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FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-56821
PROSPECTUS
R&B FALCON CORPORATION
OFFER TO EXCHANGE
6 1/2% SENIOR NOTES DUE 2003, SERIES B
FOR ALL OUTSTANDING 6 1/2% SENIOR NOTES DUE 2003, SERIES A,
6 3/4% SENIOR NOTES DUE 2005, SERIES B
FOR ALL OUTSTANDING 6 3/4% SENIOR NOTES DUE 2005, SERIES A,
6.95% SENIOR NOTES DUE 2008, SERIES B
FOR ALL OUTSTANDING 6.95% SENIOR NOTES DUE 2008, SERIES A,
AND
7 3/8% SENIOR NOTES DUE 2018, SERIES B
FOR ALL OUTSTANDING 7 3/8% SENIOR NOTES DUE 2018, SERIES A
---------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON AUGUST 7, 1998, UNLESS EXTENDED
---------------------
R&B Falcon Corporation, a Delaware corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal, to
exchange, in a transaction registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement (as defined
herein) of which this Prospectus constitutes a part, up to $250 million in
aggregate principal amount of its 6 1/2% Senior Notes due 2003, Series B (the
"5-Year Exchange Notes") for $250 million in aggregate principal amount of its
outstanding 6 1/2% Senior Notes due 2003, Series A (the "5-Year Private Notes"),
up to $350 million in aggregate principal amount of its 6 3/4% Senior Notes due
2005, Series B, (the "7-Year Exchange Notes") for $350 million in aggregate
principal amount of its outstanding 6 3/4% Senior Notes due 2005, Series A (the
"7-Year Private Notes"), up to $250 million in aggregate principal amount of its
6.95% Senior Notes due 2008, Series B (the "10-Year Exchange Notes") for $250
million in aggregate principal amount of its outstanding 6.95% Senior Notes due
2008, Series A (the "10-Year Private Notes"), and up to $250 million in
aggregate principal amount of its 7 3/8% Senior Notes due 2018, Series B (the
"20-Year Exchange Notes," and together with the 5-Year Exchange Notes, the
7-Year Exchange Notes and the 10-Year Exchange Notes, the "Exchange Notes"), for
$250 million in aggregate principal amount of its outstanding 7 3/8% Senior
Notes due 2018, Series A (the "20-Year Private Notes," and together with the
5-Year Private Notes, 7-Year Private Notes and 10-Year Private Notes, the
"Private Notes"). The Exchange Notes and the Private Notes are referred to
herein collectively as the "Notes," and each of the 5-Year Exchange Notes, the
5-Year Private Notes, the 7-Year Exchange Notes, the 7-Year Private Notes, the
10-Year Exchange Notes, the 10-Year Private Notes, the 20-Year Exchange Notes
and the 20-Year Private Notes are referred to herein as a "series" of Notes.
(continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN
FACTORS INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES OFFERED HEREBY.
---------------------
THESE SECURITIES 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 PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THE DATE OF THIS PROSPECTUS IS JULY 8, 1998
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(continued from previous page)
The Company will accept for exchange any and all Private Notes that are
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the date the Exchange Offer expires, which will be August 7, 1998 unless the
Exchange Offer is extended (the "Expiration Date"). Tenders of Private Notes may
be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Private Notes being tendered for exchange. However, the
Exchange Offer is subject to certain conditions that may be waived by the
Company and to the terms and provisions of the Registration Rights Agreement (as
defined herein). See "The Exchange Offer." Private Notes may be tendered only in
denominations of $1,000 and integral multiples thereof. The Company has agreed
to pay the expenses of the Exchange Offer.
The Exchange Notes will be obligations of the Company entitled to the
benefits of the Indenture dated April 14, 1998 between the Company, as issuer,
and Chase Bank of Texas, National Association, as trustee (the "Trustee"),
relating to the Notes (the "Indenture"). The form and terms of the Exchange
Notes are identical in all material respects to the form and terms of the
Private Notes, except that (i) the offering of the Exchange Notes has been
registered under the Securities Act, (ii) the Exchange Notes will not be subject
to transfer restrictions and (iii) the Exchange Notes will not be entitled to
registration or other rights under the Registration Rights Agreement including
the provision in the Registration Rights Agreement for payment of Liquidated
Damages (as defined in the Registration Rights Agreement) upon failure by the
Company to consummate the Exchange Offer or the occurrence of certain other
events. Following the Exchange Offer, any holders of Private Notes will continue
to be subject to the existing restrictions on transfer thereof and, as a general
matter, the Company will not have any further obligation to such holders to
provide for registration under the Securities Act of transfers of the Private
Notes held by them. To the extent that Private Notes are tendered and accepted
in the Exchange Offer, a holder's ability to sell untendered and tendered but
unaccepted Private Notes could be adversely affected. See "The Exchange
Offer -- Purpose and Effect of the Exchange Offer." The Exchange Notes are being
offered hereby in order to satisfy the obligations of the Company under a
Registration Rights Agreement dated April 8, 1998 among the Company and the
Initial Purchasers (as defined herein) relating to the Private Notes (the
"Registration Rights Agreement").
The 5-Year Exchange Notes will bear interest at a rate of 6 1/2% per annum,
the 7-Year Exchange Notes will bear interest at a rate of 6 3/4% per annum, the
10-Year Exchange Notes will bear interest at a rate of 6.95% per annum, and the
20-Year Exchange Notes will bear interest at a rate of 7 3/8% per annum.
Interest on the Exchange Notes is payable semi-annually on April 15 and October
15 of each year, commencing October 15, 1998. Holders of Exchange Notes of
record on October 1, 1998 will receive on October 15, 1998 an interest payment
in an amount equal to (i) the accrued interest on such Exchange Notes from the
date of issuance thereof to October 15, 1998, plus (ii) the accrued interest on
the previously held Private Notes from the date of issuance of such Private
Notes (April 14, 1998) to the date of exchange thereof. Interest will not be
paid on Private Notes that are accepted for exchange. The 5-Year Exchange Notes
mature on April 15, 2003, the 7-Year Exchange Notes mature on April 15, 2005,
the 10-Year Exchange Notes mature on April 15, 2008 and the 20-Year Exchange
Notes mature on April 15, 2018.
Based on an interpretation of the Securities Act by the staff of the
Securities and Exchange Commission (the "Commission"), Exchange Notes issued
pursuant to the Exchange Offer in exchange for Private Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who purchased such Private Notes directly from the Company for
resale pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an "affiliate" (within the meaning of
Rule 405 of the Securities Act) of the Company), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the holder is acquiring the Exchange Notes in its ordinary course of
business and is not participating, and has no arrangement or understanding with
any person to participate, in the distribution of the Exchange Notes. Holders of
Private Notes wishing to accept the Exchange Offer must represent to the Company
that such conditions have been met.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The
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Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Private
Notes where such Private Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of up to 180 days after the Expiration Date, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the
Private Notes. The Exchange Notes will not be listed on any securities exchange,
but the Private Notes are, and the Exchange Notes will be, eligible for trading
in the National Association of Securities Dealers, Inc.'s Private Offerings,
Resales and Trading through Automatic Linkages ("PORTAL") market. There can be
no assurance that an active market for the Notes will develop. To the extent
that a market for the Notes does develop, the market value of the Notes will
depend on market conditions (such as yields on alternative investments), general
economic conditions, the Company's financial condition and certain other
factors. Such conditions might cause the Notes, to the extent that they are
traded, to trade at a significant discount from face value. See "Risk
Factors -- Absence of Market for the Notes."
The Company will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection with
this Exchange Offer. See "The Exchange Offer -- Solicitation of Tenders; Fees
and Expenses."
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR
A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, the Depository Trust Company ("DTC" or
the "Depositary") and registered in its name or in the name of Cede & Co., as
its nominee. Beneficial interests in the global notes representing the Exchange
Notes will be shown on, and transfers thereof will be effected
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only through, records maintained by the Depositary and its participants. After
the initial issuance of such global notes, Exchange Notes in certificated form
will be issued in exchange for the global notes only in accordance with the
terms and conditions set forth in the Indenture. See "Description of the
Notes -- Book Entry; Delivery and Form."
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FORWARD-LOOKING STATEMENTS
Certain statements contained herein and in the documents incorporated
herein by reference, including statements of the Company's and management's
expectations, intentions, plans and beliefs, are forward-looking statements, as
defined in Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that are dependent on
certain events, risks and uncertainties that may be outside of the Company's
control. When used or incorporated in this Prospectus, the words "anticipate,"
"believe," "could," "estimate," "expect," "intend," "may," "plan," "project" and
similar expressions are intended to identify forward-looking statements.
Although the Company believes that its expectations, intentions, plans and
beliefs reflected in such forward-looking statements are reasonable, it can give
no assurance that they will be achieved. Such statements are subject to certain
risks, uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected. Among the key factors that have a direct bearing on the Company's
results of operations are the levels of activity in oil and gas exploration,
development and production, the success of the Company's strategy of expanding
its deepwater fleet, the success of the Company's construction and upgrade
projects, competition in the marine drilling market, operational risks inherent
in the marine drilling business, governmental regulation, unanticipated repairs
to the Company's rig fleet and risks associated with doing business outside the
U.S. These forward-looking statements speak only as of the date of this
Prospectus. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statement
contained in this Prospectus to reflect any change in the Company's expectations
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) under the Securities Act with respect
to the Exchange Notes offered hereby. As permitted by the rules and regulations
of the Commission, this Prospectus omits certain information, exhibits and
undertakings contained in the Registration Statement. For further information
with respect to the Company and the Exchange Notes offered hereby, reference is
made to the Registration Statement, including the exhibits thereto and the
financial statements, notes and schedules filed as a part thereof. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Company is subject to the informational requirements of the Exchange
Act and the rules and regulations promulgated thereunder and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. All such information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington D.C. 20549 and at the following
Regional Offices of the Commission: Chicago Regional Office, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and New York Regional Office, 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material may also be obtained at prescribed rates from the Public Reference
Section of the Commission at its principal office at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. The Commission also maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
(http://www.sec.gov). In addition, the Company's common stock, par value $.01
per share, is listed for trading on the New York Stock Exchange and reports,
proxy statements and other information
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concerning the Company may be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
The Company has agreed that, whether or not it is required to do so by the
rules and regulations of the Commission, for so long as any of the Notes remain
outstanding, it will furnish to the holders of the Notes all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Company were required to file
such forms pursuant to the Exchange Act including a "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and, with respect to
the annual financial statements only, a report thereon by the Company's
independent accountants.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates by reference certain documents relating to the
Company that are not presented herein or delivered herewith. These documents
(other than the exhibits to such documents, unless such exhibits are
specifically incorporated by reference into such documents) are available
without charge, on request by any person to whom this Prospectus is delivered,
from the Company, 901 Threadneedle, Houston, Texas 77079, attention: Charles R.
Ofner, telephone number (281) 496-5000. The Company incorporates herein by
reference the following documents:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1997;
(b) Current Report on Form 8-K dated March 25, 1998;
(c) Quarterly Report on Form 10-Q dated May 15, 1998; and
(d) All other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof
and prior to termination of the Exchange Offer made hereby.
Any statement contained herein or in a document all or a portion of which
is incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any subsequently filed document that also is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus except as so modified or superceded.
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information in this Prospectus, including
the consolidated financial statements of the Company and notes thereto
incorporated herein by reference in this Prospectus. Unless the context
otherwise requires, references to the "Company" and "R&B Falcon" shall mean R&B
Falcon Corporation and its subsidiaries.
THE COMPANY
The Company owns and operates the world's largest fleet of marine drilling
rigs. The fleet is one of the most diverse in the industry, capable of drilling
in shallow to ultra-deepwater depths in most of the world's major offshore
hydrocarbon producing regions. The Company provides contract drilling and
related services, primarily in three markets determined by general equipment
type and water depth: Deepwater (12 drillships, including seven under
construction; 11 semisubmersible rigs, including two under construction; one
dynamically positioned floating production vessel); Shallow Water (26 jack-up
rigs; three submersible rigs; two drilling tenders); and Transition Zone (60
barge and workover rigs; inland tugs and utility barges).
The Company, through its predecessors, has provided contract drilling
services to the oil and gas industry since 1956. Through a business combination
that became effective December 31, 1997, (the "Merger"), Falcon Drilling
Company, Inc. ("Falcon") and Reading & Bates Corporation ("R&B") became wholly
owned subsidiaries of R&B Falcon Corporation. The principal executive office of
the Company is located at 901 Threadneedle, Houston, Texas 77079, and its phone
number at such location is (281) 496-5000.
The Company's overall strategy is to enhance its competitive positions in
markets that generate superior long-term returns. This strategy has included
expanding its rig fleet during periods of weak demand, which has enabled the
Company to significantly increase its rig asset base at attractive prices. The
Company focuses on equipment types that serve growing markets, can benefit from
consolidation, or are characterized by long-term contracts.
As a result of this strategy, the Company has become one of the largest
providers of deepwater drilling services and the leading contractor to the
domestic transition zone market. The Company intends to continue to pursue its
overall strategy through the following initiatives:
EXPAND DEEPWATER FLEET
A primary element of the Company's strategy is to further develop its
deepwater drilling business. Upon completion of current rig construction or
upgrade projects, the Company expects to have the world's largest fleet of rigs
capable of drilling in water depths greater than 3,000 feet. The Company
believes that active bidding in recent deepwater lease sales and the
demonstrated willingness of major oil companies to enter into long-term
contracts for deepwater rigs indicate that these companies intend to undertake
substantial exploration efforts in deepwater environments. Drilling in these
environments, particularly the ultra-deepwater regions beyond 5,000 feet, poses
technological challenges far greater than those encountered in shallower waters.
The Company believes that its leadership in the ultra-deepwater market and its
highly experienced deepwater management team give it the capability to meet
these challenges and provide a strong marketing advantage when competing for
long-term contracts.
The Company has seven drillships and two semisubmersible rigs under
construction or major upgrade. All are committed under contracts except for one
semisubmersible that is subject to a letter of intent. The Company expects these
projects, upon completion, to generate substantial revenues and cash flows.
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DEEPWATER CONSTRUCTION PROGRAM
<TABLE>
<CAPTION>
WATER
DEPTH EXPECTED
RIG CAPABILITY CUSTOMER TERM DELIVERY
--- ---------- -------- ---- --------
(FEET)
<S> <C> <C> <C> <C>
DRILLSHIPS
Deepwater Pathfinder(1)..................... 10,000 Conoco 5 years 4Q98
Deepwater Frontier(2)....................... 10,000 Conoco 2.5 years 1Q99
Deepwater Millenium......................... 10,000 Statoil 4 years 3Q99
Peregrine IV................................ 9,200 Petrobras 6 years 1Q99(3)
Peregrine VI................................ 10,000 Mobil/Phillips 3 years 2Q99(3)
Peregrine VII............................... 8,200 Amoco 3 years 1Q99(3)
Peregrine VIII.............................. 10,000 Texaco 3 years 3Q99(3)
SEMISUBMERSIBLE RIGS
RBS-6....................................... 8,000 Shell 5 years 1Q00
Falcon 100.................................. 2,450 Petrobras 4 years 1Q99(3)
</TABLE>
- ---------------
(1) 50% owned by the Company.
(2) 60% owned by the Company.
(3) Expected delivery is later than the required commencement date of the
drilling contract. See "Risk Factors -- Risks of Construction and Upgrade
Projects."
Execution of the Company's strategy requires substantial amounts of
capital, primarily for the upgrade and refurbishment of deepwater rigs.
CAPITALIZE ON LEADING TRANSITION ZONE FRANCHISE
The Company has established the leading position in the domestic transition
zone market (marshes, lakes, bays, and shallow coastal waters, generally not
exceeding 20 feet in water depth) and owns virtually all of the domestic
market's excess capacity. The Company also operates barge rigs in Venezuela. The
Company has the opportunity to increase its revenue base by refurbishing
non-operational barge rigs in response to increases in demand. The Company
returned four barge rigs to service in 1997. If increased demand warrants
placing additional barge rigs in service, the Company believes that it will have
a significant cost and timing advantage over competitors who would have to
construct new rigs in order to increase their capacity. In addition, the Company
will evaluate the deployment of barge rigs to other geographic markets which may
yield more attractive economic returns.
EXPLOIT FLEET AND GEOGRAPHIC DIVERSITY
The Company operates one of the most diverse fleets in the industry, both
in terms of rig type and geographic deployment. The Company's fleet currently
ranges from barge rigs capable of drilling in water depths of less than 10 feet
to ultra-deepwater drillships capable of drilling in water depths up to 7,500
feet. In addition, the Company is currently constructing drillships which are
designed to drill in water depths up to 10,000 feet.
The Company currently operates in most of the world's major offshore
hydrocarbon producing regions. The Company believes that this diversity allows
it to mitigate revenue and cash flow impacts associated with a major downturn in
any single geographic region. Additionally, the Company believes that its
existing worldwide operations, as well as its established customer
relationships, provide a strong competitive advantage in bidding for contracts
in a particular region over operators that would have to mobilize a rig into
that region in order to perform that contract.
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The Company also seeks opportunities to provide additional services which
are complementary to its core contract drilling business. In 1997, the Company
entered the inland marine transportation business, purchasing tugs and utility
barges which are primarily used in conjunction with the Company's domestic barge
rig fleet. The Company has also recently acquired offshore supply vessels for
use in connection with its drillship operations and offshore tugs capable of
towing jack-up rigs from location to location.
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SUMMARY OF TERMS OF EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $1,100,000,000
aggregate principal amount of Exchange Notes for up to an equal aggregate
principal amount of outstanding Private Notes. The Exchange Notes will be
obligations of the Company entitled to the benefits of the Indenture. The form
and terms of the Exchange Notes are identical in all material respects to the
form and terms of the Private Notes, except that (i) the offering of the
Exchange Notes has been registered under the Securities Act, (ii) the Exchange
Notes will not be subject to transfer restrictions and (iii) the Exchange Notes
will not be entitled to any rights under the Registration Rights Agreement. See
"Description of the Notes."
THE PRIVATE NOTES.......... The Company issued and sold $250 million aggregate
principal amount of its 5-Year Private Notes, $350
million aggregate principal amount of its 7-Year
Private Notes, $250 million aggregate principal
amount of its 10-Year Private Notes, and $250
million aggregate principal amount of its 20-Year
Private Notes to Credit Suisse First Boston, Chase
Securities, Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Morgan Stanley Dean
Witter (the "Initial Purchasers") on April 14, 1998
pursuant to a Purchase Agreement dated April 8,
1998 (the "Purchase Agreement") in a transaction
not registered under the Securities Act in reliance
upon the exemption provided in Section 4(2) of the
Securities Act (the "Private Offering"). The
Initial Purchasers placed the Private Notes with
qualified institutional buyers (as defined in Rule
144A under the Securities Act) ("Qualified
Institutional Buyers" or "QIBs"), each of whom
agreed to comply with certain transfer restrictions
and other restrictions. Accordingly, the Private
Notes may not be reoffered, resold or otherwise
transferred in the United States unless such
transaction is registered under the Securities Act
or an applicable exemption from the registration
requirements of the Securities Act is available.
THE EXCHANGE OFFER......... $1,000 principal amount of Exchange Notes of a
series will be issued in exchange for each $1,000
principal amount of Private Notes of the
corresponding series validly tendered and accepted
pursuant to the Exchange Offer. As of the date
hereof, $1,100,000,000 in aggregate principal
amount of Private Notes are outstanding. The
Company will issue the Exchange Notes to tendering
holders of Private Notes promptly following the
Expiration Date. The terms of the Exchange Notes of
a series are identical in all material respects to
the Private Notes of the corresponding series
except for certain transfer restrictions and
registration rights relating to the Private Notes.
No federal or state regulatory requirements must be
complied with or approval obtained in connection
with the Exchange Offer, other than the
registration requirements under the Securities Act.
The 5-Year Private Notes and the 5-Year Exchange
Notes are sometimes referred to herein individually
and collectively as the "5-Year Notes," the 7-Year
Private Notes and the 7-Year Exchange Notes are
sometimes referred to herein individually and
collectively as the "7-Year Notes," the 10-Year
Private Notes and the 10-Year Exchange Notes are
sometimes referred to herein individually and
collectively as the "10-Year Notes," and the
20-Year Private Notes and the 20-Year Exchange
Notes are sometimes referred to herein individually
and collectively as the "20-Year Notes."
REGISTRATION RIGHTS
AGREEMENT.................. Pursuant to the Purchase Agreement, the Company and
the Initial Purchasers entered into the
Registration Rights Agreement which, among other
things, grants the holders of the Private Notes
certain
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<PAGE> 10
exchange and registration rights. The Exchange
Offer is intended to satisfy certain obligations of
the Company under the Registration Rights
Agreement.
RESALE..................... Based on existing interpretations of the Securities
Act by the staff of the Commission set forth in
several no-action letters to third parties, and
subject to the immediately following sentence, the
Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for
Private Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other
than (i) a broker-dealer who purchased such Private
Notes directly from the Company for resale pursuant
to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an
"affiliate" (within the meaning of Rule 405 of the
Securities Act) of the Company), without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that the
holder is acquiring the Exchange Notes in its
ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to participate, in
the distribution of the Exchange Notes. Each
broker-dealer that receives Exchange Notes for its
own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. See "Plan of Distribution."
EXPIRATION DATE............ 5:00 p.m., New York City time, on August 7, 1998,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended. See "The Exchange Offer -- Expiration
Date; Extensions; Amendments."
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
PRIVATE NOTES............ The 5-Year Exchange Notes will bear interest at a
rate of 6 1/2% per annum, the 7-Year Exchange Notes
will bear interest at a rate of 6 3/4% per annum,
the 10-Year Exchange Notes will bear interest at a
rate of 6.95% per annum, and the 20-Year Exchange
Notes will bear interest at a rate of 7 3/8% per
annum. Interest on the Exchange Notes is payable
semi-annually on April 15 and October 15 of each
year, commencing October 15, 1998. Holders of
record of Exchange Notes on October 1, 1998 will
receive on October 15, 1998 an interest payment in
an amount equal to (i) the accrued interest on such
Exchange Notes from the date of issuance thereof to
October 15, 1998, plus (ii) the accrued interest on
the previously held Private Notes from the date of
issuance of such Private Notes (April 14, 1998) to
the date of exchange thereof. Interest will not be
paid on Private Notes that are accepted for
exchange. The 5-Year Exchange Notes mature on April
15, 2003, the 7-Year Exchange Notes mature on April
15, 2005, the 10-Year Exchange Notes mature on
April 15, 2008 and the 20-Year Exchange Notes
mature on April 15, 2018.
CONDITIONS TO THE EXCHANGE
OFFER.................... The Company may terminate the Exchange Offer if it
determines that its ability to proceed with the
Exchange Offer could be materially impaired
5
<PAGE> 11
due to the occurrence of certain conditions. The
Company does not expect any of such conditions to
occur, although there can be no assurance that such
conditions will not occur. Holders of Private Notes
will have certain rights under the Registration
Rights Agreement should the Company fail to
consummate the Exchange Offer. See "The Exchange
Offer -- Conditions to the Exchange Offer."
PROCEDURES FOR TENDERING
PRIVATE NOTES.............. Each holder of Private Notes wishing to accept the
Exchange Offer must either (i) complete, sign and
date the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Private Notes to be
exchanged and any other required documentation, to
Chase Bank of Texas, National Association, as
Exchange Agent, at the address set forth herein and
therein or effect a tender of Private Notes
pursuant to the procedures for book-entry transfer
as provided for herein and therein, or (ii) effect
tenders by book-entry transfer by complying with
DTC's Automated Tender Offer Program ("ATOP"),
including the delivery of an Agent's message to the
Exchange Agent. By executing the Letter of
Transmittal, each holder will represent to the
Company that, among other things, the Exchange
Notes acquired pursuant to the Exchange Offer are
being acquired in the ordinary course of business
of the person receiving such Exchange Notes,
whether or not such person is the holder, that
neither the holder nor any such other person has
any arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes and that neither the holder nor any such
other person is an "affiliate," as defined in Rule
405 under the Securities Act, of the Company. See
"The Exchange Offer -- Procedures for Tendering."
Following consummation of the Exchange Offer,
holders of Private Notes not tendered will not as a
general matter have any further registration
rights, and the Private Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the
Private Notes could be adversely affected. See
"Risk Factors -- Absence of Market for the Notes"
and "-- Failure to Exchange Private Notes" and "The
Exchange Offer -- Consequences of Failure to
Exchange."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... Any beneficial owner whose Private Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender in the Exchange Offer should
contact such registered holder promptly and
instruct such registered holder to tender on his
behalf. If such beneficial owner wishes to tender
on his own behalf, such beneficial owner must,
prior to completing and executing the Letter of
Transmittal and delivering his Private Notes,
either (a) make appropriate arrangements to
register ownership of the Private Notes in such
holder's name or (b) obtain a properly completed
bond power from the registered holder or endorsed
certificates representing the Private Notes to be
tendered. The transfer of record ownership may take
considerable time, and completion of such transfer
prior to the Expiration Date may not be possible.
See "The Exchange Offer -- Procedures for
Tendering."
6
<PAGE> 12
GUARANTEED DELIVERY
PROCEDURES................. Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available, or who cannot deliver their
Private Notes (or complete the procedure for
book-entry transfer) and deliver a properly
completed Letter of Transmittal and any other
documents required by the Letter of Transmittal to
the Exchange Agent prior to the Expiration Date may
tender their Private Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS.......... Tenders of Private Notes may be withdrawn at any
time prior to the Expiration Date by furnishing a
written or facsimile transmission notice of
withdrawal to the Exchange Agent containing the
information set forth in "The Exchange
Offer -- Withdrawal of Tenders."
ACCEPTANCE OF PRIVATE NOTES
AND DELIVERY OF EXCHANGE
NOTES.................... Subject to certain conditions (as summarized above
in "Conditions to the Exchange Offer" and described
more fully in "The Exchange Offer -- Conditions to
the Exchange Offer"), the Company will accept for
exchange any and all Private Notes that are
properly tendered in the Exchange Offer prior to
the Expiration Date. See "The Exchange
Offer -- Procedures for Tendering." The Exchange
Notes issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
EXCHANGE AGENT............. Chase Bank of Texas, National Association, the
trustee under the Indenture, is serving as the
Exchange Agent (the "Exchange Agent") in connection
with the Exchange Offer. The mailing address of the
Exchange Agent is Chase Bank of Texas, National
Association, c/o The Chase Manhattan Bank, 55 Water
Street, North Building, Room 234, Windows 20 and
21, New York, New York 10041. For requests for
additional copies of the Prospectus, the Letter of
Transmittal or the Notice of Guaranteed Delivery,
the telephone number for the Exchange Agent is
(212) 638-0828, and the facsimile number for the
Exchange Agent is (212) 638-7380 or (212) 638-7381
(Eligible Institutions only). For other inquiries,
call (713) 216-6686.
EFFECT ON HOLDERS OF
PRIVATE NOTES.............. Holders of Private Notes who do not tender their
Private Notes in the Exchange Offer will continue
to hold their Private Notes and will be entitled to
all the rights and limitations applicable thereto
under the Indenture. All untendered, and tendered
but unaccepted, Private Notes will continue to be
subject to the restrictions on transfer provided
for in the Private Notes and the Indenture. To the
extent that Private Notes are tendered and accepted
in the Exchange Offer, the trading market, if any,
for any untendered and tendered but unaccepted
Private Notes could be adversely affected. See
"Risk Factors -- Failure to Exchange Private
Notes."
See "The Exchange Offer" for more detailed information concerning the terms
of the Exchange Offer.
7
<PAGE> 13
SUMMARY OF TERMS OF EXCHANGE NOTES
SECURITIES OFFERED......... $250 million aggregate principal amount of 6 1/2%
Senior Notes due 2003, Series B, of the Company;
$350 million aggregate principal amount of 6 3/4%
Senior Notes due 2005, Series B, of the Company;
$250 million aggregate principal amount of 6.95%
Senior Notes due 2008, Series B, of the Company;
and
$250 million aggregate principal amount of 7 3/8%
Senior Notes due 2018, Series B, of the Company.
MATURITY DATES............. April 15, 2003 for the 5-Year Exchange Notes;
April 15, 2005 for the 7-Year Exchange Notes;
April 15, 2008 for the 10-Year Exchange Notes; and
April 15, 2018 for the 20-Year Exchange Notes.
INTEREST PAYMENT DATES..... April 15 and October 15 of each year, commencing
October 15, 1998.
OPTIONAL REDEMPTION........ The 5-Year Exchange Notes will not be redeemable.
Each other series of Exchange Notes may be redeemed
at any time, at the option of the Company, in whole
or in part, at a price equal to 100% of the
principal amount thereof plus accrued and unpaid
interest (if any) to the applicable date of
redemption plus the applicable Make-Whole Premium
relating to the then prevailing applicable Treasury
Yield and the remaining life of such series of
Exchange Notes. See "Description of the
Notes -- Optional Redemption."
RANKING AND GUARANTEES..... The Exchange Notes will be senior unsecured
indebtedness of the Company and will rank pari
passu in right of payment with all other existing
and future senior unsecured indebtedness of the
Company, including obligations under its New Bank
Facility (as defined herein), and senior in right
of payment to any existing and future indebtedness
of the Company that is, by its terms, expressly
subordinated to the Exchange Notes. The indenture
governing the Notes will provide that any
subsidiary that guarantees funded indebtedness of
the Company after the issue date of the Notes
(including indebtedness under the New Bank
Facility) will be required to equally and ratably
guarantee the Exchange Notes. The guarantee of the
Exchange Notes by any subsidiary may be released
if, but only so long as, no other funded
indebtedness of the Company is guaranteed by such
subsidiary. See "Description of the
Notes -- Ranking and Guarantees." The Exchange
Notes will be structurally subordinated to
indebtedness and other liabilities of the Company's
subsidiaries. The Company's subsidiaries have
substantial liabilities, primarily trade payables.
COVENANTS.................. The Indenture contains covenants that limit the
Company's ability to incur indebtedness for
borrowed money secured by certain liens and to
engage in certain sale/leaseback transactions.
These limitations are subject to certain
qualifications and exceptions. See "Description of
the Notes -- Certain Covenants."
USE OF PROCEEDS............ The Company will not receive any proceeds from the
Exchange Offer.
8
<PAGE> 14
RISK FACTORS
See "Risk Factors," beginning on page 11 hereof, for a discussion of
certain factors that should be considered in evaluating an investment in the
Exchange Notes.
9
<PAGE> 15
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data for the
Company as of and for the three months ended March 31, 1998 and 1997 and as of
and for each of the years in the five-year period ended December 31, 1997,
giving effect to the Merger under the "pooling-of-interests" method of
accounting. The summary consolidated financial data as of and for the three
months ended March 31, 1998 and 1997 have been derived from the unaudited
condensed consolidated financial statements of the Company. The summary
consolidated financial data as of and for the five-year period ended December
31, 1997 have been derived from the Company's audited consolidated financial
statements and, with respect to 1994 and 1993, the separate audited consolidated
financial statements of R&B and Falcon. The following data should be read in
conjunction with the historical consolidated financial statements of the Company
incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------
1998 1997
--------- -------
(IN MILLIONS, EXCEPT
PER SHARE AND RATIO
AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues.......................................... $ 279.4 $203.1
Operating income............................................ 126.0 69.8
Income from continuing operations before income tax expenses
and minority interest..................................... 113.5 61.0
Net income.................................................. 69.8 38.9
Income from continuing operations per common share:
Basic..................................................... .42 .27
Diluted................................................... .42 .27
OTHER DATA:
Ratio of earnings to fixed charges(2)....................... 5.5x 4.6x
Depreciation................................................ $ 20.9 $ 18.5
Capital expenditures and acquisitions....................... $ 237.4 $ 69.1
BALANCE SHEET DATA AS OF MARCH 31, 1998:
Working capital............................................. $ 96.6
Total assets................................................ 2,226.1
Total debt.................................................. 1,038.5
Stockholders' equity........................................ 822.2
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AND RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues.......................................... $ 942.1 $ 609.6 $390.3 $307.6 $245.6
Operating income............................................ 293.3 180.7 64.9 22.4 26.4
Income (loss) from continuing operations before
extraordinary gain........................................ 156.0 106.4 23.5 (12.7) 8.5
Net income (loss)(1)........................................ (6.2) 106.7 26.9 (12.7) 8.5
Income (loss) from continuing operations per common share:
Basic..................................................... .95 .70 .16 (.18) .06
Diluted................................................... .94 .67 .15 (.18) .05
OTHER DATA:
Ratio of earnings to fixed charges(2)....................... 4.5x 3.5x 1.8x -- 1.5x
Depreciation and amortization............................... $ 82.9 $ 62.3 $ 46.9 $ 38.4 $ 32.8
Capital expenditures and acquisitions....................... $ 601.2 $ 383.2 $186.9 $124.7 $ 42.5
BALANCE SHEET DATA:
Working capital............................................. $ (14.9) $ 195.3 $ 57.7 $ 9.2 $ 90.5
Total assets................................................ 1,928.4 1,455.8 946.8 810.9 722.4
Total debt.................................................. 827.4 514.2 296.7 288.6 166.3
Stockholders' equity........................................ 728.0 716.7 472.6 356.3 350.5
</TABLE>
- ---------------
(1) After income (loss) from discontinued operations of ($162.2) million in 1997
and $0.3 million in 1996 and extraordinary gain of $3.4 million in 1995.
(2) For the purpose of this calculation "earnings" represent income (loss) from
continuing operations before income tax expense, minority interest, and
extraordinary gain, plus fixed charges exclusive of interest capitalized.
"Fixed charges" consist of interest, whether expensed or capitalized,
amortization of debt expense and an estimated portion of rentals
representing interest expense. As a result of the loss incurred in 1994,
earnings were insufficient to cover fixed charges by $3.4 million in that
year. Fixed charges for the year ended December 31, 1997 and the three
months ended March 31, 1998 and 1997 exclude interest cost of $7.3 million,
$4.5 million and $1.2 million, respectively, related to the debt of joint
venture companies guaranteed by R&B. Pro forma ratio of earnings to fixed
charges for the three months ended March 31, 1998 and for the year ended
December 31, 1997 was 6.2x and 5.1x, respectively.
10
<PAGE> 16
RISK FACTORS
Prior to making an investment in the Exchange Notes, prospective purchasers
should carefully consider all of the information contained and incorporated by
reference in this Prospectus and, in particular, should evaluate the following
risk factors.
DEPENDENCE ON OIL AND GAS INDUSTRY
The Company's operations are materially dependent upon the level of
activity in offshore oil and gas exploration and production. The level of such
activity is affected by both short-term and long-term trends in oil and gas
prices. Oil and gas prices and, therefore, the level of drilling, exploration
and production activity, can be volatile. Worldwide military, political and
economic events, including initiatives by the Organization of Petroleum
Exporting Countries, have contributed to, and are likely to continue to
contribute to, price volatility. The Company believes that any prolonged
reduction in oil and gas prices will depress the level of exploration and
production activity and result in a corresponding decline in the demand for the
Company's services and, therefore, have a material adverse effect on the
Company's revenues, cash flows and profitability. There can be no assurances as
to the future level of demand for the Company's services or future conditions in
the drilling industry. In May 1998, the Company began to experience a downturn
in demand for the Company's drilling rigs that the Company believes is
attributable in large part to declines in oil and gas prices that began in 1997
and have persisted into 1998. See "Recent Developments." Decreased demand
adversely affects the Company by lowering utilization of the Company's rigs and
reducing the dayrates the Company is able to charge for its rigs.
COMMITMENT TO DEEPWATER DRILLING MARKET
The Company has made a significant commitment to the deepwater drilling
market. Its current projects include the construction or major upgrade of seven
drillships and two semisubmersible rigs. The Company has long-term contracts or
letters of intent for the use of each deepwater rig that is currently undergoing
construction or upgrade. However, the cost of these projects will exceed the
cash flow the Company will derive from contractual commitments currently in
place. Upon completion of the initial contract term for each such rig, there is
no assurance that the Company will be able to obtain contracts for the further
use of the rig, or, if a contract can be obtained, that it will be at a dayrate
as high as the initial contract dayrate. In addition, these contracts may be
terminated in certain instances if the Company fails to perform.
The deepwater market requires the use of floating rigs utilizing more
sophisticated technologies than those of the bottom-supported rigs that
previously constituted the majority of the Company's fleet. The Company and
other drilling contractors have experienced problems with subsea well control
systems designed for drilling in deeper waters. If this equipment fails to
function properly, the rig cannot engage in drilling operations. To the extent
these problems are encountered in a system installed on one of the Company's
rigs, the Company will experience lost revenues and in certain cases may be
subject to contract termination by the customer.
The Company will be required to hire and retain additional personnel
capable of operating effectively in a deepwater environment. Other drilling
contractors are expanding their deepwater fleets, and will compete with the
Company for qualified personnel to operate its deepwater rigs. As a result,
there can be no assurance that the Company will be successful in these efforts.
RISKS OF CONSTRUCTION AND UPGRADE PROJECTS
The Company's deepwater rig construction and upgrade projects are subject
to the risks of delay and cost overruns inherent in any large construction
project, including shortages of equipment, unforeseen engineering problems, work
stoppages, weather interference, unanticipated cost increases and shortages of
materials or skilled labor. In particular, there is a current shortage of
certain types of drilling equipment that could delay and increase the cost of
the deepwater projects. Significant cost overruns or delays would adversely
affect the Company's financial condition and results of operations. Significant
delays could also result in penalties under, or the termination of, most of the
long-term contracts under which the Company plans to operate these
11
<PAGE> 17
deepwater rigs. The currently scheduled delivery dates for five of the Company's
deepwater rigs are later than the commencement date under the initial drilling
contracts for such drillships. In addition, the Company currently estimates that
the aggregate cost of its nine deepwater projects will exceed the original
estimates by approximately $50 million.
The contracts for the Peregrine VI and the Peregrine VII are subject to
cancellation if the rigs are delivered at the currently estimated delivery
dates. The currently estimated delivery dates for the Peregrine IV, Peregrine
VIII and Falcon 100 do not subject the Company to cancellation of the contracts
on such rigs. However, such contracts provide for late delivery penalties
(approximately $41,500 per day for the Peregrine IV, $3,000 per day for the
Peregrine VIII, and $26,500 per day for the Falcon 100).
COMPETITION
The marine drilling market is highly competitive and no one competitor is
dominant. During periods when the supply of rigs exceeds demand, this
competition results in significant downward pressure on the dayrates at which
the Company may contract its rigs. See "Recent Developments." Because the
Company's cost of operating its rigs cannot be materially reduced, any reduction
in dayrates has a negative impact on the Company's results of operations. Even
in an environment of increased drilling activity, construction of new rigs could
lead to an oversupply of rigs and adversely affect dayrates for the Company's
rigs.
OPERATIONAL RISKS AND INSURANCE
The Company's operations are subject to the hazards inherent in the marine
drilling business, including blowouts, craterings, fires, collisions, capsizings
and adverse weather. These hazards could result in (i) substantial damage to the
environment; (ii) personal injury and loss of life; (iii) suspension of drilling
operations; or (iv) damage to property and producing formations. The Company may
incur substantial liabilities or losses as a result of these hazards. The
Company maintains insurance protection that it deems prudent, including
liability insurance and insurance against damage to or loss of equipment. In
addition, the Company generally seeks to obtain indemnity agreements whenever
possible from the Company's customers, requiring such customers to hold the
Company harmless in the event of loss of production, reservoir damage, or
liability for pollution that originates below the water surface. There is no
assurance that such insurance or contractual indemnity protection will be
sufficient or effective under all circumstances or against all hazards to which
the Company may be subject. Further, there is no assurance that the Company will
be able to obtain adequate insurance coverage at rates it deems reasonable in
the future.
FOREIGN OPERATIONS
The Company currently conducts operations worldwide. Operations in foreign
countries generally are subject to various risks associated with doing business
outside the United States, including risk of war, general strikes, civil
disturbances, guerrilla activity, foreign exchange restrictions, currency
fluctuations and devaluations, and foreign governmental activities that may
limit or disrupt markets, restrict payments or the movement of funds or result
in the deprivation of contract rights or expropriation of property. The Company
may also encounter difficulty in enforcing its contract rights in foreign
countries, particularly against state-owned oil companies. No prediction can be
made as to what foreign governmental regulations may be enacted in the future
that could be applicable to the Company.
Fluctuations in the value of the currencies in which the Company conducts
its business relative to the U.S. dollar could cause currency translation losses
with respect to the Company's foreign operations. The Company cannot predict the
effect of exchange rate fluctuations upon future operating results.
RIG FLEET AGE
The majority of the Company's rigs were built between 1978 and 1983. With
increasing age, the likelihood increases that a rig will require major repairs
in order to remain operational. These repairs may result in rigs being
unavailable for service from time to time, potentially reducing the Company's
revenues, and may require increasing amounts of capital.
12
<PAGE> 18
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state, local and foreign
laws and regulations controlling the discharge of materials into the environment
or otherwise relating to the protection of the environment, the safety of its
personnel and vessels and other matters. Environmental laws and regulations
could impose significant liability on the Company for damages, clean-up costs
and penalties in the event of the occurrence of oil spills or similar discharges
of pollutants in the course of the Company's operations, in certain
circumstances without regard to negligence or fault on the Company's part.
Environmental and other laws and regulations (and any new laws and regulations)
may negatively impact the Company by increasing the Company's costs of doing
business and discouraging the Company's clients from exploring for hydrocarbons,
thus reducing demand for the Company's services. The Company does not believe
that environmental regulations have had any material adverse effect on its
capital expenditures, results of operations or competitive position, and does
not anticipate that any material expenditures will be required to enable it to
comply with existing laws and regulations. Most of the Company's operations
require its customers to obtain governmental permits to conduct such operations,
and delays or increased costs in obtaining such permits could adversely affect
the Company's results of operations.
LEVERAGE AND LIQUIDITY
The Company has substantial debt and significant leverage and will require
substantial cash flow to meet its debt service requirements. The Company's
ability to meet its debt obligations will depend on the Company's future
performance, which is subject to general economic and business factors beyond
the Company's control. The degree of the Company's leverage may affect (i) the
Company's vulnerability to adverse economic, regulatory and industry conditions;
(ii) the Company's ability to obtain additional financing to fund future working
capital requirements, capital expenditures, acquisitions or other general
corporate requirements; and (iii) the portion of the Company's cash flow from
operations that must be dedicated to debt service requirements, thereby reducing
the funds available for operations and future business opportunities. To the
extent that the Company is unable to repay the principal amount of the Exchange
Notes at maturity out of cash on hand, it will need to refinance the Exchange
Notes, or repay the Exchange Notes with the proceeds of an equity offering or
from sales of assets. There can be no assurance that future borrowings or equity
financing will be available for the refinancing or repayment of the Exchange
Notes or that the Company will be able to sell assets at acceptable prices.
The New Bank Facility bears interest at variable rates. While the Company
may enter into one or more interest rate protection agreements to limit its
exposure to increases in such interest rates, such agreements would not entirely
eliminate such exposure. Any increase in the interest rate on the Company's
indebtedness will reduce funds available to the Company for its operations and
future business opportunities.
HOLDING COMPANY STRUCTURE
All of the Company's operating income and cash flow is generated by its
subsidiaries. As a result, the Company expects that funds necessary to meet its
debt service obligations will be provided primarily by distributions or advances
from the subsidiaries. Under certain circumstances, contractual and legal
restrictions, as well as the financial condition and operating requirements of
the subsidiaries, could limit the Company's ability to obtain cash from the
subsidiaries for the purpose of meeting its debt service obligations, including
the payment of principal and interest on the Exchange Notes. The subsidiaries
will not be obligated with respect to the Exchange Notes unless any subsidiary
guarantees any funded indebtedness of the Company on or after the date the
Private Notes were issued (April 14, 1998), in which case such subsidiary will
be obligated to equally and ratably guarantee the Notes. As a result, the claims
of creditors of the subsidiaries effectively have priority with respect to the
assets and earnings of the subsidiaries over the claims of the holders of the
Exchange Notes. In the event of an insolvency, liquidation or reorganization of
a subsidiary, any creditors of such subsidiary, including trade creditors, would
be entitled to payment in full from the assets of such subsidiary before the
Company, as a stockholder, would be entitled to receive any distribution from
the subsidiary. The Company's subsidiaries have substantial liabilities,
primarily trade payables, all of which effectively rank senior to the Exchange
Notes.
13
<PAGE> 19
ABSENCE OF MARKET FOR THE NOTES
The Private Notes have not been registered under the Securities Act or any
state securities law and, unless so registered, may not be offered or sold
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and any applicable state
securities laws.
Although the Exchange Notes may be resold or otherwise transferred by the
holders (who are not affiliates of the Company) without compliance with the
registration requirements under the Securities Act, they will be new securities
for which there is currently no established trading market. The Company does not
intend to apply for listing of the Exchange Notes on a national securities
exchange or for quotation of the Exchange Notes on an automated dealer quotation
system. Although the Initial Purchasers in the offering of the Private Notes
have informed the Company that they currently intend to make a market in the
Exchange Notes, they are not obligated to do so, and any such market-making, if
initiated, may be discontinued at any time without notice. The liquidity of any
market for the Exchange Notes will depend upon the number of holders of the
Notes, the interest of securities dealers in making a market in the Exchange
Notes and other factors. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Exchange Notes. If an active
trading market for the Exchange Notes does not develop, the market price and
liquidity of the Exchange Notes may be adversely affected. If the Exchange Notes
are traded, they may trade at a discount from their face value, depending upon
prevailing interest rates, the market for similar securities, the performance of
the Company and certain other factors. The Exchange Notes will be eligible for
trading in PORTAL.
Notwithstanding the registration of the Exchange Notes in the Exchange
Offer, holders who are "affiliates" (as defined under Rule 405 of the Securities
Act) of the Company may publicly offer for sale or resell the Exchange Notes
only in compliance with provisions of Rule 144 under the Securities Act.
FAILURE TO EXCHANGE PRIVATE NOTES
Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly completed
and duly executed Letter of Transmittal and all other required documentation.
Therefore, holders of Private Notes desiring to tender such Private Notes in
exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. Neither the Exchange Agent nor the Company is under any duty to give
notification of defects or irregularities with respect to tenders of Private
Notes for exchange. Private Notes that are not tendered or are tendered but not
accepted will, following consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof. In addition, any
holder of Private Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Private Notes, where such
Private Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. Any broker-dealer that
resells Exchange Notes that were received by it for its own account pursuant to
the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. To the extent
that Private Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Private Notes could be
adversely affected due to the limited amount, or "float," of the Private Notes
that are expected to remain outstanding following the Exchange Offer. Generally,
a lower "float" of a security could result in less demand to purchase such
security and could, therefore, result in lower prices for such security. For the
same reason, to the extent that a large amount of Private Notes are not tendered
or are tendered and not accepted in the Exchange Offer, the trading market for
the Exchange Notes could be adversely affected. See "Plan of Distribution" and
"The Exchange Offer."
14
<PAGE> 20
RECENT DEVELOPMENTS
FINANCING
In April 1998, the Company issued the Private Notes, resulting in net
proceeds to the Company of $1,082 million. A portion of the proceeds was used as
follows:
1. $327.7 million was used to retire $274.4 million principal amount of
senior unsecured indebtedness of Falcon and to pay accrued interest, redemption
premium and expenses incurred in connection with such redemption.
2. $615 million was used to retire two existing bank credit facilities.
In April 1998, the Company entered into a $500 million revolving credit
facility with a group of bank lenders ("New Bank Facility"). The New Bank
Facility matures April 24, 2002, and bears interest at LIBOR plus 0.75%. At June
9, 1998, no amounts had been drawn under the New Bank Facility.
MARKET CONDITIONS
In May 1998, the Company began to experience decreasing demand for its
drilling rigs, primarily in the domestic market and most particularly in the
domestic barge rig market. From July 1996 until May 1998, the Company
experienced essentially full utilization of its domestic drilling rigs that were
in operating condition. During the same period, dayrates for the Company's
domestic drilling rigs had also increased significantly. As of June 9, 1998, the
Company's domestic drilling fleet had nine barge drilling rigs and two jackup
drilling rigs that were operational but without a contract. In addition, the
Company's domestic workover fleet, which has experienced less than full
utilization at most times since the Company entered that market, has experienced
decreased utilization during 1998. Although there has been a recent decrease in
demand for the Company's rigs in the international market, the impact on the
Company has been less pronounced in that market because most of the Company's
international rigs are working under term contracts.
The Company believes that its competitors in the domestic jackup market are
experiencing similar decreasing demand and that certain of them are offering
their rigs at lower dayrates in order to obtain drilling contracts. In bidding
for recent contract opportunities, the Company has had to lower its dayrates in
order to compete effectively for these opportunities.
The Company believes that the decline in demand for its rigs is primarily
attributable to the decline in oil and gas prices which began in 1997. The
Company cannot predict whether demand for its rigs will decline further, remain
the same, or increase, nor can the Company predict the time frames during which
any future changes in demand might occur. Any decline in rig utilization
adversely effects the Company by reducing the Company's revenues. Further,
declining demand for rigs generally results in reduced dayrates, which also
adversely effects the Company. In the short term, the Company's costs are not
significantly lower by reduced utilization of its rigs.
DEEPWATER CONSTRUCTION PROGRAM
The Company currently has nine deepwater rigs under construction or major
upgrade. Five of these projects are behind the original schedules for
completion. In the event of a prolonged downturn in the oil and gas business, an
operator who has contracted for a rig under construction may determine not to
proceed with all or portion of its deepwater drilling program, and in such event
may seek to use late delivery of a rig as a basis for canceling the contract.
Further, any delays in completion of a rig will adversely effect the Company by
delaying realization of the revenues which such rig is expected to generate.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on April 14, 1998 to the Initial
Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold all of the Private Notes to Qualified Institutional Buyers,
each of whom agreed to comply with certain transfer restrictions and other
conditions. As a condition to the purchase of the Private Notes by the Initial
Purchasers, the Company entered into the Registration Rights Agreement with the
Initial Purchasers, which requires, among other things, that promptly following
the issuance and sale of the Private Notes, the Company file with the Commission
the Registration Statement with respect to the Exchange Notes, use its best
efforts to cause the Registration Statement to become effective under the
Securities Act and, upon the effectiveness of the Registration Statement, offer
to the holders of the Private Notes the opportunity to exchange their Private
Notes for a like principal amount of Exchange Notes, which will be issued
without a restrictive legend and may be reoffered and resold by the holder
without restrictions or limitations under the Securities Act subject to certain
exceptions described below. A copy of the Registration Rights Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The term "holder" with respect to the Exchange Offer means any person in
whose name Private Notes are registered on the Company's books or any other
person who has obtained a properly completed bond power from the registered
holder or any person whose Private Notes are held of record by the Depositary
who desires to deliver such Private Notes by book-entry transfer of the
Depositary.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters issued to third parties, the
Company believes that Exchange Notes issued pursuant to the Exchange Offer in
exchange for Private Notes may be offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) a broker-dealer who purchased
such Private Notes directly from the Company for resale pursuant to Rule 144A or
any other available exemption under the Securities Act or (ii) a person that is
an "affiliate" (within the meaning of Rule 405 of the Securities Act) of the
Company), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the holder is acquiring the
Exchange Notes in its ordinary course of business and is not participating, does
not intend to participate, and has no arrangement or understanding with any
person to participate, in the distribution of the Exchange Notes. However, if
any holder acquires the Exchange Notes in the Exchange Offer for the purpose of
distributing or participating in the distribution of the Exchange Notes or is a
broker-dealer, such holder cannot rely on the position of the staff of the
Commission enumerated in certain no-action letters issued to third parties and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is available. Each broker-dealer that receives Exchange Notes
for its own account in exchange for Private Notes, where such Private Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making or other
trading activities. Pursuant to the Registration Rights Agreement, the Company
has agreed to make this Prospectus, as it may be amended or supplemented from
time to time, available to broker-dealers for use in connection with any resale
for a period of 180 days after the Expiration Date. See "Plan of Distribution."
As a result of the filing and effectiveness of the Registration Statement
of which this Prospectus is a part, the Company will not be required to pay an
increased interest rate on the Private Notes. Following the consummation of the
Exchange Offer, holders of Private Notes not tendered will not have any further
registration rights, except in certain limited circumstances requiring the
filing of a Shelf Registration Statement (as defined herein), and the Private
Notes will continue to be subject to certain restrictions on
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<PAGE> 22
transfer. See "-- Consequences of Failure to Exchange." Accordingly, the
liquidity of the market for the Private Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept all Private Notes
properly tendered and not withdrawn prior to 5:00 p.m. New York City time, on
the Expiration Date. After authentication of the Exchange Notes by the Trustee
or an authenticating agent, the Company will issue and deliver $1,000 principal
amount of Exchange Notes of a series in exchange for each $1,000 principal
amount of outstanding Private Notes of the corresponding series accepted in the
Exchange Offer. Holders may tender some or all of their Private Notes pursuant
to the Exchange Offer in denominations of $1,000 and integral multiples thereof.
Each holder of Private Notes who wishes to exchange Private Notes for
Exchange Notes in the Exchange Offer will be required to represent that (i) any
Exchange Notes to be received by such holder are being acquired in the ordinary
course of business, (ii) such holder has no arrangements or understandings with
any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes, (iii) such holder is not an affiliate of
the Company, as defined in Rule 405 of the Securities Act, (iv) if such holder
is not a broker-dealer, that it is not engaged in, and does not intend to engage
in, the distribution of the Exchange Notes, and (v) if such holder is a
broker-dealer, that it will receive the Exchange Notes for its own account in
exchange for the Private Notes that were acquired as a result of market-making
activities.
Each broker-dealer that receives Exchange Notes of a series for its own
account in exchange for Private Notes of the corresponding series, where such
Private Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution."
The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Private Notes, except that (i) the
offering of the Exchange Notes has been registered under the Securities Act,
(ii) the Exchange Notes will not be subject to transfer restrictions and (iii)
certain provisions relating to an increase in the stated interest rate on the
Private Notes provided for under certain circumstances will be eliminated. The
Exchange Notes will evidence the same debt as the Private Notes. The Exchange
Notes will be issued under and entitled to the benefits of the Indenture.
As of the date of this Prospectus, $1,100,000,000 aggregate principal
amount of the Private Notes is outstanding. In connection with the issuance of
the Private Notes, the Company arranged for the Private Notes to be issued and
transferable in book-entry form through the facilities of the Depositary, acting
as depositary. The Exchange Notes will also be issuable and transferable in
book-entry form through the Depositary.
This Prospectus, together with the accompanying Letter of Transmittal, is
initially being sent to all registered holders of the Private Notes as of the
close of business on July 7, 1998. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act, and
the rules and regulations of the Commission thereunder, including Rule 14e-1, to
the extent applicable. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Private Notes being tendered, and holders of the
Private Notes do not have any appraisal or dissenters' rights under the General
Corporation Law of the State of Delaware or under the Indenture in connection
with the Exchange Offer. The Company shall be deemed to have accepted validly
tendered Private Notes when, as and if the Company has given oral or written
notice thereof to the Exchange Agent. See "-- Exchange Agent." The Exchange
Agent will act as agent for the tendering holders for the purpose of receiving
Exchange Notes from the Company and delivering Exchange Notes to such holders.
If any tendered Private Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Private Notes will be returned, at the
Company's cost, to the tendering holder thereof as promptly as practicable after
the Expiration Date.
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<PAGE> 23
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "-- Solicitation of Tenders; Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF PRIVATE NOTES AS TO WHETHER TO TENDER OR REFRAIN
FROM TENDERING ALL OR ANY PORTION OF THEIR PRIVATE NOTES PURSUANT TO THE
EXCHANGE OFFER. MOREOVER, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF PRIVATE NOTES MUST MAKE THEIR OWN DECISION WHETHER TO
TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF
PRIVATE NOTES TO TENDER.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
August 7, 1998 unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date to
which the Exchange Offer is extended. The Company may extend the Exchange Offer
at any time and from time to time by giving oral or written notice to the
Exchange Agent and by timely public announcement.
The Company expressly reserves the right, in its sole discretion (i) to
delay acceptance of any Private Notes, to extend the Exchange Offer or to
terminate the Exchange Offer and to refuse to accept Private Notes not
previously accepted, if any of the conditions set forth herein under
"-- Conditions of the Exchange Offer" shall have occurred and shall not have
been waived by the Company (if permitted to be waived by the Company), by giving
oral or written notice of such delay, extension or termination to the Exchange
Agent and (ii) to amend the terms of the Exchange Offer in any manner. Any such
delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof by the Company to the
registered holders of the Private Notes. If the Exchange Offer is amended in a
manner determined by the Company to constitute a material change, the Company
will promptly disclose such amendment in a manner reasonably calculated to
inform the holders of such amendment and the Company will extend the Exchange
Offer to the extent required by law.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advise, or
otherwise communicate any such public announcement, other than by making a
timely release thereof to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The 5-Year Exchange Notes will bear interest at a rate of 6 1/2% per annum,
the 7-Year Exchange Notes will bear interest at a rate of 6 3/4% per annum, the
10-Year Exchange Notes will bear interest at a rate of 6.95% per annum, and the
20-Year Exchange Notes will bear interest at a rate of 7 3/8% per annum.
Interest on the Exchange Notes is payable semi-annually on April 15 and October
15 of each year, commencing October 15, 1998. Holders of Exchange Notes of
record on October 1, 1998 will receive on October 15, 1998 an interest payment
in an amount equal to (i) the accrued interest on such Exchange Notes from the
date of issuance thereof to October 15, 1998, plus (ii) the accrued interest on
the previously held Private Notes from the date of issuance of such Private
Notes (April 14, 1998) to the date of exchange thereof. Interest will not be
paid on Private Notes that are accepted for exchange. The 5-Year Exchange Notes
mature on April 15, 2003, the 7-Year Exchange Notes mature on April 15, 2005,
the 10-Year Exchange Notes mature on April 15, 2008 and the 20-Year Exchange
Notes mature on April 15, 2018.
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PROCEDURES FOR TENDERING
Each holder of Private Notes wishing to accept the Exchange Offer must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such facsimile, together with
the Private Notes to be exchanged and any other required documentation, to Chase
Bank of Texas, National Association, as Exchange Agent, at the address set forth
herein and therein or effect a tender of Private Notes pursuant to the
procedures for book-entry transfer as provided for herein and therein. By
executing the Letter of Transmittal, each holder will represent to the Company,
that, among other things, the Exchange Notes acquired pursuant to the Exchange
Offer are being acquired in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such person is the holder, that
neither the holder nor any such other person has any arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and that neither the holder nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company.
Any financial institution that is a participant in the Depositary's
Book-Entry Transfer Facility system may make book-entry delivery of the Private
Notes by causing the Depositary to transfer such Private Notes into the Exchange
Agent's account in accordance with the Depositary's procedure for such transfer.
Although delivery of Private Notes may be effected through book-entry transfer
into the Exchange Agent's account at the Depositary, the Letter of Transmittal
(or facsimile thereof), with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at its address set forth herein under "-- Exchange Agent" prior
to 5:00 p.m., New York City time, on the Expiration Date. Alternatively, holders
may tender by book-entry by complying, prior to 5:00 p.m., New York City time,
on the Expiration Date, with DTC's ATOP procedures, including transmitting an
Agent's Message to the Exchange Agent in which the holder of the Private Notes
acknowledges and agrees to be bound by the terms of the Letter of Transmittal,
which will confirm on behalf of the participant in ATOP and the beneficial
owners of such Private Notes all provisions of the Letter of Transmittal
applicable to it and such beneficial owners as fully as if it had completed the
information required in the Letter of Transmittal and executed and transmitted
the Letter of Transmittal to the Exchange Agent. See "-- Book-entry Transfer."
DELIVERY OF DOCUMENTS TO THE DEPOSITARY IN ACCORDANCE WITH ITS PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Only a holder may tender its Private Notes in the Exchange Offer. To tender
in the Exchange Offer, a holder must complete, sign and date the Letter of
Transmittal or a facsimile thereof, have the signatures thereof guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver such Letter
of Transmittal or such facsimile, together with the Private Notes (unless such
tender is being effected pursuant to the procedure for book-entry transfer) and
any other required documents, to the Exchange Agent, prior to 5:00 p.m., New
York City time, on the Expiration Date.
The tender by a holder will constitute an agreement between such holder,
the Company and the Exchange Agent in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal. If less than
all of the Private Notes of a series held by a holder are tendered, the
tendering holder should fill in the amount of Private Notes of such series being
tendered in the appropriate box on the Letter of Transmittal. The entire amount
of Private Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
THE LETTER OF TRANSMITTAL WILL INCLUDE REPRESENTATIONS TO THE COMPANY THAT,
AMONG OTHER THINGS, (1) THE EXCHANGE NOTES ACQUIRED PURSUANT TO THE EXCHANGE
OFFER ARE BEING ACQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE PERSON
RECEIVING SUCH EXCHANGE NOTES (WHETHER OR NOT SUCH PERSON IS THE HOLDER), (2)
NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS ENGAGED IN, INTENDS TO ENGAGE IN
OR HAS ANY ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE
DISTRIBUTION OF SUCH EXCHANGE NOTES, (3) NEITHER THE HOLDER NOR ANY SUCH OTHER
PERSON IS AN "AFFILIATE," AS DEFINED IN RULE 405 UNDER THE SECURITIES ACT, OF
THE COMPANY AND (4) IF THE TENDERING HOLDER IS A BROKER OR DEALER (AS DEFINED IN
THE EXCHANGE ACT)
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(A) IT ACQUIRED THE PRIVATE NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-
MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND (B) IT HAS NOT ENTERED INTO
ANY ARRANGEMENT OR UNDERSTANDING WITH THE COMPANY OR ANY "AFFILIATE" THEREOF
(WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT) TO DISTRIBUTE THE
EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER. IN THE CASE OF A
BROKER-DEALER THAT RECEIVES EXCHANGE NOTES FOR ITS OWN ACCOUNT IN EXCHANGE FOR
PRIVATE NOTES WHICH WERE ACQUIRED BY IT AS A RESULT OF MARKET-MAKING OR OTHER
TRADING ACTIVITIES, THE LETTER OF TRANSMITTAL WILL ALSO INCLUDE AN
ACKNOWLEDGMENT THAT THE BROKER-DEALER WILL DELIVER A COPY OF THIS PROSPECTUS IN
CONNECTION WITH THE RESALE BY IT OF EXCHANGE NOTES RECEIVED PURSUANT TO THE
EXCHANGE OFFER. HOWEVER, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS,
SUCH HOLDER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT. SEE "PLAN OF DISTRIBUTION."
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY ALSO REQUEST THAT THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES EFFECT SUCH TENDER FOR HOLDERS, IN EACH CASE AS SET FORTH
HEREIN AND IN THE LETTER OF TRANSMITTAL.
Any beneficial owner whose Private Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Private Notes, either
make appropriate arrangements to register ownership of the Private Notes in such
owner's name or obtain a properly completed bond power from the registered
holder. The transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution"), unless the
Private Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" of the Letter of Transmittal or (ii) for the
account of an Eligible Institution. If the Letter of Transmittal is signed by a
person other than the registered holder listed therein, such Private Notes must
be endorsed or accompanied by appropriate bond powers which authorize such
person to tender the Private Notes on behalf of the registered holder, in either
case signed as the name of the registered holder or holders appears on the
Private Notes. If the Letter of Transmittal or any Private Notes or bond powers
are signed or endorsed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such person should so indicate when signing, and unless
waived by the Company, evidence satisfactory to the Company of their authority
to so act must be submitted with such Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Private Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding, The Company reserves the absolute right to reject any and all
Private Notes not properly tendered or any Private Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the absolute right to waive any
irregularities or conditions
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of tender as to particular Private Notes. The Company's interpretation of the
terms, and conditions of the Exchange Offer (including the instructions in the
Letter of Transmittal) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Private Notes must
be cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Private Notes, neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of defects or irregularities with
respect to tenders of Private Notes, nor shall any of them incur any liability
for failure to give such notification. Tenders of Private Notes will not be
deemed to have been made until such irregularities have been cured or waived.
Any Private Notes received by the Exchange Agent that the Company determines are
not properly tendered or the tender of which is otherwise rejected by the
Company and as to which the defects or irregularities have not been cured or
waived by the Company will be returned by the Exchange Agent to the tendering
holder unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion (a) to
purchase or make offers for any Private Notes that remain outstanding subsequent
to the Expiration Date, and (b) to the extent permitted by applicable law, to
purchase Private Notes in the open market, in privately negotiated transactions
or otherwise. The terms of any such purchases or offers may differ from the
terms of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Private Notes at the DTC (the "Book-Entry Transfer Facility") for the
purpose of facilitating the Exchange Offer, and subject to the establishment
thereof, any financial institution that is a participant in the Book-Entry
Transfer Facility's system may make book-entry delivery of Private Notes by
causing such Book Entry Transfer Facility to transfer such Private Notes into
the Exchange Agent's account with respect to the Private Notes in accordance
with the Book-Entry Transfer Facility's procedures for such transfer. ALTHOUGH
DELIVERY OF PRIVATE NOTES MAY BE EFFECTED THROUGH BOOK-ENTRY TRANSFER INTO THE
EXCHANGE AGENT'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY, AN APPROPRIATE
LETTER OF TRANSMITTAL PROPERLY COMPLETED AND DULY EXECUTED WITH ANY REQUIRED
SIGNATURE GUARANTEE AND ALL OTHER REQUIRED DOCUMENTS MUST IN EACH CASE BE
TRANSMITTED TO AND RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT AT ITS ADDRESS
SET FORTH BELOW ON OR PRIOR TO THE EXPIRATION DATE, OR, IF THE GUARANTEED
DELIVERY PROCEDURES DESCRIBED BELOW ARE COMPLIED WITH, WITH THE TIME PERIOD
PROVIDED UNDER SUCH PROCEDURES. ALTERNATIVELY, HOLDERS MAY TENDER BY BOOK-ENTRY
BY COMPLYING, PRIOR TO THE EXPIRATION DATE, WITH DTC'S ATOP PROCEDURES,
INCLUDING TRANSMITTING AN AGENT'S MESSAGE TO THE EXCHANGE AGENT. DELIVERY OF
DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO
THE EXCHANGE AGENT.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available, or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, or (iii) who cannot complete the procedure for
book-entry transfer on a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmittal, mail or hand delivery)
setting forth the name and address of the holder, the certificate number or
numbers of such holder's Private Notes and the principal amount of such
Private Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within three New York Stock Exchange ("NYSE") trading
days after the Expiration Date, the Letter of Transmittal (or facsimile
thereof),
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together with the certificate(s) representing the Private Notes to be
tendered in proper form for transfer (or confirmation of a book-entry
transfer into the Exchange Agent's account at the Depositary of Private
Notes delivered electronically) and any other documents required by the
Letter of Transmittal, will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Private Notes in proper form for transfer (or confirmation of a
book-entry transfer into the Exchange Agent's account at the Depositary of
Private Notes delivered electronically) and all other documents required by
the Letter of Transmittal are received by the Exchange Agent within three
NYSE trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Private Notes to be withdrawn (the "Depositor"), (ii) identify the
Private Notes to be withdrawn (including the series, certificate number or
numbers and principal amount of such Private Notes or, in the case of Private
Notes transferred by book-entry transfer, the name and number of the account at
the Depositary to be credited, the principal amount and the series of Private
Notes to be credited), (iii) be signed by the Depositor in the same manner as
the original signature on the Letter of Transmittal, by which such Private Notes
were tendered (including any required signature guarantee) or be accompanied by
documents of transfer sufficient to permit the Trustee with respect to the
Private Notes to register the transfer of such Private Notes into the name of
the Depositor withdrawing the tender and (iv) specify the name in which any such
Private Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such withdrawal notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Private Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer, and no Exchange Notes will be issued with respect thereto unless
the Private Notes so withdrawn are validly retendered. Any Private Notes that
have been tendered but are not accepted for exchange will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Private Notes may be retendered by following one of the procedures
described above under "-- Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates applicable
law, rules or regulations or an applicable interpretation of the staff of the
Commission.
If the Company reasonably determines that such condition (that the Exchange
Offer not violate applicable law, rules, regulations or interpretation of the
Staff) is not satisfied, the Company may (i) refuse to accept any Private Notes
and return all tendered Private Notes to the tendering holders or (ii) extend
the Exchange Offer and retain all Private Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders to withdraw
such Private Notes (see "-- Withdrawal of Tenders").
22
<PAGE> 28
SHELF REGISTRATION
If, because of any change in law or in applicable interpretations thereof
by the staff of the Commission, the Company is not permitted to effect the
Exchange Offer, the Exchange Offer is not consummated by October 12, 1998, any
Initial Purchaser so requests with respect to Private Notes not eligible to be
exchanged for Exchange Notes in the Exchange Offer and held by it following
consummation of the Exchange Offer, or any holder of Private Notes is not
eligible to participate in the Exchange Offer or does not receive freely
tradable Exchange Notes in the Exchange Offer, the Company, will, at its cost,
(a) as promptly as practicable, file a shelf registration statement (the "Shelf
Registration Statement") with the Commission covering resales of the Private
Notes or the Exchange Notes, as the case may be, (b) use its best efforts to
cause the Shelf Registration Statement to be declared effective under the
Securities Act and (c) keep the Shelf Registration Statement effective until the
earlier of (i) the time when the Notes covered by the Shelf Registration
Statement can be sold pursuant to Rule 144 without any limitations under clauses
(c), (e), (f) and (h) of Rule 144 and (ii) two years from the Issue Date. If a
Shelf Registration Statement is filed, the Company will provide to each holder
for whom such Shelf Registration Statement was filed copies of the prospectus
which is a part of the Shelf Registration Statement, notify each such holder
when the Shelf Registration Statement has become effective and take certain
other actions as are required to permit unrestricted resales of the Private
Notes or the Exchange Note, as the case may be. A holder selling such Private
Notes or Exchange Notes pursuant to the Shelf Registration Statement generally
would be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions under the Securities Act in connection with
such sales and will be bound by the provisions of the Registration Rights
Agreement which are applicable to such holder (including certain indemnification
obligations).
LIQUIDATED DAMAGES
If (i) by October 12, 1998, neither the Exchange Offer is consummated nor,
if required in lieu thereof, the Shelf Registration Statement is declared
effective; or (ii) after either the Registration Statement or the Shelf
Registration Statement is declared effective, such Registration Statement
thereafter ceases to be usable (subject to certain exceptions) in connection
with resales of Private Notes or Exchange Notes in accordance with and during
the periods specified in the Registration Rights Agreement (each such event
referred to in clauses (i) and (ii) being herein called a "Registration Default"
and each period during which a Registration Default has occurred and is
continuing, a "Registration Default Period"), additional cash interest will
accrue on the Private Notes and the Exchange Notes at the rate of 0.25% per
annum for the first 90 days of the Registration Default Period and at the rate
of 0.50% per annum thereafter for the remaining portion of the Registration
Default Period, calculated on the principal amount of the Notes as of the date
on which such interest is payable. Such interest is payable in addition to any
other interest payable from time to time with respect to the Notes.
If the Company effects the Exchange Offer, it will be entitled to close the
Exchange Offer 30 business days after the commencement thereof provided that it
has accepted all Notes theretofore validly tendered in accordance with the terms
of the Exchange Offer.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the Exchange
Offer will terminate upon consummation of the Exchange Offer except with respect
to the Company's continuing obligations (i) to indemnify such holders (including
any broker-dealers) and certain parties related to such holders against certain
liabilities (including liabilities under the Securities Act), (ii) to provide,
upon the request of any holder of a transfer-restricted Private Note, the
information required by Rule 144A(d)(4) under the Securities Act in order to
permit resales of such Private Notes pursuant to Rule 144A, (iii) use its best
efforts to keep the Registration Statement effective and to amend and supplement
the prospectus in order to permit the prospectus to be lawfully delivered by all
persons subject to the prospectus delivery requirements of the Securities Act
for such period of time as such persons must comply with such requirement in
order to resell the Exchange Notes and
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<PAGE> 29
(iv) to provide copies of the latest version of the Prospectus to broker-dealers
upon their request for a period of not less than 180 days after the Expiration
Date.
EXCHANGE AGENT
Chase Bank of Texas, National Association, the Trustee under the Indenture,
has been appointed as Exchange Agent for the Exchange Offer. In such capacity,
the Exchange Agent has no fiduciary duties and will be acting solely on the
basis of directions of the Company. Requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail or By Facsimile:
Overnight Delivery (212) 638-7380
Chase Bank of Texas, National Association Confirm by Telephone
c/o The Chase Manhattan Bank (212) 638-0828
55 Water Street, North Building For inquiries:
Room 234, Windows 20 and 21 Mauri Cowen
New York, New York 10041 (713) 216-6686
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation pursuant to the Exchange Offer
is being made by mail. Additional solicitations may be made by officers and
regular employees of the Company and its affiliates in person, by telegraph,
telephone or telecopier.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company will, however,
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket costs and expenses
in connection therewith and will indemnify the Exchange Agent for all losses and
claims incurred by it as a result of the Exchange Offer. The Company may also
pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus, Letters of Transmittal and related documents to the beneficial
owners of the Private Notes and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees and printing costs, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Private Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the
Private Notes tendered, or if tendered Private Notes are registered in the name
of any person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Private Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
24
<PAGE> 30
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed by the Company directly to such tendering
holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Private Notes, as reflected in the Company's accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company as a result of the consummation of the Exchange Offer.
The expenses of the Exchange Offer will be amortized by the Company pro rata as
to each series over the term of such series of Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their own
decisions as to what action to take.
Holders of the Private Notes who do not tender their Private Notes in the
Exchange Offer will continue to hold such Private Notes and will be entitled to
all the rights, and subject to the limitations applicable thereto, under the
Indenture and the Registration Rights Agreement, except for any such rights
under the Registration Rights Agreement that by their terms terminate or cease
to have further effect as a result of the making of this Exchange Offer. All
untendered Private Notes will continue to be subject to the restrictions on
transfer set forth in the Indenture. Accordingly, the Private Notes may be
offered, resold, pledged or otherwise transferred only (i) to a person whom the
seller reasonably believes is a QIB in a transaction meeting the requirements of
Rule 144A; (ii) in a transaction meeting the requirements of Rule 144 under the
Securities Act; (iii) outside the United States to a foreign person in a
transaction meeting the requirements of Rule 904 promulgated under the
Securities Act; (vi) in accordance with any other available exemption from the
registration requirements under the Securities Act; (v) to the Company; or (vi)
pursuant to an effective registration statement, and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction. To the extent that Private Notes are
tendered and accepted in the Exchange Offer, the liquidity of the trading market
for untendered Private Notes could be adversely affected.
The Company may in the future seek to acquire untendered Private Notes in
the open market or through privately negotiated transactions, through subsequent
exchange offers or otherwise. The Company intends to make any such acquisitions
of Private Notes in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder, including Rule
14e-1, to the extent applicable. The Company has no present plan to acquire any
Private Notes that are not tendered in the Exchange Offer or to file a
registration statement to permit resales of any Private Notes that are not
tendered in the Exchange Offer.
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<PAGE> 31
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
of a series as contemplated in this Prospectus, the Company will receive in
exchange Private Notes of the corresponding series in like principal amount. The
form and terms of the Exchange Notes of a series are identical in all material
respects to the form and terms of the Private Notes of the corresponding series,
except that (i) the offering of the Exchange Notes has been registered under the
Securities Act, (ii) the Exchange Notes will not be subject to transfer
restrictions and (iii) the holders of the Exchange Notes will not be entitled to
registration or other rights under the Registration Rights Agreement including
the payment of liquidated damages upon failure by the Company to consummate the
Exchange Offer or the occurrence of certain other events. The Private Notes
surrendered in exchange for Exchange Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the Exchange Notes will not result
in a change in the indebtedness of the Company.
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<PAGE> 32
CAPITALIZATION
The following table sets forth the capitalization, including short-term
borrowings, of the Company at March 31, 1998 and as adjusted to reflect the
issuance of the Notes offered hereby and the use of the net proceeds from the
issuance of the Private Notes to repay certain bank indebtedness and to retire a
portion of the existing public indebtedness of Falcon due 2001 (the "2001
Notes"), due 2003 (the "2003 Notes") and due 2005 (the "2005 Notes," and
together with the 2001 Notes and the 2003 Notes, the "Falcon Notes").
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN MILLIONS, UNAUDITED)
<S> <C> <C>
Current portion of long-term debt........................... $ 38.2 $ 38.2
Long-term debt, excluding current portion:
R&B Bank Credit Facility.................................. 385.0 --
Falcon Revolving Credit Facility.......................... 215.0 --
New Bank Facility......................................... -- --
2001 Notes(1)............................................. 110.0 5.2
2003 Notes(1)............................................. 120.0 0.4
2005 Notes(1)............................................. 50.0 --
5-Year Notes.............................................. -- 250.0
7-Year Notes.............................................. -- 350.0
10-Year Notes............................................. -- 250.0
20-Year Notes............................................. -- 250.0
Other debt.................................................. 35.8 35.8
-------- --------
Total long-term debt, including current portion... 954.0 1,179.6
Short-term obligations...................................... 84.5 84.5
Minority interest........................................... 53.8 53.8
Total stockholders' equity.................................. 822.2 800.2(2)
-------- --------
Total capitalization.............................. $1,914.5 $2,118.1
======== ========
</TABLE>
- ---------------
(1) On March 23, 1998, Falcon commenced a tender offer for all of the Falcon
Notes. On April 20, 1998, $274.4 million aggregate principal amount of the
Falcon Notes was repaid from proceeds of the Private Offering.
(2) Stockholders' equity has been adjusted to reflect the write-off of deferred
financing costs and the payment of premium with regard to the repurchase of
the Falcon Notes, less the effect of income taxes.
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<PAGE> 33
DESCRIPTION OF THE NOTES
The Exchange Notes will be issued, and the Private Notes were issued,
pursuant to an Indenture dated April 14, 1998 between the Company and Chase Bank
of Texas, National Association, as trustee. The Private Notes were issued on
April 14, 1998 in a private transaction that was not subject to the registration
requirements of the Securities Act. The terms of the Notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes are
subject to all such terms, and prospective Holders of Notes are referred to the
Indenture and the Trust Indenture Act for a statement of such terms. The
following summary of certain provisions of the Notes and the Indenture do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, the Notes and the Indenture. Certain capitalized terms used
herein without definition are defined in the Indenture. As used in this section
only, references to the "Company" exclude the Subsidiaries.
The Exchange Notes of a series will be issued solely in exchange for an
equal principal amount of Private Notes of the corresponding series pursuant to
the Exchange Offer. The form and terms of the Exchange Notes of a series will be
identical in all material respects to the form and terms of the Private Notes of
the corresponding series, except that the offering of the Exchange Notes has
been registered under the Securities Act, and the Exchange Notes will therefore
not be subject to transfer restrictions, registration rights and certain
provisions relating to the payment of liquidated damages under certain
circumstances. See "The Exchange Offer -- Liquidated Damages."
The Private Notes of a series and the Exchange Notes of the corresponding
series will constitute a single series of debt securities under the Indenture.
If the Exchange Offer is consummated, holders of Private Notes of a series who
do not exchange their Private Notes for Exchange Notes will vote together with
holders of the Exchange Notes of the corresponding series for all relevant
purposes under the Indenture. In that regard, the Indenture requires that
certain actions by the holders thereunder (including following an Event of
Default) must be taken, and certain rights must be exercised, by specified
minimum percentages of the aggregate principal amount of the outstanding
securities issued under the Indenture. In determining whether holders of the
requisite percentage in principal amount have given any notice, consent or
waiver or taken any other action permitted under the Indenture, any Private
Notes of a series that remain outstanding after the Exchange Offer will be
aggregated with the Exchange Notes of the corresponding series, and the holders
of such Private Notes and the Exchange Notes will vote together as a single
series for all such purposes. Accordingly, all references herein to specified
percentages in aggregate principal amount of the outstanding Notes shall be
deemed to mean, at any time after the Exchange Offer is consummated, such
percentages in aggregate principal amount of the Private Notes of a series and
the Exchange Notes of the corresponding series then outstanding.
GENERAL
The Private Notes were issued pursuant to the Indenture in four series,
each limited in the following respective aggregate principal amounts: $250
million of 5-Year Notes, $350 million of 7-Year Notes, $250 million of 10-Year
Notes, and $250 million of 20-Year Notes. The Indenture does not limit the
aggregate principal amount of debt securities that may be issued thereunder and
provides that debt securities may be issued thereunder from time to time in one
or more additional series.
The 5-Year Notes will mature on April 15, 2003. The 7-Year Notes will
mature on April 15, 2005. The 10-Year Notes will mature on April 15, 2008. The
20-Year Notes will mature on April 15, 2018. Each series of Notes will bear
interest at the respective rate per annum from April 14, 1998, payable
semiannually on April 15 and October 15 of each year, commencing October 15,
1998, to the person in whose name the Note is registered at the close of
business on the April 1 or October 1 next preceding such interest payment date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
Principal and interest will be payable at the offices of the Trustee,
provided that, at the option of the Company, payment of interest will be made by
check mailed to the address of the person entitled thereto as it appears in the
register of the Notes (the "Register") maintained by the Registrar. The Notes
will be transferable and exchangeable at the office of the Registrar and any
co-registrar and will be issued in fully
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<PAGE> 34
registered form, without coupons, in denominations of $1,000 and any integral
multiple thereof. The Company may require payment of a sum sufficient to cover
any transfer tax or other similar governmental charge payable in connection with
certain transfers and exchanges.
The 5-Year Notes are not redeemable. Each other series of Notes will be
redeemable at any time at the option of the Company, in whole or in part, at a
price equal to 100% of the principal amount, plus accrued and unpaid interest,
if any, to the applicable date of redemption plus the applicable Make-Whole
Premium (as defined) relating to the then prevailing applicable Treasury Yield
(as defined) and the remaining life of such series of the Notes. See
"-- Optional Redemption."
BOOK-ENTRY; DELIVERY AND FORM
The Private Notes were initially issued in fully registered form without
interest coupons, represented by several global Notes in definitive, fully
registered form without interest coupons (the "Private Global Notes") and were
deposited with the Trustee as custodian for DTC and registered in the name of a
nominee of DTC.
The Private Notes, to the extent validly tendered and accepted and directed
by their holders in their Letters of Transmittal, will be exchanged through
book-entry electronic transfer for global Notes (the "Exchange Global Notes") in
definitive, fully registered form deposited with the Trustee as custodian for
DTC and registered in the name of a nominee of DTC. The Private Global Notes and
the Exchange Global Notes are referred to collectively, whether one or more, as
the "Global Note."
Upon the issuance of the Global Note, DTC will credit, on its internal
system, the respective principal amount of the individual beneficial interests
represented by such Global Note to the accounts of persons who have accounts
with such depositary. Such accounts initially will be designated by or on behalf
of the Initial Purchasers. Ownership of beneficial interests in a Global Note
will be limited to persons who have accounts with DTC ("participants") or
persons who hold interests through participants. Ownership of beneficial
interests in the Global Note will be shown on, and the transfer of that
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
Qualified Institutional Buyers may hold their interests in the Global Note
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. In addition, no beneficial owner of
an interest in a Global Note will be able to transfer that interest except in
accordance with the applicable procedures of DTC and, if applicable, Morgan
Guaranty Trust Company of New York, as operator of the Euroclear system
("Euroclear").
Payments of the principal of, and interest on, the Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear will be effected in the ordinary way in
accordance with its rules and operating procedures.
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<PAGE> 35
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC will exchange the Global Note for
Certificated Notes which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meanings of New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC and Euroclear are expected to follow the foregoing procedures
in order to facilitate transfers of interests in the Global Note among
participants of DTC and Euroclear, they are under no obligation to perform or
continue to perform such procedures, and such procedures may be discontinued at
any time. None of the Company or the Trustee will have any responsibility for
the performance by DTC, Euroclear or the participants or indirect participants
of their respective obligations under the rules and procedures governing their
respective operations.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest in a
Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Notes in the form of Certificated Notes. Upon any such
issuance, the Trustee is required to register such Notes in the name of, and
cause the same to be delivered to, such Person or Persons (or the nominee of any
thereof). In addition, if (i) DTC or any successor depositary (the "Depositary")
notifies the Company in writing that it is no longer willing or able to act as a
depositary and the Company is unable to locate a qualified successor within 90
days or (ii) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of Notes in the form of Certificated Notes under
the Indenture, then, upon surrender by the registered owner or holder of a
Global Note (a "Global Note Holder") of its Global Note, Notes in such form will
be issued to each Person that such Global Note Holder and the Depositary
identify as the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
related Global Note Holder or the Depositary in identifying the beneficial
owners of the related Notes, and each such Person may conclusively rely on, and
will be protected in relying on, instructions from such Global Note Holder or of
the Depositary for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the Notes to be issued).
SAME-DAY PAYMENT
The Indenture requires that payments in respect of Notes (including
principal, premium and interest) be made by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address.
RANKING AND GUARANTEES
The Notes are senior unsecured obligations of the Company and rank pari
passu in right of payment with all other existing and future senior unsecured
indebtedness of the Company, including obligations under the New Bank Facility,
and senior in right of payment to any existing and future indebtedness of the
Company
30
<PAGE> 36
that is, by its terms, expressly subordinated to the Notes. The Notes are
structurally subordinated to indebtedness and other liabilities of the Company's
subsidiaries, including existing indebtedness that remains outstanding after the
Private Offering and the application of the proceeds therefrom.
The Indenture provides that if any Subsidiary of the Company guarantees or
becomes a co-obligor on any Funded Indebtedness of the Company other than the
Notes at any time subsequent to the date on which the Notes are originally
issued (including, without limitation, following any release of such Subsidiary
from its Guarantee as described below), then the Company will cause the Notes to
be equally and ratably guaranteed by such Subsidiary, which shall thereupon
become a Guarantor. Each of the Guarantees will be an unsecured obligation of
the Guarantor providing such Guarantee and will rank pari passu with all
existing and future unsecured indebtedness of such Guarantor that is not, by its
terms, expressly subordinated in right of payment to such Guarantee. Under the
terms of the Indenture, a Guarantor may be released from its Guarantee if such
Guarantor is not a guarantor of (or co-obligor on) any Funded Indebtedness of
the Company other than the Notes and other than Funded Indebtedness of the
Company (i) subject to a release provision similar to the release provision
described in this paragraph and (ii) the related guarantee (or obligation) of
which will be released concurrently with the release of the Guarantee of such
Guarantor pursuant to such release provision, provided that no Default or Event
of Default under the Indenture has occurred and is continuing.
The obligations of each Guarantor will be limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, result in the obligations of such Guarantor under its Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal,
state or foreign law. Each Guarantor that makes a payment or distribution under
a Guarantee shall be entitled to a contribution from each other Guarantor in a
pro rata amount based on the Adjusted Net Assets of each Guarantor.
OPTIONAL REDEMPTION
The 5-Year Notes are not redeemable.
The Notes of each other series are redeemable, at the option of the
Company, at any time in whole or from time to time in part upon not less than 30
and not more than 60 days' notice mailed to each holder of Notes of such series
to be redeemed at the holder's address appearing in the Register, on any date
prior to maturity at a price equal to 100% of the principal amount thereof plus
accrued and unpaid interest to the Redemption Date (subject to the right of
holders of record on the relevant record date to receive interest due on an
interest payment date that is on or prior to the Redemption Date) plus the
Make-Whole Premium applicable to such series of Notes (the "Redemption Price").
In no event will the Redemption Price ever be less than 100% of the principal
amount of the Notes plus accrued and unpaid interest to the Redemption Date.
The amount of the Make-Whole Premium with respect to any Note (or portion
thereof) of any series to be redeemed will be equal to the excess, if any, of:
(i) the sum of the present values, calculated as of the Redemption
Date, of:
A. each interest payment that, but for such redemption, would have
been payable on the Note (or portion thereof) of such series being
redeemed on each Interest Payment Date occurring after the Redemption
Date (excluding any accrued and unpaid interest for the period prior to
the Redemption Date); and
B. the principal amount that, but for such redemption, would have
been payable at the final maturity of the Note (or portion thereof) of
such series being redeemed,
over
(ii) the principal amount of the Note (or portion thereof) of such
series being redeemed.
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<PAGE> 37
The present values of interest and principal payments referred to in clause
(i) above will be determined in accordance with generally accepted principles of
financial analysis. Such present values will be calculated by discounting the
amount of each payment of interest or principal from the date that each such
payment would have been payable, but for the redemption, to the Redemption Date
at a discount rate equal to the Treasury Yield (as defined below) plus (i) 20
basis points in the case of the 7-Year Notes, (ii) 20 basis points in the case
of the 10-Year Notes, and (iii) 25 basis points in the case of the 20-Year
Notes.
The Make-Whole Premium will be calculated by an independent investment
banking institution of national standing appointed by the Company; provided,
that if the Company fails to make such appointment at least 45 business days
prior to the Redemption Date, or if the institution so appointed is unwilling or
unable to make such calculation, such calculation will be made by Credit Suisse
First Boston Corporation or, if such firm is unwilling or unable to make such
calculation, by an independent investment banking institution of national
standing appointed by the Trustee (in any such case, an "Independent Investment
Banker").
For purposes of determining the Make-Whole Premium, "Treasury Yield" means
a rate of interest per annum equal to the weekly average yield to maturity of
United States Treasury Notes that have a constant maturity that corresponds to
the remaining term to maturity of the Notes, calculated to the nearest 1/12th of
a year (the "Remaining Term"). The Treasury Yield will be determined as of the
third business day immediately preceding the applicable Redemption Date.
The weekly average yields of United States Treasury Notes will be
determined by reference to the most recent statistical release published by the
Federal Reserve Bank of New York and designated "H.15(519) Selected Interest
Rates" or any successor release (the "H.15 Statistical Release"). If the H.15
Statistical Release sets forth a weekly average yield for United States Treasury
Notes having a constant maturity that is the same as the Remaining Term, then
the Treasury Yield will be equal to such weekly average yield. In all other
cases, the Treasury Yield will be calculated by interpolation, on a
straight-line basis, between the weekly average yields on the United States
Treasury Notes that have a constant maturity closest to and greater than the
Remaining Term and the United States Treasury Notes that have a constant
maturity closest to and less than the Remaining Term (in each case as set forth
in the H.15 Statistical Release). Any weekly average yields so calculated by
interpolation will be rounded to the nearest 1/100th of 1%, with any figure of
1/200 of 1% or above being rounded upward. If weekly average yields for United
States Treasury Notes are not available in the H.15 Statistical Release or
otherwise, then the Treasury Yield will be calculated by interpolation of
comparable rates selected by the Independent Investment Banker.
If less than all of the Notes of any series are to be redeemed, the Trustee
will select the Notes of such series to be redeemed by such method as the
Trustee shall deem fair and appropriate. The Trustee may select for redemption
Notes and portions of Notes of such series in amounts of $1,000 or whole
multiples of $1,000.
The Notes are not entitled to the benefit of any sinking fund or other
mandatory redemption provisions.
CERTAIN COVENANTS
Limitation on Liens
Nothing in the Indenture or the Notes in any way limit the amount of
indebtedness or securities that the Company or its Subsidiaries may incur or
issue. The Indenture provides that the Company will not, and will not permit any
Subsidiary of the Company to, issue, assume or guarantee any Indebtedness for
borrowed money secured by any Lien on any property or asset now owned or
hereafter acquired by the Company or such Subsidiary without making effective
provision whereby any and all Notes then or thereafter outstanding will be
secured by a Lien equally and ratably with any and all other obligations thereby
secured for so long as any such obligations shall be so secured.
The foregoing restriction does not, however, apply to:
(a) Liens existing on the date on which the Notes are originally
issued or provided for under the terms of agreements existing on such date;
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(b) Liens on property securing (i) all or any portion of the cost of
acquiring, constructing, altering, improving or repairing any property or
assets, real or personal, or improvements used or to be used in connection
with such property or (ii) Indebtedness incurred by the Company or any
Subsidiary of the Company prior to or within one year after the later of
the acquisition, the completion of construction, alteration, improvement or
repair or the commencement of commercial operation thereof, which
Indebtedness is incurred for the purpose of financing all or any part of
the purchase price thereof or construction or improvements thereon;
(c) Liens securing Indebtedness owed by a Subsidiary of the Company to
the Company or to any other Subsidiary of the Company;
(d) Liens on property existing at the time of acquisition of such
property by the Company or any of its Subsidiaries or Liens on the property
of any Person existing at the time such Person becomes a Subsidiary of the
Company and, in any case, not incurred as a result of (or in connection
with or in anticipation of) the acquisition of such property or such Person
becoming a Subsidiary of the Company, provided that such Liens do not
extend to or cover any property or assets of the Company or any of its
Subsidiaries other than the property encumbered at the time such property
is acquired by the Company or any of its Subsidiaries or such Person
becomes a Subsidiary of the Company and, in any case, do not secure
Indebtedness with a principal amount in excess of the principal amount
outstanding at such time;
(e) Liens on any property securing (i) Indebtedness incurred in
connection with the construction, installation or financing of pollution
control or abatement facilities or other forms of industrial revenue bond
financing or (ii) Indebtedness issued or Guaranteed by the United States or
any State thereof or any department, agency or instrumentality of either;
(f) any Lien extending, renewing or replacing (or successive
extensions, renewals or replacements of) any Lien of any type permitted
under clause (a), (b), (d) or (e) above, provided that such Lien extends to
or covers only the property that is subject to the Lien being extended,
renewed or replaced and that the principal amount of the Indebtedness
secured thereby shall not exceed the principal amount of Indebtedness so
secured at the time of such extension, renewal or replacement: or
(g) Liens (exclusive of any Lien of any type otherwise permitted under
clauses (a) through (f) above) securing Indebtedness for borrowed money of
the Company or any Subsidiary of the Company in an aggregate principal
amount which, together with the aggregate amount of Attributable
Indebtedness deemed to be outstanding in respect of all Sale/Leaseback
Transactions entered into pursuant to clause (a) of the covenant described
under "Limitation on Sale/Leaseback Transactions" below (exclusive of any
such Sale/Leaseback Transactions otherwise permitted under clauses (a)
through (f) above), does not at the time such Indebtedness is incurred
exceed 15% of the Consolidated Net Worth of the Company (as shown in the
most recent audited consolidated balance sheet of the Company and its
Subsidiaries).
Limitation on Sale/Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
Subsidiary to, enter into any Sale/Leaseback Transaction with any person (other
than the Company or a Subsidiary) unless:
(a) the Company or such Subsidiary would be entitled to incur
Indebtedness, in a principal amount equal to the Attributable Indebtedness
with respect to such Sale/Leaseback Transaction, secured by a Lien on the
property subject to such Sale/Leaseback Transaction pursuant to the
covenant described under "Limitation on Liens" above without equally and
ratably securing the Notes pursuant to such covenant;
(b) after the date on which the Notes are originally issued and within
a period commencing six months prior to the consummation of such
Sale/Leaseback Transaction and ending six months after the consummation
thereof, the Company or such Subsidiary shall have expended for property
used or to be used in the ordinary course of business of the Company and
its Subsidiaries an amount equal to all or a portion of the net proceeds of
such Sale/Leaseback Transaction and the Company shall have elected to
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designate such amount as a credit against such Sale/Leaseback Transaction
(with any such amount not being so designated to be applied as set forth in
clause (c) below), or
(c) the Company, during the 12-month period after the effective date
of such Sale/Leaseback Transaction, shall have applied to the voluntary
defeasance or retirement of Notes or any Pari Passu Indebtedness an amount
equal to the greater of the net proceeds of the sale or transfer of the
property leased in such Sale/Leaseback Transaction and the fair value, as
determined by the Board of Directors of the Company, of such property at
the time of entering into such Sale/Leaseback Transaction (in either case
adjusted to reflect the remaining term of the lease and any amount expended
by the Company as set forth in clause (b) above), less an amount equal to
the principal amount of Notes and Pari Passu Indebtedness voluntarily
defeased or retired by the Company within such 12-month period and not
designated as a credit against any other Sale/Leaseback Transaction entered
into by the Company or any Subsidiary during such period.
Limitations on Mergers and Consolidations
The Indenture provides that neither the Company nor any Guarantor (other
than any Guarantor that shall have been released from its Guarantee pursuant to
the provisions of the Indenture) will consolidate with or merge into any Person,
or sell, lease, convey, transfer or otherwise dispose of all or substantially
all of its assets to any Person, unless: (i) the Person formed by or surviving
such consolidation or merger (if other than the Company or such Guarantor, as
the case may be), or to which such sale, lease, conveyance, transfer or other
disposition shall be made (collectively, the "Successor"), is a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia (or, alternatively, in the case of a Guarantor
organized under the laws of a jurisdiction outside the United States, a
corporation organized and existing under the laws of such foreign jurisdiction),
and the Successor assumes by supplemental indenture in a form satisfactory to
the Trustee all of the obligations of the Company or such Guarantor, as the case
may be, under the Indenture and under the Notes; and (ii) immediately after
giving effect to such transaction, no Default or Event of Default shall have
occurred and be continuing.
CERTAIN DEFINITIONS
The following is a summary of certain defined terms used in the Indenture.
Reference is made to the Indenture for the full definition of all such terms and
for the definitions of other capitalized terms used herein and not defined
below.
"Adjusted Net Assets" of a Guarantor at any date means the lesser of (x)
the amount by which the fair value of the property of such Guarantor at such
date exceeds the total amount of liabilities, including, without limitation, the
probable amount of contingent liabilities (after giving effect to all other
fixed and contingent liabilities incurred or assumed on such date) of such
Guarantor at such date, but excluding liabilities under the Guarantee of such
Guarantor, and (y) the amount by which the present fair saleable value of the
assets of such Guarantor at such date exceeds the amount that will be required
to pay the probable liability of such Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date and after giving effect to any collection from any Subsidiary of such
Guarantor in respect of any obligations of such Subsidiary under the Guarantee
of such Guarantor), excluding debt in respect of the Guarantee of such
Guarantor, as they become absolute and matured.
"Attributable Indebtedness," when used with respect to any Sale/Leaseback
Transaction, means, as at the time of determination, the present value
(discounted at the rate set forth or implicit in the terms of the lease included
in such transaction) of the total obligations of the lessee for rental payments
(other than amounts required to be paid on account of property taxes,
maintenance, repairs, insurance, assessments, utilities, operating and labor
costs and other items which do not constitute payments for property rights)
during the remaining term of the lease included in such Sale/Leaseback
Transaction (including any period for which such lease has been extended).
"Capitalized Lease Obligation" of any Person means any obligation of such
Person to pay rent or other amounts under a lease of property, real or personal,
that is required to be capitalized for financial reporting
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purposes in accordance with generally accepted accounting principles and the
amount of such obligation shall be the capitalized amount thereof determined in
accordance with generally accepted accounting principles.
"Consolidated Net Worth" of the Company means the consolidated
stockholders' equity of the Company and its Subsidiaries, as determined in
accordance with generally accepted accounting principles.
"Funded Indebtedness" means all Indebtedness (including Indebtedness
incurred under any revolving credit, letter of credit or working capital
facility) that matures by its terms, or that is renewable at the option of any
obligor thereon to a date, more than one year after the date on which such
Indebtedness is originally incurred.
"Hedging Obligations" of any Person means the net obligation (not the
notional amount) of such Person pursuant to any interest rate swap agreement,
foreign currency exchange agreement, interest rate collar agreement, option or
futures contract or other similar agreement or arrangement relating to interest
rates or foreign exchange rates.
"Indebtedness" of any Person at any date means, without duplication, (i)
all indebtedness of such Person for borrowed money (whether or not the recourse
of the lender is to the whole of the assets of such Person or only to a portion
thereof), (ii) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments, (iii) all obligations of such Person in
respect of letters of credit or other similar instruments (or reimbursement
obligations with respect thereto), other than standby letters of credit and
performance bonds issued by such Person in the ordinary course of business, to
the extent not drawn or, to the extent drawn, if such drawing is reimbursed not
later than the third Business Day following demand for reimbursement, (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, except trade payables and accrued expenses incurred in the
ordinary course of business, (v) all Capitalized Lease Obligations of such
Person, (vi) all Indebtedness of others secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person, to the
extent of the fair market value of all the assets of such Person subject to such
Lien, (vii) all Indebtedness of others guaranteed by such Person to the extent
of such guarantee and (viii) all Hedging Obligations of such Person.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law. For
the purposes of the Indenture, the Company or any Subsidiary of the Company
shall be deemed to own subject to a Lien any asset which it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, Capitalized Lease Obligation or other title retention agreement
relating to such asset.
"Non-Recourse Indebtedness" means, at any date, the aggregate amount at
such date of Indebtedness of the Company or a Subsidiary of the Company in
respect of which the recourse of the holder of such Indebtedness, whether direct
or indirect and whether contingent or otherwise, is effectively limited to
specified assets, and with respect to which neither the Company nor any of its
Subsidiaries provides any credit support.
"Pari Passu Indebtedness" means any Indebtedness of the Company, whether
outstanding on the date on which the Notes are originally issued or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall be
subordinated in right of payment to the Notes.
"Sale/Leaseback Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary of the Company, for a
period of more than three years, of any real or tangible personal property,
which property has been or is to be sold or transferred by the Company or such
Subsidiary to such Person in contemplation of such leasing.
"Significant Subsidiary" has the meaning set forth in Regulation S-X under
the Exchange Act.
"Subsidiary" means, with respect to any Person, (i) any corporation of
which more than 50% of the total voting power of all classes of the capital
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors is owned by such Person directly or through one or
more other Subsidiaries of such Person, and (ii) any entity other than a
corporation of which at least a majority of the capital stock or
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other equity interest (however designated) entitled (without regard to the
occurrence of any contingency) to vote in the election of the governing body,
partners, managers or others that will control the management of such entity is
owned by such Person directly or through one or more other Subsidiaries of such
Person.
EVENTS OF DEFAULT
An Event of Default is defined in the Indenture with respect to Notes of
any series as being: (i) default by the Company or any Guarantor for 30 days in
payment of any interest on Notes of such series; (ii) default by the Company or
any Guarantor in any payment of principal of or premium, if any, on Notes of
such series: (iii) default by the Company or any Guarantor in compliance with
any of its other covenants applicable to Notes of such series or agreements in,
or provisions of, the Notes of such series, the Guarantees, if any, or the
Indenture which shall not have been remedied within 60 days after written notice
by the Trustee or by the holders of at least 25% in principal amount of each
series of Notes then outstanding; (iv) the acceleration of the maturity of any
Indebtedness (other than of Notes of such series or any Non-Recourse
Indebtedness) of the Company or any Subsidiary of the Company having an
outstanding principal amount of $20 million or more individually or in the
aggregate, or a default in the payment of any principal or interest in respect
of any Indebtedness (other than the Notes of such series or any Non-Recourse
Indebtedness) of the Company or any Subsidiary of the Company having an
outstanding principal amount of $20 million or more individually or in the
aggregate and such default shall be continuing for a period of 30 days without
the Company or such Subsidiary, as the case may be, effecting a cure of such
default; (v) a final judgment or order for the payment of money in excess of $20
million (net of applicable insurance coverage) having been rendered against the
Company, a Guarantor or any Significant Subsidiary of the Company and such
judgment or order shall continue unsatisfied and unstayed for a period of 60
days; or (vi) certain events involving bankruptcy, insolvency or reorganization
of the Company, a Guarantor, or any Significant Subsidiary of the Company.
Pursuant to the Indenture, Guarantors may not be released from their Guarantees
if a Default or Event of Default has occurred and is continuing. The obligations
of any Subsidiary of the Company that becomes a Guarantor are not dependent upon
whether such Subsidiary becomes a Guarantor prior to or after an Event of
Default. The Indenture provides that the Trustee may withhold notice to the
holders of the Notes of any default (except in payment of principal of or
premium, if any, or interest on the Notes) if the Trustee considers it in the
interest of the holders of the Notes to do so.
The Indenture provides that if an Event of Default occurs and is continuing
with respect to the Indenture (other than certain events of bankruptcy,
insolvency or reorganization) with respect to any series of Notes, the Trustee
or the holders of not less than 25% in principal amount of such series of Notes
outstanding may declare the principal of and premium, if any, and accrued but
unpaid interest on all the Notes of such series to be due and payable. Upon such
a declaration, such principal, premium, if any, and interest will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization occurs and is continuing, the principal
of and premium, if any, and interest on all the Notes will become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any holders of the Notes. The amount due and payable on the
acceleration of any Note will be equal to 100% of the principal amount of such
Note, plus accrued interest to the date of payment. Under certain circumstances,
the holders of a majority in principal amount of the outstanding Notes of any
series may rescind any such acceleration with respect to the Notes of such
series and its consequences.
The Indenture provides that no holder of a Note of any series may pursue
any remedy under the Indenture unless (i) the Trustee shall have received
written notice of a continuing Event of Default, (ii) the Trustee shall have
received a request from holders of at least 25% in principal amount of such
series of Notes to pursue such remedy, (iii) the Trustee shall have been offered
indemnity reasonably satisfactory to it and (iv) the Trustee shall have failed
to act for a period of 60 days after receipt of such notice and offer of
indemnity; however, such provision does not affect the right of a holder of a
Note to sue for enforcement of any overdue payment thereon.
The holders of a majority in principal amount of any series of Notes then
outstanding have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee under the
Indenture, subject to certain limitations specified in the Indenture with
respect to such
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series. The Indenture requires the annual filing by the Company with the Trustee
of a written statement as to compliance with the covenants contained in the
Indenture.
MODIFICATION AND WAIVER
The Indenture provides that modifications and amendments to the Indenture
or the Notes may be made by the Company, the Guarantors, if any, and the Trustee
with the consent of the holders of a majority in principal amount of each series
of the Notes then outstanding; provided that no such modification or amendment
may, without the consent of the holder of each Note then outstanding affected
thereby of any series, (i) reduce the amount of Notes of such series whose
holders must consent to an amendment, supplement or waiver; (ii) reduce the rate
of or change the time for payment of interest, including default interest, on
any Note of such series; (iii) reduce the principal of or change the fixed
maturity of any Note of such series or alter the premium or other provisions
with respect to redemption; (iv) make any Note payable in money other than that
stated in the Note of such series; (v) impair the right to institute suit for
the enforcement of any payment of principal of, or premium, if any, or interest
on, any Note of such series; (vi) make any change in the percentage of principal
amount of Notes necessary to waive compliance with certain provisions of the
Indenture; or (vii) waive a continuing Default or Event of Default in the
payment of principal of, or premium, if any, or interest on the Notes of such
series. The Indenture provides that modifications and amendments of the
Indenture may be made by the Company, the Guarantors, if any, and the Trustee
without the consent of any holders of Notes in certain limited circumstances,
including (a) to cure any ambiguity, omission, defect or inconsistency, (b) to
provide for the assumption of the obligations of the Company or any Guarantor
under the Indenture upon the merger, consolidation or sale or other disposition
of all or substantially all of the assets of the Company or any such Guarantor,
(c) to provide for uncertificated Notes in addition to or in place of
certificated Notes, (d) to reflect the release of any Guarantor from its
Guarantee, or the addition of any Subsidiary of the Company as a Guarantor, in
the manner provided by the Indenture, (e) to comply with any requirement in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act of 1939 or (f) to make any change that does not adversely affect
the rights of any holder of Notes in any material respect.
The Indenture provides that the holders of a majority in aggregate
principal amount of the Notes of any series then outstanding may waive any past
default under the Indenture with respect to such series, except a default in the
payment of principal, or premium, if any, or interest.
DISCHARGE AND TERMINATION
Defeasance of Certain Obligations
The Indenture provides that the Company and the Guarantors, if any, may
terminate certain of their obligations under the Indenture with respect to Notes
of any series, including those described under the section "Certain Covenants,"
if (i) the Company irrevocably deposits in trust with the Trustee cash or
non-callable U.S. Government Obligations or a combination thereof sufficient to
pay principal of and interest on such series of Notes to maturity, and to pay
all other sums payable by it under the Indenture; (ii) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit: (iii)
the Company shall have delivered to the Trustee an Opinion of Counsel from
nationally recognized counsel acceptable to the Trustee or a tax ruling to the
effect that the holders of the Notes of such series will not recognize income,
gain or loss for Federal income tax purposes as a result of the Company's
exercise of its option under such section and will be subject to Federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such option had not been exercised; (iv) the Company
delivers to the Trustee certain other documents called for by the Indenture,
including an Officers' Certificate and Opinions of Counsel; and (v) certain
other conditions are satisfied. The Company's payment obligations and the
Guarantors' Guarantees, if any, shall survive until the Notes are no longer
outstanding.
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Discharge
The Indenture provides that the Indenture shall cease to be of further
effect with respect to Notes of any series (subject to certain exceptions
relating to compensation and indemnity of the Trustee and repayment to the
Company of excess money or securities) when (i) either (A) all outstanding Notes
of such series theretofore authenticated and issued (other than destroyed, lost
or stolen Notes that have been replaced or paid) have been delivered to the
Trustee for cancellation; or (B) all outstanding Notes of such series not
theretofore delivered to the Trustee for cancellation (x) have become due and
payable or (y) will become due and payable at their stated maturity within one
year and the Company has deposited or caused to be deposited with the Trustee as
funds (immediately available to the holders in the case of clause (x)) in trust
for such purpose an amount which, together with earnings thereon, will be
sufficient to pay and discharge the entire indebtedness on such Notes of such
series for principal and interest to the date of such deposit (in the case of
Notes of such series which have become due and payable) or to the stated
maturity, as the case may be; (ii) the Company has paid all other sums payable
by it under the Indenture; and (iii) the Company has delivered to the Trustee an
Officers' Certificate stating that all conditions precedent to satisfaction and
discharge of the Indenture have been complied with, together with an Opinion of
Counsel to the same effect.
GOVERNING LAW
The Indenture provides that it will be governed by and will be construed in
accordance with the laws of the State of New York.
THE TRUSTEE
Chase Bank of Texas, National Association is the Trustee under the
Indenture. Its address is 600 Travis Street, Suite 1150, Houston, Texas 77002.
The Company has also appointed the Trustee as the initial Registrar and as
initial Paying Agent under the Indenture.
The Indenture contains certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee is permitted to engage in other
transactions; however, if it acquires any conflicting, interest (as defined in
the Trust Indenture Act of 1939, as amended), it must eliminate such conflict or
resign.
The Indenture provides that in case an Event of Default shall occur and be
continuing, the Trustee will be required to use the degree of care and skill of
a prudent man in the conduct of his own affairs. The Trustee will be under no
obligation to exercise any of its powers under the Indenture at the request of
any of the holders of the Notes, unless such holders shall have offered the
Trustee indemnity reasonably satisfactory to it.
ADDITIONAL INFORMATION
A copy of the Indenture and the Registration Rights Agreement was included
as an exhibit to the Registration Statement filed by the Company with the
Commission. Anyone who receives this Prospectus may obtain a copy of the
Indenture and Registration Rights Agreement without charge by writing to the
Company at 901 Threadneedle, Houston, Texas 77079, attention: Charles R. Ofner.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of Notes by an initial beneficial owner of Notes that, for United States federal
tax purposes, is not a "United States person" (a "Non-United States Holder").
This discussion is based upon the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations thereunder, published
rulings and court decisions, all as in effect on the date hereof, which is
subject to change, possibly retroactively. For purposes of this discussion, a
"United States person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in the United
States or under the law of the United States or of any state or political
subdivision thereof, an estate whose income is includible in gross income for
United States federal income tax purposes regardless of its source, or a trust
if a U.S. court is able to exercise primary supervision over the administration
of the trust and one or more United States persons have the authority to control
all substantial decisions of the trust. This discussion applies only to those
Non-United States Holders who purchase Notes from the Initial Purchasers at the
price set forth on the cover page of this Prospectus and hold the Notes as a
capital asset. The tax treatment of the holders of the Notes may vary depending
upon their particular situations. United States persons acquiring the Notes are
subject to different rules than those discussed below. In addition, certain
other holders (including insurance companies, tax exempt organizations,
financial institutions and broker-dealers) may be subject to special rules not
discussed below. Prospective investors are urged to consult their tax advisors
regarding the United States federal tax consequences of acquiring, holding and
disposing of Notes, as well as any tax consequences that may arise under the
laws of any relevant foreign, state, local or other taxing jurisdiction.
INTEREST
Interest paid by the Company to a Non-United States Holder will not be
subject to United States federal income or withholding tax if such interest is
not effectively connected with the conduct of a trade or business within the
United States by such Non-United States Holder and such Non-United States Holder
(i) does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company; (ii) is not a controlled
foreign corporation with respect to which the Company is a related person and
(iii) certifies, under penalties of perjury, that such holder is not a United
States person and provides such holder's name and address (the "Certification
Requirement"). In the case of interest on a Note that is not "effectively
connected with the conduct of a trade or business within the United States" and
does not satisfy the three requirements of the preceding sentence, the
Non-United States Holder's interest on a Note would generally be subject to
United States withholding tax at a flat rate of 30% (or a lower applicable
treaty rate). If a Non-United States Holder's interest on a Note is "effectively
connected with the conduct of a trade or business within the United States,"
then the Non-United States Holder will be subject to United States federal
income tax on such interest income in essentially the same manner as a United
States person and, in the case of a Non-United States Holder that is a foreign
corporation, may also be subject to the branch profits tax.
GAIN ON DISPOSITION
A Non-United States Holder generally will not be subject to United States
federal income tax with respect to gain recognized on a sale, redemption or
other disposition of a Note unless (i) the gain is effectively connected with
the conduct of a trade or business within the United States by the Non-United
States Holder or (ii) in the case of a Non-United States Holder who is a
nonresident alien individual and holds the Note as a capital asset, such holder
is present in the United States for 183 or more days in the taxable year and
certain other requirements are met.
39
<PAGE> 45
FEDERAL ESTATE TAXES
If interest on a Note is exempt from withholding of United States federal
income tax under the rules described above, the Note held by an individual who
at the time of death is a Non-United States Holder generally will not be subject
to United States federal estate tax as a result of such individual's death.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company will, when required, report to the holders of the Notes and the
Internal Revenue Service ("IRS") the amount of any interest paid on the Notes in
each calendar year and the amounts of tax withheld, if any, with respect to such
payments.
In the case of payments of interest to Non-United States Holders, the
general 31% backup withholding tax and certain information reporting will not
apply to such payments with respect to which either the Certification
Requirement has been satisfied or an exemption has otherwise been established;
provided that neither the Company nor its payment agent has actual knowledge
that the holder is a United States person or that the conditions of any other
exemption are not in fact satisfied. Information reporting and backup
withholding requirements will apply to the gross proceeds paid to a Non-United
States Holder on the disposition of the Notes by or through a United States
office of a United States or foreign broker, unless the holder certifies to the
broker under penalties of perjury as to its name, address and status as a
foreign person or the holder otherwise establishes an exemption. Information
reporting requirements, but not backup withholding, will also apply to a payment
of the proceeds of a disposition of the Notes by or through a foreign office of
a United States broker or foreign brokers with certain types of relationships to
the United States unless such broker has documentary evidence in its file that
the holder of the Notes is not a United States person and such broker has no
actual knowledge to the contrary, or the holder establishes an exception.
Neither information reporting nor backup withholding generally will apply to a
payment of the proceeds of a disposition of the Notes by or through a foreign
office of a foreign broker not subject to the preceding sentence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the IRS.
The United States Treasury Department recently promulgated new regulations
regarding the withholding and information reporting rules discussed above. In
general, the new regulations do not significantly alter the substantive
withholding and information reporting requirements but rather unify current
certification procedures and forms and clarify reliance standards. The new
regulations require, however, that a foreign person furnish its taxpayer
identification number in certain circumstances to claim a reduction in United
States federal withholding tax and new rules are provided for foreign persons
that hold debt instruments thorough a foreign intermediary. The new regulations
are generally effective for payments made after December 31, 1999, subject to
certain transition rules. NON-UNITED STATES HOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE IMPACT, IF ANY, OF THE NEW REGULATIONS.
40
<PAGE> 46
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Private Notes where such Private Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by any
such person may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer, other than commissions or concessions of any
broker-dealer, and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes offered hereby
will be passed upon for the Company by Gardere Wynne Sewell & Riggs, L.L.P.,
Houston, Texas.
EXPERTS
The consolidated balance sheets of R&B Falcon Corporation as of December
31, 1997 and 1996, and the related statements of operations, stockholders'
equity and cash flows for each of the years in the three year period ended
December 31, 1997, incorporated by reference in this prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
With respect to the unaudited interim financial information for the
quarters ended March 31, 1998 and 1997, Arthur Andersen LLP has applied limited
procedures in accordance with professional standards for a review of that
information. However, their separate report thereon states that they did not
audit and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on that information should
be restricted in light of the limited nature of the review procedures applied.
In addition, the accountants are not subject to the liability provisions of
Section 11 of the Securities Act of 1933 for their report on the unaudited
interim financial information because that report is not a "report" or a "part"
of the registration statement prepared or certified by the accountants within
the meaning of Sections 7 and 11 of the Act.
41
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Forward-looking Statements............. iii
Available Information.................. iii
Incorporation of Certain Documents by
Reference............................ iv
Summary................................ 1
Risk Factors........................... 11
Recent Developments.................... 15
The Exchange Offer..................... 16
Use of Proceeds........................ 26
Capitalization......................... 27
Description of the Notes............... 28
Certain United States Federal Tax
Consequences for Non-united States
Holders.............................. 39
Plan of Distribution................... 41
Legal Matters.......................... 41
Experts................................ 41
</TABLE>
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R&B FALCON CORPORATION
OFFER TO EXCHANGE
6 1/2% SENIOR NOTES DUE 2003, SERIES B
FOR ALL OUTSTANDING 6 1/2% SENIOR NOTES
DUE 2003, SERIES A,
6 3/4% SENIOR NOTES DUE 2005, SERIES B
FOR ALL OUTSTANDING 6 3/4% SENIOR NOTES
DUE 2005, SERIES A,
6.95% SENIOR NOTES DUE 2008, SERIES B
FOR ALL OUTSTANDING 6.95% SENIOR NOTES
DUE 2008, SERIES A,
AND
7 3/8% SENIOR NOTES DUE 2018, SERIES B
FOR ALL OUTSTANDING 7 3/8% SENIOR NOTES
DUE 2018, SERIES A
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PROSPECTUS
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JULY 8, 1998
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