(d) Immediately upon the expiration of a
default period, (x) the right of the holders of Preferred
Stock, as a separate class, to elect Directors shall
cease, (y) the term of any Directors elected by the
holders of Preferred Stock, as a separate class, shall
terminate, and (z) the number of Directors shall be such
number as may be provided for in, or pursuant to, the
Amended and Restated Certificate of Incorporation or
Bylaws irrespective of any increase made pursuant to the
provisions of Section 3(c)(ii) (such number being
subject, however, to change thereafter in any manner
provided by law or in the Amended and Restated
Certificate of Incorporation or Bylaws). Any vacancies
in the Board of Directors effected by the provisions of
clauses (y) and (z) in the preceding sentence may be
filled by a majority of the remaining Directors, even
though less than a quorum.
(e) Except as set forth herein or as otherwise
provided in the Certificate of Incorporation, holders of
Series A Junior Preferred Stock shall have no special
voting rights and their consent shall not be required
(except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking
any corporate action.
4. Certain Restrictions. (a) Whenever
quarterly dividends or other dividends or distributions
payable on the Series A Junior Preferred Stock as
provided in Section 2 are in arrears, thereafter and
until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Series A Junior
Preferred Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare or pay or set apart
for payment any dividends or make any other
distributions on, or redeem or purchase or
otherwise acquire, directly or indirectly, for
consideration any shares of any class of stock
of the Corporation ranking junior (either as to
dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Preferred
Stock;
(ii) declare or pay dividends
on or make any other distributions on any
shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution
or winding up) with the Series A Junior
Preferred Stock, except dividends paid ratably
on the Series A Junior Preferred Stock and all
such parity stock on which dividends are
payable or in arrears in proportion to the
total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or
otherwise acquire for consideration shares of
any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or
winding up) with the Series A Junior Preferred
Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for
shares of any stock of the Corporation ranking
junior (either as to dividends or upon
dissolution, liquidation or winding up) to the
Series A Junior Preferred Stock; or
(iv) purchase or otherwise
acquire for consideration any shares of Series
A Junior Preferred Stock, or any shares of
stock ranking on a parity with the Series A
Junior Preferred Stock, except in accordance
with a purchase offer made in writing or by
publication (as determined by the Board of
Directors) to all holders of such shares upon
such terms as the Board of Directors, after
consideration of the respective annual dividend
rates and other relative rights and preferences
of the respective series and classes, shall
determine in good faith will result in fair and
equitable treatment among the respective series
or classes.
(b) The Corporation shall not permit any
subsidiary of the Corporation to purchase or otherwise
acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph
(a) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series A
Junior Preferred Stock purchased or otherwise acquired by
the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof.
All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may
be reissued as part of a new series of Preferred Stock to
be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on
issuance set forth herein.
6. Liquidation, Dissolution or Winding Up.
(a) Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of
stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A
Junior Preferred Stock unless, prior thereto, the holders
of shares of Series A Junior Preferred Stock shall have
received an amount equal to 100 times the par value per
share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series A
Liquidation Preference"). Following the payment of the
full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of
shares of Series A Junior Preferred Stock unless, prior
thereto, the holders of shares of Common Stock shall have
received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series
A Liquidation Preference by (ii) 100 (as appropriately
adjusted as set forth in paragraph (c) below to reflect
such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such
number in clause (ii) being hereinafter referred to as
the "Adjustment Number"). Following the payment of the
full amount of the Series A Liquidation Preference and
the Common Adjustment in respect of all outstanding
shares of Series A Junior Preferred Stock and Common
Stock, respectively, holders of Series A Junior Preferred
Stock and holders of shares of Common Stock shall receive
their ratable and proportionate share of the remaining
assets to be distributed in the ratio of the Adjustment
Number to 1 with respect to such Series A Junior
Preferred Stock and Common Stock, on a per share basis,
respectively.
(b) In the event, however, that there are not
sufficient assets available to permit payment in full of
the Series A Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if
any, which rank on a parity with the Series A Junior
Preferred Stock, then such remaining assets shall be
distributed ratably to the holders of all such shares in
proportion to their respective liquidation preferences.
In the event, however, that there are not sufficient
assets available to permit payment in full of the Common
Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(c) In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or
(iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the Adjustment
Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a
fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to
such event.
7. Consolidation, Merger, Share Exchange, etc.
In case the Corporation shall enter into any
consolidation, merger, share exchange, combination or
other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the
shares of Series A Junior Preferred Stock shall at the
same time be similarly exchanged or changed in an amount
per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate
amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into
which or for which each share of Common Stock is changed
or exchanged. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or
(iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the
exchange or change of shares of Series A Junior Preferred
Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to
such event.
8. No Redemption. The shares of Series A
Junior Preferred Stock shall not be redeemable.
9. Ranking. The Series A Junior Preferred
Stock shall rank junior to all other series of the
Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the
terms of any such series shall provide otherwise.
10. Amendment. The Amended and Restated
Certificate of Incorporation shall not be amended in any
manner which would materially alter or change the powers,
preferences or special rights of the Series A Junior
Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of two-thirds or more
of the outstanding shares of Series A Junior Preferred
Stock, voting together as a single voting group.
11. Fractional Shares. Series A Junior
Preferred Stock may be issued in fractions of a share
which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to
have the benefit of all other rights of holders of Series
A Junior Preferred Stock.
FIFTH: The name and mailing address of the Sole
Incorporator is as follows:
Name Address
Deborah M. Reusch P.O. Box 636
Wilmington, DE 19899
SIXTH: The following provisions are inserted for
the management of the business and for the conduct of the
affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
A. Election of directors need not be by ballot unless
the Bylaws so provide.
B. A majority of the total number of authorized
directors, whether or not there exists any vacancies
in previously authorized directorships (a "Majority
of the Board"), shall have the power, without the
assent or vote of the stockholders, to adopt, amend
or repeal the Bylaws of the Corporation.
C. Except as otherwise expressly prescribed by law, the
stockholders may not adopt, amend or repeal the
Bylaws of the Corporation, except by the affirmative
vote of the holders of 66 % or more of the voting
power of the then issued and outstanding shares of
capital stock of the Corporation entitled to vote
for the election of directors, considered as one
class.
D. The number of directors shall be fixed from time to
time by, or in the manner provided in, the Bylaws of
the Corporation. No decrease in the number of
directors shall shorten the term of any incumbent
director.
E. The directors, other than those who may be elected
by the holders of any class of series of stock
having a preference over Common Stock as to
dividends or upon liquidation, of the Corporation
shall be divided into three classes, Class I, Class
II and Class III. Except as otherwise provided in
this Certificate of Incorporation, the number of
directors in each class shall be as nearly equal in
number as possible. Each initial director in Class
I shall be elected to a term expiring at the first
annual stockholders meeting following his election,
each initial director in Class II shall be elected
to a term expiring at the second annual stockholders
meeting following his election, and each director in
Class III shall be elected to an initial term
expiring at the third annual stockholders meeting
following his election. After the initial terms of
the initial directors of a class of directors, each
director of such class shall be elected for a term
expiring on the third annual stockholders meeting
following the annual stockholders meeting at which
such director is elected. Any director elected to
fill a vacancy or newly created directorship shall
serve until the next election of the class for which
such director has been elected.
F. A majority of the directors then in office, in their
sole discretion, and whether or not consisting of
less than a quorum, may elect a replacement director
to serve during the unexpired term of any director
previously elected whose office is vacant as a
result of death, resignation, retirement,
disqualification, removal or otherwise, and may
elect directors to fill any newly created
directorships. Except as otherwise expressly
prescribed by law and subject to the terms of any
Preferred Stock, the stockholders may not elect a
replacement director to fill any vacancy on the
Board caused by death, resignation, retirement,
disqualification, removal or otherwise, and may not
elect directors to fill any newly created
directorships. At any election of directors by the
Board of Directors to fill any vacancy caused by an
increase in the number of directors, the terms of
the office for which candidates are nominated and
elected shall be divided as set forth in paragraph E
of this Article SIXTH.
G. No director of the Corporation shall be personally
liable to the Corporation or any of its stockholders
for monetary damages for any breach of fiduciary
duty by such a director as a director to the full
extent authorized or permitted by law (as now or
hereafter in effect). Notwithstanding the foregoing
sentence, a director shall be liable to the extent
provided by applicable law (i) for any breach of the
director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section
174 of the GCL or (iv) for any transaction from
which the director derived an improper personal
benefit. No amendment to or repeal of this
paragraph H. of Article SIXTH shall apply to or have
any effect on the liability or alleged liability of
any director of the Corporation for or with respect
to any acts or omissions of such director occurring
prior to such amendment or repeal.
H. Any action required or permitted to be taken at any
annual or special meeting of stockholders of the
Corporation may be taken only upon the vote of the
stockholders at an annual or special meeting duly
noticed and called, as provided in the Bylaws of the
Corporation, and may not be taken by a written
consent of the stockholders pursuant to the GCL.
I. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by
law, may be called by the Chairman or the President
and shall be called by the Chairman or the President
or Secretary at the request in writing of a Majority
of the Board. Such request shall state the purpose
or purposes of the proposed meeting. Special
meetings of the Corporation may not be called by any
other person or persons.
J. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the
affirmative vote of the holders of 66 % of all classes
of capital stock of the Corporation entitled to vote
in the election of directors, considered as one class,
shall be required to alter, amend, or adopt any
provision inconsistent with or repeal this Article
SIXTH.
SEVENTH: The Corporation shall indemnify its
officers to the full extent permitted by the GCL, as
amended from time to time.
EIGHTH: No more than a minority of the number of
the Corporation's directors necessary to constitute a
quorum may be non-United States citizens, within the
meaning of Section 2 of the Shipping Act of 1916, as
amended, and as may be further amended from time to time,
and the rules and regulations promulgated thereunder (the
"Shipping Act").
NINTH: The Chairman of the Board of Directors and
the President and, if the President is not the Chief
Executive Officer, the Chief Executive Officer by
whatever title, must each be a United States citizen,
within the meaning of the Shipping Act.
TENTH:
A. (1) Any transfer, or attempted or purported
transfer, of any shares of any class of stock
issued by the Corporation or any interest
therein or right thereof, which would result in
the ownership or control by one or more Aliens
(as defined herein) of an aggregate percentage
of the shares of any class of stock of the
Corporation or of any interest therein or right
thereof in excess of the Permitted Percentage
(as defined herein) shall, to the full extent
permitted by law, and for so long as such
excess shall exist, be void and shall be
ineffective as against the Corporation, and the
Corporation shall not recognize, to the extent
of such excess, the purported transferee as a
stockholder of the Corporation for any purpose
whatsoever except the purpose of making a
further transfer to a person who is not an
Alien, provided, however, that such shares, to
the extent of such excess, may nevertheless be
deemed to be Alien-owned shares for purposes of
the other provisions of this Article TENTH.
(2) The Board of Directors is authorized to
take such actions as it may deemed necessary or
desirable to implement the restriction set
forth in subsection (1) of paragraph A of this
Article TENTH, including, without limitation,
(i) requiring, as a condition precedent to the
transfer of shares on the records of the
Corporation, representations and other proof as
to the identity of existing or prospective
stockholders and persons on whose behalf shares
of stock of the Corporation or any interest
therein or right thereof are or are to be held
and as to whether such persons are Aliens, and
(ii) adopting an appropriate legend or legends
for certificates evidencing shares of stock of
the Corporation.
B. If Alien ownership of the outstanding stock of
the Corporation or any class of stock thereof
is in excess of the Permitted Percentage, the
shares deemed included in such excess (herein
referred to as "Excess Shares") shall be those
Alien-owned shares that the Board of Directors
determines became so owned most recently. The
determination of the Board of Directors as to
those shares that constitute the Excess Shares
shall be conclusive. At any time there are
Excess Shares, to the extent permitted by law,
(i) such Excess Shares shall not be accorded
any voting rights and shall not be deemed to be
outstanding for purposes of determining the
vote required on any matter properly brought
before the stockholders of the Corporation, and
(ii) the Corporation shall withhold the payment
of dividends and the sharing in any other
distribution in respect of the Excess Shares.
C. The Corporation shall have the power, but not
the obligation, to redeem Excess Shares subject
to the following terms and conditions:
(1) The per share redemption price (the
"Redemption Price") to be paid for each Excess
Share to be redeemed shall be the sum of (i)
the average closing sales price of the Common
Stock and (ii) any dividend or distribution
declared with respect to such share prior to
the date such share is called for redemption
hereunder but which has been withheld by the
Corporation under this Article. As used
herein, the term "average closing sales price"
shall mean the average of the closing sales
prices of the Common Stock on the New York
Stock Exchange Composite Tape during the 10
trading days immediately prior to the date the
notice of redemption is given; except that if
the Common Stock is not traded on the New York
Stock Exchange, then the closing sales prices
of the Common Stock on any other national
security exchange on which such Common Stock is
listed.
(2) The Redemption Price shall be paid in
cash.
(3) A notice of redemption shall be given by
first class mail, postage prepaid, mailed not
less than 10 days prior to the redemption date
to each holder of record of the shares to be
redeemed, at such holder's address as the same
appears on the stock register of the
Corporation. Each such notice shall state (i)
the redemption date, (ii) the number of shares
of Common Stock to be redeemed from such
holder, (iii) the Redemption Price, and (iv)
the place where certificates for such shares
are to be surrendered for payment of the
Redemption Price.
(4) From and after the redemption date,
dividends on the shares of Common Stock called
for redemption shall cease to accrue and such
shares shall no longer be deemed to be
outstanding and all rights of the holders
thereof as stockholders of the Corporation
(except the right to receive from the
Corporation the Redemption Price) shall cease.
(5) Such other terms and conditions as the
Board of Directors may reasonably determine.
D. The provisions of this Article TENTH expire and
become null and void in the event that the
Corporation and each Subsidiary (as defined
herein) and Controlled Person (as defined
herein) cease to be a U.S. Maritime Company (as
defined herein) unless, at or prior to that
time, either the Corporation or a Subsidiary or
a Controlled Person has, in some manner,
reinstated itself as a U.S. Maritime Company or
has contracted to reinstate itself as a U.S.
Maritime Company.
E. For purposes of this Article TENTH:
(1) "Alien" means (a) any person (including an
individual, partnership, corporation or
association) who is not a citizen of the United
States within the meaning of the Shipping Act;
(b) any foreign government or representative
thereof; (c) any corporation, the president,
chief executive officer or chairman of the
board of directors of which is an Alien, or of
which more than an minority of the number of
its directors necessary to constitute a quorum
are Aliens; (d) any corporation organized under
the laws of any foreign government; (e) any
corporation of which 50% or greater interest is
owned, beneficially or of record, or may be
voted, by an Alien or Aliens, or which by any
other means whatsoever is controlled by or in
which control is permitted to be exercised by
an Alien or Aliens (the Board of Directors
being authorized to determine reasonably the
meaning of "control" for this purpose); (f) any
partnership or association which is controlled
by an Alien or Aliens; or (g) any person
(including an individual, partnership,
corporation or association) who acts as
representative of or fiduciary for any person
described in clauses (a) through (f) above.
(2) "Controlled Person" means any corporation
or partnership of which the Corporation or any
Subsidiary owns or controls an interest in
excess of 50%.
(3) "Permitted Percentage" means 24% of the
percentage of the outstanding shares of stock
of the Corporation, or any class thereof,
which, if such percentage were held by Aliens,
would prevent the Corporation (or any
Subsidiary or Controlled Person) from being a
U.S. Maritime Company.
(4) "Subsidiary" means any corporation a
majority of whose outstanding stock having
ordinary voting power in the election of
directors is owned by the Corporation, by a
Subsidiary or Controlled Person or by the
Corporation and one or more Subsidiaries and/or
Controlled Persons.
(5) "U.S. Maritime Company" means any
corporation or other entity which, directly or
indirectly, (a) owns or operates vessels in the
United States coastwise or foreign trade; (b)
owns or operates any vessel documented under
the laws of the United States; (c) owns or
operates any vessel on which there is a
preferred mortgage issued in connection with
the Title XI of the Merchant Marine Act, 1936,
as amended; (d) owns or operates vessels under
agreement with the United States Government (or
any agency thereof); (e) conducts any activity,
takes any actions or receives any benefit which
would be adversely affected under any provision
of the U.S. maritime, shipping or vessel
documentation laws by virtue of Alien ownership
of its stock; or (f) maintains a Capital
Construction Fund under the provisions of
Section 607 of the Merchant Marine Act, 1936,
as amended.
6. This restatement of the Certificate of
Incorporation of R&B Falcon Corporation was adopted in
accordance with Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, R&B Falcon Corporation has
caused this Amended and Restated Certificate to be signed
by Steven A. Webster, its Chief Executive Officer and
President, this day of , 1997.
R&B FALCON CORPORATION
By:
Name: Steven A. Webster
Title: Chief Executive
Officer and President
ANNEX H
AMENDED AND RESTATED BYLAWS
OF
R&B FALCON CORPORATION
AMENDED AND RESTATED BYLAWS
OF
R&B FALCON CORPORATION
(hereinafter called the "Corporation)
ARTICLE 1.
MEETINGS OF STOCKHOLDERS
SECTION 1.1. Annual Meeting. A meeting of
stockholders shall be held annually for the election of
directors and the transaction of such other business as
is related to the purpose or purposes set forth in the
notice of meeting on such date and at such time as may be
fixed from time to time by the Board of Directors; or if
no date and time are so fixed, at 10:00 a.m. on the third
Wednesday in May in each and every year, unless such day
shall fall on a legal holiday, in which case such meeting
shall be held on the next succeeding business day, at
such time as may be fixed by the Board of Directors.
Any business to be conducted at an annual
meeting, including, without limitation, any nomination
for election to the Board of Directors, must be (a)
specified in the notice of meeting given by or at the
direction of the Board of Directors; (b) brought before
the annual meeting by or at the direction of the chair of
the meeting, the Board of Directors, or a committee
thereof; or (c) brought before the annual meeting, in
compliance with the notice procedures set forth in this
section, by any stockholder of the Corporation who is a
stockholder of record on the record date for the
determination of stockholders entitled to vote at such
meeting.
A stockholder intending to nominate a candidate
for election to the Board of Directors or to bring any
other business before an annual meeting must give timely
written notice thereof to the secretary of the
Corporation. In order to be timely, a stockholder's
notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less
than 60 days nor more than 90 days prior to the
anniversary date of the immediately preceding annual
meeting of stockholders; provided, however, that in the
event that the annual meeting is called for a date that
is not within the 30 days before or after such
anniversary date, notice by the stockholder in order to
be timely must be so received not later than the close of
business on the 15th day following the day on which such
notice of the date of the annual meeting was mailed or
such public disclosure of the date of the meeting was
made, whichever first occurs.
A stockholder's notice to the secretary shall set forth:
(a) as to each nominee for election or
reelection to the Board of Directors, (i) that person's
consent to such nomination, (ii) the name, age, business
address and residence address of the proposed nominee,
(iii) the principal occupation or employment of the
proposed nominee, (iv) the class and number of shares of
stock of the Corporation which are beneficially owned by
the proposed nominee;
(b) as to each matter of any other business,
(i) a brief description of the business desired to be
brought before the annual meeting and (ii) the reasons
for conducting such business at the annual meeting; and
(c) as to the stockholder proposing any such
nomination or other business, (i) the name and record
address of the stockholder, (ii) the class and number of
shares of the Corporation which are beneficially owned by
the stockholder, (iii) a description of all arrangements
or understandings between such stockholder and any other
person or persons (including their names) in connection
with the proposal of such business by such stockholder
and any material interest of the stockholder in such
nomination or business, and (iv) a representation that
such stockholder intends to appear in person or by proxy
at the annual meeting to bring such business before the
meeting.
The Corporation may require any proposed
nominee to furnish such other information as may
reasonably be required by the Corporation to determine
the eligibility of such proposed nominee to serve as
director of the Corporation. No person shall be eligible
for election as a director of the Corporation unless
nominated in accordance with the procedures set forth
herein.
The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that the
nomination was not made in accordance with the foregoing
procedure, and if he should so determine, shall so
declare to the meeting and the nomination shall be
disregarded.
SECTION 1.2. Special Meetings. Special
meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by law or by the
Certificate of Incorporation, may be called by the
Chairman or the Chief Executive Officer (or, if there is
no Chief Executive Officer, the President) and shall be
called by the Chairman, Chief Executive Officer, the
President, or Secretary at the request in writing of a
Majority of the Board (as defined herein). Such request
shall state the purpose or purposes of the proposed
meeting.
SECTION 1.3. Place of Meetings. Meetings of
stockholders shall be held at such place as may be
designated by the Board of Directors (or by the Chief
Executive Officer, in the absence of a designation by the
Board of Directors).
SECTION 1.4. Notice of Meeting; Adjourned
Meetings. Notice of each meeting of stockholders shall
be given in accordance with the Delaware General
Corporation Law ("GCL").
SECTION 1.5. Quorum. Except as otherwise
provided by law or in the Certificate of Incorporation,
at any meeting of the stockholders, the presence, in
person or by proxy, of the holders of a majority of the
shares entitled to vote thereat shall constitute a quorum
for the transaction of any business. When a quorum is
once present to organize a meeting, it is not broken by
the subsequent withdrawal of any stockholders. The
stockholders present may adjourn the meeting despite the
absence of a quorum.
SECTION 1.6. Proxies. Subject to applicable
law, the Board of Directors may impose such restrictions
and requirements on the validity and use of proxies as it
deems appropriate. Any restriction or requirement so
imposed shall be set forth in the notice of any meeting
to which it may be applicable.
SECTION 1.7. Voting. Except as otherwise
required by law, directors shall be elected by a
plurality of the votes cast at a meeting of stockholders
by the holders of shares entitled to vote in the
election. The directors who are to be elected at the
annual meeting of stockholders shall be elected by ballot
by the holders of shares entitled to vote. Whenever any
corporate action, other than the election of directors,
is to be taken by vote of the stockholders at a meeting,
it shall, except as otherwise required by law, the
Certificate of Incorporation or these Bylaws, be
authorized by a majority of the votes cast thereat, in
person or by proxy. Except as otherwise provided in the
Certificate of Incorporation, every stockholder of record
shall be entitled to one vote on each matter submitted to
vote at a meeting of stockholders for every share
standing in his name on the record of stockholders.
SECTION 1.8. Conduct of Stockholders Meetings.
Each meeting of stockholders shall be presided over by
such person as shall be designated by the Board of
Directors. If the Board fails to make such designation,
the meeting shall be presided over by the Chief Executive
Officer, or in his absence, the next highest ranking
officer of the Corporation who is able to attend such
meeting. The person presiding over any meeting of
stockholders shall have the power, without the need for
any vote of stockholders, to adjourn such meeting for any
reason.
ARTICLE 2.
BOARD OF DIRECTORS
SECTION 2.1. Power of Board. The business and
affairs of the Corporation shall be managed by or under
the direction of the Board of Directors.
SECTION 2.2. Number of Directors. The number
of directors constituting the whole Board of Directors
shall be such number not less than one (1) nor more than
fifteen (15) which is authorized from time to time
exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of
authorized directors, whether or not there exists any
vacancies in previously authorized directorships (a
"Majority of the Board"). The Board of Directors will
initially consist of ten (10) directors. No decrease in
the number of directors shall shorten the term of any
incumbent director.
SECTION 2.3. Citizenship Requirements. No
more than a minority of the Corporation's directors
necessary to constitute a quorum of the Board of
Directors may be non-United States citizens, within the
meaning of Section 2 of the Shipping Act of 1916, as
amended, and as may be further amended from time to time,
and the rules and regulations promulgated thereunder (the
"Shipping Act").
SECTION 2.4. Resignations. Any director of
the Corporation may resign at any time by giving written
notice to the Board of Directors, the Chairman of the
Board, the Chief Executive Officer, the President or the
Secretary of the Corporation. Such resignation shall
take effect at the time specified therein; and unless
otherwise specified therein the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 2.5. Newly Created Directorships and
Vacancies. Vacancies and newly created directorships
shall be filled in the manner provided by the Certificate
of Incorporation.
SECTION 2.6. Executive and Other Committees of
Directors. The Board of Directors, by resolution adopted
by a Majority of the Board, may designate from among its
members an executive committee and other committees to
serve at the pleasure of the Board of Directors, each
consisting of one or more directors, and each of which,
to the extent provided in the resolution, shall have all
the authority of the Board to the fullest extent
authorized by law, including the power or authority to
declare a dividend or to authorize the issuance of stock.
The Board of Directors may designate one or more
directors as alternate members of any such committee, who
may replace any absent or disqualified member or members
at any meeting of such committee.
SECTION 2.7. Compensation of Directors. The
Board of Directors shall have authority to fix the
compensation of directors for services in any capacity,
or to allow a fixed sum plus expenses, if any, for
attendance at meetings of the Board or of committees
designated thereby.
ARTICLE 3.
MEETINGS OF THE BOARD
SECTION 3.1. Regular Meetings. Regular
meetings of the Board of Directors may be held without
notice at such times and places, within or without the
State of Delaware or the United States of America, as may
from time to time be fixed by the Board.
SECTION 3.2. Special Meetings; Notice; Waiver.
Special meetings of the Board of Directors may be held at
any time and place, within or without the State of
Delaware or the United States of America, upon the call
of the Chairman of the Board, the Chief Executive
Officer, or a Majority of the Board. Notice of a special
meeting need not be given to any director who submits a
signed waiver of notice whether before or after the
meeting, or who attends the meeting without protesting,
prior thereto or at its commencement, the lack of notice
to him. A notice, or waiver of notice, need not specify
the purpose of any special meeting of the Board of
Directors.
SECTION 3.3. Adjournment. A majority of the
directors present, whether or not a quorum is present,
may adjourn any meeting to another time and place.
ARTICLE 4.
OFFICERS
SECTION 4.1. Officers. The following shall be
the officers of the Corporation: one Chairman of the
Board of Directors, one Chief Executive Officer, one
President, one Chief Financial Officer, one Chief
Operating Officer, one or more Vice Presidents, one or
more Secretaries, one or more Assistant Secretaries, one
or more Treasurers, and one or more Assistant Treasurers.
The Board of Directors may from time to time may elect or
appoint such other officers as it may determine. Any two
or more offices may be held by the same person. The
officers shall be appointed by the Board of Directors.
The Board of Directors may leave any officer position
unfilled for such period it deems appropriate.
Securities of other corporations held by the
Corporation may be voted by any officer designated by the
Board and, in the absence of any such designation, by the
Chief Executive Officer, President, any Vice President,
the Secretary or the Treasurer.
The Board of Directors may require any officer
to give security for the faithful performance of his
duties.
SECTION 4.2. Chairman of the Board. The
Chairman of the Board shall preside as chairman of all
meetings of directors and stockholders and must be a
United States citizen. The Chairman of the Board shall
report to the Board of Directors.
SECTION 4.3. Chief Executive Officer. The
Chief Executive Officer shall be the chief executive
officer of the Corporation with all the rights and powers
incident to that position and must be a United States
citizen. The Chief Executive Officer shall, in the
absence of the Chairman of the Board, preside as the
chairman of director meetings. The Chief Executive
Officer shall report to the Board of Directors.
SECTION 4.4. President. The President (who
may also be the Chief Executive Officer) shall perform
all the duties customary to that office with all the
rights and powers incident to that position and must be a
United States citizen.
SECTION 4.5. Chief Financial Officer. The
Chief Financial Officer shall be the chief financial
officer of the Corporation with all the rights and powers
incident to that position.
SECTION 4.6. Chief Operating Officer. The
Chief Operating Officer shall be the chief operating
officer of the Corporation with all the rights and powers
incident to that position.
SECTION 4.7. Vice President. The Vice
Presidents shall perform such duties as may be prescribed
or assigned to them by the Board of Directors, the Chief
Executive Officer or the President. In the absence of
the President, the highest-ranking Vice President shall
perform the duties of the President. In the event of the
refusal or incapacity of the President to function as
such, the highest-ranking Vice President shall so perform
the duties of the President; and the order of rank of the
Vice Presidents shall be determined by the designated
rank of their offices or, in the absence of such
designation, by seniority in the office of Vice
President; provided that said order or rank may be
established otherwise by action of the Board of Directors
from time to time.
SECTION 4.8. Treasurer. The Treasurer shall
perform all the duties customary to that office, and
shall have the care and custody of the funds and
securities of the Corporation. He shall at all
reasonable times exhibit his books and accounts to any
director upon application, and shall give such bond or
bonds for the faithful performance of his duties with
such surety or sureties as the Board of Directors from
time to time may determine.
SECTION 4.9. Secretary. The Secretary shall
act as secretary of the Corporation and shall keep the
minutes of the meetings of the Board of Directors and of
the stockholders, and perform all of the other duties
usual to that office.
SECTION 4.10. Assistant Treasurer and
Assistant Secretary. Any Assistant Treasurer or
Assistant Secretary shall perform such duties as may be
prescribed or assigned to him by the Board of Directors,
the Chairman of the Board, the Chief Executive Officer or
the President. An Assistant Treasurer shall give such
bond or bonds for the faithful performance of his duties
with such surety or sureties as the Board of Directors
from time to time may determine.
SECTION 4.11. Term of Office; Removal. Each
officer shall hold office for such term as may be
prescribed by the Board and may be removed at any time by
the Board with or without cause. The removal of an
officer without cause shall be without prejudice to his
contract rights, if any. If the office of any officer
becomes vacant for any reason, the vacancy shall be
filled by a Majority of the Board. The election or
appointment of an officer shall not of itself create
contract rights.
SECTION 4.12. Compensation. The compensation
of all officers of the Corporation shall be fixed by the
Board of Directors.
ARTICLE 5.
CERTIFICATES OF STOCK
SECTION 5.1. Form of Stock Certificates. The
shares of the Corporation shall be represented by
certificates, in such form as the Board of Directors may
from time to time prescribe. The signatures of the
officers upon a certificate may be facsimiles if the
certificate is countersigned by a transfer agent or
registered by a registrar other than the Corporation or
its employees. In case any such officer, transfer agent
or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to
be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the
Corporation with the same effect as if he or it were such
officer, transfer agent or registrar, as the case may be,
at the date of issue. Notwithstanding the foregoing, to
the extent permitted by applicable law, the Board of
Directors may (i) dispense with the requirement that any
or all shares of the Corporation be represented by
certificates and (ii) provide that shares be evidenced in
such form as the Board of Directors deems appropriate.
SECTION 5.2. Lost Certificates. In case of
the loss, theft, mutilation or destruction of a stock
certificate, a duplicate certificate will be issued by
the Corporation upon notification thereof and receipt of
such proper indemnity as shall be prescribed by the Board
of Directors.
SECTION 5.3. Transfer of Stock. Transfers of
shares of stock shall be made upon the books of the
Corporation by the registered holder in person or by duly
authorized attorney, upon surrender of the certificate or
certificates for such shares properly endorsed.
SECTION 5.4. Registered Stockholders. Except
as otherwise provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive
dividends or other distributions and to vote as such
owner, and to hold such person liable for calls and
assessments, and shall not be bound to recognize any
equitable or legal claim to or interest in such share or
shares on the part of any other person.
ARTICLE 6.
INDEMNIFICATION
SECTION 6.1. Indemnification. The Corporation
shall indemnify to the fullest extent authorized or
permitted by law (as now or hereafter in effect) any
person made, or threatened to be made, a party to or
otherwise involved in any action or proceeding (whether
civil or criminal or otherwise) by reason of the fact
that he, his testator or intestate, is or was a director
or officer of the Corporation or by reason of the fact
that such director or officer, at the request of the
Corporation, is or was serving any other corporation,
partnership, joint venture, trust, employee benefit plan
or other enterprise, in any capacity. Nothing contained
herein shall affect any rights to indemnification to
which employees other than directors and officers may be
entitled by law. No amendment or repeal of this Section
6.1 shall apply to or have any effect on any right to
indemnification provided hereunder with respect to any
acts or omissions occurring prior to such amendment or
repeal.
SECTION 6.2. Insurance, Indemnification
Agreements and Other Matters. The Corporation may
purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of
the Corporation, or is serving at the request of the
Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against any
liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to
indemnify him against such liability under the provisions
of the law. The Corporation may create a trust fund,
grant a security interest and/or use other means
(including, without limitation, letters of credit, surety
bonds and/or other similar arrangements), as well as
enter into contracts providing for indemnifi
cation to the fullest extent authorized or permitted by
law and including as part thereof any or all of the
foregoing, to ensure the payment of such sums as may
become necessary to effect full indemnification.
SECTION 6.3. Advancement of Expenses. In
furtherance and not in limitation of the foregoing
provisions, all reasonable expenses incurred by or on
behalf of any person entitled to indemnification by the
Corporation pursuant to this Article VI shall be advanced
to such person by the Corporation within 20 calendar days
after the receipt by the Corporation of a statement or
statements from such person requesting such advance or
advances from time to time, whether prior to or after
final disposition of the action or proceeding giving rise
to the right of indemnification. Such statement or
statements shall reasonably evidence the expenses
incurred by the indemnitee and, if required by law at the
time of such advance, shall include or be accompanied by
an undertaking by or on behalf of such indemnitee to
repay the amounts advanced if it should ultimately be
determined that such indemnitee is not entitled to be
indemnified against such expenses pursuant to this
Article VI.
SECTION 6.4. Nonexclusivity. The rights to
indemnification conferred in this Article VI shall not be
exclusive of any other right which any person may have or
hereafter acquire under any statute, the Certificate of
Incorporation of the Corporation, these Bylaws or any
agreement, vote of stockholders or directors or
otherwise.
ARTICLE 7.
MISCELLANEOUS PROVISIONS
SECTION 7.1. Corporate Seal. The Corporation
shall not have a formal or official seal unless the Board
of Directors so determines. The Board of Directors may
adopt one or more seals, and may revoke the adoption of
any seal. To the extent any officer deems it appropriate
to expedite any action to be taken by the Corporation,
such officer may utilize a seal purporting to be a
corporate seal of the corporation.
SECTION 7.2. Fiscal Year. The fiscal year of
the Corporation shall be the twelve months ending
December 31 or such other period as may be prescribed by
the Board of Directors.
ARTICLE 8.
AMENDMENTS
SECTION 8.1. Power to Amend. A Majority of
the Board shall have the power, without the assent or
vote of the stockholders, to adopt, amend, or repeal the
Bylaws of the Corporation. Except as otherwise expressly
prescribed by law, the stockholders may not adopt, amend,
or repeal the Bylaws of the Corporation, except by the
affirmative vote of the holders of 66 % or more of the
voting power of the then issued and outstanding shares of
capital stock of the Corporation entitled to vote for the
election of directors, considered as one class.
