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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-81179
PROSPECTUS
R&B FALCON CORPORATION
OFFER TO EXCHANGE
ALL OUTSTANDING
311,447 SHARES
OF
13 7/8% SENIOR CUMULATIVE REDEEMABLE PREFERRED STOCK
FOR
311,447 SHARES
OF
13 7/8% SENIOR CUMULATIVE REDEEMABLE PREFERRED STOCK
-------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON AUGUST 6, 1999, UNLESS EXTENDED
-------------------------
TERMS OF EXCHANGE OFFER
- - We are offering to exchange a total of 311,447 shares of 13 7/8% Senior
Cumulative Redeemable Preferred Stock for an equal number of our outstanding
restricted shares of 13 7/8% Senior Cumulative Redeemable Preferred Stock
- - The exchange offer is not subject to any condition other than that it not
violate applicable law or any applicable interpretation of the staff of the
Securities and Exchange Commission
- - Tenders of outstanding preferred stock may be withdrawn any time prior to the
expiration of the exchange offer
- - The exchange of preferred stock will not be a taxable exchange for the U.S.
federal income tax purposes
- - We will not receive any proceeds from the exchange offer
- - The terms of the preferred stock to be issued are substantially identical to
the outstanding preferred stock, except the new preferred stock does not
contain the transfer restrictions and registration rights that apply to the
outstanding preferred stock
-------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF MATTERS THAT
YOU SHOULD CONSIDER PRIOR TO DECIDING WHETHER TO EXCHANGE YOUR PREFERRED STOCK
IN THE EXCHANGE OFFER.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES TO BE DISTRIBUTED IN THE
EXCHANGE OFFER, NOR HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------
THE INFORMATION IN THE PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
-------------------------
The date of this Prospectus is July 7, 1999
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY..................................................... 1
RISK FACTORS................................................ 12
FORWARD-LOOKING STATEMENTS.................................. 18
THE EXCHANGE OFFER.......................................... 18
USE OF PROCEEDS............................................. 27
CAPITALIZATION.............................................. 28
DESCRIPTION OF SECURITIES................................... 29
DESCRIPTION OF SIGNIFICANT INDEBTEDNESS..................... 57
UNITED STATES FEDERAL TAX CONSEQUENCES...................... 58
PLAN OF DISTRIBUTION........................................ 69
WHERE YOU CAN FIND MORE INFORMATION......................... 70
INCORPORATION BY REFERENCE.................................. 71
LEGAL MATTERS............................................... 71
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 71
</TABLE>
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SUMMARY
This summary highlights selected information from this prospectus to help
you understand the exchange offer and the preferred stock. You should carefully
read the entire prospectus to understand fully the terms of the exchange offer
and the preferred stock, as well as the tax and other considerations that are
important to you in making your investment decision. You should pay special
attention to the "Risk Factors" section beginning on page 12 of this prospectus.
THE COMPANY
We own and operate the world's largest fleet of marine drilling rigs. Our
fleet is one of the most diverse in the industry, capable of drilling in shallow
to ultra-deepwater depths. We currently operate in most of the world's major
offshore hydrocarbon producing regions. We believe that our fleet diversity and
worldwide operations allow us to mitigate revenue and cash flow impacts
associated with a major downturn in any single segment of the drilling industry
or geographic region.
Our overall strategy is to enhance our competitive positions in markets
that generate superior long-term returns. We focus on equipment types that serve
markets with long-term growth potential, can benefit from consolidation, or are
characterized by long-term contracts. As a result of this strategy, we have
become one of the largest drilling contractors in the deepwater, shallow water
and transition zone markets.
RECENT DEVELOPMENTS
On April 7, 1999, we announced that Steven Webster, our president and chief
executive officer, would resign from these officer positions at the end of May
1999. On May 19, 1999, Mr. Paul Loyd, our chairman of the board, was elected as
our chief executive officer, and Mr. Andrew Bakonyi was elected as president and
chief operating officer. Mr. Webster remains a director of our company.
On April 15, 1999, BP Amoco cancelled its drilling contract with us for our
drillship Peregrine VII in accordance with the terms of the contract because we
had not delivered this rig on time. We are currently marketing this rig.
On April 22, 1999, we issued in a private placement 300,000 units, each
consisting of one share of the preferred stock that is the subject of this
exchange offer and a warrant to purchase 35 shares of our common stock. We are
using the approximately $289 million net proceeds from this offering for general
corporate purposes, including funding our deepwater rig construction program.
On May 19, 1999, we announced that we had received notice from Petrobras of
cancellation of the drilling contract on our semisubmersible Falcon 100, based
upon alleged late delivery of the rig. We do not believe that Petrobras has the
right to cancel the contract. We have engaged Brazilian counsel to pursue our
rights under the contract and intend to take legal action to enforce our rights
under the contract. Petrobras has also advised us that the contract for which we
had been the low bidder with our Peregrine VII drillship had been awarded by
Petrobras to another drilling contractor, for the reason that Petrobras desired
to commence such contract prior to the expected delivery date of the Peregrine
VII.
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SUMMARY OF TERMS OF EXCHANGE OFFER
We are offering to exchange up to 300,000 shares of our outstanding 13 7/8%
Senior Cumulative Redeemable Preferred Stock that were initially issued on April
22, 1999 and up to 11,447 additional shares of this preferred stock that we
expect to issue as payment in kind of dividends on the preferred stock on August
1, 1999 for an equal number of shares of our 13 7/8% Senior Cumulative
Redeemable Preferred Stock. The form and terms of the shares of new preferred
stock are identical in all material respects to the form and terms of the shares
of outstanding preferred stock, except that the new preferred stock has been
registered under the Securities Act of 1933 and, therefore, is not entitled to
the benefits of the registration rights granted under the registration rights
agreement, executed as part of the offering of the outstanding preferred stock.
REGISTRATION RIGHTS
AGREEMENT.................. You are entitled to exchange your shares of
outstanding preferred stock for registered shares
of new preferred stock with substantially identical
terms. The exchange offer is intended to satisfy
these rights. After the exchange offer is complete,
you will no longer be entitled to any exchange or
registration rights with respect to your preferred
stock.
THE EXCHANGE OFFER......... We are offering to exchange one share of new
preferred stock for each share of outstanding
preferred stock. We will accept for exchange all
shares of outstanding preferred stock that are
validly tendered and not validly withdrawn. In
order to be accepted, a share of outstanding
preferred stock must be properly tendered and
accepted. After consummation of the exchange offer,
holders of shares of outstanding preferred stock
which are not exchanged will continue to be subject
to the existing restrictions upon the transfer of
outstanding preferred stock and we will have no
further obligation to such holders to provide for
the registration of the outstanding preferred stock
under the Securities Act.
SHELF REGISTRATION......... We may be required to file a shelf registration
statement with respect to our outstanding preferred
stock if:
- the Securities and Exchange Commission
issues an interpretation that we are not
permitted to effect the exchange offer; or
- a holder of outstanding preferred stock
(a) is not eligible to participate in the
exchange offer, or
(b) has participated in the exchange offer
but does not receive freely tradeable
new preferred stock,
RESALE OF NEW PREFERRED
STOCK...................... Based on interpretations by the staff of the
Securities and Exchange Commission set forth in
no-action letters issued to third parties,
including "Exxon Holdings Corporation" (available
May 13, 1998) and "Morgan Stanley & Co.
Incorporated" (available June 5, 1991), we believe
that you may offer the new preferred stock for
resale, resell the new preferred stock and
otherwise transfer the new preferred stock without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that:
- you acquire the new preferred stock in the
exchange offer in the ordinary course of
business;
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- you have no arrangement or understanding
with any person to participate in the
distribution of the new preferred stock that
you obtain in the exchange offer;
- you are not a broker-dealer who purchased
such outstanding preferred stock directly
from us for resale pursuant to Rule 144A or
any other available exemption under the
Securities Act; and
- you are not an "affiliate" of our company.
We intend to rely on the existing no-action letters
and we do not intend to seek a no-action letter
from the Securities and Exchange Commission with
respect to the resale of the new preferred stock.
EXPIRATION DATE............ The exchange offer will expire at 5:00 p.m., New
York City time, August 6, 1999, unless we extend
the expiration date.
ACCRUED DIVIDENDS ON THE
NEW PREFERRED STOCK AND THE
OUTSTANDING PREFERRED
STOCK.................... The new preferred stock will be issued after the
first dividend payment date, which is August 1,
1999. Dividends on the new preferred stock will
accrue from August 1, 1999. If we accept your
outstanding preferred stock you will not receive
any payment in respect of dividends on such
outstanding preferred stock accrued from August 1,
1999 to the date of the issuance of the new
preferred stock. Consequently, holders who exchange
their outstanding preferred stock for new preferred
stock will receive the same dividend payment on
November 1, 1999, which will be the first dividend
payment date after the closing of the exchange
offer with respect to the outstanding preferred
stock and the new preferred stock to be issued in
the exchange offer, that they would have received
had they not accepted the exchange offer.
TERMINATION OF THE EXCHANGE
OFFER.................... We may terminate the exchange offer at any time
prior to the expiration date if we determine that
our ability to proceed with the exchange offer
could be materially impaired due to any legal or
governmental action, new law, statute, rule or
regulation or any interpretation of the staff of
the Securities and Exchange Commission of any
existing law, statute, rule or regulation. We do
not expect any of the foregoing conditions to
occur, although there can be no assurance that such
conditions will not occur. Holders of outstanding
preferred stock will have certain rights against us
under the registration rights agreement executed as
part of the offering of the outstanding preferred
stock if we fail to consummate the exchange offer.
CONDITIONS TO EXCHANGE
OFFER...................... The exchange offer is subject to conditions, which
we may waive. See "The Exchange Offer -- Conditions
of the Exchange Offer." The exchange offer is not
conditioned upon any minimum number of shares of
outstanding preferred stock being tendered.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... If you are the beneficial owner of outstanding
preferred stock and your name does not appear on a
security position listing of the Depository Trust
Company as the holder of that outstanding preferred
stock or if
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you are a beneficial owner of outstanding preferred
stock that is registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee and you wish to tender shares of
outstanding preferred stock for registered shares
of preferred stock in the exchange offer, you
should contact the person in whose name your
outstanding preferred stock is registered promptly
and instruct that person to tender on your behalf.
If you wish to tender on your own behalf you must,
prior to completing and executing the letter of
transmittal and delivering your outstanding
preferred stock either make appropriate
arrangements to register ownership of the
outstanding preferred stock in your name or obtain
a properly completed bond power from the registered
holder. The transfer of record ownership may take
considerable time.
GUARANTEED DELIVERY
PROCEDURES................. If you wish to tender shares of your outstanding
preferred stock and time will not permit your
required documents to reach the exchange agent by
the expiration date, or the procedure for
book-entry transfer cannot be completed on time or
certificates for registered shares of outstanding
preferred stock cannot be delivered on time, you
may tender your outstanding preferred stock
pursuant to the procedures described in this
prospectus under the heading "The Exchange
Offer -- Terms of the Exchange Offer -- Guaranteed
Delivery Procedures."
WITHDRAWAL RIGHTS.......... You may withdraw the tender of your outstanding
preferred stock at any time prior to 5:00 p.m., New
York City time, on August 6, 1999, unless your
outstanding preferred stock was previously accepted
for exchange.
ACCEPTANCE OF OUTSTANDING
PREFERRED STOCK AND
DELIVERY OF NEW PREFERRED
STOCK.................... Subject to certain conditions as described more
fully under "The Exchange Offer -- Conditions of
the Exchange Offer," we will accept for exchange
any and all shares of outstanding preferred stock
which are properly tendered in the exchange offer
prior to 5:00 p.m., New York City time, on the
expiration date. The new preferred stock issued
pursuant to the exchange offer will be delivered
promptly to you following the expiration date.
FEDERAL INCOME TAX
CONSIDERATIONS........... The exchange of the outstanding preferred stock
will generally not be a taxable exchange for United
States federal income tax purposes. We believe you
will not recognize any taxable gain or loss or any
income as a result of the exchange.
USE OF PROCEEDS............ We will not receive any proceeds from the issuance
of new preferred stock pursuant to the exchange
offer. We will pay all expenses incident to the
exchange offer.
EXCHANGE AGENT............. American Stock Transfer & Trust Company is serving
as the exchange agent in connection with the
exchange offer. The exchange agent can be reached
at 40 Wall Street, New York, NY 10005, Attention:
Reorganization Department. For more information
with respect to the exchange offer, the telephone
number for the exchange agent is
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(718) 921-8200 and the facsimile number for the
exchange agent is (718) 234-5001.
CONSEQUENCES OF NOT
EXCHANGING OUTSTANDING
PREFERRED STOCK.......... If you do not exchange your outstanding preferred
stock for new preferred stock, you will no longer
be able to require us to register the outstanding
preferred stock under the Securities Act. In
addition, you will not be able to offer or sell the
outstanding preferred stock unless:
- they are registered under the Securities
Act; or
- you offer or sell them under an exemption
from the registration requirements of the
Securities Act.
See "The Exchange Offer" for more detailed information concerning the terms
of the exchange offer.
SUMMARY OF TERMS OF NEW PREFERRED STOCK
SECURITIES OFFERED......... 311,447 shares of our 13 7/8% Senior Cumulative
Redeemable Preferred Stock.
DIVIDENDS.................. Dividends on the preferred stock are payable in
cash or, on or before May 1, 2004, at our option,
in additional shares of preferred stock, on each
February 1, May 1, August 1 and November 1,
beginning August 1, 1999. Dividends on the
preferred stock will accrue at the rate of 13 7/8%
of the liquidation preference per annum and be
cumulative from the date on which the preferred
stock was originally issued. Covenants contained in
the indentures governing a substantial portion of
our indebtedness limit our ability to pay cash
dividends. We intend to pay dividends on the
preferred stock in additional shares of preferred
stock for most or all of the period ending May 1,
2004 unless industry conditions improve
significantly. For federal income tax purposes,
these distributions of additional shares of
preferred stock in lieu of cash will be taxed as
dividends to the extent of our earnings and profits
(as determined under applicable federal income tax
principles). Holders of the preferred stock will be
required to pay any applicable federal income taxes
with respect to such distributions of shares, but
will not receive cash from us with which to pay
such taxes.
LIQUIDATION PREFERENCE..... $1,000 per share, plus accrued and unpaid
dividends.
VOTING..................... Holders of the preferred stock will have no voting
rights except as provided by law and as provided in
the certificate of designation for the preferred
stock. In the event that dividends are not paid for
any three quarters, whether or not consecutive, or
upon certain other events (including the failure to
make a change of control offer, to comply with
other specified covenants or to pay the mandatory
redemption price when due), then the number of
directors that make up our Board of Directors will
be increased to permit the holders of the majority
of the then outstanding shares of preferred stock,
voting separately as a class with any other class
of securities having similar voting rights, to
elect two directors.
MANDATORY REDEMPTION....... We must redeem the preferred stock on May 1, 2009
(subject to the legal availability of funds) at a
redemption price equal to the
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liquidation preference, plus accrued and unpaid
dividends to the redemption date.
OPTIONAL REDEMPTION........ We may redeem any of the preferred stock beginning
May 1, 2004. The initial redemption price is
106.938% of the liquidation preference, declining
thereafter to 100.000% on or after May 1, 2007, in
each case plus accrued and unpaid dividends to the
redemption date.
In addition, on or prior to May 1, 2002, we may
redeem shares of the preferred stock having an
aggregate liquidation preference of up to $105
million at a price equal to 113.875% of its
liquidation preference, plus accrued and unpaid
dividends to the redemption date, with proceeds
from one or more public equity offerings. We may
make one of these redemptions only if it occurs
within 45 days after completion of the public
equity offering.
RANKING.................... The preferred stock will rank (i) senior to our
common stock and to all other capital stock of our
company unless the terms of the other capital stock
expressly provide that it ranks equally with the
preferred stock; and (ii) equally with any capital
stock of our company the terms of which expressly
provide that it will rank equally with the
preferred stock. As of the date of this offering
memorandum, all of our other outstanding capital
stock would rank junior to the preferred stock.
OPTIONAL EXCHANGE
FEATURE.................... The preferred stock will become exchangeable in
whole, but not in part, into exchange debentures at
our option if the conditions described in the
certificate of designation are satisfied.
Indentures governing a substantial portion of our
indebtedness will restrict our ability to
consummate such an exchange.
CERTAIN COVENANTS.......... The certificate of designation contains covenants
that restrict our ability and the ability of our
restricted subsidiaries to:
- issue capital stock;
- pay dividends or make distributions in
respect of capital stock;
- redeem capital stock; or
- effect a consolidation or merger.
However, these limitations are subject to a number
of important qualifications and exceptions.
REGISTRATION
REQUIREMENTS............... We are obligated to complete the exchange offer
pursuant to an effective registration statement or
cause resales of preferred stock to be registered
under the Securities Act. If the exchange offer
does not occur by October 19, 1999, or if other
related events do not occur within certain shorter
time periods, we will be required to pay liquidated
damages to the holders of the preferred stock.
CHANGE OF CONTROL.......... Upon a change of control, we will be required to
make an offer to purchase all outstanding preferred
stock. The purchase price will equal 101% of the
liquidation preference of the preferred stock, plus
accrued and unpaid dividends. We may not be
permitted under our debt agreements at the time of
any change of control, or may not have enough funds
available at the time of any change of control, to
make any required purchase of the preferred stock.
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THE EXCHANGE DEBENTURES
SECURITIES DESCRIPTION..... 13 7/8% Senior Subordinated Debentures due 2009 in
an aggregate principal amount equal to the
aggregate liquidation preference of, and accrued
and unpaid dividends on, the preferred stock
outstanding on the date fixed for the exchange of
the preferred stock.
MATURITY................... May 1, 2009.
INTEREST RATE AND PAYMENT
DATES.................. The exchange debentures will accrue interest at the
rate of 13 7/8% per annum, commencing on the date
they are exchanged for the preferred stock. The
interest payment dates will be February 1, May 1,
August 1 and November 1 of each year, beginning
with the first of such dates to occur after the
date they are exchanged for the preferred stock. On
or before May 1, 2004, we may pay interest on the
exchange debentures by issuing additional exchange
debentures.
OPTIONAL REDEMPTION........ We may redeem any of the exchange debentures
beginning May 1, 2004. The initial redemption price
is 106.938% of the principal amount of the exchange
debentures, declining thereafter to par on or after
May 1, 2007, in each case plus accrued and unpaid
interest to the redemption date.
In addition, on or prior to May 1, 2002, we may
redeem up to an aggregate principal amount of the
exchange debentures equal to $105 million, less the
aggregate liquidation preference of all shares of
preferred stock previously redeemed out of the
proceeds of one or more public equity offerings, at
a redemption price equal to 113.875% of the
principal amount of the exchange debentures, plus
accrued and unpaid interest, with the proceeds of
one or more public equity offerings. We may make
one of these redemptions only if it occurs within
45 days after completion of the public equity
offering.
RANKING.................... The exchange debentures will be our senior
subordinated indebtedness, ranking junior to all of
our existing and future senior indebtedness and
equally with or senior to all of our subordinated
indebtedness. At March 31, 1999, we and our
subsidiaries had $2.7 billion of consolidated
indebtedness outstanding, all of which would have
been effectively senior to the exchange debentures.
CERTAIN COVENANTS.......... The indenture under which the exchange debentures
would be issued will contain certain covenants that
restrict our ability and the ability of our
restricted subsidiaries to:
- pay dividends or make distributions in
respect of capital stock;
- redeem capital stock;
- make other restricted payments; or
- effect a consolidation or merger.
However, these limitations would be subject to a
number of important qualifications and exceptions.
REGISTRATION
REQUIREMENTS............... The exchange debentures may not be issued unless
such issuance is registered under the Securities
Act or is exempt from registration.
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CHANGE OF CONTROL.......... Upon a change of control, we will be required to
make an offer to purchase the exchange debentures.
The purchase price will equal 101% of the principal
amount of the exchange debentures, plus accrued and
unpaid interest. We may not be permitted under our
debt agreements at the time of any change of
control, or may not have enough funds available at
the time of any change of control, to make any
required purchase of the exchange debentures.
RISK FACTORS
See "Risk Factors" for a discussion of factors you should carefully
consider before deciding whether to exchange your notes in the exchange offer.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data set forth below gives effect to the
merger of Falcon Drilling Company, Inc. and Reading & Bates Corporation, which
occurred on December 31, 1997, under the "pooling-of-interests" method of
accounting. This means that these companies are treated as if they have always
been combined for accounting and financial reporting purposes. The summary
consolidated financial data as of and for the three months ended March 31, 1998
and 1999 have been derived from our unaudited condensed consolidated financial
statements and include all adjustments (consisting of only normal recurring
adjustments) that management considers necessary for a fair presentation of the
interim periods. Results of interim periods are not necessarily indicative of
results for the full year. The summary financial data for the years ended
December 31, 1995, 1996, 1997 and 1998 were derived from our audited
consolidated financial statements, and for the year ended December 31, 1994 from
the separate audited consolidated financial statements of Reading & Bates and
Falcon. You should read this data together with our historical consolidated
financial statements, which are incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------
1998 1999
------- ---------
(IN MILLIONS, EXCEPT
PER SHARE AND RATIO
AMOUNTS)
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues.......................................... $279.3 $ 243.8
Operating income............................................ 116.8 32.7
Income from continuing operations before income tax expenses
and minority interest..................................... 105.2 9.3
Net income(1)............................................... 69.8 1.6
Income from continuing operations per common share:
Basic..................................................... .42 .01
Diluted................................................... .42 .01
OTHER DATA:
Ratio of earnings to fixed charges and preferred
dividends(2).............................................. 5.3x --
Depreciation................................................ $ 21.4 $ 36.5
Capital expenditures and acquisitions....................... $237.4 $ 236.3
BALANCE SHEET DATA AS OF MARCH 31, 1999:
Working capital............................................. $ 639.1
Total assets................................................ 4,442.2
Total debt.................................................. 2,720.5
Stockholders' equity........................................ 1,253.0
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998(3)
----------- ------ -------- -------- --------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues.......................................... $307.6 $390.3 $ 609.6 $ 933.0 $1,032.6
Operating income............................................ 22.4 64.9 178.8 160.4 215.8
Income (loss) from continuing operations before
extraordinary item........................................ (12.7) 23.5 106.7 29.8 91.0
Net income (loss)(1)........................................ (12.7) 26.9 106.7 (6.2) 102.8
Net income (loss) from continuing operations per common
share:
Basic..................................................... (.18) .16 .70 .18 .54
Diluted................................................... (.18) .15 .67 .18 .54
OTHER DATA:
Ratio of earnings to fixed charges and preferred
dividends(2).............................................. -- 1.6x 3.1x 2.6x 2.0x
Depreciation and amortization............................... $ 38.4 $ 46.9 $ 62.3 $ 84.7 $ 97.6
Capital expenditures and acquisitions....................... 124.7 186.9 383.2 600.2 1,166.5
BALANCE SHEET DATA (END OF PERIOD):
Working capital............................................. $ 9.2 $ 57.7 $ 195.3 $ (15.2) $ 175.3
Total assets................................................ 810.9 946.8 1,455.8 1,933.0 3,709.3
Total debt.................................................. 288.6 308.7 514.2 827.4 1,995.9
Stockholders' equity........................................ 356.3 472.6 716.7 728.0 1,250.2
</TABLE>
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- ---------------
(1) After extraordinary gain of $3.4 million in 1995, loss from discontinued
operations of $36.0 million in 1997, extraordinary loss of $24.2 million and
income from discontinued operations of $36.0 million in 1998, income from
discontinued operations of $8.3 million for the three months ended March 31,
1998, and extraordinary loss of $1.7 million for the three months ended
March 31, 1999.
(2) For the purpose of this calculation "earnings" represents income (loss) from
continuing operations before income tax expense, minority interest, and
extraordinary gain, plus fixed charges exclusive of interest capitalized.
"Fixed charges" consist of interest, whether expensed or capitalized,
amortization of debt expense and an estimated portion of rentals
representing interest expense and preferred dividends. For the year ended
December 31, 1994 and the three months ended March 31, 1999, earnings were
insufficient to cover fixed charges by $11.8 million and $5.3 million,
respectively. Fixed charges for the year ended December 31, 1997 and 1998
and the three months ended March 31, 1998 and 1999 exclude interest cost of
$7.3 million, $22.5 million, $4.5 million and $3.7 million, respectively,
related to the debt of joint venture companies guaranteed by us or our
subsidiaries. Approximately $273.4 million of outstanding indebtedness at
December 31, 1998 was retired with a portion of our borrowings from RBF
Finance Co. and the proceeds from the sale of our $200 million senior notes.
Giving effect to this retirement and assuming an average effective interest
rate of approximately 11.76% on this debt and giving effect to the
amortization of debt issuance costs, the pro forma ratio of earnings to
fixed charges and preferred dividends for the year ended December 31, 1998
was 1.8x and, for the three months ended March 31, 1999, earnings were
insufficient to cover fixed charges by $12.3 million.
(3) Includes results of Cliffs Drilling Company, which we acquired on December
1, 1998, only for the month of December 1998 because we accounted for this
acquisition under the purchase method.
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SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The summary unaudited pro forma combined financial data set forth below for
the year ended December 31, 1998 was derived from our historical financial
statements and from the historical financial statements of Cliffs Drilling
Company, which we acquired on December 1, 1998. The summary unaudited pro forma
combined financial data is presented as if the acquisition of Cliffs Drilling
and certain other acquisition and financing transactions were consummated at the
beginning of the period. The summary unaudited pro forma combined financial data
does not purport to represent what our company's and Cliffs Drilling's combined
results of operations actually would have been if the acquisition of Cliffs
Drilling had occurred as of the date indicated or will be for any future
periods. The summary unaudited pro forma combined financial data should be read
in conjunction with the unaudited pro forma condensed statement of operations
and our historical financial statements, which are incorporated by reference in
this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998(4)
-------------
(IN MILLIONS,
UNAUDITED)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues.......................................... $1,349.0
Operating income............................................ 305.1
Income from continuing operations........................... 138.9
OTHER DATA:
EBITDA(1)................................................... $ 544.6
Ratio of EBITDA to interest expense(2)...................... 6.7x
Ratio of earnings to fixed charges and preferred
dividends(3).............................................. 2.4x
Depreciation and amortization............................... $ 130.0
</TABLE>
- ---------------
(1) "EBITDA" means income from continuing operations before extraordinary loss,
interest expense, taxes, depreciation, amortization, cancellation of
conversion projects and merger expenses. EBITDA should not be considered as
an alternative to net income as an indicator of our operating performance,
or as an alternative to cash flow as a better measure of liquidity. EBITDA
measures presented may not be comparable to other similarly titled measures
of other companies. We believe EBITDA is a widely accepted financial
indicator of a company's ability to service debt.
(2) We believe that the ratio of EBITDA to interest expense provides an investor
with information as to its current ability to meet its interest costs.
(3) For the purpose of this calculation "earnings" represent income from
continuing operations before income tax expense, minority interest, and
extraordinary loss, plus fixed charges exclusive of interest capitalized.
"Fixed charges" consist of interest, whether expensed or capitalized,
amortization of debt expense, and an estimated portion of rentals
representing interest expense and preferred dividends. Fixed charges for the
year ended December 31, 1998 exclude interest cost of $22.5 million related
to the debt of joint venture companies guaranteed by us or our subsidiaries.
(4) The pro forma data does not reflect any of the proceeds from our senior note
offering completed in December 1998, or the application of the net proceeds
from that offering, as we used the net proceeds for general corporate
purposes, including funding our deepwater construction program.
Additionally, the pro forma data does not reflect the proceeds from our
senior note offering completed in March 1999 or the application of the loans
from RBF Finance Co. funded with the proceeds from the secured note
offerings of RBF Finance Co., since we used these proceeds to repay our
revolving credit facility and our short-term obligations and for general
corporate purposes, including funding our deepwater construction program,
and the impact of repaying the revolving credit facility and short-term
obligations did not have a material effect. Likewise, the pro forma data
does not reflect any proceeds from our offering in April 1999 of preferred
stock and warrants since we used these proceeds for general corporate
purposes, including funding our deepwater rig construction program.
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<PAGE> 14
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing our
company. Additional risks not presently known to us or that we currently deem
immaterial may also impair our business operations. The risk factors set forth
below are generally applicable to the outstanding preferred stock as well as the
exchange shares.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of many factors,
including the risks faced by us described below and elsewhere in this
prospectus.
DEPRESSED INDUSTRY CONDITIONS, COMBINED WITH OUR SUBSTANTIAL CAPITAL
REQUIREMENTS, HAVE ADVERSELY AFFECTED OUR LIQUIDITY.
We are currently constructing or significantly upgrading six wholly-owned
deepwater drilling rigs and have recently completed the construction of one
deepwater drilling rig. We estimate the gross capital expenditures on these
projects will be approximately $1.9 billion, of which approximately $0.8 billion
remains to be expended. Since May 1998, however, there has been a downturn in
demand for marine drilling rigs resulting in a decline in rig utilization and
dayrates. The decline has been particularly dramatic in the domestic barge and
jack-up rig markets where we are one of the largest contractors. Although our
operating revenues increased by $99.6 million from 1997 to 1998, on a quarterly
basis during 1998 we experienced a decline in operating revenues from $279.3
million for the first quarter of 1998 to $243.8 million for the first quarter of
1999. Similarly, although our EBITDA increased by $114.5 million from 1997 to
1998, we experienced a decline in EBITDA from $136.7 million in the first
quarter of 1998 to $71.5 million in the first quarter of 1999. As a result of
our declining operating results, our cash flow from operations and cash on hand,
including the net proceeds from our debt offering in March 1999, our borrowings
from RBF Finance Co. and our preferred stock and warrant offering in April 1999,
may not be sufficient to satisfy our short-term and long-term working capital
needs, planned investments, capital expenditures, debt, lease and other payment
obligations. Accordingly, it may be necessary for us to obtain additional
capital through debt and/or equity financings to meet our currently projected
obligations. We are currently evaluating two project financings to meet a
portion of our additional capital requirements. There can be no assurance,
however, that we can obtain these or any other additional financings or, if
obtained, that they will be on favorable terms or for the amount we need. As a
result of our debt offering in March 1999 and our borrowings from RBF Finance
Co., we have a limited ability under our indenture covenants to incur additional
recourse indebtedness and to secure that debt. In the event that we are unable
to obtain the requisite financing, we would have to sell assets or terminate or
suspend one or more construction projects. Termination or suspension of a
project may subject us to claims for penalties or damages under the construction
contracts or drilling contracts for rigs that are being constructed.
Accordingly, our inability to complete such financings would have a material
adverse effect on our financial condition and results of operations.
WE ARE DEPENDENT ON THE OIL AND GAS INDUSTRY AND MARKET PRICES. DECLINES IN OIL
AND GAS PRICES HAVE ADVERSELY AFFECTED OUR DAYRATES AND RIG UTILIZATION.
The amount of cash flow we generate depends on the level of activity in
offshore oil and gas exploration and development. Oil and gas prices
significantly affect the level of activity in oil and gas exploration and
development. These prices are volatile, and have only recently begun to show
signs of recovery from declines that started in 1997. These declines have
adversely affected our rig utilization and dayrates. Utilization of our domestic
jack-up fleet has declined from approximately 97% in the first quarter of 1998
to approximately 49% in the first quarter of 1999, and dayrates have declined
from an average of $35,000 during the first quarter of 1998 to an average of
$21,000 during the first quarter of 1999. Dayrates for our domestic barge
drilling rig fleet have not declined materially, but utilization of the fleet
declined from approximately 93% in the first quarter of 1998 to approximately
27% in the first quarter of 1999. Our international jack-up fleet has
experienced declines in utilization and dayrates since January 1998, but such
declines have not been as dramatic as those experienced in the domestic jack-up
fleet. If conditions in the
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<PAGE> 15
oil and gas industry do not improve in the future, our financial condition and
results of operations may continue to be adversely affected.
WE HAVE A SIGNIFICANT AMOUNT OF DEBT.
We have a significant amount of debt. At March 31, 1999, our total
indebtedness was approximately $2.7 billion, which would have been 63% of our
total book value capitalization, as adjusted to give effect to our preferred
stock and warrant offering in April 1999. This substantial indebtedness will
have important consequences to you. For example, it will:
- make it more difficult for us to make our required debt payments;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund future capital expenditures and working capital
and other general corporate requirements;
- potentially require us to sell assets or to terminate or suspend some of
our deepwater drilling construction projects;
- limit our flexibility in planning for, or reacting to, changes in our
business and our industry;
- place us at a competitive disadvantage compared to our competitors that
have less debt; and
- limit our ability to borrow additional funds because of financial and
other restrictive covenants governing our debt.
OUR EXISTING DEBT DOCUMENTS CURRENTLY PREVENT US FROM PAYING CASH DIVIDENDS ON
THE PREFERRED STOCK, AND THE SUBSTANTIAL PAYMENTS REQUIRED TO SERVICE OUR
OUTSTANDING INDEBTEDNESS MAY MAKE IT DIFFICULT TO PAY CASH DIVIDENDS ON THE
PREFERRED STOCK IN THE FUTURE EVEN IF PERMITTED BY THE COVENANTS IN OUR DEBT
DOCUMENTS.
Dividends on the preferred stock must be paid in cash after May 1, 2004.
Under the indentures governing some of our outstanding indebtedness, we may pay
cash dividends and make other distributions on or in respect of our capital
stock, including the preferred stock, only if we meet specified financial tests.
Currently, these restrictions would prohibit us from paying cash dividends on
the preferred stock. We cannot assure you that our existing or future financing
arrangements will ever permit us to pay cash dividends on the preferred stock.
In the event that any of our financing agreements limit our ability to pay cash
dividends on the preferred stock when required, we will need to obtain waivers
of the limitations or refinance amounts outstanding under those agreements to
make such dividend payments. We cannot assure you that we would be able to
obtain waivers or refinance amounts outstanding under those agreements. In
addition, we have substantial outstanding indebtedness, which will require
substantial debt service payments in the future. See "Description of Significant
Indebtedness." These substantial debt service payment requirements may make it
difficult for us to pay cash dividends on the preferred stock in the future even
if permitted by the covenants in our debt documents. Any future refinancings of
this indebtedness will likely contain similar covenants. Our failure to pay cash
dividends on the preferred stock for three quarters after May 1, 2004 would
constitute a voting rights triggering event.
WE MAY NOT BE ABLE TO REDEEM THE PREFERRED STOCK OR REPAY THE EXCHANGE
DEBENTURES BECAUSE OF OUR SUBSTANTIAL DEBT REPAYMENT OBLIGATIONS.
As of March 31, 1999, we and our subsidiaries had approximately $2.5
billion of indebtedness with maturity dates on or prior to the mandatory
redemption date of the preferred stock. These substantial repayment obligations
may adversely affect our ability to redeem or refinance the preferred stock or,
if issued, the exchange debentures.
THE PREFERRED STOCK AND THE EXCHANGE DEBENTURES WILL RANK JUNIOR TO OUR AND OUR
SUBSIDIARIES' INDEBTEDNESS.
The preferred stock will rank junior to all of our present and future
indebtedness and other liabilities and equally with other classes of preferred
stock that provide that they rank on a parity with the preferred
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<PAGE> 16
stock and senior to our common stock and any other class of preferred stock that
does not provide that it ranks on a parity with the preferred stock. In the
event of our bankruptcy, liquidation or reorganization, our assets will be
available to pay obligations on the preferred stock only after all of our
outstanding indebtedness and other liabilities have been paid in full, and there
may not be sufficient assets remaining to pay all amounts payable on the
preferred stock. The preferred stock also effectively ranks junior to all
liabilities, including indebtedness, of our subsidiaries. As of March 31, 1999,
we and our subsidiaries had consolidated indebtedness of approximately $2.7
billion.
If the preferred stock is exchanged for exchange debentures, the exchange
debentures will rank junior to all of our senior debt. The exchange debentures
will also effectively rank junior to all liabilities, including indebtedness, of
our subsidiaries. In the event of our bankruptcy, liquidation or reorganization,
we will be able to pay obligations on the exchange debentures only after all of
our outstanding senior debt has been paid in full, and there may not be
sufficient assets remaining to pay amounts payable on the exchange debentures.
We may in the future incur additional indebtedness and, subject to certain
limitations, issue additional preferred stock. Such additional indebtedness may
rank senior to, equally with or junior to the exchange debentures, while
additional indebtedness of the subsidiaries will effectively rank senior to the
exchange debentures. Any additional preferred stock may rank junior to or,
subject to a majority vote of the preferred stock, on parity with the preferred
stock.
WE HAVE COMMITTED SIGNIFICANT RESOURCES TO THE DEEPWATER DRILLING MARKET.
We have committed significant financial resources to the deepwater drilling
market through our deepwater rig construction projects. The cost of these
projects will exceed the cash flow from the contractual commitments that we have
for these projects. If the deepwater market continues to weaken, we may not be
able to obtain contracts for the use of the contracted rigs once the initial
contracts expire, and any renewals may be at lower dayrates and for shorter
terms than those in the initial contracts. For the periods during which we are
obligated to use the Deepwater Frontier, we will be obligated to pay the full
dayrate of $165,000 to the limited liability company that owns this rig, without
regard to whether we have a customer for this rig. These developments would
result in reduced cash flows and profitability, and adversely affect our
financial condition and results of operations.
OUR CUSTOMERS MAY SEEK TO CANCEL OR RENEGOTIATE CONTRACTS DURING DEPRESSED
MARKET CONDITIONS.
During depressed market conditions like those we are currently
experiencing, a customer may no longer need a rig, or may be able to obtain a
comparable rig at a lower dayrate. As a result, customers may pressure us to
renegotiate the terms of existing contracts. In addition, customers may seek to
avoid their obligations under existing drilling contracts. Since December 1998,
customers have cancelled a number of contracts within the drilling industry,
including the contract for our Jack Bates semisubmersible rig, primarily based
on alleged performance breaches by the drilling contractors. Our customers for
our drillship Peregrine VII and our semisubmersible Falcon 100 recently
cancelled their contracts with us because of our late delivery of these rigs. If
our customers cancel some of our significant contracts, it could have a material
adverse effect on our financial condition and results of operations.
OUR CUSTOMERS MAY CANCEL THEIR DEEPWATER CONTRACTS IF WE EXPERIENCE OPERATIONAL
PROBLEMS.
The deepwater market requires the use of floating rigs utilizing more
sophisticated technologies than those of the bottom-supported rigs that
previously constituted the majority of our fleet. We and other drilling
contractors have experienced problems with the new generation of subsea and
related systems designed for drilling in deeper waters. If this equipment fails
to function properly, the rig cannot engage in drilling operations. If we
encounter these or other operational problems on our deepwater rigs, we will
lose revenues, and our customers may have the right to terminate the drilling
contracts. The likelihood that a
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<PAGE> 17
customer may seek to terminate a contract for operational problems is increased
during market downturns like the one we are currently experiencing. If our
customers cancel some of our significant contracts, it could have a material
adverse effect on our financial condition and results of operations.
OUR CONSTRUCTION AND UPGRADE PROJECTS ARE SUBJECT TO DELAYS AND COST OVERRUNS.
Our deepwater rig construction and upgrade projects are subject to delays
and cost overruns from (1) delays in equipment deliveries, (2) unforeseen
engineering problems, (3) work stoppages, (4) weather interference, (5)
unanticipated cost increases and (6) shortages of materials or skilled labor.
Our conversion projects are particularly susceptible to cost overruns and delays
due to the engineering and construction uncertainties inherent in conversion
projects. The customers for our drillship Peregrine VII and semisubmersible
Falcon 100 have cancelled their drilling contracts due to late delivery of these
rigs. We will be subject to late delivery penalties to our customer for our
drillship Peregrine IV, and our drilling contract for this rig gives the
customer cancellation rights if delivery is delayed significantly. We may also
be subject to late delivery penalties under the recently cancelled contract for
our semisubmersible Falcon 100. We have recently extended the delivery dates
for, and increased our estimated costs of, several of our deepwater rig
projects. Any additional cost overruns or delays will adversely affect our
financial condition and results of operations.
REDUCED DAYRATES RESULTING FROM COMPETITION ADVERSELY EFFECT OUR RESULTS OF
OPERATIONS BECAUSE WE CANNOT SIGNIFICANTLY REDUCE OUR OPERATING COSTS.
The marine drilling market is highly competitive and no one competitor is
dominant. During periods when the supply of rigs exceeds demand, as it currently
does, this competition results in significant downward pressure on the dayrates
at which we can contract our rigs. Because our rig operating costs cannot be
materially reduced, any reduction in dayrates adversely affects our results of
operations.
WE ARE SUBJECT TO OPERATIONAL RISKS.
Our operations are subject to the hazards inherent in the marine drilling
business. These include (1) blowouts, (2) craterings, (3) fires, (4) collisions,
(5) capsizings and (6) adverse weather. These hazards could result in
substantial damage to the environment, personal injury and loss of life,
suspension of drilling operations or damage to property and producing
formations. We may incur substantial liabilities or losses as a result of these
hazards. While we maintain insurance protection against some of these risks, and
seek to obtain indemnity agreements from our customers requiring the customers
to hold us harmless in the event of loss of production, reservoir damage or
liability for pollution that originates below the water surface, our insurance
or contractual indemnity protection may not be sufficient to protect us under
all circumstances or against all hazards.
WE CONDUCT TURNKEY DRILLING OPERATIONS.
We conduct most of our drilling services under daywork drilling contracts
where the customer pays for the period of time required to drill or workover a
well. We expect to provide an increasing portion of our services under turnkey
drilling contracts. Under turnkey drilling contracts, we contract to drill a
well to a contract depth under specified conditions for a fixed price. Our risks
under a turnkey drilling contract are substantially greater than on a well
drilled on a daywork basis because we assume most of the risks associated with
drilling operations generally assumed by the operator in a daywork contract,
including (1) risk of blowout, (2) loss of hole, (3) stuck drill stem, (4) lost
production or damage to the reservoir, (5) machinery breakdowns, (6) abnormal
drilling conditions and (7) risks associated with subcontractors' services,
supplies and personnel.
WE CONDUCT FOREIGN OPERATIONS.
We currently operate our rigs worldwide. Operations outside the United
States involve additional risks, including (1) war and civil disturbances, (2)
general strikes, (3) regional economic downturns and
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<PAGE> 18
(4) foreign governmental activities that may limit or disrupt markets, restrict
payments or the movement of funds, impose exchange controls or cause currency
devaluations, or result in the loss of contract rights or expropriation of
property.
OFFSHORE DRILLING OPERATIONS ARE SUBJECT TO GOVERNMENT REGULATION.
A number of federal, state, local and foreign laws and regulations govern
our operations. These include laws and regulations that restrict the discharge
of materials into the environment or otherwise relate to the protection of the
environment, the safety of our personnel and vessels and other matters.
Environmental laws and regulations could impose significant liability on us for
damages, clean-up costs and penalties if we spill oil or other pollutants in the
course of our operations. Some of these laws impose liability without regard to
negligence or fault. Environmental and other laws and regulations may increase
our costs of doing business, discourage our customers from exploring for oil and
gas and reduce demand for our services.
THERE MAY BE ADVERSE FEDERAL INCOME TAX CONSEQUENCES FOR HOLDERS OF PREFERRED
STOCK AND EXCHANGE DEBENTURES.
Because we may pay dividends on the preferred stock by distributing
additional shares of preferred stock, compliance with U.S. federal withholding
tax rules would be difficult with respect to investors who are not U.S. persons.
If we pay a dividend on the preferred stock by issuing additional shares of
preferred stock (or otherwise are deemed to pay a distribution for United States
federal income tax purposes) to any person with respect to which we determine,
after request of such information from a holder as we deem appropriate, that we
are obligated to withhold United States federal tax, then prior to any
distribution to that holder we shall be entitled to liquidate on behalf of the
holder the additional shares of preferred stock to the extent necessary in order
to fully fund our withholding obligation. We will promptly distribute to such
person the balance of the additional shares of preferred stock not used to fund
such withholding obligation.
Distributions of cash or, to the extent of their fair market value,
distributions of additional shares of preferred stock will generally be treated
as dividends, taxable as ordinary income to the extent of our current and
accumulated earnings and profits, as determined under U.S. federal income tax
principles. A holder would recognize this ordinary income in the case of a
distribution of additional shares of preferred stock even though the holder has
not received any cash with respect to the distribution. We do not expect to have
current earnings and profits in 1999 as determined under U.S. federal income tax
principles, and we are unable to predict if we will have current or accumulated
earnings and profits in the future. To the extent a distribution with respect to
the preferred stock exceeds our current earnings and profits, the distribution
will be treated as a nontaxable return of capital and will be applied against
and reduce the adjusted tax basis (but not below zero) in the hands of each
holder of the shares of preferred stock on which the distribution is made, thus
increasing the amount of any gain (or reducing the amount of any loss) which
would otherwise be realized by the holder upon the sale or other disposition of
such shares of preferred stock. In the case of distributions of additional
preferred stock, however, this basis reduction largely should be offset by a
corresponding amount of tax basis for a holder in the additional preferred
stock. A holder would recognize gain to the extent that any distributions were
to exceed our current or accumulated earnings and profits and the adjusted tax
basis of the holder in the preferred stock.
As the redemption price of the preferred stock is expected to exceed its
issue price by more than a de minimis amount, the difference ("redemption
premium") generally will be taxable as a constructive distribution of additional
preferred stock to a holder over a specified period under an economic accrual
method similar to that described below for accruing original issue discount
("OID") on the exchange debentures. However, to the extent we lack current or
accumulated earnings and profits for a taxable year to which a constructive
distribution relates, a holder should not recognize taxable income or gain as a
result of the constructive distribution. Moreover, there should be no net effect
on the holder's adjusted tax basis of the preferred stock as a result of the
constructive distribution if we have no current or accumulated earnings and
profits. To the extent we have current or accumulated earnings and profits for a
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<PAGE> 19
taxable year to which a constructive distribution relates, the distribution will
be taxable currently to the holder as a dividend even though the holder does not
receive any actual distribution and will produce a corresponding increase in the
adjusted tax basis of the preferred stock as to which the distribution is deemed
to have been made.
Additional shares of preferred stock distributed on the preferred stock
will also have redemption premium if the redemption price of such preferred
stock exceeds the fair market value of the additional shares of preferred stock
when distributed by more than a de minimis amount. Such redemption premium may
differ from that attributable to the shares of preferred stock issued in this
offering. Therefore, any such additional shares of the preferred stock
distributed may not be fungible with the shares of the preferred stock issued in
this offering.
Upon a redemption of preferred stock in exchange for exchange debentures,
the holder generally will have a capital gain or loss equal to the difference
between the issue price of the exchange debentures received and the holder's
adjusted tax basis in the preferred stock redeemed, except to the extent all or
a portion of the exchange debentures received is treated as a dividend payment.
Because we have the option through May 1, 2004 to pay interest on the exchange
debentures by issuing additional exchange debentures, any exchange debentures
issued prior to that date will be treated as issued with OID for U.S. federal
income tax purposes, unless a de minimis exception is satisfied. Further, the
Exchange Debentures would be issued with OID (regardless of when issued) if
either (1) the exchange debentures (or preferred stock) are traded on an
established securities market at the exchange date at a price below the stated
principal amount of the exchange debentures or (2) absent any trading on an
established securities market, the yield on the exchange debentures was less
than an applicable federal rate existing as of the exchange date. If the
exchange debenture has OID in excess of the de minimis amount, holders would
have to accrue all such OID into ordinary income over the entire term of the
exchange debentures in advance of the receipt of the cash attributable thereto.
The exchange debentures may also be subject to the rules for "applicable high
yield discount obligations," in which case our deduction for OID on the exchange
debentures will be substantially deferred, and a portion of such deduction may
be disallowed entirely.
YOUR SHARES OF PREFERRED STOCK WILL CONTINUE TO BE SUBJECT TO TRANSFER
RESTRICTIONS IF YOU DO NOT EXCHANGE THEM IN THE EXCHANGE OFFER.
If you do not exchange your outstanding shares of preferred stock for
registered preferred stock in the exchange offer, you will continue to be
subject to the restrictions on transfer of your shares of preferred stock
described in the legend on your shares. The restrictions on transfer of your
outstanding preferred stock arise because we issued the shares under exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, you may only
offer or sell the currently outstanding preferred stock if it is registered
under the Securities Act and applicable state securities laws, or is offered and
sold under an exemption from these registration requirements. We do not intend
to register the currently outstanding preferred stock under the Securities Act.
In addition, if you exchange your preferred stock in the exchange offer for the
purpose of participating in a distribution of the new preferred stock, you may
be deemed to have received restricted securities and, if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. To the extent the
amount of the currently outstanding preferred stock decreases because holders
tender their shares in the exchange offer, the trading market, if any, for the
currently outstanding preferred stock after the closing of the exchange offer
would be adversely affected.
THERE IS NO ESTABLISHED MARKET FOR THE NEW PREFERRED STOCK.
Although the new preferred stock may be resold or otherwise transferred by
holders who are not affiliates of our company without compliance with the
registration requirements under the Securities Act, they will be new securities
for which there is currently no established trading market. We do not intend to
apply for listing of the new preferred stock on a national securities exchange
or for quotation of the new
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preferred stock on an automated dealer quotation system. The liquidity of any
market for the new preferred stock will depend upon the number of holders of the
new preferred stock, the interest of securities dealers in making a market in
the new preferred stock and other factors. Accordingly, there can be no
assurance as to the development or liquidity of any market for the new preferred
stock. If an active trading market for the new preferred stock does not develop,
the market price and liquidity of the new preferred stock may be adversely
affected. If shares of the new preferred stock are traded, they may trade at a
discount from their face value, depending upon prevailing interest rates, the
market for similar securities, our performance and other factors. The new
preferred stock will be eligible for trading in The PORTAL Market.
Even though we are registering our offer of the new preferred stock in the
exchange offer, holders who are "affiliates" (as defined under Rule 405 of the
Securities Act) of our company may publicly offer for sale or resell the new
preferred stock only in compliance with provisions of Rule 144 under the
Securities Act.
FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements relate to analyses and other information which are based
on forecasts of future results and estimates of amounts not yet determinable.
These statements also relate to our future prospects, developments and business
strategies.
These forward-looking statements are identified by their use of terms and
phrases such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will," and similar terms and
phrases, including references to assumptions. These statements are contained in
sections entitled "Summary" and "Risk Factors," and other sections of this
prospectus and in the documents incorporated by reference in this prospectus.
These forward-looking statements involve risks and uncertainties that may
cause our actual future activities and results of operations to be materially
different from those suggested or described in this prospectus. These risks
include: our dependence on the oil and gas industry; the effects of recent
declines in oil and gas prices; our commitment to the deepwater drilling market;
the cancellation of contracts by our customers; our ability to secure adequate
financing, including financing to fund our deepwater drilling program; the risks
involved in our construction and upgrade projects; competition; operational
risks; risks involved in turnkey operations and foreign operations; the age of
our rigs; government regulation and environmental matters; our ability to
integrate and realize anticipated synergies relating to the merger with Cliffs
Drilling Company; our ability to achieve and execute internal business plans;
and the impact of any economic downturns and inflation.
If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, our actual results may vary materially
from those expected, estimated or projected.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We initially issued an aggregate of 300,000 shares of outstanding preferred
stock on April 22, 1999 to the initial purchaser in reliance on Section 4(2) of
the Securities Act. The initial purchaser subsequently offered and sold the
outstanding preferred stock only to "qualified institutional buyers" as defined
in and in compliance with Rule 144A. The first dividend payment date for the
preferred stock will be August 1, 1999. We do not expect to have completed the
exchange offer by that date, and we expect to issue additional shares of
preferred stock as payment of that dividend. Therefore, we are also offering to
exchange registered shares of preferred stock for the shares issued as payment
of the first dividend in the exchange offer.
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In connection with the sale of the outstanding preferred stock, we entered
into a registration rights agreement, which requires us
- to cause the outstanding preferred stock to be registered under the
Securities Act, or to file with the Securities and Exchange Commission
("SEC") a registration statement under the Securities Act with respect to
an issue of new preferred stock identical in all material respects to the
outstanding preferred,
- use our best efforts to cause such registration statement to become
effective under the Securities Act, and
- upon the effectiveness of that registration statement, to offer to the
holders of the outstanding preferred stock the opportunity to exchange
shares of their outstanding preferred stock for a like number of shares
of new preferred stock, which will be issued without a restrictive legend
and which may be reoffered and resold by the holder without restrictions
or limitations under the Securities Act.
We have filed a copy of the registration rights agreement as an exhibit to
the registration statement of which this prospectus is a part. We are making the
exchange offer to satisfy our obligations under the registration rights
agreement. The term "holder" with respect to the exchange offer means any person
in whose name shares of outstanding preferred stock are registered on our books
or any other person who has obtained a properly completed stock power from the
registered holder, or any person whose shares of outstanding preferred stock are
held of record by The Depository Trust Company ("DTC") who desires to deliver
such outstanding preferred stock by book-entry transfer at DTC.
We have not requested, and do not intend to request, an interpretation by
the staff of the SEC with respect to whether the new preferred stock issued in
the exchange offer in exchange for the outstanding preferred stock may be
offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Based on interpretations by the staff of the SEC set forth in
no-action letters issued to third parties, we believe the new preferred stock
issued in exchange for outstanding preferred stock may be offered for resale,
resold and otherwise transferred by any holder without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that:
- you are not a broker-dealer,
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act,
- you acquire the new preferred stock in the ordinary course of your
business, and
- you have no arrangement or understanding with any person to participate
in the distribution of the new preferred stock.
Any holder who tenders in the exchange offer with the intention to
participate, or for the purpose of participating, in a distribution of the new
preferred stock or who is our affiliate may not rely upon the interpretations by
the staff of the SEC and, in the absence of an exemption, must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Any holder to comply with such
requirements may incur liabilities under the Securities Act for which the holder
is not indemnified by us. Each broker-dealer (other than an affiliate of ours)
that receives new preferred stock for its own account in the exchange offer must
acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of new preferred stock. The letter
of transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. We have agreed that, for a period of 180 days
after the exchange date, we will make the prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
19
<PAGE> 22
We are not making the exchange offer to, nor will we accept surrenders for
exchange from, holders of outstanding preferred stock in any jurisdiction in
which this exchange offer or its acceptance would not comply with the securities
or blue sky laws.
By tendering in the exchange offer, you will represent to us that, among
other things:
- you are acquiring the new preferred stock in the exchange offer in the
ordinary course of your business, whether or not you are a holder,
- you do not have an arrangement or understanding with any person to
participate in the distribution of the new preferred stock,
- you are not a broker-dealer, or you are a broker-dealer but will not
receive new preferred stock for your own account in exchange for
outstanding preferred stock, or you are a broker-dealer and will receive
new preferred stock for your own account in exchange for outstanding
preferred stock, where you acquired the outstanding preferred stock as a
result of market-making activities or other trading activities, and you
acknowledge that you will deliver a prospectus in connection with any
resale of the new preferred stock,
- neither you nor any other person is engaged in or intends to participate
in the distribution of the new preferred stock, and
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act or, if you are our "affiliate," you will comply with the
registration and prospectus delivery requirements of the Securities Act
to the extent applicable.
Following the completion of the exchange offer, no shares of preferred
stock will be entitled to the contingent increase in dividend rate applicable to
the shares of outstanding preferred stock. Nor will holders of preferred stock
have any further registration rights, and the outstanding preferred stock will
continue to be subject to certain restrictions on transfer. See
" -- Consequences of Failure to Exchange." Accordingly, the liquidity of the
market for the outstanding preferred stock could be adversely affected. See
"Risk Factors -- There may be adverse consequences of a failure to exchange."
Participation in the exchange offer is voluntary and you should carefully
consider whether to accept. We urge you to consult your financial and tax
advisors in making your own decisions on whether to participate in the exchange
offer.
TERMS OF THE EXCHANGE OFFER
General. Upon the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal, we will accept for exchange any and
all shares of outstanding preferred stock validly tendered and not withdrawn
prior to 5:00 p.m., New York City time, on the expiration date. We will issue
one share of new preferred stock in exchange for each share of outstanding
preferred stock accepted in the exchange offer. You may tender some or all of
your outstanding preferred stock in the exchange offer.
The form and terms of the new preferred stock will be identical in all
material respects to the form and terms of the outstanding preferred stock
except that the new preferred stock will be registered under the Securities Act
and, therefore, certificates representing shares of new preferred stock will not
bear legends restricting their transfer. The new preferred stock will be treated
as a single class with any outstanding preferred stock that remain outstanding.
We are not conditioning the exchange offer upon any minimum number of shares of
outstanding preferred stock being tendered for exchange.
You do not have any appraisal or dissenters' rights under the Delaware
General Corporation Law or the certificate of designation in connection with the
exchange offer. We are sending this prospectus, together with the letter of
transmittal, to all registered holders of outstanding preferred stock. We have
not fixed any record date for determining record holders of outstanding
preferred stock entitled to participate
20
<PAGE> 23
in the exchange offer. We intend to conduct the exchange offer in accordance
with the provisions of the registration rights agreement and the applicable
requirements of the Exchange Act, and the rules and regulations of the SEC.
Shares of outstanding preferred stock which are not tendered for exchange in the
exchange offer will remain outstanding and dividends will continue to accrue,
but such shares of outstanding preferred stock will not be entitled to any
rights or benefits under the registration rights agreement.
We will be deemed to have accepted validly tendered shares of outstanding
preferred stock when, as and if we have given oral or written notice to the
exchange agent. The exchange agent will act as agent for the tendering holders
for the purposes of receiving the new preferred stock from us. If we do not
accept any tendered shares of outstanding preferred stock for exchange because
of an invalid tender or the occurrence of certain other events identified in
this prospectus, we will return the certificates for the unaccepted shares of
outstanding preferred stock, without expense, to the tendering holder as
promptly as practicable after the expiration date.
You will not be required to pay brokerage commissions or fees or, subject
to the instructions in the letter of transmittal, transfer taxes if you tender
outstanding preferred stock in the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the exchange offer. See " -- Fees and expenses."
Expiration Date; Extensions; Amendments. The exchange offer expires at 5:00
p.m., New York City time, on August 6, 1999, unless we, in our sole discretion,
extend the exchange offer, in which case the expiration date will be the latest
date and time to which the exchange offer is extended. Although we do not intend
to extend the exchange offer at this time, we reserve the right to extend the
exchange offer at any time by giving oral or written notice to the exchange
agent and by timely public announcement communicated, unless otherwise required
by applicable law or regulation, by making a release to the Dow Jones News
Service. During any extension of the exchange offer, all shares of outstanding
preferred stock previously tendered pursuant to the exchange offer and not
withdrawn will remain subject to the exchange offer. The date of the exchange of
the new preferred stock for outstanding preferred stock will be as soon as
practicable following the expiration date.
We reserve the right, in our sole discretion,
- to delay accepting any outstanding preferred stock, to extend the
exchange offer or to terminate the exchange offer if any of the
conditions set forth below under "-- Conditions of the Exchange Offer"
have not been satisfied, by giving oral or written notice of such delay,
extension or termination to the exchange agent, or
- to amend the terms of the exchange offer in any manner.
We will, as promptly as practicable, notify you orally or in writing if
there is any delay in acceptance, extension, termination or amendment. If we
amend the exchange offer in any manner determined by us to constitute a material
change, we will promptly disclose the amendment by means of a prospectus
supplement that we will distribute to you. We will also extend the exchange
offer for a period of time, depending upon the significance of the amendment and
the manner of disclosure to the registered holders, if the exchange offer would
otherwise expire during that period.
In all cases we will issue shares of new preferred stock for shares of
outstanding preferred stock accepted for exchange in the exchange offer only
after the exchange agent timely receives a properly completed and duly executed
letter of transmittal and all other required documents. We reserve the right to
waive any conditions of the exchange offer or defects or irregularities in the
tender of outstanding preferred stock. If any tendered shares of outstanding
preferred stock are not accepted for any reason set forth in the terms and
conditions of the exchange offer or if shares of outstanding preferred stock are
submitted for a greater number of shares than the holder desires to exchange,
such unaccepted or non-exchanged outstanding preferred stock or substitute
outstanding preferred stock evidencing the unaccepted portion, as appropriate,
will be returned without expense to the tendering holder, unless otherwise
provided
21
<PAGE> 24
in the letter of transmittal, as promptly as practicable after the expiration or
termination of the exchange offer.
Dividends on the New Preferred Stock. You will not receive accrued
dividends on outstanding preferred stock that are accepted for exchange at the
time of exchange. However, we will pay accrued but unpaid dividends on exchanged
shares of outstanding preferred stock, rounded to the nearest whole share, in
shares of new preferred stock on the first dividend payment date following
consummation of the exchange offer.
Procedures for Tendering Outstanding Preferred Stock. Your tender of shares
of outstanding preferred stock through one of the procedures set forth below
will constitute an agreement between you and us in accordance with the terms and
subject to the conditions set forth in this prospectus and in the letter of
transmittal. In order to tender shares of outstanding preferred stock, you must
- properly complete and sign a letter of transmittal or a facsimile thereof
and deliver the same, together with any corresponding certificate or
certificates representing the shares of outstanding preferred stock being
tendered and any required signature guarantees, to the exchange agent at
its address set forth in the letter of transmittal on or prior to the
expiration date,
- comply with the procedure for book-entry transfer described below, or
- comply with the guaranteed delivery procedures described below.
You do not need to have your signature guaranteed if the tendered shares of
outstanding preferred stock are registered in the name of the signer of the
letter of transmittal and the new preferred stock to be issued in exchange are
to be issued and any untendered shares of outstanding preferred stock are to be
reissued in the name of the registered holder, including any participant in DTC
(also referred to as a book-entry facility) whose name appears on a security
listing as the owner of outstanding preferred stock. In any other case you must
be endorse the tendered shares of outstanding preferred stock or accompany them
with written instruments of transfer in form satisfactory to us and duly
executed by the registered holder. In addition, the signature on the endorsement
or instrument of transfer must be guaranteed by an eligible guarantor
institution which is a member of one of the following recognized signature
guarantee programs:
- The Securities Transfer Agents Medallion Program (STAMP),
- The New York Stock Exchange Medallion Signature Program (MSF), or
- The Stock Exchange Medallion Program (SEMP).
If the new preferred stock or outstanding preferred stock not exchanged are
to be delivered to an address other than that of the registered holder appearing
on the register for the outstanding preferred stock, the signature in the letter
of transmittal must be guaranteed by an eligible institution.
YOU MUST ELECT, AND ACCEPT THE RISK OF, THE METHOD OF DELIVERY OF SHARES OF
THE OUTSTANDING PREFERRED STOCK, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, WE
RECOMMEND THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED,
BE USED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE DELIVERY TO
THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. DO NOT SEND ANY LETTER OF
TRANSMITTAL OR CERTIFICATES REPRESENTING SHARES OF OUTSTANDING PREFERRED STOCK
TO US. YOU MAY REQUEST YOUR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR YOU.
We understand that the exchange agent has confirmed with DTC that any
financial institution that is a participant in DTC's system may utilize DTC's
Automated Tender Offer Program ("ATOP") to tender shares of outstanding
preferred stock. We further understand that the exchange agent will request,
within two business days after the date the exchange offer commences, that DTC
establish an account with respect to the outstanding preferred stock for the
purpose of facilitating the exchange offer, and any participant may make
book-entry delivery of shares of outstanding preferred stock by causing DTC to
22
<PAGE> 25
transfer such shares of outstanding preferred stock into the exchange agent's
account in accordance with DTC's ATOP procedures for transfer. However, the
exchange of the shares of outstanding preferred stock so tendered will only be
made after timely confirmation (a "Book-Entry Confirmation") of such book-entry
transfer and timely receipt by the exchange agent of an agent's message, and any
other documents required by the letter of transmittal.
The term "agent's message" means a message, transmitted by DTC and received
by the exchange agent and forming part of Book-Entry Confirmation, which states
that:
- DTC has received an express acknowledgment from a participant tendering
shares of outstanding preferred stock which are the subject of such
Book-Entry Confirmation,
- the participant has received and agrees to be bound by the terms of the
letter of transmittal, and
- we may enforce such agreement against such participant.
A tender will be deemed to have been received as of the date when
- the tendering holder's properly completed and duly signed letter of
transmittal accompanied by the outstanding preferred stock or a
confirmation of book-entry transfer of such outstanding preferred stock
into the exchange agent's account at DTC, is received by the exchange
agent, or
- a notice of guaranteed delivery or letter, telegram or facsimile
transmission to similar effect from an eligible institution is received
by the exchange agent.
Issuances of new preferred stock in exchange for outstanding preferred
stock tendered pursuant to a notice of guaranteed delivery or letter, telegram
or facsimile transmission to similar effect by an eligible institution will be
made only against submission of a duly signed letter of transmittal and any
other required documents and deposit of the tendered outstanding preferred
stock.
We will determine all questions as to the validity, form, eligibility
including time of receipt, and acceptance for exchange of any tender of shares
of the outstanding preferred stock in our reasonable judgment. Our determination
will be final and binding. We reserve the absolute right to reject any or all
tenders not in proper form or the acceptance for exchange of which may, in the
opinion of our counsel, be unlawful. We also reserve the absolute right to waive
any of the conditions of the exchange offer or any defect or irregularity in the
tender of any outstanding preferred stock. Neither we, the exchange agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification. Any shares of outstanding preferred stock received by the exchange
agent that are not validly tendered and as to which the defects or
irregularities have not been cured or waived, or if a number of shares of
outstanding preferred stock are submitted greater than the number of shares of
outstanding preferred stock being tendered by such tendering holder, such
unaccepted or non-exchanged shares of outstanding preferred stock will be
returned by the exchange agent to the tendering holder, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
In addition, we reserve the right in our sole discretion
- to purchase or make offers for any shares of outstanding preferred stock
that remain outstanding subsequent to the expiration date, and
- to the extent permitted by applicable law, to purchase outstanding
preferred stock in the open market, in privately negotiated transactions
or otherwise.
The terms of any such purchases or offers will differ from the terms of the
exchange offer.
Guaranteed Delivery Procedures. If you desire to accept the exchange offer
and time will not permit a letter of transmittal or outstanding preferred stock
to reach the exchange agent before the expiration date or the procedure for
book-entry transfer cannot be completed on a timely basis, you may effect a
tender if
23
<PAGE> 26
the exchange agent has received at its office, on or prior to the expiration
date, a letter, telegram or facsimile transmission from an eligible institution
- setting forth the name and address of the tendering holder,
- setting forth the name(s) in which the shares of outstanding preferred
stock are registered and the certificate number(s) of the shares of
outstanding preferred stock to be tendered,
- stating that the tender is being made thereby, and
- guaranteeing that, within three New York Stock Exchange trading days
after the date of execution of such letter, telegram or facsimile
transmission by the eligible institution, such outstanding preferred
stock, in proper form for transfer or a confirmation of book-entry
transfer of such outstanding preferred stock into the exchange agent's
account at DTC, will be delivered by such eligible institution together
with a properly completed and duly executed letter of transmittal and any
other required documents.
Unless outstanding preferred stock being tendered by the above-described
method are deposited with the exchange agent within the time period set forth
above, accompanied or preceded by a properly competed letter of transmittal and
any other required documents, we may, at our option, reject the tender. Copies
of a notice of guaranteed delivery which may be used by eligible institutions
for the purposes described in this paragraph are available from the exchange
agent.
Terms and Conditions of the Letter of Transmittal. The letter of
transmittal contains, among other things, the following terms and conditions,
which are part of the exchange offer.
The party tendering shares of outstanding preferred stock for exchange (the
"transferor") exchanges, assigns and transfers the outstanding preferred stock
to us and irrevocably constitutes and appoints the exchange agent as the
transferor's agent and attorney-in-fact to cause the outstanding preferred stock
to be assigned, transferred and exchanged. The transferor represents and
warrants that it has full power and authority to tender, exchange, assign and
transfer the outstanding preferred stock and to acquire the new preferred stock
issuable upon the exchange of such tendered outstanding preferred stock, and
that, when the same are accepted for exchange, we will acquire good and
unencumbered title to the tendered outstanding preferred stock, free and clear
of all liens, restrictions, charges and encumbrances and not subject to any
adverse claim. The transferor also warrants that it will, upon request, execute
and deliver any additional documents deemed by us to be necessary or desirable
to complete the exchange, assignment and transfer of tendered shares of
outstanding preferred stock or to transfer ownership of such outstanding
preferred stock on the account books maintained by DTC. All authority conferred
by the transferor will survive the death, bankruptcy or incapacity of the
transferor and every obligation of the transferor shall be binding upon the
heirs, personal representatives, executors, administrators, successors, assigns,
trustees in bankruptcy and other legal representatives of such transferor.
By executing a letter of transmittal, each holder will make to us the
representations set forth above under the heading "-- Purpose and Effect of the
Exchange Offer."
Withdrawal of Tenders of Outstanding Preferred Stock. Except as otherwise
provided herein, tenders of shares of outstanding preferred stock may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date.
To withdraw a tender of shares of outstanding preferred stock in the
exchange offer, a written or facsimile transmission notice of withdrawal must be
received by the exchange agent at its address set forth herein prior to 5:00
p.m., New York City time, on the expiration date. Any such notice of withdrawal
must
- specify the name of the person having deposited the outstanding preferred
stock to be withdrawn (the "depositor"),
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<PAGE> 27
- identify the outstanding preferred stock to be withdrawn, including the
certificate number or numbers and number of shares of such outstanding
preferred stock,
- contain a statement that the holder is withdrawing its election to have
such outstanding preferred stock exchanged,
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such shares of outstanding preferred
stock were tendered, including any required signature guarantees, or be
accompanied by documents of transfer sufficient to have the transfer
agent with respect to the outstanding preferred stock register the
transfer of such shares of outstanding preferred stock in the name of the
person withdrawing the tender, and
- specify the name in which any such shares of outstanding preferred stock
are to be registered, if different from that of the depositor.
If shares of outstanding preferred stock have been tendered pursuant to the
procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility. All
questions as to the validity, form and eligibility, including time of receipt,
of such notices will be determined by us, and our determination shall be final
and binding on all parties. Any outstanding preferred stock so withdrawn will be
deemed not to have been validly tendered for purposes of the exchange offer and
no new preferred stock will be issued with respect thereto unless the shares of
outstanding preferred stock so withdrawn are validly retendered. Any shares of
outstanding preferred stock which have been tendered but which are not accepted
for exchange will be returned to the holder thereof without cost to such holder
as soon as practicable after withdrawal, rejection of tender or termination of
the exchange offer. Properly withdrawn outstanding preferred stock may be
retendered by following one of the procedures described above under
"-- Procedures for Tendering Outstanding Preferred Stock" at any time prior to
the expiration date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue shares of new preferred stock in
exchange for, any shares of outstanding preferred stock. We may terminate or
amend the exchange offer, if at any time before the acceptance of shares of
outstanding preferred stock for exchange or the exchange of the shares of new
preferred stock for shares of outstanding preferred stock, the exchange offer is
determined by us, in our sole and absolute discretion, to violate applicable law
or any applicable interpretation of the staff of the SEC.
EXCHANGE AGENT
We have appointed American Stock Transfer & Trust Company as exchange agent
for the exchange offer. Questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for notices of guaranteed delivery should be directed to the exchange
agent addressed as follows:
<TABLE>
<S> <C>
By hand or overnight courier: By Mail:
American Stock Transfer & Trust Company American Stock Transfer & Trust Company
40 Wall Street 40 Wall Street
New York, NY 10005 New York, NY 10005
Attn: Reorganization Department Attn: Reorganization Department
(registered or certified mail recommended)
By Facsimile: Confirm by Telephone:
(718) 234-5001 (718) 921-8200
(For eligible institutions only)
</TABLE>
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<PAGE> 28
FEES AND EXPENSES
We will bear all fees and the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telecopy, telephone or in person by our officers and regular employees and
those of affiliates. No additional compensation will be paid to any such
officers and employees who engage in soliciting tenders. We will also pay the
cash expenses to be incurred in connection with the exchange offer. These
expenses include fees and expenses of the exchange agent and transfer agent and
registrar, accounting and legal fees and printing costs, among others.
We have not retained any dealer-manager or other soliciting agent in
connection with the exchange offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the exchange offer. However, we will
pay the exchange agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
We may also pay brokerage houses and other custodians, nominees and fiduciaries
the reasonable out-of-pocket expenses incurred by them in forwarding copies of
this prospectus, the letter of transmittal and related documents to the
beneficial owners of the outstanding preferred stock and in handling or
forwarding tenders for exchange.
We will pay all transfer taxes, if any, applicable to the exchange of the
outstanding preferred stock for new preferred stock in the exchange offer. If,
however, new preferred stock, or outstanding preferred stock for principal
amounts not tendered or accepted for exchange, are to be delivered to, or are to
be issued in the name of, any person other than the registered holder of the
outstanding preferred stock tendered or if a transfer tax is imposed for any
reason other than the exchange of the outstanding preferred stock pursuant to
the exchange offer, then the amount of any such transfer taxes, whether imposed
on the registered holder or any other persons, will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the letter of transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
The shares of outstanding preferred stock that are not exchanged for new
preferred stock in the exchange offer will remain restricted securities within
the meaning of Rule 144 of the Securities Act. Accordingly, such outstanding
preferred stock may be resold only
- to us or any of our subsidiaries,
- to a qualified institutional buyer in compliance with Rule 144A,
- to an institutional accredited investor that, prior to such transfer,
furnishes to the transfer agent a signed letter containing certain
representations and agreements relating to the restrictions on transfer
of the outstanding preferred stock and an opinion of counsel acceptable
to us that such transfer is in compliance with the Securities Act,
- pursuant to the exemption from registration provided by Rule 144 under
the Securities Act, if available,
- in accordance with another exemption from the registration requirements
of the Securities Act (and based on a legal opinion acceptable to us), or
- pursuant to an effective registration statement under the Securities Act.
The liquidity of the outstanding preferred stock could be adversely
affected by the exchange offer. Following the consummation of the exchange
offer, holders of the preferred stock will have no further registration rights
under the registration rights agreement and will not be entitled to the
contingent increase in the dividend rate applicable to the outstanding preferred
stock.
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<PAGE> 29
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new
preferred stock. In consideration for issuing the new preferred stock as
contemplated in this prospectus, we will receive in exchange a like number of
outstanding preferred stock. The form and terms of the new preferred stock are
identical in all material respects to the form and terms of the outstanding
preferred stock, except that:
- the offering of the new preferred stock has been registered under the
Securities Act;
- the new preferred stock will not be subject to transfer restrictions; and
- the holders of the new preferred stock will not be entitled to
registration or other rights under the registration rights agreement,
including the payment of liquidated damages upon our failure to complete
the exchange offer.
The outstanding preferred stock surrendered in exchange for new preferred
stock will be retired and canceled and cannot be reissued. Accordingly, issuance
of the new preferred stock will not result in a change in the number of shares
of outstanding preferred stock.
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<PAGE> 30
CAPITALIZATION
The following table sets forth our unaudited consolidated capitalization as
of March 31, 1999 and our unaudited consolidated capitalization as adjusted to
reflect our offering of preferred stock and warrants in April 1999, and the
application of the net proceeds from that offering. You should read this table
along with our consolidated financial statements and the related notes that are
incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
-------------------------
AS
ACTUAL ADJUSTED
----------- -----------
(IN MILLIONS, UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 545.1 $ 834.1
======== ========
Current portion of long-term debt........................... 6.2 6.2
Long-term debt, excluding current portion:
Loans from RBF Finance Co. due 2006(1).................... 400.0 400.0
Loans from RBF Finance Co. due 2009(2).................... 400.0 400.0
12 1/4% Senior Notes due 2006............................. 200.0 200.0
6 1/2% Senior Notes due 2003.............................. 249.2 249.2
6 3/4% Senior Notes due 2005.............................. 348.2 348.2
6.95% Senior Notes due 2008............................... 249.2 249.2
7 3/8% Senior Notes due 2018.............................. 248.0 248.0
9 1/8% Senior Notes due 2003.............................. 100.0 100.0
9 1/2% Senior Notes due 2008.............................. 300.0 300.0
10 1/4% Senior Notes due 2003............................. 202.4 202.4
Other debt................................................ 17.3 17.3
-------- --------
Total long-term debt, including current portion... 2,720.5 2,720.5
-------- --------
Minority interest........................................... 44.6 44.6
-------- --------
Mandatorily redeemable preferred stock(3)................... -- 242.8
-------- --------
Stockholders' equity:
Common stock, par value $.01 per share.................... 1.9 1.9
Capital in excess of par.................................. 1,061.1 1,061.1
Warrants(4)............................................... -- 46.2
Retained earnings......................................... 200.7 200.7
Other..................................................... (10.7) (10.7)
-------- --------
Total stockholders' equity.................................. 1,253.0 1,299.2
-------- --------
Total capitalization, including short-term obligations and
current portion of long-term debt......................... $4,018.1 $4,307.1
======== ========
</TABLE>
- ---------------
(1) Comprised of ten tranches with interest rates of 11.02%.
(2) Comprised of ten tranches with interest rates of 11.395%.
(3) We have discounted the $300 million liquidation preference of the preferred
stock by the preliminary estimated fair value of the warrants and a portion
of the estimated offering costs.
(4) We have based the fair value of the warrants on our preliminary estimate,
and we will finalize the fair value based on a third party appraisal.
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<PAGE> 31
DESCRIPTION OF SECURITIES
DESCRIPTION OF PREFERRED STOCK
The following is a summary of the significant terms of the preferred stock.
The terms of the preferred stock are set forth in the certificate of
designation. The outstanding shares of preferred stock were offered for sale in
a private transaction that was not subject to the registration requirements of
the Securities Act. The following summary of the preferred stock, the
certificate of designation and the registration rights agreement is not intended
to be complete and is subject to, and qualified in its entirety by reference to,
our certificate of incorporation, the certificate of designation and the
registration rights agreement, including the definitions of certain terms used
below. Copies of the certificate of designation and registration rights
agreement are filed as exhibits to the registration statement of which this
prospectus forms a part. As used in this description of preferred stock,
references to the preferred stock shall be deemed to include the outstanding
preferred stock and the new preferred stock.
General
We are authorized to issue 50,000,000 shares of preferred stock, $0.01 par
value per share. Our certificate of incorporation authorizes our Board of
Directors to issue classes of preferred stock from time to time in one or more
series, with such designations, preferences and relative, participating,
optional or other special rights, qualifications, limitations or restrictions as
may be determined by our Board of Directors, subject to certain limitations. See
"-- Ranking." Our Board of Directors adopted resolutions approving the
certificate of designation. The certificate of designation creates a maximum of
600,000 shares of outstanding preferred stock, of which 300,000 shares of
outstanding preferred stock are authorized, issued and outstanding pursuant to
the private offering and an additional 300,000 shares of outstanding preferred
stock are designated and reserved for issuance to pay dividends on the
outstanding preferred stock if we elect to pay dividends on the outstanding
preferred stock in additional shares of outstanding preferred stock. The
certificate of designation also creates a class consisting of a like number of
shares of new preferred stock to be issued pursuant to the exchange offer having
terms identical in all material respects to the outstanding preferred stock. See
"-- Preferred Stock Exchange Offer; Registration Rights; Liquidated Damages."
All these shares of preferred stock have a liquidation preference of $1,000
per share. We are required to redeem (subject to the legal availability of funds
therefor) all outstanding shares of preferred stock on May 1, 2009 at a price in
cash equal to the liquidation preference, plus, without duplication, accrued and
unpaid dividends and liquidated damages, if any, to the date of redemption.
Subject to our satisfaction of specified conditions, including there being no
"default" or "event of default" arising under the indentures for our existing
senior notes, the preferred stock is exchangeable (in whole but not in part) for
the exchange debentures at our option on any dividend payment date. The
outstanding preferred stock is fully paid and non-assessable and the holders
thereof have do not have any subscription or preemptive rights. Upon issuance,
the new preferred stock will be fully paid and non-assessable and the holders
thereof will not have any subscription or preemptive rights.
The preferred stock ranks junior in right of payment to all of our
indebtedness and other obligations. As of March 31, 1999, on a pro forma basis
after giving effect to the private offering, the preferred stock would have been
junior in right of payment to $2.7 billion of indebtedness of our company and
our subsidiaries. In addition, our operations are conducted primarily through
our subsidiaries and, therefore, we are dependent upon the cash flow of our
subsidiaries to meet our obligations, including our ability to pay cash
dividends on and to redeem the preferred stock. Any right of ours to receive
assets of any of our subsidiaries will be effectively subordinated to all
indebtedness and other liabilities and commitments (including trade payables and
lease obligations) of such entities.
The transfer agent and registrar for the preferred stock is American Stock
Transfer & Trust Company, unless and until we select a successor.
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Ranking
With respect to dividends and rights on the liquidation, winding-up and
dissolution, the preferred stock ranks:
- senior to each class of our capital stock outstanding or established
after the date of the certificate of designation by our Board of
Directors, the terms of which do not expressly provide that it ranks
senior to, or on a parity with, the preferred stock as to dividends and
rights on the liquidation, winding-up and dissolution of our company
(collectively referred to, together with our common stock, as "junior
securities") and
- on a parity with each other class of our preferred stock established
after the date of this offering memorandum by our Board of Directors the
terms of which expressly provide that such class or series will rank on a
parity with the preferred stock as to dividends and rights on the
liquidation, winding-up and dissolution of our company (collectively
referred to as the "parity securities").
The certificate of designation provides that we may not, without the
approval of the holders of at least a majority of the then outstanding shares of
preferred stock voting or consenting as a separate class, authorize, create (by
way of reclassification or otherwise) or issue any parity securities or any
security convertible or exchangeable into or evidencing a right to purchase,
shares of any class or series of parity securities, except that we may issue:
- shares of new preferred stock pursuant to the certificate of designation
and as provided in the registration rights agreement; and
- shares of outstanding preferred stock or new preferred stock to pay
dividends thereon in accordance with the terms of the certificate of
designation.
The certificate of designation provides that we may not authorize, create
or issue (by way of reclassification or otherwise) any future issuances of
preferred stock that rank senior to the preferred stock.
Dividends
The holders of shares of the preferred stock are entitled to receive,
whether or not dividends are declared by the Board of Directors out of our
funds, cumulative preferential dividends from the issue date of the preferred
stock accumulating at 13 7/8% of the liquidation preference per annum from the
date of issuance, payable quarterly on February 1, May 1, August 1 and November
1, or, if any such date is not a business day, on the next succeeding business
day (each a "dividend payment date"), to the holders of record as of the
immediately preceding January 15, April 15, July 15 and October 15 (each, a
"record date"). Dividends may be paid in cash or, at our option until May 1,
2004, by the issuance of additional shares of preferred stock (including
fractional shares) having an aggregate liquidation preference equal to the
amount of such dividends. In the event that on or prior to May 1, 2004 dividends
are declared and paid through the issuance of additional shares of preferred
stock, such dividends shall be deemed paid in full and will not accumulate.
After May 1, 2004, dividends must be paid in cash. The first dividend payment of
preferred stock will be payable on August 1, 1999. Dividends payable on the
preferred stock are computed on the basis of a 360-day year consisting of twelve
30-day months and are deemed to accrue on a daily basis.
The dividend rate on the preferred stock is subject to increase, and
liquidated damages will be payable on the dividend payment dates set forth
above, in specified circumstances, if, among other matters, the preferred stock
is not registered with the SEC within specified time periods. All references
herein to "dividends" shall be deemed to include any such "liquidated damages."
See "-- Preferred Stock Exchange Offer; Registration Rights; Liquidated
Damages."
Dividends on the preferred stock accrue whether or not we have earnings or
profits, whether or not there are funds legally available for the payment of
such dividends and whether or not dividends are declared. Dividends will
accumulate to the extent they are not paid on the dividend payment date for the
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period to which they relate. In the event that dividends on the preferred stock
are in arrears and unpaid for three or more quarterly dividend periods (whether
or not consecutive), holders of preferred stock will be entitled to certain
voting rights. See "-- Voting Rights; Amendments." The certificate of
designation provides that we will take all actions required or permitted under
the Delaware General Corporation Law (the "DGCL") to permit the payment of
dividends on the preferred stock, including, without limitation, through the
revaluation of our assets in accordance with the DGCL, to make or keep funds
legally available for the payment of dividends.
If we pay a dividend on the preferred stock by issuing additional shares of
preferred stock (or otherwise are deemed to pay a distribution for United States
federal income tax purposes) to any person with respect to which we determine,
after request of such information from such holder as we deem appropriate, that
we are obligated to withhold United States federal tax, then prior to any such
distribution we shall be entitled to liquidate on behalf of such person the
additional shares of preferred stock to the extent necessary in order to fully
fund our withholding obligation. We will promptly distribute to such person the
balance of the additional shares of preferred stock not used to fund such
withholding obligation.
Dividends on account of arrears for any past dividend period and dividends
in connection with any optional redemption may be declared and paid at any time,
without reference to any regular dividend payment date, to holders of record of
preferred stock on such date, not more than 45 days prior to the payment
thereof, as may be fixed by our Board of Directors.
No dividends whatsoever shall be declared or paid upon, or any sum set
apart for the payment of dividends upon, any outstanding share of preferred
stock with respect to any dividend period unless all dividends for all preceding
dividend periods have been declared and paid, or declared and a sufficient sum
set apart for the payment of such dividend, upon all outstanding shares of
preferred stock. No full dividends may be declared or paid or funds set apart
for the payment of dividends on any parity securities for any period unless full
cumulative dividends shall have been or contemporaneously are declared and paid
(or are deemed declared and paid) in full or declared and, if payable in cash, a
sum in cash sufficient for such payment set apart for such payment on the
preferred stock. If full dividends are not so paid, the preferred stock will
share dividends pro rata with the parity securities. So long as any preferred
stock is outstanding and unless and until full cumulative dividends have been
paid (or are deemed paid) in full on the preferred stock:
- no dividend (other than a dividend payable solely in shares of additional
junior securities) shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any shares of junior securities;
- no other distribution shall be declared or made upon, or any sum set
apart for the payment of any distribution upon, any shares of junior
securities, other than a distribution consisting solely of junior
securities;
- no shares of parity securities or junior securities shall be purchased,
redeemed or otherwise acquired or retired for value (excluding an
exchange for shares of other junior securities) by us or any of our
subsidiaries;
- no warrants, rights, calls or options requiring or permitting us or any
of our Subsidiaries to purchase any parity securities or junior
securities shall be directly or indirectly issued by us or any of our
subsidiaries; and
- no monies shall be paid into or set apart or made available for a sinking
or other like fund for the purchase, redemption or other acquisition or
retirement for value of any shares of parity securities or junior
securities by us or any of our subsidiaries.
Holders of the preferred stock are not entitled to any dividends, whether
payable in cash, property or stock, in excess of the full cumulative dividends
described in this prospectus.
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The indentures relating to some of our existing indebtedness contain, and
future credit agreements or other agreements relating to indebtedness to which
we become a party may contain, restrictions on our ability to pay dividends on
the preferred stock (other than solely in additional shares of preferred stock).
Voting Rights; Amendments
Holders of record of shares of the preferred stock have no voting rights,
except as required by law and as provided in the certificate of designation. The
certificate of designation provides that upon:
(a) the accumulation of accrued and unpaid dividends on the
outstanding preferred stock in an amount equal to three or more quarterly
dividend periods (whether or not consecutive) in the aggregate;
(b) our failure to make any required change of control offer, or
(c) our failure to comply with any of the other covenants or
agreements set forth in the certificate of designation and the continuance
of such failure for 30 consecutive days or more after receipt of notice of
such failure from the holders of at least 25% of the preferred stock then
outstanding (each of the events described in clauses (a), (b) and (c) being
referred to herein as a "voting rights triggering event"),
then the holders of a majority of the outstanding shares of preferred stock,
with the holders of shares of any parity securities, issued after the date of
original issuance of the outstanding preferred stock, upon which like voting
rights have been conferred and are exercisable, voting as a single class, will
be entitled to elect two directors to our Board of Directors for successive
one-year terms until all dividends in arrears on the preferred stock have been
paid or declared and set apart for payment, we have made and, to the extent any
shares of preferred stock are tendered, consummated such change of control
offer, or such failure to comply with covenants or other agreements has been
cured. Upon our paying or declaring and setting apart of funds for payment of
all such dividends in arrears, making and consummating such change of control
offer or curing such failure to comply with covenants or other agreements, the
term of office of each director elected will immediately terminate and the
number of directors constituting the entire Board of Directors will be reduced
by the number of directors elected by the holders of the preferred stock and any
parity securities.
In addition to the provisions described above in "-- Ranking," the
certificate of designation also provides that we will not, without the approval
of the holders of at least a majority of the preferred stock then outstanding,
amend, alter or repeal any of the provisions of our certificate of incorporation
(including the certificate of designation) or our bylaws so as to affect
adversely the powers, preferences or rights of the holders of the preferred
stock or reduce the time for any notice to which the holders of the preferred
stock may be entitled. Subject to the provisions described above under
"-- Ranking," the certificate of designation provides that an amendment of our
certificate of incorporation to authorize or create, or to increase the amount
of junior securities or parity securities shall not be deemed to affect
adversely the powers, preferences or rights of the holders of the preferred
stock.
Notwithstanding the foregoing, modifications and amendments to the
certificate of designation described below under "-- Change of Control" may be
made by us with the consent of the holders of a majority of the preferred stock
then outstanding; provided that following the mailing of any change of control
offer and until the expiration date for holders to accept that change of control
offer, no such modification or amendment may, without the consent of the holder
of each outstanding share of preferred stock affected thereby, modify any change
of control offer for the preferred stock required under the covenant entitled
"-- Change of Control" in a manner materially adverse to the holders of
outstanding preferred stock. In addition, holders of a majority of the
outstanding preferred stock may waive any past default of the provisions of the
certificate of designation described below under "-- Change of Control" except a
default arising from failure to purchase any preferred stock tendered pursuant
to an change of control offer.
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Under Delaware state law, holders of preferred stock, under certain
circumstances, are entitled to vote as a class upon a proposed amendment to our
certificate of incorporation, whether or not entitled to vote thereon by the
certificate of incorporation, if the amendment would alter or change the powers,
preferences, or special rights of the shares of such class so as to affect them
adversely.
Exchange
The preferred stock will not be exchangeable for exchange debentures unless
on a dividend payment date we could, among other things, (1) redeem the
preferred stock, (2) incur the indebtedness evidenced by the exchange debentures
and (3) pay in cash the dividend payable on such Dividend Payment Date, without
violating the covenants in the indentures governing our existing indebtedness.
If the preferred stock is exchangeable, we may, at our option, on such
dividend payment date, exchange in whole, but not in part, the then outstanding
shares of preferred stock for exchange debentures with a principal amount equal
to the liquidation preference of the preferred stock; provided that
- on the date of such exchange there are no accumulated and unpaid
dividends and liquidated damages, if any, on the preferred stock (other
than the dividend payable on such date) or other contractual impediments
to such exchange;
- there shall be legally available funds sufficient therefor;
- immediately after giving effect to such exchange, no default or event of
default (each as defined in the indentures relating to our existing
indebtedness and under the exchange debenture indenture) would exist
under such indentures with respect to such senior notes, secured notes or
Exchange Debentures or would be caused thereby;
- the Exchange Debenture Indenture (as defined below) has been qualified
under the Trust Indenture Act of 1939, if such qualification is required
at the time of exchange; and
- we shall have delivered a written opinion to the trustee (under the
exchange debenture indenture) to the effect that all conditions to be
satisfied prior to such exchange have been satisfied.
At any time, we may make an irrevocable election to waive our right to
exchange the preferred stock for exchange debentures.
Upon any exchange pursuant to the preceding paragraph, holders of
outstanding preferred stock will be entitled to receive, subject to the second
succeeding sentence of this paragraph, $1.00 principal amount of exchange
debentures for each $1.00 of the aggregate liquidation preference of preferred
stock held by them, plus, without duplication, the accrued and unpaid dividends
due on the exchange date. The exchange debentures will be issued in registered
form, without coupons. The exchange debentures will be issued in principal
amounts of $1,000 and integral multiples thereof to the extent possible, and
will also be issuable in principal amounts less than $1,000 so that each holder
of preferred stock will receive interests representing the entire amount of
exchange debentures to which such holder's shares of preferred stock entitle
such holder; provided that we may pay cash in lieu of issuing an exchange
debenture having a principal amount less than $1,000. Notice of the intention to
exchange will be sent by or on behalf of us not more than 60 days nor less than
30 days prior to the exchange date by first class mail, postage prepaid, to each
holder of record of preferred stock at its registered address. If notice of
exchange has been given (unless we default in issuing exchange debentures in
redemption by means of the exchange for the preferred stock or fail to pay or
set aside accrued and unpaid dividends and liquidated damages, if any, on the
preferred stock) and certain conditions with respect to the issuance of exchange
debentures are met, on the exchange date the holders of the preferred stock will
cease to be stockholders with respect to such shares and will have no interest
in or claims against us by virtue thereof (except the right to receive exchange
debentures in exchange therefor and accrued and unpaid dividends thereon to the
exchange date) and will have no voting or other rights with respect to such
shares, dividends will cease to accrue on the preferred stock, and the shares of
preferred stock will no longer be outstanding. No shares of preferred stock may
be exchanged for exchange debentures unless we have paid or set aside for the
benefit of the
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holders of the preferred stock all accrued and unpaid dividends and liquidated
damages, if any, on the preferred stock to the exchange date. Our ability to
exchange preferred stock for exchange debentures is restricted under the terms
of the indentures relating to our existing indebtedness. Our ability to exchange
preferred stock for exchange debentures is also subject to certain conditions
contained in the indenture relating to the exchange debentures and to
limitations imposed under the DGCL and by applicable laws protecting the rights
of creditors.
Redemption
Mandatory Redemption
On May 1, 2009, we will be required to redeem (subject to the legal
availability of funds therefor) all outstanding shares of preferred stock at a
price in cash equal to the liquidation preference thereof, plus accrued and
unpaid dividends (including an amount in cash equal to a pro rated dividend for
any partial dividend period) and liquidated damages, if any, to the date of
redemption. We will not be required to make sinking funds payments with respect
to the preferred stock. The certificate of designation provides that we will
take all actions required or permitted under Delaware law to permit such
redemption.
Optional Redemption
The preferred stock may be redeemed, in whole or in part, at our option on
or after May 1, 2004, at the redemption prices specified below (expressed as
percentages of the liquidation preference thereof), in each case, together with
accrued and unpaid dividends (including an amount in cash equal to a pro rated
dividend for any partial dividend period) and liquidated damages, if any, to the
date of redemption, upon not less than 30 nor more than 60 days' prior written
notice, if redeemed during the 12-month period commencing on May 1 of each of
the years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2004..................................................... 106.938%
2005..................................................... 104.625%
2006..................................................... 102.313%
2007 and thereafter...................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to May 1, 2002, we
may, at our option, redeem in whole or in part, shares of the preferred stock
having an aggregate liquidation preference of up to $105 million at a price in
cash equal to 113.875% of the liquidation preference thereof, plus accrued and
unpaid dividends and liquidated damages thereon, if any, to the redemption date,
with the net cash proceeds from one or more public equity offerings; provided
that any such redemption shall occur within 45 days of the date of the closing
of such public equity offerings.
Liquidation Rights
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
our company or reduction or decrease in its capital stock resulting in a
distribution of assets to the holders of any class or series of our capital
stock, each holder of shares of the preferred stock will be entitled to payment
out of our assets available for distribution of an amount equal to the
liquidation preference per share of preferred stock held by such holder, plus
accrued and unpaid dividends and liquidated damages, if any, to the date fixed
for liquidation, dissolution, winding-up or reduction or decrease in capital
stock, before any distribution is made on any junior securities, including,
without limitation, our common stock. After payment in full of the liquidation
preference and all accrued and unpaid dividends and liquidated damages, if any,
to which holders of preferred stock are entitled, such holders will not be
entitled to any further participation in any distribution of our assets. If,
upon any voluntary or involuntary liquidation, dissolution or winding-up of our
company, the amounts payable with respect to the preferred stock and all other
parity securities are not paid in full, the holders of the preferred stock and
the parity securities will share equally and ratably in any distribution of our
assets in proportion to the full liquidation preference and accumulated and
unpaid
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dividends and liquidated damages to which each is entitled. Neither the
voluntary sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of our property
or assets nor the consolidation or merger of our company with or into one or
more corporations will be deemed to be a voluntary or involuntary liquidation,
dissolution or winding-up of our company or reduction or decrease in capital
stock, unless such sale, conveyance, exchange or transfer shall be in connection
with a liquidation, dissolution or winding-up of the business of our company or
reduction or decrease in capital stock.
The certificate of designation does not contain any provision requiring
funds to be set aside to ensure the payment of the liquidation preference of the
preferred stock, although such liquidation preference will be substantially in
excess of the par value of the shares of the preferred stock. There can be no
assurance that, upon any such voluntary or involuntary liquidation, dissolution
or winding-up of our company, there will be funds available in an amount
sufficient to pay such liquidation preference in full, in part or at all.
Change of Control
Upon the occurrence of any of the following events (each a "change of
control"), we will be required to make an offer (the "change of control offer")
to each holder of shares of preferred stock to repurchase all or any part (but
not, in the case of any holder requiring us to purchase less than all of the
shares of preferred stock held by such holder, any fractional shares) of such
holder's preferred stock at an offer price in cash equal to 101% of the
aggregate liquidation preference thereof plus, without duplication, all accrued
and unpaid dividends per share to the date of purchase (including an amount in
cash equal to a pro rated dividend for the period from the dividend payment date
immediately prior to the date of purchase to the date of purchase) and
liquidated damages, if any, to the date of purchase (the "change of control
purchase price"):
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the beneficial owner (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that for purposes of this
clause (i) such person shall be deemed to have "beneficial ownership" of
all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total voting power of our
voting stock;
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted our Board of Directors (together
with any new directors whose election by such Board of Directors or whose
nomination for election by our shareholders was approved by a vote of
66 2/3% of our directors then still in office who were either directors at
the beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority
of the Board of Directors then in office; and
(iii) the merger or consolidation of our company with or into another
person or the merger of another person with or into our company, or the
sale of all or substantially all our assets or of the assets of our company
and its restricted subsidiaries (as defined below) taken as a whole to
another person, and, in the case of any such merger or consolidation, our
securities that are outstanding immediately prior to such transaction and
which represent 100% of the aggregate voting power of our voting stock are
changed into or exchanged for cash, securities or property, unless pursuant
to such transaction such securities are changed into or exchanged for, in
addition to any other consideration, securities of the surviving
corporation that represent immediately after such transaction, at least a
majority of the aggregate voting power of the voting stock of the surviving
corporation.
Notwithstanding the foregoing, a change of control shall not be deemed to
have occurred if (a) the ratings assigned to our 12 1/4% Senior Notes due 2006
by Moody's and S&P prior to the announcement are not downgraded or placed on a
negative credit watch by either such rating agency as a result thereof and (b)
no default has occurred and is continuing under the indenture relating to those
senior notes.
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Within 30 days following any Change of Control, we shall mail a notice to
each holder of the preferred stock stating, among other things:
- that a change of control has occurred and that such holder has the right
to require us to purchase such holder's preferred stock for the change of
control purchase price;
- the circumstances and relevant facts regarding such change of control
(including information with respect to pro forma historical income, cash
flow and capitalization after giving effect to such change of control);
- the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
- the instructions determined by us, consistent with the covenant described
hereunder, that a holder of the preferred stock must follow in order to
have its preferred stock purchased.
We shall comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of preferred stock pursuant to this covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder, we
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached our obligations under the covenant described
hereunder by virtue thereof.
The certificate of designation provides that if any credit facility that
provides for an event of default or requires a payment upon a change of control
is in effect or if we or our subsidiaries have any outstanding indebtedness that
requires a payment upon a change of control, or any amounts are owing thereunder
or in respect thereof, at the time of the occurrence of a change of control,
prior to the mailing of the notice to holders described in the second preceding
paragraph, but in any event within 30 days following any change of control, we
shall be required to (i)(A) repay or cause the borrowers thereunder to repay in
full all obligations under or in respect of such credit facility or such other
indebtedness of each lender who has then irrevocably accepted such offer or (B)
obtain and cause such other borrowers to obtain the requisite consents under
such credit facility or such other indebtedness from the holders of such other
indebtedness to permit the repurchase of the preferred stock as described above
without violating any applicable covenants and other contractual restrictions
contained in the instruments governing such credit facility and other
indebtedness , and (ii) if we and any other borrowers do not obtain such
requisite consents pursuant to clause (i)(B) above, take such other or
additional actions as may be required to consummate the change of control offer
in compliance with all applicable covenants or other contractual restrictions in
the instruments governing such credit facility or other indebtedness. We may
not, and shall not be required to, purchase preferred stock in the event of a
change of control unless and until we have complied with the covenant described
in the preceding sentence; provided, that our failure to comply with the
covenant described in the preceding sentence constitutes a voting rights
triggering event described in clause (b) under "-- Voting Rights; Amendments"
above. There can be no assurance that we will have adequate resources to
refinance or fund the repurchase of the preferred stock in the event of a change
of control. Our failure, following a change of control, to make a change of
control offer or to pay when due the change of control purchase price for shares
of preferred stock tendered in conformity with any such change of control offer
will give the holders of the preferred stock the rights described under
"-- Voting Rights; Amendments." As a result of the foregoing, a holder of the
preferred stock may not be able to compel us to purchase the preferred stock
unless we or such borrower is able at the time to refinance all of the
obligations under or in respect of such credit facility or such other
indebtedness or obtain requisite consents thereunder.
The certificate of designation further provides that
- if we have issued any outstanding preferred stock (other than the
preferred stock), and we are required to make a change of control offer
or to make a distribution with respect to such preferred stock (other
than the preferred stock) in the event of a change of control, we shall
not consummate
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any such offer or distribution with respect to such preferred stock
(other than the preferred stock and any parity securities having
comparable rights on a change of control) until such time as we shall
have paid the change of control purchase price in full to the holders of
preferred stock that have validly accepted our change of control offer
and shall otherwise have consummated the change of control offer made to
holders of the preferred stock and
- we will not issue preferred stock with change of control provisions
requiring the payment of such preferred stock prior to or contemporaneous
with the payment of the preferred stock in the event of a change of
control without the approval of holders of at least a majority of the
preferred stock then outstanding.
Except as described above with respect to a change of control, the
certificate of designation does not contain provisions that permit the holders
of the preferred stock to require that we repurchase or redeem the preferred
stock in the event of takeover, recapitalization or similar transaction.
We are not required to make a change of control offer to the holders of
preferred stock upon a change of control if a third party makes the change of
control offer described above in the manner, at the times and otherwise in
compliance with the requirements set forth in the certificate of designation and
purchases all shares of preferred stock validly tendered and not withdrawn under
such change of control offer.
The definition of change of control includes a phrase relating to the sale,
conveyance, lease or transfer of all or substantially all of our assets or the
assets of our company and our restricted subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, if we and/or our restricted subsidiaries were to engage in a
transaction in which we or they disposed of less than all of the assets of our
company or our company and our restricted subsidiaries taken as a whole, as
applicable, a question of interpretation could arise as to whether such
disposition was of "substantially all" of its or their assets, as the case may
be, and whether we were required to make a change of control offer.
Mergers, Consolidation or Sale of Assets.
We shall not consolidate with or merge into any person, continue in another
jurisdiction, or sell, lease, convey, transfer or otherwise dispose of all or
substantially all of our assets to any person, unless:
- the person formed by or surviving such consolidation or merger (if other
than our company), or to which such sale, lease, conveyance, transfer or
other disposition shall be made (collectively, the "successor"), is a
corporation organized and existing under the laws of the United States or
any State thereof or the District of Columbia,
- the preferred stock shall be converted into or exchanged for and shall
become shares of such successor, having in respect of such Successor, the
same powers, preferences and relative participating, optional or other
special rights and the qualifications, limitations or restrictions
thereon, that the preferred stock had immediately before such
transactions, and
- immediately after giving effect to such transaction, no voting rights
triggering event shall have occurred and be continuing.
Transfer Agent and Registrar
American Stock Transfer & Trust Company is the transfer agent and registrar
for the preferred stock.
Reports to Holders
The certificate of designation provides that whether or not required by the
rules and regulations of the SEC, so long as any shares of preferred stock are
outstanding, we shall furnish to the holders of the preferred stock within 15
days after we are or would have been required to file them with the SEC, (i) all
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annual and quarterly financial information that would be required to be
contained in a filing with the SEC on Forms 10-K and 10-Q (without exhibits) if
we were required to file such forms, including a section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by our certified
independent accountants and (ii) all current reports that would be required to
be filed with the SEC on Form 8-K (without exhibits) if we were required to file
such reports. In addition, whether or not required by the rules and regulations
of the SEC, we will file a copy of all such information and reports with the SEC
for public availability (unless the SEC will not accept such a filing). In
addition, we shall furnish to the holders of the preferred stock and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144(d)(4) under the
Securities Act and the exhibits omitted from the information furnished pursuant
to the preceding sentence, for so long as the preferred stock is not freely
transferable under the Securities Act.
Preferred Stock Exchange Offer; Registration Rights; Liquidated Damages
We and the initial purchaser entered into the registration rights agreement
upon the closing of the private offering of the preferred stock. Pursuant to the
registration rights agreement, we agreed to file with the SEC the registration
statement of which this prospectus forms a part.
If any holder of transfer restricted securities notifies us prior to the
20th day following consummation of the exchange offer that (A) it is prohibited
by law or SEC policy from participating in the exchange offer or (B) that it may
not resell the new preferred stock or the new exchange debentures, as the case
may be, acquired by it in the exchange offer to the public without delivering a
prospectus and the prospectus contained in the exchange offer registration
statement is not appropriate or available for such resales or (C) that it is a
broker-dealer and owns preferred stock or exchange debentures acquired directly
from us or an affiliate of our company, we will file with the SEC a shelf
registration statement to cover resales of the preferred stock or the exchange
debentures by the holders thereof who satisfy certain conditions relating to the
provision of information in connection with the shelf registration statement. We
will use its best efforts to cause the shelf registration statement to be
declared effective as promptly as possible by the SEC.
For purposes of the foregoing, "transfer restricted securities" means
preferred stock or exchange debentures, as the case may be, until (i) the date
on which such security has been exchanged by a person other than a broker-dealer
for new preferred stock or new exchange debentures, as the case may be, in the
exchange offer, (ii) following the exchange by a broker-dealer in the exchange
offer of a share of preferred stock or an exchange debenture, as the case may
be, for new preferred stock or new exchange debentures, as the case may be, the
date on which such new security is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the exchange offer registration statement, (iii) the date on which
such security has been effectively registered under the Securities Act and
disposed of in accordance with the shelf registration statement or (iv) the date
on which such security is distributed to the public pursuant to Rule 144 under
the Securities Act.
The registration rights agreement provides that (i) we use our best efforts
to issue on or prior to 30 days after the date on which the exchange offer
registration statement is declared effective by the SEC, new preferred stock or
new exchange debentures, as applicable, in exchange for all preferred stock or
exchange debentures tendered prior thereto in the exchange offer and (ii) if
obligated to file the shelf registration statement, we will use our best efforts
to file the shelf registration statement with the SEC on or prior to 30 days
after such filing obligation arises and to cause the shelf registration to be
declared effective by the SEC on or prior to 120 days after such obligation
arises.
If (a) we fail to file the shelf registration statement on or before the
date specified for such filing, (b) the shelf registration statement is not
declared effective by the SEC on or prior to the date specified for such
effectiveness (the "effectiveness target date"), or (c) we fail to consummate
the exchange offer within 30 days of the effectiveness target date with respect
to the exchange offer registration statement or (d) the shelf registration
statement or the the registration statement of which this prospectus forms a
part
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<PAGE> 41
is declared effective but thereafter ceases to be effective or usable in
connection with resales of transfer restricted securities during the periods
specified in the registration rights agreement (each such event referred to in
clauses (a) through (d) above a "registration default"), then we will pay
liquidated damages to each holder of preferred stock or exchange debentures, as
the case may be, with respect to the first 90-day period immediately following
the occurrence of the first registration default in an amount equal to $.05 per
week per $1,000 in liquidation preference of the preferred stock or principal
amount of exchange debentures held by such holder, as applicable. The amount of
the liquidated damages will increase by an additional $.05 per week per $1,000
in liquidation preference of the preferred stock or principal amount of exchange
debentures, as applicable, with respect to each subsequent 90-day period until
all registration defaults have been cured, up to a maximum amount of liquidated
damages of $.50 per week per $1,000 in liquidation preference of the preferred
stock or principal amount of exchange debentures. All accrued liquidated damages
will be paid by us on each dividend payment date or interest payment date, as
applicable, to the global certificate holder by wire transfer of immediately
available funds or by federal funds check and to holders of certificated
securities by wire transfer to the accounts specified by them or by mailing
checks to their registered addresses if no such accounts have been specified.
Following the cure of all registration defaults, the accrual of liquidated
damages will cease.
Holders of preferred stock or exchange debentures, as applicable, are
required to make certain representations to us (as described in the registration
rights agreement) in order to participate in the exchange offer and are required
to deliver information to be used in connection with the shelf registration
statement and to provide comments on the shelf registration statement within the
time periods set forth in the registration rights agreement in order to have
their securities included in the shelf registration statement and benefit from
the provisions regarding liquidated damages set forth above.
DESCRIPTION OF EXCHANGE DEBENTURES
General
The exchange debentures will, if and when issued, be issued pursuant to an
indenture to be dated as of the date of first issuance (the "Exchange Date") of
the exchange debentures (the "Indenture" or "Exchange Debenture Indenture")
among us and U.S. Trust Company, N.A., as trustee (the "Trustee"). The terms of
the exchange debentures include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as in
effect on the date of the Indenture. The exchange debentures are subject to all
such terms, and holders of exchange debentures are referred to the Indenture and
the Trust Indenture Act for a statement thereof. The following summary of the
material provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. Copies of the proposed form of
Indenture and registration rights agreement are included as exhibits to the
registration statement of which this prospectus forms a part. The definitions of
certain terms used in the following summary are set forth below under
"-- Certain Definitions."
Principal, Maturity and Interest
The exchange debentures will be our general unsecured obligations and will
mature on May 1, 2009 and will be limited in aggregate principal amount to the
liquidation preference of the preferred stock, plus, without duplication,
accumulated and unpaid dividends, on the date on which it is exchanged for
exchange debentures (plus any additional exchange debentures issued in lieu of
cash interest as described herein). The exchange debentures will be issued in
fully registered form only, in denominations of $1,000 and integral multiples
thereof (other than as described in "-- Description of Preferred Stock" or with
respect to additional exchange debentures issued in lieu of cash interest as
described herein). The exchange debentures will bear interest at the rate of
13 7/8% per annum and will be payable quarterly in arrears on February 1, May 1,
August 1 and November 1 of each year to Holders of record on the immediately
preceding January 15, April 15, July 15 and October 15. On or before May 1,
2004, interest payable on the exchange debentures may be paid in the form of
additional exchange debentures valued at the principal amount thereof. Interest
on the exchange debentures will accrue from the most recent date to
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which interest has been paid or, if no interest has been paid, from the Exchange
Date. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal, premium and Liquidated Damages, if any, and
interest on the exchange debentures will be payable at our office or agency
maintained for such purpose or, at our option, payment of interest and
Liquidated Damages, if any, may be made by check mailed to the holders of the
exchange debentures at their respective addresses set forth in the register of
holders of exchange debentures. Until otherwise designated by us, our office or
agency will be the office of the Trustee maintained for such purpose. The
exchange debentures will be issued in denominations of $1,000 and integral
multiples thereof.
The exchange debentures will be subordinated in right of payment to all of
our Senior Debt and will rank pari passu with or senior to our future
Indebtedness that expressly provides that it ranks pari passu with or junior to
the exchange debentures, as the case may be.
We conducts our operations primarily through subsidiaries and, therefore,
we are dependent upon the cash flow of our subsidiaries to meet our obligations,
including our obligations under the exchange debentures. The exchange debentures
will be effectively subordinated to all indebtedness and other liabilities
(including trade payables, tort claims and tax claims) of our present and future
subsidiaries, including any future Unrestricted Subsidiaries. Any right of ours
to receive assets of any of our subsidiaries upon such subsidiary's liquidation
or reorganization (and the consequent right of the holders of the exchange
debentures to participate in those assets) will be effectively subordinated to
the claims of that subsidiary's third-party creditors, except for any
Indebtedness validly owed to us. In addition, as obligations of a company that
primarily conducts its operations through its subsidiaries, the exchange
debentures will be effectively subordinated to all obligations of our
subsidiaries. As of March 31, 1999, the exchange debentures, if issued, would
have been subordinated to approximately $2.7 billion of Indebtedness.
Subordination
The payment of principal of, premium and Liquidated Damages, if any, and
interest on the exchange debentures will be subordinated in right of payment, as
set forth in the Indenture, to the prior payments in full of all Senior Debt,
whether outstanding on the date of the Indenture or thereafter created, incurred
or assumed and all renewals, extensions, refundings or refinancings thereof.
The Indenture will provide that, upon any payment or distribution of our
assets of any kind or character, whether in cash, property or securities, to
creditors in any Insolvency or Liquidation Proceeding with respect to our
company all amounts due or to become due under or with respect to all Senior
Debt will first be paid in full in cash before any payment is made on account of
the exchange debentures, except that the holders of exchange debentures may
receive Reorganization Securities. Upon any such Insolvency or Liquidation
Proceeding, any payment or distribution of our assets of any kind or character,
whether in cash, property or securities (other than Reorganization Securities),
to which the holders of the exchange debentures or the Trustee would be entitled
will be paid by us or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other person making such payment or distribution, or by the
holders of the exchange debentures or by the Trustee if received by them,
directly to the holders of Senior Debt (pro rata to such holders on the basis of
the amounts of Senior Debt held by such holders) or their Representatives, as
their interests may appear, for application to the payment of the Senior Debt
remaining unpaid until all such Senior Debt has been paid in full in cash, after
giving effect to any concurrent payment, distribution or provision therefor to
or for the holders of Senior Debt.
The Indenture will provide that (a) in the event of and during the
continuation of any default in the payment of principal of, interest or premium,
if any, on any Designated Senior Debt, or any obligations owing from time to
time under or in respect of Designated Senior Debt, or in the event that any
event of default (other than a payment default) with respect to any Designated
Senior Debt will have occurred and be continuing and will have resulted in such
Designated Senior Debt becoming or being declared due and payable prior to the
date on which it would otherwise have become due and payable, or (b) if any
event of default other than as described in clause (a) above with respect to any
Designated Senior Debt will have occurred and be continuing permitting the
holders of such Designated Senior Debt (or their
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<PAGE> 43
Representatives) to declare such Designated Senior Debt due and payable prior to
the date on which it would otherwise have become due and payable, then no
payment will be made by or on behalf of us on account of the exchange debentures
(other than payments in the form of Reorganization Securities) (x) in cash in
the case of any payment or nonpayment default specified in (a), unless and until
such default will have been cured or waived in writing in accordance with the
instruments governing such Designated Senior Debt or such acceleration will have
been rescinded or annulled, or (y) in cash in the case of any nonpayment event
of default specified in (b), during the period (a "Payment Blockage Period")
commencing on the date we or the Trustee receive written notice of such event of
default (which notice will be binding on the Trustee and the holders of exchange
debentures as to the occurrence of such a payment default or nonpayment event of
default) from the Representative (or holders of Designated Senior Debt or their
Representative or Representatives) and ending on the earliest of (A) 179 days
after such date, (B) the date, if any, on which such Designated Senior Debt to
which such default relates is paid in full in cash or such default is cured or
waived in writing in accordance with the instructions governing such Designated
Senior Debt by the holders of such Designated Senior Debt or their
Representatives and (C) the date on which the Trustee received written notice
from the Representative (or holders of Designated Senior Debt or their
Representative or Representatives), as the case may be, terminating the Payment
Blockage Period. During any consecutive 360-day period, the aggregate of all
Payment Blockage Periods shall not exceed 179 days and there shall be a period
of at least 181 consecutive days in each consecutive 360-day period when no
Payment Blockage Period is in effect. No event of default which existed or was
continuing with respect to the Designated Senior Debt for which notice
commencing a Payment Blockage Period was given on the date such Payment Blockage
Period commenced shall be or be made the basis for the commencement of any
subsequent Payment Blockage Period unless such event of default is cured or
waived for a period of not less than 90 consecutive days.
If we fail to make any payment on the exchange debentures when due or
within any applicable grace period, whether or not on account of payment
blockage provisions, such failure would constitute an Event of Default under the
Indenture and would enable the holders of the exchange debentures to accelerate
the maturity thereof. See "-- Defaults."
As a result of the subordination provisions described above, in the event
our liquidation, dissolution, bankruptcy, reorganization, insolvency,
receivership or similar proceeding or in an assignment for the benefit of the
creditors or a marshalling of our assets and liabilities, holders of exchange
debentures may recover less ratably than our creditors who are holders of Senior
Debt.
A holder of exchange debentures by his acceptance of exchange debentures
agrees to be bound by such provisions and authorizes and expressly directs the
Trustee, on his behalf, to take such action as may be necessary or appropriate
to effectuate the subordination provided for in the Indenture and appoints the
Trustee his attorney-in-fact for such purpose.
Optional Redemption
The exchange debentures will not be redeemable at our option prior to May
1, 2004. Thereafter, the exchange debentures will be subject to redemption at
any time at our option, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on May 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2004...................................................... 106.938%
2005...................................................... 104.625%
2006...................................................... 102.313%
2007 and thereafter....................................... 100.000%
</TABLE>
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Notwithstanding the foregoing, at any time on or prior to May 1, 2002, we
may, at our option, redeem, in whole or in part, up to an aggregate principal
amount of the exchange debentures equal to $105 million, less the aggregate
Liquidation Preference of all shares of preferred stock previously redeemed out
of the proceeds of one or more Public Equity Offerings, at a redemption price of
113.875% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the redemption date with the net cash
proceeds of one or more Public Equity Offerings; provided that any such
redemption shall occur within 45 days of the date of the closing of such Public
Equity Offerings.
Selection and Notice
If less than all of the exchange debentures are to be redeemed at any time,
selection of exchange debentures for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the exchange debentures are listed or, if the Exchange
Debentures are not so listed, on a pro rata basis, by lot or by such method as
the Trustee shall deem fair and appropriate; provided that no exchange
debentures of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of exchange debentures to be redeemed at its
registered address. Notices of redemption may not be conditional. If any
exchange debenture is to be redeemed in part only, the notice of redemption that
relates to such exchange debenture shall state the portion of the principal
amount thereof to be redeemed. A new exchange debenture in principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original exchange debenture. Exchange
debentures called for redemption become due on the date fixed for redemption. On
and after the redemption date, interest and Liquidated Damages, if any, cease to
accrue on exchange debentures or portions of them called for redemption unless
we default in paying the redemption price.
Mandatory Redemption
We are not required to make mandatory redemption or sinking fund payments
with respect to the exchange debentures.
Covenants
Change of Control
Upon the occurrence of a Change of Control, each holder of exchange
debentures will have the right to require us to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such holder's exchange
debentures pursuant to the offer described below (the "Exchange Debenture Change
of Control Offer") at an offer price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the date of purchase (the "Exchange Debenture Change of
Control Payment"). Within 30 days following any Change of Control, we shall mail
a notice to each holder of exchange debentures stating, among other things: (a)
that a Change of Control has occurred and that such holder has the right to
require us to purchase such holder's exchange debentures for the Exchange
Debenture Change of Control Payment; (b) the circumstances and relevant facts
regarding such Change of Control (including information with respect to pro
forma historical income, cash flow and capitalization after giving effect to
such Change of Control); (c) the repurchase date (which shall be no earlier than
30 days nor later than 60 days from the date such notice is mailed); and (d) the
instructions determined by us, consistent with the covenant described hereunder,
that a holder of the exchange debentures must follow in order to have its
exchange debentures purchased.
We shall comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of exchange debentures pursuant to this covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder, we
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under the covenant described
hereunder by virtue thereof.
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On the exchange debenture repurchase date, we will, to the extent lawful,
(1) accept for payment all exchange debentures or portions thereof properly
tendered pursuant to the Exchange Debenture Change of Control Offer, (2) deposit
with the paying agent for the exchange debentures an amount equal to the
Exchange Debenture Change of Control Payment in respect of all exchange
debentures or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the exchange debentures so accepted together with an
Officers' Certificate stating the aggregate principal amount of exchange
debentures or portions thereof being purchased by us. The paying agent will
promptly mail to each holder of exchange debentures so tendered the Exchange
Debenture Change of Control Payment for such exchange debentures, and the
Trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each holder a new exchange debenture equal in principal amount to any
unpurchased portion of the exchange debentures surrendered, if any; provided
that each such new exchange debenture will be in a principal amount of $1,000 or
an integral multiple thereof. We will publicly announce the results of the
Exchange Debenture Change of Control Offer on or as soon as practicable after
the Exchange Debenture Change of Control Payment Date.
Due to change of control repayment provisions in the indentures relating to
some of our existing indebtedness and in certain indebtedness of our
Subsidiaries, it is unlikely that we would be able to repurchase all of the
exchange debentures upon the occurrence of a Change of Control. We must first
comply with the change of control, restricted payment and other covenants
referred to in the preceding sentence before we shall be required to purchase
exchange debentures in the event of a Change of Control; provided that our
failure to comply with the Change of Control covenant of the Indenture
constitutes an Event of Default. There can be no assurance that we will have
adequate resources to refinance or fund the repurchase of the exchange
debentures in the event of a Change of Control. Our failure, following a Change
of Control, to make an Exchange Debenture Change of Control Offer or to pay when
due the Exchange Debenture Change of Control Payment tendered in conformity with
any such Exchange Debenture Change of Control Offer will give the Trustee and
the holders of the exchange debentures the rights described under "-- Defaults."
As a result of the foregoing, a holder of the exchange debentures may not be
able to compel us to purchase the exchange debentures unless we are able at the
time to refinance all of our existing obligations restricting our ability to
make a Change of Control Offer or obtain requisite consents thereunder. Our
ability to redeem all of the exchange debentures upon a Change of Control may
also be limited by restrictions on the ability of our subsidiaries to pay
dividends to us. Finally, the exchange debentures will be effectively
subordinated to obligations of our subsidiaries, including with respect to
Exchange Debenture Change of Control Payments. See "-- General."
The Change of Control provision of the Indenture could have the effect of
deterring certain acquisition proposals which would constitute an Exchange
Debenture Change of Control even if such acquisition might be beneficial to
certain holders of exchange debentures, as well as restricting our ability to
obtain additional financing in the future.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to an Exchange Debenture Change of Control, the Indenture
does not contain provisions that permit the Holders of the exchange debentures
to require that we repurchase or redeem the exchange debentures in the event of
a takeover, recapitalization or similar transaction.
We will not be required to make an Exchange Debenture Change of Control
Offer upon a Change of Control if a third party makes the Exchange Debenture
Change of Control Offer in the manner at the times and otherwise in compliance
with the requirements set forth in the Indenture applicable to an Exchange
Debenture Change of Control Offer made by us and purchases all exchanges
debentures validly tendered and not withdrawn under such Exchange Debenture
Change of Control Offer.
One of the events that constitutes an Exchange Debenture Change of Control
under the Indenture is a sale, conveyance, lease or transfer of all or
substantially all of our assets or of the assets of our company and our
Restricted Subsidiaries taken as a whole. The Indenture will be governed by New
York law, and there is no established quantitative definition under New York law
of "substantially all" of the assets of a
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corporation. Accordingly, if we and/or our Restricted Subsidiaries were to
engage in a transaction in which it or they disposed of less than all of our
assets or the assets of our company and our Restricted Subsidiaries taken as a
whole, a question of interpretation could arise as to whether such disposition
was of "substantially all" of its or their assets, as the case may be, and
whether we were required to make an Exchange Debenture Change of Control Offer.
Limitation on Restricted Payments. (a) We will not, and will not permit any
Restricted Subsidiary, directly or indirectly, to:
(1) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving us) or to the direct or indirect holders
of its Capital Stock, except:
(A) dividends or distributions payable solely in its
Non-Convertible Capital Stock or in options, warrants or other rights to
purchase its Non-Convertible Capital Stock;
(B) dividends or distributions payable to us or a Restricted
Subsidiary; and
(C) pro rata dividends or distributions on the Capital Stock of a
Restricted Subsidiary held by minority stockholders (including, without
limitation, minority stockholders of Arcade Drilling AS, a Norwegian
corporation).
(2) purchase, redeem or otherwise acquire or retire for value any of
our Capital Stock or of any direct or indirect parent of our company, or
any Restricted Subsidiary (except Capital Stock held by us or a Restricted
Subsidiary and except for preferred stock); or
(3) purchase, repurchase, redeem, defease or otherwise acquire or
retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment, any Subordinated Obligation (other than the
purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year
of the date of acquisition) (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition or retirement being
herein referred to as a "Restricted Payment"),
if at the time we or such Restricted Subsidiary makes such Restricted Payment:
(i) a Default shall have occurred and be continuing (or would result
therefrom); or
(ii) the aggregate amount of such Restricted Payment and all other
Restricted Payments since April 22, 1999 would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from April 1, 1999 to the end of the
most recent fiscal quarter ending at least 45 days prior to the date of
such Restricted Payment (or, in case such Consolidated Net Income shall
be a deficit, minus 100% of such deficit);
(B) 100% of the aggregate net proceeds (including the fair market
value of non-cash proceeds, which shall be determined in good faith by
our Board of Directors) received by us from the issue or sale of our
Capital Stock (other than Redeemable Stock or Exchangeable Stock) on or
after April 22, 1999 (other than an issuance or sale to a Restricted
Subsidiary or an employee stock ownership plan or similar trust);
(C) the amount by which our Indebtedness is reduced on our balance
sheet upon the conversion or exchange (other than by a Restricted
Subsidiary) subsequent to the Incurrence of any Indebtedness of our
company convertible or exchangeable for our Capital Stock (other than
Redeemable Stock or Exchangeable Stock), less the amount of any cash, or
other property, distributed by us upon such conversion or exchange;
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(D) to the extent not otherwise included in Consolidated Net
Income, the net reduction in Investments in Unrestricted Subsidiaries
resulting from dividends, repayments of loans or advances, or other
transfers of assets, in each case to us or any Restricted Subsidiary
after April 22, 1999 from any Unrestricted Subsidiary or from the
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary
(valued in each case as provided in the definition of Investment), not
to exceed in the case of any Restricted Subsidiary the total amount of
Investments in such Restricted Subsidiary made by us and our Restricted
Subsidiaries in such Unrestricted Subsidiary after the Issue Date; and
(E) $20.0 million.
(b) The provisions of Section (a) shall not prohibit:
(1) Any purchase or redemption of our Capital Stock or Subordinated
Obligations made by exchange for, or out of the proceeds of the
substantially concurrent sale of, our Capital Stock (other than Redeemable
Stock or Exchangeable Stock and other Capital Stock issued or sold to a
Restricted Subsidiary or an employee stock ownership plan); provided,
however, that (i) such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments and (ii) the Net Cash
Proceeds from such sale shall be excluded from clauses (ii)(B) and (ii)(C)
of Section (a);
(2) Any purchase or redemption of our Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Subordinated Obligations; provided, however, that such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments;
(3) Dividends paid within 60 days after the date of declaration if at
such date of declaration such dividend would have complied with this
provision; provided, however, that at the time of payment of such dividend,
no other Default shall have occurred and be continuing (or would result
therefrom); provided further, however, that such dividend shall be included
in the calculation of the amount of Restricted Payments (unless already
included in determining the amount of Restricted Payments previously made
upon the declaration of such dividend); and
(4) If we issue preferred stock which is Non-Convertible Capital Stock
and receive at least $100.0 million of net proceeds therefrom, Dividends on
such preferred stock in an aggregate amount not to exceed $30.0 million,
provided that such Dividends constitute Restricted Payments for purposes of
calculating the amount of Restricted Payments made pursuant to clause (ii)
of Section (a) above.
(c) In the event that at any time (1) the ratings assigned to our 12 1/4%
Senior Notes due 2006 by both of the Rating Agencies are Investment Grade
Ratings and (2) no Default has occurred and is continuing under the indenture
for those senior notes, we and our Restricted Subsidiaries will no longer be
subject to the provisions of the Indenture described above under "-- Limitation
on Restricted Payments" (the "Suspended Covenant"). In the event that we are not
subject to the Suspended Covenant for any period of time as a result of the
preceding sentence and, subsequently, one or both Rating Agencies withdraws its
respective rating or downgrades its respective rating assigned to those senior
notes below the required Investment Grade Rating, then we and our Restricted
Subsidiaries will again be subject to the Suspended Covenant and compliance with
the Suspended Covenant with respect to Restricted Payments made after the time
of such withdrawal or downgrade will be calculated in accordance with the terms
of the "-- Limitation on Restricted Payments" covenant as if such covenant had
been in effect during the entire period of time from the date of the Indenture.
Limitations on Mergers and Consolidations. We shall not consolidate with or
merge into any Person, continue in another jurisdiction, or sell, lease, convey,
transfer or otherwise dispose of all or substantially all of its assets to any
Person, unless:
(1) the Person formed by or surviving such consolidation or merger (if
other than us), or to which such sale, lease, conveyance, transfer or other
disposition shall be made (the "Successor"), is a
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corporation organized and existing under the laws of the United States or
any State thereof or the District of Columbia and the Successor assumes by
supplemental indenture in a form satisfactory to the Trustee all of our
applicable Obligations under the Indenture; and
(2) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing.
Defaults
An Event of Default is defined in the Indenture as:
(i) a default in the payment of interest (including Liquidated
Damages, if any), on the exchange debentures when due, continued for 30
days;
(ii) (a) default in the payment of principal of, or premium, if any,
on any exchange debenture when due at its Stated Maturity, upon redemption,
required repurchase, declaration of acceleration or otherwise or
(b) the failure to redeem or purchase exchange debentures when
required pursuant to the Exchange Debenture Indenture;
(iii) the failure by us to comply with our obligations under
"-- Covenants -- Change of Control";
(iv) the failure by us to comply with our other agreements contained
in the exchange debentures or the Indenture, and such failure or event of
default continues for 60 days after notice (except in the case of a default
with respect to the "-- Covenants -- Limitations on Mergers and
Consolidations" covenant, which shall constitute an Event of Default with
such notice requirement but without such passage of time requirement)
(whether or not prohibited by the provisions of the Indenture described
under "-- Subordination");
(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness us or any of our Restricted Subsidiaries (or the payment of
which is guaranteed by us or any of our Restricted Subsidiaries) whether
such Indebtedness or guarantee now exists, or is created after the date of
the Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the date of
such default unless being contested in good faith by appropriate
proceedings (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the
principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $20.0
million or more;
(vi) failure by us or any of our Restricted Subsidiaries to pay final
judgments aggregating in excess of $20.0 million, which judgments are not
paid, discharged or stayed for a period of 30 days; or
(vii) certain events of bankruptcy or insolvency with respect to us or
any of our Significant Subsidiaries or group of Restricted Subsidiaries
that, taken together (as of the latest audited consolidated financial
statements for us and our Subsidiaries), would constitute a Significant
Subsidiary.
However, a default under clause (v) will not constitute an Event of Default
until the Trustee provides a written notice to us, or the holders of 25% in
aggregate principal amount of the outstanding exchange debentures provide a
written notice to us and the Trustee, of the default and we do not cure such
default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing with respect to the
Indenture (other than certain events of bankruptcy, insolvency or
reorganization), the Trustee or the holders of not less than 25% in
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principal amount of the exchange debentures outstanding may declare the
principal of and premium, if any, and accrued but unpaid interest (including
Liquidated Damages, if any) on all the exchange debentures to be due and
payable. Upon such a declaration, such principal, premium, if any, and interest
(including Liquidated Damages, if any) will be due and payable immediately.
If an Event of Default relating to certain events of bankruptcy, insolvency
or reorganization occurs and is continuing, the principal of and premium, if
any, and interest (including Liquidated Damages, if any) on the exchange
debentures will become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holders of the
exchange debentures.
The amount due and payable on the acceleration of any exchange debenture
will be equal to 100% of the principal amount of such exchange debenture, plus
accrued and unpaid interest (including Liquidated Damages, if any) to the date
of payment.
Under certain circumstances, the holders of a majority in principal amount
of the outstanding exchange debentures may rescind any such acceleration with
respect to the exchange debentures and its consequences.
No holder of an exchange debenture may pursue any remedy under the
Indenture unless
(1) the Trustee shall have received written notice of a continuing
Event of Default,
(2) the Trustee shall have received a request from holders of at least
25% in principal amount of exchange debentures to pursue such remedy,
(3) the Trustee shall have been offered indemnity reasonably
satisfactory to it and
(4) the Trustee shall have failed to act for a period of 60 days after
receipt of such notice and offer of indemnity;
however, such provision does not affect the right of a holder of an exchange
debenture to sue for enforcement of any overdue payment thereon.
Subject to certain restrictions, the holders of a majority in aggregate
principal amount of the outstanding exchange debentures are given the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or of exercising any trust or power conferred on the
Trustee. The Trustee, however, may refuse to follow any direction that conflicts
with law or the Indenture or that the Trustee determines is unduly prejudicial
to the rights of any other holder of an exchange debenture or that would involve
the Trustee in personal liability. Subject to the provisions of the Indenture
relating to the duties of the Trustee in case an Event of Default occurs and is
continuing, the Trustee will be under no obligation to exercise any of the
rights or powers under the Indenture at the request or direction of any of the
holders of the exchange debentures unless such holders have offered to the
Trustee reasonable indemnity or security against any loss, liability or expense.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the exchange
debentures notice of the Default within 90 days after it occurs. Except in the
case of a Default in the payment of principal of or interest on any exchange
debenture, the Trustee may withhold notice if and so long as a committee of its
trust officers determines that withholding notice is not opposed to the interest
of the holders of the exchange debentures. In addition, we are required to
deliver to the Trustee, within 120 days after the end of each fiscal year, a
certificate indicating whether the signers thereof know of any Default that
occurred during the previous year. We also are required to deliver to the
Trustee, within five Business Days after the occurrence thereof, written notice
of a Default or an Event of Default, its status and what action we are taking or
proposes to take in respect thereof.
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Amendments and Waivers
Subject to certain exceptions, we and the Trustee may amend the Indenture
with the consent of the holders of a majority in aggregate principal amount of
the exchange debentures then outstanding (including consents obtained in
connection with a tender offer or exchange offer for the exchange debentures)
and any past Default or Event of Default or compliance with any provisions may
also be waived with the consent of the holders of a majority in aggregate
principal amount of the exchange debentures then outstanding. However, without
the consent of each holder of an outstanding exchange debenture affected
thereby, no amendment may, among other things,
- change the Stated Maturity of the principal of, or any installment of
interest on, any exchange debenture, or reduce the principal amount
thereof (or premium, if any) due upon maturity thereof, or the interest
thereon that would be due and payable thereon, or change the place of
payment where, or the coin or currency in which, any exchange debenture
or any premium or interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
Stated Maturity thereof,
- reduce the percentage in principal amount at Stated Maturity of the
outstanding exchange debentures, the consent of whose holders is
necessary for any such supplemental indenture or required for any waiver
of compliance with certain provisions of the Indenture, or certain
Defaults thereunder,
- modify our Obligations to make offers to purchase exchange debentures
upon a Change of Control, or
- modify any of the provisions of this paragraph (except to increase any
percentage set forth herein).
Without the consent of any holder of the exchange debentures, we and the
Trustee may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of our
obligations under the Indenture, to provide for uncertificated exchange
debentures in addition to or in place of certificated exchange debentures
(provided that the uncertificated exchange debentures are issued in registered
form for purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated exchange debentures are described in Section 163(f)(2)(B) of the
Code), to add guarantees with respect to the exchange debentures, to provide
security for the exchange debentures, to add to our covenants for the benefit of
the holders of the exchange debentures or to surrender any right or power
conferred upon us, to make any change that does not adversely affect the rights
of any holder of the exchange debentures or to comply with any requirement of
the SEC in connection with the qualification of the Indenture under the Trust
Indenture Act.
The consent of the holders of the exchange debentures is not necessary
under the Indenture to approve the particular form of any proposed amendment. It
is sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, we are required to
mail to holders of the exchange debentures a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the
exchange debentures, or any defect therein, will not impair or affect the
validity of the amendment.
Defeasance
We at any time may terminate all of our obligations under the exchange
debentures and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the exchange debentures, to replace
mutilated, destroyed, lost or stolen exchange debentures and to maintain a
registrar and paying agent in respect of the exchange debentures and except for
its optional redemption rights. We at any time may terminate our repurchase
obligations under the covenants described under "-- Covenants" (other than the
covenant described under "-- Limitations on Mergers and Consolidations"), the
operation of the cross acceleration
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provision, the bankruptcy provisions with respect to Significant Subsidiaries
and the judgment default provision described under "-- Defaults" above
("covenant defeasance").
We may exercise our legal defeasance option notwithstanding our prior
exercise of our covenant defeasance option. If we exercise our legal defeasance
option, payment of the exchange debentures may not be accelerated because of an
Event of Default with respect thereto. If we exercise our covenant defeasance
option, payment of the exchange debentures may not be accelerated because of an
Event of Default specified in clause (iii) (other than the covenant described
under "-- Limitations on Mergers and Consolidations") or (v) under "-- Defaults"
above. If we exercise our legal defeasance option, we will be released from all
of our obligations with respect to the exchange debentures.
In order to exercise either defeasance option, we must irrevocably deposit
in trust (the "defeasance trust") with the Trustee money or U.S. Government
Obligations for the payment of principal, premium, if any, and interest
(including Liquidated Damages, if any) on the exchange debentures to redemption
or maturity, as the case may be, and must comply with certain other conditions,
including delivery to the Trustee of an opinion of counsel to the effect that
holders of the exchange debentures will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and defeasance and will
be subject to federal income tax on the same amounts and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law).
Concerning the Trustee
U.S. Trust Company, N.A. will be the Trustee under the Indenture and has
been appointed by us as Registrar and Paying Agent with regard to the exchange
debentures.
The holders of a majority in aggregate principal amount of the outstanding
exchange debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that if an Event of
Default occurs (and is not cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent Person in the conduct of
its own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any holder of exchange debentures, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense and then only to the extent required by the terms of
the Indenture.
Governing Law
The Indenture provides that the Indenture and the exchange debentures will
be governed by, and construed in accordance with, the laws of the State of New
York without giving effect to applicable principles of conflicts of law, except
to the extent that the application of the law of another jurisdiction would be
required thereby.
Consent to Jurisdiction and Service
The Indenture will provide that we will appoint CT Corporation System as
our agent for actions brought under federal or state securities laws brought in
any federal or state court located in the Borough of Manhattan in The City of
New York and will submit to such jurisdiction.
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Certain Definitions
The following is a summary of certain defined terms to be used in the
Indenture. Reference is made to the Indenture for the full definition of all
these terms and for the definitions of other capitalized terms used in this
description of the exchange debentures and not defined below.
"Board of Directors" means the Board of Directors of a Person or any
committee thereof duly authorized to act on behalf of such Board.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, rights to purchase, warrants or options (whether or not currently
exercisable), participations or other equivalents of or interests in (however
designated) the equity (which includes, but is not limited to, common stock,
preferred stock and partnership and joint venture interests) of such Person
(excluding any debt securities that are convertible into, or exchangeable for,
such equity).
"Capitalized Lease Obligations" of any Person means any obligation of such
Person to pay rent or other amounts under a lease of property, real or personal,
that is required to be capitalized for financial reporting purposes in
accordance with generally accepted accounting principles and the amount of such
obligation shall be the capitalized amount thereof determined in accordance with
GAAP.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Net Income" means, for any period, the net income of our
company and our consolidated subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(a) any net income of any Person if such Person is not a Restricted
Subsidiary, except that (1) our equity in the net income of any such Person
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Person during such
period to us or a Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to a Restricted
Subsidiary, to the limitations contained in clause (c) below) and (2) our
equity in a net loss of any such Person for such period shall be included
in determining such Consolidated Net Income;
(b) any net income of any Person acquired by us or a Restricted
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(c) any net income of any Restricted Subsidiary to the extent such
Restricted Subsidiary is subject to restrictions, directly or indirectly,
on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to us, except that (1) the
net income of Cliffs Drilling Company shall be included notwithstanding the
foregoing, (2) the net income of a Restricted Subsidiary shall be included
to the extent such net income could be paid to us or a Restricted
Subsidiary by loans, advances, intercompany transfers, principal repayments
or otherwise, (3) our equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Restricted Subsidiary during such period to us or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to another Restricted Subsidiary, to the
limitation contained in this clause) and (4) our equity in a net loss of
any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income;
(d) any gain (but not loss) realized upon the sale or other
disposition of any property, plant or equipment of our company or our
consolidated subsidiaries (including pursuant to any sale-and-leaseback
arrangement) which is not sold or otherwise disposed of in the ordinary
course of business and any gain (but not loss) realized upon the sale or
other disposition of any Capital Stock of any Person;
(e) extraordinary, unusual or nonrecurring charges;
(f) charges relating to the extinguishment of debt obligations of R&B
Falcon Holdings Inc.; and
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(g) the cumulative effect of a change in accounting principles.
"Default" means any act, event or condition which is, or after notice or
passage of time or both would be, an Event of Default.
"Designated Senior Debt" as to us, means any Senior Debt which has at the
time of initial issuance an aggregate principal amount outstanding or available
under a committed facility in excess of $20 million and which has been so
designated as Designated Senior Debt by our Board of Directors at the time of
initial issuance or the Exchange Date in a resolution delivered to the Trustee.
"Exchangeable Stock" means any Capital Stock that is exchangeable or
convertible, at the option of the holder thereof, into another security (other
than our Capital Stock which is neither Exchangeable Stock nor Redeemable
Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Hedging Obligations" of any Person means the net obligation (not the
notional amount) of such Person pursuant to any interest rate swap agreement,
foreign currency exchange agreement, interest rate collar agreement, option or
futures contract or other similar agreement or arrangement relating to interest
rates or foreign exchange rates.
"Incur" means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning.
"Indebtedness" of any Person at any date means, without duplication:
(1) all indebtedness of such Person for borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such Person or
only to a portion thereof),
(2) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments,
(3) all obligations of such Person in respect of letters of credit or
other similar instruments (or reimbursement obligations with respect
thereto), other than standby letters of credit and performance bonds issued
by such Person in the ordinary course of business, to the extent not drawn
or, to the extent drawn, if such drawing is reimbursed not later than the
third business day following demand for reimbursement,
(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, except trade payables and accrued
expenses incurred in the ordinary course of business,
(5) all Capitalized Lease Obligations of such Person,
(6) all Indebtedness of others secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person, to the
extent of the fair market value of all the assets of such Person subject to
such Lien,
(7) all Indebtedness of others guaranteed by such Person to the extent
of such guarantee,
(8) Redeemable Stock, and
(9) all Hedging Obligations of such Person.
"Insolvency or Liquidation Proceedings" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding, relative to us or to our creditors, as
such, or our other assets, or (ii) any liquidation, dissolution, reorganization
or winding up of
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our company, whether voluntary or involuntary, and involving insolvency or
bankruptcy, or (iii) any assignment for the benefit of creditors or any other
marshalling of our assets and liabilities.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. The amount of an Investment shall be
the original cost of such Investment, plus the cost of all additions thereto and
minus the amount of any such portion of such Investment repaid to such Person as
a repayment of principal or a return of capital, as the case may be.
"Investment Grade Rating" means BBB- or above, in the case of S&P (or its
equivalent under any successor rating categories of S&P), Baa3 or above, in the
case of Moody's (or its equivalent under any successor rating categories of
Moody's), and the equivalent in respect of the ratings categories of any Rating
Agencies substituted for S&P or Moody's.
"Moody's" is defined to mean Moody's Investor Service, Inc. and its
successors.
"Non-Convertible Capital Stock" means, with respect to any Person, any
non-convertible Capital Stock of such Person and any Capital Stock of such
Person convertible solely into non-convertible common stock of such Person;
provided, however, that Non-Convertible Capital Stock shall not include any
Redeemable Stock or Exchangeable Stock.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"preferred stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"Public Equity Offering" means any underwritten public offering of shares
of our common stock (however designated and whether voting or non-voting) of and
any and all rights, warrants or options to acquire such common stock pursuant to
an effective registration statement (other than a registration statement on Form
S-4 or S-8) filed with the SEC in accordance with the Securities Act.
"Rating Agencies" means (a) S&P and Moody's or (b) if S&P or Moody's or
both of them are not making ratings of our 12 1/4% Senior Notes due 2006
publicly available, a nationally recognized U.S. rating agency or agencies, as
the cases may be, selected by us, which will be substituted for S&P or Moody's
or both, as the case may be.
"Redeemable Stock" means, with respect to the exchange debentures, any
Capital Stock that, by its terms (or by the terms of any security into which it
is convertible, or for which it is exchangeable, in each case at the option of
the holder thereof), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the date on which the exchange debentures mature. Notwithstanding the
preceding sentence, any Capital Stock that would constitute Redeemable Stock
solely because the holders thereof have the right to require us to repurchase
such Capital Stock upon the occurrence of a change of control or an asset sale
shall not constitute Redeemable Stock if the terms of such Capital Stock provide
that we may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenants
described above under the caption "-- Covenants -- Change of Control," and
"-- Covenants -- Limitation on Restricted Payments."
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"Reorganization Securities" means securities distributed to the holders of
the exchange debentures in an Insolvency or Liquidation Proceeding pursuant to a
plan of reorganization consented to by each class of the Senior Debt, but only
if all of the terms and conditions of such securities (including, without
limitation, term, tenor, interest, amortization, subordination, standstills,
covenants and defaults) are at least as favorable (and provide the same relative
benefits) to the holders of Senior Debt and to the holders of any security
distributed in such Insolvency or Liquidation Proceeding on account of any such
Senior Debt as the terms and conditions of the exchange debentures and the
Indenture are and provide to the holders of the Senior Debt.
"Representative" means the trustee, agent or representative for any Senior
Debt.
"Restricted Subsidiary" means any Subsidiaries other than an Unrestricted
Subsidiary.
"S&P" means Standard & Poors Ratings Group, a division of McGraw-Hill
Companies, Inc. and its successors.
"Senior Debt" means the principal of and premium, if any, and interest
(including post-petition interest) on, and any and all other fees, expense
reimbursement obligations and other amounts due pursuant to the terms of all
agreements, documents and instruments providing for, creating, securing or
evidencing or otherwise entered into in connection with (a) all of our
Indebtedness owed to lenders under any credit facility, (b) all of our
obligations with respect to any interest rate agreement or any currency
agreement, (c) all of our obligations to reimburse any bank or other person in
respect of amounts paid under letters of credit, banker's acceptances or other
similar instruments, (d) all of our other Indebtedness which does not provide
that it is to rank in right of payment pari passu with or subordinate to the
Exchange Debentures, and (e) all deferrals, renewals, extensions and refundings
of, and amendments, modifications and supplements to, any of the Senior Debt
described above. Notwithstanding anything to the contrary in the foregoing,
Senior Debt will not include (i) our Indebtedness to any of our Subsidiaries,
(ii) Indebtedness represented by the Exchange Debentures, (iii) any Indebtedness
which by the express terms of the agreement or instrument creating, evidencing
or governing the same is junior or subordinate in right of payment to any item
of Senior Debt (including, without limitation, Indebtedness represented by
Redeemable Stock), (iv) any trade payable arising from the purchase of goods or
materials or for services obtained in the ordinary course of business, or (v)
any Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is without recourse to such
Person.
"Significant Subsidiary" means any Restricted Subsidiary that would be our
"Significant Subsidiary" within the meaning of Rule 1-02 under Regulation S-X
promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any of our Indebtedness (whether
outstanding on the Exchange Date or thereafter Incurred), which is subordinate
or junior in right of payment to the exchange debentures, whether pursuant to a
written agreement to that effect or by operation of law.
"Subsidiary" means, with respect to any Person:
(1) any corporation of which more than 50% of the total voting power
of all classes of the Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors is
owned by such Person directly or through one or more other Subsidiaries of
such Person, and
(2) any entity other than a corporation of which at least a majority
of the Capital Stock or other equity interest (however designated) entitled
(without regard to the occurrence of any contingency) or vote in the
election of the governing body, partners, managers or others that will
control the
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management of such entity is owned by such Person directly or through one
or more other Subsidiaries of such Person.
"Unrestricted Subsidiary" means:
(a) any Subsidiary of ours that at the time of determination will be
designated an Unrestricted Subsidiary by our Board of Directors as provided
below and
(b) any Subsidiary of an Unrestricted Subsidiary.
Our Board of Directors may designate any Subsidiary of ours as an
Unrestricted Subsidiary so long as after giving effect thereto, such designation
was permitted by the "Limitation on Restricted Payments" covenant. Any such
designation by our Board of Directors shall be evidenced to the Trustee by
filing a resolution of the Board of Directors with the Trustee giving effect to
such designation. Our Board of Directors may designate any Unrestricted
Subsidiary as a Restricted Subsidiary if, immediately after giving effect to
such designation, no Default or Event of Default shall occur and be continuing.
Notwithstanding any covenant herein, any Subsidiary that is an "Unrestricted
Subsidiary" on the Exchange Date pursuant to the indentures governing our
outstanding indebtedness shall be an Unrestricted Subsidiary hereunder.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at our option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
DESCRIPTION OF CERTAIN PROVISIONS APPLICABLE TO ALL OF THE SECURITIES
Book-Entry, Delivery and Form
For purposes of the following description of the book-entry, delivery and
form provisions of the preferred stock and the exchange debentures underlying
the preferred stock, references to "Global Certificates" shall mean registered,
global certificates representing the preferred stock on and prior to the
Exchange Date and the exchange debentures after the Exchange Date, as the
context indicates, and references to "Global Securities" shall mean the
preferred stock and the exchange debentures underlying the preferred stock, as
the context indicates, as represented by the Global Certificates.
The new preferred stock will be issued initially only as registered
securities in the form of one or more registered Global Certificates without
coupons. Upon issuance, the Global Certificates will be deposited with The
Depository Trust Company ("DTC"), in New York, New York, and registered in the
name of DTC or its nominee, in each case for credit to the accounts of DTC's
Direct and Indirect Participants (as defined).
The Global Securities may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Securities may be
exchanged for Securities in certificated form in certain limited circumstances.
See "-- Transfer of Interests in Global Securities for Certificated Securities."
The preferred stock may be presented for registration of transfer and
exchange at the offices of the Transfer Agent and the exchange debentures after
the Exchange Date may be presented for registration of transfer and exchange at
the offices of the Trustee.
Depositary Procedures
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the "Direct
Participants") and to facilitate the clearance and
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settlement of transactions in those securities between Direct Participants
through electronic book-entry changes in accounts of Participants. The Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations, including Euroclear and
Cedel. Access to DTC's system is also available to other entities that clear
through or maintain a direct or indirect, custodial relationship with a Direct
Participant (collectively, the "Indirect Participants" and together with the
Direct Participants, the "Participants"). DTC may hold securities beneficially
owned by other persons only through the Direct Participants or Indirect
Participants and such other persons' ownership interest and transfer of
ownership interest will be recorded only on the records of the Direct
Participant and/or Indirect Participant, and not on the records maintained by
DTC.
DTC has also advised us that, pursuant to DTC's procedures, (i) upon
deposit of the Global Securities, DTC will credit the accounts of the Direct
Participants with portions of the issued amount of the Global Securities
issuable upon exchange of the outstanding preferred stock to such Direct
Participants, and (ii) DTC will maintain records of the ownership interests of
such Direct Participants in the Global Securities and the transfer of ownership
interests by and between Direct Participants. DTC will not maintain records of
the ownership interests of, or the transfer of ownership interests by and
between, Indirect Participants or other owners of beneficial interests in the
Global Securities. Direct Participants and Indirect Participants must maintain
their own records of the ownership interests of, and the transfer of ownership
interests by and between, Indirect Participants and other owners of beneficial
interests in the Global Securities.
Investors in the Global Securities may hold their interests therein
directly through DTC if they are Direct Participants in DTC or indirectly
through organizations that are Direct Participants in DTC.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a Global Security to
such persons. Because DTC can act only on behalf of Direct Participants, which
in turn act on behalf of Indirect Participants and others, the ability of a
person having a beneficial interest in a Global Security to pledge such interest
to persons or entities that are not Direct Participants in DTC, or to otherwise
take actions in respect of such interests, may be affected by the lack of
physical certificates evidencing such interests. For certain other restrictions
on the transferability of the Securities see "-- Transfers of Interests in
Global Securities for Certificated Securities."
Except as described in "-- Transfers of Interests in Global Securities for
Certificated Securities," owners of beneficial interests in the Global
Securities will not have Securities registered in their names, will not receive
physical delivery of Securities in certificated form and will not be considered
the registered owners or holders thereof under the certificate of designation or
the Indenture for any purpose.
Under the terms of the certificate of designation for the preferred stock
and the Indenture for the exchange debentures, we and the transfer agent or the
Trustee, as applicable, will treat the persons in whose names the Securities are
registered (including Securities represented by Global Securities) as the owners
thereof for the purpose of receiving payments and for any and all other purposes
whatsoever. Payments in respect of the liquidation preference, principal,
interest, Liquidated Damages, if any, and dividends on Global Certificates
registered in the name of DTC or its nominee will be payable by the transfer
agent or the Trustee, as applicable, to DTC or its nominee as the registered
holder. Neither we, the transfer agent or the Trustee nor an agent of any of
them has or will have any responsibility or liability for (i) any aspect of
DTC's records or any Direct Participant's or Indirect Participant's records
relating to or payments made on account of beneficial ownership interests in the
Global Securities or for maintaining, supervising or reviewing any of DTC's
records or any Direct Participant's or Indirect Participant's records relating
to the beneficial ownership interests in any Global Security or (ii) any other
matter relating to the actions and practices of DTC or any of its Direct
Participants or Indirect Participants.
DTC has advised us that its current payment practice (for payments of
principal, interest and the like) with respect to securities such as the
Securities is to credit the accounts of the relevant Direct Participants with
such payment on the payment date in amounts proportionate to such Direct
Participant's
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respective ownership interests in the Global Securities as shown on DTC's
records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the Securities will be governed by standing instructions
and customary practices between them and will not be the responsibility of DTC,
the transfer agent, the Trustee or us. None of the Transfer Agent, the Trustee
or us will be liable for any delay by DTC or its Direct Participants or Indirect
Participants in identifying the beneficial owners of the Securities, and the
Transfer Agent, the Trustee and our company may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee as the registered
owner of the Securities for all purposes.
Interests in the Global Securities are expected to be eligible to trade in
DTC's Same-Day Funds Settlement System and, therefore, transfers between Direct
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in immediately available funds. Transfers between Indirect
Participants who hold an interest through a Direct Participant will be effected
in accordance with the procedures of such Direct Participant but generally will
settle in immediately available funds.
DTC has advised us that it will take any action permitted to be taken by a
holder of Securities only at the direction of one or more Direct Participants to
whose account interests in the Global Securities are credited and only in
respect of such portion of the aggregate principal amount of the Securities as
to which such Direct Participant or Direct Participants has or have given
direction. However, DTC reserves the right to exchange Global Certificates
(without the direction of one or more of its Direct Participants) for legended
Securities in certificated form, and to distribute such certificated forms of
Securities to its Direct Participants. See "-- Transfers of Interests in Global
Securities for Certificated Securities."
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Securities among Direct Participants, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of us, the transfer agent or
the Trustee will have any responsibility for the performance by DTC or its
respective Direct and Indirect Participants of their respective obligations
under the rules and procedures governing any of their operations.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that we believe to be reliable, but we take no
responsibility for the accuracy thereof.
Transfers of Interests in Global Securities for Certificated Securities
An entire Global Security may be exchanged for definitive Securities in
registered, certificated form ("Certificated Securities") if (i) DTC (x)
notifies us that it is unwilling or unable to continue as depositary for the
Global Securities and we thereupon fail to appoint a successor depositary within
90 days or (y) has ceased to be a clearing agency registered under the Exchange
Act, or (ii) we, at our option, notify the transfer agent or the Trustee in
writing that we elect to cause the issuance of Certificated Securities. In any
such case, we will notify the transfer agent or the Trustee in writing that,
upon surrender by the Direct and Indirect Participants of their interest in such
Global Security, Certificated Securities will be issued to each person that such
Direct Participants and DTC identify as being the beneficial owner of the
related Securities.
Beneficial interests in Global Securities held by any Direct or Indirect
Participant may be exchanged for Certificated Securities (for itself or on
behalf of an Indirect Participant), but only upon at least 20 days' prior
written notice given to the transfer agent or the Trustee, as applicable, by or
on behalf of DTC in accordance with customary DTC procedures. Certificated
Securities delivered in exchange for any beneficial interest in any Global
Security will be registered in the names, and issued in any approved
denominations, requested by DTC on behalf of such Direct or Indirect
Participants (in accordance with DTC's customary procedures).
None of us, the Transfer Agent or the Trustee will be liable for any delay
by the holder of the Global Securities or DTC in identifying the beneficial
owners of Securities, and we, the Transfer Agent and the
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Trustee may conclusively rely on, and will be protected in relying on,
instructions from the holder of the Global Security or DTC for all purposes.
Same Day Settlement and Payment
Each of the certificate of designation for the preferred stock and the
Indenture for the exchange debentures requires that payments in respect of the
Securities represented by the Global Securities (including distributions,
dividends, interest and Liquidated Damages, if any) be made by wire transfer of
immediately available funds to the accounts specified by the holder of such
Global Security. With respect to Certificated Securities, we will make all
payments of distributions, dividends, interest and Liquidated Damages, if any,
by wire transfer of immediately available funds to the accounts specified by the
holders thereof or, if no such account is specified, by mailing a check to each
such holder's registered address. We expect that secondary trading in the
Certificated Securities will also be settled in immediately available funds.
DESCRIPTION OF SIGNIFICANT INDEBTEDNESS
BANK FACILITIES
Cliffs Drilling currently maintains a $35 million revolving credit facility
that matures May 31, 2000. At March 31, 1999, Cliffs Drilling had $0.4 million
in letters of credit outstanding, leaving $34.6 million available under this
credit facility.
R&B FALCON NOTES
In April 1998, we issued four series of the senior notes with an aggregate
principal amount of $1.1 billion. As a result, we received net proceeds of
$1,082 million after deducting estimated offering related expenses. These senior
notes bear interest at varying rates from 6.5% to 7.375%. Interest on these
senior notes is payable semiannually on April 15 and October 15; and they mature
at varying times from 2003 to 2018. These senior notes are unsecured
obligations, ranking equally in right of payment with all of our other existing
and future senior unsecured indebtedness. We used the proceeds from the offering
of these senior notes to repay indebtedness of $874.4 million. We used the
remainder of the net proceeds for planned capital expenditures, working capital
and other general corporate purposes.
In December 1998, we issued $100 million principal amount of our 9 1/8%
Senior Notes due 2003 and $300 million principal amount of our 9 1/2% Senior
Notes due 2008. Interest on these senior notes is payable semiannually on June
15 and December 15. These senior notes are unsecured obligations, ranking
equally in right of payment with all of our other existing and future senior
unsecured indebtedness. We received net proceeds from the issuance of these
senior notes of approximately $392 million, after deducting estimated offering
related expenses. We used the proceeds from the offering of these notes to
reduce borrowings under our then existing revolving credit facility.
On March 26, 1999, we issued the $200 million of 12 1/4% Senior Notes due
2006. Also on that date, RBF Finance Co., a limited purpose finance company
affiliated with us, issued $400 million of its 11% Senior Secured Notes due 2006
and $400 million of its 11 3/8% Senior Secured Notes due 2009. We borrowed the
proceeds from these notes from RBF Finance Co. in ten separate loans, each of
which is secured by one of our drilling rigs or the construction contract to
build a drilling rig. We also guaranteed the notes that RBF Finance Co. issued.
We are using the proceeds from the loans from RBF Finance Co. to finance the
costs of acquiring, constructing, repairing and improving the drilling rigs that
are security for the loans. To the extent we have already paid these costs, we
are using the proceeds for general corporate purposes, including the repayment
of debt. We are using the net proceeds from our offering of the $200 million
Senior Notes for general corporate purposes, including the repayment of debt.
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CLIFFS DRILLING NOTES
Cliffs Drilling has outstanding an aggregate principal amount of $200.0
million of its 10 1/4% Senior Notes due 2003 and debt premium, net of
amortization, of $2.8 million as of March 31, 1999. Interest on the Cliffs
Drilling notes is payable semi-annually during each May and November. The Cliffs
Drilling notes are unconditionally guaranteed on a senior unsecured basis by
some of Cliffs Drilling's subsidiaries, which guarantees rank equally in right
of payment with all senior indebtedness of these subsidiary guarantors and
senior to all subordinated indebtedness of these subsidiary guarantors. The
Cliffs Drilling notes are redeemable on or after May 15, 2000 at a declining
premium.
The indenture under which the Cliffs Drilling notes are issued imposes
significant operating and financial restrictions on Cliffs Drilling. These
restrictions affect, and in many respects limit or prohibit, the ability of
Cliffs Drilling to incur additional indebtedness, make capital expenditures,
create liens, sell assets, make dividends or other payments and take other
actions.
UNITED STATES FEDERAL TAX CONSEQUENCES
The following summary describes the anticipated material U.S. federal
income tax consequences of the exchange of new preferred stock for outstanding
preferred stock pursuant to the exchange offer and the ownership and disposition
of the new preferred stock by U.S. Holders (as defined below). This discussion
does not purport to be a complete analysis of all potential tax considerations
to holders of the new preferred stock. Except where noted, it deals only with
new preferred stock and exchange debentures held as capital assets within the
meaning of Section 1221 of the Code and purchasers who purchased their
outstanding preferred stock from the initial purchaser. We intend to treat the
exchange debentures as indebtedness for federal income tax purposes, and the
balance of this discussion is based on the assumption that such treatment will
be respected. This summary does not address all aspects of the U.S. federal
income tax consequences that may be relevant to a particular holder that is
subject to special tax rules, such as persons that own in excess of 10 percent
of our stock, dealers of securities or currencies, financial institutions,
tax-exempt organizations, life insurance companies, persons subject to the
alternative minimum tax, persons holding new preferred stock or exchange
debentures as a part of a hedging or conversion transaction or a straddle, U.S.
Holders whose "functional currency" is not the U.S. dollar and non-United States
persons, including foreign corporations and nonresident aliens, some of which
may be subject to special rules. Furthermore, the summary is limited solely to
U.S. federal income tax matters and is based upon the Code and Treasury
Regulations, including the OID Regulations, administrative ruling and judicial
decisions thereunder all as of the date hereof, and all of which are subject to
change (possibly on a retroactive basis) or different interpretation. In
particular, potential investors should be aware that certain relevant provisions
of the Code have not been subject to definitive interpretation by the IRS or the
courts. We have not sought, nor do we intend to seek, a ruling from the IRS as
to any of the matters covered by this discussion, and there can be no assurance
that the IRS will not successfully challenge the conclusions reached in this
discussion. This discussion does not address the effect of any foreign, state,
local or other tax laws or estate or gift tax considerations.
Because we may pay dividends on the new preferred stock by distributing
additional shares of preferred stock, compliance with U.S. federal withholding
tax rules would be difficult with respect to investors who are not U.S. Holders.
BECAUSE THE U.S. FEDERAL INCOME TAX CONSEQUENCES DISCUSSED BELOW DEPEND
UPON EACH HOLDER'S PARTICULAR TAX STATUS, AND DEPEND FURTHER UPON U.S. FEDERAL
INCOME TAX LAWS, REGULATIONS, RULINGS AND DECISIONS WHICH ARE SUBJECT TO CHANGE
(WHICH CHANGES MAY BE RETROACTIVE IN EFFECT), HOLDERS OF OUTSTANDING PREFERRED
STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX
CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NEW PREFERRED
STOCK OR EXCHANGE DEBENTURES.
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CERTAIN DEFINITIONS
"AFR" means the applicable federal rate, as of the relevant time,
determined under Section 1274(d) of the Code and published monthly by the IRS.
"Code" means the U.S. Internal Revenue Code of 1986, as amended and in
effect as of the date hereof.
"IRS" means the U.S. Internal Revenue Service.
"OID" means original issue discount as defined and used in Part V of
Subchapter P of Chapter 1 of the Code (Sections 1271 through 1288) and the
Treasury Regulations thereunder.
"OID Debentures" means any Exchange Debentures issued with original issue
discount.
"OID Regulations" means any final, temporary and proposed Treasury
Regulations published or promulgated under the Code that address debt
obligations issued with OID.
"U.S. Holder" means a beneficial owner of the preferred stock or exchange
debentures that is a citizen or resident of the United States, or any state
thereof, a corporation, limited liability company, partnership (unless Treasury
Regulations provide otherwise) or other entity created or organized in or under
the laws of the U.S. or any political subdivision thereof, an estate the income
of which is subject to U.S. federal income taxation regardless of its source or
a trust if both (i) a court within the U.S. is able to exercise primary
supervision over the administration of such trust and (ii) one or more U.S.
persons have the authority to control all substantial decisions of such trust.
Notwithstanding the preceding sentence, to the extent provided in Treasury
Regulations, certain trusts in existence on August 20, 1996, and treated as a
United States person prior to such date, that elect to continue to be treated as
United States persons are also U.S. Holders.
ISSUANCE OF NEW PREFERRED STOCK
The issuance of the new preferred stock to holders of the outstanding
preferred stock pursuant to the terms set forth in this prospectus generally
should not be a taxable exchange for U.S. federal income tax purposes. We
believe that holders of outstanding preferred stock should not recognize any
taxable gain or loss or any income as a result of the exchange. For purposes of
determining gain or loss upon the subsequent sale or exchange of the new
preferred stock, a holder's basis in the new preferred stock should be the same
as such holder's basis in the outstanding preferred stock exchanged therefor.
Holders should be considered to have held the new preferred stock from the time
of their original acquisition of the outstanding preferred stock exchanged
therefor.
A holder who does not tender his outstanding preferred stock will not
recognize any gain or loss for U.S. federal income tax purposes from the
exchange offer.
PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED STOCK
Distributions on the Preferred Stock. Distributions of cash or, to the
extent of their fair market value on the distribution date, of additional shares
of preferred stock on the preferred stock will generally be treated as dividends
to U.S. Holders, taxable as ordinary income to the extent of our current and
accumulated earnings and profits as determined under U.S. federal income tax
principles. Accordingly, the fair market value of additional shares of preferred
stock that are received as a dividend is taxable currently as ordinary income to
a U.S. Holder, even though no cash is received with respect to such
distribution. We expect to have current earnings and profits for 1999. The
actual amount of our earnings and profits at any future time will of course
depend upon our actions and financial performance and there can be no assurance
that we will have current or accumulated earnings and profits in future years,
especially in light of our substantial obligation to fund interest on our debt.
If we have no current or accumulated earnings and profits for a taxable year in
which we made a distribution on the preferred stock, the distribution would be
treated as a non-taxable return of capital and reduce the adjusted tax basis of
the preferred stock in the hands of each U.S. Holder (but not below zero), thus
increasing the amount of any gain (or
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reducing the amount of any loss) which would otherwise be recognized by the U.S.
Holder upon the sale or other taxable disposition of the preferred stock. The
amount of any such distribution which exceeds the U.S. Holder's adjusted tax
basis of the preferred stock would be treated as long-term or short-term capital
gain depending on the holder's holding period for the preferred stock. The
initial tax basis of additional preferred stock distributed to a U.S. Holder
will equal the fair market value of such additional preferred stock at the time
of distribution. Accordingly, in the case of distributions of additional
preferred stock on the preferred stock, any basis reduction or gain recognition
will be offset by a corresponding increase in the tax basis of the additional
preferred stock.
Redemption Premium. We have both a mandatory and an optional right to
redeem the preferred stock. If, as we expect, the redemption price of the
preferred stock exceeds its issue price by more than a de minimis amount, such
excess (the "redemption premium") may be taxable to the holder as constructive
distributions of additional preferred stock on the preferred stock over the
period that the preferred stock cannot be called for redemption. We intend to
take the position that the issue price of the preferred stock is approximately
$840 per share. The amount of each constructive distribution would be based on
an economic accrual method, similar to that applicable to OID. See "OID
Debentures" under "Reporting of Interest and OID on the Exchange Debentures."
For this purpose, the redemption premium of a share of preferred stock will
generally be treated as zero if it is de minimis (i.e., less than one-quarter of
one percent of the redemption price multiplied by the number of completed years
from the date of issuance of the stock until the stock is to be redeemed). To
the extent a constructive distribution is treated as dividend (i.e., paid from
our current or accumulated earnings and profits), it will generally be taxable
currently as ordinary income (and will increase the U.S. Holder's adjusted tax
basis in the preferred stock), even though the U.S. Holder receives no cash
distribution. See "-- Distributions on the Preferred Stock" above. A holder
should not recognize taxable income or gain from a constructive distribution
(and the holder's basis in its preferred stock should not be adjusted) to the
extent it is not paid from our current or accumulated earnings and profits.
For purposes of determining the amount of the redemption premium,
redemption of the preferred stock will be deemed to occur at the mandatory
redemption price unless, based on all of the facts and circumstances when the
preferred stock is issued, the optional redemption is more likely than not to
occur. Under a regulatory "safe harbor" rule, our optional redemption right will
not be treated as more likely than not to occur if (i) we and the U.S. Holder
are not related, (ii) there are no plans, arrangements, or agreements that
effectively require or are intended to compel us to exercise the optional
redemption right (disregarding, a separate mandatory redemption) and (iii)
exercise of the right to redeem will not reduce the yield of the preferred
stock. Even if the optional redemption were determined more likely than not to
occur, the amount of the redemption premium is not based on the optional
redemption price if such redemption premium is solely in the nature of a penalty
for premature redemption. Based on these Treasury Regulations, we intend to take
the position that the existence of our optional redemption right does not result
in a constructive distribution to the U.S. Holders, and that our mandatory
redemption obligation will control the timing and the amount of the income that
a U.S. Holder of preferred stock will be required to include in gross income as
redemption premium. Because of the factual nature of this determination,
however, there can be no assurance that such treatment will be sustained.
Under the Treasury regulations a redemption premium will arise due to a
redemption feature relating to a change of control only if, (i) under the same
criteria discussed in the preceding paragraph, a change in control redemption is
more likely than not to occur and the redemption premium associated with such
redemption is other than solely in the nature of a penalty for premature
redemption, or (ii) triggering our obligation to redeem under the change of
control redemption feature is within the legal or practical control of the
holders of the preferred stock (or parties related thereto) and based on all the
facts and circumstances on the issue date such possibility of redemption is more
than remote. We believe that, under the foregoing criteria, the change of
control redemption feature does not give rise to a redemption premium, and
accordingly we will not report redemption premium associated with the change of
control redemption feature as a constructive distribution. However, because of
the factual nature of this determination, there can be no assurance that such
treatment will be sustained.
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The preferred stock provides for mandatory redemption at a redemption price
equal to the liquidation value of the preferred stock, plus accrued and unpaid
dividends. If at the time of issuance of the preferred stock, there were no
intention for dividends to be paid currently, the IRS could treat the payment of
such dividends on redemption as disguised additional redemption premium subject
to the constant yield rules discussed above. However, we intend to pay all
dividends currently on the preferred stock, either in cash or, on or before May
1, 2004, in additional shares of preferred stock. Thus, while the appropriate
treatment of unpaid cumulative dividends has not yet been addressed in Treasury
Regulations and no assurance can be given as to the outcome of such guidance, we
intend to take the position that the terms of the mandatory redemption should
not include any accrued and unpaid dividends in the stated redemption price nor
should any such accrued and unpaid dividends be treated as a constructive
distribution to the U.S. Holders prior to actually being paid.
In the event that the fair market value of any additional shares of
preferred stock that are distributed on the preferred stock issued in the
exchange offer (determined when the additional shares are issued) is less than
its redemption price, the additional preferred stock will have a redemption
premium that may be taxable as a constructive distribution to a U.S. Holder
(treated as a dividend to the extent of our current and accumulated earnings and
profits), under the constant yield method over the term commencing with the
issuance of such additional preferred stock and ending when this stock is
mandatorily redeemable. Such redemption premium on the additional shares of
preferred stock may differ from that attributable to the preferred stock issued
in the exchange offer (or from additional shares distributed on a different
date), resulting in the additional shares of preferred stock not being fungible
with the shares issued in the exchange offer (or with additional shares issued
on a different date).
Dividends-Received Deduction. Subject to certain exceptions and
restrictions, corporate U.S. Holders generally will be entitled to a
dividends-received deduction equal to 70 percent of the amount of any
distribution on the preferred stock (whether payable in cash or additional
preferred stock) that is treated as a dividend. The dividends-received deduction
nonetheless may be restricted or may result in other U.S. federal tax
consequences to the corporate U.S. Holder. For example, the dividends-received
deduction is reduced or eliminated for a corporate U.S. Holder that has
indebtedness "directly attributable" to its investment in the preferred stock or
fails to meet special holding period requirements. Also, if a distribution
equals or exceeds five percent of a corporate U.S. Holder's adjusted tax basis
in the preferred stock, the distribution may constitute an "extraordinary
dividend," requiring the corporate U.S. Holder to reduce its adjusted tax basis
in the preferred stock by the amount excluded from income as a result of the
dividends-received deduction. Moreover, 70 percent of the amount excluded from
income as a result of the dividends-received deduction will be included in the
computation of "adjusted current earnings," potentially affecting a corporate
U.S. Holder's liability for alternative minimum tax.
Extraordinary Dividends. Section 1059 of the Code requires a corporate
holder to reduce (but not below zero) its basis in the preferred stock by the
"nontaxed portion" of any "extraordinary dividend" if the holder has not held
such stock (subject to a risk of loss) for more than two years before the date
we declare, announce, or agree to, the amount or payment of such dividend,
whichever is earliest. A holder will recognize gain to the extent that the
nontaxed portion of such dividends exceeds the holder's basis in such stock.
Generally, the nontaxed portion of an extraordinary dividend is the amount
excluded from income by application of the dividends received deduction. An
extraordinary dividend on preferred stock, such as the preferred stock, is a
dividend that (i) equals or exceeds 5 percent of the holder's adjusted tax basis
in the stock, treating all dividends having ex-dividend dates within an 85-day
period as one dividend, or (ii) exceeds 20 percent of the holder's adjusted tax
basis in the stock, treating all dividends having ex-dividend dates within the
same 365-day period as one dividend. A stockholder may elect to determine
whether a dividend on the preferred stock is extraordinary by reference to the
fair market value of the stock on the day before the ex-dividend date (rather
than by reference to the stockholder's adjusted tax basis) for purposes of the 5
percent or 20 percent tests described above if the holder is able to establish
the fair market value of the preferred stock as of such date to the satisfaction
of the IRS. An extraordinary dividend may also include any amount treated as a
dividend in the case of a redemption that is either non-pro rata as to all
stockholders or in partial liquidation of our company, regardless of the
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relative size of the dividend and regardless of the corporate holder's holding
period for the preferred stock. The extraordinary dividend rules do not apply
with respect to certain "qualified preferred dividends." A qualified preferred
dividend is any fixed dividend payable with respect to preferred stock which (i)
provides for fixed preferred dividends payable no less often than annually, and
(ii) is not in arrears as to dividends when acquired, provided the actual rate
of return, as determined under Section 1059(e)(3) of the Code, does not exceed
15 percent. When a qualified preferred dividend exceeds the 5 percent (or 20
percent) threshold for extraordinary dividend status described above, (a) the
extraordinary dividend rules will not apply if the holder holds the stock for
more than five years, and (b) if the holder disposed of the stock before it has
been held for more than five years, the aggregate reduction in basis cannot
exceed the excess of the qualified preferred dividends paid on such stock during
the period held by the taxpayer over the qualified preferred dividends which
would have been paid during such period on the basis of the stated rate of
return, as determined under Section 1059(e)(3) of the Code. The length of time
that a taxpayer is deemed to have held stock is subject to various special rules
under the Code.
Based upon the anticipated issue price of the preferred stock, regular
quarterly distributions should not constitute extraordinary dividends. Under
certain circumstances, however, the redemption of the preferred stock for cash
or in exchange for exchange debentures may be treated as a distribution taxable
as a dividend. See "-- Sale, Redemption, Exchange for Exchange Debentures, or
Other Disposition of the Preferred Stock." To the extent any such redemption
constitutes a dividend, it is likely to constitute an "extraordinary dividend"
to a corporate holder. CORPORATE HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS
WITH RESPECT TO THE POSSIBLE APPLICATION OF SECTION 1059 OF THE CODE TO THEIR
OWNERSHIP AND DISPOSITION OF THE PREFERRED STOCK.
Sale, Redemption, Exchange for Exchange Debentures, or Other Disposition of
the Preferred Stock
A U.S. Holder will generally recognize capital gain or loss upon the sale
or other taxable disposition of preferred stock equal to the difference between
the amount of cash or the fair market value of non-cash consideration received
and the holder's adjusted tax basis in the preferred stock. A holder who
purchases a Unit in this offering will have an adjusted tax basis in the
preferred stock initially equal to the portion of the purchase price of the Unit
that is allocated to the preferred stock, or the fair market value of any
additional preferred stock that is received as a distribution, plus any amount
included in gross income as a constructive distribution or redemption premium
with respect to the preferred stock, and less the amount of any distribution
treated as a nontaxable return of capital that reduced the adjusted tax basis of
the preferred stock. See "-- Redemption Premium" and "-- Distributions on the
Preferred Stock." A redemption of the preferred stock for cash or an exchange of
the preferred stock for the exchange debentures will be treated, depending on
the facts and circumstances, either as a distribution of our stock or a taxable
exchange of the preferred stock. Any cash paid or exchange debentures issued
that are attributable to accrued dividends, however, will be treated in the same
manner as a distribution on the preferred stock. See "-- Distributions on the
Preferred Stock." A redemption or exchange of the preferred stock will be
treated as a taxable exchange of the preferred stock if it results in either a
complete termination or a "meaningful reduction" of the U.S. Holder's total
stock interest in our company, taking into account various constructive stock
ownership rules. If the redemption or exchange of the preferred stock does not
result in a complete termination or meaningful reduction (as defined for tax
purposes) of the U.S. Holder's stock interest in our company, the transaction
will be treated as a distribution on the preferred stock. See "-- Distributions
on the Preferred Stock." The amount of the distribution will equal the amount of
cash or the "issue price" of the exchange debentures received by the U.S. Holder
in exchange for the preferred stock (with no offset for any basis that the
holder has in its preferred stock). To the extent the distribution is treated as
a dividend, it will be taxable as ordinary income and may have a
dividends-received deduction, extraordinary dividend and/or alternative minimum
tax consequences to a corporate U.S. Holder. See "-- Distributions on the
Preferred Stock."
If the redemption of the preferred stock (or exchange of preferred stock
for exchange debentures) results in a complete termination or meaningful
reduction (as defined for tax purposes) of the U.S. Holder's stock interest in
our company, the U.S. Holder will generally recognize capital gain or loss
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equal to the difference between the "amount realized" by the U.S. Holder and its
adjusted tax basis in the preferred stock exchanged therefor. The amount
realized by a U.S. Holder, which excludes any amount attributable to cumulative
unpaid dividends, equals (i) the amount of cash or the fair market value of non-
cash consideration (other than exchange debentures) received in redemption of
the preferred stock, and (ii) the "issue price" of the exchange debentures
issued in exchange for the preferred stock. Determination of the "issue price"
of the exchange debentures will depend on (i) whether the preferred stock or the
exchange debentures are traded on an established securities market within the
meaning of the OID Regulations during the 60 day period ending 30 days after the
exchange date, or (ii) if they are not so traded, whether the yield on the
exchange debentures, as of the exchange date, is at least equal to the AFR. See
"-- Original Issue Discount" under "-- Ownership and Disposition of the Exchange
Debentures." It cannot be determined at the present time whether the preferred
stock or the exchange debentures will, at the relevant time, be traded on an
established securities market within the meaning of the OID Regulations or
whether the yield on the exchange debentures will equal or exceed the AFR.
Any capital gain or loss from the sale, redemption, exchange for exchange
debentures or other disposition of the preferred stock will be long-term or
short-term depending on the U.S. Holder's holding period for the preferred stock
at the time of the sale or other disposition of the preferred stock. In the case
of a noncorporate U.S. Holder (including an individual), any capital gain will
be taxable at a preferential rate if the U.S. Holder's holding period for the
preferred stock exceeds one year. The deductibility of capital losses is subject
to limitation. Prospective investors should consult their own tax advisors
regarding the taxation of capital gains and capital losses recognized upon a
sale or other disposition of the preferred stock.
Depending upon the circumstances, the treatment of a redemption of the
preferred stock as a dividend, in particular upon its exchange for exchange
debentures, may produce undesirable federal income tax consequences, including
the requirement to pay substantial federal income tax prior to the receipt of
cash. Prospective purchasers are therefore urged to consult their own tax
advisors regarding the tax consequences of exchanging preferred stock for
exchange debentures, including the possibility of avoiding dividend treatment by
a contemporaneous sale of all or a portion of the holder's interest in the
preferred stock or other equity interest in our company that the holder might
actually or constructively own.
PROSPECTIVE HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX
CONSEQUENCES OF A REDEMPTION OF PREFERRED STOCK OR EXCHANGE OF PREFERRED STOCK
FOR EXCHANGE DEBENTURES.
OWNERSHIP AND DISPOSITION OF THE EXCHANGE DEBENTURES
Depending upon a U.S. Holder's particular circumstances, the tax
consequences of holding exchange debentures may be less advantageous than the
tax consequences of holding preferred stock because, for example, payments of
interest on the exchange debentures will be currently includible in a holder's
income and will not be eligible for the dividends-received deduction that may be
available to corporate U.S. Holders (subject to our having current or
accumulated earnings and profits) and because, as discussed below, the exchange
debentures may be issued with OID. Moreover, unlike distributions received on
the preferred stock, interest and any existing OID on the exchange debentures is
includible in the holder's gross income, even if we have no earnings and
profits. The tax consequences of holding the exchange debentures will depend in
part on whether the exchange debentures are issued with OID. Exchange debentures
issued before May 1, 2004 generally will be treated as having been issued with
OID. Exchange debentures issued on or after May 1, 2004 will not be issued with
OID unless, as discussed below, their stated redemption price at maturity
exceeds their issue price by more than a de minimis amount.
Original Issue Discount
General. The amount of OID, if any, on a debt instrument equals the excess
of its "stated redemption price at maturity" over its "issue price." If such
excess is de minimis (i.e., less than one-quarter of one percent of the stated
redemption price at maturity of the debt instrument multiplied by the
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number of complete years to maturity of the debt instrument), the amount of OID
is treated as zero. The "stated redemption price at maturity" of a debt
instrument is the sum of its principal amount plus all other payments required
thereunder, other than payments of "qualified stated interest" (defined
generally as stated interest that is unconditionally payable in cash or in
property (other than the debt instruments of the issuer), at least annually at a
single fixed rate that appropriately takes into account the length of intervals
between payments). Unless the amount of exchange debentures that we are
permitted to pay as interest is de minimis in amount, exchange debentures that
are issued when we have the option to pay interest in additional exchange
debentures should be treated as having been issued without any qualified stated
interest, resulting in a stated redemption price at maturity of the exchange
debentures that includes all interest payable thereunder (including interest
payable in additional exchange debentures). On the other hand, if the exchange
debentures are issued after May 1, 2004, then stated interest would qualify as
qualified stated interest and none of such stated interest would be included in
the stated redemption price at maturity of the exchange debentures.
Determination of the "issue price" of the exchange debentures issued in
exchange for the preferred stock will depend on whether, as of the exchange date
(i) the preferred stock or the exchange debentures are traded on an established
securities market within the meaning of the OID Regulations, or (ii) if they are
not so traded, the yield on the exchange debentures equals or exceeds the AFR.
If either the exchange debentures or shares of the preferred stock are traded on
an established securities market during the 60 day period ending 30 days after
the exchange date, the issue price of the exchange debentures will equal the
fair market value of the exchange debentures (or if the exchange debentures are
not traded, the preferred stock) on the exchange date. Subject to certain
limitations described in the Treasury Regulations, the exchange debentures and
preferred stock generally will be deemed traded on an established securities
market if, for example, such securities appear on a system of general
circulation that provides a reasonable basis to determine fair market value
based on either recent price quotations or recent sales transactions. If neither
the preferred stock nor the exchange debentures are traded on an established
securities market, the issue price of the exchange debentures will be the stated
principal amount of the exchange debentures if the yield on the exchange
debentures is equal to or greater than the AFR in effect at the time the
exchange debentures are issued. If the yield on the exchange debentures is less
than the AFR, their issue price will be equal to the present value as of the
issue date of all payments to be made on the exchange debentures, discounted at
the AFR. It cannot be determined at the present time whether the preferred stock
or the exchange debentures will be, at the relevant time, traded on an
established securities market within the meaning of the OID Regulations or
whether the yield on the exchange debentures will equal or exceed the AFR.
Payment of Interest by Issuance of Additional Exchange Debentures.
The OID Regulations provide that in the case of a debt instrument that
provides the issuer with an unconditional option to pay interest by issuing
additional debt instruments, the issuer is assumed to exercise this option for
OID purposes only if exercise of the option would decrease the yield on the debt
instrument. Nevertheless, if the issuer has the option to issue more than a de
minimis amount of additional debt instruments as interest on a debt instrument,
none of the stated interest under the debt instrument will constitute qualified
stated interest, even if exercise of the option to pay interest with additional
debt instruments would minimize the issuer's yield on the debt instrument. If
the issue price of the exchange debentures issued in exchange for preferred
stock ("Initial Debentures") is equal to their principal amount, the yield to
maturity of the Initial Debentures, assuming the option to pay interest with
additional exchange debentures ("Secondary Debentures") is exercised, will be no
less than the yield to maturity would be if the option were not exercised.
Accordingly, for purposes of calculating OID, it will be presumed that we will
not exercise the option because exercise of the option will not minimize the
yield. If the option were in fact subsequently exercised and Secondary
Debentures were issued by us as interest on an Initial Debenture in lieu of
cash, such Secondary Debentures would be aggregated with the corresponding
Initial Debenture upon which they were issued, and OID would be recalculated for
the remainder of the term of the Initial Debentures based upon a stated
redemption price at maturity which includes the amount of all payments due under
the Secondary Debentures. As a result of such exercise,
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U.S. Holders of Initial Debentures would include OID in income in advance of the
receipts of cash, regardless of such U.S. Holders' regular methods of
accounting.
If the issue price of the Initial Debentures is less than their principal
amount, the yield to maturity of the Initial Debentures, assuming the option to
pay interest with Secondary Debentures is exercised, will be less than the yield
to maturity if the option is not exercised. Accordingly, for purposes of
calculating OID, it would be presumed that we will exercise the option because
to do so will minimize the yield. If we subsequently makes a cash payment
instead of exercising its option to issue a Secondary Debenture, the cash
payment made will be treated as a prepayment of the Initial Debentures,
partially retiring such Initial Debentures on a pro rata basis on the date of
such payment. Such retirement would be a taxable exchange to the holder of the
Initial Debenture.
If an Initial Debenture is issued prior to May 1, 2004 and we are presumed
under the rules above to issue at least one Secondary Debenture as interest on
the Initial Debenture, then the following rules apply for purposes of
calculating OID. The Initial Debenture and any Secondary Debentures that we are
presumed to issue as interest would be treated as a single debt instrument
having the same issue date and maturity date as the Initial Debenture. The
stated redemption price at maturity of the Initial Debenture will equal the sum
of the stated principal of, and the stated interest that will accrue on, the
Initial Debenture, including the interest that will accrue on the Secondary
Debentures. Unless a de minimis OID exception is met, receipt of cash interest
payments will not be subject to tax during the term of the exchange debenture,
and upon the issuance of each Secondary Debenture the holder's tax basis (and
adjusted issue price) in the Initial Debenture will be allocated between the
Secondary Debenture and the Initial Debenture in proportion to their respective
stated principal amounts. On an interest payment date, the adjusted issue price
of the Initial Debenture on which at least one Secondary Debenture is presumed
to be paid will equal the initial issue price of the Initial Debenture (as
determined above), increased by the accrued OID attributable to the Initial
Debenture for all prior accrual periods, less all payments of stated principal
and interest paid in cash on the Initial Debenture and less a portion of the
Initial Debenture's adjusted issue price allocated to the issuance of a
Secondary Debenture as discussed in the previous sentence. A holder will not
recognize income or gain upon receipt of a Secondary Debenture. Similar
treatment would apply if additional Secondary Debentures are issued on
subsequent interest payment dates. If we are presumed to issue Secondary
Debentures on an Initial Debenture for a given interest payment date and we
instead pay interest in cash, then in lieu of the cash interest payment, we are
deemed to issue the applicable Secondary Debentures on such interest payment
date (with a tax basis to the holder as determined above), followed immediately
by a constructive redemption by us of the deemed Secondary Debentures with the
cash interest payment. This would result in the holder recognizing capital gain
on the deemed redemption equal to the excess of the cash interest payment over
the tax basis of the deemed Secondary Debentures that are constructively
redeemed. Payment of cash interest, rather than Secondary Debentures, in this
situation also would reduce the amount of OID otherwise includible in the
holder's income during the remaining term of the Initial Debenture and would
reduce the holder's adjusted issue price and basis in the Initial Debenture on
which the cash interest is paid as if the deemed Secondary Debentures were
actually issued.
If the Initial Debentures are issued on or after May 1, 2004, we will not
have the option to pay interest with Secondary Debentures. In such event, any
Initial Debenture will be issued with OID only to the extent its principal
amount exceeds its issue price (as determined above) by more than a de minimis
amount because (i) all interest payments on any Exchange Debenture issued will
be qualified stated interest, and (ii) the stated redemption price at maturity
of any Exchange Debenture will be equal to its principal amount.
Reporting of Interest and OID on the Exchange Debentures
Non-OID Exchange Debentures. U.S. Holders of exchange debentures that are
not issued with OID will generally report the stated interest under the exchange
debentures as ordinary income under their regular method of tax accounting.
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OID Debentures. U.S. Holders of OID Debentures must include OID in gross
income for U.S. federal income tax purposes on an annual basis under a constant
yield accrual method, regardless of their method of accounting. As a result,
U.S. Holders will include OID in income in advance of the receipt of cash
attributable to that income. However, U.S. Holders of OID Debentures generally
will not be required to include separately in income cash payments received on
the OID Debentures, even if denominated as interest, to the extent such payments
do not constitute qualified stated interest (as defined above). Stated interest
on an OID Debenture that constitutes qualified stated interest (as defined
above) is not taxed as OID and is included in a U.S. Holder's gross income as
ordinary income under the Holder's regular method of tax accounting. We will
report to U.S. Holders of OID Debentures on a timely basis, the reportable
amount of OID and interest income based on its understanding of applicable law.
The amount of OID includible in income by the initial U.S. Holder of an OID
Debenture is the sum of the "daily portions" of OID with respect to the OID
Debenture for each day during the taxable year or portion of the taxable year in
which such U.S. Holder held such OID Debenture ("accrued OID"), even though the
cash to which such income is attributable may not be received until a later
date. The daily portions of OID required to be included in a holder's gross
income in a taxable year will be determined under a constant yield method by
allocating to each day during the taxable year in which the holder holds the
exchange debenture a pro rata portion of the OID thereon which is attributable
to the accrual period in which such day is included. The amount of the OID
attributable to each accrual period will be the product of the "adjusted issue
price" of the exchange debenture at the beginning of such accrual period
multiplied by the "yield to maturity" of the exchange debenture (properly
adjusted for the length of the accrual period). For purposes of calculating OID,
we will use quarterly accrual periods that end on February 1, May 1, August 1
and November 1, with the possible exception of the initial accrual period for
the exchange debentures. The daily portion is determined by allocating to each
day in any "accrual period" a pro rata portion of the OID allocable to the
accrual period. The amount of OID allocable to any accrual period is an amount
equal to the excess, if any, of (a) the product of the OID Debenture's adjusted
issue price at the beginning of such accrual period and its yield to maturity
(the discount rate which, when used in computing the present value of all
principal and interest payments to be made under the OID Debenture, produces an
amount equal to the OID Debenture's issue price) over (b) the amount of any
qualified stated interest allocable to the accrual period. The calculation of
OID for an initial short accrual period may be determined using any reasonable
method. The "adjusted issue price" of an OID Debenture at the beginning of any
accrual period is equal to its issue price increased by the accrued OID for each
prior accrual period (determined without regard to the amortization of any
acquisition premium or bond premium, as described below) and reduced by any
payment made on such OID Debenture (other than qualified stated interest and
issuance of Secondary Debentures) on or before the first day of the accrual
period and less the amount of adjusted issue price allocated to any Secondary
Debentures.
Exchange debentures may be redeemed prior to their stated maturity at our
option. For purposes of computing the yield of OID Debentures, we will be deemed
to exercise or not exercise our option to redeem the OID Debentures in a manner
that minimizes the yield on the OID Debentures. It is not anticipated that our
ability to redeem prior to stated maturity will affect the yield to maturity of
such instrument. In the event of a change of control, we will be required to
offer to repurchase all of the exchange debentures. The right of holders to
require repurchase upon a change of control, will not affect the yield or
maturity date of the exchange debentures unless, based on all the facts and
circumstances as of the issue date, it is more likely than not that such an
event giving rise to the repurchase will occur. We do not intend to treat the
change of control provisions of the exchange debentures as affecting the
computation of the yield to maturity of any exchange debentures.
Election to Report Interest as OID. U.S. Holders may elect to treat all
interest on any exchange debenture as OID and calculate the amount to be
included in gross income under the constant yield accrual method. For the
purposes of this election, interest includes stated interest, acquisition
discount, OID, de minimis OID, market discount, de minimis market discount and
unstated interest, as adjusted by any amortizable bond premium or acquisition
premium. The election must be made for the taxable year in which the U.S. Holder
acquired the exchange debenture, and may not be revoked without the consent of
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the IRS. U.S. Holders should consult with their own tax advisors about the
election to report interest on the exchange debentures and OID using the
constant yield method.
Market Discount on Resale of Exchange Debentures
Purchasers of preferred stock should be aware that the disposition of
exchange debentures may be affected by the market discount provisions of the
Code. If a U.S. Holder acquires an exchange debenture (other than an OID
Debenture) for an amount less than its stated redemption price at maturity or,
in the case of an OID Debenture, for an amount that is less than its adjusted
issue price, the amount of the difference will be treated as "market discount"
for U.S. federal income tax purposes, unless such difference is less than a
specified de minimis amount. Under the market discount rules, a U.S. Holder will
be required to treat any principal payment on an exchange debenture, or any
realized gain on the sale, exchange, retirement or other disposition of an
exchange debenture, as ordinary income to the extent of the market discount that
has not previously been included in income and that is treated as having accrued
on such exchange debenture at the time of such payment or disposition. For
purposes of determining the amount taxed as ordinary income in the case of a
U.S. Holder disposing of an exchange debenture acquired at a market discount in
a transaction other than a sale, exchange or involuntary conversion, such holder
will be treated as realizing an amount equal to the fair market value of the
exchange debenture disposed of. In addition, the U.S. Holder may be required to
defer, until the maturity of the exchange debenture or its earlier disposition
in a taxable transaction, the deduction of all or a portion of the interest
expense on any indebtedness incurred or continued to purchase or carry such
exchange debenture.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the exchange debenture,
unless the U.S. Holder elects to accrue on a constant yield method. A U.S.
Holder of an exchange debenture may elect to include market discounts in income
currently as it accrues (on either a ratable or constant interest method), in
which case the rule described above regarding recognition of ordinary income on
principal payments, sales and other dispositions of an exchange debenture and
deferral of interest deductions will not apply. A U.S. Holder's tax basis in an
exchange debenture is increased to the extent that the market discount is
included in gross income of the holder under this election. This election to
include market discount in income currently, once made, applies to all market
discount obligations acquired on or after the first day of the first taxable
year to which the election applies and may not be revoked without the consent of
the IRS.
Acquisition Premium
A U.S. Holder that purchases an exchange debenture for an amount that is
greater than its adjusted issue priced but equal to or less than the sum of all
amounts payable on the exchange debenture after the purchase date, other than
qualified stated interest, will be considered to have purchased such exchange
debenture at an "acquisition premium." Under the acquisition premium rules, the
amount of OID, if any, which such U.S. Holder must include in its gross income
with respect to such exchange debenture for any taxable year will be reduced by
the portion of such acquisition premium properly allocable to such year.
Amortizable Bond Premium
If immediately after the time the preferred stock is exchanged for exchange
debentures or immediately after the time a subsequent U.S. Holder acquires
exchange debentures, the U.S. Holder's tax basis in any such exchange debenture
exceeds the sum of all amounts payable on the exchange debenture after the
exchange date or purchase date, other than qualified stated interest, such
excess may constitute "amortizable bond premium" and such U.S. Holder will not
be required to include any OID in income.
A U.S. Holder generally may elect to amortize bond premium over the
remaining term of the exchange debenture on a constant yield method (subject to
special rules concerning early call provisions). The amount amortized in any
year will be treated as a reduction of the U.S. Holder's interest income from
the exchange debenture. Bond premium on an exchange debenture held by a U.S.
Holder that does not make such an election will decrease the gain or increase
the loss otherwise recognized on disposition of the
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exchange debenture. The election to amortize bond premium on a constant yield
method once made applies to all debt obligations held or subsequently acquired
by the electing U.S. Holder on or after the first day of the first taxable year
to which the election applies and may not be revoked without the consent of the
IRS.
Redemption, Sale or Disposition of Exchange Debentures
Except to the extent attributable to accrued qualified stated interest or
market discount not previously included in income, which portion of the
consideration would be taxed as ordinary income, upon the redemption, sale,
exchange or retirement of an exchange debenture, a U.S. Holder will recognize
gain or loss equal to the difference between the amount realized upon the
redemption, sale, exchange or retirement and the adjusted tax basis of the
exchange debenture. The adjusted tax basis of an exchange debenture of a U.S.
Holder who receives (i) exchange debentures in exchange for preferred stock
will, in general, be initially equal to the issue price of such exchange
debentures, less any portion of the adjusted issue price allocated to any
Secondary Debentures and (ii) a Secondary Debenture as payment of interest, will
initially be equal to the allocable portion of the adjusted issue price of the
exchange debenture on which the Secondary Debentures was issued; increased in
both cases by accrued OID and market discount previously included in income by
the U.S. Holder and reduced by any amortized premium and any cash payments on
the exchange debentures other than qualified stated interest.
Such gain or loss will be long-term capital gain or loss if at the time of
redemption, sale, exchange or retirement the exchange debenture has been held
for more than one year. The deduction of capital losses is subject to certain
limitations. Prospective investors should consult their own tax advisors
regarding the taxation consequences of capital gains and losses recognized upon
a disposition of the exchange debentures.
Applicable High Yield Discount Obligations
If the yield-to-maturity on OID Debentures equals or exceeds the sum of (i)
the AFR in effect for the month in which the OID Debentures are issued, and (ii)
five percent, and the OID on such OID Debentures is "significant," the OID
Debentures will be considered "applicable high yield discount obligations"
("AHYDOs") under Section 163(i) of the Code. OID is significant if the aggregate
amount includible in gross income for periods before the close of any accrual
period ending more than five years after the issue date exceeds the sum of the
aggregate amounts of interest to be paid before the close of such accrual period
plus the product of the issue price and the yield to maturity. If the OID
Debentures are AHYDOs, we will not be allowed to take a deduction for OID
accrued on the OID Debentures for U.S. federal income tax purposes until such
time as we actually pay such OID in cash or in other property (other than our
stock or debt or the stock or debt of certain related parties).
Moreover, if the yield-to-maturity on the OID Debenture exceeds the sum of
(i) the AFR, and (ii) six percent (such excess shall be referred to hereinafter
as the "Disqualified Yield"), the deduction for OID accrued on the OID
Debentures will be permanently disallowed (regardless of whether we actually pay
such OID in cash or in other property) for U.S. federal income tax purposes to
the extent such OID is attributable to the Disqualified Yield on the OID
Debentures ("Dividend-Equivalent Interest"). Application of the AHYDO rules to
the exchange debentures might reduce our after-tax cash flow. Regardless of the
application of the AHYDO rules to an exchange debenture, a U.S. Holder of an
exchange debenture will be required to include OID in gross income as discussed
above under "Reporting of Interest and OID on the Exchange Debenture -- OID
Debentures." For purposes of the dividends-received deduction, such
Dividend-Equivalent Interest will be treated as a dividend to the extent it is
deemed to have been paid out of our current or accumulated earnings and profits.
Because the amount of OID, if any, attributable to the exchange debentures
will be determined at the time such exchange debentures are issued, and the AFR
at such time is not predictable, it is impossible to determine at the present
time whether an OID Debenture will be treated as an AHYDO.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of dividends, principal, interest, OID, and premium and to the proceeds
of sales of preferred stock and exchange debentures made to U.S. Holders other
than certain exempt recipients (such as corporations). A 31 percent backup
withholding tax will apply to such payments if the U.S. Holder fails to provide
a taxpayer identification number or certification of foreign or other exempt
status or fails to report in full dividend and interest income. If we pay a
dividend on the preferred stock by issuing additional shares of preferred stock
(or otherwise is deemed to pay a distribution for United States federal income
tax purposes) to any person with respect to which we determine, after request of
such information from such holder as we deem appropriate, that we are obligated
to withhold United States federal tax, then prior to any such distribution we
shall be entitled to liquidate the additional shares of preferred stock to the
extent necessary in order to fully fund our withholding obligation. We will
promptly distribute to such person the balance of the additional shares of
preferred stock not used to fund such withholding obligation.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against the U.S. Holder's U.S. federal income tax liability
provided the required information is timely furnished to the IRS.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF THE PREFERRED STOCK AND
EXCHANGE DEBENTURES IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES AND INCOME TAX
SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISOR, AS TO THE SPECIFIC TAX
CONSEQUENCES THAT WOULD RESULT FROM THEIR PURCHASE, OWNERSHIP AND DISPOSITION OF
THE PREFERRED STOCK AND EXCHANGE DEBENTURES INCLUDING THE APPLICATION AND EFFECT
OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN FEDERAL OR OTHER TAX LAWS.
PLAN OF DISTRIBUTION
There has previously been only a limited secondary market and no public
market for the outstanding shares. We do not intend to apply for the listing of
the preferred stock on a national securities exchange or for their quotation
through The Nasdaq Stock Market. The preferred stock is eligible for trading in
The PORTAL Market. We have been advised by Donaldson, Lufkin & Jenrette
Securities Corporation, the initial purchaser of the preferred stock in the
private offering, that they currently intend to make a market in the preferred
stock; however, they are not obligated to do so and any market making may be
discontinued at any time. In addition, such market making activity may be
limited during the exchange offer. Therefore, there can be no assurance that an
active market for the outstanding shares or the new preferred stock will
develop. If a trading market does not develop or is not maintained, holders of
preferred stock may experience difficulty in reselling preferred stock. If a
trading market develops for the preferred stock, future trading prices of such
securities will depend on many factors, including, among other things,
prevailing interest rates, our results of operations and the market for similar
securities. Depending on such factors, such securities may trade at a discount
from their offering price.
Broker-dealers who did not acquire outstanding shares as a result of market
making activities or trading activities may not participate in the exchange
offer.
With respect to resale of shares of new preferred stock, based on an
interpretation by the staff of the SEC set forth in no-action letters issued to
third parties, we believe that a holder (other than a person that is our
affiliate within the meaning of Rule 405 under the Securities Act or a "broker"
or "dealer" registered under the Exchange Act) who exchanges outstanding shares
for new preferred stock in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the new
preferred stock, will be allowed to resell the new preferred stock to the public
without further registration under the Securities Act and without delivering to
the purchasers of the new preferred stock a prospectus that satisfies the
requirements of Section 10 thereof. However, if any holder acquires new
preferred stock in the exchange offer for the purpose of distributing or
participating in a distribution of the new preferred stock,
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such holder cannot rely on the position of the staff of the SEC enunciated in
Exxon Capital Holdings Corporation (available May 13, 1988) or similar no-action
letters or any similar interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction, unless an exemption from
registration is otherwise available.
As contemplated by the no-action letters mentioned above and the
registration rights agreement, each holder accepting the exchange offer is
required to represent to us in the letter of transmittal that:
- the new preferred stock are to be acquired by the holder in the ordinary
course of business
- the holder is not engaging and does not intend to engage in the
distribution of the new preferred stock, and
- the holder acknowledges that, if such holder participates in the exchange
offer for the purpose of distributing the new preferred stock, such
holder must comply with the registration and prospectus delivery
requirements of the Securities Act and cannot rely on the above no-action
letters.
Any broker or dealer registered under the Exchange Act who holds
outstanding shares that were acquired for its own account as a result of
market-making activities or other trading activities (other than outstanding
shares acquired directly from us or our affiliate) may exchange such outstanding
shares for new preferred stock pursuant to the exchange offer; however, such
broker-dealer may be deemed an underwriter within the meaning of the Securities
Act and, therefore, must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of the new preferred stock
received by it in the exchange offer, which prospectus delivery requirement may
be satisfied by the delivery by such broker-dealer of this prospectus. We have
agreed to cause the exchange offer registration statement, of which this
prospectus is a part, to remain continuously effective for a period of 180 days,
if required, from the exchange date, and to make this prospectus, as amended or
supplemented, available to any such broker-dealer for use connection with
resales. Any broker-dealer participating in the exchange offer will be required
to acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of new preferred stock received by
it in the exchange offer. The delivery by a broker-dealer of a prospectus in
connection with resales of new preferred stock shall not be deemed to be an
admission by such broker-dealer that it is an underwriter within the meaning of
the Securities Act. We will not receive any proceeds from any sale of new
preferred stock by a broker-dealer.
New preferred stock received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new preferred stock or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such new preferred stock.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information filed by us at the SEC's public
reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. Our filings with the SEC are also
available to the public from commercial document retrieval services and at the
SEC's web site at "http://www.sec.gov."
This prospectus constitutes a part of a registration statement we have
filed with the SEC under the Securities Act of 1933. As permitted by the rules
and regulations of the SEC, this prospectus does not contain all of the
information contained in the registration statement and the exhibits and
schedules to the registration statement. Accordingly, in this prospectus, we
make reference to the registration statement and to its exhibits and schedules.
For further information about us and about the securities we are offering in
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this prospectus, you should consult the registration statement and its exhibits
and schedules. You should be aware that statements contained in this prospectus
concerning the provisions of any documents filed as an exhibit to the
registration statement or otherwise filed with the SEC are not necessarily
complete, and in each instance reference is made to the copy of the document so
filed as an exhibit to the registration statement. These statements are
qualified in their entirety by these references.
INCORPORATION BY REFERENCE
All documents filed by us under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act after the date hereof are incorporated by reference into
and to be a part of this prospectus from the date of filing of those documents.
We are incorporating by reference the following documents we have filed
with the SEC:
- Annual Report on Form 10-K for the fiscal year ended December 31, 1998;
- Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1999;
- Current Report on Form 8-K/A filed January 20, 1999, amending Current
Report on Form 8-K filed December 15, 1998; and
- Current Reports on Form 8-K filed March 16, 1999, April 19, 1999, April
21, 1999, May 20, 1999 and May 21, 1999.
You may request a copy of any of these filings, at no cost, by writing or
telephoning us at the following address or phone number:
R&B Falcon Corporation
901 Threadneedle
Houston, Texas 77079
(281) 496-5000
Attention: Investor Relations
LEGAL MATTERS
Certain legal matters with respect to the preferred stock offered hereby
will be passed upon for us by Gardere Wynne Sewell & Riggs, L.L.P., Houston,
Texas.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheets of R&B Falcon Corporation as of December
31, 1998 and 1997, and the related statements of operations, stockholders'
equity and cash flows for each of the years in the three year period ended
December 31, 1998, incorporated by reference in this prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
With respect to the unaudited interim financial information for the
quarters ended March 31, 1999 and 1998, Arthur Andersen LLP has applied limited
procedures in accordance with professional standards for a review of that
information. However, their separate report thereon states that they did not
audit and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on that information should
be restricted in light of the limited nature of the review procedures applied.
In addition, the accountants are not subject to the liability provisions of
Section 11 of the Securities Act of 1933 for their report on the unaudited
interim financial information because that report is not a "report" or a "part"
of the registration statement prepared or certified by the accountants within
the meaning of Sections 7 and 11 of that Act.
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The consolidated financial statements of Cliffs Drilling Company as of
December 31, 1997 and for each of the three years in the period ended December
31, 1997, incorporated by reference in this prospectus, have been audited by
Ernst & Young LLP, independent accountants, as stated in their report, which is
incorporated by reference herein.
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