=============================================================================
SCHEDULE 14A
(Rule 14a-6(m))
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
R&B Falcon Corporation
(Name of Registrant as Specified in Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
(1) Title of each class of securities to which
transaction applies:
(2) Aggregate number of securities to which
transaction applies:
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11
(Set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
=============================================================================
(R&B Falcon logo)
R&B FALCON CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 19, 1998
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
R&B Falcon Corporation, a Delaware corporation (the "Company"), will be
held on Tuesday, May 19, 1998, at 9:00 a.m., local time, at the ITT
Sheraton Luxury Collection Hotel, 1919 Briar Oaks Lane, Houston, Texas, for
the following purposes:
1. To elect three directors.
2. To approve the adoption of the Company's 1998 Employee Long-Term
Incentive Plan.
3. To approve the adoption of the Company's 1998 Director Long-Term
Incentive Plan.
4. To ratify the appointment of Arthur Andersen LLP as the Company's
independent auditors for its 1998 fiscal year.
5. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The foregoing items of business are more fully described in the
Proxy Statement accompanying this Notice.
Only stockholders of record at the close of business on March 27,
1998 are entitled to notice of and to vote at the Annual Meeting and any
adjournment thereof.
All stockholders are cordially invited to attend the meeting in
person. However, to assure your representation at the meeting, please sign
and return the enclosed proxy as promptly as possible in the postage-
prepaid envelope enclosed for that purpose. Any stockholder attending the
meeting may vote in person even though such stockholder has returned a
proxy.
Wayne K. Hillin
Secretary
By order of the Board of Directors
Houston, Texas
April 23, 1998
IMPORTANT: Whether or not you plan to attend the meeting, you are
requested to complete and promptly return the enclosed proxy in the envelope
provided.
=============================================================================
R&B FALCON CORPORATION
901 Threadneedle
Houston, Texas 77079
________________
PROXY STATEMENT
______________________
Annual Meeting of Stockholders
May 19, 1998
The enclosed Proxy is solicited on behalf of the Board of Directors
of R&B Falcon Corporation (the "Company") for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on Tuesday, May 19, 1998, at
9:00 a.m. local time, or at any adjournment thereof, for the purposes set
forth herein and in the accompanying Notice of Annual Meeting of
Stockholders. The Annual Meeting will be held at the ITT Sheraton Luxury
Collection Hotel, 1919 Briar Oaks Lane, Houston, Texas. It is anticipated
that this Proxy Statement and the enclosed proxy card will be mailed
beginning on or about April 23, 1998 to all stockholders of record on
March 27, 1998.
At the Annual Meeting, stockholders will be asked to elect three
Class I directors for terms expiring in 2001 and to consider and vote upon
the following proposals (the "Proposals"):
(1) a proposal (the "Employee Plan Proposal") to approve the Company's
1998 Employee Long-Term Incentive Plan (the "Employee Plan");
(2) a proposal (the "Director Plan Proposal") to approve the Company's
1998 Director Long-Term Incentive Plan (the "Director Plan"); and
(3) a proposal (the "Accountant Proposal") to ratify the appointment of
Arthur Andersen LLP as the Company's independent auditors for its 1998
fiscal year.
____________________
The Board of Directors of the Company believes that election of its
director nominees and approval of each of the Proposals is advisable and in
the best interests of the Company and its stockholders and recommends to
the stockholders of the Company the approval of such nominees and each of
the Proposals.
____________________
The date of this Proxy Statement is April 23, 1998.
=============================================================================
THE COMPANY
The Company is a Delaware corporation that was organized in July
1997 for the purpose of effecting the business combination (the "Merger")
of Falcon Drilling Company, Inc. (now named R&B Falcon Drilling (U.S.),
Inc., herein "Falcon") and Reading & Bates Corporation (now named R&B
Falcon Drilling (International & Deepwater), Inc., herein "R&B"). The
Merger became effective on December 31, 1997, with the result that Falcon
and R&B became wholly-owned subsidiaries of the Company, and the former
stockholders of Falcon and R&B became stockholders of the Company. During
1997, the Company did not own any material assets or engage in any
business, except as was necessary to effect the Merger. Falcon and R&B
operated as unrelated entities throughout 1997. Accordingly, certain of
the information in this Proxy Statement is provided as to each of Falcon
and R&B.
INFORMATION CONCERNING SOLICITATION AND VOTING
At the Annual Meeting, the holders of shares of common stock, par
value $.01 per share, of the Company (the "Common Stock") will be asked to
(i) vote upon the election of three persons to serve as Class I Directors
on the Board of Directors of the Company, (ii) approve the Employee Plan
Proposal, (iii) approve the Director Plan Proposal, (iv) approve the
Accountant Proposal, and (v) take action upon such other matters as may
properly come before the Annual Meeting.
All shares of Common Stock represented at the Annual Meeting by
properly executed proxies received prior to or at the Annual Meeting, and
not revoked, will be voted (or withheld) at the Annual Meeting in
accordance with the instructions indicated on such proxies. If no
instructions are indicated with respect to any shares for which properly
executed proxies have been received, such proxies will be voted FOR the
Board of Directors' nominees for directors, FOR the Employee Plan
Proposal, FOR the Director Plan Proposal, and FOR the Accountant Proposal.
If any other matters are properly presented at the Annual Meeting for
action, the persons named in the proxies and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment
as to the best interests of the Company. The Board of Directors of the
Company does not know of any other matters to be brought before the Annual
Meeting.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by
any of the following actions: (i) filing with the Secretary of the
Company, at or before the Annual Meeting, but in any event prior to the
vote on the matter as to which revocation is sought, a written notice of
revocation bearing a later date than the proxy; (ii) duly executing and
submitting a subsequent proxy relating to the Annual Meeting; or (iii)
voting in person at the Annual Meeting (although attendance at the Annual
Meeting will not, in and of itself, constitute a revocation of a proxy).
Any written notice revoking a proxy should be sent to the Secretary of the
Company at the Company's principal executive office at 901 Threadneedle,
Houston, Texas 77079.
The close of business on March 27, 1998 is the date fixed for the
determination of stockholders of record entitled to notice of and to vote
at the Annual Meeting and any adjournment thereof. On March 27, 1998, the
Company had 165,119,387 outstanding shares of Common Stock, constituting
the only class of stock outstanding.
The holders of a majority of the outstanding shares of Common Stock
as of March 27, 1998, present in person or represented by proxy and
eligible to vote, will constitute a quorum at the Annual Meeting. A list
of such stockholders will be available for examination by any stockholder,
for any purpose germane to the meeting, at the Company's principal
executive office at 901 Threadneedle, Houston, Texas 77079, during ordinary
business hours during the ten days preceding the meeting, and at the time
and place of the meeting.
Each share of Common Stock is entitled to one vote at the Annual
Meeting with respect to each matter to be voted upon.
With regard to the election of directors, votes may be cast in favor
of or withheld from each nominee. Cumulative voting is not permitted.
Directors shall be elected by a plurality of the votes cast. "Plurality"
means that the three individuals who receive the largest number of the
votes shall be elected as directors. Consequently, any shares not voted
(whether by abstention, broker non-vote or otherwise) have no impact in the
election of directors except to the extent that the failure to vote for an
individual results in another individual receiving a larger number of
votes.
The approval of each of the Employee Plan Proposal, the Director
Plan Proposal, and the Accountant Proposal requires the affirmative vote of
a majority of shares represented at the Annual Meeting and entitled to
vote. Any shares represented at the Annual Meeting but which abstain from
voting with respect to any such proposal will have the same effect as a
vote against such proposal. Any shares held in street name for which the
broker or nominee receives no instructions from the beneficial owner and as
to which such broker or nominee does not have discretionary voting
authority under applicable New York Stock Exchange rules ("broker non-
votes"), will be considered as shares not entitled to vote and will
therefore not be considered in the tabulation of the votes.
The Company will appoint one or more inspectors to act at the
meeting and to make a written report thereof. Prior to the meeting, the
inspectors will sign an oath to perform their duties in an impartial manner
and according to the best of their ability. The inspectors will ascertain
the number of shares outstanding and the voting power of each, determine
the shares represented at the meeting and the validity of proxies and
ballots, count all votes and ballots, and perform certain other duties as
required by law.
The Company's Annual Report has previously been mailed to persons
that on March 27, 1998, were stockholders of record. Such Annual Report
contains, among other things, the Company's audited consolidated balance
sheets at December 31, 1997 and 1996, respectively, and audited
consolidated statements of income and changes in financial position for
each of the years ended December 31, 1997, 1996 and 1995, respectively.
The expense of soliciting proxies will be borne by the Company.
Proxies may be solicited personally by directors, officers, and other
regular employees of the Company in the ordinary course of business and at
nominal cost. The Company has employed Georgeson & Co., New York, New York,
to assist in the solicitation of proxies for a fee of $12,500, plus
reasonable expenses. In connection with its engagement of such firm, the
Company has also agreed to indemnify Georgeson & Co. against certain
liabilities arising from its engagement by the Company. Solicitation is
being made by the use of the mails, but may also be made by telephone,
electronic transmission and personal interviews. The Company will be
assisted in distributing, gathering and tabulating proxies by its stock
transfer agent, American Stock Transfer and Trust Company. Proxy materials
will be provided for distribution through brokers, custodians, and other
nominees or fiduciaries to beneficial holders of the Common Stock. The
Company expects to reimburse such parties for their reasonable out-of-
pocket expenses incurred in connection therewith.
ELECTION OF DIRECTORS
Composition of the Board and Nominees
Three Class I directors are to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by
them for the Company's three nominees named below, all of whom are
presently directors of the Company. If any nominee of the Company is
unable or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for the nominee designated by the Board
of Directors to fill the vacancy. It is not expected that any nominee will
be unable or will decline to serve as a director. The term of office of
each person elected as a director at the Annual Meeting will continue until
the Company's annual meeting of stockholders in the year 2001, or until a
successor has been elected and qualified.
The Company's Certificate of Incorporation and Bylaws provide that the
Board is divided into three classes of directors, with the number of
directors in each class to be as nearly equal as possible. The directors
are elected for staggered three-year terms. The terms of the Class I
Directors, Douglas A.P. Hamilton, Michael E. Porter, and Robert L.
Sandmeyer, expire in 1998, and their positions are the ones to be filled at
the Annual Meeting. The terms of the Class II Directors, Arnold L.
Chavkin, Macko A.E. Laqueur, and William R. Ziegler, expire in 1999, and
the terms of the Class III Directors, Purnendu Chatterjee, Charles A.
Donabedian, Paul B. Loyd, Jr., and Steven A. Webster, expire in 2000.
Mr. Loyd and Mr. Webster became directors of the Company upon its
organization in July 1997. Pursuant to the merger agreement among the
Company, Falcon and R&B, eight additional directors were elected in
December 1997. Of the current directors, five were members of Falcon's
board and five were members of R&B's board.
Class I Director Nominees - terms would expire in 2001 if elected
Douglas A.P. Hamilton, age 52, has been a director of the Company since
December 1997. Mr. Hamilton was a director of Falcon from 1992 until the
Merger. For more than the past five years, he has been a private investor.
Mr. Hamilton was one of Falcon's original investors. Mr. Hamilton is a
director of Carrizo Oil & Gas, Inc.
Michael E. Porter, age 50, has been a director of the Company since
December 1997. Dr. Porter was a director of Falcon from January 1, 1997
until the Merger. Dr. Porter is the C. Roland Christensen Professor of
Business Administration at the Harvard Business School, a position he has
held since 1973. Dr. Porter is a director of Alpha-Beta Technology, Inc.,
Parametric Technology Corporation, and ThermoQuest Corporation.
Robert L. Sandmeyer, age 68, has been a director of the Company since
December 1997. Dr. Sandmeyer was a director of R&B from 1988 until the
Merger. Dr. Sandmeyer has been Dean Emeritus of the College of Business
Administration at Oklahoma State University since 1994, and for more than
five years prior to that, was Dean and Professor of Economics at such
institution. Dr. Sandmeyer is the principal of SC2 International, which
specializes in assisting foreign business schools in their efforts to meet
international standards.
The Board of Directors recommends that the stockholders vote "FOR" the
nominees listed above.
Information with respect to directors whose terms do not expire at the
Annual Meeting is presented below.
Continuing Directors - terms expire in 1999 (Class II Directors):
Arnold L. Chavkin, age 46, has been a director of the Company since
December 1997 and was a director of R&B from August 1991 until the Merger.
Mr. Chavkin has been general partner of Chase Capital Partners, a general
partnership which invests in leveraged buyouts, recapitalizations, growth
equities and venture situations, since January 1992, and President of
Chemical Investments, Inc., an affiliate of Chase Capital Partners, since
March 1991. Chase Capital Partners and Chemical Investments, Inc. are
affiliates of Chase Manhattan Corporation. Chemical Investments, Inc. is a
stockholder of the Company. Mr. Chavkin is a director of American Radio
Systems, Bell Sports Corporation, and Wireless One, Inc.
Macko A.E. Laqueur, age 52, has been a director of the Company since
December 1997 and was a director of R&B from April 1995 until the Merger.
Since 1980, Mr. Laqueur has been a senior partner and one of the two
founders of Venture Capital Investors, a private investment company located
in Amsterdam, The Netherlands. Mr. Laqueur holds board positions with
Thermae Holding, a large resort owner and operator, and with Sanadome
Holding N.V., a medical spa facility. Mr. Laqueur and Venture Capital
Investors have interests in a large number of companies involved in the
offshore industry owning service, supply and heavy lift vessels. Mr.
Laqueur is one of the controlling persons of Workships Intermediaries,
N.V., a stockholder of the Company.
Mr. Ziegler, age 55, has been a director of the Company since December
1997 and was a director of Falcon from 1991 until the Merger. Mr. Ziegler
is a partner of the law firm of Parson & Brown, LLP, which acts as counsel
to the Company. Prior to joining Parson & Brown, LLP, in May 1994, Mr.
Ziegler was a partner in the law firm of Whitman Breed Abbott & Morgan and
a predecessor firm for more than the preceding five years, which firms
acted as counsel to the Company. Mr. Ziegler is a director of Grey Wolf,
Inc.; Geokinetics, Inc.; Ponder Industries, Inc.; and Flotek Industries,
Inc.
Continuing Directors - terms expire in 2000 (Class III Directors):
Purnendu Chatterjee, age 47, has been a director of the Company since
December 1997 and was a director of Falcon from 1993 until the Merger. Dr.
Chatterjee is an investor in public and private companies and has been
associated with the George Soros organization for more than the past five
years. A corporation controlled by Dr. Chatterjee is the general partner
of a limited partnership that is the Company's largest stockholder. Dr.
Chatterjee is a director of Indigo N.V. and Geotek Communications, Inc.
Charles A. Donabedian, age 55, has been a director of the Company since
December 1997 and was a director of R&B from 1989 until the Merger. Since
1990, Mr. Donabedian has been Chairman and Chief Executive Officer of Triad
Partners, Inc., which provides product development, marketing and sales
consulting and services to the financial service industry. Since May 1992,
Mr. Donabedian has also been Chairman and Chief Executive Officer of
Winston Financial Incorporated (formerly Winston Midwest Marketing, Inc.),
which provides product development, marketing and sales consulting and
services to the financial services industry; Winston Advisors, Inc. (of
which Mr. Donabedian is also a director) which provides financial advice
for individuals and small companies; and Winston Brokerage, Inc., a
broker/dealer.
Paul B. Loyd, Jr., age 51, has been a director of the Company since July
1997 and Chairman of the Board since January 6, 1998. Mr. Loyd was Chief
Executive Officer and Chairman of the Board of R&B from 1991 until the
Merger. Mr. Loyd has been President of Loyd & Associates, Inc., a financial
consulting firm, since 1989. Mr. Loyd is a director of Wainoco Oil
Corporation.
Steven A. Webster, age 46, has been Chief Executive Officer and a
director of the Company since its organization in July 1997. Mr. Webster
has served as Chief Executive Officer and Chairman of the Board of Falcon
since its formation in 1991. He serves as a director of Grey Wolf, Inc.;
Carrizo Oil & Gas, Inc.; Ponder Industries, Inc.; Geokinetics, Inc.; and
Crown Resources Corporation. Mr. Webster also serves as a trust manager of
Camden Property Trust.
Company Board Meetings and Committees
The Company was organized in July 1997 for the purpose of effecting the
Merger, which became effective on December 31, 1997. The Board of
Directors of the Company did not hold any meetings during 1997, but
executed two unanimous written consents.
Prior to January 6, 1998, there were no committees of the Board of
Directors of the Company. On that date, the Board established an Audit
Committee and a Compensation Committee. Messrs. Chavkin, Hamilton and
Ziegler were appointed to the Audit Committee, with Mr. Ziegler named as
Chairman. Messrs. Chatterjee, Donabedian and Sandmeyer were appointed to
the Compensation Committee, with Mr. Donabedian named as Chairman.
The Audit Committee reviews the financial statements and the internal
financial reporting systems and controls of the Company with the Company's
management and independent auditors, recommends resolutions for any dispute
between the Company's management and its auditors, and reviews other
matters relating to the relationship of the Company with its auditors.
The Compensation Committee makes recommendations to the Board of
Directors regarding the Company's executive compensation policies,
administers the Company's stock option plans, and administers the Company's
pension and ERISA plans.
The Board of Directors currently has no nominating committee or committee
performing a similar function.
Falcon Board Meetings and Committees
The board of directors of Falcon held six meetings during 1997. In
addition, during 1997 the board of Falcon executed nine unanimous written
consents. During 1997, all directors of Falcon attended at least 75
percent of the meetings of the board, except Purnendu Chatterjee missed
three meetings.
The Falcon audit committee during 1997 consisted of Douglas A.P. Hamilton
and Kenneth Hannan. The Falcon audit committee did not meet during 1997.
The compensation committee of Falcon during 1997 consisted of Purnendu
Chatterjee and William R. Ziegler. During 1997, the Falcon compensation
committee did not meet, but executed one written consent.
R&B Board Meetings and Committees
The board of directors of R&B held six meetings during 1997. In
addition, during 1997 the R&B board executed three unanimous written
consents. During 1997, all directors of R&B attended at least 75 percent of
the meetings of the board, except J.W. McLean missed two meetings.
The R&B audit committee held one meeting during 1997, and consisted
of A.L. Chavkin, C.A. Donabedian, T. Kalborg, M.A.E. Laqueur, J.W. McLean,
and R.L. Sandmeyer. All members of the committee attended this meeting.
During 1997, the R&B compensation committee consisted of C.A.
Donabedian, J.W. McLean and R.L Sandmeyer. During 1997, the R&B
compensation committee met six times. During 1997, all members of the R&B
compensation committee attended at least 75 percent of the meetings of the
committee.
Compensation of Directors
During 1998, each non-employee director of the Company will be
entitled to a fee of $9,000 per calendar quarter, plus $2,500 for each
meeting attended by that director. In addition, each director who is a
member of a committee of the board will receive $3,000 for each committee
on which he serves, and $4,000 for each committee of which he is chairman.
The Company will reimburse its directors for travel, lodging and related
expenses incurred attending board and committee meetings.
During 1997, each non-employee director of Falcon was entitled to a
fee of $5,000 per calendar quarter, conditioned upon attending all meetings
held during such quarter, and was entitled to reimbursement of reasonable
traveling and other expenses incurred in attending any meeting of the Board
of Directors.
During 1997, each non-employee director of R&B was paid a fee of
$18,000 per year ($4,500 per quarter). Mr. Loyd was paid a fee of NOK
150,000 per annum ($21,246 at exchange rates prevailing at the time of
payment) for serving as Chairman and a member of the board of directors of
Arcade Drilling AS, a majority-owned subsidiary of R&B. R&B paid each
director an additional fee of $500 ($400 for telephonic attendance) for
each meeting attended by that director. In addition, each non-employee
director was paid for attending each committee meeting at the rate of $700
($600 for telephonic attendance) for committee chairmen and $500 ($400 for
telephonic attendance) for other committee members. R&B also reimbursed
its directors for travel, lodging and related expenses incurred attending
board and committee meetings. Non-employee directors who are not executive
officers of R&B were provided life insurance coverage. No other benefits
under the R&B's employee benefit plans were payable to or on behalf of
these directors.
In 1995, each of the non-employee directors of R&B received an award
of stock options with respect to 15,000 shares of R&B's common stock at an
exercise price of $7.375 per share. As a result of the Merger, each
unexercised option was converted into an option to acquire 1.18 shares of
Common Stock of the Company at an exercise price of $6.25 per share. The
options expire ten years from the date of grant. All of the options were
fully vested at the time of the grant, except for those of Macko A.E.
Laqueur. Mr. Laqueur's options were to vest one-third on each subsequent
anniversary of the grant, but by their terms became fully vested upon the
Merger.
On December 3, 1996, each of the six non-employee directors of R&B
received an award of 9,000 shares of restricted common stock of R&B. Under
the terms of the plan, 33 1/3% of the shares of each award were to vest on
each of January 1 of 1998, 1999 and 2000. However, in accordance with the
"change in control" provisions of the plan, the restrictions were removed,
effective December 31, 1997, as a result of the Merger. In the Merger,
each of these shares was converted to 1.18 shares of Common Stock of the
Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the
shares of Common Stock (the only class of outstanding capital stock of the
Company) owned of record and beneficially as of March 27, 1998, by (i) all
persons who own of record or are known by the Company to own beneficially
more than 5% of the outstanding shares of such class of stock, (ii) each
current director of the Company, (iii) each executive officer of Falcon and
R&B named in the Summary Compensation Tables included elsewhere herein, and
(iv) all directors and executive officers of the Company as a group:
Common Stock(1)
----------------------------------
Number Percentage
of of Common
Name Shares Stock Owned
- ---- ------------- -----------
Purnendu Chatterjee . . . . . . . . 19,422,056(2) 11.76%
888 Seventh Avenue
Suite 3000
New York, NY 10106
Arnold L. Chavkin . . . . . . . . . 28,320(3)(4) *
Charles A. Donabedian . . . . . . . 15,786(4) *
FMR Corporation . . . . . . . . . . 12,657,824(1) 7.67%
82 Devonshire Street
Boston, MA. 02109-3614
Robert F. Fulton . . . . . . . . . 140,000(5) *
Douglas A.P. Hamilton . . . . . . . 316,140 *
Wayne K. Hillin . . . . . . . . . . 38,386 *
Macko A.E. Laqueur . . . . . . . . 386,058(4)(6) *
Paul B. Loyd . . . . . . . . . . . 1,179,767(7) *
Leighton E. Moss . . . . . . . . . 26,668 *
Tim W. Nagle . . . . . . . . . . . 194,642(8) *
Charles R. Ofner . . . . . . . . . 99,145(9) *
Michael E. Porter . . . . . . . . . 25,000 *
Robert H. Reeves . . . . . . . . . 60,000(10) *
Robert L. Sandmeyer . . . . . . . . 9,579 *
S-C Rig Investments, L.P. . . . . . 18,360,786 11.12%
888 Seventh Avenue, Suite 3000
New York, NY 10106
Bernie W. Stewart . . . . . . . . . 60,000(11) *
Steven A. Webster . . . . . . . . . 5,454,920(12) 3.3%
William R. Ziegler . . . . . . . . 3,842,600(13) 2.3%
Current Executive officers and directors
of the Company
as a group (17 persons) . . . . . 27,626,558(14) 16.5%
_________________
* Less than one percent.
(1) Based upon a total of 165,119,387 shares of Common Stock outstanding,
plus, with respect to the person(s) whose percentage is stated, any
shares not outstanding that are deemed beneficially owned by such
person(s). As explained in the footnotes to this table, certain
shares are deemed beneficially owned by more than one person or entity
listed in the table. Shares reflected as owned by FMR Corporation are
based upon its Schedule 13F dated February 18, 1998 (which schedule
reflects its holdings of Falcon common stock and R&B common stock as
of December 31, 1997), as adjusted to reflect the Merger.
(2) Includes (i) 18,360,786 shares of Common Stock beneficially owned by S
-C Rig Investments, L.P., the sole general partner of which is S-C Rig
Co., a company owned and controlled by Dr. Chatterjee, (ii) 250,000
shares owned by the Chatterjee Charitable Foundation, (iii) 48,830
shares owned by S-C Rig Co., and (iv) 24,454 shares owned by Furzedown
Trading Limited.
(3) Mr. Chavkin is President of Chemical Investments, Inc. ("Chemical"),
an affiliate of Chase Capital Partners and Chase Manhattan
Corporation. Chemical held 656,444 shares of Common Stock as of March
27, 1998. No beneficial ownership amount is included in the table for
Mr. Chavkin with respect to Chemical's ownership of the Common Stock
and beneficial ownership is disclaimed by Mr. Chavkin.
(4) The number set forth in the table includes options to purchase 17,700
shares of Common Stock of R&B at a price of $6.25 per share held by
each of Messrs. Chavkin and Laqueur and 5,900 such options held by Mr.
Donabedian. These represent options that were granted to those
individuals pursuant to R&B's 1995 Director Stock Option Plan. These
options were assumed by the Company in the Merger.
(5) Represents 140,000 shares issuable to Mr. Fulton upon the exercise of
vested stock options.
(6) The shares listed for Mr. Laqueur include those beneficially owned by
him through his control of Workships Intermediaries N.B., a stock-
holder of the Company.
(7) Includes (i) 1,891 shares owned by Greenwing Investments, Inc., which
is controlled by Mr. Loyd and as to which Mr. Loyd may be deemed to
have voting and dispositive power and (ii) vested options with respect
to 1,062,000 shares.
(8) Includes 177,000 shares issuable to Mr. Nagle upon exercise of vested
options.
(9) Includes 70,800 shares issuable to Mr. Ofner upon exercise of vested
options.
(10) Represents 60,000 shares issuable to Mr. Reeves upon the exercise of
vested stock options.
(11) Includes 37,500 shares issuable to Mr. Stewart upon the exercise of
vested stock options. Does not include 90,000 shares issuable upon
the exercise of options that vest ratably on April 15 of 1999, 2000,
and 2001.
(12) Includes (i) 885,000 shares in the name of Mr. Webster as voting
trustee for Linda M. Webster, his spouse, (ii) 1,838,600 shares
owned by FDI Marine, Inc., of which Mr. Webster is an officer and
director and of which Linda Webster is a principal stockholder, (iii)
1,089,600 shares owned by Falcon Drilling Services, Inc., of which Mr.
Webster is an officer and director and of which Linda Webster is a
principal stockholder, (iv) 86,400 shares owned by Taladro Associates,
of which Mr. Webster is a partner, (v) 559,800 shares owned by NFM
Gulf Enterprises, Inc., of which Mr. Webster is an officer, director
and principal stockholder, (vi) 70,650 shares owned by Cerrito
Partners, 23,600 shares owned by Cerrito Investments Limited
Partnership, 57,360 shares owned by Cerrito Investments I-A, L.P., and
11,880 shares owned by Webster Family Investors, all of which are
investment partnerships of which Mr. Webster is the general partner or
an officer of the general partner, and (vii) 217,700 shares issuable
upon exercise of vested stock options.
(13) Includes (i) 1,838,600 shares owned by FDI Marine, Inc., of which Mr.
Ziegler is an officer, director and principal stockholder, (ii)
1,089,600 shares owned by Falcon Drilling Services, Inc., of which Mr.
Ziegler is an officer, director and principal stockholder, (iii)
86,400 shares owned by Taladro Associates, of which Mr. Ziegler is a
partner, (iv) 559,800 shares owned by NFM Gulf Enterprises, Inc., of
which Mr. Ziegler is an officer, director and principal stockholder,
and (v) 63,000 shares issuable upon exercise of vested stock options.
(14) See preceding notes. Includes 20,811 shares owned of record by an
executive officer who is not named in the foregoing table and 7,080
shares issuable to such officer upon exercise of vested stock options.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
executive officers of the Company as of March 27, 1998:
Name Age Position
---- --- --------
Paul B. Loyd, Jr. 51 Chairman of the Board
Steven A. Webster 46 Chief Executive Officer and President
Andrew Bakonyi 44 President of R&B
Bernie W. Stewart 53 President of Falcon
Robert F. Fulton 46 Executive Vice President
Tim W. Nagle 47 Executive Vice President
Wayne K. Hillin 56 Senior Vice President and Co-Counsel
Leighton E. Moss 47 Senior Vice President and Co-Counsel
Charles R. Ofner 52 Vice President
_____________
Mr. Loyd has been a director of the Company since its organization in
July 1997, and has been Chairman of the Board of the Company since January
6, 1998. From 1991 until the Merger, Mr. Loyd was Chief Executive Officer
and Chairman of the Board of R&B.
Mr. Webster, has been Chief Executive Officer, President and a director
of the Company since its organization in July 1997. Since 1991, Mr.
Webster has been Chairman of the Board and Chief Executive Officer of
Falcon.
Mr. Bakonyi has been President of the Company since January 1998. From
December 1996 to December 1997, he was President of Reading & Bates
Drilling Co. For more than five years prior to that, Mr. Bakonyi was a
Vice President of Reading & Bates Drilling Co.
Mr. Stewart has been Chief Operating Officer of Falcon since April 1,
1996 and President of Falcon since January 1998. From 1993 until joining
Falcon, Mr. Stewart was Chief Operating Officer for Hornbeck Offshore
Services, Inc., an offshore supply boat operator, where he was responsible
for overall supervision of that company's operations. From 1986 until
1993, he was President of Western Oceanics, Inc., an offshore drilling
contractor.
Mr. Fulton has been Executive Vice President of the Company since January
1998. Mr. Fulton has been Executive Vice President of Falcon since January
1, 1995. From 1991 until joining Falcon in 1995, Mr. Fulton served as an
executive officer of Chiles Offshore Corporation, most recently as Senior
Vice President and Chief Financial Officer.
Mr. Nagle has been Executive Vice President of the Company since January
1998. Mr. Nagle was Chief Financial Officer of R&B for more than five
years prior to that.
Mr. Hillin has been Senior Vice President of the Company since January
1998. Mr. Hillin was Senior Vice President and General Counsel of R&B for
more than five years prior to that.
Mr. Moss has been Senior Vice President of the Company since January
1998. Mr. Moss has been Vice President and General Counsel of Falcon since
January 1, 1996. From October 1995 until joining the Company, Mr. Moss was
a member of the law firm of Gardere Wynne Sewell & Riggs, L.L.P. For five
years prior to October 1995, Mr. Moss was a member of the law firm of
Sewell & Riggs, P.C.
Mr. Ofner has been Vice President of the Company since January 1998. Mr.
Ofner was Vice President - Business Development of R&B for more than five
years prior to that.
Each officer of the Company may be removed from office at any time by the
Board of Directors, subject to his rights under any applicable employment
agreement. The Company has entered into employment agreements dated March
25, 1998 with each of its executive officers. The agreements provide for a
three year term of employment, with an automatic one year extension
implemented whenever the remaining term is two years. The contracts
provide for such officers to receive a minimum annual base salary (Mr.
Webster - $600,000; Mr. Loyd - $520,000; Mr. Nagle - $275,000; Mr. Fulton -
$240,000; Mr. Bakonyi - $240,000; Mr. Stewart - $240,000; Mr. Hillin -
$225,000; Mr. Ofner - $212,000; Mr. Moss - $180,000), and to participate in
the benefit plans and programs of the Company. The base salary is subject
to increase in the discretion of the Company's Board, and may be decreased
by the Board as part of a Company-wide salary reduction program. Each of
such agreements provides that if the officer terminates his employment for
good reason or during the 180-day period following a change of control of
the Company, the Company will (a) make a lump sum payment to him of salary
earned through the date of termination and a bonus based on the highest
annual bonus paid to him during the preceding three-year period prorated in
accordance with the period in the current year prior to the termination,
(b) make a lump sum payment to him equal to the sum of the highest annual
base salary and highest annual bonus paid to the officer during the three-
year period ending on the date of termination, times 3.75 (times five in
the case of Mr. Loyd and times six in the case of Mr. Webster), and (c)
continue to provide certain welfare plan and other benefits for the
unexpired term of the agreement.
For purposes of the employment agreements, "good-reason" includes (i) a
change in the officer's position, authority, duties or responsibilities,
(ii) changes in the office or location at which he is based without his
consent (such consent not to be unreasonably withheld), and (iii) certain
breaches of the agreement. A "change of control" for purposes of the
agreements would occur if a person or group (other than (i) such officer,
(ii) the Company or any of its subsidiaries or affiliates, (iii) any person
subject as of the date of the agreement to the reporting or filing
requirements of Section 13(d) of the Exchange Act with respect to the
securities of the company or any affiliates, (iv) any trustee or other
fiduciary holding or owning securities under an employee benefit plan of
the Company, (v) any underwriter temporarily holding or owning securities
of the Company, or (vi) any corporation owned directly or indirectly by the
current stockholders of the Company in substantially the same proportion as
their then ownership of stock of the Company) becomes the beneficial owner,
directly or indirectly, of securities of the Company representing forty
percent (40%) or more of the combined voting power of the Company's then
outstanding securities. A "change of control" for purposes of each
agreement also occurs if a majority of the Company's Board of Directors
ceases to be comprised of "Continuing Directors", defined as persons who
were directors on March 25, 1998, or were nominated by a majority of the
Board, where such majority was comprised only of Continuing Directors.
The same benefits payable to each officer under the agreement if he
terminates his employment for good reason or following a change of control
would also be payable to him if the Company terminates his employment other
than for cause (as defined in the agreement) or if he dies or becomes
disabled under the terms of the agreement. "Cause" for purposes of the
agreements includes (i) chronic alcoholism or substance abuse, (ii) a
deliberate act of proven fraud by the executive having a material adverse
impact on the Company, (iii) a deliberate and continuing failure by the
executive to comply with laws and regulations having a material adverse
impact on the Company, or (iv) conviction of the executive of a felony.
The agreements provide that if any payment to one of the covered officers
will be subject to any excise tax under Section 4999 of the Internal
Revenue Code (the "Code"), a "gross-up" payment would be made to place the
officer in the same net after-tax position as would have been the case if
no excise tax had been payable.
EXECUTIVE COMPENSATION
Compensation of Executive Officers
R&B Falcon Corporation did not pay any salaries or other compensation
during 1997. The following tables set forth the compensation paid for the
periods indicated to (i) the chief executive officer and the other four
most highly compensated executive officers of Falcon (the "Falcon Named
Officers") and (ii) the chief executive officer and the other four most
highly compensated executive officers of R&B (the "R&B Named Officers").
Falcon Drilling Company, Inc.
Summary Compensation Table
Long-Term
Compensation
Annual Compensation ------------
--------------------------- Stock Option All
Name and Principal Grants Other
Position Year Salary($) Bonus($)(1) # of Shares(2) Compensation($)
- ------- ---- --------- ----------- -------------- ---------------
Steven A. Webster 1997 579,191 500,000 0 3,700(3)
Chief Executive 1996 350,000 300,000 0 1,646(3)
Officer 1995 350,000 250,000 200,000 969(3)
Bernie W. Stewart 1997 236,705 120,000 0 6,677(5)
Chief Operating 1996 150,000(4) 75,000(4) 150,000 778(5)
Officer 1995 0 0 0 0
Robert F. Fulton 1997 193,352 120,000 0 6,418(6)
Executive Vice 1996 172,500 75,000 0 5,175(6)
President 1995 160,000 50,000 180,000 2,851(6)
Robert H. Reeves 1997 176,548 50,000 0 6,172(7)
Executive Vice 1996 160,417 40,000 0 5,305(7)
President 1995 150,000 20,000 150,000 5,498(7)
Leighton E. Moss 1997 148,347 90,000 0 5,153(8)
Vice President 1996 130,012 65,000 40,000 4,003(8)
and General 1995 0 0 0 0
Counsel
______________________
(1) Represents annual bonus award earned for the fiscal year noted, even
if such bonus was paid in the following fiscal year.
(2) Reflects two-for-one split of Falcon common stock in July 1997.
(3) Represents: life insurance premiums paid by the Company.
(4) Mr. Stewart's employment commenced April 1, 1996.
(5) Represents: life insurance premiums paid by the Company of $778 for
1996 and $1,527 for 1997; and 401(k) plan matching contributions of
$5,150 for 1997.
(6) Represents: life insurance premiums paid by the Company of $451,
$1,162, and $1,293 for 1995, 1996 and 1997 respectively; and 401(k) plan
matching contributions of $2,400, $4,013 and $5,125 for 1995, 1996 and
1997, respectively.
(7) Represents: life insurance premiums paid by the Company of $2,415,
$1,087 and $1,188 for 1995, 1996, and 1997, respectively and 401(k)
plan matching contributions of $3,083, $4,218 and $4,984 for 1995,
1996 and 1997, respectively.
(8) Represents: life insurance premiums paid by the Company of $753 for
1996 and $1,003 for 1997; and 401(k) plan matching contributions of
$3,250 for 1996 and $4,150 for 1997.
Reading & Bates Corporation
Summary Compensation Table
Long-Term Compensation
----------------------
Stock
Annual Compensation Restricted Option All
----------------------- Stock Grants Other
Name and Principal Bonus Awards # of Compensation
Position Year Salary($) ($)(1) ($)(2) Shares(3) ($)(4)
- -------- ---- -------- --------- --------- --------- ------------
Paul B. Loyd, Jr. 1997 520,000 1,040,000 0 0 5,926,281
Chief Executive 1996 450,000 450,000 2,123,437 0 27,716
Officer 1995 400,000 250,000 0 900,000 28,429
Tim W. Nagle 1997 275,000 302,500 0 0 2,197,407
Executive Vice 1996 240,000 120,000 0 150,000 4,750
President 1995 200,000 75,000 277,500 0 4,620
Wayne K. Hillin 1997 225,000 247,500 0 0 1,798,929
Senior Vice 1996 205,000 102,000 254,812 0 4,750
President 1995 190,000 50,000 263,625 0 4,620
and General
Counsel
Charles R. Ofner 1997 212,000 325,200 0 0 1,695,321
Executive Vice 1996 185,000 92,000 254,812 0 4,750
President 1995 170,000 50,000 235,875 0 4,620
Don L. McIntire 1997 141,000 155,100 0 0 1,129,500
Executive Vice 1996 129,000 45,000 147,225 0 0
President 1995 120,000 20,000 166,500 0 0
_________________
(1) Represents annual bonus award earned for the fiscal year noted.
(2) On December 3, 1996, R&B granted a restricted stock award of 75,000,
9,000, 9,000 and 5,200 shares of common stock of R&B to Messrs. Loyd,
Hillin, Ofner and McIntire, respectively. The shares were issued under
the R&B 1995 Long-Term Incentive Plan and were restricted as to
transfer until fully vested three years from the date of grant. On
December 5, 1995, R&B granted a restricted stock award of 20,000,
19,000, 17,000 and 12,000 shares of common stock of R&B to Messrs.
Nagle, Hillin, Ofner and McIntire, respectively. The shares were
issued under the R&B 1995 Long-Term Incentive Plan and were restricted
as to transfer until fully vested three years from the date of grant.
On April 1, 1992, R&B granted a restricted stock award of 120,000
shares of R&B common stock to Mr. Paul B. Loyd, Jr. The shares were
issued under the R&B 1992 Long-Term Incentive Plan. Restrictions as to
one/twenty-fourth (1/24th) of the shares were to lapse each three
months thereafter. The foregoing stock awards entitled the
beneficiaries to all rights as a stockholder from the date of grant
(including the right to receive dividends when, as and if declared)
other than the right to transfer the shares. The amounts shown for all
awards reflect the value of the awards based on the market price on the
date of grant. In accordance with the "change in control" provisions of
the R&B 1995 Long-Term Incentive Plan and the R&B 1992 Long-Term
Incentive Plan, the restrictions on all of the above restricted stock
awards were removed, effective December 31, 1997, as a result of the
Merger. In the Merger, each share of R&B stock that was awarded, as
described above, was converted into 1.18 shares of the Company.
(3) The stock options awarded in 1995 to Mr. Loyd represent stock options
awarded pursuant to the R&B 1995 Long-Term Incentive Plan and the R&B
1992 Long-Term Incentive Plan. The stock options awarded in 1996 to Mr.
Nagle represent stock options awarded pursuant to the R&B 1995 Long-
Term Incentive Plan. As a result of the Merger, (i) the options
reflected for Mr. Loyd were converted to options to acquire 1,062,000
shares of Common Stock of the Company at a price of $11.759 per share,
(ii) the options granted to Mr. Nagle were converted to options to
acquire 177,000 shares of Common Stock of the Company at a price of
$23.729 per share, and (iii) such options became fully vested.
(4) The All Other Compensation column includes (i) 401(k) plan Company
matching contributions, (ii) life insurance premiums paid by the
Company, (iii) vacation pay, (iv) termination benefits of $5,850,000
paid in 1997 to Mr. Loyd, which amount included $290,082 and $226,338
that had been accrued by the Company in 1996 and 1995, respectively
(See "R&B Employment Contracts and Change-in-Control Arrangements"),
(v) termination benefits in 1997 of $2,165,625, $1,771,875, $1,669,500
and $1,110,375 for Messrs. Nagle, Hillin, Ofner and McIntire,
respectively (see "R&B Employment Contracts and Change in Control
Arrangements"), and (vi) in the case of Mr. Loyd, NOK 150,000 per annum
for serving as Chairman and a member of the board of directors of
Arcade Drilling AS, a majority-owned subsidiary of the Company (amounts
shown in the table reflect exchange rates prevailing during each such
year).
Options Granted and Options Exercised in the Last Fiscal Year
The following tables set forth information regarding stock options
granted to and exercised by the Falcon Named Officers and the R&B Named
Officers during 1997, as well as options held by such persons as of
December 31, 1997, the last day of each of Falcon's and R&B's last fiscal
year. With respect to the Falcon Named Officers, the options were granted
under Falcon's option plans, and to the extent exercised, were exercised
for shares of Falcon common stock. With respect to the R&B Named Officers,
the options were granted under R&B's option plans and, to the extent
exercised, were exercised for shares of R&B common stock. All options of
Falcon and R&B outstanding at the Merger were assumed by the Company and
are exercisable for shares of Common Stock of the Company. All share
amounts have been adjusted to reflect the Merger and the conversion ratios
at which shares of Falcon and R&B were exchanged for Common Stock of the
Company, and the adjusted exercise prices for such options.
Falcon Option Grants in Last Fiscal Year
The only options granted to a Falcon Named Officer during 1997 were
subsequently rescinded in that year.
R&B Option Grants In Last Fiscal Year
The only options granted to a R&B Named Officer during 1997 were
subsequently rescinded in that year.
Falcon Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
Number of Value of
Securities Underlying Unexercised in-the-
Shares Unexercised Options Money Options at
Acquired at Fiscal Year-End Fiscal Year End ($)(3)
on Value ----------------------- -----------------------
Exercise Realized Un- Un-
Name (#)(1) ($)(2) Exercisable exercisable Exercisable exercisable
- ---- ------- --------- ----------- ----------- ----------- -----------
Steven A.
Webster 214,800 5,053,170 140,732 66,668 4,081,228 1,933,372
Bernie
Stewart 22,500 288,956 7,500 120,000 190,068 3,041,100
Robert F.
Fulton 40,000 565,000 80,000 60,000 2,405,000 1,803,750
Robert H.
Reeves 40,000 627,400 60,000 0 1,803,750 0
Leighton E.
Moss 13,332 312,469 0 13,336 0 386,774
_____________
(1) Adjusted to reflect two-for-one split of Falcon common stock in July
1997.
(2) These values were computed based on the difference between the
exercise price and the closing price of Falcon common stock on the
date of exercise.
(3) These values were computed based on the difference between the
exercise price and an assumed common stock value of $35.0625 per
share, which was the closing price of Falcon common stock on the NYSE
on December 31, 1997. The Common Stock of the Company did not begin
trading until January 2, 1998. The Falcon common stock price is used
as the basis for valuation since it was converted into Company Common
Stock on a one-for-one basis after close of the NYSE on December 31,
1997, and each option to purchase a share of Falcon common stock was
converted into an option to acquire one share of the Company, at the
same exercise price.
R&B Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values(1)
Number of Value of
Securities Underlying Unexercised in-the-
Shares Unexercised Options Money Options at
Acquired at Fiscal Year-End Fiscal Year End ($)(2)
on Value ----------------------- -----------------------
Exercise Realized Un- Un-
Name (#) ($) Exercisable exercisable Exercisable exercisable
- ---- -------- -------- ----------- ----------- ----------- -----------
Paul B.
Loyd, Jr 0 0 1,062,000 0 25,199,136 0
Tim W.
Nagle 0 0 177,000 0 2,081,166 0
Wayne K.
Hillin 0 0 0 0 0 0
Charles R.
Ofner 0 0 70,800 0 2,069,980 0
Don L.
McIntire 0 0 0 0 0 0
_____________
(1) Adjusted to reflect the Merger, wherein each option to acquire one
share of R&B common stock was converted to an option to purchase 1.18
shares of common stock of the Company, and the exercise price
proportionately adjusted.
(2) These values were computed based on the difference between the
exercise price and an adjusted common stock value of $35.487 per
share. The adjusted value is the closing price of R&B common stock on
the NYSE December 31, 1997 ($ 41.875) divided by 1.18. The Common
Stock of the Company did not begin trading until January 2, 1998. The
adjusted R&B common stock price is used as the basis for valuation
since each share of R&B common stock was converted into 1.18 shares of
Common Stock of the Company after close of the NYSE on December 31,
1997.
Compensation Committee Interlocks and Insider Participation
The Company. The Company did not have a Compensation Committee during
1997. Mr. Donabedian was appointed chairman of the Company's Compensation
Committee in January 1998. During 1997, a company affiliated with Mr.
Donabedian provided consulting services to R&B regarding employee
compensation matters. It is expected such company will provide similar
services to the Company in 1998. The amounts paid by R&B during 1997 did
not exceed $20,000 in the aggregate. It is not known what amounts will be
paid by the Company for these services in 1998.
Falcon. The members of the Falcon Compensation Committee during 1997
were Dr. Purnendu Chatterjee and William R. Ziegler. Each member of the
Falcon Compensation Committee was a non-employee director. No member of
the Falcon Compensation Committee was an employee or compensated officer of
Falcon or any of its subsidiaries (although Mr. Ziegler, in the past,
served as an unpaid officer of certain subsidiaries of Falcon). During
1997, no executive officer of Falcon served as a member of (i) the
compensation committee of another entity in which one of the executive
officers of such entity served on the Falcon Compensation Committee, (ii)
the board of directors of another entity, one of whose executive officers
served on the Falcon Compensation Committee or (iii) the compensation
committee of another entity in which one of the executive officers of such
entity served as a member of Falcon's board of directors.
R&B. The members of the R&B Compensation Committee during 1997 were
Charles A. Donabedian, J. W. McLean, and Robert L. Sandmeyer. Each member
of the R&B Compensation Committee was a non-employee director. No member
of the R&B Compensation Committee was an officer or employee of R&B or any
of its subsidiaries. During 1997, no executive officer of R&B served as a
member of (i) the compensation committee of another entity in which one of
the executive officers of such entity served on the R&B Compensation
Committee, (ii) the board of directors of another entity, one of whose
executive officers served on the R&B Compensation Committee or (iii) the
compensation committee of another entity in which one of the executive
officers of such entity served as a member of the R&B board of directors.
Transactions with Related Parties
See "Compensation Committee Interlocks and Insider Participation"
regarding payments made by R&B in 1997, and anticipated to be made by the
Company in 1998, to an entity affiliated with Charles Donabedian, a
director of the Company. In addition, the Company has engaged Dr. Michael
Porter, a director of the Company, to make presentations during 1998 to
groups of executives of customers of the Company. The Company anticipates
that payments to Dr. Porter for these presentations will, in the aggregate,
exceed $60,000.
FALCON BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the
Company's previous or future filings under the Securities Act of 1933 or
the Securities Exchange Act of 1934 that might incorporate this Proxy
Statement or future filings with the Securities and Exchange Commission, in
whole or in part, the following Report and the Performance Graph which
follows shall not be deemed to be incorporated by reference into any such
filings.
The Compensation Committee of the Board of Directors of Falcon (the
"Falcon Committee") consisted of two independent, non-employee directors
during 1997. Effective with the business combination of Falcon and Reading
& Bates on December 31, 1997 (the "Merger"), Falcon ceased to have a
compensation committee. The Falcon Committee's responsibilities during
1997 included: reviewing the performance and determining the compensation
levels of the Chief Executive Officer of the Company (the "CEO"); reviewing
and approving the CEO's recommendations with respect to the base salary and
bonus components of the compensation packages for all executive officers
(other than the CEO); and reviewing and approving the CEO's recommendations
regarding stock option grants to other executive officers and employees.
The 1997 base salaries of executive officers were approved by the Falcon
Board of Directors in the first quarter of 1997. Incentive bonuses to
executive officers in respect of 1996 performance were approved by the
Falcon Board in the first quarter of 1997 and paid during that quarter.
Historically, the Falcon Committee or the Falcon Board determined bonuses
for executive officers in the first quarter of each year, with respect to
prior year's performance. As a result of the Merger, the undersigned
ceased to be members of the Falcon Board and the Falcon Committee on
December 31, 1997. Accordingly, the Falcon Committee did not participate in
the determination of bonuses paid to Falcon executive officers with respect
to 1997.
The objectives of Falcon's compensation program included the facilitation
of Falcon's ability to attract, retain and motivate highly qualified
employees at all levels (in particular, the executive talent needed to
maximize stockholder value), the alignment of executive officers' interest
with the success of the Company, and the facilitation of the achievement of
Falcon's performance objectives. In furtherance of these goals, Falcon's
executive compensation program was structured to provide competitive levels
of salary and total compensation while at the same time closely tying
executive compensation to individual and company performance.
1997 Falcon Executive Officer Compensation
Compensation for Falcon's executive officers has consisted of four
principal elements: (i) base salary, (ii) incentive bonuses, (iii) stock-
based incentives, and (iv) other benefits generally available to all
employees of the Company, such as health plans, pension plans and
retirement plans.
Base Salary. Base salaries are designed to help attract and retain key
management talent. Base salaries, whether pursuant to an employment
agreement or otherwise, are derived in part from salary range guidelines
developed by the CEO based upon review of salaries paid for comparable
positions by other companies in the marine contract drilling industry.
Internal job values, as determined by the CEO and other senior management,
and the general state of the economy in Falcon's industry are also
considered in determining salary ranges. The CEO's recommendations to the
Falcon Committee as to 1997 base salaries for executive officers were
(subject to minimum levels contained in any applicable employment contract)
based upon the individual's performance, any change in the scope of
responsibilities, and the individual's seniority and experience, in
addition to consideration of industry salary ranges. The Falcon Committee,
after consideration of the CEO's recommendations as well as Falcon's
overall performance and the Falcon Committee members' subjective judgments
about the appropriate salary levels to motivate and reward individual
executives, approved the CEO's recommendations for 1997 base salary of each
executive officer and recommended to the Falcon Board that such base
salaries be adopted.
Incentive Bonuses. Discretionary annual bonus awards are generally a
significant part of total compensation for Falcon's senior executive
officers. The goal of annual bonuses is to drive performance, motivate
executive officers and reward exceptional performance. The CEO's
recommendations to the Falcon Committee as to 1997 incentive bonus payments
to executive officers were based upon individual performance, the overall
performance Falcon and, to the extent relevant, the performance of the
executive's division. In January 1997 the Falcon Committee made its
determination as to incentive bonus payments to executive officers for 1996
performance after consideration of the Company's overall performance, the
Falcon Committee members' subjective judgments about the appropriate bonus
levels to motivate and reward individual executives, and their review of
the recommendations of the CEO, but no overall ranking of the various
factors was applied. Due to the Merger, as stated above, the Falcon
Committee did not take part in the consideration of the incentive bonuses
granted to Falcon executive officers in 1998 with respect to their
performance in 1997.
Stock-Based Incentives. Stock option awards and restricted stock grants
under Falcon's stock option plans were designed to align the interests of
stockholders with those of executive officers, outside directors and other
key employees of Falcon and were, for the most part, granted to key
executives who were in a position to make a substantial contribution to the
long-term success of Falcon. Falcon's general policy (subject to
individual exceptions to reward exceptional performance and contribution
to Falcon) was that an executive officer, outside director, or key employee
will be entitled only to a single stock option grant. Therefore, in making
stock option awards generally, Falcon considered the number of options
previously granted to each executive in order to determine whether the
total number of shares covered by all outstanding option awards adequately
reflected the executive's overall contribution to Falcon and importance to
the future success and profitability of Falcon. Awards and grants are also
important in retaining the services of valued employees. The recent upturn
in the contract drilling industry has resulted in a shortage of qualified
personnel. The Falcon Committee believed that stock options provide a
valuable tool in the hiring and retention. During the first half of 1997,
Falcon granted stock options to approximately forty employees, including
two of its executive officers. However, in order to have the Merger
treated as a "pooling of interests" for accounting purposes, Falcon was
required to rescind these options in November 1997.
Other Compensation. Other elements of compensation to Falcon executive
officers included participation in a company-wide medical and insurance
benefits plan, and the ability to defer compensation pursuant to a 401(k)
plan.
1997 Compensation of Falcon Chief Executive Officer
Steven A. Webster was the Chief Executive Officer of Falcon during 1997.
Mr. Webster was employed under a three year employment contract that became
effective January 30, 1995. Under the terms of the employment contract,
Mr. Webster was entitled to a minimum base salary of $350,000 a year,
subject to increase at the sole discretion of the Falcon Board. Based upon
the Board's review of comparable CEO compensation in the Company's
industry, as well as Mr. Webster's performance during prior years, the
Board determined to pay Mr. Webster a base salary for 1997 at a rate of
$600,000 per annum. Because Mr. Webster's salary increase was not put into
effect until after January 1, 1997, the actual total base salary paid to
Mr. Webster during 1997 was $579,191. Mr. Webster did not participate in
the Board's vote regarding his salary for 1997. As a result of the Merger,
as stated above, the Falcon Committee did not take part in the
consideration of the incentive bonus paid to Mr. Webster in 1998 in respect
of his performance in 1997.
Tax Considerations
The Falcon Committee considered the potential impact of section 162(m) of
the Internal Revenue Code of 1986, as amended, and the proposed regulations
thereunder (the "Section"). The Section disallows a tax deduction for any
publicly held corporation for individual compensation exceeding $1 million
in any taxable year for any of the five most highly compensated executive
officers, subject to certain exceptions. Falcon's policy was to qualify,
to the extent reasonable, its executive officers' compensation for
deductibility under applicable tax laws. However, the Falcon Committee
believed that its primary responsibility is to provide a compensation
program that will attract, retain and reward the executive talent necessary
to Falcon's success. Consequently, the Falcon Committee recognized that
the loss of a tax deduction could be necessary in some circumstances.
PURNENDU CHATTERJEE
WILLIAM R. ZIEGLER
1997 Bonus Payments to Falcon Executive Officers
The bonus payments to the Falcon Named Officers for 1997 were determined
by Mr. Steven A. Webster, Chief Executive Officer of both the Company and
Falcon and the sole director of Falcon following the Merger. With respect
to all bonus payments except the bonus payment to Mr. Webster, such bonus
payments were determined solely by Mr. Webster. With respect to the bonus
paid to Mr. Webster, Mr. Webster sought and received the concurrence of the
Company's Compensation Committee that such bonus was appropriate.
Falcon Performance Graph
The following graph sets forth Falcon's total cumulative stockholder
return as compared to the CRSP Total Return Index for the NASDAQ Stock
Market (the "NASDAQ Index") and the Simmons & Company International
Offshore Drillers Index (the "SCI Index"), for the period July 28, 1995
(the date of Falcon's initial public offering) through December 31, 1997.
The SCI Index is comprised of Falcon; Arethusa (Offshore) Ltd (through
March, 1996); Atwood Oceanics, Inc.; Cliffs Drilling Company; Dual Drilling
Company (through March, 1996); Ensco International, Inc.; Global Marine,
Inc.; Noble Drilling Corporation; Pride International, Inc. (since
September 1997); Reading & Bates Corporation; Rowan Companies, Inc.; Santa
Fe International Corporation (since June 1997); Smedvig A/S (since February
1997) and Sonat Offshore Drilling, Inc.
Total stockholder return assumes $100 vested at the beginning of the
period in the common stock of Falcon, the stocks represented in the NASDAQ
Index and the stocks represented in the SCI Index, respectively. Total
return also assumes reinvestment of dividends; Falcon has never paid
dividends on its common stock.
[Falcon's performance graph appears here. See table below for data.]
Historical stock price performance should not be relied upon as
indicative of future stock price performance.
The following table shows the values that are displayed on the graph:
7/28/95 1995 1996 1997
------- ---- ---- ----
Falcon $100 $151 $395 $702
SCI Index $100 $140 $333 $750
NASDAQ Index $100 $105 $129 $159
Falcon Employment Agreements
During 1997, Falcon and Steven A. Webster were parties to an employment
agreement dated January 30, 1995, pursuant to which Mr. Webster was
entitled to receive an annual salary of not less than $350,000 for each
year during the three-year term of the contract. In addition to annual
salary, Mr. Webster may receive, at the sole discretion of the Falcon
Board, incentive bonuses. The agreement also provided for the grant by
Falcon to Mr. Webster of options to acquire shares of Falcon common stock,
at an exercise price equal to the fair market value of such stock on the
date of grant, and in an amount to be determined by the Falcon Compensation
Committee and approved by the Falcon Board in its sole discretion.
Pursuant to this provision, in January 1996 Mr. Webster was awarded options
to acquire 200,000 shares of Falcon common stock at its then market value
of $6.06 per share (after adjustment to reflect Falcon's two for one stock
split in July 1997). Any termination of Mr. Webster's employment without
cause or his resignation in certain circumstances, including a change of
control of the company, entitled Mr. Webster to the payment of the greater
of his annual salary for the number of full months remaining under the term
of the employment agreement or his annual salary for a period of 24 months
(36 months in the event of a change of control), in each case, together
with all unpaid incentive bonus amounts accrued to the date of termination.
The agreement provided that if Falcon terminated Mr. Webster's employment
at any time following the term of the agreement, Mr. Webster would be
entitled to receive a lump sum payment equal to 150% of his annual salary
then in effect at severance.
Falcon and Bernie W. Stewart entered into an employment agreement dated
April 1, 1996, pursuant to which Mr. Stewart was entitled to receive an
annual salary of not less that $200,000 for each year during the two-year
term of the contract. In addition to annual salary, Mr. Stewart is
eligible for an annual incentive bonus at the discretion of the Board of
Directors of the company with respect to the fiscal years ending December
31, 1997 and December 31, 1998. In addition, such agreement provided for
the grant to Mr. Stewart of options to purchase 150,000 shares of common
stock of Falcon at $9.72 per share (after adjustment to reflect Falcon's
two-for-one stock split in July 1997), which options vest ratably over five
years.
Falcon and Robert H. Reeves, Jr. are parties to an employment agreement
which was dated and commenced May 1, 1997, and which expires December 31,
1998. Pursuant to the contract Mr. Reeves is entitled to receive an annual
salary of not less than $175,000. In addition to annual salary, Mr. Reeves
is eligible for an annual incentive bonus at the discretion of the Falcon
Board.
Falcon Transactions with Related Parties
During 1997, Falcon leased crewboats, tugboats, supply barges and other
vessels from various entities owned or controlled by Robert H. Reeves, Jr.
and Charles E. Reeves, officers of Falcon. Aggregate payments to these
entities in 1997 were $939,000. Falcon expects to continue this
arrangement through 1998.
Each of Mr. Robert H. Reeves, Jr. and his brother Charles E. Reeves, who
is also employed by the Company, are entitled to receive benefits under a
Senior Executive Incentive Compensation Agreement with Falcon dated
December 24, 1992, which was entered into in connection with Falcon's
acquisition of Two R Drilling Company, Inc. Under this agreement Falcon
agreed to make annual payments to each of the Reeves of 7.5% (or aggregate
payments to Robert H. Reeves, Jr. and Charles E. Reeves of 15%) of domestic
barge rig income (less overhead, depreciation and interest attributable to
such operations) during the period from January 1, 1993 through December
31, 1997, up to an aggregate maximum amount of $5,000,000 during the entire
period, less certain amounts ($3,550,000 plus the amount of certain
interest payments) payable on a priority basis under an earn-out agreement
between Falcon and a former bank lender to Two R Drilling Company.
Payments will be made in 1998 to the Reeves in an aggregate amount of
$603,000, representing the amount payable to them under the agreement in
respect of 1997.
William R. Ziegler, a director and stockholder of Falcon during 1997 and
a director and stockholder of the Company, is a partner in the law firm
Parson & Brown. During 1997, Falcon paid fees aggregating $203,000 to
Parson & Brown. The Company anticipates that it will continue to use the
services of Parson & Brown.
During 1997, Falcon paid $398,000 to Bantam Services, Inc., pursuant to a
Catering Service Contract entered into by the Company and Falcon. The
Catering Service Contract was entered into in June, 1994 as part of the
transaction in which Falcon and Blake Workover Company formed a 50/50
joint venture to own and operate barge workover rigs. The joint venture
became R&B Falcon Workover Company, Inc. when Falcon acquired the other 50%
interest thereon in August, 1995. Under the terms of the Catering Service
Contract, Bantam furnished groceries and supplies to the rigs operated by
Falcon Workover, and Falcon Workover paid for these groceries and supplies
at Bantam's cost. In addition, Bantam was entitled to bill and collect
from non-Falcon personnel on the Falcon Workover rigs (such as the
operator's personnel and service company personnel) a daily charge for
meals and lodging provided to such third parties. Bantam was entitled to
collect these amounts even though the accommodations were on Falcon's rigs
and Falcon personnel prepared the meals. The Catering Service Contract
expired on April 1, 1997. Bantam is owned by Michael E. Blake, President
of R&B Falcon Workover Company, Inc.
Section 16(a) Reporting Delinquencies - Falcon
The Company believes that during 1997 all filing requirements under
Section 16(a) of the Securities Exchange Act of 1934 were met with respect
to Falcon except for the following:
Michael E. Porter failed to file a Form 3 following his election as a
director of Falcon. Dr. Porter also failed to file a Form 4 following a
single grant to him of stock options of Falcon in January 1997. Such
options were later rescinded by Falcon.
James R. Latimer III, a former director of Falcon, was late filing a Form
4 following a single exercise by him in February 1997 of options granted
under a stock option plan of the Company.
Falcon did not receive a Form 5 from Purnendu Chatterjee with respect to
1997 and did not receive a certification from him that no Form 5 was
required to be filed by him. The Company has no knowledge that such filing
was required.
R&B BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the
Company's previous or future filings under the Securities Act of 1933 or
the Securities Exchange Act of 1934 that might incorporate this Proxy
Statement or future filings with the Securities and Exchange Commission, in
whole or in part, the following Report and the Performance Graph which
follows shall not be deemed to be incorporated by reference into any such
filings.
During 1997 the Compensation Committee of the R&B Board of Directors (the
"R&B Committee") consisted of Charles A. Donabedian, Robert L. Sandmeyer
and J.W. McLean. These persons ceased to be directors of R&B at the time
of the Merger (December 31, 1997). Messrs. Donabedian and Sandmeyer became
directors of the Company in December 1997. Because Mr. McLean is no longer
a director of either R&B or the Company, this report is made over the
signatures of Messrs. Donabedian and Sandmeyer, who were on the R&B
Committee and who are currently directors of the Company. The following
report documents the components of R&B's executive officer compensation
programs and describes the basis on which 1997 compensation determinations
were made by the R&B Committee with respect to the executive officers of
R&B.
Compensation Philosophy and Overall Objectives of Executive Compensation
Programs
It was the philosophy of R&B to ensure that executive compensation be
directly linked to continuous improvements in corporate performance and
increases in stockholder value. The following objectives were adopted by
the R&B Committee as guidelines for compensation decisions:
- - Provide a competitive total compensation package to enable R&B to
attract and retain key executives.
- - Integrate all pay programs with R&B's annual and long-term business
objectives and strategy, and focus executive behavior on the fulfillment
of these objectives.
- - Provide variable compensation opportunities that are directly linked
with the performance of R&B.
Cash compensation
Cash compensation included base salary and annual incentive award
programs. The base salary of each of R&B's executive officers was
determined by an evaluation of the responsibilities of that position and by
comparison to the average of salaries paid in the competitive market in
which R&B competed for comparable executive ability and experience.
Annually, the performance of each executive officer was reviewed by the R&B
Committee in the case of R&B's Chief Executive Officer (with the officer
whose performance is being evaluated not participating), and by the Chief
Executive Officer in the case of the other executive officers, taking into
account R&B's operating and financial results for that year, the
contribution of each executive officer to such results, the achievement of
goals established for each such executive officer at the beginning of each
year, and competitive salary levels for persons in those positions in the
markets in which R&B competes. To assist in its deliberations, the R&B
Committee was provided a report from Towers Perrin, a recognized
independent compensation consultant, setting out comparable salary and
incentive compensation information for a number of representative companies
in the offshore drilling industry selected by Towers Perrin. Following its
review of the performance of R&B's executive officers, the R&B Committee
reported its recommendations for salary increases and incentive awards to
R&B's Board of Directors. In 1997, there were no annual base salary
increases recommended by the R&B Committee and approved by the R&B Board of
Directors for the executive officers; however, incentive compensation
awards were recommended by the R&B Committee and approved by the R&B Board
for all of the executive officers. The R&B Committee believed the
recommended incentive awards were warranted and consistent with the
performance of such executives during 1997 based on the R&B Committee's
evaluation of each individual's overall contribution to accomplishing R&B's
1997 corporate goals and of each individual's achievement of individual
goals during the year. Such goals related to ongoing operational and
business matters, such as maintaining high utilization of R&B's fleet,
improvement of R&B's customer and investor relationships, improvement of
R&B's safety and operations programs, development of new business
opportunities and strengthening R&B's capital structure.
Stock-Based Incentives
The R&B Committee believed that it was essential to align the interests
of the executives and other management personnel responsible for the growth
of R&B with the interest of R&B's stockholders. The R&B Committee believed
this alignment was best accomplished through the provision of stock-based
incentives.
During 1997, R&B's executive officers were awarded stock options with
respect to 770,000 shares of R&B common stock; however, by agreements
between those officers and R&B, those options were voluntarily relinquished
by the R&B executive officers without compensation, effective upon
completion of the Merger, provided the Merger was completed, for accounting
purposes, as a "pooling of interests" transaction (which was the case).
Prior to 1997, R&B had established stock-based incentive plans and had
made option grants and restricted stock awards pursuant to such plans.
During 1997, restricted stock awards aggregating 28,700 shares of common
stock of R&B were granted under the R&B Long-Term Incentive Plan. These
shares vested on December 31, 1997, as a result of the Merger.
Chief Executive Officer Compensation and Corporate Performance for Fiscal
Year 1997
In determining the compensation of Mr. Paul Loyd, Jr., the Chairman,
President and Chief Operating Officer of R&B, the R&B Committee considered
R&B's anticipated operating and financial results for 1997 and evaluated
his individual performance and substantial contribution to those
anticipated results, as well as considered the substantial contribution
would receive as a result of the Merger and his efforts with respect to
same. Based on that review and assessment, the R&B Committee recommended
and the R&B Board approved (with Mr. Loyd not participating) an incentive
award for Mr. Loyd of $1,040,000.
Summary
The R&B Committee believed that the total compensation program for
executive officers of R&B was competitive with the compensation programs
provided by other corporations with which R&B competed. The R&B Committee
also believed that the stock-based incentives provided opportunities to
participants that were consistent with the returns that are generated on
the behalf of R&B's stockholders.
Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code of 1986, as amended generally
disallows a corporation's deduction for remuneration paid to its chief
executive officer and its four other highest compensated officers in excess
of $1,000,000 per person effective January 1, 1994. In connection with its
policies relating to executive compensation, the R&B Committee considered
the implications of Section 162(m) along with the various other factors
described elsewhere in this report in making its executive compensation
determinations in 1997.
CHARLES DONABEDIAN
ROBERT L. SANDMEYER
R&B Performance Graph
The following graph sets forth the Company's total cumulative stockholder
return as compared to the S&P 500 index (the "S&P Index") and the composite
peer index (the "Peer Index"), for the period December 31, 1992 through
December 31, 1997.
The Peer Index is comprised of Arethusa (Offshore) Ltd (through March
1996); Atwood Oceanics, Inc.; Diamond Offshore Company; Dual Drilling
Company (through March 1996); Ensco International, Inc.; Global Marine,
Inc.; Noble Drilling Corporation; Rowan Companies, Inc.; Transocean
Offshore, Inc.; and Western Company of North America (through September
1993).
Total stockholder return assumes $100 vested at the beginning of the
period in the common stock of R&B, the stocks represented in the S&P Index
and the stocks represented in the Peer Index, respectively. Total return
also assumes reinvestment of dividends; R&B did not pay dividends on its
common stock during the period covered by the graph.
[R&B's performance graph appears here. See table below for data.]
Historical stock price performance should not be relied upon as
indicative of future stock price performance.
Peer weightings for the peer group have been adjusted for changes as
follows: Dual Drilling Company was added to the peer group index in August
1993 as this company had its initial public offering in August 1993;
Western Company of North America was removed from the peer group index as
of September 30, 1993 as that company sold its drilling assets in October
1993; Chiles Offshore Corporation was dropped and Noble Drilling
Corporation was added to the peer group index in September 1994 as these
two companies merged during September 1994, Diamond Offshore was added to
the peer group index in October 1995 as this company had its initial public
offering in October 1995, Arethusa (Offshore) Ltd. was removed from the
peer group index as of March 31, 1996 as that company merged with Diamond
Offshore, and Dual Drilling Company was removed from the peer group index
as of March 31, 1996 as that company merged with ENSCO International Inc.
The following table shows the values that are displayed on the graph:
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
Reading & Bates $100 $165 $141 $353 $624 $985
S&P 500 $100 $110 $112 $153 $189 $252
Peer Group (10 Stocks) $100 $166 $143 $289 $568 $827
Pension Plan Table
R&B had a defined benefit pension plan prior to the Merger; Falcon did
not. It is anticipated that the Company will assume and adopt the R&B
pension plan. The following is a description of the R&B Pension Plan.
Assuming that an employee is entitled to an annual social security
benefit of $15,912 at normal retirement date and has an annual social
security covered compensation amount of $29,304, the Pension Plan Table
illustrates the amount of annual pension benefits payable by R&B under a
single-life annuity basis to a person in specified average compensation and
years-of-service classification.
Years of Service
36-Month Average ---------------------------------------------------
Remuneration 15 20 25 30 35
------------ -- -- -- -- --
$ 50,000 12,485 16,647 20,808 24,970 29,132
100,000 27,907 37,210 46,513 55,815 65,117
150,000 43,330 57,773 72,217 86,660 101,104
200,000 58,753 78,337 97,921 117,505 137,090
250,000 74,175 98,900 123,625 148,351 173,076
300,000 89,598 119,464 149,330 179,196 209,062
350,000 105,020 140,027 175,034 210,041 245,048
400,000 120,443 160,591 200,738 240,886 281,034
450,000 135,866 181,154 226,443 271,731 317,020
500,000 151,288 201,718 252,147 302,576 353,006
Retirement benefits under the Reading & Bates Pension Plan (the "Domestic
Plan") are based on an employee's highest average monthly base compensation
for 36 consecutive months of credited service, integrating a portion of the
primary social security benefit payable to the employee. The benefit is
based on the higher of three formulas, A, B and C, as outlined below.
Formula A is based on pay, service and primary social security benefit
frozen at December 31, 1988, while Formulas B and C are based on pay,
service and social security covered compensation as of the date of
termination of employment. Formula A is as follows: 2.75% of an employee's
average monthly compensation multiplied by the number of years of credited
service for the first 20 years; plus 2% of an employee's average monthly
compensation multiplied by the number of years of credited service from 21
through 25 years; plus 1.50% of an employee's average monthly compensation
multiplied by the number of years of credited service from 26 through 30
years; plus 1% of an employee's average monthly compensation multiplied by
the number of years of credited service from 31 through 35 years; plus .50%
of an employee's average monthly compensation multiplied by the number of
years of credited service from 36 through 40 years; minus 50% of an
employee's primary social security benefit. Formula B is as follows: 2.4%
of an employee's average monthly compensation multiplied by the number of
years of credited service through December 31, 1991 (up to a maximum of 35
years); minus .65% of an employee's social security covered compensation
multiplied by the number of years of credited service through December 31,
1991 (up to a maximum of 35 years); plus an amount determined under Formula
C based solely on the number of years credited service which accrued after
December 31, 1991. Formula C is as follows: 2.0% of an employee's average
monthly compensation multiplied by the number of years of credited service
for the first 35 years; minus .65% of an employee's social security covered
compensation multiplied by the number of years of credited service for the
first 35 years. This benefit structure is the result of a plan amendment
effective January 1, 1989. The formula in effect prior to this date was
Formula A, based on pay, service and primary social security benefit at
date of retirement. Compensation covered by the Domestic Pension Plan
consists of base wages to the maximum extent allowed under current laws but
not to exceed $145,000 (or an amount equal to the difference between
$200,000 for 1989 and succeeding years (as adjusted at the same time and
manner provided under Code Section 415(d) and $100,000, or the maximum
annual compensation limit provided for in Code Section 401(a)(17)).
Messrs. Loyd, Hillin, Nagle, Ofner and McIntire have approximately six,
twenty-six, twenty-two, twenty-six and twenty-nine years, respectively of
credited service under the Domestic Plan, and will be entitled to receive
the estimated annual benefits based upon their 1997 salary amounts set
forth under "Salary" in the Summary Compensation Table.
Assuming that an employee is entitled to an annual social security
benefit of $15,912 at normal retirement date and has an annual social
security covered compensation amount of $29,304, the Pension Plan Table
illustrates the amount of annual pension benefits payable by the Company
under the Domestic Plan and the Retirement Benefit Replacement Plan
(described below) under Formula C on a single life annuity basis to a
person in specified average compensation and years-of-service
classifications.
The maximum pension benefit allowable under current laws for persons who
retired at age 65 in 1997 is $125,000. The Domestic Plan limits the annual
compensation that is considered for plan purposed to $160,000 for 1997.
Retirement benefits based on pay in excess of the foregoing limitations
will be paid pursuant to the Reading & Bates Retirement Benefit Replacement
Plan is designed to restore to affected employees the dollar amount of
pension and pension-related benefits which could no longer be provided
under the Domestic Plan as a result of the compensation limitation
contained in the Domestic Plan and benefits payable under both the Domestic
Plan and the Retirement Benefit Replacement Plan.
Retirement benefits under the Reading & Bates Offshore Pension Plan (the
"Offshore Plan") are determined under formulas similar to those detailed
above as the Domestic Plan's Formulas A and C. Formula A under the
Offshore Plan is identical to Formula A under the Domestic Plan except that
pay, service and primary social security benefit are frozen at December 31,
1990; plus an amount determined under Formula C based solely on the number
of years of credited service which accrued after December 31, 1990 is added
to the benefit determined. Formula C for the Offshore Plan is identical to
Formula C under the Domestic Plan. Compensation covered under the Offshore
Plan is the same as that covered by the Domestic Plan without the monetary
limits. The Pension Plan Table can also be used to illustrate the amount
of annual pension benefits payable by the Company under Formula C of the
Offshore Plan.
R&B Employment Contracts and Change-in-Control Arrangements
Officer Agreements. At the time the Merger was agreed to (July 1997) R&B
was party to employment agreements with Messrs. Loyd, Nagle, Hillin, Ofner
and McIntire. The agreements provided that for a continuing three-year
employment period such persons would receive annual base salaries of not
less than $520,000, $275,000, $225,000, $212,000 and $141,000,
respectively, and would participate in other benefit plans and programs of
the Company. Each of such agreements provided that if the officer
terminates his employment for good reason or during the 180-day period
following a change of control of R&B, R&B would (a) make a lump sum payment
to him of salary earned through the date of termination and a bonus based
on the highest annual bonus paid him during the preceding three-year period
prorated in accordance with the period in the current year prior to the
termination, (b) make a lump sum payment to him of 3.75 times the sum of
the highest aggregate annual base salary and annual bonus (or equal to such
salary and bonus if such termination occurs after October 31, 1997) paid to
the officer with respect to any one fiscal year ending within the three-
year period ending on the date of termination, (c) in the case of Mr. Loyd,
deliver to such executive the shares under the R&B 1992 Long-Term Incentive
Plan and the R&B 1995 Long-Term Incentive Plan free of restrictions, and
(d) continue to provide certain welfare plan and other benefits for a
period of three years or as long as such plan or benefits allow.
For purposes of the employment agreements, "good reason" included (i) a
change in the officer's position, authority, duties or responsibilities,
(ii) changes in the office or location at which he is based without his
consent (such consent not to be unreasonably withheld), (iii) certain
breaches of the agreement and (iv) in the case of Mr. Loyd, (x) any
determination by such executive that termination of his employment with the
Company was, in his sole opinion, in the best interests of the Company or
Mr. Loyd and in such event (A) the date of termination is not less than 180
days (or such shorter period as may be mutually agreed between such
executive and the Company) following the giving of notice of termination as
provided in the employment agreements and (B) Greenwing Investments, Inc.
shall have disposed of (including, without limitation, by means of a
distribution to its stockholders) not less than 50% of the Company's Common
Stock beneficially owned, directly or indirectly, by such entity as of
October 11, 1993 and (y) the occurrence of October 11, 2003. A "change of
control" for purposes of the agreements with Messrs. Nagle, Hillin, Ofner
and McIntire would occur if a person or group (other than (i) such officer,
(ii) the Company or any of its subsidiaries or affiliates, (iii) any person
subject as of the date of the agreement to the reporting or filing
requirements of Section 13(d) of the Exchange Act with respect to the
securities of the company or any affiliates, (iv) any trustee or other
fiduciary holding or owning securities under an employee benefit plan of
the Company, (v) any underwriter temporarily holding or owning securities
of the Company, or (vi) any corporation owned directly or indirectly by the
current stockholders of the Company in substantially the same proportion as
their then ownership of stock of the Company) becomes the beneficial owner,
directly or indirectly, of securities of the Company representing forty
percent (40%) or more of the combined voting power of the Company's then
outstanding securities. A "change of control" for purposes of the
agreement with Mr. Loyd would occur if any person or group (subject to the
same exceptions described in the change of control provisions above for the
agreements with Messrs. Nagle, Hillin, Ofner and McIntire) becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 22.5% or more of the combined voting power of the Company's
then outstanding securities.
The same benefits payable to each officer under the agreement if he
terminated his employment for good reason or following a change of control
were also payable to him if the Company terminated his employment other
than for cause (as defined in the agreement) or if he died or became
disabled under the terms of the agreement. "Cause" for purposes of the
agreement with Mr. Loyd included (i) dishonesty by such executive which
results in substantial personal enrichment at the expense of the Company,
or (ii) demonstratively willful repeated violations of such executive's
obligations under the employment agreements which are intended to result in
material injury to the Company. "Cause" for purposes of the agreements
with Messrs. Nagle, Hillin, Ofner and McIntire included (i) dishonesty by
such executive which results in substantial personal enrichment at the
expense of the Company, (ii) such executive's willful engagement in conduct
which is materially injurious to the business or reputation of the Company,
or (iii) such executive's failure substantially to perform his duties with
the Company in a reasonably satisfactory manner, in each case as determined
in good faith by the affirmative vote of at least two-thirds of the members
of the Board. For purposes of the employment agreements with Messrs. Loyd,
Nagle, Hillin, Ofner and McIntire, no act or failure to act on the part of
such executives shall be deemed "willful" unless done or admitted to be
done by such executive not in good faith and without reasonable belief that
his action or omission was in the best interests of the Company.
The agreements provided that if any payment to one of the covered
officers will be subject to any excise tax under Code Section 4999, a
"gross-up" payment would be made to place the officer in the same net after-
tax position as would have been the case if no excise tax had been payable.
R&B terminated the employment agreements effective December 31, 1997,
and in connection therewith made termination payments to Messrs. Loyd,
Nagle, Hillin, Ofner and McIntire of $5,850,000, $2,165,625, $1,771,875
$1,669,500 and $1,110,375 respectively.
R&B Section 16 Compliance
The Company believes that during 1997 all filing requirements under
Section 16(a) of the Securities Exchange Act of 1934 were met with respect
to R&B except for the following:
Each of Wayne Hillin, Don McIntire, Tim Nagle, Charles Ofner, Robert
Sandmeyer, Ted Kalborg (a former director), and J. W. McLean (a former
director) were late filing a Form 4 for December 1997 reflecting the
conversion of Common Stock of R&B to Common Stock of the Company as a
result of the Merger. Each filed a Form 4 in January 1998 reflecting this
event.
J. W. McLean, a former director, was approximately two months late filing
a Form 4 for February 1997 and approximately one month late filing a Form 4
for March 1997, reporting an aggregate of eight transactions.
THE EMPLOYEE PLAN PROPOSAL
The Employee Plan is designed to help the Company attract and retain
key executives and other selected employees and reward them for making
major contributions to the success of the Company and its subsidiaries.
These objectives are to be accomplished by making awards under the Employee
Plan and thereby providing participants with a proprietary interest in the
growth and performance of the Company and its subsidiaries. The Board of
Directors has adopted the Employee Plan effective March 25, 1998, subject
to the approval by the holders of a majority of shares of Common Stock
present or represented, and entitled to vote at a meeting of the Company's
stockholders. If the Employee Plan is not so approved by the stockholders
of the Company prior to June 30, 1998, the Employee Plan will terminate.
There are available for awards approximately 3,800,000 shares of Common
Stock under plans of R&B that were assumed by the Company in the Merger,
which shares will remain available for award. There are also available for
awards approximately 1,480,000 shares of Common Stock under plans of Falcon
that were assumed by the Company in the Merger. If the Employee Plan
Proposal is approved, no additional awards will be made under the Falcon
plans.
The following is a summary of the principal features of the Employee
Plan. This summary is qualified in its entirety by reference to the
complete text of the Employee Plan, which is set forth in Exhibit 99.A
hereto.
Eligible Employees
Employees of the Company and its subsidiaries eligible for an award
under the Employee Plan are those whose performance, in the judgment of the
Committee of the Board of Directors administering the Employee Plan, can
have a significant effect on the success of the Company and its
subsidiaries. As of March 31, 1998 approximately 750 persons would have
been eligible for awards under the Employee Plan.
Shares Subject to Plan
There shall be available for awards granted wholly or partly in
Common Stock (including rights or options which may be exercised for or
settled in Common Stock) during the term of the Employee Plan an aggregate
of 3,200,000 shares of Common Stock. Common Stock related to awards that
are forfeited or terminated, expire unexercised, are settled in cash in
lieu of stock or in a manner such that all or some of the shares covered by
an award are not issued to a participant, or are exchanged for awards that
do not involve Common Stock, shall immediately become available for awards
hereunder.
Administration of the Employee Plan
The Employee Plan shall be administered by a committee designated by
the Board of Directors to administer the Employee Plan (as used under the
heading "The Employee Plan Proposal," the "Committee", which committee may
be the Compensation Committee), which shall have full and exclusive power
to interpret the Employee Plan, to grant waivers of the restrictions set
forth in the Employee Plan and to adopt such rules, regulations and
guidelines for carrying out the Employee Plan as it may deem necessary or
proper. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Employee Plan or in any award in the
manner and to the extent the Committee deems necessary or desirable to
carry it into effect.
The Committee may delegate to senior officers of the Company its
duties under the Employee Plan, except that the Committee may not delegate
to any person the authority to grant awards to, or take other action with
respect to, participants who are subject to Section 16 of the Exchange Act.
Types of Awards
The Committee shall determine the type or types of awards to be made
to each participant under the Employee Plan. Each award made thereunder
shall be embodied in an award agreement, which shall contain such terms,
conditions and limitations as shall be determined by the Committee in its
sole discretion. Awards may consist of those listed in this paragraph and
may be granted singly or in combination. The closing price of the Common
Stock on April 17, 1998 was $31.0625.
Stock Option. An award may consist of a right to purchase a specified
number of shares of Common Stock at a specified price that is not less than
the greater of the par value of the Common Stock, or the fair market value
of the Common Stock on the date of grant of the option. A stock option may
be in the form of an incentive stock option ("ISO") which, in addition to
being subject to applicable terms, conditions and limitations established
by the Committee, complies with Section 422 of the Code.
Stock Appreciation Right. An award may consist of a right to receive a
payment, in cash or Common Stock, equal to the excess of the fair market
value or other specified valuation of a specified number of shares of
Common Stock on the date the stock appreciation right ("SAR") is exercised
over a specified strike price as set forth in the applicable award
agreement.
Stock Award. An award may consist of Common Stock or may be denominated in
units of Common Stock. All or part of any stock award may be subject to
conditions established by the Committee, and set forth in the award
agreement, which may include, but are not limited to, continuous service
with the Company and its subsidiaries, achievement of specific business
objectives, increases in specified indices, attaining growth rates and
other comparable measurements of performance.
Cash Award. An award may be denominated in cash with the amount of the
eventual payment subject to future service and such other restrictions and
conditions as may be established by the Committee, and set forth in the
award agreement.
Payment of Awards
Payment of awards may be made in the form of cash or Common Stock or
combinations thereof and may include such restrictions as the Committee
shall determine, including in the case of Common Stock, restrictions on
transfer and forfeiture provisions. With the approval of the Committee,
payments may be deferred, either in the form of installments or a future
lump sum payment. The Committee may permit selected participants to elect
to defer payments of some or all types of awards in accordance with
procedures established by the Committee. Dividends or dividend equivalent
rights may be extended to and made part of any award denominated in Common
Stock or units of Common Stock. At the discretion of the Committee, a
participant may be offered an election to substitute an award for another
award or awards of the same or different type. However, no award of stock
options shall be repriced without stockholder approval if at the effective
date of such repricing the exercise price is greater than the fair market
value of the stock.
The price at which shares of Common Stock may be purchased under a
stock option shall be paid in full at the time of exercise in cash or, if
permitted by the Committee, by means of tendering Common Stock or
surrendering another award, including restricted stock, valued at fair
market value on the date of exercise, or any combination thereof. The
Committee shall determine acceptable methods for tendering Common Stock or
other awards to exercise a stock option as it deems appropriate. The
Committee may provide for loans from the Company to permit the exercise or
purchase of awards and may provide for procedures to permit the exercise or
purchase of awards by use of the proceeds to be received from the sale of
Common Stock issuable pursuant to an award. Unless otherwise provided in
the applicable award agreement, in the event shares of restricted stock are
tendered as consideration for the exercise of a stock option, a number of
the shares issued upon the exercise of the stock option, equal to the
number of shares of restricted stock used as consideration therefor, shall
be subject to the same restrictions as the restricted stock so submitted as
well as any additional restrictions that may be imposed by the Committee.
Tax Withholding
The Company shall have the right to deduct applicable taxes from any
award payment and withhold, at the time of delivery or vesting of shares of
Common Stock under the Employee Plan, an appropriate number of shares of
Common Stock for payment of taxes required by law or to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligations for withholding of such taxes. The Committee may also permit
withholding to be satisfied by the transfer to the Company of shares of
Common Stock theretofore owned by the holder of the award with respect to
which withholding is required. If shares of Common Stock are used to
satisfy tax withholding, such shares shall be valued based on the fair
market value when the tax withholding is required to be made.
Amendment or Termination
The Board of Directors may amend or terminate the Employee Plan for
any other purpose permitted by law except that (i) no amendment or
alteration that would impair the rights of any participant under any award
granted to such participant shall be made without such participant's
consent and (ii) no amendment or alteration shall be effective prior to
approval by the Company's stockholders to the extent such approval is then
required pursuant to Rule 16b-3 in order to preserve the applicability of
any exemption provided by such rule to any award then outstanding (unless
the holder of such award consents) or to the extent stockholder approval is
otherwise required by applicable legal requirements.
Assignability
No award or any other benefit under the Employee Plan constituting a
stock option or other derivative security within the meaning of Rule 16b-3
shall be assignable or otherwise transferable except by will or the laws of
descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder. However, an officer or director may
designate a beneficiary for any award made to such officer or director.
Adjustments
In the event of any subdivision or consolidation of outstanding
shares of Common Stock or declaration of a dividend payable in shares of
Common Stock or capital reorganization or reclassification or other
transaction involving an increase or reduction in the number of outstanding
shares of Common Stock, the Committee may adjust proportionally (i) the
number of shares of Common Stock reserved under the Employee Plan and
covered by outstanding awards denominated in Common Stock or units of
Common Stock, (ii) the exercise or other price in respect of such awards,
and (iii) the appropriate fair market value and other price determinations
of such awards. In the event of any consolidation or merger of the Company
or the adoption by the Company of a plan of exchange affecting the Common
Stock or any distribution to holders of Common Stock of securities or
property (other than normal cash dividends or dividends payable in Common
Stock), the Committee shall make such adjustments in respect of the Plan or
any outstanding awards as it may deem equitable, including adjustments to
avoid fractional shares, to give proper effect to such event. In the event
the Company is involved in a merger, consolidation, acquisition of property
or stock, separation, reorganization or liquidation, the Committee shall be
authorized to issue or assume stock options, regardless of whether in a
transaction to which Section 425(a) of the Code applies, by means of
substitution of new options for previously issued options or an assumption
of previously issued options, or to make provision for the acceleration of
the exercisability of, or lapse of restrictions with respect to, awards and
the termination of unexercised options in connection with such transaction.
Unfunded Plan
The Employee Plan will be unfunded. Although bookkeeping accounts
may be established with respect to participants who are entitled to cash,
Common Stock or rights thereto under the Employee Plan, any such accounts
shall be used merely as a bookkeeping convenience. The Company shall not be
required to segregate any assets that may at any time be represented by
cash, Common Stock or rights thereto, nor shall the Employee Plan be
construed as providing for such segregation.
Federal Income Tax Consequences
This description of certain Federal income tax consequences of
options under the Employee Plan is based on Federal tax laws currently in
effect and does not purport to be a complete description of such Federal
tax consequences under all circumstances.
There are no Federal income tax consequences either to the optionee
or to the Company upon the grant of an ISO or a nonqualified stock option
("NQSO"). On the exercise of an ISO, the optionee will not recognize any
income and the Company will not be entitled to a deduction (although such
exercise may give rise to alternative minimum tax liability for the
optionee). Generally, if the optionee disposes of shares acquired upon
exercise of an ISO within two years of the date of grant or one year of the
date of exercise, the optionee will recognize ordinary income, and the
Company will be entitled to a deduction, equal to the excess of the fair
market value of the shares on the date of exercise over the option price
(limited generally to the gain on the sale). The balance of any gain, and
any loss, will be generally treated as a capital gain or loss to the
optionee. If the shares are disposed of after the foregoing holding
requirements are met, the Company will not be entitled to any deduction,
and the entire gain or loss for the optionee will be treated as a capital
gain or loss.
On exercise of an NQSO, the excess of the date-of-exercise fair
market value of the shares acquired over the option price will generally be
taxable to the optionee as ordinary income and deductible by the Company.
The disposition of shares acquired upon exercise of a NQSO will generally
result in a capital gain or loss for the optionee, but will have no tax
consequences for the Company.
No income will be recognized by a participant in connection with the
grant of an SAR. When the SAR is exercised, the participant normally will
be required to include as taxable ordinary income in the year of exercise
an amount equal to the amount of any cash and the fair market value of any
shares of Common Stock received pursuant to the exercise.
A recipient of restricted stock generally will be subject to tax at
ordinary income rates on the fair market value of the restricted stock
reduced by any amount paid by the recipient at such time as the shares are
no longer subject to a risk of forfeiture or restrictions on transfer for
purposes of Section 83 of the Code. Further, any dividends received with
respect to restricted stock that are subject at that time to a risk of
forfeiture or restrictions on transfer generally will be treated as
compensation that is taxable as ordinary income to the recipient. However,
a recipient who so elects under Section 83(b) of the Code within 30 days of
the date of transfer of shares will have taxable ordinary income on the
date of transfer of the shares equal to the excess of the fair market value
of the shares (determined without regard to the risk of forfeiture or
restriction on transfer) over any purchase price paid for the shares and
any dividend received while the shares are subject to a substantial risk of
forfeiture or restrictions will be treated as dividend income to the
recipient.
The recipient of an unrestricted stock grant generally will be
subject to tax at ordinary income rates on the fair market value of
nonrestricted shares of Common Stock on the date that such shares are
transferred to the recipient reduced by any amount paid by the recipient,
and the capital gain or loss holding period for such shares will also
commence on that date.
To the extent that a participant recognizes ordinary income in the
circumstances described above, the Company or subsidiary for which the
participant performs services will be entitled to a corresponding deduction
for federal income tax purposes provided that, among other things, (i) the
income meets the test of reasonableness, is an ordinary and necessary
business expense and is properly reported by the Company, (ii) is not an
"excess parachute payment" within the meaning of Section 280G of the Code
and (iii) if the $1.0 million limitation of Section 162(m) of the Code is
exceeded, the compensation qualifies as "performance based" under such
section.
Board Recommendation
The Board of Directors has unanimously approved the 1998 Employee
Long-Term Incentive Plan and recommends that the stockholders vote "FOR"
the Employee Plan Proposal.
THE DIRECTOR PLAN PROPOSAL
The Director Plan is designed to help the Company attract and retain non-
employee directors by rewarding them for making major contributions to the
success of the Company and its subsidiaries. The Board of Directors has
adopted the Director Plan effective March 25, 1998, subject to the approval
by the holders of a majority of shares of Common Stock present, or
represented, and entitled to vote at a meeting of the Company's
stockholders. If the Director Plan is not so approved by the stockholders
of the Company prior to June 30, 1998, the Director Plan will terminate.
The following is a summary of the principal features of the Director
Plan. This summary is qualified in its entirety by reference to the
complete text of the Director Plan, which is set forth in Exhibit 99.B
hereto.
General
Only non-employee directors are eligible for awards under the
Director Plan. There are currently eight non-employee directors of the
Company. There shall be available for awards granted wholly or partly in
Common Stock (including rights or options which may be exercised for or
settled in Common Stock) during the term of the Director Plan an aggregate
of 250,000 shares of Common Stock. Common Stock related to awards that are
forfeited or terminated, expire unexercised, are settled in cash in lieu of
stock or in a manner such that all or some of the shares covered by an
award are not issued to a participant, or are exchanged for awards that do
not involve Common Stock, shall immediately become available for awards
hereunder.
Administration of the Director Plan
The Director Plan shall be administered by a committee comprised of
non-employee directors (as used under the heading "The Director Plan
Proposal," the "Committee"), which shall have full and exclusive power to
interpret the Director Plan, to grant waivers of the restrictions set forth
in the Director Plan and to adopt such rules, regulations and guidelines
for carrying out the Director Plan as it may deem necessary or proper. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Director Plan or in any award in the manner and to
the extent the Committee deems desirable to carry it into effect.
Types of Awards
The Committee shall determine the type or types of awards to be made
to each participant under the Director Plan. Each award made thereunder
shall be embodied in an award agreement, which shall contain such terms,
conditions and limitations as shall be determined by the Committee in its
sole discretion. Awards may consist of those listed in this paragraph and
may be granted singly or in combination. The closing price of the Common
Stock on April 17, 1998 was $31.0625.
Stock Option. An award may consist of a right to purchase a specified
number of shares of Common Stock at a specified price that is not less than
the greater of the par value of the Common Stock, or the fair market value
of the Common Stock on the date of grant of the option.
Stock Award. An award may consist of Common Stock or may be denominated in
units of Common Stock. All or part of any stock award may be subject to
conditions established by the Committee, and set forth in the award
agreement, which may include, but are not limited to, continuous service
with the Company and its subsidiaries, achievement of specific business
objectives, increases in specified indices, attaining growth rates and
other comparable measurements of performance.
Payment of Awards
Payment of awards may include such restrictions as the Committee
shall determine, including in the case of Common Stock, restrictions on
transfer and forfeiture provisions. Dividends or dividend equivalent rights
may be extended to and made part of any award denominated in Common Stock
or units of Common Stock, subject to such terms, conditions and
restrictions as the Committee may establish. The Committee may also
establish rules and procedures for the crediting of interest on deferred
cash payments and dividend equivalents for deferred payment denominated in
Common Stock or units of Common Stock. At the discretion of the Committee,
a participant may be offered an election to substitute an award for another
award or awards of the same or different type. However, no award of stock
options shall be repriced without stockholder approval if at the effective
date of such repricing the exercise price is greater than the fair market
value of the stock.
The price at which shares of Common Stock may be purchased under a
stock option shall be paid in full at the time of exercise in cash or, if
permitted by the Committee, by means of tendering Common Stock or
surrendering another award, including restricted stock, valued at fair
market value on the date of exercise, or any combination thereof. The
Committee shall determine acceptable methods for tendering Common Stock or
other awards to exercise a stock option as it deems appropriate. The
Committee may provide for loans from the Company to permit the exercise or
purchase of awards and may provide for procedures to permit the exercise or
purchase of awards by use of the proceeds to be received from the sale of
Common Stock issuable pursuant to an award. Unless otherwise provided in
the applicable award agreement, in the event shares of restricted stock are
tendered as consideration for the exercise of a stock option, a number of
the shares issued upon the exercise of the stock option, equal to the
number of shares of restricted stock used as consideration therefor, shall
be subject to the same restrictions as the restricted stock so submitted as
well as any additional restrictions that may be imposed by the Committee.
Tax Withholding
To the extent required by applicable law, the Company shall have the
right to deduct applicable taxes from any award payment and withhold, at
the time of delivery or vesting of shares of Common Stock under the
Director Plan, an appropriate number of shares of Common Stock for payment
of taxes required by law or to take such other action as may be necessary
in the opinion of the Company to satisfy all obligations for withholding of
such taxes. The Committee may also permit withholding to be satisfied by
the transfer to the Company of shares of Common Stock theretofore owned by
the holder of the award with respect to which withholding is required. If
shares of Common Stock are used to satisfy tax withholding, such shares
shall be valued based on the fair market value when the tax withholding is
required to be made.
Amendment or Termination
The non-employee members of Board of Directors may amend or
terminate the Director Plan for any purpose permitted by law except that
(i) no amendment or alteration that would impair the rights of any
participant under any award granted to such participant shall be made
without such participant's consent and (ii) no amendment or alteration
shall be effective prior to approval by the Company's stockholders to the
extent stockholder approval is required by applicable legal requirements.
Assignability
No award or any other benefit under the Director Plan constituting a
stock option or other derivative security within the meaning of Rule 16b-3
shall be assignable or otherwise transferable except by will or the laws of
descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder. However, a director may designate a
beneficiary for any award made to such director.
Adjustments
In the event of any subdivision or consolidation of outstanding
shares of Common Stock or declaration of a dividend payable in shares of
Common Stock or capital reorganization or reclassification or other
transaction involving an increase or reduction in the number of outstanding
shares of Common Stock, the Committee may adjust proportionally (i) the
number of shares of Common Stock reserved under the Employee Plan and
covered by outstanding awards denominated in Common Stock or units of
Common Stock, (ii) the exercise or other price in respect of such awards
and (iii) the appropriate fair market value and other price determinations
of such awards. In the event of any consolidation or merger of the Company
or the adoption by the Company of a plan of exchange affecting the Common
Stock or any distribution to holders of Common Stock of securities or
property (other than normal cash dividends or dividends payable in Common
Stock), the Committee shall make such adjustments in respect of the Plan or
any outstanding awards as it may deem equitable, including adjustments to
avoid fractional shares, to give proper effect to such event. In the event
the Company is involved in a merger, consolidation, acquisition of property
or stock, separation, reorganization or liquidation, the Committee shall be
authorized to issue or assume stock options, regardless of whether in a
transaction to which Section 425(a) of the Code applies, by means of
substitution of new options for previously issued options or an assumption
of previously issued options, or to make provision for the acceleration of
the exercisability of, or lapse of restrictions with respect to, awards and
the termination of unexercised options in connection with such transaction.
Unfunded Plan
The Director Plan will be unfunded. Although bookkeeping accounts
may be established with respect to participants who are entitled to Common
Stock or rights thereto under the Director Plan, any such accounts shall be
used merely as a bookkeeping convenience. The Company shall not be required
to segregate any assets that may at any time be represented by Common Stock
or rights thereto, nor shall the Director Plan be construed as providing
for such segregation.
Federal Income Tax Consequences
See discussion under "Federal Income Tax Consequences" under "The
Employee Plan Proposal." No option grant under the Director Plan will
qualify as an ISO.
Recommendation of Board of Directors
The Board of Directors has unanimously approved the 1998 Director Long-
Term Incentive Plan and recommends that the stockholders vote "FOR" the
Director Plan Proposal.
THE ACCOUNTANT PROPOSAL
The Board of Directors has selected Arthur Andersen LLP, independent
auditors, to audit the financial statements of the Company for the 1998
fiscal year. The nomination is being presented to the stockholders for
ratification at the Annual Meeting. Arthur Andersen LLP audited the
Company's financial statements for the 1997 fiscal year (the Company's
first fiscal year) and were the auditors for both Falcon and R&B for the
1996 fiscal year of each of them. A representative of Arthur Andersen LLP
is expected to be present at the Annual Meeting, will have the opportunity
to make a statement if he so desires, and is expected to be available to
respond to appropriate questions.
Recommendation of Board of Directors
The Board of Directors has unanimously approved the appointment of Arthur
Andersen LLP as the Company's auditors for fiscal year 1998 and recommends
that the stockholders vote "FOR" the Accountant Proposal.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
The Company's bylaws require written notice to the Company of a
nomination of elections as a director (other than a nomination by the
Board) and of the submission of a proposal (other than a proposal by the
Board) for consideration at an annual meeting of shareholders. The notice
must contain certain information concerning the nominating or proposing
shareholder, and the nominee or the proposal, as the case may be, and be
furnished to the Company not less than 60 days or more than 90 days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders. A copy of the applicable bylaw provisions may be obtained,
without charge, upon written request to the Secretary of the company at its
principal executive offices.
In addition, any stockholder who desires to have a proposal included in
the Company's proxy soliciting material related to the Company's 1999
Annual Meeting of Stockholders must so notify the Company in writing no
later than December 25, 1998. Such notice must comply with the
requirements of the Rules and Regulations promulgated by the Securities and
Exchange Commission applicable to such stockholder proposals.
ADDITIONAL INFORMATION
The Company undertakes to provide without charge to each recipient of
this Proxy Statement, upon request of such person, a copy of the Company's
annual report on Form 10-K (including the financial statements and
financial statement schedules) for the year ended December 31, 1997. Such
request should be made to Charles R. Ofner, Vice President, c/o R&B Falcon
Corporation, 901 Threadneedle, Houston, Texas 77079. A copy of any exhibit
to the annual report on Form 10-K will be furnished to any such person upon
request and the payment of the Company's reasonable expenses in furnishing
such exhibit.
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed proxy card to vote the
shares they represent as the Board of Directors of the Company may
recommend.
This Proxy Statement has been preceded by a copy of the Company's Annual
Report with respect to the 1997 fiscal year.
=============================================================================
FORM OF PROXY CARD
R&B FALCON CORPORATION
Proxy Solicited on Behalf of the Board of Directors
The undersigned hereby appoints STEVEN A. WEBSTER and ROBERT F. FULTON
(with full power to act without the other and with the power to appoint his
substitute) as the undersigned's proxies to vote, as specified on the reverse
side hereof, all shares of Common Stock of R&B FALCON CORPORATION (the
"Company"), a Delaware corporation, which the undersigned would be entitled
to vote at the Annual Meeting of Stockholders of the Company to be held at
the ITT Sheraton Luxury Collection Hotel, 1919 Briar Oaks Lane, Houston,
Texas on Tuesday, on May 19, 1998 at 9:00 a.m., local time, and at any and
all adjournments thereof.
WHEN THIS PROXY IS PROPERLY EXECUTED AND DELIVERED, AND NOT PROPERLY
REVOKED, THE SHARES OF COMMON STOCK REPRESENTED BY THIS PROXY WILL BE VOTED
IN THE MANNER DIRECTED ON THE REVERSE SIDE. IF NO DIRECTION IS MADE, SUCH
SHARES WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED IN ITEM 1 AND
FOR THE PROPOSALS IN ITEMS 2, 3 AND 4.
PLEASE SIGN AND DATE ON THE REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE
1. ELECTION OF DIRECTORS
[] FOR all nominees [] WITHHOLD NOMINEES: Douglas A.P. Hamilton
listed at right AUTHORITY to Michael E. Porter
(except as indicated vote for all Robert L. Sandmeyer
to the contrary nominees listed
below) at right.
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name in the space provided below.)
__________________________________
2. Proposal to approve the adoption of the 1998 Employee Long-Term Incentive
Plan.
[] FOR [] AGAINST [] ABSTAIN
3. Proposal to approve the adoption of the 1998 Director Long-Term Incentive
Plan.
[] FOR [] AGAINST [] ABSTAIN
4. Proposal to ratify the selection of Arthur Andersen LLP as the Company's
independent auditors for the year ending December 31, 1998.
[] FOR [] AGAINST [] ABSTAIN
5. In their discretion, the Proxies will vote upon such other business as may
properly come before the meeting and any and all adjournments thereof.
The undersigned hereby revokes any proxy to vote shares of Common Stock of
the Company heretofore given by the undersigned.
Please sign, date and return the proxy card promptly using the enclosed
envelope.
Signature__________________Signature___________________ Dated:_________, 1998
(AND TITLE, IF APPLICABLE) (AND TITLE, IF APPLICABLE)
NOTE: Please date, sign exactly as name appears on this proxy, and promptly
return in the enclosed envelope. When signing as guardian, executor,
administrator, attorney, trustee, custodian, officer, partner or in any other
similar capacity, please give full title. In the case of joint ownership,
each joint owner must sign.
=============================================================================
Exhibit 99.A
1998 EMPLOYEE LONG-TERM INCENTIVE PLAN
of
R&B FALCON CORPORATION
1. Objectives. The R&B Falcon Corporation 1998 Employee Long-Term
Incentive Plan (the "Plan") is designed to attract and retain key
executives and other selected employees and reward them for making major
contributions to the success of R&B Falcon Corporation, a Delaware
corporation (the "Company"), and its Subsidiaries (as hereinafter
defined). These objectives are to be accomplished by making awards under
the Plan and thereby providing Participants (as hereinafter defined) with
a proprietary interest in the growth and performance of the Company and
its Subsidiaries.
2. Definitions. As used herein, the terms set forth below shall
have the following respective meanings:
"Award" means the grant of any form of stock option, stock
appreciation right, stock award or cash award, whether granted singly, in
combination or in tandem, to a Participant pursuant to any applicable
terms, conditions and limitations as the Committee may establish in order
to fulfill the objectives of the Plan.
"Award Agreement" means a written agreement between the Company
and a Participant that sets forth the terms, conditions and limitations
applicable to an Award.
"Board" means the Board of Directors of the Company.
"Common Stock" means the Common Stock, par value $0.01 per
share, of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" means such committee of the Board as is designated
by the Board to administer the Plan. The Committee shall be constituted
to permit the Plan to comply with Rule 16b-3 and shall initially consist
of not less than two members of the Board who are "disinterested persons"
within the meaning of such Rule.
"Director" means an individual serving as a member of the
Board.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
"Fair Market Value" means, as of a particular date, (i) if the
shares of Common Stock are listed on the New York Stock Exchange, the
mean between the highest and lowest sales price per share of Common Stock
on such national securities exchange on such date, or if there shall have
been no such sale so reported on that date, on the last preceding date on
which such sale was so reported, (ii) if the shares of Common Stock are
not so listed but are quoted in the NASDAQ National Market System, the
mean between the highest and lowest sales price per share of Common Stock
on the NASDAQ National Market System on that date, or, if there shall
have been no such sale so reported on that date, on the last preceding
date on which such a sale was so reported or (iii) if the Common Stock is
not so listed or quoted, the mean between the closing bid and asked price
on that date, or, if there are no quotations available for such date, on
the last preceding date on which such quotations shall be available, as
reported by NASDAQ, or, if not reported by NASDAQ, by the National
Quotation Bureau, Inc.
"Participant" means an employee of the Company or any of its
Subsidiaries to whom an Award has been made under this Plan.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act, or any successor rule.
"Subsidiary" means any corporation of which the Company
directly or indirectly owns shares representing more than 50% of the
voting power of all classes or series of capital stock of such
corporation which have the right to vote generally on matters submitted
to a vote of the stockholders of such corporation.
3. Eligibility. Employees of the Company and its Subsidiaries
eligible for an Award under this Plan are those who hold positions of
responsibility and whose performance, in the judgment of the Committee,
can have a significant effect on the success of the Company and its
Subsidiaries.
4. Common Stock Available for Awards. There shall be available
for Awards granted wholly or partly in Common Stock (including rights or
options which may be exercised for or settled in Common Stock) during the
term of this Plan an aggregate of 3,200,000 shares of Common Stock.
Awards the value of which is related to the market value of Common Stock
but which are not granted or payable in Common Stock shall be treated as
payable in Common Stock solely for purposes of the foregoing amount
limitation. The Board of Directors and the appropriate officers of the
Company shall from time to time take whatever actions are necessary to
file required documents with governmental authorities and stock exchanges
and transaction reporting systems to make shares of Common Stock
available for issuance pursuant to Awards. Common Stock related to
Awards that are forfeited or terminated, expire unexercised, are settled
in cash in lieu of Stock or in a manner such that all or some of the
shares covered by an Award are not issued to a Participant, or are
exchanged for Awards that do not involve Common Stock, shall immediately
become available for Awards hereunder.
5. Administration. This Plan shall be administered by the
Committee, which shall have full and exclusive power to interpret this
Plan, to grant waivers of the restrictions set forth in this Plan and to
adopt such rule, regulations and guidelines for carrying out this Plan as
it may deem necessary or proper, all of which powers shall be exercised
in the best interests of the Company and in keeping with the objectives
of this Plan. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in this Plan or in any Award in
the manner and to the extent the Committee deems necessary or desirable
to carry it into effect. Any decision of the Committee in the
interpretation and administration of this Plan shall lie within its sole
and absolute discretion and shall be final, conclusive and binding on all
parties concerned. No member of the Committee or officer of the Company
to whom it has delegated authority in accordance with the provisions of
Paragraph 6 of this Plan shall be liable for anything done or omitted to
be done by him or her, by any member of the Committee or by any officer
of the Company in connection with the performance of any duties under
this Plan, except for his or her own willful misconduct or as expressly
provided by statute.
6. Delegation of Authority. The Committee may delegate to the
Chief Executive Officer and to other senior officers of the Company its
duties under this Plan pursuant to such conditions or limitations as the
Committee may establish, except that the Committee may not delegate to
any person the authority to grant Awards to, or take other action with
respect to, Participants who are subject to Section 16 of the Exchange
Act.
7. Awards. The Committee shall determine the type or types of
Awards to be made to each Participant under this Plan. Each Award made
hereunder shall be embodied in an Award Agreement, which shall contain
such terms, conditions and limitations as shall be determined by the
Committee in its sole discretion and shall be signed by the Participant
and by the Chief Executive Officer or any Vice President of the Company
for and on behalf of the Company. Awards may consist of those listed in
this Paragraph 7 and may be granted singly, in combination or in tandem.
Awards may also be made in combination or in tandem with, in replacement
of, or as alternatives to, grants or rights under this Plan or any other
employee plan of the Company or any of its Subsidiaries, including the
plan of any acquired entity. An Award may provide for the granting or
issuance of additional, replacement or alternative Awards upon the
occurrence of specified events, including the exercise of the original
Award. Notwithstanding anything to the contrary in the Plan or any Award
Agreement, any shares of Common Stock received by a Participant who is an
officer or director of the Company pursuant to an Award hereunder (other
than shares of Common Stock received in connection with the Participant's
death, disability, retirement or termination of employment or as required
to be made pursuant to a provision of the Code) must be held by such
officer or director for a period of six months following such acquisition
[such condition may be satisfied with respect to a derivative security
(as defined in Rule 16b-3) if at least six months elapse from the date of
acquisition of the derivative security to the date of disposition of the
derivative security (other than upon exercise or conversion) or its
underlying security].
(a) Stock Option. An Award may consist of a right to purchase a
specified number of shares of Common Stock at a specified price that is
not less than the greater of the par value of the Common Stock, or the
Fair Market Value, on the date of grant of the option. A stock option
may be in the form of an incentive stock option ("ISO") which, in
addition to being subject to applicable terms, conditions and limitations
established by the Committee, complies with Section 422 of the Code.
(b) Stock Appreciation Right. An Award may consist of a right to
receive a payment, in cash or Common Stock, equal to the excess of the
Fair Market Value or other specified valuation of a specified number of
shares of Common Stock on the date the stock appreciation right ("SAR")
is exercised over a specified strike price as set forth in the applicable
Award Agreement.
(c) Stock Award. An Award may consist of Common Stock or may be
denominated in units of Common Stock. All or part of any stock award may
be subject to conditions established by the Committee, and set forth in
the Award Agreement, which may include, but are not limited to,
continuous service with the Company and its Subsidiaries, achievement of
specific business objectives, increases in specified indices, attaining
growth rates and other comparable measurements of performance. Such
Awards may be based on Fair Market Value or other specified valuations.
The certificates evidencing shares of Common Stock issued in connection
with a stock award shall contain appropriate legends and restrictions
describing the terms and conditions of the restrictions applicable
thereto.
(d) Cash Award. An Award may be denominated in cash with the
amount of the eventual payment subject to future service and such other
restrictions and conditions as may be established by the Committee, and
set forth in the Award Agreement, including, but not limited to,
continuous service with the Company and its Subsidiaries, achievement of
specific business objectives, increases in specified indices, attaining
growth rates and other comparable measurements of performance.
8. Payment of Awards.
(a) General. Payment of Awards may be made in the form of cash or
Common Stock or combinations thereof and may include such restrictions as
the Committee shall determine, including in the case of Common Stock,
restrictions on transfer and forfeiture provisions. As used herein,
"Restricted Stock" means Common Stock that is restricted or subject to
forfeiture provisions.
(b) Deferral. With the approval of the Committee, payments may be
deferred, either in the form of installments or a future lump sum
payment. The Committee my permit selected Participants to elect to defer
payments of some or all types of Awards in accordance with procedures
established by the Committee. Any deferred payment, whether elected by
the Participant or specified by the Award Agreement or by the Committee,
may be forfeited if and to the extent that the Award Agreement so
provides.
(c) Dividends and Interest. Dividends or dividend equivalent
rights may be extended to and made part of any Award denominated in
Common Stock or units of Common Stock, subject to such terms, conditions
and restrictions as the Committee may establish. The Committee may also
establish rules and procedures for the crediting of interest on deferred
cash payments and dividend equivalents for deferred payment denominated
in Common Stock or units of Common Stock.
(d) Substitution of Awards. At the discretion of the Committee, a
Participant may be offered an election to substitute an Award for another
Award or Awards of the same or different type. No Award of stock options
shall be repriced without stockholder approval if at the effective date
of such repricing the exercise price is greater than the Fair Market
Value.
9. Stock Option Exercise. The price at which shares of Common
Stock may be purchased under a stock option shall be paid in full at the
time of exercise in cash or, if permitted by the Committee, by means of
tendering Common Stock or surrendering another Award, including
Restricted Stock, valued at Fair Market Value on the date of exercise, or
any combination thereof. The Committee shall determine acceptable
methods for tendering Common Stock or other Awards to exercise a stock
option as it deems appropriate. The Committee may provide for loans from
the Company to permit the exercise or purchase of Awards and may provide
for procedures to permit the exercise or purchase of Awards by use of the
proceeds to be received from the sale of Common Stock issuable pursuant
to an Award. Unless otherwise provided in the applicable Award
Agreement, in the event shares of Restricted Stock are tendered as
consideration for the exercise of a stock option, a number of the shares
issued upon the exercise of the stock option, equal to the number of
shares of Restricted Stock used as consideration therefor, shall be
subject to the same restrictions as the Restricted Stock so submitted as
well as any additional restrictions that may be imposed by the Committee.
10. Tax Withholding. The Company shall have the right to deduct
applicable taxes from any Award payment and withhold, at the time of
delivery or vesting of shares of Common Stock under this Plan, an
appropriate number of shares of Common Stock for payment of taxes
required by law or to take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for withholding of such
taxes. The Committee may also permit withholding to be satisfied by the
transfer to the Company of shares of Common Stock theretofore owned by
the holder of the Award with respect to which withholding is required.
If shares of Common Stock are used to satisfy tax withholding, such
shares shall be valued based on the Fair Market Value when the tax
withholding is required to be made.
11. Amendment, Modification, Suspension or Termination. The Board
may amend, modify, suspend or terminate this Plan for the purpose of
meeting or addressing any changes in legal requirements or for any other
purpose permitted by law except that (i) no amendment or alteration that
would impair the rights of any Participant under any Award granted to
such Participant shall be made without such Participant's consent and
(ii) no amendment or alteration shall be effective prior to approval by
the Company's stockholders to the extent such approval is then required
pursuant to Rule 16b-3 in order to preserve the applicability of any
exemption provided by such rule to any Award then outstanding (unless the
holder of such Award consents) or to the extent stockholder approval is
otherwise required by applicable legal requirements.
12. Termination of Employment. Upon the termination of employment
by a Participant, any unexercised, deferred or unpaid Awards shall be
treated as provided in the specific Award Agreement evidencing the Award.
In the event of such a termination, the Committee may, in its discretion,
provide for the extension of the exercisability of an Award, accelerate
the vesting of an Award, eliminate or make less restrictive any
restrictions contained in an Award or otherwise amend or modify the Award
in any manner not adverse to such Participant.
13. Assignability. No Award or any other benefit under this Plan
constituting a stock option or other derivative security within the
meaning of Rule 16b-3 shall be assignable or otherwise transferable
except by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of
the Employee Retirement Income Security Act, or the rules thereunder.
However, an officer or director may designate a beneficiary for any Award
made to such officer or director.
14. Adjustments.
(a) The existence of outstanding Awards shall not affect in any
manner the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or
other changes in the capital stock of the Company or its business or any
merger or consolidation of the Company, or any issue of bonds,
debentures, preferred to prior preference stock (whether or not such
issue is prior to, on a parity with or junior to the Common Stock) or the
dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other corporate act or
proceeding of any kind, whether or not of a character similar to that of
the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock or declaration of a dividend payable in shares of
Common Stock or capital reorganization or reclassification or other
transaction involving an increase or reduction in the number of
outstanding shares of Common Stock, the Committee may adjust
proportionally (i) the number of shares of Common Stock reserved under
this Plan and covered by outstanding Awards denominated in Common Stock
or units of Common Stock; (ii) the exercise or other price in respect of
such Awards; and (iii) the appropriate Fair Market Value and other price
determinations of such Awards. In the event of any consolidation or
merger of the Company with another corporation or entity or the adoption
by the Company of a plan of exchange affecting the Common Stock or any
distribution to holders of Common Stock of securities or property (other
than normal cash dividends or dividends payable in Common Stock), the
Committee shall make such adjustments or other provisions as it may deem
equitable, including adjustments to avoid fractional shares, to give
proper effect to such event. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Committee shall be authorized to issue
or assume stock options, regardless of whether in a transaction to which
Section 425(a) of the Code applies, by means of substitution of new
options for previously issued options or an assumption of previously
issued options, or to make provision for the acceleration of the
exercisability of, or lapse of restrictions with respect to, Awards and
the termination of unexercised options in connection with such
transaction.
15. Restrictions. No Common Stock or other form of payment shall
be issued with respect to any Award unless the Company shall be satisfied
based on the advice of its counsel that such issuance will be in
compliance with applicable federal and state securities laws. It is the
intent of the Company that this Plan comply in all respects with Rule 16b-
3, that any ambiguities or inconsistencies in the construction of this
Plan be interpreted to give effect to such intention, and that if any
provision of this Plan is found not to be in compliance with Rule 16b-3,
such provision shall be null and void to the extent required to permit
this Plan to comply with Rule 16b-3. Certificates evidencing shares of
Common Stock delivered under this Plan may be subject to such stop
transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any securities exchange or
transaction reporting system upon which the Common Stock is then listed
and any applicable federal and state securities law. The Committee may
cause a legend or legends to be placed upon any such certificates to make
appropriate reference to such restrictions.
16. Unfunded Plan. Insofar as it provides for Awards of cash,
Common Stock or rights thereto, this Plan shall be unfunded. Although
bookkeeping accounts may be established with respect to Participants who
are entitled to cash, Common Stock or rights thereto under this Plan, any
such accounts shall be used merely as a bookkeeping convenience. The
Company shall not be required to segregate any assets that may at any
time be represented by cash, Common Stock or rights thereto, nor shall
this Plan be construed as providing for such segregation, nor shall the
Company nor the Board nor the Committee be deemed to be a trustee of any
cash, Common Stock or rights thereto to be granted under this Plan. Any
liability or obligation of the Company to any Participant with respect to
a grant of cash, Common Stock or rights thereto under this Plan shall be
based solely upon any contractual obligations that may be created by this
Plan and any Award Agreement, and no such liability or obligation of the
Company shall be deemed to be secured by any pledge or other encumbrance
on any property of the Company. Neither the Company nor the Board nor
the Committee shall be required to give any security or bond for the
performance of any obligation that may be created by this Plan.
17. Governing Law. This Plan and all determinations made and
actions taken pursuant hereto, to the extent not otherwise governed by
mandatory provisions of the Code or the securities laws of the United
States, shall be governed by and construed in accordance with the laws of
the State of Delaware.
18. Effective Date of Plan. This Plan shall be effective as of
March 25, 1998. Notwithstanding the foregoing, the adoption of this Plan
is expressly conditioned upon the approval by the holders of a majority
of shares of Common Stock present, or represented, and entitled to vote
at a meeting of the Company's stockholders held on or before June 30,
1998. If the stockholders of the Company should fail so to approve this
Plan prior to such date, this Plan shall terminate and cease to be of any
further force or effect and all grants of Awards hereunder shall be null
and void.
Exhibit 99.B
1998 DIRECTOR LONG-TERM INCENTIVE PLAN
of
R&B FALCON CORPORATION
1. Objectives. The R&B Falcon Corporation 1998 Director Long-Term
Incentive Plan (the "Plan") is designed to enable the Company to attract
and retain non-employee directors and reward them for making major
contributions to the success of R&B Falcon Corporation, a Delaware
corporation (the "Company"), and its Subsidiaries (as hereinafter
defined). These objectives are to be accomplished by making awards under
the Plan and thereby providing Participants (as hereinafter defined) with
a proprietary interest in the growth and performance of the Company and
its Subsidiaries.
2. Definitions. As used herein, the terms set forth below shall
have the following respective meanings:
"Award" means the grant of any form of stock option or stock
award, whether granted singly, in combination or in tandem, to a
Participant pursuant to any applicable terms, conditions and limitations
as the Committee may establish in order to fulfill the objectives of the
Plan.
"Award Agreement" means a written agreement between the Company
and a Participant that sets forth the terms, conditions and limitations
applicable to an Award.
"Board" means the members of the Board of Directors of the
Company not eligible to participate in this Plan.
"Common Stock" means the Common Stock, par value $0.01 per
share, of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" means such committee of the Board as is designated
by the Board to administer the Plan.
"Director" means an individual serving as a member of the
Board.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
"Fair Market Value" means, as of a particular date, (i) if the
shares of Common Stock are listed on the New York Stock Exchange, the
mean between the highest and lowest sales price per share of Common Stock
on such exchange on that date, or, if there shall have been no such sale
so reported on that date, on the last preceding date on which such sale
was so reported, (ii) if the shares of Common Stock are not so listed but
are quoted in the NASDAQ National Market System, the mean between the
highest and lowest sales price per share of Common Stock on the NASDAQ
National Market System on that date, or, if there shall have been no such
sale so reported on that date, on the last preceding date on which such a
sale was so reported or (iii) if the Common Stock is not so listed or
quoted, the mean between the closing bid and asked price on that date,
or, if there are no quotations available for such date, on the last
preceding date on which such quotations shall be available, as reported
by NASDAQ, or, if not reported by NASDAQ, by the National Quotation
Bureau, Inc.
"Participant" means a non-employee member of the board of
directors of the Company to whom an Award is made under this Plan.
"Subsidiary" means any corporation of which the Company
directly or indirectly owns shares representing more than 50% of the
voting power of all classes or series of capital stock of such
corporation which have the right to vote generally on matters submitted
to a vote of the stockholders of such corporation.
3. Eligibility. Awards under this Plan may only be made to non-
employee members of the board of directors of the Company.
4. Common Stock Available for Awards. There shall be available
for Awards granted wholly or partly in Common Stock (including rights or
options which may be exercised for or settled in Common Stock) during the
term of this Plan an aggregate of 250,000 shares of Common Stock. Awards
the value of which is related to the market value of Common Stock but
which are not granted or payable in Common Stock shall be treated as
payable in Common Stock solely for purposes of the foregoing amount
limitation. The board of directors and the appropriate officers of the
Company shall from time to time take whatever actions are necessary to
file required documents with governmental authorities and stock exchanges
and transaction reporting systems to make shares of Common Stock
available for issuance pursuant to Awards. Common Stock related to
Awards that are forfeited or terminated, expire unexercised, are settled
in cash in lieu of Common Stock or in a manner such that all or some of
the shares covered by an Award are not issued to a Participant, or are
exchanged for Awards that do not involve Common Stock, shall immediately
become available for Awards hereunder.
5. Administration. This Plan shall be administered by the
Committee, which shall have full and exclusive power to interpret this
Plan, to grant waivers of the restrictions set forth in this Plan and to
adopt such rules, regulations and guidelines for carrying out this Plan
as it may deem necessary or proper, all of which powers shall be
exercised in the best interests of the Company and in keeping with the
objectives of this Plan. The Committee may correct any defect or supply
any omission or reconcile any inconsistency in this Plan or in any Award
in the manner and to the extent the Committee deems necessary or
desirable to carry it into effect. Any decision of the Committee in the
interpretation and administration of this Plan shall lie within its sole
and absolute discretion and shall be final, conclusive and binding on all
parties concerned.
6. Awards. The Committee shall determine the type or types of
Awards to be made to each Participant under this Plan. Each Award made
hereunder shall be embodied in an Award Agreement, which shall contain
such terms, conditions and limitations as shall be determined by the
Committee in its sole discretion and shall be signed by the Participant
and by the Chief Executive Officer or any Vice President of the Company
for and on behalf of the Company. Awards may consist of those listed in
this Paragraph and may be granted singly, in combination or in tandem.
Awards may also be made in combination or in tandem with, in replacement
of, or as alternatives to, grants or rights under this Plan or any other
director plan of the Company or any of its Subsidiaries, including the
plan of any acquired entity. An Award may provide for the granting or
issuance of additional, replacement or alternative Awards upon the
occurrence of specified events, including the exercise of the original
Award. Notwithstanding anything to the contrary in the Plan or any Award
Agreement, any shares of Common Stock received by a Participant pursuant
to an Award hereunder (other than shares of Common Stock received in
connection with the Participant's death, disability, retirement or
termination of employment or as required to be made pursuant to a
provision of the Code) must be held by such Participant for a period of
six months following such acquisition if at least six months elapse from
the date of acquisition of the derivative security to the date of
disposition of the derivative security (other than upon exercise or
conversion) or its underlying security.
(a) Stock Option. An Award may consist of a right to purchase a
specified number of shares of Common Stock at a specified price that is
not less than the greater of the par value of the Common Stock, or the
Fair Market Value of the Common Stock, on the date of grant of the
option.
(b) Stock Award. An Award may consist of Common Stock or may be
denominated in units of Common Stock. All or part of any stock award may
be subject to conditions established by the Committee, and set forth in
the Award Agreement, which may include, but are not limited to,
continuous service with the Company and its Subsidiaries, achievement of
specific business objectives, increases in specified indices, attaining
growth rates and other comparable measurements of performance. Such
Awards may be based on Fair Market Value or other specified valuations.
The certificates evidencing shares of Common Stock issued in connection
with a stock award shall contain appropriate legends and restrictions
describing the terms and conditions of the restrictions applicable
thereto.
7. Payment of Awards.
(a) General. Payment of Awards may include such restrictions as
the Committee shall determine, including in the case of Common Stock,
restrictions on transfer and forfeiture provisions. As used herein,
"Restricted Stock" means Common Stock that is restricted or subject to
forfeiture provisions.
(b) Dividends. Dividends or dividend equivalent rights may be
extended to and made part of any Award denominated in Common Stock or
units of Common Stock, subject to such terms, conditions and restrictions
as the Committee may establish.
(c) Substitution of Awards. At the discretion of the Committee, a
Participant may be offered an election to substitute an Award for another
Award or Awards of the same or different type. No Award of stock options
shall be repriced without stockholder approval if at the effective date
of such repricing the exercise price is greater than the Fair Market
Value.
8. Stock Option Exercise. The price at which shares of Common
Stock may be purchased under a stock option shall be paid in full at the
time of exercise in cash or, if permitted by the Committee, by means of
tendering Common Stock or surrendering another Award, including
Restricted Stock, valued at Fair Market Value on the date of exercise, or
any combination thereof. The Committee shall determine acceptable
methods for tendering Common Stock or other Awards to exercise a stock
option as it deems appropriate. The Committee may provide for loans from
the Company to permit the exercise or purchase of Awards and may provide
for procedures to permit the exercise or purchase of Awards by use of the
proceeds to be received from the sale of Common Stock issuable pursuant
to an Award. Unless otherwise provided in the applicable Award
Agreement, in the event shares of Restricted Stock are tendered as
consideration for the exercise of a stock option, a number of the shares
issued upon the exercise of the stock option, equal to the number of
shares of Restricted Stock used as consideration therefor, shall be
subject to the same restrictions as the Restricted Stock so submitted as
well as any additional restrictions that may be imposed by the Committee.
9. Tax Withholding. To the extent required by applicable law, the
Company shall have the right to deduct applicable taxes from any Award
payment and withhold, at the time of delivery or vesting of shares of
Common Stock under this Plan, an appropriate number of shares of Common
Stock for payment of taxes required by law or to take such other action
as may be necessary in the opinion of the Company to satisfy all
obligations for withholding of such taxes. The Committee may also permit
any such withholding to be satisfied, to the extent permitted by
applicable law, by the transfer to the Company of shares of Common Stock
theretofore owned by the holder of the Award with respect to which
withholding is required. If shares of Common Stock are used to satisfy
tax withholding, such shares shall be valued based on the Fair Market
Value when the tax withholding is required to be made.
10. Amendment, Modification, Suspension or Termination. The Board
may amend, modify, suspend or terminate this Plan for the purpose of
meeting or addressing any changes in legal requirements or for any other
purpose permitted by law except that (i) no amendment or alteration that
would impair the rights of any Participant under any Award granted to
such Participant shall be made without such Participant's consent and
(ii) no amendment or alteration shall be effective prior to approval by
the Company's stockholders to the extent stockholder approval is required
by applicable legal requirements.
11. Termination of Service. Upon the termination of service by a
Participant as a member of the board of directors of the Company, any
unexercised, deferred or unpaid Awards shall be treated as provided in
the specific Award Agreement evidencing the Award. In the event of such
a termination, the Committee may, in its discretion, provide for the
extension of the exercisability of an Award, accelerate the vesting of an
Award, eliminate or make less restrictive any restrictions contained in
an Award or otherwise amend or modify the Award in any manner not adverse
to such Participant.
12. Assignability. No Award or any other benefit under this Plan
constituting a stock option or other derivative security within the
meaning of Rule 16b-3 shall be assignable or otherwise transferable
except by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of
the Employee Retirement Income Security Act, or the rules thereunder.
However, a Participant may designate a beneficiary for any Award made to
such director.
13. Adjustments.
(a) The existence of outstanding Awards shall not affect in any
manner the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or
other changes in the capital stock of the Company or its business or any
merger or consolidation of the Company, or any issue of bonds,
debentures, preferred to prior preference stock (whether or not such
issue is prior to, on a parity with or junior to the Common Stock) or the
dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other corporate act or
proceeding of any kind, whether or not of a character similar to that of
the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock or declaration of a dividend payable in shares of
Common Stock or capital reorganization or reclassification or other
transaction involving an increase or reduction in the number of
outstanding shares of Common Stock, the Committee may adjust
proportionally (i) the number of shares of Common Stock reserved under
this Plan and covered by outstanding Awards denominated in Common Stock
or units of Common Stock; (ii) the exercise or other price in respect of
such Awards; and (iii) the appropriate Fair Market Value and other price
determinations of such Awards. In the event of any consolidation or
merger of the Company with another corporation or entity or the adoption
by the Company of a plan of exchange affecting the Common Stock or any
distribution to holders of Common Stock of securities or property (other
than normal cash dividends or dividends payable in Common Stock), the
Committee shall make such adjustments or other provisions as it may deem
equitable, including adjustments to avoid fractional shares, to give
proper effect to such event. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Committee shall be authorized to issue
or assume stock options, regardless of whether in a transaction to which
Section 425(a) of the Code applies, by means of substitution of new
options for previously issued options or an assumption of previously
issued options, or to make provision for the acceleration of the
exercisability of, or lapse of restrictions with respect to, Awards and
the termination of unexercised options in connection with such
transaction.
14. Restrictions. No Common Stock or other form of payment shall
be issued with respect to any Award unless the Company shall be satisfied
based on the advice of its counsel that such issuance will be in
compliance with applicable federal and state securities laws.
Certificates evidencing shares of Common Stock delivered under this Plan
may be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any securities
exchange or transaction reporting system upon which the Common Stock is
then listed and any applicable federal and state securities law. The
Committee may cause a legend or legends to be placed upon any such
certificates to make appropriate reference to such restrictions.
15. Unfunded Plan. Insofar as it provides for Awards of Common
Stock or rights thereto, this Plan shall be unfunded. Although
bookkeeping accounts may be established with respect to Participants who
are entitled to Common Stock or rights thereto under this Plan, any such
accounts shall be used merely as a bookkeeping convenience. The Company
shall not be required to segregate any assets that may at any time be
represented by Common Stock or rights thereto, nor shall this Plan be
construed as providing for such segregation, nor shall the Company nor
the Board nor the Committee be deemed to be a trustee of any Common Stock
or rights thereto to be granted under this Plan. Any liability or
obligation of the Company to any Participant with respect to a grant of
Common Stock or rights thereto under this Plan shall be based solely upon
any contractual obligations that may be created by this Plan and any
Award Agreement, and no such liability or obligation of the Company shall
be deemed to be secured by any pledge or other encumbrance on any
property of the Company. Neither the Company nor the Board nor the
Committee shall be required to give any security or bond for the
performance of any obligation that may be created by this Plan.
16. Governing Law. This Plan and all determinations made and
actions taken pursuant hereto, to the extent not otherwise governed by
mandatory provisions of the Code or the securities laws of the United
States, shall be governed by and construed in accordance with the laws of
the State of Delaware.
17. Effective Date of Plan. This Plan shall be effective as of
March 25, 1998. Notwithstanding the foregoing, the adoption of this Plan
is expressly conditioned upon the approval by the holders of a majority
of shares of Common Stock present, or represented, and entitled to vote
at a meeting of the Company's stockholders held on or before June 30,
1998. If the stockholders of the Company should fail so to approve this
Plan prior to such date, this Plan shall terminate and cease to be of any
further force or effect.
