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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-13729
R&B FALCON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 76-0544217
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
901 Threadneedle, Houston, Texas 77079
(Address of principal executive offices)(Zip Code)
(281) 496-5000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No___
NUMBER OF SHARES OUTSTANDING OF REGISTRANT'S COMMON STOCK
AT NOVEMBER 1, 1998 : 165,348,558
===========================================================================
Forward-Looking Statements and Assumptions
This Quarterly Report on Form 10-Q may contain or incorporate by
reference certain forward-looking statements, including by way of
illustration and not of limitation, statements relating to liquidity,
revenues, expenses, margins and contract rates and terms. The Company
strongly encourages readers to note that some or all of the assumptions,
upon which such forward-looking statements are based, are beyond the
Company's ability to control or estimate precisely, and may in some cases
be subject to rapid and material changes. Such assumptions include the
contract status of the Company's offshore units, general market conditions
prevailing in the marine drilling industry (including daily rates and
utilization) and various other trends affecting the marine drilling
industry, including world oil and gas prices, the exploration and
development programs of the Company's customers, the actions of the
Company's competitors and economic conditions generally.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Company or Group of Companies for Which Report is Filed:
R&B Falcon Corporation and Subsidiaries
The financial statements for the three and nine month periods ended
September 30, 1998 and 1997, include, in the opinion of the Company, all
adjustments (which only consist of normal recurring adjustments) necessary
to present fairly the financial position and results of operations for such
periods. The financial data for the three and nine month periods ended
September 30, 1998 included herein have been reviewed in accordance with
standards established by the American Institute of Certified Public
Accountants by Arthur Andersen LLP, the registrant's independent public
accountants, whose report is included herein. Results of operations for
the three and nine month periods ended September 30, 1998 are not
necessarily indicative of results of operations which will be realized for
the year ending December 31, 1998. The financial statements should be read
in conjunction with the Company's Form 10-K for the year ended December 31,
1997.
R&B FALCON CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ -----------
(unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 67.7 $ 55.5
Short-term investments 82.0 45.4
Accounts receivable:
Trade, net 189.6 168.0
Other 41.2 22.4
Materials and supplies inventory 28.4 15.2
Other current assets 19.0 14.3
--------- ---------
Total current assets 427.9 320.8
--------- ---------
PROPERTY AND EQUIPMENT:
Drilling 2,612.8 1,926.5
Other 177.9 82.8
--------- ---------
Total property and equipment 2,790.7 2,009.3
Accumulated depreciation (490.3) (426.3)
--------- ---------
Net property and equipment 2,300.4 1,583.0
--------- ---------
DEFERRED CHARGES AND OTHER ASSETS 37.9 29.2
--------- ---------
TOTAL ASSETS $ 2,766.2 $ 1,933.0
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term obligations $ 113.6 $ -
Long-term obligations due within one year 24.0 135.2
Accounts payable - trade 47.4 53.6
Accrued liabilities 161.3 147.2
--------- ---------
Total current liabilities 346.3 336.0
LONG-TERM OBLIGATIONS 1,374.6 692.2
OTHER NONCURRENT LIABILITIES 37.6 38.6
DEFERRED INCOME TAXES 103.7 76.8
NET LIABILITIES OF DISCONTINUED OPERATIONS 1.3 5.8
--------- ---------
Total liabilities 1,863.5 1,149.4
--------- ---------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 59.7 55.6
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value 1.7 1.6
Capital in excess of par value 658.1 631.4
Retained earnings 184.0 96.3
Other (.8) (1.3)
--------- ---------
Total stockholders' equity 843.0 728.0
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,766.2 $ 1,933.0
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
R&B FALCON CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions except per share amounts)
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1998 1997 1998 1997
------- ------- ------- -------
OPERATING REVENUES:
Deepwater $ 101.0 $ 92.7 $ 298.1 $ 253.3
Shallow water 88.8 86.8 306.0 234.4
Inland water 53.7 65.2 199.8 178.7
------- ------- ------- -------
Total operating revenues 243.5 244.7 803.9 666.4
------- ------- ------- -------
COSTS AND EXPENSES:
Deepwater 52.1 32.5 139.2 93.2
Shallow water 39.5 40.2 119.2 115.7
Inland water 42.1 34.9 126.2 98.2
Cancellation of conversion projects 85.8 - 85.8 -
Depreciation 24.1 21.6 68.1 60.2
General and administrative 15.2 11.9 44.6 36.0
Merger expenses - - (1.0) -
------- ------- ------- -------
Total costs and expenses 258.8 141.1 582.1 403.3
------- ------- ------- -------
OPERATING INCOME (LOSS) (15.3) 103.6 221.8 263.1
------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense, net of
capitalized interest (13.9) (11.9) (43.0) (32.4)
Interest income 2.4 1.3 7.0 4.4
Other, net (.3) .2 (.1) (.1)
------- ------- ------- -------
Total other income (expense) (11.8) (10.4) (36.1) (28.1)
------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAX
EXPENSE, MINORITY INTEREST AND
EXTRAORDINARY LOSS (27.1) 93.2 185.7 235.0
------- ------- ------- -------
INCOME TAX EXPENSE (BENEFIT):
Current 16.5 14.4 28.9 33.8
Deferred (26.2) (.9) 38.9 11.7
------- ------- ------- -------
Total income tax
expense (benefit) (9.7) 13.5 67.8 45.5
------- ------- ------- -------
MINORITY INTEREST (3.1) (2.5) (8.2) (6.9)
------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING
OPERATION BEFORE
EXTRAORDINARY LOSS (20.5) 77.2 109.7 182.6
LOSS FROM DISCONTINUED OPERATIONS - (42.2) - (64.7)
EXTRAORDINARY LOSS, NET OF
TAX BENEFIT - - (22.0) -
------- ------- ------- -------
NET INCOME (LOSS) $ (20.5) $ 35.0 $ 87.7 $ 117.9
======= ======= ======= =======
NET INCOME (LOSS) PER COMMON SHARE:
Basic:
Continuing operations $ (.12) $ .47 $ .66 $ 1.11
Discontinued operations - (.26) - (.39)
Extraordinary loss - - (.13) -
------- ------- ------- -------
Net income (loss) $ (.12) $ .21 $ .53 $ .72
======= ======= ======= =======
Diluted:
Continuing operations $ (.12) $ .47 $ .66 $ 1.10
Discontinued operations - (.25) - (.39)
Extraordinary loss - - (.13) -
------- ------- ------- -------
Net income (loss) $ (.12) $ .22 $ .53 $ .71
======= ======= ======= =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic 165.3 164.3 165.2 164.0
======= ======= ======= =======
Diluted 166.8 167.8 166.4 166.3
======= ======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
R&B FALCON CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)(unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 87.7 $ 117.9
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 68.1 60.2
Deferred income taxes 38.9 26.8
Gain on dispositions of property and equipment (3.0) (3.4)
Cancellation of conversion projects 85.8 -
Recognition of deferred expenses 9.2 4.0
Deferred compensation - 5.8
Minority interest in income of
consolidated subsidiaries 8.2 6.9
Loss from discontinued operations - 64.7
Extraordinary loss, net of tax benefit 22.0 -
Changes in assets and liabilities:
Accounts receivable, net (40.4) (41.6)
Materials and supplies inventory (13.9) (2.4)
Deferred charges and other assets (21.7) (16.8)
Accounts payable - trade (16.5) (7.1)
Accrued liabilities (1.7) (5.0)
Accrued interest 23.8 .9
Income taxes (5.4) 5.7
Other, net (.6) 2.8
-------- --------
Net cash provided by operating activities 240.5 219.4
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dispositions of property and equipment 3.7 8.4
Purchases of property and equipment (845.9) (361.0)
Purchase of short-term investments (36.6) (19.1)
Increase in investments in and advances to
unconsolidated investees - (48.4)
-------- --------
Net cash used in investing activities (878.8) (420.1)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments on) proceeds from revolving
credit facilities (222.0) 157.0
Increase in short-term borrowings 113.6 -
Proceeds from long-term obligations 1,094.0 83.0
Principal payments on long-term obligations (303.2) (46.7)
Premium paid on debt extinguishment (25.1) -
Distribution to minority shareholders
of consolidated subsidiaries (4.0) -
Other 1.7 4.4
-------- --------
Net cash provided by financing activities 655.0 197.7
-------- --------
CASH USED IN DISCONTINUED OPERATIONS (4.5) (70.7)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12.2 (73.7)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 55.5 127.8
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 67.7 $ 54.1
======== ========
Supplemental Cash Flow Disclosures:
Interest paid $ 44.4 $ 37.3
Income taxes paid $ 29.5 $ 9.9
Purchase of property and equipment in
exchange for debt or equity $ 35.5 $ 8.0
The accompanying notes are an integral part of the consolidated financial
statements.
R&B FALCON CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A) SIGNIFICANT ACCOUNTING POLICIES
PROPERTY AND EQUIPMENT - In the first quarter of 1998, the Company
had an independent appraiser evaluate the expected useful lives of its
marine units and, based on such appraisal, the Company extended the
useful lives of its marine units effective January 1, 1998. Such
change in estimate resulted in an approximate $15.6 million reduction
in depreciation expense for the nine months ended September 30, 1998.
NEWLY ISSUED ACCOUNTING STANDARDS - In June 1997, Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
("SFAS 130") was issued. SFAS 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of
general purpose financial statements. Comprehensive income is the
total of net income and all other non-owner changes in equity. The
Company had no non-owner changes in equity during the three and nine
month periods ended September 30, 1998 and 1997 and therefore, no
reporting and display of comprehensive income was required.
In June 1998, Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS
133") was issued. SFAS 133 establishes accounting and reporting
standards requiring that every derivative instrument be measured at its
fair value, recorded in the balance sheet as either an asset or
liability and that changes in the derivative's fair value be recognized
currently in earnings. SFAS 133 is effective for fiscal years beginning
after June 15, 1999. The Company has not yet quantified the impacts of
adopting SFAS 133 on its financial statements nor has it determined the
timing of its adoption.
CAPITALIZED INTEREST - The Company capitalizes interest applicable
to the construction and significant upgrades of its marine equipment as
a cost of such assets. Interest capitalized for the three months ended
September 30, 1998 and 1997 was $12.2 million and $2.3 million,
respectively and for the nine months ended September 30, 1998 and 1997
was $27.5 million and $6.8 million, respectively. Interest capitalized
is shown net of interest expense in the Consolidated Statement of
Operations.
EXTRAORDINARY LOSS - In the second quarter of 1998, the Company
incurred an extraordinary loss of $22.0 million, after a tax benefit of
$11.9 million, due to the premium payments required for the early
extinguishment of debt obligations and the expense of related deferred
debt issuance costs (see Note C).
RECLASSIFICATION - Certain prior period amounts in the
consolidated financial statements have been reclassified for
comparative purposes. Such reclassifications had no effect on the net
income (loss) or the overall financial condition of the Company.
B) SHORT-TERM OBLIGATIONS
In February 1998, a subsidiary of the Company entered into a
$150.0 million short-term credit facility for the construction of the
"DEEPWATER MILLENIUM" and repayment of that facility was guaranteed by
a number of other subsidiaries. The facility bears interest at the
London Interbank Offered Rate ("LIBOR") plus .6% and is due in December
1998. In April 1998, the facility was amended to substitute the
Company as the sole guarantor and to increase the interest rate margin
to .75%.
C) LONG-TERM OBLIGATIONS
(in millions)
-------------
Debt obligations at December 31, 1997 $ 827.4
Proceeds from debt offering (1) 1,094.0
Proceeds from new credit facility (2) 260.0
Net payments on retired credit facilities (2) (482.0)
Payments on debt obligations other
than credit facilities (3) (303.1)
Other 2.3
---------
Debt obligations at September 30, 1998 1,398.6
Less long-term obligations due within one year (24.0)
---------
Long-term obligations at September 30, 1998 $ 1,374.6
=========
(1) In April 1998, the Company issued four series of senior notes with
an aggregate principal amount of $1.1 billion (the "New Senior
Notes"). As a result, the Company received net proceeds of
approximately $1,082.0 million after deducting estimated offering
related expenses. The New Senior Notes bear interest at varying
rates from 6.5% to 7.375%, are payable semiannually on April 15
and October 15, and mature at varying times from 2003 to 2018. The
New Senior Notes are unsecured obligations of the Company, ranking
pari passu in right of payment with all other existing and future
senior unsecured indebtedness of the Company. The Company used the
proceeds to repay existing indebtedness of $874.4 million and the
remainder will be used for planned capital expenditures, working
capital and other general corporate purposes. As a result of the
repayment of existing indebtedness, the Company incurred an
extraordinary loss of $22.0 million, net of tax, in the second
quarter of 1998.
(2) In April 1998, the Company retired two existing bank group credit
facilities aggregating $615.0 million (of which $600.0 million had
been drawn), and entered into a new $500.0 million unsecured
revolving credit facility agreement with a syndicate of banks. The
new facility matures April 24, 2002, bears interest at LIBOR plus
.75%, and ranks pari passu in right of payment with the New Senior
Notes.
(3) On March 23, 1998, the Company offered to redeem its 9 3/4 % Senior
Notes due 2001, its 8 7/8 % Senior Notes due 2003 and its 12 1/2 %
Subordinated Notes due 2005 (collectively the "Old Notes"). The
aggregate principal amount of the outstanding Old Notes was $280.0
million and on April 20, 1998, $274.4 million in principal amount
of Old Notes was repaid from proceeds from the sale of the New
Senior Notes.
D) COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURES - During the fourth quarter of 1998 through
2000, the Company expects to spend approximately $1.4 billion to expand
and upgrade its operating rig fleet. Approximately $1.2 billion of
this total will be expended in connection with the expansion of the
Company's deepwater rig fleet. These amounts exclude construction
commitments on the "DEEPWATER FRONTIER". The "DEEPWATER FRONTIER" is
being constructed for a joint venture in which the Company owns a 60%
interest and the Company's portion of the project is expected to be
funded through working capital and project financing which is expected
to be provided by a third party on a limited recourse basis.
Based on projected cash flows, the Company estimates that in order
to fulfill its obligations on its construction projects, it will be
required to obtain in the fourth quarter of 1998 or first quarter of
1999 significant incremental financing in addition to currently
committed vendor and shipyard financing.
The Company is currently contemplating three project financings to
meet a portion of its cash requirements. The first is an approximately
$260.0 million financing in the form of a synthetic lease that would be
collateralized by the drillship "DEEPWATER FRONTIER" and drilling
contract revenues from such drillship. Proceeds of such financing, if
obtained, would be used in part to repay an interim financing facility,
under which $160.0 million had been borrowed at September 30, 1998.
The foregoing interim loan has been made to a limited liability company
which will operate the "DEEPWATER FRONTIER" and which is owned 60% by
the Company and 40% by Conoco. The Company has guaranteed repayment of
60% of this interim loan. The second financing being contemplated is an
approximately $250.0 million project financing that would be
collateralized by the semisubmersible "RBS8M" (formerly the "RBS6"), as
well as the drilling contract revenues from such rig. The third
financing involves the "DEEPWATER MILLENIUM" where as the Company is
contemplating a $200.0 million project financing. Proceeds of such
financing, if obtained, would be used in part to repay a $150.0 million
interim financing facility of which $113.6 million had been drawn at
September 30, 1998.
In addition to the above-described debt financings, the Company
intends to make a public offering of trust preferred securities in the
fourth quarter of 1998 in an amount up to $300.0 million. However,
there is no assurance that this offering can be completed.
The Company currently believes it will be able to consummate such
financings. However, there is no assurance that such financings can be
obtained, or if obtained, that they will be on favorable terms.
Financial markets have been unsettled in recent months, and credit
availability has been materially limited. Further, the implementation
of the contemplated debt financings will require the approval of the
Company's bank lenders, and there is no assurance these lenders will
approve any additional debt financings. The inability of the Company
to obtain the financing required for the construction projects would
have a material adverse effect on the Company. In such event, the
Company may have to sell assets or terminate or suspend one or more of
the construction projects. Termination or suspension of a project may
subject the Company to claims for penalties or damages under the
construction contracts or drilling contracts for the rigs that are
being constructed.
The Company's 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. Significant
cost overruns or delays would adversely affect the Company's liquidity,
financial condition, and results of operations. Delays could also
result in penalties under, or the termination of, the long-term
contracts under which the Company plans to operate these rigs. The
currently scheduled delivery dates for the "PEREGRINE IV", "PEREGRINE
VII", and "FALCON 100" are later than the commencement date under the
initial drilling contracts for such drillships.
Based upon the currently estimated delivery dates for the
"PEREGRINE IV", and "FALCON 100", the Company will be subject to late
delivery penalties under the applicable drilling contracts
(approximately $41,500 per day, up to a maximum of approximately $34.8
million, for the "PEREGRINE IV", and approximately $26,500 per day,
up to a maximum of approximately $13.3 million, for the "FALCON 100").
E) DISCONTINUED OPERATIONS
In March 1998, the Company decided to divest its oil and gas
segment, and expects such divestiture to occur by March 1999. The
Company's oil and gas segment has been accounted for as a discontinued
operation.
As of November 1, 1998, the Company had not entered into an
arrangement or contract to divest its oil and gas segment. If the
Company does not enter into an arrangement or contract to divest its
oil and gas segment by March 1999 the Company will reclassify, in
accordance with generally accepted accounting principles, its oil and
gas segment as a continuing operation. It is still the Company's
intention to divest its oil and gas segment.
Oil and gas assets held for sale at September 30, 1998 were $52.5
million and related liabilities totaled $53.8 million, including a
$48.8 million reserve for losses on ultimate disposal and operations
until disposal. There were no revenues from the discontinued operations
during the three and nine month periods ended September 30, 1998 and
1997. Expenses incurred from the discontinued operations during the
three months ended September 30, 1998 and 1997 were $21.2 million and
$42.2 million, respectively and for the nine months ended September 30,
1998 and 1997 were $30.0 million and $64.7 million, respectively. Such
expenses for 1998 were applied against the reserve established in
connection with the discontinuance of the oil and gas segment.
In 1998, the Company entered into a letters of intent to perform
development operations to earn interests in oil and gas properties
owned by third parties. The cost of such development operations is
estimated at $69.0 million.
F) CANCELLATION OF CONVERSION PROJECTS
In the third quarter of 1998, the Company cancelled the "PEREGRINE
VI" and the "PEREGRINE VIII" conversion projects. The drilling contract
on the "PEREGRINE VIII" was terminated on September 24, 1998, and the
drilling contract on the "PEREGRINE VI" will by its terms terminate on
January 1, 1999. Both terminations are without prejudice to any rights
of the parties existing as of the date of the termination. The Company
believes that based on the obligations of the parties under the
contracts, provisions of the contracts that preclude recovery of
indirect or consequential damages, and projected rig availability in
the offshore drilling industry, the Company will not have any material
liability under these drilling contracts as a result of the termination
thereof. The contracts with the shipyard for conversion of the
"PEREGRINE VI" and the "PEREGRINE VIII" have been cancelled. As a
result of the termination of the "PEREGRINE VI" and the "PEREGRINE
VIII" projects, the Company expensed $85.8 million in related costs in
the third quarter of 1998.
In connection with the "PEREGRINE VI" and "PEREGRINE VIII"
projects and a third drillship project, the Company purchased or
committed to purchase drilling equipment with an aggregate cost of
approximately $285.0 million. This equipment constitutes all of the
material drilling equipment necessary to outfit two deepwater
drillships (although a substantial portion of such equipment can be
used on semisubmersible rigs). The Company expects to use this
equipment to outfit other deepwater projects and as inventory.
G) EARNINGS PER SHARE
The following table reconciles the numerators and denominators of
the basic and diluted per share computations for income (loss) from
continuing operations before extraordinary loss for the three and nine
month periods ended September 30, 1998 and 1997 as follows (in millions
except per share amounts):
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
Numerator:
Income (loss) from continuing
operations before extraordinary
loss - basic $ (20.5) $ 77.2 $ 109.7 $ 182.6
Interest expense on convertible
debentures 1.1 1.0 - -
------- ------- ------- -------
Income (loss) from continuing
operations before extraordinary
loss - diluted $ (19.4) $ 78.2 $ 109.7 $ 182.6
======= ======= ======= =======
Denominator:
Weighted average common shares
outstanding - basic 165.3 164.3 165.2 164.0
Outstanding stock options .5 2.5 1.2 2.3
Convertible debentures 1.0 1.0 - -
------- ------- ------- -------
Weighted average common shares
outstanding - diluted 166.8 167.8 166.4 166.3
======= ======= ======= =======
Earnings per share:
Income (loss) from continuing
operations before extraordinary
loss:
Basic $ (.12) $ .47 $ .66 $ 1.11
Diluted $ (.12) $ .47 $ .66 $ 1.10
H) BUSINESS COMBINATION
The Company has entered into a merger agreement with Cliffs
Drilling Company pursuant to which a wholly-owned subsidiary of the
Company will merge with Cliffs Drilling, and Cliffs Drilling will
become a wholly-owned subsidiary of the Company. In the merger, each
share of common stock, par value $0.01 per share, of Cliffs Drilling
Company will be exchanged for 1.7 shares of common stock, par value
$0.01 per share, of the Company. The merger is contemplated to be a tax-
free reorganization and will be accounted for as a purchase. The
transaction is subject to, among other things, certain third party and
Cliffs Drilling shareholder approvals. The Cliffs Drilling shareholders
are currently scheduled to meet on November 20, 1998 to vote on
approval of the merger. Assuming certain third party and Cliffs
Drilling shareholder approvals are obtained, the Company expects the
merger to be effective on November 30, 1998.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
R&B Falcon Corporation
We have reviewed the accompanying consolidated balance sheet of R&B
Falcon Corporation (a Delaware corporation) and Subsidiaries as of
September 30, 1998, and the related consolidated statements of operations
and cash flow for the three and nine month periods ended September 30, 1998
and 1997. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based upon our review, we are not aware of any material modifications
that should be made to the financial statements referred to above for them
to be in conformity with generally accepted accounting principles.
/s/Arthur Andersen LLP
Houston, Texas
November 4, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Changes In Financial Condition
The Company incurred capital expenditures of $845.9 million in the
first nine months of 1998. The most significant expenditures were as
follows:
1) The Company incurred $566.0 million of capital expenditures related to
its significant construction projects, equipment acquisitions and
capital upgrades to the fleet to fulfill obligations under existing
contracts or to improve the marketability of certain of the Company's
marine units.
2) The Company issued 204,900 shares of its common stock in partial
consideration for the acquisition of all of the outstanding shares of
stock of a corporation owning six workover rigs.
3) The Company paid $1.5 million in cash and issued 517,184 shares of its
common stock in partial consideration for the acquisition of all of the
outstanding shares of stock of three corporations owning eight tugs and
five ocean going barges.
4) The Company paid $10.7 million in cash for the acquisition of the
previously leased jackup "FALRIG 82".
5) The Company paid $5.8 million in cash for the acquisition of a two
story, 86,000 square foot office building in Houston, Texas that
serves as its corporate headquarters.
6) The Company paid $31.9 million in cash for the acquisition of 17 tugs.
See "Liquidity And Capital Resources" for discussions on the repayment
and issuance of debt obligations.
The Company has from time to time in the past engaged in, and
currently continues to engage in, preliminary discussions with other
industry participants with respect to business combinations that would
potentially strengthen its competitive position in the offshore drilling
industry. The Company also continues to consider the selective
construction, acquisition and/or upgrade of marine units.
Results of Operations
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
TO NINE MONTHS ENDED SEPTEMBER 30, 1997
The Company's net income for the nine months ended September 30, 1998
was $87.7 million ($.53 per diluted share) compared with net income of
$117.9 million ($.71 per diluted share) for the same period of 1997.
Included in the results for the nine months ended September 30, 1998 was an
$85.8 million expense due to the cancellation of two conversion projects
and an extraordinary loss of $22.0 million due to the extinguishment of
debt obligations. Included in the results for the nine months ended
September 30, 1997 were losses related to discontinued operations of $64.7
million.
Operating revenues are primarily a function of dayrates and
utilization. The increase in operating revenues for the nine months ended
September 30, 1998 over the same period in 1997 is primarily due to (i)
increased dayrates fleetwide, with the shallow water fleet accounting for
the largest part of the increase, and (ii) an increase in the number of
offshore and inland marine vessels available for service which resulted
from acquisitions, reactivations or conversions.
Operating expenses do not necessarily fluctuate in proportion to
changes in operating revenues due to the continuation of personnel on board
and equipment maintenance when the Company's units are stacked. It is only
during prolonged stacked periods that the Company is able to significantly
reduce labor costs and equipment maintenance expense. Additionally, labor
costs fluctuate due to the geographic diversification of the Company's
units and the mix of labor between expatriates and nationals as stipulated
in the contracts. In general, labor costs increase primarily due to higher
salary levels and inflation. Equipment maintenance expenses fluctuate
depending upon the type of activity the unit is performing and the age and
condition of the equipment. Scheduled maintenance and overhauls of
equipment are performed on the basis of number of hours operated in
accordance with the Company's preventive maintenance program. Operating
expenses for a unit are typically deferred or capitalized as appropriate
during periods of mobilization, contract preparation, major upgrades or
conversions unless corresponding revenue is recognized, in which case such
operating expenses are expensed as incurred.
The increase in operating expenses for the nine months ended September
30, 1998 as compared to the same period in 1997 is primarily due to
increased wage rates and an increase in the number of offshore and inland
marine vessels available for service which resulted from acquisitions,
reactivations or conversions.
Cancellation of conversion projects expense of $85.8 million was the
result of the termination of the "PEREGRINE VI" and "PEREGRINE VIII"
conversion projects. Such expense includes shipyard costs (for services
performed and in settlement of contract cancellation), Company personnel
and contractor costs, engineering costs, capitalized interest, and write
down of the vessels that were purchased for conversion. Both projects were
cancelled due to continuing uncertainty as to the final cost and expected
delivery dates. See "Liquidity and Capital Resources".
Depreciation expense increased for the nine months ended September 30,
1998 as compared to the same period in 1997 despite the reduction in
depreciation expense for the nine months ended September 30, 1998 of
approximately $15.6 million due to the extension of the expected useful
lives of the Company's marine units effective January 1, 1998. Such
increase is primarily due to the purchase and/or significant upgrades of
offshore and inland marine vessels during 1997 and 1998.
General & administrative expense increased for the nine months ended
September 30, 1998 as compared to the same period in 1997 primarily due to
increases in payroll and related expenses associated with increased
staffing through new hires, and acquisitions within the inland water
segment.
Interest expense increased for the nine months ended September 30,
1998 as compared to the same period in 1997 primarily due to an increased
average debt balance outstanding, partially offset by increased capitalized
interest related to significant upgrade and new build projects.
Income tax expense increased for the nine months ended September 30,
1998 as compared to the same period in 1997 despite the decrease in the
Company's pretax income. Such increase is due to the Company providing for
taxes in 1998 at the full statutory rate.
Loss from discontinued operations decreased for the nine months ended
September 30, 1998 as compared to the same period in 1997 as the losses for
1998 were reserved for in connection with the discontinuance of the oil and
gas segment (see Note E of Notes to Consolidated Financial Statements).
Extraordinary loss, net of tax, for the nine months ended September
30, 1998 is due to the extinguishment of debt obligations in connection
with the issuance of new debt obligations (see Note C of Notes to
Consolidated Financial Statements).
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 1997
The Company's net loss for the three months ended September 30, 1998
was $20.5 million ($.12 per diluted share) compared with net income of
$35.0 million ($.22 per diluted share) for the same period of 1997.
Included in the results for the three months ended September 30, 1998 was
an $85.8 million expense due to the cancellation of two conversion
projects. Included in the results for the three months ended September 30,
1997 were losses related to discontinued operations of $42.2 million.
Operating revenues are primarily a function of dayrates and
utilization. The decrease in operating revenues for the three months ended
September 30, 1998 over the same period in 1997 is primarily due to
decreased utilization fleetwide, with the inland water fleet accounting for
the largest part of the decrease, offset by an increase in dayrates
fleetwide and an increase in the number of offshore and inland marine
vessels available for service which resulted from acquisitions,
reactivations or conversions.
Operating expenses do not necessarily fluctuate in proportion to
changes in operating revenues due to the continuation of personnel on board
and equipment maintenance when the Company's units are stacked. It is only
during prolonged stacked periods that the Company is able to significantly
reduce labor costs and equipment maintenance expense. Additionally, labor
costs fluctuate due to the geographic diversification of the Company's
units and the mix of labor between expatriates and nationals as stipulated
in the contracts. In general, labor costs increase primarily due to higher
salary levels and inflation. Equipment maintenance expenses fluctuate
depending upon the type of activity the unit is performing and the age and
condition of the equipment. Scheduled maintenance and overhauls of
equipment are performed on the basis of number of hours operated in
accordance with the Company's preventive maintenance program. Operating
expenses for a unit are typically deferred or capitalized as appropriate
during periods of mobilization, contract preparation, major upgrades or
conversions unless corresponding revenue is recognized, in which case such
operating expenses are expensed as incurred.
The increase in operating expenses for the three months ended
September 30, 1998 as compared to the same period in 1997 is primarily due
to increased wage rates and an increase in the number of offshore and
inland marine vessels available for service which resulted from
acquisitions, reactivations or conversions.
Cancellation of conversion projects expense of $85.8 million was the
result of the termination of the "PEREGRINE VI" and "PEREGRINE VIII"
conversion projects. Such expense includes shipyard costs (for services
performed and in settlement of contract cancellation), Company personnel
and contractor costs, engineering costs, capitalized interest, and write
down of the vessels that were purchased for conversion. Both projects were
cancelled due to continuing uncertainty as to the final cost and expected
delivery dates. See "Liquidity and Capital Resources".
Depreciation expense increased for the three months ended September
30, 1998 as compared to the same period in 1997 despite the reduction in
depreciation expense in the third quarter of 1998 of approximately $5.2
million due to the extension of the expected useful lives of the Company's
marine units effective January 1, 1998. Such increase is primarily due to
the purchase and/or significant upgrades of offshore and inland marine
vessels during 1997 and 1998.
General & administrative expense increased for the three months ended
September 30, 1998 as compared to the same period in 1997 primarily due to
increases in payroll and related expenses associated with increased
staffing through new hires, and acquisitions within the inland water
segment.
Interest expense increased for the three months ended September 30,
1998 as compared to the same period in 1997 primarily due to an increased
average debt balance outstanding, partially offset by increased capitalized
interest related to significant upgrade and new build projects.
Income tax expense decreased for the three months ended September 30,
1998 as compared to the same period in 1997 due to the decrease in the
Company's pretax income offset by the Company providing for taxes in 1998
at the full statutory rate.
Loss from discontinued operations decreased for the three months ended
September 30, 1998 as compared to the same period in 1997 as the losses for
1998 were reserved for in connection with the discontinuance of the oil and
gas segment (see Note E of Notes to Consolidated Financial Statements).
Liquidity And Capital Resources
General. Net cash provided by operating activities was $240.5 million
for the nine months ended September 30, 1998, compared to $219.4 million
for the same period in 1997. The increase is primarily due to the
cancellation of conversion projects and extraordinary loss, net of changes
in the components of working capital.
Net cash used in investing activities was $ 878.8 million for the nine
months ended September 30, 1998 compared to $420.1 million for the same
period in 1997. The increase is due to increasing levels of capital
expenditures, primarily related to the significant capital projects
involving the construction or upgrade of drilling units (see "Changes In
Financial Condition").
Net cash provided by financing activities was $655.0 million for the
nine months ended September 30, 1998 compared to $197.7 million for the
same period in 1997. The increase in net cash provided by financing
activities is due to proceeds received from the $1.1 billion debt offering
(see below) and short-term borrowings related to the construction of the
"DEEPWATER MILLENIUM", offset by the repayment of existing debt obligations
(see below).
The Company has numerous projects under way involving the construction
or upgrade of drilling units. The following is a list of such projects:
Expenditures
Estimated Contract Made thru
Delivery Term Estimated September 30,
Vessel Type Date (years) Cost 1998
- ----------------- -------------- ---------------- ----- -------- ------------
(in millions)
DEEPWATER
FRONTIER (1) Drillship 1st quarter 1999 2.5 $ 265.0 $ 158.7
DEEPWATER
MILLENIUM Drillship 2nd quarter 1999 4 $ 265.0 $ 118.4
DEEPWATER IV
(unnamed) Drillship 3rd quarter 2000 - $ 290.0 $ 48.8
PEREGRINE IV Drillship 2nd quarter 1999 6 $ 200.0 $ 136.8
PEREGRINE VII Drillship 2nd quarter 1999 3 $ 215.0 $ 137.2
FALCON 100 Semisubmersible 1st quarter 1999 4 $ 110.0 $ 74.6
RBS8M
(formerly RBS6) Semisubmersible 1st quarter 2000 5 $ 300.0 $ 111.3
RBS8D Semisubmersible 4th quarter 2000 3 $ 310.0 -
- ---------------
(1) Owned 60% by the Company and 40% by Conoco.
In the third quarter of 1998, the Company cancelled the "PEREGRINE VI"
and the "PEREGRINE VIII" conversion projects. The drilling contract on the
"PEREGRINE VIII" was terminated on September 24, 1998, and the drilling
contract on the "PEREGRINE VI" will by its terms terminate on January 1,
1999. Both terminations are without prejudice to any rights of the parties
existing as of the date of the termination. The Company believes that based
on the obligations of the parties under the contracts, provisions of the
contracts that preclude recovery of indirect or consequential damages, and
projected rig availability in the offshore drilling industry, the Company
will not have any material liability under these drilling contracts as a
result of the termination thereof. The contracts with the shipyard for
conversion of the "PEREGRINE VI" and the "PEREGRINE VIII" have been
cancelled. As a result of the termination of the "PEREGRINE VI" and the
"PEREGRINE VIII" projects, the Company expensed $85.8 million in related
costs in the third quarter of 1998 (see "Results of Operations").
In October 1998, the Company entered into a contract with Samsung
Heavy Industries Co. Ltd. ("Samsung") to construct a drillship (the
"DEEPWATER IV"), which will be similar to the "DEEPWATER PATHFINDER" (which
was delivered by Samsung to the Company in September 1998) the "DEEPWATER
FRONTIER" and the "DEEPWATER MILLENIUM", which are currently under
construction by Samsung for the Company. The Company does not yet have a
contract for the use of the "DEEPWATER IV" following its delivery.
In September 1998, the Company and Vastar Resources, Inc. ("Vastar")
executed a letter of intent for a drilling contract pursuant to which the
Company will construct and provide a semisubmersible drilling rig (the
"RBS8D") for a term of three years (with five one-year options in favor of
Vastar), at an operating dayrate of approximately $200,000. The letter of
intent is subject to the execution of a mutually agreeable drilling
contract.
In September 1998, the Company and Navis ASA ("Navis"), a Norwegian
public company which is constructing a dynamically positioned drillship
(the "NAVIS EXPLORER I"), entered into an agreement pursuant to which the
Company will make a capital contribution to Navis of $50.0 million in
exchange for stock in Navis at the rate of 11 NOK per share. The "NAVIS
EXPLORER I" is designed to drill in 10,000 feet of water and is being
constructed at Samsung at an estimated cost of $280.0 million, with a
scheduled delivery in the second quarter of 2000. The Company expects its
capital contribution will be in the form of approximately $33.0 million of
equipment and equipment purchase orders and $17.0 million in cash. It is
expected that the Company will own approximately 38% of the outstanding
stock of Navis following such contributions and the completion of an equity
offering currently underway by Navis. Most of the equipment and equipment
purchase orders that will be contributed by the Company was acquired by the
Company in connection with the "PEREGRINE VI" and "PEREGRINE VIII" projects
and is no longer required for such projects in light of their cancellation.
Navis and the Company have also agreed to enter into a management agreement
pursuant to which the Company will manage the "NAVIS EXPLORER I" following
its delivery.
In connection with the "PEREGRINE VI" and "PEREGRINE VIII" projects
and a third drillship project, the Company purchased or committed to
purchase drilling equipment with an aggregate cost of approximately $285.0
million. This equipment constitutes all of the material drilling equipment
necessary to outfit two deepwater drillships (although a substantial
portion of such equipment can be used on semisubmersible rigs). The Company
expects to use approximately half of this equipment to outfit the
"DEEPWATER IV", and approximately $30.0 million as a portion of its
contribution to Navis. The balance of the equipment is expected to be
maintained by the Company as inventory.
Based on projected cash flows, the Company estimates that in order to
fulfill its obligations on its construction projects, it will be required
to obtain in the fourth quarter of 1998 or first quarter of 1999
significant incremental financing in addition to currently committed vendor
and shipyard financing.
The Company is currently contemplating three project financings to
meet a portion of its cash requirements. The first is an approximately
$260.0 million financing in the form of a synthetic lease that would be
collateralized by the drillship "DEEPWATER FRONTIER" and drilling contract
revenues from such drillship. Proceeds of such financing, if obtained,
would be used in part to repay an interim financing facility, under which
$160.0 million had been borrowed at September 30, 1998. The foregoing
interim loan has been made to a limited liability company which will
operate the "DEEPWATER FRONTIER" and which is owned 60% by the Company and
40% by Conoco. The Company has guaranteed repayment of 60% of this interim
loan. The second financing being contemplated is an approximately $250.0
million project financing that would be collateralized by the
semisubmersible "RBS8M" (formerly the "RBS6"), as well as the drilling
contract revenues from such rig. The third financing involves the
"DEEPWATER MILLENIUM" where the Company is contemplating a $200.0 million
project financing. Proceeds of such financing, if obtained, would be used
in part to repay a $150.0 million interim financing facility of which
$113.6 million had been drawn at September 30, 1998.
In addition to the above-described debt financings, the Company
intends to make a public offering of trust preferred securities in the
fourth quarter of 1998 in an amount up to $300.0 million. However, there
is no assurance that this offering can be completed.
The Company currently believes it will be able to consummate such
financings. However, there is no assurance that such financings can be
obtained, or if obtained, that they will be on favorable terms. Financial
markets have been unsettled in recent months, and credit availability has
been materially limited. Further, the implementation of the contemplated
debt financings will require the approval of the Company's bank lenders,
and there is no assurance these lenders will approve any additional debt
financings. The inability of the Company to obtain the financing required
for the construction projects would have a material adverse effect on the
Company. In such event, the Company may have to sell assets or terminate
or suspend one or more of the construction projects. Termination or
suspension of a project may subject the Company to claims for penalties or
damages under the construction contracts or drilling contracts for the rigs
that are being constructed.
The Company's 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. Significant cost overruns or
delays would adversely affect the Company's liquidity, financial condition,
and results of operations. Delays could also result in penalties under, or
the termination of, the long-term contracts under which the Company plans
to operate these rigs. The currently scheduled delivery dates for the
"PEREGRINE IV", "PEREGRINE VII", and "FALCON 100" are later than the
commencement date under the initial drilling contracts for such drillships.
Based upon the currently estimated delivery dates for the "PEREGRINE
IV", and "FALCON 100", the Company will be subject to late delivery
penalties under the applicable drilling contracts (approximately $41,500
per day, up to a maximum of approximately $34.8 million, for the
"PEREGRINE IV", and approximately $26,500 per day, up to a maximum of
approximately $13.3 million, for the "FALCON 100").
Liquidity of the Company should also be considered in light of the
significant fluctuations in demand that may be experienced by drilling
contractors as changes in oil and gas producers' expectations and budgets
occur, primarily in response to declines in prices for oil and gas. These
fluctuations can rapidly impact the Company's liquidity as supply and
demand factors directly affect utilization and dayrates, which are the
primary determinants of cash flow from the Company's operations. The
decline in oil and gas prices that started in late 1997 began to negatively
impact the Company's performance in the second quarter of 1998,
particularly in the shallow water U.S. Gulf market. The Company believes a
continued depression in oil and gas prices will have a material adverse
effect on the Company.
Due to the Company's construction program, the Company's current level
of cash flow from operations, cash on hand, and funds available under its
existing credit facilities is not sufficient to satisfy the Company's short-
term and long-term working capital needs, planned investments, capital
expenditures, debt, lease and other payment obligations. Unless the
Company is able to obtain additional capital through debt and/or equity
financings, it will be necessary for the Company to suspend or terminate
one or more of such projects and/or to sell assets. The inability of the
Company to implement the contemplated financings discussed above, or
alternate financings in lieu thereof, would have a material adverse effect
on the Company.
Tender Offer. On March 23, 1998, the Company offered to redeem its 9
3/4 % Senior Notes due 2001, its 8 7/8 % Senior Notes due 2003 and its 12
1/2 % Subordinated Notes due 2005 (collectively the "Old Notes"). The
aggregate principal amount of the outstanding Old Notes was $280.0 million
and on April 20, 1998, $274.4 million in principal amount of Old Notes was
repaid from proceeds from the sale of the New Senior Notes (see below).
Debt Offering. In April 1998, the Company issued four series of
senior notes with an aggregate principal amount of $1.1 billion (the "New
Senior Notes"). As a result, the Company received net proceeds of $1,082.0
million after deducting estimated offering related expenses. The New Senior
Notes bear interest at varying rates from 6.5% to 7.375%, are payable
semiannually on April 15 and October 15, and mature at varying times from
2003 to 2018. The New Senior Notes are unsecured obligations of the
Company, ranking pari passu in right of payment with all other existing and
future senior unsecured indebtedness of the Company. The Company used the
proceeds to repay existing indebtedness of $874.4 million and the remainder
will be used for planned capital expenditures, working capital and other
general corporate purposes. As a result of the repayment of existing
indebtedness, the Company incurred an extraordinary loss of $22.0 million,
net of tax, in the second quarter of 1998.
Credit Facility. In April 1998, the Company retired two existing bank
group credit facilities aggregating $615.0 million (of which $600.0 million
had been drawn), and entered into a new $500.0 million unsecured revolving
credit facility agreement with a syndicate of banks. The new facility
matures April 24, 2002, bears interest at LIBOR plus .75%, and ranks pari
passu in right of payment with the New Senior Notes.
Market Trends
Since May 1998, there has been a downturn in demand for marine
drilling rigs, resulting in a decline in rig utilization and dayrates. The
decline has been particularly dramatic in the domestic barge and jackup rig
markets, where the Company is one of the largest contractors. The Company
believes this downturn is attributable to declines in oil and gas prices
that began in 1997 and have persisted into 1998.
In the Company's domestic jackup fleet, utilization declined from
approximately 100% in January 1998 to approximately 76% in September 1998,
and dayrates on new contract fixtures declined from a range of $35,000 to
$40,000 in January of 1998 to a range of $22,000 to $25,000 in September of
1998. At the present time, the Company is bidding domestic jackups in the
Gulf of Mexico in the range from $15,000 to $18,000. Dayrates for
the Company's domestic barge drilling rig fleet have not declined
materially, but utilization of the fleet declined from approximately 96% in
January 1998 to approximately 48% in September 1998 and has declined
further since that time. The Company's international jackup fleet has
experienced declines in utilization and dayrates between January 1, 1998
and September 30, 1998, but such declines have not been as dramatic as
those experienced in the domestic jackup fleet. The Company's deepwater
fleet was largely committed under term contracts at the beginning of 1998,
and has in general not suffered declines in utilization and dayrates.
However, due to political unrest that occurred in Indonesia, and the
general economic downturn that has occurred in the Far East, two of the
Company's moored drillships, which were operating under term contracts, had
operations suspended by the operators in June 1998 and remained idle at
October 31, 1998.
The decline in utilization and dayrates for the Company's rigs,
particularly its domestic rigs, has had a material adverse impact on the
Company's revenues and profitability. The Company can not predict the
future trend of utilization rates and dayrates, but does not expect any
material improvement in market conditions during the remainder of 1998.
Year 2000
The Company has determined that various components of its operations
are at risk to Year 2000 ("Y2K") compliance. The Company's drilling rigs
and equipment have a variety of hardware and software that could be
affected, and this equipment has been identified. The process is underway
to correct the identified problems, determine the risks of unidentified
equipment, and provide contingency plans for those items not remedied.
Completion of the project, including verification of all systems and
components, is expected by the 2nd quarter of 1999.
Some of the Company's hardware and software such as control systems
and rig management systems will need premature replacement and/or
corrective action. The cost impact of remedial action for Y2K compliance is
not expected to be material to the Company's financial position or results
of operations. In the event the Company's major suppliers or customers do
not successfully and timely achieve Y2K compliance, the Company's
operations could be adversely affected.
The Company has accepted the position that there will be some finite
levels of risk that some systems will not fully function after Y2K. A risk-
based approach has identified those items where absolute compliance is not
guaranteed by the vendor or supplier, and contingency plans are being
developed to deal with any safety related possibilities.
In addition to the safety related contingency plans directly related
to uncertainties with equipment, the Company maintains plans for all
critical safety equipment as part of its normal business. Failure of this
type of equipment, whether related to normal operational risk or Y2K
problems, must be managed with contingency planning. For this reason,
additional risk due to the Y2K issue does not measurably affect the risk to
personnel or equipment beyond the normal failure due to other causes.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various legal actions arising in the normal
course of business. After taking into consideration the evaluation of such
actions by counsel for the Company, management is of the opinion that
outcome of all known and potential claims and litigation will not have a
material adverse effect on the Company's business or consolidated financial
position or results of operations.
Item 2. Change in Securities
During the third quarter of 1998, the Company issued shares of its
common stock that were not registered under the Securities Act of 1933, as
amended (the "Act"). In July 1998, the Company issued 41,596 shares of
common stock to four persons as consideration for the acquisition by the
Company of all the issued and outstanding stock of Knots Marine. The
agreed price for the shares issued was $22.5375 per share. The Company
relied upon Section 4(2) of the Act for exemption from registration. The
shares were issued pursuant to a negotiated transaction between the Company
and the holders of the outstanding shares of Knots Marine.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 2 - Agreement and Plan of Merger dated August 21, 1998
by and among Cliffs Drilling Company, R&B Falcon
Corporation and RBF Cliffs Acquisition Corp.
(incorporated by reference to Exhibit 2 to the
Company's Registration Statement on Form S-4, filed
on September 15, 1998, Registration No. 333-63471).
Exhibit 4 - Registration Rights Agreement dated July 1, 1998 by
and between R&B Falcon Corporation, Kenneth Stage, T.
George Delsa, Vial J. LeBlanc and Dr. William T.
Barfield.
Exhibit 10.1 - Guaranty, dated as of July 30, 1998, made by
Registrant in favor of the Deepwater Investment Trust
1998-A, Wilmington Trust FSB, not in its individual
capacity, but solely as Investment Trustee,
Wilmington Trust Company, not in its individual
capacity, except as specified herein, but solely as
Charter Trustee, BA Leasing & Capital Corporation, as
Documentation Agent, ABN Amro Bank N.V., as
Administrative Agent, The Bank of Nova Scotia, as
Syndication Agent, BA Leasing & Capital Corporation,
ABN Amro Bank N.V., Bank Austria Aktiengesellschaft
New York Branch, The Bank of Nova Scotia, Bayerische
Vereinsbank AG New York Branch, Commerzbank
Aktiengesellschaft, Atlanta Agency, Credit Lyonnais
New York Branch, Great-West Life and Annuity
Insurance Company, Mees Pierson Capital Corporation,
Westdeutsche Landesbank Girozentrale, New York
Branch, as Certificate Purchasers, and ABN Amro
Bank, N.V., Bank of America National Trust and
Savings Association and The Bank of Nova Scotia, New
York Branch, as Swap Counterparties, and the other
parties named therein.
Exhibit 10.2 - Letter agreement dated as of August 7, 1998
between RBF Deepwater Exploration Inc., an indirect
subsidiary of the Registrant, and Conoco Development
Company and Acknowledgment by Conoco Inc. and the
Registrant.
Exhibit 10.3 - Letter agreement dated as of August 7, 1998
between RBF Deepwater Exploration Inc., an indirect
subsidiary of the Registrant, and Conoco Development
Company and Acknowledgment by Conoco Inc. and the
Registrant.
Exhibit 15 - Letter regarding unaudited interim financial
information.
Exhibit 27 - Financial Data Schedule. (Exhibit 27 is being
submitted as an exhibit only in the electronic format
of this Quarterly Report on Form 10-Q being submitted
to the Securities and Exchange Commission.)
(b) Reports on Form 8-K
There was one Current Report on Form 8-K filed during the three
months ended September 30, 1998. A Current Report on Form 8-K dated
August 10, 1998 was filed on August 11, 1998 announcing that the
Company had entered into a letter of intent to merge with Cliffs
Drilling Company.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
R&B FALCON CORPORATION
Date: November 4, 1998 By /s/T. W. Nagle
--------------------------
T. W. Nagle
Executive Vice President
(Chief Accounting Officer)
EXHIBIT 4
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of July 1, 1998, by and between R&B Falcon Corporation, a
Delaware corporation ("RBF") and Kenneth Stage, T. George Delsa, Vial J.
LeBlanc and Dr. William T. Barfield, individuals of the full age of
majority domiciled in the State of Louisiana ("Stockholders").
W I T N E S S E T H
WHEREAS, R&B Falcon Drilling (U.S.), Inc., a wholly-owned subsidiary
of RBF, and Stockholders have entered into a Stock Acquisition Agreement
and Plan of Reorganization dated July 1, 1998 (the "Acquisition
Agreement") providing for the transfer and exchange by Stockholders of
all of the outstanding common stock of Knots Marine Service, Inc.
("Knots"), a Louisiana corporation, for the sum of $1,250,000.00 (subject
to adjustment as provided in the Acquisition Agreement) payable in shares
of the common stock of RBF.
WHEREAS, to induce Stockholders to enter into the Acquisition
Agreement and as a condition precedent to the Closing thereunder (as such
term is defined therein), RBF has agreed to grant certain registration
rights, from time to time, with respect to the Registrable Securities (as
hereinafter defined) in accordance with the terms and conditions set
forth herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Acquisition Agreement" shall have the meaning set forth in the
initial recital of this Agreement.
"Agreement" shall have the meaning set forth in the initial
paragraph hereof, and as the same may, be amended or modified from time
to time in accordance with the provisions hereof.
"Closing Date" shall have the meaning set forth in the Acquisition
Agreement.
"Commission" shall mean the Securities and Exchange Commission (or
any successor body thereto).
"Common Stock" shall mean the common stock, par value $.01 per
share, of RBF which is not registered under the Securities Act, in the
amount specified in the Acquisition Agreement.
"Demand Registration" shall have the meaning set forth in Section
3(a), hereto.
"Holder" shall have the meaning set forth in Section 4(a).
"Holder's Counsel" shall have the meaning set forth in Section
6(a)(i).
"NASD" shall mean the National Association of Securities Dealers,
Inc.
"Person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock
company, trust, unincorporated organization or government or any agency
or political subdivision thereof.
"Registrable Securities" shall mean the Common Stock of RBF
constituting Registrable Securities as provided in Section 2 of this
Agreement.
"Registration Expenses" shall mean all expenses incident to RBF's
performance or compliance with the registration rights granted hereunder,
including, without limitation, all registration, filing, listing and NASD
fees, all fees and expenses of complying with securities or blue sky
laws, all word processing, duplicating and printing expenses, messenger
and delivery expenses, the fees and expenses of RBF?s independent public
accountants, including fees and expenses associated with any special
audits or "cold comfort" letters required by or incident to such
performance and compliance, and any fees and disbursements of
underwriters customarily paid by issuers and sellers of securities;
provided, however, that "Registration Expenses" shall not include fees
and expenses of counsel to any Holder of Registrable Securities nor shall
it include underwriting discounts, commissions and transfer taxes, if
any.
"Securities Act" shall mean the Securities Act of 1933, as amended.
2. Securities Subject to this Agreement; Representations and
Warranties
(a) The securities entitled to the benefit of this Agreement are
the shares of RBF Common Stock issued to Stockholders pursuant to the
Acquisition Agreement in exchange for the outstanding shares of Knots.
The term "Registrable Securities" shall include the foregoing securities
and shall also include any securities issued to Stockholders as a
dividend or distribution or pursuant to a recapitalization,
reorganization, consolidation or merger on account of Registrable
Securities, and includes any shares of Common Stock received by
Stockholders by way of subdivision of the outstanding shares of Common
Stock into a greater number of shares (by reclassification, stock split
or otherwise). Certificates representing Registrable Securities shall
contain the following legend on the face thereof:
The securities represented by this certificate have
not been registered under the Securities Act of 1933,
as amended (the "Act"), and may not be offered or
sold except pursuant to (i) an effective registration
statement under the Act, (ii) to the extent
applicable, Rule 144 under the Act (or any similar
rule under the Act relating to the disposition of
securities), or (iii) an opinion of counsel, if such
opinion shall be reasonably satisfactory to counsel
of the Company, that an exemption from registration
under the Act is available.
The foregoing legend shall remain on the face of such certificates until
the Common Stock represented thereby has been registered with the
Commission or until counsel to RBF has determined that such legend may be
removed in accordance with applicable provisions of the Securities Act,
and the rules and regulations promulgated thereunder. The Registrable
Securities may not be sold by Stockholders except in accordance with the
terms and conditions referenced in the foregoing legend.
(b) A Registrable Security shall cease to be a Registrable Security
when: (i) such security has been effectively registered under the
Securities Act and has been disposed of pursuant to a registration
statement (which shall not include the sale of Registrable Securities to
Stockholders pursuant to the Acquisition Agreement); (ii) such security
is sold pursuant to Rule 144 under the Securities Act (or similar
provision); (iii) such security has been otherwise transferred and (A)
RBF delivers a new certificate for such security which does not bear a
registration legend and (B) Holder's counsel is of the reasonable opinion
that subsequent disposition of such security into the public market does
not require registration under the Securities Act; or (iv) such security
has ceased to be outstanding.
(c) The RBF represents and warrants, as follows:
(i) RBF is a corporation organized, validly existing and in
good standing under the laws of Delaware.
(ii) RBF has duly authorized and approved by all requisite
corporate action this Agreement, and has all requisite corporate power
and authority to enter into, execute and deliver this Agreement and
perform its obligations hereunder.
(iii) This Agreement has been duly executed and delivered
by RBF and is its valid and binding obligation enforceable against it in
accordance with its terms except to the extent that its enforceability
may be subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting the enforcement of creditors'
rights generally and general equitable principles.
(iv) The Registrable Securities have been duly and validity
authorized and issued, are fully paid and non-assessable and will not
subject the Holder to any liability solely by reason of being the Holder
thereof. The Registrable Securities are free and clear of all liens,
encumbrances, and claims of every kind. RBF has full legal right, power
and authority to sell, assign, transfer, convey and deliver the
Registrable Securities so owned, and RBF can and will deliver good and
marketable title to such Registrable Securities.
(v) RBF is not subject to any charter, by-law, mortgage, lien,
lease, agreement, instrument, order, law, rule, regulation, judgment or
decree, or any other restriction of any kind or character, which would
prevent consummation of the transactions contemplated by this Agreement.
(d) Stockholders shall be provided with an opinion of counsel dated
the date hereof, in form and substance reasonably satisfactory to
Stockholders, covering the matters set forth in Section 2(c) hereof, and
such other matters as Stockholders may reasonably request.
3. Demand Registration.
(a) At any time on and after July 1, 1998, any Holder or Holders
of 50% or more of Registrable Securities may make a written request
(specifying the intended method of disposition) that RBF effect the
registration of Registrable Securities under the Securities Act (such
registration upon such request, a ?Demand Registration?), provided that
such request shall relate to an amount of Registrable Securities at least
equal to 25 % of the total amount of Registrable Securities.
(b) Within ten days after receipt of a request for the Demand
Registration, RBF shall give written notice (the "Notice") of such
request to all other Holders and shall include in such registration
(except as otherwise provided herein) all Registrable Securities for
which RBF has received, within 15 days after receipt by the applicable
Holder of the Notice, a written request to be included therein. All
requests made under this Section 3(b) shall specify the aggregate number
of Registrable Securities to be registered.
(c) A registration shall not constitute a Demand Registration until
it has become effective. In any registration initiated as a Demand
Registration, RBF shall pay all Registration Expenses incurred in
connection therewith, whether or not such Demand Registration becomes
effective; provided that a Holder participating in such registration
shall pay all Registration Expenses if such Demand Registration fails to
become effective solely as a result of an act or omission by such Holder.
(d) RBF shall only be obligated to effect one Demand Registration.
(e) The Holder of a majority of the Registrable Securities shall
have the right to decide whether or not the offering of the securities
will be an underwritten offering and shall have the right to choose such
underwriter or underwriters.
(f) If RBF registers Registrable Securities pursuant to Section 4,
and in connection therewith offers to include all Registrable Securities
in such registration statement and fulfills in all material respects the
substantive requirements of a Demand Registration with respect to all
Registrable Securities that the Holders request to be included in the
Piggyback Registration, then this Section 3 shall be of no further force
and effect.
4. Piggyback Registration.
(a) If, at any time, RBF proposes to file a registration statement
under the Securities Act with respect to an offering by RBF for its own
account or for the account of any security holders of RBF of any class of
debt or equity security of RBF (other than a registration statement on
Form S-4 or S-8 or any successor or similar forms thereto), which is
anticipated to be or becomes effective on or after July 31, 1998, RBF
shall give written notice of such proposed filing (the "Offering Notice")
to Stockholders and to all holders of Registrable Securities to whom the
transfer of Registrable Securities has, from time to time, been
registered on the books and records of RBF (Stockholders and any such
transferee each referred to herein as a "Holder" and collectively as
"Holders"), such securities so transferred constituting Registrable
Securities immediately following such transfer, at least 30 days before
the date of anticipated filing with the Commission. Such Offering Notice
shall offer to any Holder, the opportunity, but in no event shall such
offer constitute a mandatory obligation, to register such number of
Registrable Securities as any such Holder may request in writing. For
such request for registration (each a "Piggyback Registration") to be
effective it must be received by RBF within 15 days after receipt by such
Holder of the Offering Notice. If any Holder declines to participate in
such Piggyback Registration, the provisions of Section 3 shall be of no
further force and effect, provided that all of the Registrable Securities
owned by such Holder could have been registered in such Piggyback
Registration.
(b) In connection with any Piggyback Registration, RBF shall use
best efforts to cause the managing underwriter or underwriters of a
proposed underwritten offering to permit any Holder of the Registrable
Securities who requested to be included in the registration for such
offering to include such Registrable Securities in such offering on the
same terms and conditions as any similar securities of RBF or, if such
offering is for the account of other security holders, any similar
securities of such security holders included therein. Notwithstanding the
foregoing, if the managing underwriter or underwriters of a proposed
underwritten offering advise RBF in writing that in its or their opinion
the number of Registrable Securities proposed to be sold in such offering
exceeds the number of Registrable Securities that can be sold in such
offering without adversely affecting the market for the Common Stock, RBF
will include in such registration the number of Registrable Securities
that in the opinion of such managing underwriter or underwriters can be
sold without adversely affecting the market for the Common Stock. In such
event, RBF shall reduce the number of Registrable Securities to be
offered for the accounts of any Holder pro rata on the basis of the
relative number of any Registrable Securities requested by each Holder to
be included in such registration to the extent necessary to reduce the
total number of Registrable Securities to be included in such offering to
the number recommended by such managing underwriter or underwriters;
provided however, that any such reduction in the number of Registrable
Securities shall not constitute a Piggyback Registration. RBF shall pay
all Registration Expenses incurred in connection with a Piggyback
Registration.
(c) The Holders of Registrable Securities shall be entitled to
participate in no more than one Piggyback Registration, provided RBF
allows the Holders to include in such Piggyback Registration all of the
Registrable Securities which the Holders desire to include therein.
5. Certain Matters Concerning Demand Registrations.
(a) Notwithstanding anything in the foregoing Sections 3(a) and
4(a), if RBF's Board of Directors reasonably determines that a Demand
Registration would substantially interfere with a material transaction
being considered by RBF, RBF may delay such Demand Registration for
thirty (30) days.
(b) RBF may, if permitted by law, effect any Demand Registration
by the filing of a registration statement on Form S-3 (or any successor
or similar short-form registration statement).
(c) A Demand Registration shall not be deemed to have been effected
unless it becomes effective with the Commission, provided that a
registration which does not become effective after RBF filed a
registration statement with respect thereto with the Commission solely by
reason of any participating Holder failing to proceed shall be deemed to
have been effected by RBF in satisfaction of the obligation of RBF to
register Registrable Securities pursuant to the Demand Registration,
unless RBF shall have been promptly reimbursed for all Registration
Expenses by the Person who demanded registration and failed to proceed.
If a Demand Registration has been initiated, the failure of any Holder to
proceed with such registration shall not constitute a revocation of the
request for registration nor relieve RBF of its obligation to effect such
Demand Registration as to Registrable Securities of any other Holder who
has elected to participate in such Demand Registration and who proceeds
therewith. Notwithstanding the foregoing, a registration statement will
not be deemed to have been effected if, after it becomes effective with
the Commission, such registration is interfered with by any stop order,
injunction or other order or requirement of the Commission or other
governmental agency or any court proceeding for any reason other than a
misrepresentation or omission by the Holder initiating the demand.
6. Registration Procedures; Damages.
(a) If and whenever any Holder of Registrable Securities has
requested that any Registrable Securities be registered pursuant to
Section 3 or 4, RBF shall use its best efforts to effect the registration
of such Registrable Securities under the Securities Act and in accordance
with the intended method of disposition thereof as expeditiously as
practicable, and in connection with any such request RBF will, as
expeditiously as possible:
(i) in connection with a Demand Registration, prepare and
file with the Commission, as soon as practicable, but in any event not
later than sixty (60) days after receipt of a request to file a
registration statement with respect to Registrable Securities, a
registration statement on any form for which RBF then qualifies or which
counsel for RBF and the Holder's Counsel (as hereinafter defined) shall
deem appropriate and which form shall be available for the sale of such
Registrable Securities in accordance with the intended method of
distribution thereof and, if the offering is an underwritten offering,
shall be reasonably satisfactory to the managing underwriter or
underwriters, and use its best efforts to cause such registration
statement to become effective; provided, however, that before filing a
registration statement or prospectus or amendments or supplements
thereto, RBF shall (a) furnish to the counsel selected by the Holder
making the demand (the "Holder's Counsel"), or if no demand is made, the
holders, in the aggregate, of a majority of the Registrable Securities
covered by such registration statement, copies of all documents proposed
to be filed a reasonable period of time prior to the filing thereof,
which documents will be subject to the review and comment of such counsel
and each seller of Registrable Securities included in such registration
statement, and (b) notify each seller of Registrable Securities of any
stop order, injunction or other order or requirement issued or threatened
by the Commission or other governmental agency or any court injunction
and take all reasonable action required to prevent the entry of such stop
order, injunction or other order or requirement or to remove it if
entered;
(ii) in connection with a registration pursuant to Section 3 or
4, prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective for a period of not less than sixty (60) days (or such shorter
period that will terminate when all Registrable Securities covered by
such registration statement have been sold, but not before the expiration
of the applicable period referred to in Section 4(3) of the Securities
Act and Rule 174 thereunder, if applicable), and comply with the
provisions of the Securities Act applicable to it with respect to the
disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition
by the sellers thereof set forth in such registration statement;
(iii) furnish to each seller of Registrable Securities one
signed copy of the registration statement and each amendment thereto as
filed with the Commission, and such number of copies of such registration
statement, amendments and supplements thereto (in each case including all
exhibits thereto), the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such
seller may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by them;
(iv) use all reasonable efforts to register or qualify such
Registrable Securities under such other securities or "blue sky" laws of
such jurisdictions as any seller or underwriter reasonably requests in
writing and do any and all other acts and things that may be reasonably
necessary or advisable to qualify for sale in such jurisdictions the
Registrable Securities owned by such seller; provided, however, that RBF
shall not be required (a) to qualify generally to do business in any
jurisdiction where it is not then so qualified, (b) to subject itself to
jurisdiction or qualification in any such jurisdiction, (c) to consent to
general service of process in any such jurisdiction, (d) to provide any
undertaking required by such other securities or "blue sky" laws or (e)
make any change in the charter or bylaws that the Board of Directors
determines in good faith to be contrary to the best interest of RBF and
its stockholders;
(v) use all reasonable efforts to cause the Registrable
Securities covered by such registration statement to be registered with
or approved by such other governmental agencies or authorities as may be
necessary by virtue of the business and operations of RBF to enable the
sellers thereof or the underwriters, if any, to consummate the
disposition of such Registrable Securities;
(vi) notify each seller of such Registrable Securities and the
Holder's Counsel at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading and prepare and file with the Commission a
supplement or amendment to such prospectus after prompt review by the
Holder's Counsel so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(vii) enter into customary agreements in form and substance
reasonably satisfactory to RBF (including an underwriting agreement in
customary form for companies of similar size and credit rating, if the
offering is an underwritten offering) and take in good faith such other
actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities, including making
presentations to brokers, analysts and potential purchasers, in each case
as if RBF was the seller of the Registrable Securities;
(viii) make available for inspection by any seller of
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement, the Holder's Counsel and any
attorney, accountant or other agent retained by any such seller or
underwriter (collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of RBF
(collectively, the "Records") and provide reasonable access during normal
business hours to officers, directors, employees and agents to ask
questions, in each ease as shall be reasonably necessary to enable the
Inspectors to exercise their due diligence responsibility, and cause
RBF's officers, directors, employees and agents to supply all information
reasonably requested and to answer all questions reasonably asked by any
such Inspector in connection with such registration statement. Records
that RBF determines, in good faith, to be confidential and that it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors unless (a) the disclosure of such records is, in the
reasonable opinion of Holder's Counsel, necessary to avoid or correct a
misstatement or omission of a material fact in the registration
statement, provided that any such Holder has notified RBF of such
condition and has afforded RBF an opportunity to correct any such
misstatement or omission, or (b) the release of such records is required
(in the written opinion of counsel of such seller or underwriter, which
counsel shall be reasonably acceptable to RBF) pursuant to applicable
state or federal law. The seller of Registrable Securities agrees that it
will deliver such opinion to RBF a reasonable period before releasing
such information and, upon learning that disclosure of such records is
sought by a court or governmental agency, provide notice to RBF and, in
each case, allow RBF, at RBF's expenses, to undertake an appropriate
action to prevent disclosure of the records deemed confidential;
(ix) if such sale is pursuant to an underwritten offering, use
all reasonable efforts to obtain a "cold comfort" letter and updates
thereof from RBF's independent public accountants in customary form and
covering such matters of the type customarily covered by "cold comfort"
letters as the holders, in the aggregate, of a majority of the
Registrable Securities being sold and the managing underwriter or
underwriters reasonably request;
(x) otherwise use all reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as reasonably practicable, an
earnings statement covering a period of twelve (12) months, beginning
within three (3) months after the effective date of the registration
statement, which earnings statement shall satisfy the provisions oi
Section 11(a) of the Securities Act;
(xi) use all reasonable efforts to cause all Registrable
Securities covered by the registration statement to be listed on each
securities exchange, if any, on which similar securities issued by RBF
are then listed, provided that the applicable listing requirements are
satisfied;
(xii) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registration statement; and
(xiii) cause counsel to RBF to provide customary legal
opinions reasonably requested by the Holders holding, in the aggregate,
of a majority of the Registrable Securities being sold.
RBF may request each seller of Registrable Securities as to which
any registration is being effected to furnish to RBF such information
regarding the distribution of such securities and other matters as may be
reasonably required to be included in the registration statement and each
seller of Registrable Securities shall have the opportunity to review and
approve the presentation of such material in the registration statement.
In addition, any Holder of Registrable Securities will have the right to
propose a plan of distribution section of the registration
statement/prospectus in the form attached hereto as Exhibit A. RBF shall
promptly notify the Holder?s Counsel of any request by the Commission for
any amendment or supplement of such registration statement or prospectus
or for additional information and shall promptly notify each seller of
Registrable Securities of any such request by the Commission if such
request pertains directly to the material set forth in the preceding
sentence. RBF shall promptly notify each seller of Registrable
Securities and the Holder's Counsel after RBF shall receive notice of the
time when such registration statement became effective or when any
amendment or supplement referred to in the preceding sentence is filed.
Each Holder of Registrable Securities agrees that, upon receipt of
any notice from RBF of the happening of any event of the kind described
in Paragraph (vi) of this Section 6(a), each such Holder shall forthwith
discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such
Person's receipt of the copies of the supplemented or amended prospectus
contemplated by paragraph (vi) of this Section 6(a), and, if so directed
by RBF, such Person shall deliver to RBF (at RBF's expense) all copies,
other than permanent file copies then in such Holder's possession, of the
prospectus covering such Registrable Securities current at the time of
receipt of such notice. If RBF shall give any such notice, RBF shall
extend the period during which such registration statement shall be
maintained effective pursuant to this Agreement (including the period
referred to in paragraph (ii) of this Section 6(a)) by the number of days
during the period from and including the date of the giving of such
notice pursuant to paragraph (vi) of this Section 6(a) to and including
the date when each seller of Registrable Securities covered by such
registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by paragraph (vi) of this Section
6(a).
(b) RBF may require each Holder, at RBF's expense, to furnish RBF
with such information and undertakings as it may reasonably request
regarding each such Holder and the distribution of such securities as the
Company may from time to time reasonably request in writing.
(c) Each Holder shall promptly notify RBF when such Holder has
disposed of all Registrable Securities covered by any registration
statement which includes such Registrable Securities.
7. Underwritten Offerings.
(a) If a Demand Registration is an underwritten offering, if
requested by the underwriters, RBF will enter into an underwriting
agreement with the managing underwriter or underwriters for such offering
(which managing underwriter or Underwriters shall he an investment
banking firm or firms of national reputation), such agreement to be in
form and substance reasonably satisfactory to RBF and to Holder's Counsel
and to contain such representations and warranties by RBF and such other
terms as are customarily contained in agreements of such type, including,
without limitation, indemnities to the effect and to the extent provided
in Section 8. The sellers of Registrable Securities in such offering
shall be party to such underwriting agreement and may require that any or
all of the representations and warranties by, and the other agreements on
the part of, RBF to and for the benefit of such underwriters shall also
be made to and for the benefit of such sellers and that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligation of such
sellers. No Holder shall be required to make any representations or
warranties to or agreements with RBF or the underwriters other that
representations, warranties or agreements regarding such Person, its
ownership of Registrable Securities and its intended method of
distribution and any other representation required by applicable law.
(b) Each Holder of Registrable Securities agrees by acquisition of
such Registrable Securities, if so required by the managing underwriter,
not to effect any public sale or distribution of Registrable Securities
or sales of such Registrable Securities pursuant to Rule 144 or Rule 144A
under the Securities Act, during the fourteen (14) days prior to and the
ninety (90) days after any firm commitment for an underwritten
registration pursuant to Section 3 or 4 has become effective (except as
part of such registration) or, if the managing underwriter advises RBF
that, in its opinion, no such public sale or distribution should be
effected for a period of 120 days after such underwritten registration in
order to complete the sale and distribution of securities included by
such registration and RBF gives written notice to each Holder of such
advice. Each such Person shall not effect any public sale or distribution
of Registrable Securities or sales of such Registrable Securities
pursuant to Rule 144 or Rule 144A under the Securities Act during such
120-day period after such underwritten registration, except as part of
such underwritten registration, whether or not such Person participates
in such registration.
8. Indemnification.
(a) RBF will, and hereby does, agree to indemnify and hold
harmless, to the full extent permitted by law, Stockholders and each
other Holder, against any losses, claims, damages or liabilities (or
actions in respect thereof), joint or several, to which Stockholders or
any other Holder may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced of threatened, in respect
thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under
the Securities Act, any preliminary prospectus, final prospectus or
summary prospectus contained therein or any document incorporated therein
by reference, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make such statements therein (in the case of a
prospectus, in light of the circumstance under which they were made) not
misleading, or (ii) any violation by RBF or any of its officers,
directors, employees, representatives or agents of any rule or regulation
under applicable securities laws or other laws applicable to RBF, in each
case, RBF will reimburse Stockholders and any other Holder for any legal
and any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided that RBF shall not be liable in any such case to the
extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement
in reliance upon and in conformity with information furnished in writing
to RBF by Stockholders or any other such Holder.
(b) Stockholders and each other Holder will, and hereby do, agree
to provide RBF with an undertaking to indemnify and hold harmless,
severally and not jointly, to the full extent permitted by law, RBF, its
directors, officers and each other Person, if any, who controls RBF
(within the meaning of the Securities Act), against any losses, claims,
damages or liabilities, joint or several, to which RBF or any such
director, officer or controlling Person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened,
in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact or any omission or
alleged omission of a material fact required to be stated in any
registration statement under which such securities were registered under
the Securities Act, any preliminary prospectus, final prospectus or
summary prospectus contained herein or any document incorporated therein
by reference, or any amendment or supplement hereto, or any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of a
prospectus, in light of the circumstances under which they were made) not
misleading, only to the extent, such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity
with information furnished in writing to RBF solely by Stockholders or
any other such Holder.
(c) Promptly after receipt by an indemnified party of notice of any
threatened action or proceeding or the commencement of any action or
proceeding involving a claim referred to in the preceding subsections of
this Section 8, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice
to the latter of the threat or commencement of such action or proceeding,
provided that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its
obligations under the preceding subsections of this Section 8, except to
the extent that the indemnifying party is actually prejudiced by such
failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment
a conflict of interest between such indemnified and indemnifying parties
may exist in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that
it may wish, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified
party of its election to so assume the defense thereof, the indemnifying
party shall not be liable to such indemnitee for any legal or other
expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No
indemnifying party shall consent to entry of any judgment or enter into
any settlement without the consent of the indemnified party which does
not include as an unconditional term thereof the giving by the claimant
or plaintiff to such indemnified party of a release from all liability in
respect of such claim or litigation.
(d) Indemnification similar to that specified in the preceding
subsections of this Section 8 (with appropriate modifications) shall be
given by RBF and the sellers of Registrable Securities with respect to
any required registration or other qualification of securities under any
Federal or state law or regulation of any governmental authority, other
than the Securities Act.
(e) If the indemnification provided for in this Section 8 from the
indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred
to herein, then the indemnifying party, to the extent such
indemnification is unavailable, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative
fault of the indemnifying party and indemnified parties in connection
with the actions that resulted in such losses, claims, damages,
liabilities or expenses. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the
parties' relative extent of knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable
by a party as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(e) were determined by pro rata
allocation or by any other method of allocation that does no take account
of the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 10(f) of the Securities Act) shall be entitled to
contribution from any Person.
If indemnification is available under this Section 8, the
indemnifying parties shall indemnify each indemnified party to the full
extent provided in Sections 8(a) and 8(b) without regard to the relative
fault of said indemnifying parties or indemnified party or any other
equitable consideration provided for in this Section 8.
(f) The indemnification or contribution required by this Section 8
shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
9. Covenants Relating to Rule 144. RBF covenants that it shall
use its best efforts to file the reports required to be filed by it under
the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder for so long as RBF becomes
obligated to file such reports (or, if RBF ceases to be required to file
such reports, it shall, upon the request of any Holder, make publicly
available other information so that Rule 144 shall be available to any
Holder), and it shall, if feasible, take such further action as any
Holder may reasonably request, all to the extent required from time to
time to enable such Person to sell Registrable Securities without
registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 or Rule 144A under the Securities
Act, as such Rules may be amended from time to time, or (b) any similar
rules or regulations hereafter adopted by the Commission. Upon the
request of any Holder, RBF shall deliver to such Person a written
statement as to whether it has complied with such requirement.
10. Miscellaneous.
(a) Specific Performance. The parties hereto acknowledge that
there may be no adequate remedy at law if any party fails to perform any
of its obligations hereunder and that each party may be irreparably
harmed by any such failure, and accordingly agree that each party in
addition to any other remedy to which it may be entitled at law or in
equity, shall be entitled to compel specific performance of the
obligations of any other party under this Agreement in accordance with
the terms and condition of this Agreement.
(b) Notices. All notices, requests, claims, demands, waivers and
other communications hereunder shall be in writing and shall be deemed to
have been duly given when delivered by hand, if delivered personally by
courier, or by telecopy or ten (10) days after being deposited in the
mail (registered or certified mail, postage prepaid, return receipt
requested) as follows: if to RBF, to it at 901 Threadneedle, Houston,
Texas 77029, Attention: Steven A. Webster, and if to Stockholders to them
at , Attention:
, and if to a Holder, to its address as indicated on RBF's register or
stock ledger or other books or records, or to such other address as any
such Holder may have furnished to RBF in writing in accordance herewith,
except the notices of change of address shall be effective only upon
receipt.
(c) Governing Law and Arbitration. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK. Any dispute arising out of or in relation to this Agreement or the
activities conducted hereunder (whether tort or otherwise) shall be
finally and exclusively resolved by arbitration in New York, New York, in
accordance with the Rules of Arbitration of the American Arbitration
Association by three arbitrators. The arbitration shall be conducted in
the English language, and each arbitrator shall have English as his or
her first (mother-tongue) language. Disputes involving sums less than US
$25,000.00 shall be resolved on the basis of document submission alone by
one arbitrator. All decisions of the arbitrator(s) shall be in writing,
and the arbitrator(s) shall provide written reasons for their decisions.
The arbitration shall be final and binding on the parties. The prevailing
party shall be entitled to recover from the losing party reasonable
expenses, attorneys' fees and costs.
(d) Headings. The descriptive headings of the several sections and
paragraphs of this Agreement are inserted for convenience only, and do
not constitute a part of this Agreement and shall not affect in any way
the meaning or interpretation of this Agreement.
(e) Entire Agreement; Amendments. This Agreement and the other
writings referred to herein or delivered pursuant hereto which form a
part hereof and contain the entire understanding of the parties with
respect to its subject matter. This Agreement supersedes all prior
agreements and understandings between the parties with respect to its
subject matter. This Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only by a written
instrument duly executed by RBF, Stockholders and any Holder.
Stockholders and any other Holder shall be bound by an amendment or
waiver authorized by this Section 10(e), whether or not any Registrable
Securities held by such Person shall have been marked to indicate such
consent.
(f) Assignability of Registration Rights. The rights and benefits
accruing to, and the obligations of, any Holder hereunder shall be freely
assignable in connection with and shall attach to any transfer of
Registrable Securities to any Person provided that any of such rights,
benefits and obligation, shall be effective only to the extent set forth
herein and that, except as set forth in Section 4, no individual Holder
of a Registrable Security shall have any rights, benefits or obligations
hereunder unless such individual holder constitutes a Holder; and
provided further that any Holder effecting a transfer of the rights set
forth in this Agreement, or who has knowledge that any such transfer
would cause any other Person or group of Persons to have the rights of a
Holder, shall provide RBF with notice of such transfer and the identity
of such Person or Persons.
(g) Counterparts. This Agreement may be entered into in any number
of counterparts, and by the parties to it on separate counterparts, each
of which when so executed and delivered shall be an original, but all of
which together shall constitute one and the same instrument.
(h) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect
and of the remaining provisions hereof shall not be in any way impaired,
it being intended that all of the rights of Stockholders or any other
Holder shall be enforceable to the fullest extent permitted by law.
(i) Written Consent. RBF, Stockholders and each Holder agree that
whenever in this Agreement the written consent of any party is required,
such written consent shall not be unreasonably withheld or delayed.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
R&B FALCON CORPORATION
By:______________________
Name:
Title:
STOCKHOLDERS:
_________________________
KENNETH STAGE
_________________________
T. GEORGE DELSA
_________________________
VIAL J. LeBLANC
_________________________
DR. WILLIAM T. BARFIELD
EXHIBIT A
PLAN OF DISTRIBUTION
The Common Stock may be sold from time to time by the selling
stockholders, or by pledgees, donees, transferees or other successors in
interest. Such sales may be made on one or more exchanges or in the over-
the-counter market, or otherwise at prices and at terms then prevailing
or at prices related to the then current market price, or in negotiated
transactions. The shares may be sold by one or more of the following:
(a) a block trade in which the broker or dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) an exchange distribution in
accordance with the rules of such exchange; and (d) ordinary brokerage
transactions and transactions in which the broker solicits purchasers.
In addition, any securities covered by this Prospectus which qualify for
sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant
to this Prospectus. From time to time the selling stockholders may engage
in short sales, short sales versus the box, puts and calls and other
transactions in securities of the issuer or derivatives thereof, and may
sell and deliver the shares in connection therewith.
In effecting sales, brokers or dealers engaged by the selling
stockholders may arrange for other brokers or dealers to participate.
Brokers or dealers will receive commissions or discounts from selling
stockholders in amounts to be negotiated immediately prior to the sale.
The selling stockholders and agents who execute orders on their behalf
may be deemed to be underwriters as that term is defined in Section 2(11)
of the Act and a portion of any proceeds of sales and discounts,
commissions or other compensation may be deemed to be underwriting
compensation for purposes of the Act.
Exhibit 10.1
Execution Copy
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R&B GUARANTY
from
R&B FALCON CORPORATION
Dated as of July 30, 1998
- -------------------------------------------------------------------------
R&B GUARANTY
THIS GUARANTY (this "Guaranty"), dated as of July 30, 1998, made by
R&B FALCON CORPORATION (the "Guarantor") in favor of the Beneficiaries
named below;
W I T N E S S E T H:
WHEREAS, pursuant to the terms of (i) a Participation Agreement,
dated as of the date hereof (the "Participation Agreement"), among
Deepwater Investment Trust 1998-A, a Delaware business trust (the
"Investment Trust"), Wilmington Trust FSB, a Maryland corporation, not in
its individual capacity except as expressly stated therein, but solely as
Investment Trustee (the "Investment Trustee"), Wilmington Trust Company,
a Delaware banking corporation, not in its individual capacity except as
expressly stated therein, but solely as Charter Trustee (the "Charter
Trustee"), Deepwater Drilling L.L.C., a Delaware limited liability
company ("Deepwater"), ABN AMRO Bank N.V., as Administrative Agent (the
"Administrative Agent"), BA Leasing & Capital Corporation, as
Documentation Agent (the "Documentation Agent"), The Bank of Nova Scotia,
as Syndication Agent (the "Syndication Agent"), RB Deepwater Exploration
Inc., a Nevada corporation, Conoco Development Company, a Delaware
corporation, and other financial institutions listed as Certificate
Purchasers on the signature pages of the Participation Agreement, and
(ii) a Charter, dated as of the date hereof (the "Charter"), between the
Charter Trustee and Deepwater, the Charter Trustee has agreed to charter
to Deepwater and Deepwater agreed to charter from the Charter Trustee all
of the Charter Trustee's interest in the Drillship;
WHEREAS, it is a condition precedent to the consummation of the
transactions contemplated by the Participation Agreement and other
Transaction Documents that Guarantor execute and deliver this Guaranty
and that Conoco execute and deliver the Conoco Guaranty; and
WHEREAS, this Guaranty is offered by Guarantor, and the Conoco
Guaranty is offered by Conoco, as an inducement to the Participants to
consummate the transactions contemplated in the Participation Agreement,
which transactions, if consummated, will be of benefit to Guarantor and
Conoco;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged
by Guarantor, Guarantor hereby agrees as follows:
SECTION 1. Defined Terms. Capitalized terms used but not
otherwise defined in this Guaranty shall have the respective meanings
specified in Appendix 1 to the Participation Agreement. The obligations
guaranteed under Section 2(a) below are collectively referred to as the
"Guaranteed Obligations" and individually referred to as a "Guaranteed
Obligation". Each of the Investment Trust, the Investment Trustee, the
Charter Trustee, the Administrative Agent, the Documentation Agent, the
Syndication Agent, the Certificate Purchasers, the Hedging Agreement
Counterparties and the other Indemnified Parties is referred to as a
"Beneficiary" and are collectively referred to as the "Beneficiaries".
SECTION 2. Guaranteed Obligations.
(a) Subject to the terms hereof, the Guarantor does hereby
irrevocably and unconditionally guarantee to the Beneficiaries entitled
thereto, as a primary obligor and not as a surety, until such time as
final and indefeasible payment thereof has been made, the due and
punctual payment by Deepwater, when due, whether by acceleration or
otherwise, of (i) fifty percent (50%) of the Purchase Option Price due by
Deepwater under Sections 20.1 or 16.2(h) of the Charter, (ii) fifty
percent (50%) of the Residual Guarantee Amount due by Deepwater under
Section 20.3 of the Charter, (iii) fifty percent (50%) of the amount of
any premium payable under any policy of insurance required to be
maintained by Deepwater under Section 14.1 of the Charter, (iv) fifty
percent (50%) of any Claims and Tax Claims due by Deepwater pursuant to
Section 10 of the Participation Agreement, (v) fifty percent (50%) of the
amount due by Deepwater to the Charter Trustee under the Deepwater
Hedging Agreements (if any) upon the occurrence of an "Early Termination
Date" (as defined in the Deepwater Hedging Agreements) in connection with
an Event of Loss during the Charter Term and (vi) fifty percent (50%) of
any installment of Basic Hire due by Deepwater under Section 3.1 of the
Charter during the period after the Scheduled Charter Expiration Date
(or, if the Charter Term has been extended pursuant to Section 19.1 of
the Charter after the end of such extension period) until the earlier of
(A) the transfer of the risk of loss with respect to the Drillship to a
purchaser under an agreement for sale of the Drillship and (B) the
redelivery of the Drillship in accordance with Section 18.1 of the
Charter.
(b) The Guarantor hereby indemnifies and holds harmless each
of the Beneficiaries for any and all costs and expenses (including
reasonable attorney's fees and expenses) incurred by such Beneficiary in
enforcing any rights under this Guaranty.
SECTION 3. Nature of Obligations. This Guaranty shall
constitute a guaranty of prompt payment and not of collection, and the
Guarantor specifically agrees that it shall not be necessary, and that
the Guarantor shall not be entitled to require, before or as a condition
of enforcing the liability of the Guarantor under this Guaranty or
requiring payment or performance of the Guaranteed Obligations by the
Guarantor as provided herein, or at any time thereafter, that any Person:
(a) file suit or proceed to obtain or assert a claim for personal
judgment against Deepwater or any other Person that may be liable for any
Guaranteed Obligation; (b) make any other effort to obtain payment or
performance of any Guaranteed Obligation from Deepwater or any other
Person that may be liable for such Guaranteed Obligation; (c) foreclose
against or seek to realize upon any security now or hereafter existing
for such Guaranteed Obligation; (d) exercise or assert any other right or
remedy to which any Beneficiary is or may be entitled in connection with
any Guaranteed Obligations or any security or other guaranty therefor; or
(e) assert or file any claim against the assets of Deepwater or any other
Person liable for any Guaranteed Obligation. Notwithstanding the
foregoing, the provisions of this Section 3 shall not be construed to
avoid any notices or demands or the lapse of any time periods available
to Deepwater under the Transaction Documents.
SECTION 4. Continuing Guaranty. This Guaranty shall in all
respects be a continuing, primary, absolute and unconditional guaranty of
prompt and complete payment and shall remain in full force and effect
until the full and final payment and performance of the Guaranteed
Obligations and Guarantor's obligations hereunder. The Guarantor
guarantees that the Guaranteed Obligations will be paid strictly in
accordance with the terms of the Participation Agreement and each other
Transaction Document under which they arise, regardless of any law,
regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of the Beneficiaries with
respect thereto. The liability of the Guarantor under this Guaranty
shall be absolute, unconditional and irrevocable, irrespective of:
(1) any lack of validity, legality or enforceability of the
Participation Agreement, any Certificate or any other
Transaction Document;
(2) the failure of any Beneficiary
(a) to assert any claim or demand or to enforce any right or
remedy against Deepwater or any other Person (including
any guarantor (including the Guarantor)) under the
provisions of the Participation Agreement, any
Certificate, any other Transaction Document or otherwise,
or
(b) to exercise any right or remedy against any guarantor
(including the Guarantor) of, or collateral securing, any
obligations of Deepwater or any other Person;
(3) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Guaranteed Obligations or
the obligations of any guarantor (including the Guarantor), or
any other extension, compromise or renewal of any Guaranteed
Obligation or the obligations of any guarantor (including the
Guarantor);
(4) any reduction, limitation, impairment or termination of any
Guaranteed Obligations or the obligations of any guarantor
(including the Guarantor) for any reason, including any claim
of waiver, release, surrender, alteration or compromise, and
shall not be subject to (and the Guarantor hereby waives any
right to or claim of) any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the
invalidity, illegality, nongenuineness, irregularity,
compromise, unenforceability of, or any other event or
occurrence affecting, any Guaranteed Obligations or the
obligations of any guarantor (including the Guarantor) or
otherwise, other than the payment in full in cash or
satisfaction or discharge in full of such Guaranteed
Obligation;
(5) any amendment to, rescission, waiver, or other modification of,
or any consent to departure from, any of the terms of the
Participation Agreement, any Certificate or any other
Transaction Document;
(6) any addition, exchange, release, surrender or non-perfection of
any collateral, or any amendment to or waiver or release or
addition of, or consent to departure from, any other guaranty
held by any Beneficiary securing any of the Guaranteed
Obligations or the obligations of any guarantor (including the
Guarantor); or
(7) any other circumstance which might otherwise constitute a
defense available to, or a legal or equitable discharge of,
Deepwater, any surety or any guarantor.
SECTION 5. Reinstatement. If at any time all or any part
of any payment theretofore applied to any of the Guaranteed Obligations
is rescinded or returned for any reason whatsoever (including, without
limitation, the insolvency, bankruptcy or reorganization of Deepwater),
such Guaranteed Obligations shall, for the purposes of this Guaranty, to
the extent that such payment is or must be rescinded or returned, be
deemed to have continued in existence, notwithstanding such application,
and this Guaranty shall continue to be effective or be reinstated, as the
case may be, as to such Guaranteed Obligations, all as though such
application had not been made.
SECTION 6. Amendments to Transaction Documents; Demands.
Guarantor shall remain obligated under this Guaranty notwithstanding
that, without any reservation of rights against Guarantor and without
notice to or further consent by Guarantor, the obligations or the
liability of any other party, upon or for any part of the obligations
under the Transaction Documents, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, waived, surrendered or
released by the Beneficiaries (or anyone acting through or on behalf of
the Beneficiaries) and any of the other Transaction Documents may be
amended, modified, supplemented or terminated, in whole or in part;
provided, however, that notwithstanding anything contained in this
Section 6 to the contrary, to the extent that the obligations of
Deepwater constituting the Guaranteed Obligations are expressly released
or waived in writing, such release or waiver shall be deemed to extend to
Guarantor. For the purposes of this Guaranty, any reference to the
Transaction Documents shall mean such documents as they now exist and as
they may be modified, amended, supplemented, renewed or extended from
time to time. When making any demand against Deepwater, a Beneficiary
(or anyone acting through or on behalf of such Beneficiary) may, but
shall be under no obligation to, make a similar demand on Guarantor and
any failure by a Beneficiary (or anyone acting through or on behalf of
such Beneficiary) to make any such demand or to collect any payments from
Deepwater shall not relieve Guarantor of any of its liabilities under
this Guaranty and shall not impair or affect the rights and remedies of
the Beneficiaries (or anyone acting through or on behalf of the
Beneficiaries) against Guarantor.
SECTION 7. Payments; No Subrogation. Guarantor hereby
agrees that payments under this Guaranty will be paid to the Beneficiary
entitled thereto in immediately available funds in accordance with the
terms of the applicable Transaction Documents. Until all of the
Guaranteed Obligations are indefeasibly paid in full, Guarantor hereby
agrees that no payment made by or for the account of Guarantor pursuant
to this Guaranty shall entitle Guarantor by subrogation, indemnification,
exoneration, contribution, reimbursement or otherwise to any payment by
Deepwater or from or out of any property of Deepwater in respect of
payments made hereunder, and Guarantor hereby expressly waives, to the
fullest extent possible, and shall not exercise, any right or remedy
against Deepwater or any property of Deepwater by reason of any
performance by Guarantor of this Guaranty unless and until all of the
Guaranteed Obligations are fully and finally performed, indefeasibly paid
or discharged.
SECTION 8. Waiver. Guarantor hereby expressly waives: (a)
notice of the acceptance of this Guaranty; (b) notice of the existence or
creation or non-payment of all or any of the Guaranteed Obligations; (c)
presentment, demand, notice of dishonor, protest, and, to the fullest
extent permitted by Applicable Law, any notice not required herein, and
all other notices whatsoever; and (d) any right to require marshalling of
its assets in connection with the satisfaction of the Guaranteed
Obligations. When making any demand hereunder against Guarantor, a
Beneficiary may, but shall be under no obligation to, make a similar
demand on Deepwater and any failure by a Beneficiary to make any such
demand or to collect any payments from Deepwater shall not relieve
Guarantor of its obligations or liabilities hereunder, and shall not
impair or affect the rights and remedies, express or implied, or as a
matter of law, of the Beneficiaries against Guarantor.
SECTION 9. Assignment. This Guaranty shall be binding upon
Guarantor and upon Guarantor's successors and permitted assigns and shall
inure to the benefit of the Beneficiaries and their respective successors
and permitted assigns. The Guarantor may not delegate any of its
obligations hereunder without the prior written consent of the
Certificate Purchasers. The Guarantor hereby consents and agrees to the
Charter Trustee's assignment of its rights under this Guaranty to the
Investment Trust pursuant to the Charter Trust Assignment.
SECTION 10. Guarantor's Liabilities Not Affected. The duties and
obligations of Guarantor under this Guaranty shall remain in full force
and effect, without the necessity of any reservation of rights against
Guarantor or further assent by Guarantor, and without regard to, and
shall not be impaired or affected by:
(a) any limitation of the remedies of the Beneficiary under
any of the Transaction Documents or the rejection or disaffirmance
thereof which may now or hereafter be imposed by any Applicable Law or
the occurrence of any Event of Default;
(b) any merger or consolidation of Deepwater or Guarantor into
or with any other Person, or any sale, lease or transfer of any or all of
the capital stock or assets of Deepwater or Guarantor to any other
Person;
(c) any claim, counterclaim, set-off, deduction or defense
(other than payment in full) that Guarantor or Deepwater may have against
any Beneficiary, whether hereunder or under any Transaction Document or
independent of or unrelated to the transactions contemplated by the
Transaction Documents; or
(d) any extension of the Charter Term.
SECTION 11. Bankruptcy of Deepwater. Guarantor agrees that, so
long as there are any Guaranteed Obligations outstanding, it shall not
(i) commence any case, proceeding or other action under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, arrangement, winding-up,
liquidation, dissolution, composition or other relief with respect to
Deepwater or its debts; (ii) seek appointment of a receiver, trustee,
custodian or other similar official for Deepwater or for all or any
substantial part of its property; (iii) cause, or permit RBF Deepwater
Exploration Inc., as a Member of Deepwater, to vote to permit, Deepwater
to file a voluntary petition in bankruptcy, insolvency or similar laws or
an answer admitting the material obligations of a petition filed against
Deepwater in any such proceeding; or (iv) if Deepwater becomes a debtor-
in-possession under applicable bankruptcy laws, cause, or permit RBF
Deepwater Exploration Inc., as a Member of Deepwater, to vote to permit,
Deepwater to reject the Drilling Contract.
SECTION 12. No Material Adverse Change. Guarantor represents and
warrants to the Beneficiaries that as of the date hereof, there has been
no material adverse change in the consolidated assets, liabilities,
operations, business or financial condition of the Guarantor from that
set forth in its financial statements for the fiscal quarter ended March
31, 1998 included in its report on Form 10-Q filed with the Securities
and Exchange Commission with respect to such period.
SECTION 13. Financial Statements. The Guarantor shall deliver to
the Administrative Agent, with sufficient copies for each Certificate
Purchaser, copies of its annual and quarterly reports on Form 10-K and
Form 10-Q, respectively, filed with the Securities and Exchange
Commission promptly after such filings have been made.
SECTION 14. Miscellaneous. No delay in the exercise of any right
or remedy shall operate as a waiver thereof, and no single or partial
exercise of any right or remedy shall preclude other or further exercise
thereof or the exercise of any other right or remedy. No modification or
waiver of any of the provisions of this Guaranty shall be binding upon
the Trust or Guarantor unless such modification or waiver is by an
instrument in writing and signed by Guarantor and the Beneficiaries. No
action permitted hereunder shall in any way affect or impair the rights
of any Beneficiary or Guarantor's obligations under this Guaranty. This
Guaranty is effective upon delivery.
This Guaranty is a Transaction Document which is being executed
pursuant to the Participation Agreement and in connection with the
transactions contemplated therein.
Wherever possible each provision of this Guaranty shall be
interpreted in such manner as to be effective and valid under Applicable
Law, but if any provision of this Guaranty shall be prohibited by or
invalid thereunder, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Guaranty.
All notices, demands, declarations, consents, directions, approvals,
instructions, requests and other communications required or permitted by
this Guaranty shall be in writing and shall be deemed to have been duly
given when addressed to the appropriate Person and delivered (in the case
of the Beneficiaries) in the manner specified in Section 12.3 of the
Participation Agreement and (in the case of the Guarantor) when delivered
in the manner specified in Section 12.3 of the Participation Agreement
and addressed as set forth below:
R&B Falcon Corporation
901 Threadneedle, Suite 200
Houston, Texas 77079
Telephone No.: (281) 496-5000
Telecopy No.: (281) 496-0285
Attn: Chief Executive Officer
THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER
THIS GUARANTY (INCLUDING ALL MATTERS OF CONSTRUCTION VALIDITY AND
PERFORMANCE) SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5-
1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT EXCLUDING,
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, ALL OTHER CHOICE OF
LAW RULES). THIS GUARANTY HAS BEEN DELIVERED IN THE STATE OF NEW YORK.
All judicial actions, suits or proceedings brought against Guarantor
with respect to its obligations, liabilities or any other matter under or
arising out of or in connection with this Guaranty or any transaction
contemplated or for recognition or enforcement of any judgment rendered
in any such proceedings may be brought in any state or federal court of
competent jurisdiction in The City of New York. By execution and delivery
of this Guaranty, Guarantor accepts, generally and unconditionally, the
nonexclusive jurisdiction of such courts and irrevocably agrees to be
bound by any final judgment rendered in connection with this Guaranty or
any transaction contemplated hereby from which no appeal has been taken
or is available. Guarantor irrevocably agrees that all process in any
proceeding or any court arising out of or in connection with this
Guaranty may be effected by mailing a copy by registered or certified
mail or any substantially similar form of mail, postage prepaid, to
Guarantor at its address as designated in this Guaranty. Guarantor
irrevocably waives trial by jury and any objections which it now or
subsequently may have to the bringing of any such action or proceeding in
any such jurisdiction.
Upon request of any Beneficiary, Guarantor shall execute and deliver
such further assurances as such Beneficiary may determine in its
reasonable judgment to be necessary or desirable to confirm the
obligations of Guarantor under this Guaranty.
The section headings used in this Guaranty are for convenience of
reference only and are not to affect the construction of the terms of
this Guaranty.
[The Remainder of this Page is Left Intentionally Blank]
IN WITNESS WHEREOF, Guarantor has caused this R&B GUARANTY to be
executed and delivered under seal by its duly authorized officer as of
the date first above written.
R&B FALCON CORPORATION
By:___________________________
Name:
Title:
Exhibit 10.2
LETTER AGREEMENT
This Letter Agreement (the "Letter Agreement") is entered into by and
between RBF Deepwater Exploration Inc. ("RBF") and Conoco Development
Company ("CDC") as of the 7th day of August, 1998. Capitalized terms used
herein and not otherwise defined shall have the meaning set forth in the
Limited Liability Company Agreement between RBF and CDC dated October 28,
1996 as same has been amended by Amendments Nos. 1, 2, 3 and 4 (the "LLC
Agreement").
Background
RBF and CDC each own a Membership Interest in Deepwater Drilling
L.L.C. ("Deepwater") and are the sole Members of Deepwater, all as further
set out in the LLC Agreement. Deepwater is entering into a Participation
Agreement dated as of July 30, 1998 by and among Deepwater; Deepwater
Investment Trust 1998-A, as Investment Trust; Wilmington Trust FSB, not in
its individual capacity, except as expressly stated therein, but solely as
Investment Trustee; ABN AMRO Bank N.V., as Administrative Agent; Wilmington
Trust Company, not in its individual capacity except as expressly provided
therein, but solely as Charter Trustee; BA Leasing & Capital Corporation,
as Documentation Agent; The Bank of Nova Scotia, as Syndication Agent;
certain other financial institutions that are listed therein or that may
thereafter become party thereto; and solely with respect to Sections 5.2
and 6.4 of such Participation Agreement, RBF Deepwater Exploration Inc. and
Conoco Development Company, and related documents, including a Construction
Supervisory Agreement, (all of such documents collectively referred to as
the "Transaction Documents") with various parties, whereby Deepwater will
have funds advanced to it in an amount up to US $260,000,000. The proceeds
of such advances shall be used to: (i) repay Conoco Inc. (formerly
Continental Oil Company) Charter Number 523126 ("Conoco"), amounts advanced
by Conoco pursuant to the Credit Agreement dated October 31, 1996, between
Deepwater and Conoco (as same may have been amended or extended from time
to time, the "Credit Agreement"); (ii) repay amounts loaned to Deepwater by
Bank of America National Trust and Savings Association pursuant to a
Business Loan Agreement dated as of December 22, 1997 (as same may have
been amended or extended from time to time, the "Loan"); (iii) fund amounts
due the Builder under the shipbuilding contract previously entered into
between Deepwater and the Builder on October 31, 1996, for the construction
and purchase of the Builder's Hull No. 1220 (the "Shipbuilding Contract");
and (iv) fund the acquisition by Deepwater of certain buyer furnished
equipment and/or services needed in connection with the construction of the
Drillship.
In connection with Deepwater entering into the Transaction Documents,
Conoco has agreed to provide a Completion Guaranty to certain parties (the
"Completion Guaranty") of certain of the obligations of Deepwater under the
Transaction Documents, including the obligation of Deepwater in certain
instances to repay the amounts advanced to Deepwater in accordance with the
Transaction Documents.
Understanding and Agreement
RBF and CDC hereby confirm and agree that the Completion Guaranty
provided by Conoco in connection with the Transaction Documents is and will
be considered a guaranty of the type and nature described in Section 5.2 of
the LLC Agreement and that in accordance with Section 5.2, each of RBF and
CDC will, upon the notice and within the time periods set out in Section
5.2, contribute to the Company its respective Sharing Ratio of any and all
monies that may become due pursuant to the terms of the Completion Guaranty
provided by Conoco in connection with the Transaction Documents. This
understanding and agreement is also confirmed for and shall inure to the
benefit of Conoco and any successor thereof.
With respect to governing law and forums for dispute resolution, the
parties hereby incorporate by reference Section 14.2 of the LLC Agreement
as fully as if it was set out herein.
This Letter Agreement is executed in duplicate originals.
RBF DEEPWATER EXPLORATION CONOCO DEVELOPMENT
INC. COMPANY
By: By:
Name: Name:
Title: Title:
Acknowledgment
Each of Conoco Inc. (formerly Continental Oil Company) Charter Number
523126 (with respect to any failure by CDC to meet its obligations under
this Letter Agreement) and R&B Falcon Corporation (with respect to any
failure by RBF to meet its obligations under this Letter Agreement)
acknowledges that such failure constitutes an obligation for which
indemnification is due within the scope of Section 1 of the Indemnification
Agreement dated as of October 28, 1996, between Conoco Inc. and RB
Deepwater Exploration Inc. (now named RBF Deepwater Exploration Inc.) or
Section 1 of the Indemnification Agreement dated as of April 24, 1998,
between R&B Falcon Corporation and CDC, as the case may be, from time to
time. This Acknowledgement is binding upon respective successors of each of
Conoco Inc. (formerly Continental Oil Company) Charter Number 523126 and
R&B Falcon Corporation.
Dated as of August 7, 1998.
CONOCO INC. R&B FALCON CORPORATION
(Formerly Continental Oil Company)
Charter Number 523126
By: By:
Name: Name:
Title: Title:
Exhibit 10.3
LETTER AGREEMENT
This Letter Agreement (the "Letter Agreement") is entered into as of
the 7th day of August, 1998, and is by and between RBF Deepwater
Exploration Inc., a Nevada corporation (formerly named RB Deepwater
Exploration Inc. and hereafter "RBF") and Conoco Development Company, a
Delaware corporation (hereafter "CDC"). All terms not otherwise defined
herein shall have the meaning set forth in the Limited Liability Agreement
dated October 28, 1996, between RBF and CDC, as such has been amended by
Amendments Nos. 1-4 (such agreement as amended, the "LLC Agreement").
Background
RBF and CDC have through the LLC Agreement formed Deepwater Drilling
L.L.C., a Delaware limited liability company ("Deepwater"). Deepwater, in
connection with the financing of the Drillship is entering into a
Participation Agreement dated as of July 30, 1998, by and among Deepwater;
Deepwater Investment Trust 1998-A, as Investment Trust; Wilmington Trust
FSB, not in its individual capacity, except as expressly stated therein,
but solely as Investment Trustee; ABN AMRO Bank N.V., as Administrative
Agent; Wilmington Trust Company, not in its individual capacity except as
expressly provided therein, but solely as Charter Trustee; BA Leasing &
Capital Corporation, as Documentation Agent; The Bank of Nova Scotia, as
Syndication Agent; certain other financial institutions that are listed
therein or that may thereafter become party thereto; and solely with
respect to Sections 5.2 and 6.4 of such Participation Agreement, RBF
Deepwater Exploration Inc. and Conoco Development Company, and executing
certain other agreements for the financing of the Drillship (such
transactions hereafter called the "Deepwater Transaction" and the documents
reflecting such transactions hereafter called the "Deepwater Transaction
Documents"). Without affecting any obligation either RBF or CDC may have
under any document executed by either party as part of the Deepwater
Transaction, RBF and CDC hereby wish to set out agreements between the
parties relating to matters arising out of the Deepwater Transaction and to
clarify and agree as to certain rights and obligations each of the parties
has to the other.
Understanding and Agreement
1. Reference is made to the Charter between Deepwater and Wilmington
Trust Company (not in its individual capacity except as expressly stated
therein, but solely as Charter Trustee), dated as of July 30, 1998 (the
"Charter"), such Charter being one of the Deepwater Transaction Documents.
Section 16.4 of the Charter and Section 6.3 of the Construction Supervisory
Agreement (the "CSA", also being one of the Deepwater Transaction
Documents) provide that if Deepwater receives notice of an "Event of
Default" (as defined in the Deepwater Transaction Documents), then
Deepwater shall have the option to purchase all the right, title and
interest in the Drillship of the parties named in Section 16.4 of the
Charter and Section 6.3 of the CSA. RBF and CDC hereby confirm and agree
that if Deepwater receives such notice of an Event of Default, unless the
Members otherwise unanimously agree, each Member shall vote its membership
interest in favor of, and instruct its Member Representatives to vote in
favor of, the exercise of such option so that Deepwater will purchase all
right, title and interest in the Drillship as provided for in Section 16.4
of the Charter or Section 6.3 of the CSA, as the case may be. Each Member
agrees that it will, to the extent necessary to allow Deepwater to purchase
such right, title and interest, contribute to Deepwater in cash in a timely
manner, that Member?s respective Sharing Ratio of any and all monies that
may be required to purchase such interest.
2. Pursuant to Section 9.4 of the Participation Agreement entered
into by Deepwater as part of the Deepwater Transaction, should there be a
Prepayment Change of Control Event (as defined in the Deepwater Transaction
Documents), Deepwater may be required to pay the "Change of Control
Prepayment Amount" as defined in such Section 9.4. If Deepwater becomes
obligated to pay the Change of Control Prepayment Amount, CDC (or an
Affiliate (as defined in the LLC Agreement) of CDC) agrees to loan
Deepwater the amount (the "Loan") necessary for Deepwater to make such
Change of Control Prepayment in a timely manner. Any such Loan shall have
a term of 180 days, bear interest at a rate of LIBOR plus a margin of 75
basis points and otherwise be on terms reasonably agreeable to Deepwater
and CDC (or its Affiliate). Deepwater and CDC (or the Affiliate) agree to
exert reasonable efforts to afford CDC (or its Affiliate) the benefit of
(i) a secured position in the form of a preferred ship mortgage, if
possible, or similar security, or (ii) if the Deepwater Transaction remains
in effect as to some of the financing parties to the Deepwater Transaction,
substantially the same or similar secured position (to the extent possible,
and allowed by the Deepwater Transaction Documents or consented to by the
appropriate financing parties thereto) held by secured parties immediately
prior to the payment of the Change of Control Prepayment. If Deepwater is
unable to refinance the Loan prior to maturity of the Loan, each of CDC and
RBF agree to contribute to Deepwater in cash, within 10 days after
receiving a request from the Manager of Deepwater pursuant to the LLC
Agreement, or within 3 New York business days prior to the maturity of the
Loan, whichever is earlier, such Member's respective Sharing Ratio of any
and all monies that may be required to enable Deepwater to repay the Loan
at maturity.
3. Deepwater and Conoco Drilling Inc. ("CDI") have entered into a
Letter Agreement of even date herewith setting out certain understandings
and agreements, a copy of which is attached hereto (the "CDI Letter
Agreement"). RBF and CDC each agree that, to the extent necessary to allow
Deepwater to meet its commitments to CDI under the terms of the CDI Letter
Agreement, each of CDC and RBF agree to contribute to Deepwater in cash, in
a timely manner, such Member's respective Sharing Ratio (as defined in the
LLC Agreement) of any and all monies that may be required to enable
Deepwater to meet Deepwater's commitments to CDI under the terms of the CDI
Letter Agreement.
4. The contributions by each of the Members provided for under this
Letter Agreement shall be considered contributions required under the terms
of the LLC Agreement and the terms of the LLC Agreement shall otherwise
apply with respect to such contributions or any failure to make such
contribution.
5. With respect to governing law and forums for dispute resolution,
the parties hereby incorporate by reference Section 14.2 of the LLC
Agreement as if it was set out herein.
CONOCO DEVELOPMENT COMPANY RBF DEEPWATER EXPLORATION INC.
By: By:
Name: Name:
Title: Title:
Acknowledgment
Each of Conoco Inc. (formerly Continental Oil Company) Charter Number
523126 (with respect to any failure by CDC (or its Affiliate, with respect
to Paragraph 2 of this Letter Agreement) to meet its obligations under this
Letter Agreement) and R&B Falcon Corporation (with respect to any failure
by RBF to meet its obligations under this Letter Agreement) acknowledges
and agrees that such failure shall also constitute an obligation for which
indemnification is due within the scope of Section 1 of the Indemnification
Agreement dated as of October 28, 1996, between Conoco Inc. and RB
Deepwater Exploration Inc. (now named RBF Deepwater Exploration Inc.) or
Section 1 of the Indemnification Agreement dated as of April 24, 1998,
between R&B Falcon Corporation and CDC, as the case may be, from time to
time. This Acknowledgement is binding upon respective successors of each of
Conoco Inc. (formerly Continental Oil Company) Charter Number 523126 and
R&B Falcon Corporation.
Dated as of August 7, 1998.
CONOCO INC. R&B FALCON CORPORATION
(formerly Continental Oil Company)
Charter Number 523126
By: By:
Name: Name:
Title: Title:
Exhibit 15
R&B Falcon Corporation
We are aware that R&B Falcon Corporation has incorporated by reference
in its Registration Statements No. 333-43475 and 333-63471 its Form 10-Q
for the quarter ended September 30, 1998, which includes our report dated
November 4, 1998 covering the unaudited interim financial information
contained therein. Pursuant to Regulation C of the Securities Act of 1933,
that report is not considered a part of the registration statement prepared
or certified by our firm or a report prepared or certified by our firm
within the meaning of Sections 7 and 11 of the Act.
/s/Arthur Andersen LLP
Houston, Texas
November 4, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of R&B Falcon Corporation for the nine months ended
September 30, 1998 and 1997 as restated to reflect the completion of a
pooling of interests between Reading & Bates Corporation and Falcon
Drilling Company, Inc. and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 150 89
<SECURITIES> 0 0
<RECEIVABLES> 242 189
<ALLOWANCES> 12 4
<INVENTORY> 28 17
<CURRENT-ASSETS> 428 303
<PP&E> 2,791 1,794
<DEPRECIATION> 490 410
<TOTAL-ASSETS> 2,766 1,818
<CURRENT-LIABILITIES> 346 106
<BONDS> 0 0
0 0
0 0
<COMMON> 2 2
<OTHER-SE> 841 844
<TOTAL-LIABILITY-AND-EQUITY> 2,766 1,818
<SALES> 0 0
<TOTAL-REVENUES> 804 666
<CGS> 0 0
<TOTAL-COSTS> 582 403
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 43 32
<INCOME-PRETAX> 186 235
<INCOME-TAX> 68 45
<INCOME-CONTINUING> 110 183
<DISCONTINUED> 0 (65)
<EXTRAORDINARY> (22) 0
<CHANGES> 0 0
<NET-INCOME> 88 118
<EPS-PRIMARY> .53 .72
<EPS-DILUTED> .53 .71
</TABLE>
