<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-79363
PROSPECTUS
RBF FINANCE CO.
OFFER TO EXCHANGE
ALL OUTSTANDING
11% SENIOR SECURED NOTES DUE 2006
FOR
11% SENIOR SECURED NOTES DUE 2006
AND
ALL OUTSTANDING
11 3/8% SENIOR SECURED NOTES DUE 2009
FOR
11 3/8% SENIOR SECURED NOTES DUE 2009
-------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON JULY 13, 1999, UNLESS EXTENDED
-------------------------
TERMS OF EXCHANGE OFFER
- - We are offering to exchange up to $400 million of our outstanding 11% Senior
Secured Notes due 2006 for an equal amount of our 11% Senior Secured Notes due
2006, and up to $400 million of our outstanding 11 3/8% Senior Secured Notes
due 2009 for an equal amount of our 11 3/8% Senior Secured Notes due 2009
- - The exchange offer expires 5:00 p.m., New York City time, July 13, 1999,
unless extended
- - 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
- - We will exchange all outstanding notes of each series that are validly
tendered and not validly withdrawn
- - Tenders of outstanding notes may be withdrawn any time prior to the expiration
of the exchange offer
- - The exchange of notes 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 each series of the notes to be issued are substantially identical
to the same series of outstanding notes, except they do not contain the
transfer restrictions and registration rights relating to the outstanding
notes
-------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF MATTERS THAT YOU
SHOULD CONSIDER PRIOR TO DECIDING WHETHER TO EXCHANGE YOUR NOTES 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 date of this Prospectus is June 14, 1999
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY..................................................... 1
RISK FACTORS................................................ 13
FORWARD-LOOKING STATEMENTS.................................. 20
THE EXCHANGE OFFER.......................................... 21
USE OF PROCEEDS............................................. 27
CAPITALIZATION OF RBF FINANCE CO............................ 28
CAPITALIZATION OF R&B FALCON CORPORATION.................... 29
SELECTED FINANCIAL DATA..................................... 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 31
THE COMPANY................................................. 34
MANAGEMENT.................................................. 35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 36
SECURITY OWNERSHIP OF OFFICERS AND DIRECTORS................ 36
DESCRIPTION OF THE NOTES.................................... 37
DESCRIPTION OF SECURITY FOR THE NOTES....................... 81
DESCRIPTION OF R&B FALCON'S SIGNIFICANT INDEBTEDNESS........ 85
TRANSFER RESTRICTIONS....................................... 86
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR
NON-UNITED STATES HOLDERS................................. 86
PLAN OF DISTRIBUTION........................................ 88
WHERE YOU CAN FIND MORE INFORMATION......................... 89
INCORPORATION BY REFERENCE.................................. 90
LEGAL MATTERS............................................... 90
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 90
RBF FINANCE CO. FINANCIAL STATEMENTS........................ F-1
</TABLE>
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SUMMARY
This summary highlights selected information from this prospectus to help
you understand the exchange offer and the exchange notes. You should carefully
read the entire prospectus to understand fully the terms of the exchange offer
and the exchange notes, 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 13 of this prospectus.
THE COMPANY
We are a limited purpose corporation that has been recently organized
solely for the purpose of issuing $400 million of our 11% Senior Secured Notes
due 2006 and $400 million of our 11 3/8% Senior Secured Notes due 2009. The
notes are our full recourse obligations. We loaned the proceeds of the sale of
the notes to R&B Falcon Corporation to finance costs of acquiring, constructing,
repairing and improving drilling rigs and, to the extent that R&B Falcon had
already paid those costs, for general corporate purposes, including the
repayment of debt. R&B Falcon has unconditionally and irrevocably guaranteed our
obligations under the notes. The mailing address of our principal executive
offices is 901 Threadneedle, Houston, Texas 77079, and our telephone number is
(281) 496-5000.
R&B FALCON CORPORATION
R&B Falcon owns and operates the world's largest fleet of marine drilling
rigs. R&B Falcon's fleet is one of the most diverse in the industry, capable of
drilling in shallow to ultra-deepwater depths. R&B Falcon currently operates in
most of the world's major offshore hydrocarbon producing regions. R&B Falcon
believes that its fleet diversity and worldwide operations allow it to mitigate
revenue and cash flow impacts associated with a major downturn in any single
segment of the drilling industry or geographic region. The mailing address of
R&B Falcon's principal executive offices is 901 Threadneedle, Houston, Texas
77079, and its telephone number is (281) 496-5000.
RECENT DEVELOPMENTS
On March 26, 1999, R&B Falcon issued $200 million of its 12 1/4% Senior
Secured Notes due 2006. Also on that date, we issued $400 million of our 11%
Senior Secured Notes due 2006 and $400 million of our 11 3/8% Senior Secured
Notes due 2009. We loaned the proceeds from these notes to R&B Falcon in ten
separate loans, each of which is secured by one of R&B Falcon's drilling rigs or
the construction contract to build a drilling rig. R&B Falcon also guaranteed
the 11% Senior Secured Notes due 2006 and the 11 3/8% Senior Secured Notes due
2009. R&B Falcon is using the proceeds from these loans to finance the costs of
acquiring, constructing, repairing and improving the drilling rigs that are
security for the loans. To the extent R&B Falcon had already paid these costs,
it is using the proceeds for general corporate purposes, including the repayment
of debt. R&B Falcon is using the net proceeds from its offering of the $200
million senior notes for general corporate purposes, including the repayment of
debt. For accounting purposes, R&B Falcon will record our $800 million of notes
because it guarantees these notes.
On April 7, 1999, R&B Falcon announced that Steven Webster, R&B Falcon's
president and chief executive officer, would resign from these officer positions
at the end of May 1999. On May 19, 1999, R&B Falcon elected Mr. Paul Loyd, R&B
Falcon's chairman of the board, as R&B Falcon's chief executive officer. R&B
Falcon also elected Mr. Andrew Bakonyi as President and Chief Operating Officer.
Mr. Webster remains a director of R&B Falcon.
On April 15, 1999, BP Amoco cancelled its drilling contract with R&B Falcon
for the drillship Peregrine VII in accordance with the terms of the contract
because R&B Falcon had not delivered this rig on time. R&B Falcon is currently
marketing this rig.
On April 22, 1999, R&B Falcon issued 300,000 units, each consisting of one
share of preferred stock and a warrant to purchase 35 shares of R&B Falcon
common stock, in a private placement for net
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proceeds of approximately $289 million. The preferred stock provides for a
liquidation preference of $1,000 per share and cumulative dividends, payable
quarterly, at a rate of 13 7/8% per year. R&B Falcon may pay these dividends in
additional shares of preferred stock for up to five years. R&B Falcon will have
the right to exchange the preferred stock for subordinated debentures when it
could do so without violating the covenants in its existing debt documents. R&B
Falcon must redeem the preferred stock at a price equal to its liquidation
preference on May 1, 2009. Each warrant entitles the holder to purchase 35
shares of R&B Falcon's common stock, for an aggregate of 10,500,000 shares, at a
purchase price of $9.50 per share. The warrants are exercisable at any time
after they separate from the preferred stock, which will occur no later than
October 22, 1999. The warrants expire on May 1, 2009. R&B Falcon is using the
net proceeds from this offering for general corporate purposes, including
funding its deepwater rig construction program.
On May 19, 1999, R&B Falcon announced that it had received notice from
Petrobras of cancellation of the drilling contract on the semisubmersible Falcon
100, based upon alleged late delivery of the rig. R&B Falcon does not believe
that Petrobras has the right to cancel the contract. R&B Falcon has engaged
Brazilian counsel to pursue its rights under the contract and intends to take
legal action to enforce its rights under the contract. Petrobras has also
advised R&B Falcon that the contract for which R&B Falcon had been the low
bidder with its Peregrine VII drillship had been awarded by Petrobras to another
drilling contractor, for the reason that Petrobras desired to commence this
contract before the expected delivery date of the Peregrine VII.
SUMMARY OF TERMS OF EXCHANGE OFFER
In March 1999, we completed the private offering of $400 million of our 11%
Senior Secured Notes due 2006 and $400 million of our 11 3/8% Senior Secured
Notes due 2009. In connection with that offering, we agreed to deliver to you
this prospectus and to use our best efforts to complete the exchange offer.
THE EXCHANGE OFFER......... We are offering to exchange up to $400 million of
our outstanding 11% Senior Secured Notes due 2006
for an equal amount of our registered 11% Senior
Secured Notes due 2006 and up to $400 million of
our outstanding 11 3/8% Senior Secured Notes due
2009 for an equal amount of our registered 11 3/8%
Senior Secured Notes due 2009.
The form and terms of each series of the exchange
notes are identical in all material respects to the
form and terms of the outstanding notes of that
series, except that the exchange notes have been
registered under the Securities Act. In order to be
exchanged, an outstanding note must be properly
tendered and accepted. You may tender outstanding
notes only in integral multiples of $1,000.
As of the date of this prospectus, there are $400
million principal amount of our 11% Senior Secured
Notes due 2006 outstanding and $400 million
principal amount of our 11 3/8% Senior Secured
Notes due 2009 outstanding. The exchange offer is
not conditioned on any minimum aggregate principal
amount of outstanding notes being tendered for
exchange.
RESALE OF THE EXCHANGE
NOTES...................... Based on an interpretation by the staff of the SEC
set forth in no-action letters issued to third
parties, we believe that the notes issued in the
exchange offer may be offered for resale, resold
and otherwise transferred by you without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that:
- you are acquiring the notes issued in the
exchange offer in the ordinary course of
business;
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- you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to
participate, in the distribution of the
notes issued to you in the exchange offer;
- you are not a broker-dealer who purchased
those outstanding notes directly from us for
resale under to Rule 144A or any other
available exemption under the Securities
Act; and
- you are not an "affiliate" of our company.
Each broker-dealer that acquires notes in the
exchange offer for its own account in exchange for
outstanding notes that it acquired as a result of
market-making or other trading activities must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of the notes issued in
the exchange offer. The letter of transmittal
states that by making this acknowledgment and by
delivering a prospectus, a broker-dealer will not
admit that it is an "underwriter" within the
meaning of the Securities Act. A broker-dealer may
use this prospectus for an offer to resell, resale
or other retransfer of the notes issued to it in
the exchange offer. We have agreed that, for a
period of 180 days after the date of this
prospectus, we will make this prospectus and any
amendment or supplement to this prospectus
available to any such broker-dealer for use in
connection with any such resales. We believe that
no registered holder of the outstanding notes is an
affiliate (as this term is defined in Rule 405 of
the Securities Act) of our company.
EXPIRATION DATE............ The exchange offer will expire at 5:00 p.m., New
York City time, July 13, 1999, unless we extend the
expiration date.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
OUTSTANDING NOTES........ The exchange notes will bear interest from March
26, 1999. Holders of outstanding notes that are
accepted for exchange will not have the right to
receive any payment of interest on those notes
accrued from March 26, 1999 to the date of the
issuance of the exchange notes. Consequently,
holders who exchange their outstanding notes for
exchange notes will receive the same interest
payment on September 15, 1999 (the first interest
payment date) that they would have received had
they not accepted the exchange offer.
TERMINATION OF THE EXCHANGE
OFFER.................... We may terminate the exchange offer 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 SEC 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. We
must pay increased interest on the notes if we do
not complete the exchange offer.
PROCEDURES FOR TENDERING
OUTSTANDING NOTES........ If you are a holder of a note and you wish to
tender your note for exchange in the exchange
offer, you must send to United States Trust
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Company of New York, as exchange agent, on or
before the expiration date:
either
- a properly completed and duly executed
letter of transmittal, which accompanies
this prospectus, or a facsimile of the
letter of transmittal, including all other
documents required by the letter of
transmittal, to the exchange agent at the
address set forth on the cover page of the
letter of transmittal; or
- an agent's message transmitted by means of
The Depository Trust Company's Automated
Tender Offer Program system and received by
the exchange agent and forming a part of a
confirmation of book entry transfer in which
you acknowledge and agree to be bound by the
terms of the letter of transmittal;
and, the exchange agent must receive on or
before the expiration date either
- a timely confirmation of book-entry transfer
of your outstanding notes into the exchange
agent's account at The Depository Trust
Company under the procedure for book-entry
transfers described in this prospectus under
the heading "The Exchange
Offer -- Procedures for Tendering
Outstanding Notes;" or
- the documents necessary for compliance with
the guaranteed delivery procedures described
below.
By executing the letter of transmittal, each holder
will represent to us that:
- the person receiving the exchange notes is
obtaining the exchange notes in the ordinary
course of business of the person receiving
such exchange notes, whether or not such
person is the holder;
- neither the holder nor any other person
acting for the holder has an arrangement or
understanding with any person to participate
in the distribution of the exchange notes;
and
- neither the holder nor any such other person
is an "affiliate," as defined in Rule 405
under the Securities Act, of our company.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... If you are the beneficial owner of notes and your
name does not appear on a security position listing
of The Depository Trust Company as the holder of
your notes, or if you are a beneficial owner of
registered notes that are registered in the name of
a broker, dealer, commercial bank, trust company or
other nominee, and you wish to tender your notes in
the exchange offer, you should contact the person
in whose name your notes are 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 notes,
either make appropriate arrangements to register
ownership of the outstanding notes in your name or
obtain a properly completed bond power from the
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registered holder. The transfer of record ownership
may take considerable time.
GUARANTEED DELIVERY
PROCEDURES............. If you wish to tender your notes and time will not
permit your required documents to reach the
exchange agent by the expiration date of the
exchange offer, or you cannot complete the
procedure for book-entry transfer or deliver
certificates for registered notes on time, you may
tender your notes under the procedures described in
this prospectus under the heading "The Exchange
Offer -- Guaranteed Delivery Procedure."
WITHDRAWAL RIGHTS.......... You may withdraw the tender of your notes at any
time prior to 5:00 p.m. on the expiration date.
FEDERAL TAX CONSEQUENCES... The exchange of the notes will generally not be a
taxable event for United States federal income tax
purposes.
USE OF PROCEEDS............ We will not receive any proceeds from the issuance
of notes in the exchange offer. We and R&B Falcon
will pay all expenses of the exchange offer.
EXCHANGE AGENT............. United States Trust Company of New York, the
trustee under the indenture governing the notes, is
serving as the exchange agent in connection with
the exchange offer. The exchange agent can be
reached at:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Attention: Corporate Trust Services
The telephone number for the exchange agent is
(800) 548-6565, and the facsimile number for the
exchange agent is (212) 420-6211.
CONSEQUENCES OF NOT
EXCHANGING OUTSTANDING
NOTES.................... If you do not exchange your outstanding notes for
exchange notes, you will no longer be able to
require us to register the outstanding notes under
the Securities Act. In addition, you will not be
able to offer or sell the outstanding notes 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.
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SUMMARY OF TERMS OF EXCHANGE NOTES
SECURITIES OFFERED......... - $400 million aggregate principal amount of 11%
Senior Secured Notes due 2006; and
- $400 million aggregate principal amount of 11 3/8%
Senior Secured Notes due 2009.
MATURITY DATES............. - March 15, 2006 for the 11% Senior Secured Notes
due 2006; and
- March 15, 2009 for the 11 3/8% Senior Secured
Notes due 2009.
INTEREST PAYMENT DATES..... March 15 and September 15 of each year, beginning
September 15, 1999.
MANDATORY REDEMPTION
Loss of a Mortgaged
Rig........................ Upon an event of loss with respect to a mortgaged
rig, R&B Falcon must repay the loan applicable to
the mortgaged rig in an amount sufficient to provide
funds to us for us to redeem notes. We must redeem
notes, in whole or in part, in an aggregate
principal amount equal to the principal amount of
the repaid loan. If a default has occurred and is
continuing under the indenture governing the notes,
we must redeem notes in an amount equal to the
amount received as a result of the event of loss. We
will redeem notes at a redemption price equal to
100% of the principal amount of the notes plus
accrued interest to the redemption date.
Sale of a Mortgaged
Rig........................ Upon the permitted sale of a mortgaged rig (or the
capital stock of the subsidiary guarantor owning
such rig), R&B Falcon must repay the loan applicable
to the mortgaged rig in an amount sufficient to
provide funds to us for us to redeem notes. We must
redeem notes, in whole or in part, in an aggregate
principal amount equal to the principal amount of
the loan related to the mortgaged rig. If a default
has occurred and is continuing under the indenture
governing the notes, we must redeem notes in an
amount equal to the net amount received as a result
of such sale.
We will redeem the 11% Senior Secured Notes due 2006
at a redemption price equal to the sum of the then
remaining payments of principal and interest on such
notes discounted at their present values using the
treasury rate plus 50 basis points, plus accrued
interest, if any, to such redemption date.
We will redeem the 11 3/8% Senior Secured Notes due
2009 at a redemption price equal to:
- if such redemption occurs before March 15, 2004,
the sum of the then remaining payments of
principal, including premiums payable, and
interest up to and including March 15, 2004
discounted at their present values using the
treasury rate plus 50 basis points, plus accrued
interest, if any, to such redemption date; or
- if such redemption occurs after March 15, 2004, at
a price equal to 105.6875% of the principal amount
(declining ratably to 100% of the principal amount
on March 15, 2007) plus accrued and unpaid
interest to the date of redemption.
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OPTIONAL REDEMPTION........ We may redeem the 11% Senior Secured Notes due 2006
at any time prior to their stated maturity at a
make-whole premium. We may redeem the 11 3/8% Senior
Secured Notes due 2009 at any time after March 15,
2004, at a price equal to 105.6875% of the principal
amount (declining ratably to 100% of the principal
amount on March 15, 2007) plus accrued and unpaid
interest to the date of redemption.
GUARANTEE BY THE COMPANY... R&B Falcon has unconditionally and irrevocably
guaranteed our obligations under the notes. Any
payment by R&B Falcon on its obligations under the
guarantee will reduce its obligations on its loans
from us.
SUBSIDIARY GUARANTEES...... Any subsidiary that guarantees any of R&B Falcon's
indebtedness after March 26, 1999 (including
indebtedness under a bank facility) or that owns a
mortgaged rig will be required to guarantee the
notes.
RANKINGS................... The notes are our senior secured obligations. We are
not permitted to incur additional indebtedness,
other than subordinated indebtedness owed to R&B
Falcon.
The loans we have made to R&B Falcon are each a
senior secured obligation of R&B Falcon and will
rank equally in right of payment with claims of
creditors of R&B Falcon holding indebtedness or
other liabilities that are not expressly
subordinated to such loans, but will rank ahead of
claims to the extent of the value, priority and
validity of R&B Falcon's mortgages of its marine
drilling rigs that secure the loans. To the extent
that any such rig has value in excess of the loan
that it secures, such additional value is not
collateral for our claims against R&B Falcon. R&B
Falcon's obligations under the loans from us will be
effectively subordinated to indebtedness and other
liabilities of its subsidiaries. As of March 31,
1999, R&B Falcon's subsidiaries had approximately
$225.8 million of indebtedness, in addition to other
substantial liabilities (primarily trade payables
and accrued expenses).
R&B Falcon's guarantee of the notes is its senior
unsecured obligation. The guarantee will rank
equally in right of payment with any of R&B Falcon's
existing or future senior unsecured indebtedness and
senior in right of payment to any of its existing or
future indebtedness that is, by its terms, expressly
subordinated to the guarantee. R&B Falcon's
obligations under the guarantee will be effectively
subordinated to indebtedness and other liabilities
of its subsidiaries and to R&B Falcon's secured
indebtedness.
SECURITY................... The notes are secured by a collateral assignment of
the loans we have made to R&B Falcon and the liens
securing those loans. Each of these loans is secured
by a lien on one drilling rig or one construction
contract for a drilling rig. These liens are:
- security interests in the construction contract
for the Deepwater IV and the equipment the
Company has purchased for the Deepwater IV.
Following delivery of the Deepwater IV, the
security interests will be replaced by a first
priority ship mortgage on the Deepwater IV; and
- first priority ship mortgages on the vessels
Deepwater Millennium, Peregrine IV, Peregrine
VII, Falcon 100, Peregrine I, Peregrine II,
Harvey Ward, W. D. Kent, and Falrig 82.
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The collateral agent holds, as collateral for the
notes, R&B Falcon's promissory notes payable to us
and the related liens. The collateral agent will
exercise remedies with respect to the collateral,
including the sale or other disposition of the
collateral, upon receipt of notice of the
occurrence of an event of default under the
indenture governing the notes.
CHANGE OF CONTROL.......... So long as the notes are rated by Standard & Poors
and Moody's, we will not have to make an offer to
purchase the notes upon the occurrence of a change
of control unless the notes are downgraded or R&B
Falcon is put on a negative credit watch or there
is a default which has occurred and is continuing.
In such a case, we will be required to offer to
repurchase all the notes at a purchase price equal
to 101% of the principal amount plus accrued and
unpaid interest to the date of repurchase.
COVENANTS.................. The indenture restricts R&B Falcon's ability, and
the ability of its subsidiaries, to:
- borrow money;
- pay dividends on stock or purchase stock or make
payments on subordinated indebtedness;
- make investments;
- use assets as security in other transactions;
- engage in sale/leaseback transactions;
- sell substantially all of its assets or merge or
consolidate with other companies;
- sell assets; and
- enter into transactions with affiliates.
If R&B Falcon sells a sufficient amount of its
assets and does not reinvest the proceeds or repay
indebtedness as provided in the indenture, R&B
Falcon will be required to prepay its loans from us
to provide funds to enable us to offer to purchase
notes. We will be required to offer to purchase
notes at a purchase price equal to 100% of the
principal amount thereof, plus accrued and unpaid
interest, from the proceeds of these asset sales.
The Indenture also restricts our ability to conduct
any activities not connected with the issuance of
the notes and the enforcement of our rights in the
collateral for the notes.
These limitations are subject to important
qualifications and exceptions.
TRANSFER RESTRICTIONS...... The notes may only be transferred to Qualified
Institutional Buyers, institutional Accredited
Investors and our affiliates. See "Transfer
Restrictions."
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 OF R&B FALCON CORPORATION
The summary consolidated financial data of R&B Falcon 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 R&B Falcon's
unaudited condensed consolidated financial statements and include all
adjustments (consisting of only normal recurring adjustments) that its
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 R&B Falcon's 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 R&B Falcon's 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(2)....................... 5.3x --
Depreciation and amortization............................... $ 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 AND RATIO 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(2)....................... -- 1.8x 3.4x 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
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998(3)
----------- ------ -------- -------- --------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AND RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C>
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>
- ---------------
(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. For the year ended December 31, 1994 and the
three months ended March 31, 1999, earnings were insufficient to cover fixed
charges by $3.4 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 R&B Falcon or its subsidiaries. Approximately $273.4
million of outstanding indebtedness at December 31, 1998 was retired with a
portion of R&B Falcon's borrowings from RBF Finance Co. and the proceeds
from the sale of its $200 million senior notes. Giving effect to this
retirement and assuming an average effective interest rate of approximately
11.7% on this debt and giving effect to the amortization of debt issuance
costs, the pro forma ratio of earnings to fixed charges 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 R&B Falcon acquired on
December 1, 1998, only for the month of December 1998 because it accounted
for this acquisition under the purchase method.
10
<PAGE> 13
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 R&B Falcon's historical
financial statements and from the historical financial statements of Cliffs
Drilling Company, which R&B Falcon 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 R&B Falcon'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 R&B Falcon's historical financial statements, which are
incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998(4)
-------------
(IN MILLIONS,
EXCEPT RATIO
AMOUNTS)
(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(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 R&B Falcon's 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) R&B Falcon believes 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. 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 R&B Falcon or its subsidiaries.
(4) The pro forma data does not reflect any of the proceeds from R&B Falcon's
offering of the outstanding notes completed in December 1998, or the
application of the net proceeds from that offering, as it used the net
proceeds for general corporate purposes, including funding its deepwater
construction program. Additionally, the pro forma data does not reflect the
proceeds from the 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 R&B Falcon used these
proceeds to repay its revolving credit facility and its short-term
obligations and for general corporate purposes, including funding its
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 R&B Falcon's
offering in April 1999 of preferred stock and warrants since it is using
these proceeds for general corporate purposes, including funding its
deepwater rig construction program.
11
<PAGE> 14
SUMMARY FINANCIAL DATA OF RBF FINANCE CO.
The summary financial data set forth below is derived from our audited
financial statements as of March 31, 1999, and for the period from inception
(March 19, 1999) to March 31, 1999. The summary financial data below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements (including the
Notes thereto) included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 19, 1999)
TO MARCH 31, 1999
-----------------
(IN THOUSANDS,
EXCEPT RATIO
AMOUNTS)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................................ $ 1,316
Interest expense.......................................... 1,226
Operating income.......................................... 90
Net income................................................ 58
OTHER DATA:
Ratio of earnings to fixed charges(1)..................... 1.1x
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Working capital........................................... $303,159
Total assets.............................................. 801,317
Total debt................................................ 800,000
Stockholders' equity...................................... 59
</TABLE>
- ---------------
(1) For the purpose of this calculation "earnings" represents income before
income tax expense, 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.
12
<PAGE> 15
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 notes as well as the exchange
notes.
We are a limited purpose corporation formed solely to issue the notes and
loan the proceeds from the sale of the notes to R&B Falcon. Our only material
assets are the loans to R&B Falcon, and our only material source of revenue is
R&B Falcon's payments under those loans. As a result, our ability to make
payments under the notes is entirely dependent on R&B Falcon's ability to make
payments under the loans or, to the extent R&B Falcon does not make its
payments, on our ability to realize on the collateral that secures those loans.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our and R&B Falcon's 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.
RISKS RELATED TO R&B FALCON'S BUSINESS
DEPRESSED INDUSTRY CONDITIONS, COMBINED WITH ITS SUBSTANTIAL CAPITAL
REQUIREMENTS, HAVE ADVERSELY AFFECTED R&B FALCON'S LIQUIDITY.
R&B Falcon is currently constructing or significantly upgrading six
wholly-owned deepwater drilling rigs and has recently completed the construction
of one deepwater drilling rig. R&B Falcon estimates the gross capital
expenditures on these projects will be approximately $1.9 billion, of which
approximately $0.9 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 R&B Falcon is one
of the largest contractors. Although R&B Falcon's operating revenues increased
by $99.6 million from 1997 to 1998, on a quarterly basis during 1998, it
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 R&B Falcon's EBITDA increased by $114.5 million from 1997 to 1998, it
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 R&B Falcon's
declining operating results, its cash flow from operations and cash on hand,
including the net proceeds from its debt offering in March 1999, its borrowings
from us and its preferred stock and warrant offering in April 1999 may not be
sufficient to satisfy its short-term and long-term working capital needs,
planned investments, capital expenditures, debt, lease and other payment
obligations. Accordingly, R&B Falcon may be required to obtain additional
capital through debt and/or equity financings to meet its currently projected
obligations. R&B Falcon is currently evaluating two project financings to meet a
portion of its additional capital requirements. There can be no assurance,
however, that R&B Falcon can obtain these or any other additional financings or,
if obtained, that they will be on favorable terms or for the amount it needs. As
a result of its debt offering in March 1999 and its borrowings from us, R&B
Falcon has a limited ability under its indenture covenants to incur additional
recourse indebtedness and to secure that debt. In the event that R&B Falcon is
unable to obtain the requisite financing, it would have to sell assets or
terminate or suspend one or more construction projects. Termination or
suspension of a project may subject R&B Falcon to claims for penalties or
damages under the construction contracts or drilling contracts for rigs that are
being constructed. Accordingly, R&B Falcon's inability to complete such
financings would have a material adverse effect on its financial condition and
its ability to repay the notes.
R&B FALCON IS DEPENDENT ON THE OIL AND GAS INDUSTRY AND MARKET PRICES. DECLINES
IN OIL AND GAS PRICES HAVE ADVERSELY AFFECTED ITS DAYRATES AND RIG UTILIZATION.
R&B Falcon must generate substantial cash flow in order to repay the notes.
The amount of cash flow it generates depends on the level of activity in
offshore oil and gas exploration and development. Oil and
13
<PAGE> 16
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 R&B Falcon's rig utilization and dayrates. Utilization of R&B
Falcon's domestic jack-up fleet has declined from approximately 100% in January
1998 to approximately 32% in March 1999, and dayrates on new contracts have
declined from a range of $35,000 to $40,000 in January 1998 to a range of
$10,000 to $13,000 at present. Dayrates for R&B Falcon's domestic barge drilling
rig fleet have not declined materially, but utilization of the fleet declined
from approximately 96% in January 1998 to approximately 24% in March 1999. R&B
Falcon's 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 oil and
gas industry do not improve in the future, R&B Falcon may be unable to repay the
notes.
R&B FALCON HAS A SIGNIFICANT AMOUNT OF DEBT.
R&B Falcon has a significant amount of debt. At March 31, 1999, R&B
Falcon's total indebtedness was approximately $2.7 billion, which would have
been 63% of its total book value capitalization, as adjusted to give effect to
its preferred stock and warrant offering in April 1999. This substantial
indebtedness will have important consequences to us and, therefore, to you. For
example, it will:
- make it more difficult for R&B Falcon to make payments on the loans from
us, thus making it more difficult for us to make the required payments on
the notes;
- increase R&B Falcon's vulnerability to general adverse economic and
industry conditions;
- limit R&B Falcon's ability to fund future capital expenditures and
working capital and other general corporate requirements;
- potentially require R&B Falcon to sell assets or to terminate or suspend
some of its deepwater drilling construction projects;
- limit R&B Falcon's flexibility in planning for, or reacting to, changes
in its business and its industry;
- place R&B Falcon at a competitive disadvantage compared to its
competitors that have less debt; and
- limit R&B Falcon's ability to borrow additional funds because of
financial and other restrictive covenants governing its debt.
RESTRICTIONS ON R&B FALCON'S ABILITY TO PREPAY THE LOANS, AND THUS OUR ABILITY
TO REDEEM THE NOTES, MAY LIMIT R&B FALCON'S FINANCIAL FLEXIBILITY.
R&B Falcon is subject to restrictions with respect to the loans from us
that may limit its flexibility in structuring or refinancing existing or future
debt. We may redeem the notes, and R&B Falcon may prepay the loans, but only
upon payment of a make-whole premium.
As of March 31, 1999, R&B Falcon had $900 million of indebtedness with
maturity dates on or prior to the maturity of the 11% Senior Secured Notes due
2006, and $2.1 billion of indebtedness with maturity dates on or prior to the
maturity of the 11 3/8% Senior Secured Notes due 2009. These substantial
repayment obligations may adversely affect its ability to refinance the loans at
maturity.
R&B FALCON HAS COMMITTED SIGNIFICANT RESOURCES TO THE DEEPWATER DRILLING MARKET.
R&B Falcon has committed significant financial resources to the deepwater
drilling market through its deepwater rig construction projects. The cost of
these projects will exceed the cash flow from the contractual commitments that
R&B Falcon has for these projects. If the deepwater market continues to weaken,
R&B Falcon 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 R&B Falcon is obligated to use the Deepwater Frontier, it
will be
14
<PAGE> 17
obligated to pay the full dayrate of $165,000 to the limited liability company
that owns this rig, without regard to whether R&B Falcon has a customer for this
rig. These developments would result in reduced cash flows and profitability,
and adversely affect R&B Falcon's ability to repay the notes.
MOST OF THE FUNDS TO PAY R&B FALCON'S DEBT OBLIGATIONS WILL COME FROM ITS
SUBSIDIARIES, AND OUR RIGHT TO RECEIVE PAYMENTS ON THE LOANS, AND THEREFORE,
YOUR RIGHT TO RECEIVE PAYMENT ON THE NOTES, IS JUNIOR TO THE INDEBTEDNESS OF R&B
FALCON'S NON-GUARANTOR SUBSIDIARIES.
Most of R&B Falcon's operating income and cash flow from operations is
generated by its subsidiaries. R&B Falcon expects that funds necessary to meet
its debt service obligations will be provided primarily by distributions or
advances from R&B Falcon's subsidiaries. R&B Falcon's ability to obtain cash
from its subsidiaries to meet its debt service obligations, including the
payment of principal and interest on the loans, may be limited by contractual
and legal restrictions on its subsidiaries and by their financial condition and
requirements for cash to conduct their operations.
None of R&B Falcon's subsidiaries currently guarantee the notes. R&B
Falcon's subsidiaries will not be obligated with respect to the notes unless any
subsidiary guarantees any of its funded indebtedness on or after the date the
notes were issued. If this occurs, the subsidiary will be obligated to equally
and ratably guarantee the notes. Because R&B Falcon's subsidiaries do not
guarantee the notes, the claims of creditors of its subsidiaries effectively
have priority on the assets and earnings of the subsidiaries over the claims of
the holders of the notes. If any subsidiary of R&B Falcon is required to
guarantee the notes in the future, its guarantee will be subordinate to any
secured indebtedness of the subsidiary to the extent of the value of the
collateral securing the indebtedness.
In the event of an insolvency, liquidation or reorganization of any of R&B
Falcon's subsidiaries, any creditors of the subsidiary, including trade
creditors, would be entitled to payment in full from the assets of the
subsidiary before R&B Falcon, as a stockholder, would be entitled to receive any
distribution from the subsidiary. As of March 31, 1999, R&B Falcon's
subsidiaries had approximately $225.8 million of indebtedness, in addition to
other substantial liabilities (primarily trade payables and accrued expenses).
All of this indebtedness and these other liabilities effectively ranks senior to
our loans to R&B Falcon, and therefore to the notes.
R&B FALCON'S CUSTOMERS MAY SEEK TO CANCEL OR RENEGOTIATE CONTRACTS DURING
DEPRESSED MARKET CONDITIONS.
During depressed market conditions like those R&B Falcon is 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 R&B
Falcon 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 the Jack Bates semisubmersible
rig, primarily based on alleged performance breaches by the drilling
contractors. R&B Falcon's customers for its drillship Peregrine VII and its
semisubmersible Falcon 100 recently cancelled their contracts with R&B Falcon
because of late delivery of these rigs. If R&B Falcon's customers cancel some of
its significant contracts, it could have a material adverse effect on its
financial condition and its ability to meet its obligations under the loans.
R&B FALCON'S CUSTOMERS MAY CANCEL THEIR DEEPWATER CONTRACTS IF IT EXPERIENCES
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 R&B Falcon's fleet. R&B Falcon 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 R&B
Falcon encounters these or other operational problems on its deepwater rigs, it
will lose revenues, and its customers may have the right to terminate the
drilling contracts. The likelihood that a customer may seek to terminate a
contract for operational problems is increased during market downturns like the
one currently being experienced. If R&B Falcon's customers
15
<PAGE> 18
cancel some of its significant contracts, it could have a material adverse
effect on its financial condition and its ability to meet its obligations under
the loans.
R&B FALCON'S CONSTRUCTION AND UPGRADE PROJECTS ARE SUBJECT TO DELAYS AND COST
OVERRUNS.
R&B Falcon's 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.
R&B Falcon's conversion projects are particularly susceptible to cost overruns
and delays due to the engineering and construction uncertainties inherent in
conversion projects. The customers for R&B Falcon's drillship Peregrine VII and
semisubmersible Falcon 100 have cancelled their drilling contracts due to late
delivery of these rigs. R&B Falcon will be subject to late delivery penalties to
its customer for its drillship Peregrine IV, and its drilling contract for this
rig gives the customer cancellation rights if delivery is delayed significantly.
R&B Falcon may also be subject to late delivery penalties under the recently
cancelled contract for its semisubmersible Falcon 100. R&B Falcon has recently
extended the delivery dates for, and increased its estimated costs of, several
of its deepwater rig projects. Any additional cost overruns or delays will
adversely affect R&B Falcon's financial condition and results of operations and
make it more difficult for R&B Falcon to make the required payments on the
loans.
REDUCED DAYRATES RESULTING FROM COMPETITION ADVERSELY EFFECT R&B FALCON'S
RESULTS OF OPERATIONS BECAUSE IT CANNOT SIGNIFICANTLY REDUCE ITS 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 R&B Falcon can contract our rigs. Because R&B Falcon's rig operating
costs cannot be materially reduced, any reduction in dayrates adversely affects
its results of operations.
R&B FALCON IS SUBJECT TO OPERATIONAL RISKS.
R&B Falcon's 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. R&B Falcon may incur substantial liabilities or losses as a result
of these hazards. While R&B Falcon maintains insurance protection against some
of these risks, and seeks to obtain indemnity agreements from its 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, its insurance or contractual indemnity protection may not be sufficient
to protect it under all circumstances or against all hazards.
R&B FALCON CONDUCTS TURNKEY DRILLING OPERATIONS.
R&B Falcon conducts most of its drilling services under daywork drilling
contracts where the customer pays for the period of time required to drill or
workover a well. R&B Falcon expects to provide an increasing portion of its
services under turnkey drilling contracts. Under turnkey drilling contracts, R&B
Falcon contracts to drill a well to a contract depth under specified conditions
for a fixed price. R&B Falcon's risks under a turnkey drilling contract are
substantially greater than on a well drilled on a daywork basis because it
assumes 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.
16
<PAGE> 19
R&B FALCON CONDUCTS FOREIGN OPERATIONS.
R&B Falcon currently operates its rigs worldwide. Operations outside the
United States involve additional risks, including (1) war and civil
disturbances, (2) general strikes, (3) regional economic downturns and (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
R&B Falcon's 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.
RISKS RELATED TO THE NATURE OF THE NOTES
THERE IS NO ESTABLISHED MARKET FOR THE NOTES.
The notes that are currently outstanding have not been registered under the
Securities Act or any state securities law. Therefore, these notes may not be
offered or sold except under an effective registration statement on an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act and any applicable state securities laws.
Although the exchange notes may be resold or otherwise transferred by the
holders (who are not affiliates of 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 exchange notes on a national securities exchange or for
quotation of the exchange notes on an automated dealer quotation system. The
liquidity of any market for the exchange notes will depend upon the number of
holders of the exchange notes, the interest of securities dealers in making a
market in the exchange notes and other factors. Accordingly, there can be no
assurance as to the development or liquidity of any market for the exchange
notes. If an active trading market for the exchange notes does not develop, the
market price and liquidity of the exchange notes may be adversely affected. If
the exchange notes are traded, they may trade at a discount from their face
value, depending upon prevailing interest rates, the market for similar
securities, R&B Falcon's performance and other factors. The exchange notes will
be eligible for trading in The PORTAL Market.
Even though we are registering our offer of the exchange notes 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
exchange notes only in compliance with provisions of Rule 144 under the
Securities Act. In addition, holders of the exchange notes will only be
permitted to resell or otherwise transfer the notes to Qualified Institutional
Buyers, institutional Accredited Investors or certain of our affiliates.
YOUR NOTES WILL CONTINUE TO BE SUBJECT TO TRANSFER RESTRICTIONS IF YOU DO NOT
EXCHANGE THEM IN THE EXCHANGE OFFER.
If you do not exchange your notes for the exchange notes in the exchange
offer, you will continue to be subject to the restrictions on transfer of your
notes described in the legend on your notes. The restrictions on transfer of
your outstanding notes arise because we issued the notes 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 notes if they are registered under the
Securities Act and applicable state securities laws, or offered and sold under
an exemption from
17
<PAGE> 20
these registration requirements. We do not intend to register the currently
outstanding notes under the Securities Act. In addition, if you exchange your
notes in the exchange offer for the purpose of participating in a distribution
of the exchange notes, 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 notes
decreases because noteholders tendered their notes in the exchange offer, the
trading market, if any, for the currently outstanding notes after the closing of
the exchange offer would be adversely affected.
THERE WILL ALSO BE RESTRICTIONS ON TRANSFERS OF THE EXCHANGE NOTES AFTER THE
EXCHANGE OFFER.
Holders of notes will only be permitted to resell or otherwise transfer
their notes to Qualified Institutional Buyers, institutional Accredited
Investors or certain of our affiliates.
RIG VALUES FLUCTUATE AND A RIG'S VALUE MAY BE LESS THAN THE AMOUNT OF THE LOAN
THAT THE RIG IS PLEDGED TO SECURE.
The notes are secured by a collateral assignment of promissory notes
payable to us by R&B Falcon and liens securing those promissory notes. It is
contemplated that such liens will ultimately consist primarily of first priority
ship mortgages on drilling rigs. The market value of the mortgaged rigs may
fluctuate significantly. There can be no assurance that the proceeds from the
sale of any rig upon the collateral agent's exercise of remedies following an
event of default under the loans will be sufficient to redeem the required
principal amount of the notes. R&B Falcon is not required under the loans or the
ship mortgages to maintain any minimum value of any rig, and the future value of
a rig could be considerably less than its acquisition cost or the applicable
mandatory redemption amount for the related loan secured thereby. If the
proceeds from the sale of a rig is not sufficient to make all payments due under
the related loan, the holders of the notes will have only senior unsecured
claims against us and R&B Falcon to the extent of the deficiency.
THE LOANS TO R&B FALCON FROM US WILL NOT BE CROSS-COLLATERALIZED, SO IF THE
FORECLOSURE PROCEEDS OF ONE RIG EXCEED THE LOAN AMOUNT FOR THAT RIG, THE EXCESS
WILL NOT BE APPLIED TO ANY DEFICIENCIES IN THE FORECLOSURE PROCEEDS FOR OTHER
RIGS.
Each loan is secured by the ship mortgage or the construction contract and
equipment relating to one rig. If the net proceeds from a foreclosure on one of
the mortgaged rigs is greater than the amount of the loan for that rig, the
collateral agent will pay the excess proceeds to R&B Falcon. If the net proceeds
from a foreclosure on one of the other mortgaged rigs is less than amount of the
loan for that rig, the deficiency will be R&B Falcon's unsecured, senior
obligation, and will share pro rata with R&B Falcon's other unsecured senior
obligations in R&B Falcon's remaining, unencumbered assets.
PRIOR TO COMPLETION OF THE DEEPWATER IV, R&B FALCON CANNOT GRANT A SHIP MORTGAGE
TO SECURE THE LOAN RELATED TO THIS VESSEL, BUT CAN ONLY ASSIGN ITS RIGHTS UNDER
THE CONSTRUCTION CONTRACT.
Because the Deepwater IV is a newbuild drillship that has not yet been
documented and that R&B Falcon does not yet own, R&B Falcon cannot grant a ship
mortgage on this drilling rig to secure our loans to R&B Falcon. Instead, R&B
Falcon initially can only collaterally assign its rights under the construction
contract for this drilling rig to secure the loan with respect to this rig. This
type of security interest does not afford us the same level of protection as a
ship mortgage, and therefore provides a lesser degree of security for the loan.
If an event of default occurs under the notes prior to the time when R&B Falcon
grants a first priority ship mortgage on this vessel, holders of the notes may
not be able to recover as much under the loans with respect to this vessel as
they would have been able to recover if the vessel was subject to a valid ship
mortgage.
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THERE IS NO ASSURANCE THAT A RIG UNDER CONSTRUCTION WILL BE COMPLETED. IF R&B
FALCON FAILS TO COMPLETE CONSTRUCTION OF THE DEEPWATER IV, WHICH IS TO BE
MORTGAGED AS SECURITY FOR ONE OF OUR LOAN TO R&B FALCON, THERE IS A GREATER RISK
THAT SUCH LOAN MAY BE UNDERCOLLATERALIZED.
Our loan to R&B Falcon related to the Deepwater IV is secured by security
interests in the construction contract and equipment R&B Falcon has purchased
for the vessel. The loans on the Peregrine IV and Peregrine VII are secured by
ship mortgages on these vessels, both of which are still not completed. If a rig
is not completed, its value as collateral will be impaired, with the possible
result that the loan secured by such vessel would be undercollateralized.
OUR LOANS TO R&B FALCON RELATING TO THE DEEPWATER IV ARE CURRENTLY SECURED IN
PART BY UNPERFECTED LIENS.
The liens initially granted by R&B Falcon on certain of the equipment to be
installed on the Deepwater IV are not perfected. When this drillship is
completed, a perfected first priority ship mortgage on the entirety of the
vessel will secure the loan related to this vessel. If R&B Falcon were to file
bankruptcy within one year after completion of this vessel, the mortgage on this
vessel may be invalid as to other creditors of R&B Falcon insofar as it pertains
to equipment that was not subject to a perfected lien at the time the related
loan was made.
YOUR RIGHTS IN THE COLLATERAL MAY BE ADVERSELY AFFECTED BY BANKRUPTCY
PROCEEDINGS.
The right of the indenture trustee and/or the collateral agent to repossess
and dispose of the collateral upon acceleration of our loans to R&B Falcon and
the notes is likely to be significantly impaired by bankruptcy law if a
bankruptcy proceeding were to be commenced by or against R&B Falcon prior to or
possibly even after the trustee has repossessed and disposed of the collateral.
Under the bankruptcy code, a secured creditor such as the trustee is prohibited
from repossessing its security from a debtor in a bankruptcy case, or from
disposing of security repossessed from such debtor, without bankruptcy court
approval. Moreover, bankruptcy law generally permits the debtor to continue to
return and to use collateral (and the proceeds, products, offspring, rents or
profits of such collateral) even though the debtor is in default under the
applicable debt instruments, provided generally that the secured creditor is
given "adequate protection." There is not a definition of the term "adequate
protection" and because of the broad discretionary powers of a bankruptcy court,
it is impossible to predict how long payments under the loans and the notes
could be delayed following commencement of a bankruptcy case, whether or when
the trustee would repossess or dispose of the collateral or whether or to what
extent holders of the notes would be compensated for any delay in payment or
loss of value of the collateral through the requirements of "adequate
protection." In addition, further delays and impairments could result if we and
R&B Falcon were substantively consolidated. Furthermore, in the event the
bankruptcy court determines that the value of the collateral is not sufficient
to repay all amounts due on the notes, the holders of the notes would have
"undersecured claims." Federal bankruptcy laws do not permit the payment and/or
accrual of interest, costs and attorneys' fees for "undersecured claims" during
the debtor's bankruptcy case.
THE SHIP MORTGAGES ON THE RIGS ARE SUBORDINATED TO OTHER TYPES OF MARITIME
LIENS.
R&B Falcon has registered first priority mortgages on nine rigs in favor of
the collateral agent for the benefit of the holders of the notes. Upon flagging,
R&B Falcon will register first priority ship mortgages on the one remaining rig
currently under construction. Ship mortgages are generally subordinate to some
kinds of maritime liens that arise by operation of law. The priority that these
mortgages would have against the claims of the other lien creditors in an
enforcement proceeding is generally determined by, and will vary in accordance
with, the laws of the country where the proceeding is brought. The following
liens and claims frequently take priority over rig mortgages: (1) costs arising
out of the arrest of a rig or the subsequent sale of the rig; (2) wages and
other sums due to the master, officers and other members of the rig's complement
in respect of their employment on the rig; (3) port, canal and other waterway
dues and pilotage dues; (4) claims against the rig owner in respect of loss of
life or personal injury occurring in connection with the operation of the rig;
(5) claims against the rig owner, based on tort and not capable of being based
on contract, in respect of loss of or damage to property occurring in connection
with the
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operation of the rig; (6) claims for salvage, wreck removal and contribution in
general average; and (7) liens exercisable by a rigbuilder or repairer over a
rig when the rigbuilder or repairer has possession of the rig prior to the date
the mortgage is filed with the flagging jurisdiction.
FORECLOSING ON SHIP MORTGAGES CAN BE DIFFICULT IN SOME JURISDICTIONS.
Upon an event of default under the notes, the holders of a majority of the
aggregate principal amount of the notes then outstanding may direct the
collateral agent to commence enforcement proceedings under the ship mortgages
that will secure our loans to R&B Falcon. R&B Falcon will operate the rigs
securing these loans in international waters and various foreign jurisdictions,
and there can be no assurance that, if enforcement proceedings must be commenced
against a particular rig, that rig will be located in a jurisdiction having
effective or favorable procedures and lien priorities. Each of the mortgaged
rigs is, or is expected to be upon completion of the rig, registered under the
Panamanian, Bahamian or U.S. flag. The mortgages on these rigs will be first
preferred ship mortgage liens under Panamanian, Bahamian or U.S. maritime laws.
Panamanian, Bahamian and U.S. ship mortgages are generally recognized by U.S.
and foreign courts in accordance with their terms, to the extent that they do
not offend national sovereignty, public order or good morals of the
jurisdiction. Any enforcement proceedings could be subject to lengthy delays
that could result in increased custodial costs, deterioration in the condition
of the rig and substantial reduction in the value of the rig. Some jurisdictions
may provide no legal remedy for the enforcement of the ship mortgages, or a
remedy dependent on court proceedings so expensive and time consuming as to be
impracticable. Furthermore, some jurisdictions may not permit a rig to be sold
prior to entry of a judgment, resulting in a lengthy delay that could result in
increased custodial costs, deterioration in the condition of the rig and
substantial reduction in the value of the rig.
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 and R&B Falcon's 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 or R&B Falcon's actual future activities and results of operations to
be materially different from those suggested or described in this prospectus.
These risks include: R&B Falcon's dependence on the oil and gas industry; the
effects of recent declines in oil and gas prices; R&B Falcon's commitment to the
deepwater drilling market; R&B Falcon's ability to secure adequate financing,
including financing to fund its deepwater drilling program; the risks involved
in R&B Falcon's construction and upgrade projects; competition; operational
risks; risks involved in turnkey operations and foreign operations; the age of
R&B Falcon's rigs; government regulation and environmental matters; R&B Falcon's
ability to integrate and realize anticipated synergies relating to the merger
with Cliffs Drilling Company; R&B Falcon's 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 or R&B Falcon's actual results may
vary materially from those expected, estimated or projected.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OUTSTANDING NOTES
Subject to the terms and conditions set forth in this prospectus and in the
letter of transmittal, we are offering to exchange up to $400 million of our
outstanding 11% Senior Secured Notes due 2006 for an equal amount of our 11%
Senior Secured Notes due 2006, and up to $400 million of our outstanding 11 3/8%
Senior Secured Notes due 2009 for an equal amount of our 11 3/8% Senior Secured
Notes due 2009. We will accept for exchange outstanding 11% Senior Secured Notes
due 2006 and 11 3/8% Senior Secured Notes due 2009 which are properly tendered
on or prior to the expiration date and not withdrawn as permitted below. As used
in this prospectus, the term "expiration date" means 5:00 p.m., New York City
time, on July 13, 1999; provided, however, that if we, in our sole discretion,
have extended the period of time during which the exchange offer is open, the
term "expiration date" means the latest time and date to which we extend the
exchange offer.
The currently outstanding notes were issued on March 26, 1999 in a private
offering. As of the date of this prospectus, $400 million aggregate principal
amount of 11% Senior Secured Notes due 2006 and $400 million aggregate principal
amount of 11 3/8% Senior Secured Notes due 2009 are outstanding. This prospectus
and the letter of transmittal are first being sent on or about June 14, 1999, to
all holders of outstanding notes known to us.
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the exchange offer is open, and thereby delay
acceptance for exchange of any outstanding notes, by giving oral or written
notice of such extension to the holders of outstanding notes as described below.
During any extension, all outstanding notes previously tendered will remain
subject to the exchange offer and may be accepted for exchange by us. We will
return at no expense to the holder any outstanding notes not accepted for
exchange as promptly as practicable after the expiration or termination of the
exchange offer.
Outstanding notes tendered in the exchange offer must be in denominations
of principal amount of $1,000 and any integral multiple thereof.
If any of the events specified in "-- Conditions to the Exchange Offer"
should occur, we expressly reserve the right to amend or terminate the exchange
offer, and not to accept for exchange any outstanding notes not already accepted
for exchange. We will give oral or written notice of any extension, amendment,
non-acceptance or termination to holders of outstanding notes as promptly as
practicable. In the case of an extension, we will issue a press release or other
public announcement no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
Following consummation of the exchange offer, we may, in our sole
discretion, commence one or more additional exchange offers to those holders of
currently outstanding notes who do not exchange their notes in this exchange
offer on terms which may differ from those contained in this prospectus. We may
use this prospectus, as amended or supplemented from time to time, in connection
with additional exchange offers. These additional exchange offers may take place
from time to time until all of the currently outstanding notes have been
exchanged for exchange notes.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
The tender by a holder of the outstanding notes and our acceptance of that
holder's notes will constitute a binding agreement between us and that holder
subject to the terms and conditions set forth in this prospectus and the
accompanying letter of transmittal. Except as set forth below in the section
entitled "Guaranteed Delivery Procedures," to tender any series of the
outstanding notes in the exchange offer, a holder must transmit to United States
Trust Company of New York, the exchange agent, at the address set forth under
"-- Exchange Agent" on or prior to the expiration date either:
- a properly completed and duly executed letter of transmittal, including
all other documents required by the letter of transmittal, or
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- if the notes are tendered under to the book-entry procedures set forth
below, the tendering note holder may transmit an agent's message
(described below) instead of the letter of transmittal.
In addition, on or prior to the expiration date, either:
- the exchange agent must receive the certificates for the notes along with
the letter of transmittal; or
- the exchange agent must receive a timely confirmation of a book-entry
transfer of the tendered notes into the exchange agent's account at The
Depository Trust Company according to the procedure for book-entry
transfer described below, along with a letter of transmittal or an
agent's message in lieu of the letter of transmittal; or
- the holder must comply with the guaranteed delivery procedures described
below.
An "agent's message" is a message, transmitted by The Depository Trust
Company and received by the Exchange Agent and forming a part of the book-entry
confirmation, which states that The Depository Trust Company has received an
express acknowledgment from the tendering holder that the holder has received
and agrees to be bound by the letter of transmittal and that we may enforce the
letter of transmittal against the holder.
The method of delivery of outstanding notes, letters of transmittal or
agent's messages and all other required documents is at the election and risk of
the holders. If such delivery is by mail, we recommend registered mail, properly
insured, with return receipt requested. In all cases, you should allow
sufficient time to assure timely delivery. Do not send letters of transmittal,
agent's messages or outstanding notes to us.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the outstanding notes surrendered for
exchange are tendered either by a registered holder of the notes who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal or for the account of an eligible
institution. An "eligible institution" is a firm which is a member of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc. or a commercial bank or trust company having an
office or correspondent in the United States. If signatures on a letter of
transmittal or a notice of withdrawal are required to be guaranteed, the
guarantor must be an eligible institution. If outstanding notes are registered
in the name of a person other than a signer of the letter of transmittal, the
outstanding notes surrendered for exchange must be endorsed by, or be
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by us in our sole discretion, duly executed by,
the registered holder with the signature guaranteed by an eligible institution.
We will determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of outstanding notes tendered for
exchange in our sole discretion. Our determination will be final and binding. We
reserve the absolute right to reject any and all tenders of outstanding notes
improperly tendered or to not accept any outstanding notes which acceptance
might, in our judgment or that of our counsel, be unlawful. We also reserve the
absolute right to waive any defects or irregularities or conditions of the
exchange offer as to any outstanding notes either before or after the expiration
date (including the right to waive the ineligibility of any holder who seeks to
tender outstanding notes in the exchange offer). Our interpretation of the terms
and conditions of the exchange offer as to any particular outstanding notes
either before or after the expiration date (including the letter of transmittal
and its instructions) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of outstanding notes
for exchange must be cured within such reasonable period of time as we shall
determine. Neither us, the exchange agent nor any other person shall be under
any duty to give notification of any defect or irregularity with respect to any
tender of outstanding notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
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If a person other than the registered holder of outstanding notes signs the
letter of transmittal, the outstanding notes must be endorsed or accompanied by
appropriate powers of attorney, in either case signed exactly as the name of the
registered holder that appears on the outstanding notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any outstanding notes or powers of
attorney, such persons should so indicate when signing, and you must submit
proper evidence satisfactory to us of such persons' authority to so act unless
we waive this requirement.
By tendering, each holder represents to us that, among other things, the
exchange notes acquired in the exchange offer are being obtained in the ordinary
course of business of the person receiving the exchange notes, whether or not
the person is the holder, and that neither the holder nor any person for whom
the holder is acting has any arrangement or understanding with any person to
participate in the distribution of the exchange notes. In the case of a holder
that is not a broker-dealer, the holder, by tendering, also represents to us
that the holder is not engaged in, nor intends to engage in, a distribution of
the exchange notes. If any holder or any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of our company, or is engaged in
or intends to engage in or has an arrangement or understanding with any person
to participate in a distribution of the exchange notes to be acquired in the
exchange offer, the holder or any such other person could not rely on the
applicable interpretations of the staff of the SEC and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
exchange notes for its own account in exchange for outstanding notes, where the
outstanding notes were acquired by that broker dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the exchange notes.
See "Plan of Distribution." The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not admit
that it is an "underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all outstanding notes of
each series properly tendered and will issue the exchange notes of such series
promptly after acceptance of the outstanding notes. See "-- Certain Conditions
to the Exchange Offer." For purposes of the exchange offer, we shall be deemed
to have accepted properly tendered outstanding notes for exchange when, as and
if we have given oral or written notice to the exchange agent, with written
confirmation of any oral notice to be given promptly thereafter.
For each outstanding note accepted for exchange, the outstanding note
holder will receive an exchange note having a principal amount and maturity
equal to that of the surrendered outstanding note. Interest on the exchange
notes will accrue from March 26, 1999, the original issue date of the
outstanding notes. If we do not complete the exchange offer by September 22,
1999, then we are obligated to pay special interest on the outstanding notes.
The special interest amount shall be, with respect to the first 90-day period,
an amount equal to $0.05 per week per $1,000 principal amount of notes. The
special interest amount will increase by an additional $0.05 per week per $1,000
principal amount of notes for each subsequent 90-day period until we complete
the exchange offer, up to a maximum amount of $0.50 per week per $1,000
principal amount of notes. Payments of this special interest, if any, on
outstanding notes in exchange for which exchange notes were issued will be made
to the persons who, at the close of business on March 1 or September 1
immediately preceding the interest payment date, are registered holders of the
outstanding notes if such record date occurs prior to the exchange, or are
registered holders of the exchange notes if the record date occurs on or after
the date of the exchange, even if notes are cancelled after the record date and
on or before the interest payment date.
In all cases, issuance of exchange notes in the exchange offer will be made
only after the exchange agent timely receives either certificates for the
outstanding notes or a book-entry confirmation of the outstanding notes into the
exchange agent's account at The Depository Trust Company, a properly completed
and duly executed letter of transmittal and all other required documents or, in
the case of a
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book-entry confirmation, an agent's message. If for any reason set forth in the
terms and conditions of the exchange offer we do not accept any tendered notes
or if outstanding notes are submitted for a greater principal amount than the
holder desired to exchange, we will return such unaccepted or non-exchanged
outstanding notes without expense to the tendering holder (or, in the case of
outstanding notes tendered by book-entry transfer into the exchange agent's
account at The Depository Trust Company under the book-entry procedures
described below, such unaccepted or non-exchanged outstanding notes will be
credited to an account maintained with The Depository Trust Company) as promptly
as practicable after the expiration or termination of the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the outstanding notes at The Depository Trust Company for the exchange offer
within two business days after the date of this prospectus, and any financial
institution that is a participant in The Depository Trust Company's systems may
make book-entry delivery of outstanding notes by causing The Depository Trust
Company to transfer such outstanding notes into the exchange agent's account at
The Depository Trust Company in accordance with The Depository Trust Company's
procedures for transfer. However, although delivery of outstanding notes may be
effected through book-entry transfer at The Depository Trust Company, the letter
of transmittal or facsimile thereof, with any required signature guarantees, or
an agent's message in lieu of a letter of transmittal, and any other required
documents, must, in any case, be transmitted to and received by the exchange
agent at one of the addresses set forth below under "-- Exchange Agent" on or
prior to the expiration date or the guaranteed delivery procedures described
below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of any series of the outstanding notes desires to
tender such outstanding notes and the outstanding notes are not immediately
available, or time will not permit such holder's outstanding notes or other
required documents to reach the exchange agent before the expiration date, or
the procedure for book-entry transfer cannot be completed on a timely basis, a
tender may be effected if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed letter of
transmittal (or a facsimile thereof) and notice of guaranteed delivery,
substantially in the form provided by us (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address
of the holder of outstanding notes and the amount of outstanding notes
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 the notice of guaranteed delivery, the certificates for all
physically tendered outstanding notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, and any other documents
required by the letter of transmittal will be deposited by the eligible
institution with the exchange agent; and
- the exchange agent receives the certificates for all physically tendered
outstanding notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, and all other documents required by the
letter of transmittal, within three New York Stock Exchange trading days
after the date of execution of the notice of guaranteed delivery.
WITHDRAWAL RIGHTS
You may withdraw tenders of any series of the outstanding notes at any time
prior to the expiration date.
For a withdrawal to be effective, you must send a written notice of
withdrawal to the exchange agent at one of the addresses set forth below under
"-- Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the outstanding notes to be withdrawn, identify the
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outstanding notes to be withdrawn (including the principal amount of such
outstanding notes), and (where certificates for outstanding notes have been
transmitted) specify the name in which such outstanding notes are registered, if
different from that of the withdrawing holder. If certificates for outstanding
notes have been delivered or otherwise identified to the exchange agent, then,
prior to the release of such certificates the withdrawing holder must also
submit the serial numbers of the particular certificates to be withdrawn and a
signed notice of withdrawal with signatures guaranteed by an eligible
institution unless such holder is an eligible institution. If outstanding notes
have been tendered under the procedure for book-entry transfer described above,
any notice of withdrawal must specify the name and number of the account at The
Depository Trust Company to be credited with the withdrawn outstanding notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the us. Our determination will be final and binding on all
parties. Any outstanding notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the exchange offer. Any
outstanding notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder (or, in the case of outstanding notes tendered by book-entry
transfer into the exchange Agent's account at The Depository Trust Company under
the book-entry transfer procedures described above, such outstanding notes will
be credited to an account maintained with The Depository Trust Company for the
outstanding notes) as soon as practicable after withdrawal, rejection of tender
or termination of the exchange offer. Properly withdrawn outstanding notes may
be retendered by following one of the procedures described under "-- Procedures
for Tendering Outstanding Notes" above at any time on or prior to the expiration
date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue exchange notes in exchange for, any
outstanding notes. We may terminate or amend the exchange offer, if at any time
before the acceptance of such outstanding notes for exchange or the exchange of
the exchange notes for such outstanding notes, 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 United States Trust Company of New York as the exchange
agent for the exchange offer. All executed letters of transmittal should be
directed to the exchange agent at one of the addresses set forth below.
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 Overnight Delivery: By Registered or Certified Mail:
United States Trust Company of New York United States Trust Company of New York
770 Broadway, 13th Floor P.O. Box 843
New York, New York 10003 Cooper Station
Attention: Corporate Trust Services New York, New York 10276
Attention: Corporate Trust Services
by Facsimile: Confirm by Telephone:
(212) 420-6211 (800) 548-6565
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE IS NOT VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
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FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer.
We will pay the estimated cash expenses to be incurred in connection with
the exchange offer, which are estimated in the aggregate to be $325,000.
TRANSFER TAXES
Holders who tender their outstanding notes for exchange will not be
obligated to pay any transfer taxes in connection with the tender, except that
holders who instruct us to register exchange notes in the name of, or request
that outstanding notes not tendered or not accepted in the exchange offer be
returned to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OUTSTANDING NOTES
Holders of outstanding notes who do not exchange their outstanding notes
for exchange notes in the exchange offer will continue to be subject to the
provisions in the indenture regarding transfer and exchange of the outstanding
notes and the restrictions on transfer of such outstanding notes as set forth in
the legend thereon as a consequence of the issuance of the outstanding notes
under exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the outstanding notes may not be offered or sold, unless registered
under the Securities Act, except under an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. We do
not currently anticipate that we will register outstanding notes under the
Securities Act. See "Description of the Notes -- Registered Exchange Offer;
Registration Rights."
Based on interpretations by the staff of the SEC, as set forth in no-action
letters issued to third parties, we believe that exchange notes issued in the
exchange offer in exchange for outstanding notes may be offered for resale,
resold or otherwise transferred by holders thereof (other than any such holder
which is an "affiliate" of our company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such exchange notes are acquired
in the ordinary course of such holders' business and such holders have no
arrangement or understanding with any person to participate in the distribution
of such exchange notes. However, we do not intend to request the SEC to
consider, and the SEC has not considered, the exchange offer in the context of a
no-action letter and we cannot guarantee that the staff of the SEC would make a
similar determination with respect to the exchange offer as in such other
circumstances.
Each holder, other than a broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a distribution of exchange notes
and has no arrangement or understanding to participate in a distribution of
exchange notes. If any holder is an affiliate of our company, is engaged in or
intends to engage in or has any arrangement or understanding with respect to the
distribution of the exchange notes to be acquired in the exchange offer, such
holder:
- could not rely on the applicable interpretations of the staff of the SEC,
and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction.
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes, where such outstanding notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. See "Plan of Distribution."
26
<PAGE> 29
In addition, to comply with state securities laws, the exchange notes may
not be offered or sold in any state unless they have been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and is complied with. The offer and sale of the
exchange notes to "qualified institutional buyers" (as such term is defined
under Rule 144A of the Securities Act) is generally exempt from registration or
qualification under the state securities laws. We currently do not intend to
register or qualify the sale of the exchange notes in any state where an
exemption from registration or qualification is required and not available.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes. In consideration for issuing the exchange notes of a series as
contemplated in this prospectus, we will receive in exchange outstanding notes
of the corresponding series in like principal amount. The form and terms of each
series of the exchange notes are identical in all material respects to the form
and terms of such series of outstanding notes of the corresponding series,
except that:
- the offering of the exchange notes has been registered under the
Securities Act;
- the exchange notes will not be subject to transfer restrictions except as
set forth in "Transfer Restrictions"; and
- the holders of the exchange notes will not be entitled to registration or
other rights under the registration rights agreement, including the
payment of liquidated damages upon our failure to complete the exchange
offer or the occurrence of certain other events.
The outstanding notes surrendered in exchange for exchange notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
exchange notes will not result in a change in our indebtedness.
Our net proceeds from the private offering of the outstanding notes were
$800 million because R&B Falcon paid all of the expenses of the offering. The
net proceeds to R&B Falcon from our loans to them, after deducting discounts,
commissions and estimated fees and expenses in connection with the private
offering, were approximately $777.2 million. R&B Falcon used $350 million of
these net proceeds to reduce borrowings under its bank facility, $125 million to
repay indebtedness incurred in the construction of the Deepwater Millennium, and
$81 million to repay its portion of the indebtedness incurred by its 60% owned
subsidiary in the construction of the Deepwater Frontier. R&B Falcon has used or
will use the remaining proceeds from the private offering for planned capital
expenditures, working capital and other general corporate purposes.
27
<PAGE> 30
CAPITALIZATION OF RBF FINANCE CO.
The following table sets forth our unaudited consolidated capitalization as
of March 31, 1999. You should read this table along with our financial
statements and the related notes that are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
-------------------
AS
ACTUAL ADJUSTED
-------- --------
(IN THOUSANDS,
UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $303,101 $303,101(1)
======== ========
Long-term debt:
11% Senior Secured Notes due 2006......................... 400,000 400,000
11 3/8% Senior Secured Notes due 2009..................... 400,000 400,000
-------- --------
Total long-term debt.............................. 800,000 800,000
-------- --------
Stockholders' equity:
Common stock, par value $.01 per share.................... -- --
Capital in excess of par.................................. 1 1
Retained earnings......................................... 58 58
-------- --------
Total stockholders' equity.................................. 59 59
-------- --------
Total capitalization........................................ $800,059 $800,059
======== ========
</TABLE>
- ---------------
(1) Subsequent to March 31, 1999, we loaned this $303.1 million to R&B Falcon
Corporation.
28
<PAGE> 31
CAPITALIZATION OF R&B FALCON CORPORATION
The following table sets forth R&B Falcon's unaudited consolidated
capitalization as of March 31, 1999 and its unaudited consolidated
capitalization as adjusted to reflect its 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 R&B Falcon's 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 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.
29
<PAGE> 32
SELECTED FINANCIAL DATA
The selected financial data set forth below are derived from our audited
financial statements as of March 31, 1999 and for the period from inception
(March 19, 1999) to March 31, 1999. The selected financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements (including Notes
thereto) included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(MARCH 19, 1999
TO
MARCH 31, 1999)
---------------------
(IN THOUSANDS,
EXCEPT FOR
RATIO AMOUNTS
<S> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................................ $ 1,316
Interest expense.......................................... 1,226
Operating income.......................................... 90
Net income................................................ 58
OTHER DATA:
Cash used in operating activities......................... --
Cash used in investing activities......................... (496,900)
Cash provided by financing activities..................... 800,001
Ratio of earnings to fixed charges(1)..................... 1.1x
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
<S> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 303,159
Total assets.............................................. 801,317
Total debt................................................ 800,000
Stockholders' equity...................................... 59
</TABLE>
- ---------------
(1) For the purpose of this calculation "Earnings" represents income before
income tax expense, 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.
30
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a limited purpose corporation that has been recently organized
solely for the purpose of issuing the notes as our full recourse obligations and
loaning the proceeds of the sale of the notes to R&B Falcon. Our ability to make
payments on the notes is dependent on R&B Falcon making its payments to us under
these loans and, to the extent R&B Falcon is unable to make these payments, on
our ability to realize on the collateral that secures these loans. Also, R&B
Falcon has fully and unconditionally guaranteed our obligations under the notes.
Because of our dependence on R&B Falcon, you should read R&B Falcon's
Management's Discussion of Financial Condition and Results of Operations in its
Annual Report on Form 10-K for the year ended December 31, 1998 and its
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1999,
which are incorporated by reference in this prospectus. See "Where You Can Find
More Information" and "Incorporation by Reference."
RESULTS OF OPERATIONS
We were formed on March 19, 1999 and do not conduct any business operations
other than with respect to the administration of our loans to R&B Falcon and the
notes. Our only sources of revenue are the payments R&B Falcon makes to us on
the loans and interest earned on our cash deposits. Other than an immaterial
amount of general and administrative expenses, our only expense is the interest
expense recognized on the payments of interest under the notes. The interest
payable to us by R&B Falcon on the loans is 0.02% per year greater than the
interest we pay on the notes. Because the interest rates on the notes and the
loans are fixed, we are not subject to market risk with respect to changes in
interest rates.
LIQUIDITY AND CAPITAL RESOURCES
All of our future cash flows and long-term obligations are guaranteed by
R&B Falcon. The following is a description of R&B Falcon's industry conditions
and liquidity. R&B Falcon is currently constructing or significantly upgrading
six wholly-owned deepwater drilling rigs and has recently completed the
construction of one deepwater drilling rig. R&B Falcon estimates the gross
capital expenditures on these projects will be approximately $1.9 billion, of
which approximately $.9 billion remains to be funded by R&B Falcon. Since May
1998, there has been a downturn in demand for marine drilling rigs resulting in
a decline in rig utilization and dayrates. The decline has been particularly
dramatic in the domestic barge and jack-up rig markets where R&B Falcon is one
of the largest contractors. As a result, R&B Falcon experienced a decline in
operating revenues from the first quarter of 1998 to the first quarter of 1999.
Depending on the level of future cash flows from operations, R&B Falcon's cash
on hand, and funds available under its existing credit facilities may not be
sufficient to satisfy R&B Falcon's short-term and long-term working capital
needs, planned investments, capital expenditures, debt, lease and other payment
obligations, without selling assets or terminating construction contracts.
On March 26, 1999, R&B Falcon issued a series of 12 1/4% Senior Notes with
an aggregate principal amount of $200.0 million due 2006. As a result, R&B
Falcon received net proceeds of approximately $194.3 million after deducting
estimated offering related expenses. R&B Falcon used the proceeds from such
notes and from loans from us to repay existing indebtedness of approximately
$556.0 million and will use the remainder to acquire, construct, repair and
improve drilling rigs and for general corporate purposes.
On April 22, 1999, R&B Falcon issued 300,000 shares of 13.875% Senior
Cumulative Redeemable Preferred Stock and warrants to purchase 10,500,000 shares
of R&B Falcon's common stock at an exercise price of $9.50 per share. R&B Falcon
received net proceeds from the issuance of the preferred stock and warrants of
approximately $289.0 million. Each share of preferred stock has a liquidation
preference of $1,000 per share and one warrant entitles the holder to purchase
35 shares of R&B Falcon's common stock. The preferred stock is mandatorily
redeemable on, and the warrants expire on, May 1, 2009. Dividends on the
preferred stock are to be paid quarterly commencing on August 1, 1999 and at R&B
31
<PAGE> 34
Falcon's option may be paid in cash or, on or before May 1, 2004, in additional
shares of preferred stock. R&B Falcon 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% on or after May 1, 2007, in
each case plus accrued and unpaid dividends to the redemption date. In addition,
on or before May 1, 2002, R&B Falcon may redeem shares of the preferred stock
having an aggregate liquidation preference of up to $105.0 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. The warrants' estimated fair value of $48.0 million was recorded as a
discount to the preferred stock and will be amortized on a straight line basis
over ten years. Preferred stock dividends and the amortization of the warrants'
initial value will be deducted from net income to arrive at net income
applicable to common stockholders.
Proceeds from the $200.0 million senior notes, loans from us and the
preferred stock met a portion of R&B Falcon's capital requirements. However, it
may also be necessary for R&B Falcon to obtain additional capital through debt
and/or equity financings to meet its currently projected obligations. R&B Falcon
is currently evaluating two project financings to meet a portion of its
additional capital requirements. The first is an approximately $270.0 million
financing in the form of a synthetic lease that would be collateralized by the
drillship Deepwater Frontier, drilling contract revenues from such drillship and
a letter of credit. Proceeds of such financing, if obtained, would be used in
part to repay advances made to a limited liability R&B Falcon which will operate
the Deepwater Frontier and which is owned 60% by R&B Falcon and 40% by Conoco.
The second financing being contemplated is an approximately $250.0 million
project financing that would be collateralized by the semisubmersible RBS8M, as
well as the drilling contract revenues from such rig.
R&B Falcon currently believes it will be able to consummate the proposed
project financings. However, there can be no assurance that these or any other
additional financings can be obtained, or if obtained, that they will be on
terms favorable to R&B Falcon or for the amounts needed. Further, R&B Falcon has
limited ability under its indenture covenants to incur additional recourse
indebtedness and to secure that debt. If R&B Falcon is unable to obtain its
requisite financing, R&B Falcon may have to sell assets or terminate or suspend
one or more construction projects. Termination or suspension of a project may
subject R&B Falcon to claims for penalties or damages under the construction
contracts or drilling contracts for rigs that are being constructed. In
addition, asset sales made under duress in today's drilling market may not yield
attractive sales prices. Accordingly, the inability of R&B Falcon to complete
required financings would have a material adverse effect on R&B Falcon's
financial condition and its ability to repay its outstanding indebtedness.
Three of R&B Falcon's outstanding credit facilities were repaid and
terminated in March 1999 from proceeds from its senior notes and its loans from
us. To assist R&B Falcon's liquidity position, R&B Falcon may seek to establish
a new revolving bank credit facility of up to $180.0 million, and may sell
certain assets. There can be no assurance, however, that such facility will be
obtained or sales completed.
The liquidity of R&B Falcon should also be considered in light of the
significant fluctuations in demand that may be experienced by drilling
contractors as changes in oil and gas producers' expectations and budgets occur,
primarily in response to declines in prices for oil and gas. These fluctuations
can rapidly impact R&B Falcon's liquidity as supply and demand factors directly
affect utilization and dayrates, which are the primary determinants of cash flow
from R&B Falcon's operations. The decline in oil and gas prices since 1997 has
negatively impacted R&B Falcon's performance, particularly in the shallow water
U.S. Gulf market, by adversely affecting R&B Falcon's rig utilization and
dayrates. Utilization of R&B Falcon's 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 R&B Falcon's 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. R&B Falcon believes a continued depression in oil and gas prices would
have a material adverse effect on R&B Falcon's financial position and results
from operations.
32
<PAGE> 35
In December 1998, Mobil U.K. Ltd. terminated its contract to use R&B
Falcon's Jack Bates semisubmersible rig on the grounds that two of the rig's
anchor cables broke. The contract provided for Mobil's use of the rig at a
dayrate of approximately $115,000 for the primary term through January 1999 and
approximately $200,000 for the extension term from February 1999 through
December 2000. R&B Falcon does not believe that Mobil had the right to terminate
this contract. R&B Falcon has recontracted the Jack Bates to Mobil for one well
at a dayrate of $156,000. This contract is without prejudice to either party's
rights in the dispute over the termination of the original contract. If R&B
Falcon is not successful in settling its dispute over the termination of the
original contract, R&B Falcon intends to commence legal proceedings to enforce
its rights under the contract.
In April 1999, BP Amoco cancelled its contract with R&B Falcon for the
drillship Peregrine VII in accordance with the contract's terms because the
drillship had not been delivered on time. R&B Falcon is currently marketing this
rig for work.
In May 1999, R&B Falcon received notice from Petrobras of cancellation of
the drilling contract on the semisubmersible Falcon 100, based upon alleged late
delivery of the rig. R&B Falcon does not believe that Petrobras has the right to
cancel the contract. R&B Falcon has engaged Brazilian counsel to pursue its
rights under the contract and intends to take legal action to enforce its rights
under the contract.
We consider all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Included in cash and
cash equivalents at March 31, 1999 was $303.1 million that was subsequently
loaned to R&B Falcon during April and May 1999 under the Senior Secured Loan
Agreements dated as of March 26, 1999.
We maintain cash balances and short-term investments with commercial banks
in the United States. Our cash equivalents and short-term investments generally
consist of commercial paper, money-market mutual funds and interest-bearing
deposits with strong credit rated financial institutions, therefore, bearing
minimal risk. No losses were incurred from inception through March 31, 1999.
Our revenues were generated primarily from interest income on notes from
R&B Falcon.
At March 31, 1999, our only material assets were cash of $303.1 million,
interest receivable of $1.3 million and loans to R&B Falcon of $496.9 million.
Since that date, we have loaned an additional $303.1 million to R&B Falcon, for
total outstanding loans as of May 24, 1999 of $800 million. We have an
immaterial working capital requirement, and management believes that the
difference between the interest payable to us by R&B Falcon on the loans and the
interest we pay on the notes will be sufficient to satisfy our working capital
needs.
NEWLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No 131, Disclosures
about Segments of an Enterprise and Related Information Disclosures about
Segments of an Enterprise and Related Information, requires that companies
report financial and descriptive information about their reportable operating
segments. Segment information to be reported is to be based upon the way
management organizes the segments for making operating decisions and assessing
performance. We have made the appropriate disclosures. Our revenues are
generated primarily from its interest income on the loans made to R&B Falcon and
all of our activities occur in the United States. Therefore no segment
information has been disclosed.
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
was issued. SFAS 133 establishes accounting and reporting standards requiring
that every derivative instrument be measured at its fair value, recorded in the
balance sheet as either an asset or liability and that changes in the
derivative's fair value be recognized currently in earnings. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. We have not yet
quantified the impacts of adopting SFAS 133 on its financial statements nor has
it determined the timing of its adoption.
33
<PAGE> 36
THE COMPANY
We are a limited purpose corporation that was organized in March 1999
solely for the purpose of issuing the notes and loaning the proceeds of the sale
of the notes to R&B Falcon. Our certificate of incorporation limits our purposes
to the following:
- to issue and sell up to $400 million of our Senior Secured Notes due
2006, and up to $400 million of our Senior Secured Notes due 2009;
- to loan the proceeds from the issuance and sale of the notes to R&B
Falcon, which loans shall be secured by:
- first priority ship mortgages on eight drilling rigs owned by R&B
Falcon;
- by the collateral assignment of rights of R&B Falcon in construction
contracts for two additional drilling rigs, to be replaced by first
priority ship mortgages on such rigs upon their completion and delivery;
- by security interests in equipment purchased by R&B Falcon for use in
the construction of the two additional drilling rigs; and
- by any other collateral;
- to collaterally assign to a collateral agent for the benefit of the
holders of the notes our rights under the loans we have made to R&B
Falcon and the liens securing those loans; and
- to do all other things we deem necessary, incidental or convenient to
achieve these purposes.
Our certificate of incorporation requires us to:
- maintain our own bank accounts separate from any other person;
- maintain our own corporate books and records separate from any other
person;
- produce annual financial statements which disclose the effects of our
operations in accordance with generally accepted accounting principles in
the United States;
- fund our own operating expenses and other obligations; and
- identify ourselves in all dealings with other persons and the public
under our own name and as a separate and distinct entity and not identify
ourselves as being a division or part of any other person;
and prohibits us from:
- engaging in any business or activity other than in connection with,
relating to or facilitating the activities set forth in our corporate
purpose;
- incurring any indebtedness, or assuming or guarantying any indebtedness
of any other entity other than subordinated obligations owing to R&B
Falcon;
- commingling our assets with those of other persons;
- dissolving or liquidating, in whole or in part;
- without the affirmative vote of 100% of the members of our Board of
Directors, consolidating or merging with or into any other entity or
conveying or transferring our properties and assets substantially as an
entirety to any other entity; or
- without the affirmative vote of 100% of the members of our Board of
Directors, taking any actions with respect to bankruptcy.
34
<PAGE> 37
Our ability to make payments on the notes is dependent on R&B Falcon making
its payments to us under our loans to it and, to the extent R&B Falcon is unable
to make these payments, on our ability to realize on the collateral that secures
these loans. Also, R&B Falcon has fully and unconditionally guaranteed our
obligations under the notes. Because of our dependence on R&B Falcon, you should
read R&B Falcon's description of its business contained in its Annual Report on
Form 10-K, which is incorporated by reference in this prospectus. See "Where You
Can Find More Information" and "Incorporation by Reference."
Under the indenture governing the notes, recourse against our
incorporators, directors, officers and stockholders has been expressly waived.
Accordingly, our incorporators, directors, officers and stockholders will not be
liable for any payments on the notes.
Our capitalization is nominal. We do not conduct any business operations
other than with respect to the administration of our loans to R&B Falcon and the
notes. We have no employees and do not intend to hire any employees. We have no
properties.
R&B Falcon does not own any of our capital stock. However, all of our
stockholders are employees, officers or directors of R&B Falcon.
LEGAL PROCEEDINGS
We are not a party to any litigation.
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information regarding our officers
and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Paul B. Loyd, Jr. .................... 52 Director
Steven A. Webster..................... 47 Director and President
Tim W. Nagle.......................... 48 Vice President
Robert F. Fulton...................... 48 Vice President
Wayne K. Hillin....................... 57 Secretary
Leighton E. Moss...................... 48 Vice President and Assistant Secretary
Roger L. Abel......................... 55 Director
</TABLE>
Paul B. Loyd, Jr. has been a director of the R&B Falcon since July 1997,
Chairman of the Board of R&B Falcon since January 6, 1998, and Chief Executive
Officer of R&B Falcon since May 19, 1999. Mr. Loyd was Chief Executive Officer
and Chairman of the Board of Reading & Bates from 1991 until December 31, 1997,
when Reading & Bates merged with Falcon Drilling Company to form R&B Falcon. Mr.
Loyd has been President of Loyd & Associates, Inc., a financial consulting firm,
since 1989. Mr. Loyd is a director of Wainoco Oil Corporation and Carrizo Oil &
Gas, Inc. Mr. Loyd has been a director of our company since March 1999.
Steven A. Webster was Chief Executive Officer of R&B Falcon from its
organization in July 1997 until May 19, 1999. Mr. Webster has been a director of
R&B Falcon since its organization in July 1997. Mr. Webster served as Chief
Executive Officer and Chairman of the Board of Falcon Drilling Company from its
formation in 1991 until May 19, 1999. He serves as a director of Grey Wolf,
Inc., Carrizo Oil & Gas, Inc., Ponder Industries, Inc., Geokinetics, Inc. and
Crown Resources Corporation. Mr. Webster also serves as a trust manager of
Camden Property Trust. Mr. Webster has been President and a director of our
company since March 1999.
35
<PAGE> 38
Tim W. Nagle has been Executive Vice President of R&B Falcon since January
1998. Mr. Nagle was Chief Financial Officer of Reading & Bates for more than
five years prior to that. Mr. Nagle has been a Vice President of our company
since March 1999.
Robert F. Fulton has been Executive Vice President of R&B Falcon since
January 1998. Mr. Fulton has been Executive Vice President of Falcon since
January 1, 1995. From 1991 until joining Falcon in 1995, Mr. Fulton served as an
executive officer of Chiles Offshore Corporation, most recently as Senior Vice
President and Chief Financial Officer. Mr. Fulton has been Vice President of our
company since March 1999.
Wayne K. Hillin has been Senior Vice President of R&B Falcon since January
1998. Mr. Hillin was Senior Vice President and General Counsel of Reading &
Bates for more than five years prior to that. Mr. Hillin has been Secretary of
our company since March 1999.
Leighton E. Moss has been Senior Vice President of R&B Falcon since January
1998. Mr. Moss has been Vice President and General Counsel of Falcon Drilling
Company since January 1, 1996. From October 1995 until joining R&B Falcon, Mr.
Moss was a member of the law firm of Gardere Wynne Sewell & Riggs, L.L.P. For
five years prior to October 1995, Mr. Moss was a member of the law firm of
Sewell & Riggs, P.C. Mr. Moss has been a Vice President of our company since
March 1999.
Roger L. Abel was Executive Vice President of Occidental Petroleum
Corporation and President and Chief Operating Officer of Occidental Oil and Gas
Corporation from 1997 until his retirement in early 1999. For more than five
years prior to that, Mr. Abel served in various management positions with
Conoco, Inc., including Manager of Engineering and Research from 1988 to 1990,
Vice President and General Manager of Engineering and Research from 1990 to
1991, Vice President of Conoco Russia from 1991 to 1993, and Chairman of Conoco
Exploration Production Europe from 1993 to 1997. Mr. Abel has been a director of
our company since March 1999.
OFFICER AND DIRECTOR COMPENSATION
We pay our independent director, Mr. Abel, a directors fee of $25,000 per
year. We do not compensate any of our other directors or officers, although all
of our other directors and officers are employees of R&B Falcon and are
compensated by R&B Falcon.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All of our officers and all of our directors other than Mr. Abel are also
officers and directors of R&B Falcon. We have loaned $800 million to R&B Falcon
pursuant to ten separate loans, each of which is secured by a mortgage on a
drilling rig or an assignment of the construction contract for a drilling rig.
SECURITY OWNERSHIP OF OFFICERS AND DIRECTORS
The following table sets forth, as of May 19, 1999, the number of shares of
our common stock beneficially owned by (1) each person or group known by us to
own beneficially more than 5% of the outstanding shares of common stock, (2)
each of our directors, (3) each of our executive officers, and (4) all or our
directors and executive officers as a group. Except as otherwise indicated, each
of the persons or groups named below has sole voting power and investment power
with respect to our common stock.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
NAME OF BENEFICIAL OWNER OR GROUP SHARES PERCENT
--------------------------------- ------ -------
<S> <C> <C>
Paul B. Loyd, Jr. .......................................... 25 10.0%
Steven A. Webster........................................... 25 10.0%
Tim W. Nagle................................................ 25 10.0%
Robert F. Fulton............................................ 25 10.0%
Leighton E. Moss............................................ 150 60.0%
All directors and executive officers as a group (7
persons).................................................. 250 100.0%
</TABLE>
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<PAGE> 39
DESCRIPTION OF THE NOTES
We issued each series of the outstanding notes under an indenture dated as
of March 26, 1999 (the "Indenture") among our company, as issuer, R&B Falcon, as
guarantor, and United States Trust Company of New York, as trustee (the
"Trustee"). Upon the issuance of the exchange notes the Indenture will be
subject to and governed by the Trust Indenture Act of 1939.
The following is a summary of the material provisions of the Indenture, the
notes and the Security Agreements. It does not state these provisions in their
entirety. You should read the Indenture and the Security Agreements because
these documents, and not this description, define your rights as holders of the
exchange notes. Capitalized terms used herein and not otherwise defined have the
meanings set forth in the section "-- Definitions." These definitions apply only
to this section of this prospectus As used in this section only, references to
the "R&B Falcon" exclude R&B Falcon's Subsidiaries.
TERMS OF THE NOTES
The exchange notes will be issued in two series that are limited to the
following respective aggregate principal amounts:
- $400,000,000 aggregate principal amount of 11% Senior Secured Notes due
2006 (the "7-year Notes"); and
- $400,000,000 aggregate principal amount of 11 3/8% Senior Secured Notes
due 2009 (the "10-year Notes").
The 7-year Notes will mature on March 15, 2006 and the 10-year Notes will
mature on March 15, 2009. The outstanding 7-year Notes and the outstanding
10-year Notes are, and the exchange 7-year Notes and the exchange 10-year Notes
will be, our senior secured obligations.
The 7-year Notes bear interest at the rate per annum of 11% and the 10-year
Notes bear interest at the rate per annum of 11 3/8% from the date of original
issuance of the notes, or from the most recent date to which interest has been
paid or provided for. Interest will be payable semiannually to Holders of record
at the close of business on the March 1 or September 1 immediately preceding the
interest payment date on March 15 and September 15 of each year, commencing
September 15, 1999. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
The interest rate on the outstanding notes will increase if we do not
complete the exchange offer by September 22, 1999. See "-- Registered Exchange
Offer; Registration Rights."
The exchange notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge shall be made for any registration of transfer or exchange of the
notes, but we may require payment of a sum sufficient to cover any transfer tax
or other similar governmental charge payable in connection therewith.
The principal of, premium, if any, and interest on, and all other amounts
(including any Additional Amounts (as hereinafter defined)) payable under the
notes is unconditionally guaranteed by R&B Falcon (the "Guarantee") to the
extent described under "-- Guarantee" below. R&B Falcon's Subsidiaries currently
have no direct obligation to pay amounts due on the notes. However, if a
Restricted Subsidiary guarantees any Indebtedness of R&B Falcon after March 26,
1999 or if a Restricted Subsidiary acquires a Mortgaged Rig, that Restricted
Subsidiary will be obligated to guarantee (a "Subsidiary Guarantee") the notes.
ESCROW OF PROCEEDS
We initially deposited all proceeds of the notes in an escrow account (the
"Escrow Account") pursuant to an escrow agreement (the "Escrow Agreement") with
United States Trust Company of New York, as Escrow Agent, and the Trustee. The
Escrow Agent invests all funds contained in the Escrow Account, at our direction
except during the existence of a Default or an Event of Default, in Temporary
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<PAGE> 40
Cash Equivalents (such cash and Temporary Cash Equivalents, together with the
interest, dividends and distributions thereof, are hereinafter collectively
called the "Escrowed Property"). We have pledged the Escrow Account and the
Escrowed Property to the Trustee acting for its benefit and the benefit of the
Holders of the notes.
Pursuant to the Escrow Agreement and the Indenture, we entered into ten
separate loan agreements with R&B Falcon (each an "Loan Agreement"). Each Loan
Agreement is secured by Liens pursuant to a mortgage (each a "Mortgage") on a
separate drilling rig (each a "Mortgaged Rig") or, if such Mortgaged Rig was
under construction but not yet flagged on the Issue Date, Liens on the
construction contract and equipment purchased by R&B Falcon for such Mortgaged
Rig. Eight of the Mortgaged Rigs were flagged at the time we and R&B Falcon
executed the Loan Agreements and were subject to a first priority ship mortgage
prior to any advance under the loan with respect to such drilling rig. The other
two Mortgaged Rigs were under construction on the Issue Date. The Escrow
Agreement and the Indenture provide that the purpose of each loan made under a
Loan Agreement (a "Loan") will be only as follows:
- Financing all or a portion of the cost of acquiring, constructing,
altering, improving or repairing the Mortgaged Rig or improvements used
or to be used in connection with such Mortgaged Rig; or
- Financing all or any part of the purchase price of the Mortgaged Rig or
improvements used or to be used in connection with such Mortgaged Rig,
which Loan is incurred prior to or within one year after the later of the
completion of construction, alteration, improvement or repair or the
commencement of commercial operations thereof.
Since two of the Mortgaged Rig were under construction and were not yet
flagged on the Issue Date, R&B Falcon secured the Loans relating to these two
Mortgaged Rigs with Liens on the construction contract and equipment purchased
by R&B Falcon for each such Mortgaged Rig. However, R&B Falcon is not required
to perfect our Liens on equipment that R&B Falcon has purchased for a rig that
has not yet been mortgaged until required by the Trustee. The Trustee may not
require this perfection until after the later of March 26, 2000 or the
completion date for such Mortgaged Rig as scheduled on the Issue Date.
We made each Loan to R&B Falcon in two tranches. One tranche of each Loan
(the "7-year Tranche") bears interest at the rate equal to the interest rate for
the 7-year Notes plus 2 basis points per annum and the other tranche (the
"10-year Tranche") bears interest at the rate equal to the interest rate for the
10-year Notes plus 2 basis points per annum. Each Loan Agreement also provides
for a commitment fee on the undrawn portion of the Loan. R&B Falcon is required
to repay the Loans in whole or in part if we redeem or are required to redeem or
purchase notes (see "-- Redemptions"). We have now released all of proceeds from
the sale of the notes from the Escrow Account to fund the Loans. We released
these amounts when R&B Falcon recorded a Mortgage or provided other applicable
security documents against a Mortgaged Rig or the construction contracts and
equipment purchased by R&B Falcon for an uncompleted Mortgaged Rig. We are not
entitled to withdraw the Escrowed Property (other than certain minimal amounts)
for any purposes other than the making of Loans or the repayment of principal,
premium, if any, and interest on the notes. One hundred million dollars ($100.0
million) of the proceeds of the Loan for the Deepwater Millennium was deposited
by R&B Falcon in an Escrow Account (the "R & B Falcon Escrow Account")
established by R&B Falcon pursuant to an express agreement (the "R & B Falcon
Escrow Agreement") with United States Trust Company of New York, as Escrow
Agent, and us. R&B Falcon withdrew these funds when the Deepwater Millennium was
completed and they had provided a perfected Mortgage on that rig in our favor.
REDEMPTIONS
Redemption upon Loss of a Rig. If an Event of Loss occurs at any time with
respect to a Mortgaged Rig (the Mortgaged Rig suffering such Event of Loss being
the "Lost Mortgaged Rig"), R&B Falcon shall apply funds in an amount (the "Loss
Redemption Amount") equal to the principal amount of the applicable Loan secured
by the Lost Mortgaged Rig outstanding on the date (the "Loss Date") on which
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<PAGE> 41
such Event of Loss was deemed to have occurred, together with all accrued and
unpaid interest (including Special Interest, if any, and Additional Amounts, if
any) thereon, to the prepayment of such Loan. If a Default shall have occurred
and be continuing at the time of receipt of the Event of Loss Proceeds with
respect to such Event of Loss, R&B Falcon will also be required to prepay other
Loans on a pro rata basis in an aggregate amount equal to the excess of the Net
Event of Loss Proceeds over the Loss Redemption Amount, if any, together with
all accrued and unpaid interest (including Special Interest, if any, and
Additional Amounts, if any) thereon. These payments on the Loan or Loans will be
made directly to the Trustee for deposit into the Escrow Account. These funds
will constitute part of the Collateral pending application in accordance with
the next paragraph. See "-- Collateral."
Upon the earlier to occur of (A) 30 days after the receipt of such Event of
Loss Proceeds by R&B Falcon (the "Loss Proceeds Receipt Date") and (B) 180 days
after the Loss Date, we shall redeem notes, of both series, in whole or in part
on a pro rata basis, at a redemption price equal to 100% of their principal
amount, plus accrued and unpaid interest (including Additional Amounts and
Special Interest, if any) to the redemption date, in an aggregate principal
amount equal to the Loss Redemption Amount or the Net Event of Loss Proceeds, as
the case may be. We and R&B Falcon will treat as Loss Excess Proceed the amount
equal to (i) the excess of the Net Event of Loss Proceeds from such Event of
Loss over the funds applied pursuant to the preceding sentence, less (ii) the
amount of such excess Net Event of Loss Proceeds (A) used to repay Senior
Indebtedness of R&B Falcon or secured Senior Indebtedness of a Subsidiary
Guarantor then owning a Mortgaged Rig, in each case, with a permanent reduction
of availability in the case of revolving credit borrowings and owing to a Person
other than R&B Falcon or any of its Subsidiaries, or (B) invested in Additional
Assets (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board resolution).
Redemption upon Sale of a Mortgaged Rig. If a Mortgaged Rig or the Capital
Stock of a Subsidiary Guarantor then owning a Mortgaged Rig is sold in
compliance with the terms of the Indenture (the Mortgaged Rig so sold or owned
by the Subsidiary Guarantor whose Capital Stock is so sold being the "Sold
Mortgaged Rig"), R&B Falcon will apply funds in an amount (the "Sale Redemption
Amount") equal to the principal amount of the Loan secured by the Sold Mortgaged
Rig on the date of such sale (the "Sale Date"), together with all accrued and
unpaid interest (including Special Interest, if any, and Additional Amounts, if
any) thereon, plus any additional amounts required by us to redeem the notes to
the extent required by the next paragraph, to the repayment of such Loan. If a
Default shall have occurred and be continuing at the time of receipt of the cash
consideration with respect to such Sold Mortgaged Rig, R&B Falcon will also be
required to prepay other Loans on a pro rata basis in an aggregate amount equal
to the excess of such Net Available Cash attributable to such Sold Mortgaged Rig
over such Sale Redemption Amount. These payments on the Loan or Loans shall be
allocated between the 7-year Tranche and the 10-year Tranche of each such Loan
on a pro rata basis and shall be made directly to the Trustee for deposit into
the Escrow Account. These funds will constitute part of the Collateral pending
application in accordance with the next paragraph. See "-- Collateral."
Upon the earlier to occur of (A) 30 days after the receipt of such Net
Available Cash (the "Sale Proceeds Receipt Date") and (B) 60 days after the Sale
Date, we shall redeem notes of both series, in whole or in part on a pro rata
basis, in an aggregate principal amount equal to the Sale Redemption Amount or
the Net Available Cash, as the case may be, at a redemption price equal to:
- In respect to the 10-year Notes (i) if such redemption is before March
15, 2004, the sum of the remaining scheduled payments of interest,
through March 15, 2004 (including Additional Amounts and Special
Interest) and the redemption price as of March 15, 2004 as set forth in
"-- Other Redemptions" as discounted to their present values to the
redemption date on a semiannual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Treasury Rate plus 50 basis points, plus
accrued and unpaid interest on the notes to the date of redemption or
(ii) if such redemption is on or after March 15, 2004, the redemption
price then applicable as described under "-- Other Redemptions;" or
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<PAGE> 42
- In respect of the 7-year Notes, the sum of the remaining scheduled
payments of principal and interest (including Additional Amounts and
Special Interest, if any) thereon, as discounted to their present values
to the redemption date on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate plus 50 basis
points;
in each case plus accrued and unpaid interest (including Special Interest, if
any, and Additional Amounts, if any) on the notes to the date of redemption. The
excess of the Net Available Cash from the sale of a Mortgaged Rig over the funds
applied as payment of Loans shall be treated in the manner provided in the last
sentence of paragraph (b) under "-- Covenants -- Limitation on Asset Sales."
For purposes of the preceding paragraph, the following definitions apply:
"Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity
comparable to the weighted average maturity of the remaining term of the
notes outstanding that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to such weighted average
maturity of such notes. "Independent Investment Banker" means the Reference
Treasury Dealer appointed by the Trustee after consultation with us and R&B
Falcon.
"Comparable Treasury Price" means, with respect to any redemption
date, the average of the Reference Treasury Dealer Quotations for such
redemption date. The "Reference Treasury Dealer Quotations" means, with
respect to the Reference Treasury Dealer and any redemption date, the
average, as determined by the Trustee, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Trustee by the Reference
Treasury Dealer at 5:00 p.m. (New York City time) on the third business day
preceding such redemption date.
"Reference Treasury Dealer" means Donaldson, Lufkin & Jenrette
Securities Corporation and its successors. If Donaldson, Lufkin & Jenrette
Securities Corporation ceases to be a primary U.S. Government securities
dealer in New York City (a "Primary Treasury Dealer"), we will substitute
another Primary Treasury Dealer.
Other Redemptions. On or after March 15, 2004, the 10-year Notes will be
redeemable, at our option, in whole or in part, at any time or from time to
time, upon not less than 30 nor more than 60 days' prior notice mailed by
first-class mail to each Holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest (including Special Interest, if any, and Additional Amounts,
if any) to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the 12-month period commencing on March 15 of the
years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------ ----------
<S> <C>
2004..................................................... 105.6875%
2005..................................................... 103.7917
2006..................................................... 101.8958
2007 and thereafter...................................... 100.0000
</TABLE>
Any prepayments by R&B Falcon on the Loans required to be made to provide
funds for us to make this redemption will be made on the 10-year Tranche of each
Loan on a pro rata basis.
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<PAGE> 43
The 7-year Notes are redeemable, at our option, at any time in whole or
from time to time in part upon not less than 30 and not more than 60 days' prior
notice mailed by first class mail to each Holder's registered address appearing
in the register for the notes, on any date prior to maturity at a price equal to
100% of the principal amount thereof plus accrued and unpaid interest (including
Special Interest, if any, and Additional Amounts, if any) to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on an interest payment date that is on or prior to the
redemption date) plus the Make-Whole Premium applicable to the 7-year Notes. In
no event will the redemption price ever be less than 100% of the principal
amount of the 7-year Notes plus accrued and unpaid interest (including Special
Interest, if any, and Additional Amounts, if any) to the redemption date.
The amount of the Make-Whole Premium with respect to any 7-year Notes (or
portion thereof) to be redeemed will be equal to the excess, if any, of:
(a) the sum of the present values, calculated as of the redemption
date, of:
(1) each interest payment that, but for such redemption, would have
been payable on the 7-year Notes (or portion thereof) of such series
being redeemed on each interest payment date occurring after the
redemption date (excluding any accrued and unpaid interest for the
period prior to the redemption date); and
(2) the principal amount that, but for such redemption, would have
been payable at the final maturity of the 7-year Notes (or portion
thereof) of such series being redeemed,
(b) the principal amount of the 7-year Notes (or portion thereof) of
such series being redeemed.
The present values of interest and principal payments referred to in clause
(a) above will be determined in accordance with generally accepted principles of
financial analysis. Such present values will be calculated by discounting the
amount of each payment of interest or principal from the date that each such
payment would have been payable, but for the redemption, to the redemption date
at a discount rate equal to the Treasury Rate (as defined below) plus 50 basis
points.
The Make-Whole Premium will be calculated by the Independent Investment
Banker. For purposes of determining the Make-Whole Premium, "Treasury Yield"
means a rate of interest per annum equal to the weekly average yield to maturity
of United States Treasury Notes that have a constant maturity that corresponds
to the remaining term to maturity of the 7-year Notes, calculated to the nearest
1/12th of a year (the "Remaining Term"). The Treasury Yield will be determined
as of the third business day immediately preceding the applicable redemption
date.
The weekly average yields of United States Treasury Notes will be
determined by reference to the most recent statistical release published by the
Federal Reserve Bank of New York and designated "H.15(519) Selected Interest
Rates" or any successor release (the "H.15 Statistical Release"). If the H.15
Statistical Release sets forth a weekly average yield for United States Treasury
Notes having a constant maturity that is the same as the Remaining Term, then
the Treasury Yield will be equal to such weekly average yield. In all other
cases, the Treasury Yield will be calculated by interpolation, on a
straight-line basis, between the weekly average yields on the United States
Treasury Notes that have a constant maturity closest to and greater than the
Remaining Term and the United States Treasury Notes that have a constant
maturity closest to and less than the Remaining Term (in each case as set forth
in H.15 Statistical Release). Any weekly average yields so calculated by
interpolation will be rounded to the nearest 1/100th of 1%, with any figure of
1/200 of 1% or above being rounded upward. If weekly average yields for United
States Treasury Notes are not available in comparable the H.15 Statistical
Release or otherwise, then the Treasury Yield will be calculated by
interpolation of comparable rates selected by the Independent Investment Banker.
Any prepayments by R&B Falcon on the Loans required to be made to provide
funds for us to make the redemption shall be made on the 7-year Tranche of each
Loan on a pro rata basis.
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<PAGE> 44
Selection of Notes for Redemption. In the case of any partial redemption
provided for in "Other Redemptions," selection of the notes for redemption will
be made by the Trustee on a pro rata basis, by lot or by such other method as
the Trustee in its sole discretion shall deem to be fair and appropriate,
although no Note of $1,000 in then outstanding principal amount or less shall be
redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. Partial Redemptions provided for in
"-- Redemption Upon Loss of a Rig" and "-- Redemption Upon Sale of a Rig" will
be applied to all notes on a pro rata basis, although no Note of $1,000 in then
outstanding principal amount shall be redeemed in part.
Excess Proceeds Offers. If, as of the first day of any calendar month, the
aggregate amount of Sale Excess Proceeds and Loss Excess Proceeds exceeds 10% of
R&B Falcon's consolidated total assets, and if the aggregate amount of Sale
Excess Proceeds and Loss Excess Proceeds in excess of 10% of consolidated total
assets that has not already been subject to an Excess Proceeds Offer (the
"Excess Proceeds Offer Amount"), totals at least $10.0 million, we must, not
later than the fifteenth Business Day of such month, make an offer (an "Excess
Proceeds Offer") to purchase notes pursuant to and subject to the conditions
contained in the Indenture at a purchase price equal to 100% of their principal
amount, plus any accrued interest (including Additional Amounts and Special
Interest, if any) to the date of purchase. The indenture governing R&B Falcon's
12 1/4% Senior Notes due 2006 requires that R&B Falcon offer to purchase those
notes in these circumstances at a purchase price equal to 100% of their
principal amount, plus any accrued interest (including Special Interest, if any)
to the date of purchase. The total principal amount of our notes that we are
required to purchase and of R&B Falcon's notes that it is required to purchase
pursuant to the Excess Proceeds Offer will equal the Excess Proceeds Offer
Amount (an "Excess Proceeds Payment"). R&B Falcon will prepay the appropriate
tranches of the Loans on a pro rata basis, or make loans constituting
Subordinated Obligations to us, to permit us to purchase any notes validly
tendered pursuant to an Excess Proceeds Offer. Any amounts remaining after all
of our notes and all of R&B Falcon's notes that are validly tendered are
purchased shall no longer constitute Sale Excess Proceeds or Loss Excess
Proceeds.
We and R&B Falcon will 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 purchase of notes pursuant to an Excess
Proceeds Offer. To the extent that the provisions of any securities laws or
regulations conflict with provisions in the Indenture governing Excess Proceeds
Offers, we will comply with the applicable securities laws and regulations and
will not be deemed to have breached our obligations under the covenant described
hereunder by virtue thereof.
Payment of Additional Amounts
Except to the extent required by any applicable law, regulation or
governmental policy, we will make any and all payments of, or in respect of, any
Note free and clear of and without deduction for or on account of any and all
present or future taxes, levies, imposts, deduction, charges or withholdings and
all liabilities with respect thereto imposed by Panama, The Bahamas or any other
jurisdiction with which we, R&B Falcon or any Subsidiary Guarantor has some
connection (including any jurisdiction (other than the United States of America)
from or through which payments under the Loans, the notes, the Guarantee or the
Subsidiary Guarantees (if any) are made) or any political subdivision of or any
taxing authority in any such jurisdiction ("Panamanian Taxes," "Bahamian Taxes,"
or "Other Taxes," respectively). If we, R&B Falcon or any Subsidiary Guarantor
are required by law to withhold or deduct any Panamanian Taxes, Bahamian Taxes,
or Other Taxes from or in respect of any sum payable under an Loan Agreement,
the notes, the Guarantee or a Subsidiary Guarantee, the sum payable by us, R&B
Falcon or such Subsidiary Guarantor, as the case may be, will be increased by
the amount ("Additional Amounts") necessary so that after making all required
withholdings and deductions, the Holder or beneficial owner of a Note will
receive an amount equal to the sum that it would have received had not such
withholdings and deductions been made. However, neither we, R&B Falcon nor any
Subsidiary Guarantor will be obligated to pay any
42
<PAGE> 45
such sum in respect of any Panamanian Taxes, Bahamian Taxes or Other Taxes to a
Holder (an "Excluded Holder") (i) resulting from the beneficial owner of such
note carrying on business or being deemed to carry on business in or through a
permanent establishment or fixed base in the relevant taxing jurisdiction or
having any other connection with the relevant taxing jurisdiction or any
political subdivision thereof or any taxing authority therein other than the
mere holding or owning of such note, being a beneficiary of the Guarantee or any
applicable Subsidiary Guarantee, the receipt of any income or payments in
respect of such note, any Loan, the Guarantee or any applicable Subsidiary
Guarantee or the enforcement of such note, such Loan, the Guarantee or any
applicable Subsidiary Guarantee, or (ii) that would not have been imposed but
for the presentation (where presentation is required) of such note for payment
more than 180 days after the date such payment became due and payable or was
duly provided for, whichever occurs later. We, R&B Falcon or the Subsidiary
Guarantors, as applicable, will also (i) make such withholding or deduction and
(ii) remit the full amount deducted or withheld to the relevant authority in
accordance with applicable law, and, in any such case, we will furnish to each
Holder on whose behalf an amount was so remitted, within 30 calendar days after
the date the payment of any Panamanian Taxes, Bahamian Taxes or Other Taxes is
due pursuant to applicable law, certified copies of tax receipts evidencing such
payment by the us, R&B Falcon or the Subsidiary Guarantors, as applicable. We
will, upon written request of each Holder (other than an Excluded Holder),
reimburse each such Holder for the amount of (i) any Panamanian Taxes, Bahamian
Taxes or Other Taxes so levied or imposed and paid by such Holder as a result of
payments made under or with respect to any notes, and (ii) any Panamanian Taxes,
Bahamian Taxes, or Other Taxes so levied or imposed with respect to any
reimbursement under the foregoing clause (i) so that the net amount received by
such Holder (net of payments made under or with respect to such notes, such
Loans, the Guarantee or the applicable Subsidiary Guarantees) after such
reimbursement will not be less than the net amount the Holder would have
received if Panamanian Taxes, Bahamian Taxes or Other Taxes on such
reimbursement had not been imposed.
At least 30 calendar days prior to each date on which any payment under or
with respect to the notes is due and payable, if we, R&B Falcon or the
Subsidiary Guarantors, as applicable, will be obligated to pay Additional
Amounts with respect to such payment, we, R&B Falcon or the Subsidiary
Guarantors, as applicable, will deliver to the Trustee an officer's certificate
stating the fact that such Additional Amounts will be payable and the amounts so
payable and will set forth such other information necessary to enable the
Trustee to pay such Additional Amounts to Holders on the payment date.
If any Holder or beneficial owner of any Note receives a refund of the
Panamanian Taxes, Bahamian Taxes or Other Taxes after we, R&B Falcon or any
Subsidiary Guarantor, as applicable, has paid any Additional Amounts, such
Holder or beneficial owner shall reimburse us, R&B Falcon or any Subsidiary
Guarantor, as applicable, for any amount of such refund.
At the date of this prospectus, no Panamanian Taxes, Bahamian Taxes or
Other Taxes are imposed, and therefore no Additional Amounts would be payable in
respect of such taxes, in respect of any sum payable by us as principal of,
premium or interest on the notes or the exchange notes, or in respect of any sum
payable by R&B Falcon on the Guarantee or Loans.
In addition, we, R&B Falcon or the Subsidiary Guarantors will pay any
stamp, issue, registration, documentary or other similar taxes and duties,
including interest and penalties, in respect of the creation, issue and offering
of the notes payable in the United States, Panama, The Bahamas or any political
subdivision thereof or taxing authority of or in the foregoing. We, R&B Falcon
and the Subsidiary Guarantors, as applicable, will also pay and indemnify the
Trustee and the Holders of the notes from and against all court fees and taxes
or other taxes and duties, including interest and penalties, paid by any of them
in any jurisdiction in connection with any action permitted to be taken by the
Holders or the Trustee to create Liens on the Collateral or to enforce the
Obligations of R&B Falcon or the Subsidiary Guarantors under the notes, the
Indenture, the Guarantee, the Subsidiary Guarantees, the Loans or the Security
Agreements.
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<PAGE> 46
Whenever there is mentioned, in any context, the payment of principal,
premium or interest in respect of any note or the net proceeds received on the
sale or exchange of any note, such mention shall be deemed to include the
payment of Additional Amounts or Special Interest provided for in the Indenture
to the extent that, in such context, Additional Amounts are, were or would be
payable in respect thereof pursuant to the Indenture.
THE GUARANTEE; THE SUBSIDIARY GUARANTEES
Pursuant to the Indenture, R&B Falcon will guarantee the due and punctual
payment of the principal of, premium, if any, and interest on, and all other
amounts payable under, the notes (including any Additional Amounts payable upon
redemption, in respect thereof) when and as the same become due and payable,
whether at Stated Maturity, by declaration of acceleration or otherwise. The
Guarantee will not be discharged with respect to any note except by payment in
full of the principal thereof, premium, if any, and interest thereon and all
other amounts payable thereunder, provided that to the extent that R&B Falcon
makes a payment on the Guarantee, it will be deemed to have made a payment on
the Loans then outstanding, and will otherwise be subrogated to our rights on
the Loans to the extent that such Loans remain unpaid. If at any time any amount
paid under a note is rescinded or must otherwise be restored, the rights of the
Holders of the notes under the Guarantee will be reinstated with respect to such
payments as though such payment had no been made.
If a Restricted Subsidiary is required to become a Subsidiary Guarantor, it
will irrevocably and unconditionally guarantee on a joint and several, senior
unsecured basis our obligations for payment of the principal of, and premium, if
any and interest (including Additional Amounts and Special Interest, if any) on
the notes, R&B Falcon's obligations for payment of sums of money payable under
the Guarantee, the other Subsidiary Guarantors' obligations for payment of all
sums of money payable under the Subsidiary Guarantees and/or our, R&B Falcon's
and Subsidiary Guarantor's respective obligations under the Security Agreements
and performance of all other provisions contained in the Indenture and the
Security Agreements (collectively, the "Obligations"). See
"-- Covenants -- Future Subsidiary Guarantors." Each Subsidiary Guarantee will
be limited in amount to an amount not to exceed the maximum amount that can be
guaranteed by the applicable Subsidiary Guarantor without rendering the
applicable Subsidiary Guarantee voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally or otherwise being void, voidable or unenforceable
under any bankruptcy, reorganization, insolvency, liquidation or other similar
legislation or legal principles under any applicable foreign law. Each
Subsidiary Guarantor that makes a payment or a distribution under its Subsidiary
Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in a pro rata amount based upon the Adjusted Net Assets of each other
Subsidiary Guarantor. If a Subsidiary Guarantee were to be rendered voidable, it
could be subordinated by a court to all other indebtedness (including guarantees
and other contingent liabilities) of the applicable Subsidiary Guarantor, and,
depending on the amount of such indebtedness, a Subsidiary Guarantor's liability
on its Subsidiary Guarantee could be reduced to zero.
Upon the sale or other disposition (by merger or otherwise) of all the
Capital Stock of a Subsidiary Guarantor or the sale or disposition of all or
substantially all the assets of a Subsidiary Guarantor (in each case other than
to R&B Falcon or an Affiliate of R&B Falcon) permitted by the Indenture and the
application of the Net Available Cash from such sale as described under
"-- Redemptions."
COLLATERAL
We have pledged in favor of the Trustee all the Loans (together with
collateral assignment of all Liens securing such Loans) to secure our
obligations under the Indenture, the notes and applicable Security Agreements.
We have also pledged in favor of the Trustee our interest in the Escrow Account
and the Escrowed Property and any other cash that is required by the terms of
the Indenture to be deposited with the Trustee or the Escrow Agent to secure
these obligations.
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As security for each Loan, R&B Falcon has granted a Lien on a Mortgaged
Rig, or the construction contract and equipment purchased by R&B Falcon (with
respect to the Deepwater Millennium and Deepwater IV). R&B Falcon has also
granted a Lien on the R&B Falcon Escrow Account and R&B Falcon Escrowed Property
as security for the Loan relating to the Deepwater Millennium. R&B Falcon has
also granted a Lien on all proceeds of these items, including all its policies
and contracts of insurance taken out from time to time in respect of its
Mortgaged Rigs. All of these Liens are evidenced by a Mortgage or other
appropriate Security Agreement issued by R&B Falcon in our favor. These
Mortgages and Security Agreements contain covenants pursuant to which R&B Falcon
is prohibited from selling, further mortgaging or transferring any of its
interest in such Mortgaged Rig (other than as permitted under the Indenture).
Upon completion and flagging of the Deepwater Millennium and the Deepwater IV,
R&B Falcon is required to grant a Lien pursuant to a Mortgage on the respective
Mortgaged Rig. R&B Falcon has already granted a Mortgage in our favor on the
Deepwater Millennium. Contemporaneous with the granting of the Mortgage on the
Deepwater IV, the Loan secured by the Deepwater IV will be increased in exchange
for a reduction in the outstanding amounts of the Loans secured by certain other
Mortgaged Rigs. See "Description of Security for the Notes."
The Indenture and the Security Agreements provide that the Collateral may
be released from the Liens created by the Security Agreements (a) upon payment
in full of the notes in accordance with the terms of the notes and the Indenture
and the other obligations then due and owing under the notes, the Indenture and
the Security Agreements; (b) upon the sale or other disposition of Collateral
constituting an Asset Sale if such sale or other disposition is not prohibited
under the Indenture and if the Net Available Cash of such sale or other
disposition is applied as provided in the Indenture (see "-- Limitation on Asset
Sales"); (c) with respect to the net proceeds of the notes deposited in the
Escrow Account if the procedures described in "-- Escrow of Proceeds" are
complied with; and (d) with respect to proceeds of the Loan relating to the
Deepwater Millennium deposited in R&B Falcon Escrow Account if the procedures
described in "-- Escrow of Proceeds" are complied with. Any cash on deposit from
time to time with the Trustee or the R&B Falcon Escrow Agent and forming part of
the Collateral which is not required to be deposited with the Trustee or the
Escrow Agent may be released, subject to the terms and conditions of the
Indenture.
The release of any Collateral from the terms of the Security Agreements, or
the release, in whole or in part, of the Liens created by the Security
Agreements, will not be deemed to impair the security under the Indenture in
contravention of the provisions of the Indenture and of the Security Agreements
if and to the extent that the Collateral is released pursuant to the Indenture
and the Security Agreements. In connection with the release of Collateral, the
Trustee shall determine whether it has received all documentation required by
Section 314(d) of the Trust Indenture Act to permit such release.
RANKING
The indebtedness evidenced by the notes are our senior secured obligations.
The notes rank pari passu in right of payment with all our existing and future
indebtedness and other liabilities that are not expressly subordinated by their
express terms to the notes and are senior in right of payment to all our
Indebtedness that is so subordinated. We are not permitted to incur any
Indebtedness other than the notes or Subordinated Obligations owing to R&B
Falcon. See "-- Covenants -- Limitation on Our Activities." The notes are
secured by Liens on the Loans (and the Liens securing such Loans) and on the
Escrow Account and the Escrowed Property; thus, claims of the Holders of the
notes rank ahead of claims of our creditors to the extent of the value, priority
and validity of the Liens securing the notes in such Collateral.
The Guarantee and any Subsidiary Guarantee will be senior unsecured
obligations of R&B Falcon and of the Subsidiary Guarantors, as applicable, and
will rank (i) equally in priority of payment with all other Indebtedness and
other liabilities of R&B Falcon or such Subsidiary Guarantor that are not
subordinated by their express terms to the Guarantee or such Subsidiary
Guarantee, as the case may be, and (ii) senior in priority of payment to all
other Indebtedness of R&B Falcon or such Subsidiary Guarantor that by its terms
is subordinated or junior in right of payment to the Guarantee or such
Subsidiary Guarantee, as the case may be. As of March 31, 1999, the total
outstanding Indebtedness of R&B Falcon that would rank
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pari passu with the Guarantee would have been approximately $2.5 billion. The
Guarantee, however, will be effectively subordinated in right of payment to all
secured indebtedness of R&B Falcon other than the Loans. The Guarantee is also
effectively subordinated in right of payment to all existing and future third-
party liabilities (including trade payables and other non-debt obligations) of
the Subsidiaries of R&B Falcon. As of March 31, 1999, the Subsidiaries of R&B
Falcon had approximately $225.8 million of indebtedness outstanding on a
combined consolidated basis, excluding indebtedness owed to R&B Falcon. In
addition, the Indenture permits under limited circumstances the creation of, or
the designation of existing Restricted Subsidiaries as, Unrestricted
Subsidiaries. Such Unrestricted Subsidiaries will not generally be subject to
the covenants applicable to R&B Falcon and the Restricted Subsidiaries under the
Indenture. The operations of R&B Falcon are to a significant extent conducted
through its Subsidiaries and, therefore, R&B Falcon is dependent upon those
entities to meet its obligations.
With respect to R&B Falcon, our claims under the Loans rank equally with
claims of the creditors of R&B Falcon holding indebtedness or other liabilities
that are not expressly subordinated by their express terms to such Loans, but
rank ahead of such claims to the extent of the value, priority and validity of
R&B Falcon's Liens on its Mortgaged Rigs securing the Loans. Although we should
be entitled to payment of the applicable Loan out of the proceeds of the
Mortgaged Rig prior to the holders of any general unsecured obligations of R&B
Falcon, any claim attributable to such an Loan which is not paid out of the
proceeds of the Mortgaged Rig will be an unsecured senior Obligation of R&B
Falcon. To the extent that any Mortgaged Rig has a value in excess of the Loan
secured thereby, such additional value is not security for any Obligations of
our company, R&B Falcon or a Subsidiary Guarantor. If the assets and cash flow
of R&B Falcon are insufficient to meet the obligations under the Loans, our
claims will be effectively subordinated to the claims of creditors (including
trade creditors, tort claimants, taxing authorities and other creditors) of
Subsidiaries. Although the Indenture limits the incurrence of Indebtedness by
us, R&B Falcon or any Restricted Subsidiary, such limitation is subject to a
number of significant qualifications. Moreover, the Indenture does not impose
any limitation on the incurrence by R&B Falcon or its Restricted Subsidiaries of
liabilities that are not considered Indebtedness under the Indenture. Under
certain circumstances, R&B Falcon will be able to designate additional
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to many of the restrictive covenants set forth in the Indenture.
BOOK-ENTRY, DELIVERY, FORM AND TRANSFER
The exchange notes initially will be in the form of one or more registered
global notes without interest coupons (collectively, the "U.S. Global Notes").
Upon issuance, the U.S. Global Notes will be deposited with the Trustee, as
custodian for The Depository Trust Company, in New York, New York, and
registered in the name of The Depository Trust Company or its nominee, in each
case for credit to the accounts of The Depository Trust Company's Direct and
Indirect Participants (as defined below). All registered global notes are
referred to in this section collectively as "Global Notes."
Beneficial interests in all Global Notes and all Certificated Notes (as
defined below), if any, will be subject to certain restrictions on transfer and
will bear a restrictive legend as described under "Notice to Investors in the
Notes." In addition, transfer of beneficial interests in any Global Notes will
be subject to the applicable rules and procedures of The Depository Trust
Company and its Direct or Indirect Participants (including, if applicable, those
of Euroclear and Cedel), which may change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of The Depository Trust Company or to a successor of The
Depository Trust Company or its nominee in limited circumstances. Beneficial
interests in the Global Notes may be exchanged for notes in certificated form in
limited circumstances. See "-- Transfers of Interests in Global Notes for
Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The notes
may be presented for registration of transfer and exchange at the offices of the
Registrar.
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Depositary Procedures
The Depository Trust Company has advised us that The Depository Trust
Company is a limited-purpose trust company created to hold securities for its
participating organizations (collectively, the "Direct Participants") and to
facilitate the clearance and 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 The Depository Trust Company'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").
Under The Depository Trust Company's procedures, (i) upon deposit of the
Global Notes representing the exchange notes, The Depository Trust Company will
credit the accounts of the Direct Participants designated by the Exchange Agent
with the appropriate portions of the principal amount of the Global Notes, and
(ii) The Depository Trust Company will maintain records of the ownership
interests of such Direct Participants in the Global Notes and the transfer of
ownership interests by and between Direct Participants. The Depository Trust
Company 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 Notes. 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 Notes.
Investors in the Global Notes may hold their interests in the Global Notes
directly through The Depository Trust Company if they are Direct Participants in
The Depository Trust Company or indirectly through organizations that are Direct
Participants in The Depository Trust Company, or directly through Euroclear or
Cedel or indirectly through organizations that are participants in Euroclear or
Cedel. Morgan Guaranty Trust Company of New York, Brussels office, is the
operator and depositary of Euroclear and Citibank, N.A. is the operator and
depositary of Cedel (each, a "Nominee" of Euroclear and Cedel, respectively).
Therefore, they will each be recorded on The Depository Trust Company's records
as the holders of all ownership interests held by them on behalf of Euroclear
and Cedel, respectively. Euroclear and Cedel will maintain on their records the
ownership interests and transfer of ownership interests by and between, their
own customer's securities accounts. The Depository Trust Company will not
maintain records of the ownership interests of, or the transfer of ownership
interests by and between, customers of Euroclear or Cedel. All ownership
interests in any Global Notes, including those of customers' securities accounts
held through Euroclear or Cedel, may be subject to the procedures and
requirements of The Depository Trust Company.
The laws of some states in the United States require that some types of
security holders 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 Note to these persons. Because The Depository
Trust Company 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 Note to pledge such interest to persons or
entities that are not Direct Participants in The Depository Trust Company, 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 notes see "-- Transfers of Interests
in Global Notes for Certificated Notes" and "Notice to Investors in the Notes."
Except as described in "-- Transfers of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the Global Notes will not
have the exchange notes registered in their names, will not receive physical
delivery of the exchange notes in certificated form and will not be considered
the registered owners or Holders thereof under the Indenture for any purpose.
Under the terms of the Indenture, we, R&B Falcon and the Trustee will treat
the persons in whose names the exchange notes are registered (including exchange
notes represented by Global Notes) as the owners thereof for the purpose of
receiving payments and for any and all other purposes whatsoever. Payments in
respect of the principal, premium, Special Interest, if any, Additional Amounts,
if any, and
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interest on Global Notes registered in the name of The Depository Trust Company
or its nominee will be payable by the Trustee to The Depository Trust Company or
its nominee as the registered Holder under the Indenture. Consequently, neither
we, R&B Falcon, the Trustee nor any of agents or any agent of R&B Falcon or the
Trustee has or will have any responsibility or liability for (i) any aspect of
The Depository Trust Company'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 Notes or for maintaining, supervising or
reviewing any of The Depository Trust Company's records or any Direct
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in any Global Note or (ii) any other matter relating to the
actions and practices of The Depository Trust Company or any of its Direct
Participants or Indirect Participants.
The Depository Trust Company has advised us that its current payment
practice (for payments of principal, interest and the like) with respect to
securities such as the exchange notes is to credit the accounts of the relevant
Direct Participants with such payment on the payment date in amounts
proportionate to such Participant's respective ownership interests in the Global
Notes as shown on The Depository Trust Company's records. Payments by Direct
Participants and Indirect Participants to the beneficial owners of the exchange
notes will be governed by standing instructions and customary practices between
them and will not be the responsibility of The Depository Trust Company, the
Trustee, us or R&B Falcon. Neither we, R&B Falcon nor the Trustee will be liable
for any delay by The Depository Trust Company or its Direct Participants or
Indirect Participants in identifying the beneficial owners of the exchange notes
and we and the Trustee may conclusively rely on and will be protected in relying
on instructions from The Depository Trust Company or its nominee as the
registered owner of the exchange notes for all purposes.
The Global Notes will trade in The Depository Trust Company's Same-day
Funds Settlement System and, therefore, transfers between Direct Participants in
The Depository Trust Company will be effected in accordance with The Depository
Trust Company's procedures, and will be settled in immediately available funds.
Transfers between Indirect Participants (other than Indirect Participants who
hold an interest in the exchange notes through Euroclear or Cedel) 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. Transfers between and among Indirect Participants who hold
interest in the exchange notes through Euroclear and Cedel will be effected in
the ordinary way in accordance with their respective rules and operating
procedures.
Subject to compliance with the transfer restrictions applicable to the
exchange notes described herein, crossmarket transfers between Direct
Participants in The Depository Trust Company, on the one hand, and Indirect
Participants who hold interests in the exchange notes through Euroclear or
Cedel, on the other hand, will be effected by Euroclear or Cedel's respective
nominee through The Depository Trust Company in accordance with The Depository
Trust Company's rules on behalf of Euroclear or Cedel; however, delivery of
instructions relating to cross-market transactions must be made directly to
Euroclear or Cedel, as the case may be, by the counterparty in accordance with
the rules and procedures of Euroclear or Cedel and within their established
deadlines (Brussels time for Euroclear and UK time for Cedel). Indirect
Participants who hold interest in the exchange notes through Euroclear and Cedel
may not deliver instructions directly to Euroclear's or Cedel's Nominee.
Euroclear or Cedel will, if the transaction meets its settlement requirements,
deliver instructions to its respective Nominee to deliver or receive interests
on Euroclear's or Cedel's behalf in the relevant Global Note in The Depository
Trust Company, and make or receive payment in accordance with normal procedures
for same-day fund settlement applicable to The Depository Trust Company.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the notes through Euroclear or Cedel
purchasing an interest in a Global Note from a Direct Participant in The
Depository Trust Company will be credited, and any such crediting will be
reported to Euroclear or Cedel during the European business day immediately
following the settlement date of The Depository Trust Company in New York.
Although recorded in The Depository Trust Company's accounting records as of The
Depository Trust Company's settlement date in New York, Euroclear and
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Cedel customers will not have access to the cash amount credited to their
accounts as a result of a sale of an interest in a Permanent Global Note to a
Depository Trust Company Participant until the European business day of
Euroclear or Cedel immediately following The Depository Trust Company's
settlement date.
The Depository Trust Company has advised us that it will take any action
permitted to be taken by a Holder of exchange notes only at the direction of one
or more Direct Participants to whose accounts interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of the exchange notes as to which such Direct Participant or Direct Participants
has or have given direction. However, if there is an Event of Default under the
exchange notes, The Depository Trust Company reserves the right to exchange
Global Notes (without the direction of one or more of its Direct Participants)
for exchange notes in certificated form, and to distribute such certificated
forms of notes to its Direct Participants. See "-- Transfers of Interests in
Global Notes for Certificated Notes."
Although The Depository Trust Company, Euroclear and Cedel have agreed to
these procedures to facilitate transfers of interests in the Global Notes among
Direct Participants, Euroclear and Cedel, they are under no obligation to
perform or to continue to perform these procedures, and these procedures may be
discontinued at any time. None of our company, R&B Falcon, or the Trustee will
have any responsibility for the performance by The Depository Trust Company,
Euroclear and Cedel or their respective Direct and Indirect Participants of
their obligations under the rules and procedures governing any of their
operations.
The information in this section concerning The Depository Trust Company,
Euroclear and Cedel and their book-entry systems has been obtained from sources
we believe to be reliable, but we take no responsibility for the accuracy
thereof.
Transfers of Interests in Global Notes for Certificated Notes
An entire Global Note may be exchanged for definitive notes in registered
certificated form without interest coupons ("Certificated Notes") if (1) The
Depository Trust Company (A) notifies us that it is unwilling or unable to
continue as depositary for the Global Notes and we thereupon fail to appoint a
successor depositary within 90 days or (B) has ceased to be a clearing agency
registered under the Exchange Act, (2) we, at our option, notify the Trustee in
writing that it elects to cause the issuance of Certificated Notes or (3) there
shall have occurred and be continuing a Default or an Event of Default with
respect to the notes. In any such case, we will notify the Trustee in writing
that, upon surrender by the Direct and Indirect Participants of their interest
in such Global Note, Certificated Notes will be issued to each person that such
Direct and Indirect Participants and The Depository Trust Company identify as
being the beneficial owner of the related notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to The
Depository Trust Company, by such Direct Participant (for itself or on behalf of
an Indirect Participant), to the Trustee in accordance with customary The
Depository Trust Company procedures. Certificated Notes delivered in exchange
for any beneficial interest in any Global Note will be registered in the names,
and issued in any approved denominations, requested by The Depository Trust
Company on behalf of such Direct and Indirect Participants (in accordance with
The Depository Trust Company's customary procedures).
In all cases described herein, such Certificated Notes will bear the
restrictive legend referred to in "Notice to Investors in the Notes," unless we
determine otherwise in compliance with applicable law.
Neither we, R&B Falcon nor the Trustee will be liable for any delay by the
Holder of the notes or The Depository Trust Company in identifying the
beneficial owner of notes, and we, R&B Falcon and the Trustee may conclusively
rely on, and will be protected in relying on, instructions from the Holder of
the Global Note or The Depository Trust Company for all purposes.
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Continuous Restrictions on Transfers of Notes
The notes may not at any time, including after consummation of the exchange
offer, be transferred to, or held by persons other than "Qualified Institutional
Buyers" as defined in Rule 144A under the Securities Act, institutional
"Accredited Investors" as defined in Rule 501(a)(1), (2), (3) or (7) under
Regulation D under the Securities Act or a person involved in the organization
or operation of our company or an affiliate, as defined in Rule 465 under the
Securities Act, of our company. Any Holder or beneficial owner of a note shall,
by acceptance of such note, agree that such Holder or owner will deliver to each
person to whom a note or an interest in a note is transferred a notice provided
for in the legend described under "Notice to Investors in the Notes." The
Trustee and the Registrar may not transfer any note in violation of these
restrictions.
Same Day Settlement and Payment
The Indenture requires that payments in respect of the notes represented by
the Global Notes (including principal, premium, if any, interest and Special
Interest, if any) be made by wire transfer of immediately available same day
funds to the accounts specified by the Holder of interests in such Global Note.
With respect to Certificated Notes, we will make all payments of principal,
premium, if any, interest and Special Interest, if any, by wire transfer of
immediately available same day 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 Notes will also be settled in immediately available funds.
CERTIFICATED NOTES
The notes represented by the Global Notes are exchangeable for Certificated
Notes in definitive form of like tenor as such notes in denominations of $1,000
and integral multiples thereof if (i) the Depositary notifies us that it is
unwilling or unable to continue as Depositary for the Global Notes or if at any
time the Depositary ceases to be a clearing agency registered under the Exchange
Act, and we fail to appoint a successor Depository within 90 days of such
notice, (ii) we in our discretion at any time determine not to have all the
notes represented by the Global Notes or (iii) an Event of Default entitling the
Holders of the notes to accelerate the maturity thereof has occurred and is
continuing. Any Global Note that is exchangeable under the preceding sentence is
exchangeable for Certificated Notes issuable in authorized denominations and
registered in such names as the Depositary shall direct. Otherwise, a Global
Note is not exchangeable for Certificated Notes, except for a Global Note of the
same aggregate denomination to be registered in the name of the Depositary or
its nominee. In addition, such certificates will bear the legend referred to
under "Notice to Investors in the Notes" (unless we determine otherwise in
accordance with applicable law) subject, with respect to such notes, to the
provisions of such legend. Upon the transfer of a note in definitive form, such
note will, unless the Global Note has previously been exchanged for notes in
definitive form, be exchanged for an interest in the Global Note representing
the principal amount of notes being transferred.
SAME-DAY PAYMENT
The Indenture requires that payments in respect of notes (including
principal, premium, if any, and interest, Additional Amounts and Special
Interest, if any) be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof or, if no such account is specified,
by mailing a check to each such Holder's registered address.
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
We and R&B Falcon have agreed under a registration rights agreement with
the initial purchaser of the notes, for the benefit of the Holders of the notes,
that we and R&B Falcon will use our best efforts to cause the registration
statement of which this prospectus is a part to be declared effective by August
23, 1999. Upon the effectiveness of the registration statement, we will offer
the exchange notes in exchange for
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surrender of the outstanding notes. We and R&B Falcon will keep the exchange
offer open for not less than 30 days (or longer if required by applicable law)
after the date notice of the exchange offer is mailed to the Holders of the
notes. For each outstanding note surrendered to us in the exchange offer, the
Holder of such outstanding note will receive an exchange note having a principal
amount equal to that of the surrendered outstanding note. Interest on each
exchange note will accrue from the last interest payment date on which interest
was paid on the outstanding note surrendered in exchange thereof or, if no
interest has been paid on such outstanding note, from the date of its original
issue. Under existing SEC interpretations, the exchange notes would be freely
transferable by Holders other than affiliates of our company after the exchange
offer without further registration under the Securities Act if the Holder of the
exchange notes represents that it is acquiring the exchange notes in the
ordinary course of its business, that it has no arrangement or understanding
with any person to participate in the distribution of the exchange notes and
that it is not an affiliate of our company, as such terms are interpreted by the
SEC; provided, however, that broker-dealers ("Participating Broker-Dealers")
receiving exchange notes in the exchange offer will have a prospectus delivery
requirement with respect to resales of such exchange notes. The SEC has taken
the position that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to exchange notes (other than a resale of an
unsold allotment from the original sale of the notes) with this prospectus.
Under the registration rights agreement, we are required to allow Participating
Broker-Dealers and other persons, if any, with similar prospectus delivery
requirements to use this prospectus in connection with the resale of such
exchange notes.
A Holder of outstanding notes who wishes to exchange such notes for
exchange notes in the exchange offer must represent that it will acquire the
exchange notes in the ordinary course of its business and that at the time of
the commencement of the exchange offer it has no arrangement or understanding
with any person to participate in the distribution, within the meaning of the
Securities Act, of the exchange notes. The Holder must also represent that it is
not an "affiliate" of our company, as defined in Rule 405 of the Securities Act,
or if it is an affiliate, that it will comply with the registration and
prospectus delivery requirements of the Securities Act.
If interpretations of the staff of the SEC do not permit us to effect the
exchange offer, or if for any other reason we do not complete the exchange offer
by September 22, 1999, or if the initial purchaser of the outstanding notes so
requests with respect to outstanding notes not eligible to be exchanged for
exchange notes in the exchange offer, or if any Holder of notes is not eligible
to participate in the exchange offer or does not receive freely tradable
exchange notes in the exchange offer, we and R&B Falcon will, at our cost, (1)
as promptly as practicable, file a shelf registration statement covering resales
of the outstanding notes or the exchange notes, as the case may be, (2) use our
best efforts to cause the shelf registration statement to be declared effective
under the Securities Act and (3) keep the shelf registration statement effective
until the earlier of (A) the time when the notes covered by the shelf
registration statement can be sold under Rule 144 without any limitations under
clauses (c), (e), (f) and (h) of Rule 144 and (B) March 26, 2001. If we file a
shelf registration statement, we will provide to each Holder for whom we filed
the shelf registration statement copies of the prospectus which is a part of the
shelf registration statement, notify these Holders when the shelf registration
statement has become effective and take other actions to permit unrestricted
resales of the outstanding notes or the exchange notes. A Holder selling such
outstanding notes or exchange notes under the shelf registration statement
generally would be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
the civil liability provisions under the Securities Act in connection with these
sales and will be bound by the provisions of the registration rights agreement,
including certain indemnification obligations. Holders of notes must deliver
information to us to be used in connection with the shelf registration statement
and provide comments on the shelf registration statement within specific time
periods in order to have their outstanding notes included in the shelf
registration statement.
If (a) we and R&B Falcon fail to file any of the registration statements
required by the registration rights agreement by the required date, (b) any of
the registration statements we are required to file under the registration
rights agreement are not declared effective by the SEC by the required date (the
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"Effectiveness Target Date"), (c) we fail to consummate the exchange offer
within 30 days of the Effectiveness Target Date with respect to the registration
statement, or (d) the shelf registration statement or the registration statement
of which this prospectus is a part is declared effective but then ceases to be
effective or usable in connection with resales of outstanding notes or exchange
notes during the period specified in the registration rights agreement (each
such event referred to in clauses (a) through (d) above, a "Registration
Default"), then we will pay Special Interest to each Holder of notes to which
the Registration Default applies. For the first 90-day period following a
Registration Default, the Special Interest will equal to $.05 per week per
$1,000 principal amount of notes. The amount of the Special Interest will
increase by an additional $.05 per week per $1,000 principal amount of notes
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of Special Interest of $.50 per week per
$1,000 principal amount of notes. We will pay all accrued Special Interest on
each interest payment date to the Holders of the Global Notes by wire transfer
of immediately available funds or by federal funds check and to Holders of
Certificated Notes 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
Special Interest will cease.
If we effect the exchange offer, we will be entitled to close the exchange
offer 30 days after we start the exchange offer if we have accepted all
outstanding notes validly tendered under the exchange offer.
This summary of the material provisions of the registration rights
agreement is not a complete description of all the provisions of the
registration rights agreement. We have filed a copy of the registration rights
agreement as an exhibit to the registration statement of which this prospectus
is a part.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), we shall make an offer to repurchase all then outstanding notes at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, Additional Amounts and Special Interest, if any, to
the date of purchase (subject to the right of Holders of record on the relevant
record date to receive interest (including Special Interest, if any, and
Additional Amounts, if any) due on the relevant interest payment date):
- 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 the
Voting Stock of R&B Falcon;
- during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of R&B Falcon
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of R&B
Falcon was approved by a vote of 66 2/3% of the directors of R&B Falcon
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
- the merger or consolidation of R&B Falcon with or into another Person or
the merger of another Person with or into R&B Falcon, or the sale of all
or substantially all the assets of R&B Falcon or R&B Falcon and its
Restricted Subsidiaries taken as a whole to another Person, and, in the
case of any such merger or consolidation, the securities of R&B Falcon
that are outstanding immediately prior to such transaction and which
represent 100% of the aggregate voting power of the Voting Stock of R&B
Falcon are changed into or exchanged for cash, securities or property,
unless in the 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.
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Notwithstanding the foregoing, a Change of Control shall not be deemed to
have occurred if (1) the ratings assigned to the notes 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 (2) no Default has occurred
and is continuing.
Within 30 days following any Change of Control, we shall mail a notice to
each Holder with a copy to the Trustee stating among other things: (1) that a
Change of Control has occurred and that such Holder has the right to require us
to purchase such Holder's notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, Additional Amounts
and Special Interest, if any, to the date of purchase (subject to the right of
Holders of record on the relevant record date to receive interest, Additional
Amounts and Special Interest, if any, on the relevant interest payment date);
(2) 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); (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by us,
consistent with the covenant described hereunder, that a Holder must follow in
order to have its notes purchased. R&B Falcon will also be required to prepay
appropriate tranches of the Loans on a pro rata basis at a redemption price
equal to 101% of the principal amount thereof being repaid, plus accrued and
unpaid interest (including Special Interest, if any, and Additional Amounts, if
any) thereon, in order to provide funds sufficient to permit us to purchase any
notes validly tendered pursuant to the foregoing offer to purchase notes upon a
Change of Control.
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 notes under 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 Change of Control purchase feature is solely a result of negotiations
between us, R&B Falcon and the initial purchaser of the notes. R&B Falcon does
not have any present intention to engage in a transaction involving a Change of
Control, although it is possible that R&B Falcon could decide to do so in the
future. Subject to the limitations discussed below, R&B Falcon could, in the
future, enter into transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of Indebtedness outstanding at
such time or otherwise affect R&B Falcon's capital structure or credit ratings.
Restrictions on the ability of R&B Falcon and its Restricted Subsidiaries to
incur additional Indebtedness are contained in the covenants described under
"-- Covenants -- Limitation on Indebtedness," "-- Limitation on Liens" and
"-- Limitation on Sale/Leaseback Transactions." Such restrictions can only be
waived with the consent of the Holders of a majority in aggregate principal
amount of the notes then outstanding. Such provisions may not necessarily afford
the Holders of the notes protection in the event of a highly leveraged
transaction, including a reorganization, restructuring, merger or other similar
transactions involving R&B Falcon, that may adversely affect the Holders because
such transactions may not involve a shift in voting power or beneficial
ownership or, even if they do, may not involve a shift of the magnitude required
under the definition of Change of Control to require us to make a Change of
Control offer. In addition, the existence of the Holder's right to require us to
repurchase such Holder's notes upon the occurrence of a Change of Control may or
may not deter a third party from seeking to acquire R&B Falcon in a transaction
that would constitute a Change of Control.
Our ability to repurchase notes in a Change of Control offer may be limited
by a number of factors. The indenture governing R&B Falcon's 12 1/4% Senior
Notes due 2006 contains a substantially identical provision for a change of
control offer of those notes at a redemption price equal to 100% of the
aggregate principal amount, plus accrued and unpaid interest. Future
Indebtedness of R&B Falcon or its Restricted Subsidiaries may contain
prohibitions on the occurrence of events that would constitute a Change of
Control or require such Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise
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by the Holders of their right to require us to repurchase the notes, or to
require R&B Falcon to repay the Loans, could cause a default under such
Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on R&B Falcon and its Subsidiaries. Finally,
R&B Falcon's ability to pay cash to us (which funds would be then used by us to
purchase notes) following the occurrence of a Change of Control may also be
limited by R&B Falcon's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required repurchases. If a Change of Control offer occurs at a time when we and
R&B Falcon do not have sufficient available funds to pay the purchase price for
all notes validly tendered in the offer and all of R&B Falcon's 12 1/4% Senior
Notes due 2006 under the change of control provisions applicable to those notes,
or at a time when R&B Falcon is prohibited from repaying the Loans (and R&B
Falcon is unable either to obtain the consent of the holders of the relevant
Indebtedness or to repay such Indebtedness), an Event of Default would occur
under the Indenture. Our failure to purchase tendered notes or R&B Falcon's
failure to repay the Loans would constitute a breach of the Indenture which
could, in turn, constitute a default under other Indebtedness and could lead to
the acceleration of such other Indebtedness.
One of the events that constitutes a Change of Control under the Indenture
is a sale, conveyance, lease or transfer of all or substantially all of the
assets of R&B Falcon or of R&B Falcon and its 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 corporation. Accordingly, if R&B Falcon and/or its Restricted
Subsidiaries were to engage in a transaction in which it or they disposed of
less than all of the assets of R&B Falcon or of R&B Falcon and its 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 a Change of Control offer.
COVENANTS
Covenant Suspension
If at any time (1) the ratings assigned to the notes by both of the Rating
Agencies are Investment Grade Ratings and (2) no Default has occurred and is
continuing under the Indenture, R&B Falcon and its Restricted Subsidiaries will
no longer be subject to the provisions of the Indenture described below under
"-- Limitation on Indebtedness" and "-- Limitation on Restricted Payments"
(together, the "Suspended Covenants"). If R&B Falcon is not subject to the
Suspended Covenants for any period of time as a result of the preceding sentence
and, subsequently, one or both Rating Agencies withdraws its ratings or
downgrades the ratings assigned to the notes below the required Investment Grade
Ratings, then R&B Falcon and its Restricted Subsidiaries will again be subject
to the Suspended Covenants and compliance with the Suspended Covenants 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.
Limitation on Indebtedness. (a) R&B Falcon will not, and will not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that R&B Falcon may Incur Indebtedness if the Consolidated
EBITDA Coverage Ratio at the date of such Incurrence and after giving effect
thereto exceeds 2.25 to 1.0.
(b) Notwithstanding paragraph (a), the following Indebtedness may be
Incurred:
(1) Indebtedness of R&B Falcon under one or more Credit Facilities
(and the guarantee of such Indebtedness by Restricted Subsidiaries);
provided, however, that the aggregate amount of such Indebtedness
outstanding at such time shall not exceed $350 million, less any amounts
derived from Asset Sales and applied to the required permanent reduction
of Senior Indebtedness (and a permanent reduction of the related
commitment to lend or amount available to be
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reborrowed in the case of a revolving credit facility) under such Credit
Facilities as contemplated by the "Limitation on Asset Sales" covenant;
(2) Indebtedness of R&B Falcon or a Restricted Subsidiary owed to
and held by a Restricted Subsidiary or Indebtedness of a Restricted
Subsidiary owed to and held by R&B Falcon; provided, however, that any
subsequent issuance or transfer of any Capital Stock that results in
such Restricted Subsidiary to whom Indebtedness is owed ceasing to be a
Restricted Subsidiary or any transfer of such Indebtedness (other than
to R&B Falcon or another Restricted Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness;
(3) The Loans, the Guarantee, the Subsidiary Guarantees, if any,
and Indebtedness incurred in exchange for, or the proceeds of which are
used to Refinance any Indebtedness permitted by this clause (3);
provided, however, that (i) the principal amount of the Indebtedness so
Incurred shall not exceed the principal amount of the Indebtedness so
Refinanced (plus the amount of reasonable fees and expenses incurred in
connection therewith, including any premium or defeasance costs) and
(ii) the Indebtedness so Incurred (A) shall not mature prior to the
Stated Maturity of the Indebtedness so Refinanced and (B) shall have an
Average Life equal to or greater than the remaining Average Life of the
Indebtedness so Refinanced;
(4) Indebtedness of R&B Falcon or any Restricted Subsidiary (other
than Indebtedness described in clause (1), (2) or (3) above) (x)
outstanding on the Issue Date (including without limitation, R&B
Falcon's 12 1/4% Senior Notes due 2006 and any subsidiary guarantee
issued under the indenture governing those notes, R&B Falcon's 6 1/2%
Senior Notes due 2003, R&B Falcon's 6 3/4% Senior Notes due 2005, R&B
Falcon's 6.95% Senior Notes due 2008, the Company's 7 3/8% Senior Notes
due 2018, the Company's 9 1/8% Senior Notes due 2003, the Company's
9 1/2% Senior Notes due 2008 and the 10 1/4% Senior Notes due 2003 of
Cliffs Drilling Company) or Incurred pursuant to agreements as in effect
on the Issue Date and (y) Indebtedness Incurred in exchange for, or the
proceeds of which are used to Refinance, any Indebtedness permitted by
this clause (4) or permitted by clause (a) above; provided, however,
that (i) the principal amount of the Indebtedness so Incurred shall not
exceed the principal amount of the Indebtedness Refinanced (plus the
amount of reasonable fees and expenses incurred in connection therewith,
including any premium or defeasance costs); and (ii) the Indebtedness so
Incurred (A) shall not mature prior to the Stated Maturity of the
Indebtedness so Refinanced and (B) shall have an Average Life equal to
or greater than the remaining Average Life of the Indebtedness so
Refinanced;
(5) Indebtedness of R&B Falcon or any Restricted Subsidiary
consisting of guarantees in connection with any synthetic lease
obligations of Persons Incurred to finance the construction or upgrade
of the drillship Deepwater Frontier and the drillship Deepwater
Pathfinder pursuant to agreements governing such obligations;
(6) Acquired Indebtedness of any Restricted Subsidiary in an
aggregate amount not to exceed $300 million, provided that R&B Falcon on
a pro forma basis could Incur $1.00 of additional Indebtedness under
paragraph (a) of this covenant;
(7) Indebtedness of R&B Falcon or any Restricted Subsidiary
consisting of guarantees, indemnities or obligations in respect of
purchase price adjustments in connection with the acquisition or
disposition of assets, including, without limitation, shares of Capital
Stock;
(8) The Incurrence by R&B Falcon's Unrestricted Subsidiaries of
Non-Recourse Indebtedness; provided, however, that if any such
Indebtedness ceases to be Non-Recourse Indebtedness of any Unrestricted
Subsidiary, subject to the definition of "Unrestricted Subsidiary," such
event shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of R&B Falcon that was not permitted by this
clause (8);
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(9) Obligations of R&B Falcon or a Restricted Subsidiary under
performance or surety bonds relating to building contracts for the
construction of drilling rigs, drillships or similar vessels or
contracts for the installation of related equipment;
(10) Hedging Obligations; and
(11) Indebtedness of R&B Falcon or any Restricted Subsidiary in an
aggregate principal amount which, together with all other Indebtedness
of R&B Falcon then outstanding (other than Indebtedness permitted by
clauses (1) through (10) of this paragraph (b) or paragraph (a)) does
not exceed $50.0 million.
(c) Notwithstanding paragraphs (a) and (b), R&B Falcon shall not issue
any Indebtedness if the proceeds thereof are used, directly or indirectly,
to repay, prepay, redeem, defease, retire, refund or refinance any
Subordinated Obligations unless such Indebtedness shall be subordinated to
the Guarantee and Loans to at least the same extent as such Subordinated
Obligations.
(d) For purposes of determining compliance with this covenant, (i) if
an item of Indebtedness meets the criteria of more than one of the types of
Indebtedness described above, we, in our sole discretion, will classify the
item of Indebtedness and only be required to include the amount and type of
the Indebtedness in one of the above clauses and (ii) an item of
Indebtedness may be divided and classified in more than one of the types of
Indebtedness described above.
Limitation on Liens. R&B Falcon will not, and will not permit any
Restricted Subsidiary of R&B Falcon to, issue, assume or guarantee any
Indebtedness for borrowed money secured by any Lien on any property or asset now
owned or hereafter acquired by R&B Falcon or such Restricted Subsidiary without
making effective provision whereby any and all notes then or thereafter
outstanding and/or the Guarantee will be secured by a Lien equally and ratably
with any and all other obligations thereby secured for so long as any such
obligations shall be so secured.
This restriction does not, however, apply to:
(1) Liens securing the notes, the Guarantee and the Loans;
(2) Liens existing on the date on which the notes are originally
issued or provided for under the terms of agreements existing on such
date;
(3) Liens on property securing (a) all or any portion of the cost
of acquiring, constructing, altering, improving or repairing any
property or assets, real or personal, or improvements used or to be used
in connection with such property or (b) Indebtedness incurred by R&B
Falcon or any Restricted Subsidiary of R&B Falcon prior to or within one
year after the later of the acquisition, the completion of construction,
alteration, improvement or repair or the commencement of commercial
operation thereof, which Indebtedness is incurred for the purpose of
financing all or any part of the purchase price thereof or construction
or improvements thereon;
(4) Liens securing Indebtedness owed by a Restricted Subsidiary of
R&B Falcon or to any other Restricted Subsidiary of R&B Falcon;
(5) Liens on property existing at the time of acquisition of such
property by R&B Falcon or any of its Restricted Subsidiary or Liens on
the property of any Person existing at the time such Person becomes a
Restricted Subsidiary of R&B Falcon and, in any case, not incurred as a
result of (or in connection with or in anticipation of) the acquisition
of such property or such Person becoming a Restricted Subsidiary of R&B
Falcon, provided that such Liens do not extend to or cover any property
or assets of R&B Falcon or any of its Restricted Subsidiaries other than
the property encumbered at the time such property is acquired by R&B
Falcon or any of its Restricted Subsidiaries or such Person becomes a
Restricted Subsidiary of R&B Falcon and, in any case, do not secure
Indebtedness with a principal amount in excess of the principal amount
outstanding at such time;
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(6) Liens on any property securing (a) Indebtedness incurred in
connection with the construction, installation or financing of pollution
control or abatement facilities or other forms of industrial revenue
bond financing or (b) Indebtedness issued or guaranteed by the United
States or any State thereof or any department, agency or instrumentality
of either;
(7) any Lien extending, renewing or replacing (or successive
extensions, renewals or replacements of) any Lien of any type permitted
under clause (1), (2), (3), (5) or (6) above, provided that such lien
extends to or covers only the property that is subject to the Lien being
extended, renewed or replaced and that the principal amount of the
Indebtedness secured thereby shall not exceed the principal amount of
Indebtedness so secured at the time of such extension, renewal or
replacement; or
(8) Liens (exclusive of any Lien of any type otherwise permitted
under clauses (1) through (7) above) securing Indebtedness for borrowed
money of R&B Falcon or any Restricted Subsidiary of R&B Falcon in an
aggregate principal amount which, together with the aggregate amount of
Attributable Indebtedness deemed to be outstanding in respect of all
Sale/Leaseback Transactions entered into pursuant to clause (1) of the
covenant described under "Limitation on Sale/Leaseback Transactions"
below (exclusive of any such Sale/Leaseback Transactions otherwise
permitted under clauses (1) through (7) above), does not at the time
such Indebtedness is incurred exceed 15% of the Consolidated Net Worth
of R&B Falcon (as shown in the most recent audited consolidated balance
sheet of R&B Falcon and its Restricted Subsidiaries).
Limitation on Restricted Payments. (a) R&B Falcon 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 R&B Falcon) 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 R&B Falcon 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
Capital Stock of R&B Falcon or of any direct or indirect parent of R&B
Falcon, or any Restricted Subsidiary (except Capital Stock held by R&B
Falcon or a Restricted Subsidiary);
(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); or
(4) make any Investment other than a Permitted Investment (any such
dividend, distribution, purchase, redemption, repurchase, defeasance,
other acquisition, retirement or Investment being herein referred to as
a "Restricted Payment"),
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if at the time R&B Falcon or such Restricted Subsidiary makes such Restricted
Payment:
(i) a Default shall have occurred and be continuing (or would result
therefrom); or
(ii) R&B Falcon would not be permitted to Incur an additional $1.00 of
Indebtedness under paragraph (a) under "-- Limitation on Indebtedness"
after giving pro forma effect to such Restricted Payment; or
(iii) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter during which the notes were originally issued 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
the Board of Directors of R&B Falcon) received by R&B Falcon from the
issue or sale of its Capital Stock (other than Redeemable Stock or
Exchangeable Stock) subsequent to the Issue Date (other than an issuance
or sale to a Restricted Subsidiary or an employee stock ownership plan
or similar trust);
(C) the amount by which R&B Falcons's Indebtedness is reduced on
R&B Falcon's balance sheet upon the conversion or exchange (other than
by a Restricted Subsidiary) subsequent to the Incurrence of any
Indebtedness of R&B Falcon convertible or exchangeable for Capital Stock
(other than Redeemable Stock or Exchangeable Stock) of R&B Falcon (less
the amount of any cash, or other property, distributed by R&B Falcon
upon such conversion or exchange);
(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 R&B Falcon or any Restricted
Subsidiary after the Issue Date 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 (other than Permitted Investments) in such
Restricted Subsidiary made by R&B Falcon and its 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 Capital Stock or Subordinated
Obligations of R&B Falcon made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Capital Stock of R&B Falcon (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 (iii)(B) and
(iii)(C) of Section (a);
(2) Any purchase or redemption of R&B Falcon's Subordinated
Obligations made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Indebtedness of R&B Falcon which is
permitted to be issued under the provision of "-- Limitation on
Indebtedness" above; provided, however, that such purchase or redemption
shall be excluded in the calculation of the amount of Restricted Payments;
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(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 R&B Falcon issues Preferred Stock which is Non-Convertible
Capital Stock and receives 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
under clause (iii) of Section (a) above.
Limitation on Sale/Leaseback Transactions. R&B Falcon will not, and will
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with any Person (other than R&B Falcon or a Restricted Subsidiary)
unless:
(1) R&B Falcon or such Restricted Subsidiary would be entitled to
incur Indebtedness, in a principal amount equal to the Attributable
Indebtedness with respect to such Sale/Leaseback Transaction, secured by a
Lien on the property subject to such Sale/Leaseback Transaction under the
covenant described under "Limitation on Liens" above without equally and
ratably securing the notes and/or the Guarantee pursuant to such covenant;
(2) after the Issue Date and within a period commencing six months
prior to the consummation of such Sale/Leaseback Transaction and ending six
months after the consummation thereof, R&B Falcon or such Restricted
Subsidiary shall have expended for property used or to be used in the
ordinary course of business of R&B Falcon and its Restricted Subsidiaries
an amount equal to all or a portion of the net proceeds of such
Sale/Leaseback Transaction and R&B Falcon shall have elected to designate
such amount as a credit against such Sale/Leaseback Transaction (with any
such amount not being so designated to be applied as set forth in clause
(3) below); or
(3) during the 12-month period after the effective date of such
Sale/Leaseback Transaction, R&B Falcon shall have applied to the voluntary
defeasance or retirement of Loans and notes or any Pari Passu Indebtedness
an amount equal to the greater of the net proceeds of the sale or transfer
of the property leased in such Sale/Leaseback Transaction and the fair
value, as determined by the Board of Directors of R&B Falcon, of such
property at the time of entering into such Sale/Leaseback Transaction (in
either case adjusted to reflect the remaining term of the lease and any
amount expended by R&B Falcon as set forth in clause (2) above), less an
amount equal to the principal amount of Loans and notes and Pari Passu
Indebtedness voluntarily defeased or retired by us and R&B Falcon within
such 12-month period and not designated as a credit against any other Sale/
Leaseback Transaction entered into by R&B Falcon or any Restricted
Subsidiary during such period.
Limitations on Mergers and Consolidations. Neither R&B Falcon nor any
Subsidiary Guarantor (other than any Subsidiary Guarantor that shall have been
released from its Subsidiary Guarantee under the provisions of the Indenture)
will 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 R&B Falcon or such Subsidiary Guarantor, as the case may be), or
to which such sale, lease, conveyance, transfer or other disposition shall
be made (collectively, the "Successor"), is a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia (or, alternatively, in the case of a Subsidiary
Guarantor organized under the laws of a jurisdiction outside the United
States, a corporation organized and existing under the laws of such foreign
jurisdiction), and the Successor assumes by supplemental indenture in a
form satisfactory to the Trustee all of the
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applicable Obligations of R&B Falcon or such Subsidiary Guarantor, as the
case may be, under the Indenture, the Guarantee, the Subsidiary Guarantees
and the notes;
(2) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and
(3) in the case of R&B Falcon, immediately after giving effect to such
transactions, the resulting, surviving or transferee Person would be able
to incur at least $1.00 of Indebtedness under paragraph (a) of the
"Limitation on Indebtedness" covenant.
We shall not consolidate or merge with or into any other Person, continue
in another jurisdiction, or convey, transfer or lease any assets to any other
Person (other than as permitted under "Collateral"). We shall not become a
Subsidiary of R&B Falcon so long as any of R&B Falcon's 6 1/2% Senior Notes due
2003, 6 3/4% Senior Notes due 2005, 6.95% Senior Notes due 2008, 7 3/8% Senior
Notes due 2018, 9 1/8% Senior Notes due 2003, 9 1/2% Senior Notes due 2008 or
12 1/4% Senior Notes due 2006 remain outstanding.
SEC Reports. Notwithstanding that R&B Falcon may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, R&B Falcon shall file with the SEC and provide the Trustee and Holders with
such annual reports and such information, documents and other reports specified
in Sections 13 and 15(d) of the Exchange Act.
In addition, whether or not required by the rules and regulations of the
SEC, R&B Falcon will file a copy of all such information and reports with the
SEC for public availability (unless the SEC will not accept such filing). In
addition, we and R&B Falcon shall furnish to the Holders and to prospective
investors, upon the requests of such Holders, any information required to be
delivered under Rule 144A(d)(4) under the Securities Act so long as the notes
are not freely transferable under the Securities Act.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. R&B Falcon shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions, in cash or
otherwise, on its Capital Stock to R&B Falcon or any Restricted Subsidiary or
pay any Indebtedness owed to R&B Falcon or any Restricted Subsidiary, (b) make
any loans or advances to R&B Falcon or any Restricted Subsidiary or (c) transfer
any of its property or assets to R&B Falcon or any Restricted Subsidiary,
except:
(i) any encumbrance or restriction pursuant to an agreement in effect
or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Acquired Indebtedness
or Preferred Stock Incurred by such Restricted Subsidiary on or prior to
the date on which such Restricted Subsidiary became a Restricted Subsidiary
or was acquired by R&B Falcon (other than Indebtedness or Preferred Stock
Incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
related transactions in which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by R&B Falcon or otherwise Incurred
in anticipation of such acquisition) and outstanding on such date;
(iii) any encumbrance or restriction relating to any assets acquired
after the Issue Date, so long as such encumbrance or restriction relates
only to the assets so acquired and is not or was not created in
anticipation of such acquisition;
(iv) any encumbrance or restriction pursuant to an agreement effecting
a Refinancing of Indebtedness or Preferred Stock Incurred pursuant to an
agreement referred to in clause (i), (ii) or (iii) of this covenant or this
clause (iv) or contained in any amendment to an agreement referred to in
clause (i), (ii) or (iii) of this covenant or this clause (iv); provided,
however, that the
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encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such refinancing agreement or amendment are in the
aggregate no less favorable to the Holders of the notes than the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such predecessor agreements;
(v) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests or in
license agreements to the extent such provisions restrict the assignment of
such agreement and any rights granted or property leased thereunder;
(vi) in the case of clause (iii) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages; and
(vii) any temporary encumbrance or restriction with respect to a
Restricted Subsidiary imposed pursuant to an agreement entered into for the
sale or disposition of all or substantially all the Capital Stock or assets
of such Restricted Subsidiary pending the closing of such sale or
disposition.
Nothing contained in this covenant shall prevent R&B Falcon or any
Restricted Subsidiary from entering into any agreement permitting the incurrence
of Liens otherwise permitted by "-- Covenants -- Limitation on Liens."
Limitation on Asset Sales. (a) R&B Falcon shall not, and shall not permit
any Subsidiary Guarantor to, sell, assign, convey, transfer or otherwise dispose
of a Mortgaged Rig or any other portion of the Collateral (other than an
Incidental Asset or Temporary Cash Investments in the Escrow Account and other
than a transfer of a Mortgaged Rig to a Wholly-Owned Restricted Subsidiary that
becomes a Subsidiary Guarantor); provided, however, that R&B Falcon or a
Subsidiary Guarantor may sell a Mortgaged Rig or R&B Falcon may sell all the
Capital Stock of a Subsidiary Guarantor owning a Mortgaged Rig (any such asset
proposed to be sold is referred to herein as a "Mortgaged Rig Asset") if such
sale of a Mortgaged Rig Asset is made in compliance with each of the following
conditions:
(i) no Default shall have occurred and be continuing;
(ii) the sale shall be effected in a commercially reasonable manner as
determined by the Board of Directors and evidenced by a board resolution;
(iii) the entire consideration for such sale shall be at least equal
to the fair market value of the Mortgaged Rig (as determined in good faith
by R&B Falcon's Board of Directors);
(iv) at least 75% of the consideration received shall be in the form
of cash or Temporary Cash Equivalents, provided that Net Available Cash
shall not be less than an amount equal to the Sale Redemption Amount for
the Loan secured by a Lien on such Mortgaged Rig;
(v) funds in an amount equal to the Sale Redemption Amount (or if
required by the provisions of "-- Redemptions -- Redemption Upon Sale of a
Mortgaged Rig," the Net Available Cash of such sale) shall be applied as
repayments on the appropriate Loan or Loans and paid in full directly to
the Trustee for deposit in the Escrow Account and shall be received by the
Trustee free of any Lien (other than the Lien of the Indenture and the
Security Agreements); and
(vi) R&B Falcon shall have complied with the other provisions of the
Indenture applicable to such sale.
We and R&B Falcon must apply the Net Available Cash from such sale as
described above under "-- Redemptions -- Redemption Upon Sale of a Mortgaged
Rig."
(b) R&B Falcon shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in any Asset Sales (other than Asset Sales permitted by
the paragraph (a) above) unless (i) R&B Falcon or the applicable Restricted
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the fair market value of the assets sold or otherwise
disposed of (as determined in good faith by R&B Falcon's Board of Directors),
and (ii) at least 75% of the consideration received by R&B
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Falcon or the Restricted Subsidiary, as the case may be, from such Asset Sale at
the time of such disposition shall be in the form of cash or Temporary Cash
Equivalents (or the assumption of indebtedness and liabilities of R&B Falcon or
such Restricted Subsidiary and the release of R&B Falcon or such Restricted
Subsidiary from all liability thereon) or notes or marketable securities that
are converted into cash or Temporary Cash Equivalents within 180 days after the
date of such Asset Sale; provided that any Asset Sale of shares of Capital Stock
of Reading & Bates Development Co. or of assets owned by Reading & Bates
Development Co. not constituting a Mortgaged Rig shall not have to comply with
the provisions of this clause (ii). If R&B Falcon or a Restricted Subsidiary
engages in an Asset Sale in compliance with the previous sentence, then R&B
Falcon shall or shall cause a Restricted Subsidiary to apply an amount equal to
such excess Net Available Cash within 360 days of the Asset Sale either (i) to
repay Senior Indebtedness of R&B Falcon or of a Restricted Subsidiary (other
than in each case Indebtedness owed to an Affiliate of R&B Falcon), (ii) to
invest in Additional Assets or (iii) treat (no later than the end of such
360-day period) such excess Net Available Cash (to the extent not applied
pursuant to clauses (i) or (ii) above) as Sale Excess Proceeds.
Limitation on Asset Swaps. R&B Falcon will not, and will not permit any
Restricted Subsidiary to, engage in any Asset Swaps, unless:
(i) at the time of entering into the agreement with respect thereto
and immediately after giving effect to the proposed Asset Swap, no Default
shall have occurred and be continuing;
(ii) the aggregate fair market values of the Additional Assets and
other consideration to be received by R&B Falcon or the applicable
Restricted Subsidiary is, at the time the Asset Swap is agreed to,
substantially equal to the aggregate fair market of the property being
disposed of by R&B Falcon or the applicable Restricted Subsidiary (to be
determined in good faith by the Board of Directors of R&B Falcon and to be
evidenced by a resolution of such Board set forth in an Officer's
Certificate delivered to the Trustee); and
(iii) the cash payments, if any, received by R&B Falcon or such
Restricted Subsidiary in connection with such Asset Swap are treated as Net
Available Cash received from an Asset Sale.
Limitation on Affiliate Transactions. (a) R&B Falcon shall not, and shall
not permit any Restricted Subsidiary to, enter into any transaction (including
the purchase, sale, lease or exchange of any property, employee compensation
arrangements or the rendering of any service) with any Affiliate of R&B Falcon
(an "Affiliate Transaction") unless the terms thereof (1) are no less favorable
to R&B Falcon or such Restricted Subsidiary than those that could be obtained at
the time of such transaction in arm's-length dealings with a Person who is not
such an Affiliate, (2) if such Affiliate Transaction involves an amount in
excess of $500,000, (i) are set forth in writing and (ii) have been approved by
a majority of the members of the Board of Directors of R&B Falcon having no
personal stake in such Affiliate Transaction and (3) if such Affiliate
Transaction involves an amount in excess of $10.0 million, have been determined
by an investment banking firm of national reputation or, in the case of the sale
or transfer of assets subject to valuation, an appropriate independent qualified
appraiser of national reputation, given the size and nature of the transaction,
to be fair, from a financial standpoint, to R&B Falcon and its Restricted
Subsidiaries.
(b) The provisions of paragraph (a) shall not prohibit (i) any Restricted
Payment permitted to be paid under the covenant described under "-- Limitation
on Restricted Payments," (ii) any issuance of securities, or other payments,
awards or grants in cash, securities or otherwise pursuant to, or the funding
of, employment arrangements of R&B Falcon, stock options, stock ownership and
other employee benefit plans approved by the Board of Directors of R&B Falcon,
(iii) the grant of stock options or similar rights to employees, officers and
directors of R&B Falcon pursuant to plans approved by its Board of Directors,
(iv) loans or advances to employees in the ordinary course of business in
accordance with the past practices of R&B Falcon or its Subsidiaries, but in any
event not to exceed $1.0 million in aggregate principal amount outstanding at
any one time, (v) the payment of reasonable fees to directors of R&B Falcon and
its Restricted Subsidiaries who are not employees of R&B Falcon or its
Restricted Subsidiaries and (vi) any Affiliate Transaction among any of us, R&B
Falcon, the Restricted Subsidiaries, Arcade
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Drilling AS, any entity owning or operating any of the Deepwater Pathfinder, the
Deepwater Frontier or the Seillean (but only for transactions relating to such
vessels) and Navis AS.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. R&B Falcon shall not sell or otherwise dispose of any Capital
Stock of a Restricted Subsidiary, and shall not permit any such Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
of its Capital Stock except (i) to R&B Falcon or a Wholly Owned Restricted
Subsidiary, (ii) if, immediately after giving effect to such issuance, sale or
other disposition, neither R&B Falcon nor any of its Subsidiaries own any
Capital Stock of such Restricted Subsidiary, (iii) other than with respect to
shares of Capital Stock of a Subsidiary Guarantor owning a Mortgaged Rig, to
Persons who are entering into joint ventures or other similar business
relationships with R&B Falcon or any Subsidiary other than a Subsidiary
Guarantor; provided, however, that transactions under this clause (iii) are
approved in the manner set forth in paragraph (a) under "-- Limitation on
Affiliate Transactions," (iv) directors' qualifying shares, (v) other than with
respect to shares of Capital Stock of a Subsidiary Guarantor which owns a
Mortgaged Rig, if, immediately after giving effect to such issuance, sale or
other disposition, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such Person remaining after giving
effect thereto would have been permitted to be made under the covenant described
under "-- Limitation on Restricted Payments" if made on the date of such
issuance, sale or other disposition or (vi) pursuant to the loan arrangement
with Nisho-Iwai. R&B Falcon shall apply the proceeds from any applicable sale of
Capital Stock of a Subsidiary Guarantor which owns a Mortgaged Rig in accordance
with the provisions described above under "-- Redemptions -- Redemption upon
Sale of a Mortgaged Rig."
Future Subsidiary Guarantors. The Indenture provides that R&B Falcon may
not permit any Restricted Subsidiary, directly or indirectly, to guarantee any
Indebtedness of R&B Falcon ("Guaranteed Indebtedness") or any other Obligor or
to acquire a Mortgaged Rig unless (i) such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture to the Indenture providing for a
Subsidiary Guarantee of payment of the notes by such Restricted Subsidiary and
(ii) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against us, R&B Falcon or any other
Restricted Subsidiary as a result of any payment by such Restricted Subsidiary
under its Subsidiary Guarantee. If the Guaranteed Indebtedness ranks equally in
right of payment with the Guarantee, then the guarantee of such Guaranteed
Indebtedness shall rank equally in right of payment with or be subordinated to
the Subsidiary Guarantee; and if the Guaranteed Indebtedness is subordinated to
the Guarantee, then the guarantee of such Guaranteed Indebtedness shall be
subordinated to the Subsidiary Guarantee at least to the extent that all
Guaranteed Indebtedness is subordinated to the Guarantee. Any Subsidiary
Guarantee by a Restricted Subsidiary which does not own a Mortgaged Rig that was
incurred pursuant to the terms of this paragraph (but not otherwise) shall
provide by its terms that it shall be automatically and unconditionally released
and discharged upon the release or discharge of the guarantee which resulted in
the creation of such Restricted Subsidiary's Subsidiary Guarantee, except a
discharge or release by, or as a result of, payment under such guarantee.
Impairment of Liens. We and R&B Falcon shall not, and we and R&B Falcon
shall not permit any Restricted Subsidiary to, take or knowingly or negligently
omit to take, any action which action or omission might or would have the result
of materially impairing the Liens granted by us with respect to the Collateral
for the benefit of the Trustee and the Holders of the notes and the Liens
granted by R&B Falcon with respect to Collateral for the benefit of us. Except
as permitted by the Indenture and the Security Agreements, we and R&B Falcon
shall not, and shall not permit any Restricted Subsidiary to, grant to any
Person other than the Trustee, for the benefit of the Trustee and the Holders of
the notes, any interest whatsoever in any of the Collateral.
Limitation on Activities. We will not engage in any business activity or
undertake any activity, except any activity (i) relating to the offering, sale
or issuance of the notes or the lending of the proceeds of the sale of notes to
R&B Falcon pursuant to the Loans, or (ii) undertaken with the purpose of, and
directly related to, exercising our rights under, and fulfilling our obligations
or the obligations of R&B Falcon or the Restricted Subsidiaries under, the
notes, the Indenture, the Loans and the Security Agreements. The
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Indenture provides that we are a limited purpose entity with corporate
organizational documents containing limitations on our business activities, the
requirement of an independent director on our Board of Directors, and a
restriction on our ability to commence a voluntary case or proceeding under any
applicable bankruptcy or insolvency laws without the prior unanimous affirmative
vote of all of our directors. The Indenture also provides that we will not (i)
incur any Indebtedness other than the notes or Subordinated Obligations owing to
R&B Falcon or (ii) enter into any derivative product transactions.
DEFAULTS
An Event of Default is defined in the Indenture as
(i) a default in the payment of interest (including Special Interest
and Additional Amounts, if any) on the notes or an Loan when due, continued
for 30 days,
(ii) (a) a default in the payment of principal of, or premium, if any,
on any note or Loan when due at its Stated Maturity, upon redemption,
required repurchase, declaration of acceleration or otherwise or
(b) the failure to redeem or purchase notes or the Loans when required
pursuant to the Indenture or the Loan Agreements,
(iii) the failure by R&B Falcon to comply with its obligations under
"-- Covenants -- Limitation on Mergers and Consolidations,"
"-- Redemptions -- Redemption upon Loss of a Mortgaged Rig," and
"-- Redemptions -- Redemption upon Sale of a Mortgaged Rig" or in the
covenants described above under "-- Change of Control" or
"-- Covenants -- Limitation on Asset Sales."
(iv) the failure by us, R&B Falcon and the Subsidiary Guarantors to
comply with its other agreements contained in the Indenture or in the
Security Agreements, or the occurrence of an event of default under a
Mortgage, and such failure or event of default continues for 60 days after
notice,
(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 by R&B Falcon or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by R&B Falcon or any of its 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 R&B Falcon or any of its 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;
(vii) certain events of bankruptcy or insolvency with respect to us,
R&B Falcon or any of R&B Falcon's Significant Subsidiaries or group of
Restricted Subsidiaries that, taken together (as of the latest audited
consolidated financial statements for R&B Falcon and its Subsidiaries),
would constitute a Significant Subsidiary;
(viii) the Guarantee or any Subsidiary Guarantee ceases to be in full
force and effect (other than in accordance with the terms of the Indenture
and such Subsidiary Guarantee) or R&B Falcon or a Subsidiary Guarantor
denies or disaffirms its obligations under the Guarantee or its Subsidiary
Guarantee, as applicable, or
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(ix) the Liens under the Security Agreements shall, at any time, cease
to be in full force and effect for any reason (other than by operation of
the provisions of the Indenture and the Security Agreements) other than the
satisfaction in full of all obligations under the Indenture and discharge
of the Indenture, or any Lien created under the Security Agreements shall
be declared invalid or unenforceable or we, R&B Falcon or any Subsidiary
Guarantor shall assert, in any pleading in any court of competent
jurisdiction, that any such Lien is invalid or unenforceable.
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 notes 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 principal
amount of the notes outstanding may declare the principal of and premium, if
any, and accrued but unpaid interest (including Additional Amounts and Special
Interest, if any) on all the notes to be due and payable. Upon such a
declaration, such principal, premium, if any, and interest (including Additional
Amounts and Special Interest, 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 Additional Amounts and Special Interest, if any) on
the notes will become and be immediately due and payable without any declaration
or other act on the part of the Trustee or any Holders of the notes.
The amount due and payable on the acceleration of any note will be equal to
100% of the principal amount of such note, plus accrued and unpaid interest
(including Additional Amounts and Special interest, if any) to the date of
payment.
Under limited circumstances, the Holders of a majority in principal amount
of the outstanding notes may rescind any such acceleration with respect to the
notes and its consequences.
No Holder of a note of any series may pursue any remedy under the Indenture
unless
- the Trustee shall have received written notice of a continuing Event of
Default,
- the Trustee shall have received a request from Holders of at least 25% in
principal amount of such series of notes to pursue such remedy,
- the Trustee shall have been offered indemnity reasonably satisfactory to
it and
- the Trustee shall have failed to act for a period of 60 days after
receipt of such notice and offer of indemnity; however, such provision
does not affect the right of a Holder of a note to sue for enforcement of
any overdue payment.
The Holders of a majority in aggregate principal amount of the outstanding
notes 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. These rights are subject to restrictions. 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 a note 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 notes 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 notes 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 note, the Trustee may withhold
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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 notes.
In addition, we and R&B Falcon are each required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the officers signing the certificate know of any Default that occurred
during the previous year. We and R&B Falcon are each also required to deliver to
the Trustee, within 5 Business Days after the occurrence thereof, written notice
of any event which would constitute a Default or an Event of Default, its status
and what action we and R&B Falcon are taking or proposes to take in respect of
the Default of Event of Default.
AMENDMENTS AND WAIVERS
We and R&B Falcon and the Trustee may amend the Indenture and the Security
Agreements with the consent of the Holders of a majority in aggregate principal
amount of the notes then outstanding (including consents obtained in connection
with a tender offer or exchange for the notes) 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 notes then
outstanding. However, without the consent of each Holder of a then outstanding
note that would be affected by the amendment, no amendment may (1) reduce the
amount of notes whose Holders must consent to an amendment, (2) reduce the rate
of or extend the time for payment of interest on any note or any Loan, (3)
reduce the principal of or extend the Stated Maturity of any note or any Loan,
(4) modify our obligations to make mandatory redemptions or otherwise reduce the
premium payable upon the redemption of any note or change the time at which any
note may be or is required to be redeemed as described under "-- Redemptions"
above, (5) modify the obligations of R&B Falcon to make mandatory repayments or
change the time at which an Loan may be or is required to be repaid under
"-- Redemptions" above, (6) make any note payable in money other than that
stated in the note, (7) impair the right of any Holder of the notes to receive
payment of principal of and interest on such Holder's notes on or after the due
dates or to institute suit for the enforcement of any payment on or with respect
to such Holder's notes, (8) make any change in the amendment provisions which
require each Holder's consent or in the waiver provisions, (9) make any change
in the Guarantee or any Security Agreement or Loan Agreement that would
adversely affect the Holders or terminate the Lien of the Indenture or any
Security Agreement on any property at any time subject to that Lien or deprive
the Holders of the security afforded by the Lien of the Indenture or the
Security Agreements or us of the Liens securing the Loans.
Without the consent of any Holder of the notes, we, R&B Falcon and the
Trustee may amend the Indenture and the Security Agreements to cure any
ambiguity, omission, defect or inconsistency, to provide for the assumption by a
successor corporation of the obligations of R&B Falcon under the Indenture, the
Loan Agreements, and the Security Agreements, to provide for uncertificated
notes in addition to or in place of certificated notes (provided that the
uncertificated notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated notes are
described in Section 163(f)(2)(B) of the Code), to add additional guarantees
with respect to the notes, to provide additional security for the notes, to add
to our covenants and the covenants of R&B Falcon for the benefit of the Holders
of the notes or to surrender any right or power conferred upon us or R&B Falcon,
to make any change that does not adversely affect the rights of any Holder of
the notes 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 notes 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 or the Security Agreements becomes
effective, we are required to mail to Holders of the notes a notice briefly
describing such amendment. However, the failure to give such notice to all
Holders of the notes, or any defect therein, will not impair or affect the
validity of the amendment.
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ABILITY TO REALIZE ON COLLATERAL
The proceeds of any sale of the Collateral in whole pursuant to the
Indenture, the Loan Agreements and the Security Agreements following an Event of
Default under the Indenture may not provide sufficient funds to permit us to
make payments due on the notes. In addition, the ability of the Holders of the
notes to realize upon the Collateral may be limited in the event of a bankruptcy
or insolvency or pursuant to applicable laws, including securities laws.
If an Event of Default occurs and is continuing and the Loans and the notes
become payable in full, the Trustee, on behalf of the Holders of the notes, in
addition to any other rights or remedies available to it under the Indenture and
the Security Agreements, may take such action as it deems advisable to protect
and enforce its rights in the Collateral, including the institution of sale or
foreclosure proceedings. The proceeds received by the Trustee from any such sale
or foreclosure will be applied by the Trustee first to pay the expenses of such
sale or foreclosure and fees and other amounts then payable to the Trustee under
the Indenture, and thereafter to pay amounts due and payable with respect to the
notes.
The right of the Trustee and our right to repossess and dispose of the
Collateral, upon acceleration of the notes or the Loans is likely to be
significantly impaired by applicable bankruptcy or insolvency law if a
bankruptcy or insolvency proceeding were to be commenced by or against us, R&B
Falcon or any Subsidiary Guarantor prior to or possibly even after the Trustee
has repossessed and disposed of the Collateral. Under the United States
Bankruptcy Code, a secured creditor such as the Trustee is prohibited from
repossessing its security from a debtor in a bankruptcy case, or from disposing
of security repossessed from the debtor, without bankruptcy court approval.
Moreover, applicable U.S. bankruptcy law generally permits the debtor to
continue to retain and to use collateral (and the proceeds, products, offspring,
rents or profits of the collateral) even though the debtor is in default under
the applicable debt instruments, provided generally that the secured creditor is
given "adequate protection." The meaning of the term "adequate protection" may
vary according to circumstances, but it is intended in general to protect the
value of the secured creditor's interest in the collateral and may include, if
approved by the court, cash payments or the granting of additional or
replacement security for any diminution in the value of the collateral as a
result of the stay of repossession or disposition or any use of the collateral
by the debtor during the pendency of the bankruptcy case. In view of the lack of
a precise definition of the term "adequate protection" and the broad
discretionary powers of a bankruptcy court, it is impossible to predict how long
payments under the notes, the Loan Agreements, the Guarantee or any Subsidiary
Guarantees could be delayed following commencement of a bankruptcy case, whether
or when the Trustee would repossess or dispose of the Collateral or whether or
to what extent holders of the notes would be compensated for any delay in
payment or loss of value of the Collateral through the requirements of "adequate
protection." Furthermore, in the event that the bankruptcy court determines that
the value of the Collateral is not sufficient to repay all amounts due on the
Loans or the notes, we or Holders of the notes, as applicable, would have
"undersecured claims." Applicable U.S. bankruptcy laws do not permit the payment
or accrual of interest, costs and attorneys' fees for "undersecured claims"
during the debtor's bankruptcy case.
TRANSFER
The outstanding notes were, and the exchange notes will be, issued in
registered form and will be transferable (subject to applicable federal and
state securities laws) only upon the surrender of the notes being transferred
for registration of transfer. We may require payment of a sum sufficient to
cover any tax, assessment or other governmental charge payable in connection
with transfers and exchanges. The notes may not at any time, including after the
exchange offer, be transferred to, or held by, Persons other than Qualified
Institutional Buyers or Institutional Accredited Investors. See "Transfer
Restrictions."
DEFEASANCE
We may at any time terminate all of our obligations under the notes, the
Indenture and the Security Agreements ("legal defeasance"), except for certain
obligations, including those respecting the defeasance
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trust and obligations, to register the transfer or exchange of the notes, to
replace mutilated, destroyed, lost or stolen notes and to maintain a registrar
and paying agent in respect of the notes and except for our optional redemption
rights. We may at any time terminate our mandatory redemption and repurchase
obligations under "-- Redemptions," "-- Change of Control" and under the
covenants described under "-- Covenants" (other than the covenant described
under "-- Limitation on Mergers and Consolidations"), the operation of the cross
acceleration provision, the bankruptcy provisions with respect to Significant
Subsidiaries and the judgment default provision described under "-- Defaults"
above and the limitations contained in clause (3) of the first paragraph under,
and the second paragraph under, "-- Covenants -- Limitation on Mergers and
Consolidations" 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 notes may not be accelerated because of an Event of
Default with respect thereto. If we exercise our covenant defeasance option,
payment of the Notes may not be accelerated because of an Event of Default
specified in clause (iii) (other than the covenant described under
"-- Limitation on Mergers and Consolidations") or (v) under "-- Defaults" above
or because of the failure of R&B Falcon to comply with clause (3) of the first
paragraph under, and the second paragraph under, "-- Covenants -- Limitation on
Mergers and Consolidations" above. If we exercise our legal defeasance option,
R&B Falcon and each Subsidiary Guarantor will be released from all its
obligations with respect to the Guarantee, the Subsidiary Guarantees and the
Security Agreements, as applicable.
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 Additional Amounts and Special Interest, if any) on the notes to
redemption or maturity, as the case may be, and must comply with other
conditions, including delivery to the Trustee of an opinion of counsel to the
effect that Holders of the notes 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
United States Trust Company of New York is the Trustee under the Indenture,
the Escrow Agent under the Escrow Agreements and the Collateral Agent under
certain other Security Agreements, and has been appointed by us as Registrar and
Paying Agent with regard to the notes.
The Holders of a majority in aggregate principal amount of the outstanding
notes 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
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
notes, 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, the notes, the Loan Agreements
and each of the Security Agreements, other than the Mortgages, are 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.
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CONSENT TO JURISDICTION AND SERVICE
R&B Falcon has appointed CT Corporation System as its 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 has
submitted to such jurisdiction under each of the Indenture and the Security
Agreements other than the Mortgages. Each of the Indenture and the Security
Agreements other than the Mortgages provides that each Subsidiary Guarantor will
appoint CT Corporation System as its 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.
DEFINITIONS
The following is a summary of some of the defined terms 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 notes and not defined below.
"Acquired Indebtedness" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or
in contemplation of, such other Person merging with or into, or becoming a
Subsidiary of such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by R&B Falcon or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that any such Restricted
Subsidiary described in clause (ii) or (iii) above is primarily engaged in a
Related Business.
"Adjusted Net Assets" of a Subsidiary Guarantor at any date means the
amount by which the fair value of the assets and property of such Subsidiary
Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under its Subsidiary Guarantee, of such Subsidiary Guarantor at such
date.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of Voting Stock, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing;
provided, however, that "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 5% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of such a Person or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable).
"Asset Sale" means any direct or indirect sale, capital lease, transfer or
other disposition (or series of related sales, capital leases, transfers or
dispositions) by R&B Falcon or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition") in one
transaction or a series of related transactions, of (i) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares or
shares required by applicable law to be held by a Person other than R&B Falcon
or a Restricted Subsidiary), (ii) any drillship or drilling rig or all or
substantially all the assets of any division or line of business of R&B Falcon
or any Restricted Subsidiary or (iii) any other assets of R&B Falcon or any
Restricted Subsidiary outside of the ordinary course of business of R&B Falcon
or such Restricted Subsidiary (other than, in the case of (i), (ii) and (iii)
above, (u) a disposition by a Restricted Subsidiary to R&B Falcon
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or by R&B Falcon or a Restricted Subsidiary to a Wholly Owned Restricted
Subsidiary, (v) for purposes of the covenant described under
"-- Covenants -- Limitation on Asset Sales" only, a disposition that constitutes
a Restricted Payment permitted by the covenant described under
"-- Covenants -- Limitation on Restricted Payments," (w) Asset Swaps permitted
under "-- Covenants -- Limitation on Asset Swaps," (x) dispositions of
Incidental Assets, (y) dispositions of Temporary Cash Investments and (z) a
disposition of assets with a fair market value of less than $100,000).
"Asset Swap" means a substantially concurrent purchase and sale, or
exchange, of assets constituting Additional Assets described in clause (i) of
the definition thereof between R&B Falcon or any Restricted Subsidiary and
another Person or group of Persons; provided, however, that the cash and other
assets to be received by R&B Falcon or such Restricted Subsidiary which do not
constitute Additional Assets do not constitute more than 25% of the total
consideration to be received by R&B Falcon or such Restricted Subsidiary in such
Asset Swap.
"Attributable Indebtedness," when used with respect to any Sale/Leaseback
Transaction, means, as at the time of determination, the present value
(discounted at the rate set forth or implicit in the terms of the lease included
in such transaction) of the total obligations of the lessee for rental payments
(other than amounts required to be paid on account of property taxes,
maintenance, repairs, insurance, assessments, utilities, operating and labor
costs and other items which do not constitute payments for property rights)
during the remaining term of the lease included in such Sale/Leaseback
Transaction (including any period for which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Board of Directors" means the Board of Directors of a Person or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capitalized Lease Obligation" of any Person means any obligation of such
Person to pay rent or other amounts under a lease of property, real or personal,
that is required to be capitalized for financial reporting 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.
"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).
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" shall include, in each case as pledged and assigned to the
Collateral Agent, the Trustee or us, as applicable, pursuant to the Security
Agreements, (1) all of the Loans and Loan Agreements (2) all cash held by the
Collateral Agent and the Trustee pursuant to the Indenture or the Security
Agreements and the Escrow Account and all Escrowed Property held pursuant to the
Escrow Agreement (including any cash collateral we deposit in the Escrow
Account); and (3) R&B Falcon's right, title and interest in and to (i) each of
its respective Mortgaged Rigs, pursuant to a Mortgage issued by R&B Falcon in
favor of us, which Mortgage contains covenants pursuant to which R&B Falcon,
among other things, will be prohibited from selling, mortgaging or transferring
any of its interest in such Mortgaged Rig (other than as permitted under the
Indenture), and which Mortgage will be collaterally assigned to the Trustee and
(ii) the R&B Falcon Escrow Account and the R&B Falcon Escrowed Property; and (4)
all
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proceeds of any of the foregoing including from all of R&B Falcon's policies and
contracts of insurance taken out from time to time in respect each of its
Mortgaged Rigs.
"Consolidated EBITDA Coverage Ratio" as of any date of determination means
the ratio of (a) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (b) Consolidated Interest Expense for such four
fiscal quarters; provided, however, that:
(1) if R&B Falcon or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
EBITDA Coverage Ratio is an issuance of Indebtedness, or both, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been issued on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period,
(2) if since the beginning of such period R&B Falcon or any Restricted
Subsidiary shall have made any asset disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such asset
disposition for such period, or increased by an amount equal to the EBITDA
(if negative), directly attributable thereto for such period, and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of R&B Falcon or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to R&B Falcon
and its continuing Subsidiaries in connection with such asset dispositions
for such period (or, if the Capital Stock of any Restricted Subsidiary is
sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the
extent R&B Falcon and its continuing Subsidiaries are no longer liable for
such Indebtedness after such sale),
(3) if since the beginning of such period R&B Falcon or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring
in connection with a transaction causing a calculation to be made
hereunder, which constitutes all or substantially all of an operating unit
of a business (which shall include the acquisition or construction of a
vessel or drilling rig, provided R&B Falcon has paid 75% or more of the
cost thereof and such vessel or drilling rig is reasonably expected to be
delivered within 90 days), EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto
(including the issuance of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period, and
(4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into R&B
Falcon or any Restricted Subsidiary since the beginning of such period)
shall have made any asset disposition or any Investment that would have
required an adjustment under clause (2) or (3) above if made by R&B Falcon
or a Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such asset disposition or Investment occurred on the
first day of such period.
For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings relating thereto,
and the amount of Consolidated Interest Expense associated with any Indebtedness
issued in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting officer of R&B Falcon. If
any Indebtedness bears a floating rate of interest and is being give pro forma
effect, the interest of such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the
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applicable rate for the entire period (taking into account any Interest Rate
Protection Agreement applicable to such Indebtedness if such Interest Rate
Protection Agreement has a remaining term in excess of 12 months).
For purposes of this definition, in the case of the acquisition since the
beginning of such period of a drilling rig or drillship (or of a Restricted
Subsidiary owning same) by R&B Falcon or by a Restricted Subsidiary pursuant to
a binding purchase agreement or the delivery since the beginning of such period
of a drilling rig or drillship to R&B Falcon or a Restricted Subsidiary pursuant
to a binding construction contract, which drilling rig or drillship has been
subject for at least one full fiscal quarter to a binding drilling contract
constituting a Qualifying Contract, then, for purposes of making the pro forma
calculations provided for in the first sentence of the preceding paragraph, the
financial or accounting officer of R&B Falcon shall give pro forma effect to the
earnings (losses) of such drilling rig or drillship as if such drilling rig or
drillship were acquired on the first day of such period, by basing such earnings
(losses) on the annualized (x) historical revenues actually earned from such
Qualifying Contract and (y) actual expenses related thereto, in each case for
each quarter during such period in which the Qualifying Contract is in effect.
"Consolidated Interest Expense" means, for any period, the total interest
expense of R&B Falcon and its consolidated Restricted Subsidiaries, plus, to the
extent not included in such interest expense:
(1) interest expense attributable to Capitalized Lease Obligations,
(2) amortization of debt discount and debt issuance cost,
(3) capitalized interest,
(4) non-cash interest payments,
(5) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
(6) net costs under Interest Rate Protection Agreements (including
amortization of fees),
(7) dividends in respect of any Redeemable Stock held by Persons other
than R&B Falcon or a Restricted Subsidiary,
(8) interest expense attributable to deferred payment obligations, and
(9) interest expense on Indebtedness of another person to the extent
that such Indebtedness is guaranteed by R&B Falcon or a Restricted
Subsidiary.
"Consolidated Net Income" means, for any period, the net income of R&B
Falcon and its 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) R&B Falcon's 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 R&B Falcon 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) R&B Falcon's 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 R&B Falcon 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 R&B Falcon, except that
(1) the net income of Cliffs Drilling Company shall be included
notwithstanding the foregoing, (2) the net
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income of a Restricted Subsidiary shall be included to the extent such net
income could be paid to R&B Falcon or a Restricted Subsidiary by loans,
advances, intercompany transfers, principal repayments or otherwise; (3)
R&B Falcon's 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 R&B Falcon 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) R&B Falcon's 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 R&B Falcon or its
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
(g) the cumulative effect of a change in accounting principles.
"Consolidated Net Worth" of a Person means the consolidated stockholders'
equity of such Person and its Subsidiaries, as determined in accordance with
GAAP.
"Credit Facilities" means, with respect to R&B Falcon or any Restricted
Subsidiary, one or more debt facilities or commercial paper facilities, in each
case with banks or other institutional lenders providing for revolving credit
loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"Default" means any act, event or condition which is, or after notice or
passage of time or both would be, an Event of Default.
"EBITDA" for any period means the Consolidated Net Income for such period,
plus the following (but without duplication) to the extent deducted in
calculating such Consolidated Net Income for such period: (a) income tax
expense, (b) Consolidated Interest Expense, (c) depreciation expense and (d)
amortization expense.
"Event of Loss" is defined to mean any of the following events: (a) the
actual or constructive total loss of a Mortgaged Rig or the agreed or
compromised total loss of a Mortgaged Rig, (b) the destruction of a Mortgaged
Rig, (c) damage to a Mortgaged Rig to an extent, determined in good faith by R&B
Falcon within 90 days after the occurrence of such damage (and evidenced by an
officers' certificate to such effect delivered to the Trustee, within such
90-day period), as shall make repair thereof uneconomical or shall render such
Mortgaged Rig permanently unfit for normal use (other than obsolescence) or (d)
the condemnation, confiscation, requisition, seizure, forfeiture or other taking
of title to or use of a Mortgaged Rig that shall not be revoked within six
months. An Event of Loss shall be deemed to have occurred: (i) in the event of
the destruction or other actual total loss of a Mortgaged Rig, on the date of
such loss; (ii) in the event of a constructive, agreed or compromised total loss
of a Mortgaged Rig, on the date of the determination of such total loss pursuant
to the relevant insurance policy; (iii) in the case of any event referred to in
clause (c) above, upon the delivery of the officers' certificate to the Trustee;
or (iv) in the case of any event referred to in clause (d) above, on the date
six months after the occurrence of such event.
"Event of Loss Proceeds" means all compensation, damages and other payments
(including insurance proceeds) received by us, R&B Falcon, any Restricted
Subsidiary, the Collateral Agent, or the Trustee,
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jointly or severally, from any Person, including any governmental authority,
with respect to or in connection with an Event of Loss.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchangeable Stock" means any Capital Stock which is exchangeable or
convertible into another security (other than Capital Stock of R&B Falcon which
is neither Exchangeable Stock nor Redeemable Stock).
"GAAP" means generally accepted accounting principles in the United States
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, as in effect from time to time.
"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term
"guarantee"used as a verb has a corresponding meaning. The term "guarantor"
shall mean any Person guaranteeing any obligation.
"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.
"Holder" or "Noteholder" means the Person in whose name a note is
registered on the Registrar's books.
"Incidental Asset" is defined to mean any equipment, outfit, furniture,
furnishings, appliances, spare or replacement parts or stores owned by R&B
Falcon or a Restricted Subsidiary that have become obsolete or unfit for use or
no longer useful, necessary or profitable in the conduct of the business of R&B
Falcon or such Restricted Subsidiary, as the case may be. In no event shall the
term "Incidental Asset" include a drilling rig or a drillship or a Mortgaged
Rig.
"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
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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.
For purposes of clause (8) of the preceding sentence, Redeemable Stock
shall be valued at the maximum fixed redemption, repayment or repurchase price,
which shall be calculated in accordance with the terms of such Redeemable Stock
as if such Redeemable Stock were repurchased on any date on which Indebtedness
shall be required to be determined under the Indenture; provided, however, that
if such Redeemable Stock is not then permitted to be redeemed, repaid or
repurchased, the redemption, repayment or repurchase price shall be the book
value of such Redeemable Stock. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability of any guarantees at
such date; provided that for purposes of calculating the amount of any
non-interest bearing or other discount security, such Indebtedness shall be
deemed to be the principal amount thereof that would be shown on the balance
sheet of the issuer thereof dated such date prepared in accordance with GAAP but
that such security shall be deemed to have been Incurred only on the date of the
original issuance thereof. The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date.
"Interest Rate Protection Agreement" means any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect R&B Falcon or any Restricted Subsidiary against
fluctuations in interest rates.
"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. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and the
covenant described under the "Limitation on Restricted Payments" covenant (i)
"Investment" shall include the portion (proportionate to R&B Falcon's equity
interest in such Subsidiary) of the fair market value of the net assets of any
Subsidiary of R&B Falcon at the time that such Subsidiary is designated an
Unrestricted Subsidiary, provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, R&B Falcon shall be deemed to continue to
have a permanent "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to R&B Falcon's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by R&B
Falcon's Board of Directors.
"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
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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.
"Issue Date" means the date on which the outstanding notes were originally
issued.
"Lien" means any mortgage, pledge, hypothecation, charge, assignment,
deposit arrangement, encumbrance, security interest, lien (statutory or other),
or preference, priority or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
agreement to give or grant a Lien or any lease, condition sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing). For the purposes of this Indenture, R&B Falcon or any of its
Subsidiaries shall be deemed to own subject to a Lien any asset which R&B Falcon
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, Capitalized Lease Obligation or other title
retention agreement relating to such asset.
"Loss Excess Proceeds" is defined to mean the total of (i) amounts treated
as Loss Excess Proceeds under "-- Redemptions -- Redemption Upon Loss of a
Mortgaged Rig" and (ii) the amount by which the Net Event of Loss Proceeds
received by R&B Falcon or any of its Restricted Subsidiaries from one or more
Events of Loss with respect to drilling rigs or drillships other than Mortgaged
Rigs occurring on or after the Issue Date in the most recent period of 12
consecutive months exceeds $10.0 million, less (in the case of clause (ii)) the
amount of such excess Net Event of Loss Proceeds (A) used to repay Senior
Indebtedness of R&B Falcon or secured Senior Indebtedness of a Subsidiary
Guarantor then owning a Mortgaged Rig, in each case, with a permanent reduction
of availability in the case of revolving credit borrowings and owing to a Person
other than R&B Falcon or any of its Subsidiaries, or (B) invested in Additional
Assets (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board resolution).
"Moody's" is defined to mean Moody's Investor Service, Inc. and its
successors.
"Net Available Cash" from an Asset Sale means cash payments or Temporary
Cash Equivalents received from the Asset Sale (including any cash payments
received by way of deferred payment of principal under a note or installment
receivable or otherwise and proceeds from the sale or other disposition of any
securities received as consideration, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to such
properties or assets or received in any other noncash form), in each case net of
(i) all legal, title and recording tax expenses, commissions and other fees and
expenses incurred, and all federal, state, provincial, foreign and local taxes
required to be accrued as a liability under GAAP, as a consequence of such Asset
Sale, (ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Sale, in accordance with the terms of any Lien upon or
other security agreement of any kind with respect to such assets, or which must
by its terms, or in order to obtain a necessary consent to such Asset Sale, or
by applicable law, be repaid out of the proceeds from such Asset Sale, (iii) all
distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Sale and
(iv) the deduction of appropriate amounts provided by the seller as a reserve,
in accordance with GAAP, against any liabilities associated with the property or
other assets disposed in such Asset Sale and retained by R&B Falcon or any
Restricted Subsidiary after such Asset Sale.
"Net Cash Proceeds" means, with respect to any issuance or sale of Capital
Stock, the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Net Event of Loss Proceeds" is defined to mean, with respect to any Event
of Loss, the Event of Loss Proceeds from such Event of Loss net of related fees
and expenses, distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Event of
Loss, and payments made to repay Indebtedness or any other obligation
outstanding at the time of such Event of Loss; provided, however, that such
Indebtedness or other obligation is either (A) secured by a
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Lien on the property or assets that suffered the Event of Loss or (B) required
to be paid as a result of such Event of Loss.
"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.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of an Unrestricted Subsidiary as to which neither R&B Falcon or any
Restricted Subsidiary:
(1) provides credit support including any undertaking, agreement or
instrument which would constitute Indebtedness; or
(2) is directly or indirectly liable for such Indebtedness.
"Pari Passu Indebtedness" means any Indebtedness of R&B Falcon, whether
outstanding on the date on which the outstanding notes were originally issued or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness the instrument creating or evidencing the same or pursuant to which
the same is outstanding expressly provides that such Indebtedness shall be
subordinated in right of payment to the Guarantee or the Loans, as applicable.
"Permitted Investments" means:
(a) certificates of deposit, bankers acceptances, time deposits,
Eurocurrency deposits and similar types of Investments routinely offered by
commercial banks with final maturities of one year or less issued by
commercial banks having capital and surplus in excess of $100 million;
(b) commercial paper issued by any corporation, if such commercial
paper has credit ratings of at least "A-1" by S&P and at least "P-1" by
Moody's;
(c) U.S. Government Obligations with a maturity of four years or less;
(d) repurchase obligations for instruments of the type described in
clause (c);
(e) shares of money market mutual or similar funds having assets in
excess of $100.0 million;
(f) payroll advances in the ordinary course of business;
(g) other advances and loans to officers and employees of R&B Falcon
or any Restricted Subsidiary, so long as the aggregate principal amount of
such advances and loans does not exceed $1.0 million at any one time
outstanding;
(h) Investments in any Person in the form of a capital contribution of
R&B Falcon's common stock;
(i) Investments made by R&B Falcon in its Restricted Subsidiaries (or
any Person that will be a Restricted Subsidiary as a result of such
Investment) or by a Restricted Subsidiary in R&B Falcon or in one or more
Restricted Subsidiaries (or any Person that will be a Restricted Subsidiary
as a result of such Investment);
(j) Investments in stock, obligations or securities received in
settlement of debts owing to R&B Falcon or any Restricted Subsidiary as a
result of bankruptcy or insolvency proceedings or upon the foreclosure,
perfection or enforcement of any Lien in favor of R&B Falcon or any
Restricted Subsidiary, in each case as to debt owing to R&B Falcon or any
Restricted Subsidiary that arose in the ordinary course of business of R&B
Falcon or any such Restricted Subsidiary;
(k) Investments made in exchange for Indebtedness permitted by
Sections (b)(4) and (b)(5) of the "Limitation of Indebtedness" covenant;
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(l) Investments in the capital stock of Navis ASA, a Norwegian
corporation, in exchange for cash and non-cash assets (the fair market
value of which shall be determined in good faith by the Board of Directors
of R&B Falcon), in an aggregate amount not to exceed $50 million at any
time outstanding;
(m) Investments consisting of the redesignation of the Subsidiary
owning or operating the drillship Deepwater Frontier or the semisubmersible
RBS8M as an Unrestricted Subsidiary, or the contribution, transfer or other
disposition of the drillship Deepwater Frontier or the semisubmersible
RBS8M and related equipment and assets (including any drilling contract) by
R&B Falcon or any Restricted Subsidiary to a Person other than a Restricted
Subsidiary, in connection with the refinancing of the Indebtedness Incurred
to finance the construction of such rigs;
(n) Investments in a Person other than a Restricted Subsidiary for the
purpose of financing the construction or upgrade prior to delivery of the
drillship Deepwater Frontier or the semisubmersible RBS8M pursuant to the
terms of applicable construction and equipment installation agreements;
(o) Investments in a Person other than a Restricted Subsidiary for the
purpose of financing the construction or upgrade of new drilling rigs,
drillships or similar vessels and related equipment, in an aggregate amount
not to exceed at any time outstanding (i) $100 million less (ii) the
aggregate amount of all payments actually made under paragraph (n) of this
definition that represent payments for amounts in excess of R&B Falcon's
estimated costs for the vessels referred to therein, as in effect on the
Issue Date; provided, however, that at the time of such Investment, R&B
Falcon or such Person has entered into a Qualifying Contract with respect
thereto;
(p) Investments represented by that portion of the proceeds from Asset
Sales that is not required to be cash or Temporary Cash Equivalents by the
covenant described in "-- Covenants -- Limitation on Asset Sales;" and
(q) Investments in Devco in an aggregate amount not to exceed $10.0
million at any time outstanding.
"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.
"Qualifying Contract" with respect to a drilling rig, drillship or similar
vessel means a contract for the use thereof (i) between R&B Falcon or a
Restricted Subsidiary or, for the purposes of clause (o) of the definition of
"Permitted Investments," a Person other than a Restricted Subsidiary and a
counterparty that, as certified in an officers' certificate delivered to the
Trustee in connection therewith, is either generally recognized in the offshore
drilling industry as a major oil company or has an investment grade rating on
its long-term debt from Moody's or S&P, (ii) having a minimum term of two years
and (iii) containing a minimum dayrate for such drilling, rig, drillship or
similar vessel.
"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 the notes publicly available, a
nationally recognized U.S. rating agency or agencies, as the cases may be,
selected by R&B Falcon, which will be substituted for S&P or Moody's or both, as
the case may be.
"Redeemable Stock" means, with respect to any series of notes, 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, under a sinking fund obligation or otherwise, or redeemable at the
option of the holder
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thereof, in whole or in part, on or prior to the date on which the notes of such
series mature. Notwithstanding the preceding sentence, any Capital Stock that
would constitute Redeemable Stock solely because the holders thereof have the
right to require R&B Falcon 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 R&B Falcon 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
"-- Change of Control," "-- Covenants -- Limitation on Asset Sales,"
"Redemptions" and "-- Covenants -- Limitation on Restricted Payments."
"Related Business" means any business related, ancillary or complementary
to the businesses of R&B Falcon and the Restricted Subsidiaries on the Issue
Date.
"Restricted Subsidiary" means any Subsidiaries other than an Unrestricted
Subsidiary.
"S&P" is defined to mean Standard & Poors Ratings Group, a division of
McGraw-Hill Companies, Inc. and its successors.
"Sale Excess Proceeds" means (i) all amounts treated as Sale Excess
Proceeds under "-- Redemptions -- Redemption upon Sale of a Mortgaged Vessel"
and (ii) all amounts treated as Sale Excess Proceeds under paragraph (b) of
"-- Certain Covenants -- Limitation on Asset Sales."
"Sale/Leaseback Transaction" means any arrangement with any Person
providing for the leasing by R&B Falcon or any of its Restricted Subsidiaries,
for a period of more than three years, of any real or tangible personal
property, which property has been or is to be sold or transferred by R&B Falcon
or such Restricted Subsidiary to such Person in contemplation of such leasing.
"Security Agreements" has the meaning specified in the Indenture and
includes the Escrow Agreement, the Security Agreement among us, the Trustee and
United States Trust Company of New York, as Collateral Agent, the Mortgages, the
Escrow Agreement among us, the Trustee and the Escrow Agent, and the R&B Falcon
Escrow Agreement among R&B Falcon, the Trustee and the Escrow Agent.
"Senior Indebtedness" of any Person means (i) Indebtedness of such Person,
whether outstanding on the Issue Date or thereafter Incurred, and (ii) accrued
and unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to R&B Falcon to the
extent post-filing interest is allowed in such proceeding) in respect of (A)
indebtedness for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable unless, in the case of (i) and (ii), in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinate in right of
payment to the notes, the Guarantee, the Loans or the Subsidiary Guarantees, as
applicable; provided, however, that Senior Indebtedness shall not include (1)
any obligation of such Person to any Subsidiary of such Person, (2) any
liability for federal, state, local, foreign or other taxes owed or owing by
such Person, (3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities), (4) any Indebtedness of such Person
(and any accrued and unpaid interest in respect thereof) which is subordinate or
junior in any respect to any other Indebtedness or other obligation of such
Person or (5) that portion of any Indebtedness which at the time of Incurrence
is Incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary Guarantor and any other
Restricted Subsidiary that would be a "Significant Subsidiary" of R&B Falcon
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 under 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).
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"Subordinated Obligation" means any Indebtedness of us, R&B Falcon or a
Subsidiary Guarantor, as the case may be (whether outstanding on the Issue Date
or thereafter Incurred) which is subordinate or junior in right of payment to
the notes, the Guarantee, the Loans or the Subsidiary Guarantee, as applicable,
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 management of such entity is owned by such Person directly or
through one or more other Subsidiaries of such Person.
"Subsidiary Guarantor" means each Subsidiary of R&B Falcon, whether now
owned or hereafter formed, which owns a Mortgaged Rig or which shall execute and
deliver a Subsidiary Guarantee.
"Subsidiary Guarantee" means a guarantee of our obligations with respect to
the notes issued by a Subsidiary of R&B Falcon.
"Tangible Property" means all land, buildings, machinery and equipment and
leasehold interests and improvements which would be reflected on a balance sheet
of R&B Falcon prepared in accordance with GAAP, excluding (a) all rights,
contracts and other intangible assets of any nature whatsoever and (b) all
inventories and other current assets.
"Temporary Cash Investments" means Investments described in clauses (a),
(b), (c) and (d) of the definition of "Permitted Investments."
"Unrestricted Subsidiary" means:
(a) any Subsidiary of R&B Falcon that at the time of determination
will be designated an Unrestricted subsidiary by the Board of Directors of
R&B Falcon as provided below and
(b) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors of R&B Falcon may designate any Subsidiary of R&B
Falcon as an Unrestricted Subsidiary so long as:
(1) it has no Indebtedness other than Non-Recourse Indebtedness;
provided, however, that notwithstanding any other provision of this
Indenture, a Subsidiary shall not fail to constitute an Unrestricted
Subsidiary by reason of (a) the guarantee by R&B Falcon or a Restricted
Subsidiary in connection with synthetic lease obligations Incurred to
finance the construction or upgrade of drilling rigs, drillships or similar
vessels; and (b) obligations of R&B Falcon or a Restricted Subsidiary
relating to Indebtedness of an Unrestricted Subsidiary if such Indebtedness
constituted a Permitted Investment or a Restricted Payment permitted by the
"Limitation on Restricted Payments" covenant at the time of its Incurrence
or at the time of designation of such Subsidiary as an Unrestricted
Subsidiary; and
(2) after giving effect thereto, such designation was permitted by the
"Limitation on Restricted Payments" covenant.
Any such designation by the Board of Directors of R&B Falcon shall be
evidenced to the Trustee by filing a resolution of the Board of Directors with
the Trustee giving effect to such designation. The Board of Directors of R&B
Falcon may designate any Unrestricted Subsidiary as a Restricted Subsidiary if,
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immediately after giving effect to such designation, (A) no Default or Event of
Default shall have occurred and be continuing and (B) R&B Falcon could incur
$1.00 of additional Indebtedness under paragraph (a) of the "Limitation on
Indebtedness" covenant.
"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 the issuer's 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.
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which (other than directors' qualifying shares) is owned by R&B
Falcon or one or more Wholly Owned Restricted Subsidiaries.
DESCRIPTION OF SECURITY FOR THE NOTES
GENERAL
Our obligations under the notes are secured by a collateral assignment of
the ten loans we have made to R&B Falcon (the "Loans") and the security
documents securing those Loans. The Loans were initially secured by first
priority ship mortgages with respect to eight drilling rigs and assignments of
R&B Falcon's rights under the construction contracts for two other drilling rigs
and $100 million in an escrow account. One of these two drilling rigs, the
Deepwater Millennium, has been delivered since the date we issued the
outstanding notes, and the Loan relating to this drilling rig is now secured by
a first priority ship mortgage over this drilling rig. When R&B Falcon provided
the mortgage over this rig, we also released to R&B Falcon the $100 million that
had been held in escrow. When the remaining drilling rig, the Deepwater IV, is
completed, R&B Falcon will grant a first priority ship mortgage on that vessel
as security for the Loan relating to that rig. In addition, R&B Falcon has
guaranteed our obligations under the notes. In an Event of Default under the
notes, the Collateral Agent will be entitled to exercise rights and remedies
with respect to the Collateral.
THE LOANS
We have loaned the proceeds from the offerings of the notes to R&B Falcon
pursuant to ten separate Loans. Each Loan is secured by a security interest in a
different vessel. The Loans are not cross-collateralized, but they are
cross-defaulted. The Loans with respect to all of these vessels other than the
Deepwater IV are secured by a first priority ship mortgage over the applicable
drilling rig. The Loan with respect to the Deepwater IV, which is currently
under construction, is currently secured by a pledge by R&B Falcon of its rights
under the construction contract for this rig and a security interest in
equipment purchased by R&B Falcon for this rig. When this rigs is delivered, R&B
Falcon will grant a first priority ship mortgage to secure the Loan with respect
to this rig. When R&B Falcon grants a mortgage in our favor on the Deepwater IV,
we will increase the amount of the loan secured by this rig in exchange for a
reduction in the amounts of the Loans secured by some of the other Mortgaged
Rigs. The current amount of the Loans and the adjusted amounts of the Loans are
set forth in the table below.
Each Loan bears interest at a rate equal to the interest rate for the notes
plus 2 basis points per annum. Each Loan is evidenced by two promissory notes,
each in the aggregate principal amount of 50% of such Loan. One of such notes
will mature on March 15, 2006 and the other will mature on March 15, 2009. Each
Event of Default under the Indenture will constitute an event of default under
each loan agreement relating to the Loans.
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The drilling rigs, their expected delivery dates, the amount of the Loan
secured by each drilling rig, and R&B Falcon's estimated asset reconstruction
cost for each of these rigs is listed in the table below. R&B Falcon has
estimated these asset reconstruction costs based upon its experience in the
offshore drilling industry. However, R&B Falcon has not obtained any fair market
appraisal of these drilling rigs, and the estimated values set forth below may
not be indicative of the true value of these rigs.
<TABLE>
<CAPTION>
ESTIMATED
EXPECTED CURRENT ADJUSTED ASSET
DELIVERY LOAN LOAN RECONSTRUCTION
DRILLING RIG DATE AMOUNT AMOUNT COST(1)
- ------------ ---------- ------- -------- --------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Deepwater Millennium............................... in service $209.9 $167.2 $270
Deepwater IV....................................... 3Q00 22.0 188.9 305
Peregrine IV....................................... 2Q99 166.0 136.3 270
Peregrine VII...................................... 3Q99 225.6 167.2 270
Falcon 100......................................... 2Q99 105.3 73.3 175
Peregrine I........................................ in service 16.0 16.0 240
Peregrine II....................................... in service 28.5 28.5 200
Harvey Ward........................................ in service 4.0 4.0 100
W.D. Kent.......................................... in service 11.9 11.9 100
Falrig 82.......................................... in service 10.8 6.7 65
</TABLE>
- ---------------
(1) This is R&B Falcon's estimate of the current cost of constructing a rig of
comparable capability (assuming completion of the rigs currently undergoing
upgrade or construction). It should not be considered an accurate estimate
of the fair market value of the rig.
THE MORTGAGES
General
R&B Falcon has granted a mortgage on each of the rigs listed above other
than the Deepwater IV in our favor to secure the payment of all sums of money
(whether for principal, premium, if any, interest, fees, expenses or otherwise)
from time to time payable by R&B Falcon under the applicable loan agreement
relating to each Loan. These mortgages have been recorded in accordance with the
provisions of Panamanian, Bahamian or United States law, as applicable. Until
the completion and flagging of the Deepwater IV, the loan agreement relating to
this vessel will be secured only by a collateral assignment of the construction
contract and the equipment purchased by R&B Falcon for the uncompleted rig. The
maximum liability of R&B Falcon under each mortgage is limited to R&B Falcon's
maximum liability under the applicable Loan.
Covenants
Each mortgage contains the following covenants.
Registration and Documentation of the Mortgaged Rig. R&B Falcon will not
permit the mortgaged rig to be operated in any manner contrary to law, will not
engage in an unlawful trade or business that would expose the mortgaged rig to
penalty, forfeiture or capture, and will not permit to be done anything which
can or may injuriously affect the registration or enrollment of the mortgaged
rig under the laws and regulations of the jurisdiction of its flag and will at
all times keep the mortgaged rig duly documented thereunder.
Restriction on Liens. Except for the lien of the mortgage and other
permitted liens, R&B Falcon will not suffer to be continued any lien,
encumbrance or charge on the mortgaged rig for longer than 30 days after the
same becomes due and payable and will pay or cause to be discharged or make
adequate provision for the satisfaction or discharge of all claims or demands,
or will cause the mortgaged rig to be released or discharged from any lien,
encumbrance or charge.
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Maintenance of the Mortgaged Rig. R&B Falcon will at all times and without
cost or expense to us, the Collateral Agent or the Trustee for the notes (the
"Trustee") maintain and preserve, or cause to be maintained and preserved, the
mortgaged rig (i) in good running order and repair, and (ii) in at least as good
condition as when originally delivered by its builder, ordinary wear and tear
excepted; and will keep the mortgaged rig, or cause it to be kept, in such
condition as will entitle it to the highest classification rating for rigs of
the same type, size, age and flag in the classification society, and annually
will furnish to the Trustee a certificate by such classification society that
such classification is maintained.
Transfer of Flag or Sale of the Mortgaged Rig. R&B Falcon will not transfer
or change the flag or port of documentation of the mortgaged rig, except to
Panama, The Bahamas, the United States or any jurisdiction which at the time is
generally deemed acceptable by institutional lenders to the marine drilling
industry, as determined in good faith by its Board of Directors, as permitted by
the terms of the Indenture. Except as permitted by the terms of the Indenture,
R&B Falcon will not sell, mortgage, charter or transfer the mortgaged rig.
Insurance. R&B Falcon will at all times and at its own cost and expense
cause to be carried and maintained in respect of the mortgaged rig insurance
payable in United States Dollars in amounts, against risks and in a form which
is substantially equivalent to the coverage carried by other responsible and
experienced companies engaged in the operation of drilling rigs and drillships
similar to the mortgaged rig and with insurance companies, underwriters, funds,
mutual insurance associations or clubs of recognized standing. No insurance will
provide for a deductible amount in excess of $1.0 million per occurrence.
For purposes of insurance against total loss, each mortgaged rig is to be
insured for an amount not less than its fair value and not less, when aggregated
with the insurance on the other mortgaged rigs, than an amount equal to the
aggregate outstanding principal amount of the Loans and accrued interest on the
Loans. Unless the Trustee shall have otherwise directed, any loss involving
damage to a mortgaged rig which is not in excess of $1.0 million may be paid
directly for repair or salvage or to reimburse R&B Falcon for the same.
In the event of an actual, constructive or compromised total loss of a
mortgaged rig, any adjustment or compromise of such loss by R&B Falcon or the
Subsidiary Guarantor then owning the mortgaged rig will be at the highest amount
reasonably obtainable, and all insurance or other payments for such loss will be
applied as set forth above under "Description of the
Notes -- Redemptions -- Redemption upon Loss of a Mortgaged Vessel."
Events of Default and Remedies
An Event of Default under the Indenture will constitute an Event of Default
under the mortgages and, in case any one or more events of default under the
mortgages shall have occurred and be continuing, then, in each and every such
case we or the Collateral Agent will have the right to:
- declare all the obligations under the applicable loan agreements to be
immediately due and payable, and bring suit at law, in equity or in
admiralty, to recover judgment for the obligations and collect the
obligations out of any and all property of R&B Falcon, whether covered by
the mortgage or otherwise;
- exercise all the rights and remedies in foreclosure and otherwise given
to mortgagees by the provisions of applicable law;
- take and enter into possession of the mortgaged rig, at any time,
wherever it may be, without legal process and without being responsible
for loss or damage, and R&B Falcon or any other person in possession upon
our demand or the demand of the Collateral Agent will surrender to us or
the Collateral Agent possession of the mortgaged rig and we or the
Collateral Agent may, without being responsible for loss or damage, hold,
lay-up, lease charter, operate or otherwise use the mortgaged rig for
such time and upon such terms as we or it may deem to be for our or its
best advantage, and demand, collect and retain all hire, freights,
earnings, issues, revenues, income, profits, return premiums, salvage
awards or recoveries in general salvage, and all other sums due or
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to become due in respect of the mortgaged rig or in respect of any
insurance on the mortgaged rig from any person, in accordance with the
terms of the mortgage; and
- take and enter into possession of the mortgaged rig, at any time,
wherever it may be, without legal process, and if it seems desirable to
us or the Collateral Agent and without being responsible for loss or
damage, sell the mortgaged rig, at any place and at such time as we or
the Collateral Agent may specify and in any such manner and such place
(whether by public or private sale) as we or the Collateral Agent may
deem advisable, in accordance with the terms of the mortgage.
Any sale of a mortgaged rig made in pursuance of our right under the
mortgage will operate to divest all right, title and interest of any nature
whatsoever of R&B Falcon or a Subsidiary Guarantor, if applicable, therein and
thereto and shall bar any claim from R&B Falcon or such Subsidiary Guarantor,
and its respective successors and assigns, and all persons claiming by, through
or under them.
All the mortgaged rigs are currently registered under Panamanian flag,
Bahamian flag or U.S. flag. The mortgages on the mortgaged rigs are first
priority ship mortgages.
The priority that such a mortgage would have against the claims of other
lien creditors in an enforcement proceeding is generally determined by, and will
vary in accordance with, the law of the country where the proceeding is brought.
Panamanian Law provides that a first naval mortgage is prior to all claims
other than (1) court costs arising out of the foreclosure proceedings, (2)
salvage, (3) wages and other payments to the master and crew, (4) wages and fees
due to stevedores engaged by the owner or master of the vessel for loading or
unloading during its last voyage, (5) damages arising out of tort and (6)
general average. Amounts owing to the Panamanian government may also have
priority under provisions of the Panama Fiscal Code.
Bahamian law provides that a first priority ship mortgage has priority over
all other claims except (i) costs allowed by the court arising out of arrest and
sale proceedings, (ii) wages and other sums due to the master, officers and
other members of the ship's complement in respect of their employment on the
ship, (iii) port, canal and other waterway dues and pilotage dues and any other
outstanding fees payable under the Merchant Shipping Act of The Bahamas in
respect of the ship, (iv) claims against the owner in respect of loss of life or
personal injury occurring, whether on land or on water, in direct connection
with the operation of the ship, (v) claims against the owner, based on tort and
not capable of being based on contract, in respect of loss of or damage to
property occurring, whether on land or on water, in direct connection with the
operation of the ship, and (vi) claims for salvage, wreck removal and
contribution in general average.
Panamanian, Bahamian and U.S. ship mortgages may be enforced against a rig
physically present in the United States, but the claim under the mortgage would
rank behind preferred maritime liens, including those for supplies and other
necessaries provided in the United States. Since the mortgaged rigs will be
operating around the world, there is no assurance that, if enforcement
proceedings must be commenced against a mortgaged rig, the mortgaged rig will be
located in a jurisdiction having the same procedures and lien priorities as
Panama, The Bahamas or the United States. Other jurisdictions may provide no
legal remedy at all for the enforcement of the mortgages, or a remedy dependent
on court proceedings so expensive and time consuming as to be impractical.
Furthermore, certain jurisdictions, unlike Panama, The Bahamas or the United
States, may not permit the mortgaged rig to be sold prior to entry of a
judgment, entailing a long waiting time that could result in increased custodial
costs, deterioration in the condition of the mortgaged rig and substantial
reduction in her value.
CONSTRUCTION CONTRACTS AND EQUIPMENT
Samsung is currently constructing the Deepwater IV in Korea. This rig has
not yet been flagged. Therefore, R&B Falcon cannot currently grant a ship
mortgage on this rig. However, prior to this rig's delivery, R&B Falcon has (i)
collaterally assigned all of its rights under the construction contract for this
rig and (ii) granted a security interest in equipment purchased by R&B Falcon
for this rig to us as
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security for Loan relating to this rig. However, liens on some of the equipment
may not be perfected prior to its delivery to the respective drilling rig. See
"Risk Factors -- Our loans to R&B Falcon relating to the Deepwater IV are
currently secured in part by unperfected liens." Once this rig is flagged, R&B
Falcon will grant a first priority ship mortgage over the rig in our favor to
secure the Loan relating to this rig and the previous collateral will be
released.
GUARANTEE
R&B Falcon has guaranteed, absolutely and unconditionally, on a senior
unsecured basis, our obligations under the notes. See "Description of the
Notes -- Guarantee."
DESCRIPTION OF R&B FALCON'S SIGNIFICANT INDEBTEDNESS
BANK FACILITIES
As of December 31, 1998, R&B Falcon had $150.0 million outstanding under
its revolving credit facility. R&B Falcon repaid all amounts on March 26, 1999
out of the proceeds of its borrowings from us. Upon repayment, R&B Falcon
terminated this Credit Facility.
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, R&B Falcon issued four series of the senior notes with an
aggregate principal amount of $1.1 billion (the "$1.1 Billion Senior Notes"). As
a result, R&B Falcon received net proceeds of $1,082 million after deducting
estimated offering related expenses. The $1.1 Billion Senior Notes bear interest
at varying rates from 6.5% to 7.375%. Interest on the $1.1 Billion Senior Notes
is payable semiannually on April 15 and October 15; and the $1.1 Billion Senior
Notes mature at varying times from 2003 to 2018. The $1.1 Billion Senior Notes
are unsecured obligations, ranking equally in right of payment with all of R&B
Falcon's other existing and future senior unsecured indebtedness. R&B Falcon
used the proceeds from the offering of the $1.1 Billion Senior Notes to repay
indebtedness of $874.4 million. R&B Falcon used the remainder of the net
proceeds for planned capital expenditures, working capital and other general
corporate purposes.
In December 1998, R&B Falcon issued $100 million principal amount of its
9 1/8% Senior Notes due 2003 and $300 million principal amount of its 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 R&B Falcon's other existing and future
senior unsecured indebtedness. R&B Falcon received net proceeds from the
issuance of these senior notes of approximately $392 million, after deducting
estimated offering related expenses. R&B Falcon used the proceeds from the
offering of these notes to reduce borrowings under its then existing revolving
credit facility.
On March 26, 1999, R&B Falcon issued $200 million of its 12 1/4% Senior
Notes due 2006. Also on that date, we issued the $400 million of our 11% Senior
Secured Notes due 2006 and the $400 million of our 11 3/8% Senior Secured Notes
due 2009 that are the subject of the exchange offer. R&B Falcon borrowed the
proceeds from these notes from us in ten separate loans, each of which is
secured by one of R&B Falcon's drilling rigs or the construction contract to
build a drilling rig. R&B Falcon also guaranteed our notes. R&B Falcon is using
the proceeds from the loans from us to finance the costs of acquiring,
constructing, repairing and improving the drilling rigs that are security for
the loans. To the extent R&B Falcon had already paid these costs, it is using
the proceeds for general corporate purposes, including the repayment of debt.
R&B Falcon is using the net proceeds from its offering of the $200 million
senior notes for general corporate purposes, including the repayment of debt.
For accounting purposes, R&B Falcon will consolidate our company.
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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 (the "Cliffs Drilling Notes") 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 (the "Cliffs
Subsidiary Guarantors"), which guarantees rank equally in right of payment with
all senior indebtedness of the Cliffs Subsidiary Guarantors and senior to all
subordinated indebtedness of the Cliffs 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.
TRANSFER RESTRICTIONS
The currently outstanding notes are subject to a transfer restriction that
prohibits transfers of the notes to any person who is not a Qualified
Institutional Buyer, an Institutional Accredited Investor, or an affiliate of
our company. The registered notes that we issue in the exchange offer will also
be subject to this transfer restriction. The Trustee and the Registrar may not
transfer any note in violation of these restrictions. All holders of the notes
will agree, by their acceptance of the notes, that the notes will bear a legend
to the following effect, and that they will be bound by the terms of the
following legend, unless we otherwise agree.
"The holder:
(1) represents that (a) it is a "Qualified Institutional Buyer" (as
defined in Rule 144A under the Securities Act) (a "QIB"), (b) it is an
institutional "Accredited Investor" (as defined in Rule 501(a)(1), (2), (3)
OR (7) of Regulation D under the Securities Act (an "IAI") or (c) it is a
person involved in the organization or operation of the company or an
affiliate (as defined in Rule 405 under the Securities Act) of the company.
(2) agrees that it will not resell, or otherwise transfer this note
except to (a) a QIB, (b) an IAI, Or (c) a person involved in the
organization or operation of the company or an affiliate (as defined in
Rule 405 under the Securities Act) of the company, and
(3) agrees that it will deliver to each person to whom this note or an
interest herein is transferred a notice substantially to the effect of this
legend.
The Indenture contains a provision requiring the Trustee to refuse to
register any transfer of this note in violation of the foregoing. The
Indenture also contains a provision requiring R&B Falcon Corporation and
the company to exercise reasonable care to ensure that the notes are resold
or otherwise transferred only to purchasers meeting the requirements
specified in clause (2) above.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of notes by an initial beneficial owner of notes that, for United States federal
tax purposes, is not a "United States person" (a "Non-United States Holder").
This discussion is based upon the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations thereunder, published
rulings and court decisions, all as in effect on the date hereof, which are
subject to change, possibly retroactively. For purposes of this discussion, a
"United States person" means a citizen or resident of the United States, a
corporation, partnership or
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other entity created or organized in the United States or under the law of the
United States or of any state thereof or the District of Columbia (unless, in
the case of a partnership, Treasury regulations provide otherwise), an estate
whose income is subject to United States federal income taxation regardless of
its source, or a trust if a U.S. court is able to exercise primary supervision
over the administration of the trust and one or more United States persons have
the authority to control all substantial decisions of the trust. Notwithstanding
the previous sentence, to the extent provided in Treasury regulations, certain
trusts in existence on August 20, 1996, and treated as United States persons
prior to such date, that elect to continue to be treated as United States
persons will also be United States persons. This discussion applies only to
those Non-United States Holders who purchase notes from the Initial Purchaser at
the price set forth on the cover page of this Prospectus and hold the notes as a
capital asset. The tax treatment of the holders of the notes may vary depending
upon their particular situations. United States persons acquiring the notes are
subject to different rules than those discussed below. In addition, certain
other holders (including insurance companies, tax exempt organizations,
financial institutions and broker-dealers) may be subject to special rules not
discussed below. Prospective investors are urged to consult their tax advisors
regarding the United States federal tax consequences of acquiring, holding and
disposing of notes, as well as any tax consequences that may arise under the
laws of any relevant foreign, state, local or other taxing jurisdiction.
INTEREST
Interest that we pay to a Non-United States Holder will not be subject to
United States federal income or withholding tax if such interest is not
effectively connected with the conduct of a trade or business within the United
States by such Non-United States Holder and, among other things, such Non-
United States Holder (i) does not actually or constructively own 10% or more of
the total combined voting power of all classes of our stock; (ii) is not a
controlled foreign corporation with respect to the United States and to which we
are a related person and (iii) certifies to us, our paying agent or the person
who would otherwise be required to withhold United States tax, on Form W-8 or
W-9 or substantially similar form signed under penalties of perjury, that such
holder is not a United States person and provides such holder's name and address
(the "Certification Requirement"). In the case of interest on a note that is not
"effectively connected with the conduct of a trade or business within the United
States" and does not satisfy the three requirements of the preceding sentence,
the Non-United States Holder's interest on a note would generally be subject to
United States withholding tax at a flat rate of 30% (or a lower applicable
treaty rate). If a Non-United States Holder's interest on a note is "effectively
connected with the conduct of a trade or business within the United States,"
then the Non-United States Holder will be subject to United States federal
income tax on such interest income in essentially the same manner as a United
States person and, in the case of a Non-United States Holder that is a foreign
corporation, may also be subject to the branch profits tax.
GAIN ON DISPOSITION
A Non-United States Holder generally will not be subject to United States
federal income tax with respect to gain recognized on a sale, redemption or
other disposition of a note unless (i) the gain is effectively connected with
the conduct of a trade or business within the United States by the Non-United
States Holder or (ii) in the case of a Non-United States Holder who is a
nonresident alien individual and holds the note as a capital asset, such holder
is present in the United States for 183 or more days in the taxable year and
certain other requirements are met.
FEDERAL ESTATE TAXES
If interest on a note is exempt from withholding of United States federal
income tax under the rules described above, the note held by an individual who
at the time of death is a Non-United States Holder generally will not be subject
to United States federal estate tax as a result of such individual's death.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
We will, when required, report to the holders of the notes and the Internal
Revenue Service ("IRS") the amount of any interest paid on the notes in each
calendar year and the amounts of tax withheld, if any, with respect to such
payments.
In the case of payments of interest to Non-United States Holders, the
general 31% backup withholding tax and certain information reporting will not
apply to such payments with respect to which either the Certification
Requirement has been satisfied or an exemption has otherwise been established,
provided that neither we nor our payment agent has actual knowledge that the
holder is a United States person or that the conditions of any other exemption
are not in fact satisfied. Information reporting and backup withholding
requirements will apply to the gross proceeds paid to a Non-United States Holder
on the disposition of the notes by or through a United States office of a United
States or foreign broker, unless the holder certifies to the broker under
penalties of perjury as to its name, address and status as a foreign person or
the holder otherwise establishes an exemption. Information reporting
requirements, but not backup withholding, will also apply to a payment of the
proceeds of a disposition of the notes by or through a foreign office of a
United States broker or foreign brokers with certain types of relationships to
the United States unless such broker has documentary evidence in its file that
the holder of the notes is not a United States person and such broker has no
actual knowledge to the contrary, or the holder establishes an exception.
Neither information reporting nor backup withholding generally will apply to a
payment of the proceeds of a disposition of the notes by or through a foreign
office of a foreign broker not subject to the preceding sentence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the IRS.
The United States Treasury Department recently promulgated new regulations
regarding the withholding and information reporting rules discussed above. In
general, the new regulations do not significantly alter the substantive
withholding and information reporting requirements but rather unify current
certification procedures and forms and clarify reliance standards. The new
regulations require, however, that a foreign person furnish its taxpayer
identification number in certain circumstances to claim a reduction in United
States federal withholding tax and new rules are provided for foreign persons
that hold debt instruments thorough a foreign intermediary. The new regulations
are generally effective for payments made after December 31, 1999, subject to
certain transition rules. NON-UNITED STATES HOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE IMPACT, IF ANY, OF THE NEW REGULATIONS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for outstanding notes where such outstanding notes were acquired as a
result of market-making activities or other trading activities. We have agreed
that for a period of 180 days after the Expiration Date, we will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resales.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or 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 exchange notes. Any
broker-dealer that resells exchange notes that were received
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by it for its own account pursuant to the exchange offer and any broker or
dealer that participates in a distribution of such exchange notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of exchange notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
We have been advised by Donaldson, Lufkin & Jenrette Securities Corporation
that following completion of the exchange offer they intend to make a market in
the exchange notes to be issued in the exchange offer. However, they are under
no obligation to do so and any market activities with respect to the exchange
notes may be discontinued at any time.
WHERE YOU CAN FIND MORE INFORMATION
We do not currently file reports with the Securities and Exchange
Commission. No SEC rules or stock exchange rules will require us to send annual
reports to our security holders, and we do not intend to send annual reports to
our security holders.
R&B Falcon files annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information filed by R&B Falcon 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. R&B Falcon's 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
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.
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INCORPORATION BY REFERENCE
R&B Falcon is incorporating by reference the following documents it has
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 quarterly period ended March 31,
1999; and
- 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 R&B Falcon at the following address or phone number:
R&B Falcon Corporation
901 Threadneedle
Houston, Texas 77079
(281) 496-5000
Attention: Investor Relations
LEGAL MATTERS
Legal matters with respect to the exchange notes offered hereby will be
passed upon for us by Gardere Wynne Sewell & Riggs, L.L.P., Houston, Texas.
INDEPENDENT PUBLIC ACCOUNTANTS
The balance sheet of RBF Finance Co. as of March 31, 1999 and the related
statements of operations, stockholders' equity and cash flows for the period
from inception (March 19, 1999) to March 31, 1999, included 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.
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 R&B Falcon Corporation's 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.
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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RBF FINANCE CO.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheet as of March 31, 1999.......................... F-3
Statement of Operations for the Period from Inception (March
19, 1999) to March 31, 1999............................... F-4
Statement of Cash Flows for the Period from Inception (March
19, 1999) to March 31, 1999............................... F-5
Statement of Stockholders' Equity for the Period from
Inception (March 19, 1999) to March 31, 1999.............. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 94
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
RBF Finance Co.
We have audited the accompanying balance sheet of RBF Finance Co. (a
limited purpose Delaware corporation) as of March 31, 1999, and the related
statement of operations, cash flows and stockholders' equity for the period from
inception (March 19, 1999) to March 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RBF Finance Co. as of March
31, 1999, and the results of its operations and cash flows for the period from
inception (March 19, 1999) to March 31, 1999, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
May 25, 1999
F-2
<PAGE> 95
RBF FINANCE CO.
(A LIMITED PURPOSE DELAWARE CORPORATION)
BALANCE SHEET
AS OF MARCH 31, 1999
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $303,101
Interest and commitment fee receivable.................... 1,316
--------
Total current assets.............................. 304,417
--------
LOANS TO R&B FALCON CORPORATION............................. 496,900
--------
TOTAL ASSETS................................................ $801,317
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued interest expense.................................. $ 1,226
Accrued income taxes...................................... 32
--------
Total current liabilities......................... 1,258
LONG-TERM OBLIGATIONS....................................... 800,000
--------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 1,000 shares authorized, 250
shares issued and outstanding at March 31, 1999........ --
Capital in excess of par value............................ 1
Retained earnings......................................... 58
--------
Total stockholders' equity........................ 59
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $801,317
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 96
RBF FINANCE CO.
(A LIMITED PURPOSE DELAWARE CORPORATION)
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(MARCH 19, 1999)
TO MARCH 31, 1999
-----------------
<S> <C>
REVENUES:
Interest income........................................... $1,021
Commitment fee............................................ 295
------
Total revenues.................................... 1,316
EXPENSE:
Interest expense.......................................... 1,226
------
INCOME BEFORE INCOME TAX EXPENSE............................ 90
INCOME TAX EXPENSE.......................................... 32
------
NET INCOME.................................................. $ 58
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 97
RBF FINANCE CO.
(A LIMITED PURPOSE DELAWARE CORPORATION)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(MARCH 19, 1999)
TO MARCH 31, 1999
-----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 58
Adjustments to reconcile net income to net cash used in
operating activities:
Changes in assets and liabilities:
Accrued interest income and commitment fee................ (1,316)
Accrued interest expense.................................. 1,226
Accrued income taxes...................................... 32
---------
Net cash used in operating activities............. --
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to R&B Falcon Corporation........................... (496,900)
---------
Cash used in investing activities................. (496,900)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term obligations....................... 800,000
Issuance of common stock.................................. 1
---------
Cash provided by financing activities............. 800,001
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 303,101
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ --
---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 303,101
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 98
RBF FINANCE CO.
(A LIMITED PURPOSE DELAWARE CORPORATION)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (MARCH 19, 1999)
TO MARCH 31, 1999
(IN THOUSANDS EXCEPT SHARES)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
--------------- EXCESS OF RETAINED
SHARES AMOUNT PAR VALUE EARNINGS
------ ------ ---------- --------
<S> <C> <C> <C> <C>
Initial capital contribution.............................. 250 $-- $1 $--
Net income................................................ -- -- -- 58
--- -- -- ---
BALANCE, at March 31, 1999................................ 250 $-- $1 $58
=== == == ===
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 99
RBF FINANCE CO.
NOTES TO FINANCIAL STATEMENTS
(A) BUSINESS, INDUSTRY CONDITIONS, LIQUIDITY AND SIGNIFICANT ACCOUNTING POLICIES
RBF Finance Co. (the "Company") is a limited purpose Delaware corporation
organized on March 19, 1999 solely for the purpose of and limited to issuing
secured notes as full recourse obligations of the Company and loaning the
proceeds from the sale of the secured notes to R&B Falcon Corporation. The
Company is an affiliate of R&B Falcon Corporation through common management, and
all of the Company's shares are owned by management and shareholders of R&B
Falcon Corporation. On March 26, 1999, the Company issued two series of senior
secured notes with an aggregate principal amount of $800.0 million (the "Senior
Secured Notes"). The Senior Secured Notes consist of $400.0 million of 11%
senior secured notes due 2006 and $400.0 million of 11.375% senior secured notes
due 2009.
INDUSTRY CONDITIONS/LIQUIDITY -- All of the Company's future cash flows and
long-term obligations are guaranteed by R&B Falcon Corporation. The following is
a description of R&B Falcon Corporation's industry conditions and liquidity. R&B
Falcon Corporation is currently constructing or significantly upgrading six
wholly-owned deepwater drilling rigs and has recently completed the construction
of one deepwater drilling rig. R&B Falcon Corporation estimates the gross
capital expenditures on these projects will be approximately $1.9 billion, of
which approximately $.9 billion remains to be funded by R&B Falcon Corporation.
Since May 1998, there has been a downturn in demand for marine drilling rigs
resulting in a decline in rig utilization and dayrates. The decline has been
particularly dramatic in the domestic barge and jack-up rig markets where R&B
Falcon Corporation is one of the largest contractors. As a result, R&B Falcon
Corporation experienced a decline in operating revenues from the first quarter
of 1998 to the first quarter of 1999. Depending on the level of future cash
flows from operations, R&B Falcon Corporation's cash on hand, and funds
available under its existing credit facilities may not be sufficient to satisfy
R&B Falcon Corporation's short-term and long-term working capital needs, planned
investments, capital expenditures, debt, lease and other payment obligations,
without selling certain assets or terminating construction contracts.
On March 26, 1999, R&B Falcon Corporation issued a series of 12.25% senior
notes with an aggregate principal amount of $200.0 million due 2006 (the "Senior
Notes"). As a result, R&B Falcon Corporation received net proceeds of
approximately $194.3 million after deducting estimated offering related
expenses. R&B Falcon Corporation used the proceeds from such notes and from
loans from the Company to repay existing indebtedness of approximately $556.0
million and the remainder will be used to acquire, construct, repair and improve
drilling rigs and for general corporate purposes.
On April 22, 1999, R&B Falcon Corporation issued 300,000 shares of 13.875%
Senior Cumulative Redeemable Preferred Stock (the "Preferred Stock") and
warrants to purchase 10,500,000 shares of R&B Falcon Corporation's common stock
at an exercise price of $9.50 per share (the "Warrants"). R&B Falcon Corporation
received net proceeds from the issuance of the Preferred Stock and Warrants of
approximately $289.0 million. Each share of Preferred Stock has a liquidation
preference of $1,000 per share and one Warrant entitles the holder to purchase
35 shares of R&B Falcon Corporation's common stock. The Preferred Stock is
mandatorily redeemable on, and the Warrants expire on, May 1, 2009. Dividends on
the Preferred Stock are to be paid quarterly commencing on August 1, 1999 and at
R&B Falcon Corporation's option may be paid in cash or, on or before May 1,
2004, in additional shares of Preferred Stock. R&B Falcon Corporation 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% on or
after May 1, 2007, in each case plus accrued and unpaid dividends to the
redemption date. In addition, on or before May 1, 2002, R&B Falcon Corporation
may redeem shares of the Preferred Stock having an aggregate liquidation
preference of up to $105.0 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. The Warrants'
estimated fair value of $48.0 million was recorded as a discount to the
Preferred Stock and will be amortized on a straight line basis over ten years.
Preferred Stock dividends and the amortization of the
F-7
<PAGE> 100
RBF FINANCE CO.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Warrants' initial value will be deducted from net income to arrive at net income
applicable to common stockholders.
Proceeds from the $200.0 million senior notes, loans from the Company and
the Preferred Stock met a portion of R&B Falcon Corporation's capital
requirements. However, it may also be necessary for R&B Falcon Corporation to
obtain additional capital through debt and/or equity financings to meet its
currently projected obligations. R&B Falcon Corporation is currently evaluating
two project financings to meet a portion of its additional capital requirements.
The first is an approximately $270.0 million financing in the form of a
synthetic lease that would be collateralized by the drillship Deepwater
Frontier, drilling contract revenues from such drillship and a letter of credit.
Proceeds of such financing, if obtained, would be used in part to repay advances
made to a limited liability R&B Falcon Corporation which will operate the
Deepwater Frontier and which is owned 60% by R&B Falcon Corporation and 40% by
Conoco. The second financing being contemplated is an approximately $250.0
million project financing that would be collateralized by the semisubmersible
RBS8M, as well as the drilling contract revenues from such rig.
R&B Falcon Corporation currently believes it will be able to consummate the
proposed project financings. However, there can be no assurance that these or
any other additional financings can be obtained, or if obtained, that they will
be on terms favorable to R&B Falcon Corporation or for the amounts needed.
Further, R&B Falcon Corporation has limited ability under its indenture
covenants to incur additional recourse indebtedness and to secure that debt. If
R&B Falcon Corporation is unable to obtain its requisite financing, R&B Falcon
Corporation may have to sell assets or terminate or suspend one or more
construction projects. Termination or suspension of a project may subject R&B
Falcon Corporation to claims for penalties or damages under the construction
contracts or drilling contracts for rigs that are being constructed. In
addition, asset sales made under duress in today's drilling market may not yield
attractive sales prices. Accordingly, the inability of R&B Falcon Corporation to
complete required financings would have a material adverse effect on R&B Falcon
Corporation's financial condition and its ability to repay its outstanding
indebtedness.
Three of R&B Falcon Corporation's outstanding credit facilities were repaid
and terminated in March 1999 from proceeds from the Senior Secured Notes and the
Senior Notes. To assist R&B Falcon Corporation's liquidity position, R&B Falcon
Corporation may seek to establish a new revolving bank credit facility of up to
$180.0 million, and may sell certain assets. There can be no assurance, however,
that such facility will be obtained or sales completed.
The liquidity of R&B Falcon Corporation should also be considered in light
of the significant fluctuations in demand that may be experienced by drilling
contractors as changes in oil and gas producers' expectations and budgets occur,
primarily in response to declines in prices for oil and gas. These fluctuations
can rapidly impact R&B Falcon Corporation's liquidity as supply and demand
factors directly affect utilization and dayrates, which are the primary
determinants of cash flow from R&B Falcon Corporation's operations. The decline
in oil and gas prices since 1997 has negatively impacted R&B Falcon
Corporation's performance, particularly in the shallow water U.S. Gulf market,
by adversely affecting R&B Falcon Corporation's rig utilization and dayrates.
Utilization of R&B Falcon Corporation's 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 R&B Falcon Corporation's 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. R&B Falcon Corporation believes a continued depression in oil
and gas prices would have a material adverse effect on R&B Falcon Corporation's
financial position and results from operations.
In December 1998, Mobil U.K. Ltd. ("Mobil") terminated its contract to use
R&B Falcon Corporation's Jack Bates semisubmersible rig on the grounds that two
of the rig's anchor cables broke.
F-8
<PAGE> 101
RBF FINANCE CO.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The contract provided for Mobil's use of the rig at a dayrate of approximately
$115,000 for the primary term through January 1999 and approximately $200,000
for the extension term from February 1999 through December 2000. R&B Falcon
Corporation does not believe that Mobil had the right to terminate this
contract. R&B Falcon Corporation has recontracted the Jack Bates to Mobil for
one well at a dayrate of $156,000. This contract is without prejudice to either
party's rights in the dispute over the termination of the original contract. If
R&B Falcon Corporation is not successful in settling its dispute over the
termination of the original contract, R&B Falcon Corporation intends to commence
legal proceedings to enforce its rights under the contract.
In April 1999, BP Amoco cancelled its contract with R&B Falcon Corporation
for the drillship Peregrine VII in accordance with the contract's terms because
the drillship had not been delivered on time. R&B Falcon Corporation is
currently marketing this rig for work.
In May 1999, R&B Falcon Corporation received notice from Petrobras of
cancellation of the drilling contract on the semisubmersible Falcon 100, based
upon alleged late delivery of the rig. R&B Falcon Corporation does not believe
that Petrobras has the right to cancel the contract and has engaged Brazilian
counsel to pursue its rights under the contract.
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. Included in cash and cash equivalents at March 31, 1999 was
$303.1 million that was restricted for and was subsequently loaned to R&B Falcon
Corporation during April and May 1999 under the Senior Secured Loan Agreements
dated as of March 26, 1999.
COMPREHENSIVE INCOME -- The Company did not have any non-owner changes in
equity.
CONCENTRATION OF CREDIT RISKS -- The Company maintains cash balances and
short-term investments with commercial banks in the United States. The Company's
cash equivalents and short-term investments generally consist of commercial
paper, money-market mutual funds and interest-bearing deposits with strong
credit rated financial institutions, therefore, bearing minimal risk. No losses
were incurred from inception (March 19, 1999) through March 31, 1999.
The Company's revenues were generated primarily from interest income on
notes from R&B Falcon Corporation.
NEWLY ISSUED ACCOUNTING STANDARDS -- Statement of Financial Accounting
Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and
Related Information Disclosures about Segments of an Enterprise and Related
Information, requires that companies report financial and descriptive
information about their reportable operating segments. Segment information to be
reported is to be based upon the way management organizes the segments for
making operating decisions and assessing performance. The Company's revenues are
generated primarily from its interest income on the loans made to R&B Falcon
Corporation and all of the activities of the Company occur in the United States.
Therefore no segment information is required.
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
was issued. SFAS 133 establishes accounting and reporting standards requiring
that every derivative instrument be measured at its fair value, recorded in the
balance sheet as either an asset or liability and that changes in the
derivative's fair value be recognized currently in earnings. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. The Company has not
yet quantified the impacts of adopting SFAS 133 on its financial statements nor
has it determined the timing of its adoption.
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
F-9
<PAGE> 102
RBF FINANCE CO.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(B) LOANS TO R&B FALCON CORPORATION
On March 26, 1999, the Company entered into ten Senior Secured Loan
Agreements with R&B Falcon Corporation each of which is secured by one of R&B
Falcon Corporation's drilling rigs or the construction contract to build a
drilling rig (the "Loans to R&B Falcon Corporation"). Interest on the Loans to
R&B Falcon Corporation is receivable semiannually on March 15 and September 15.
Each loan is equally divided into a 7-year tranche and a 10-year tranche. The
7-year tranche of the loans bear interest on the unpaid principal amount thereof
from the date funded through maturity at a rate equal to 11% per annum plus 2
basis points per annum. The 10-year tranche of the loans bear interest on the
unpaid principal amount thereof from the date funded through maturity at a rate
equal to 11.375% per annum plus 2 basis points per annum. In addition, the
Company charges R&B Falcon Corporation a commitment fee of 7% per annum on any
undrawn balance under the loans. The loan agreements contain conditions that
must be met by R&B Falcon Corporation before funding of the loans. As of March
31, 1999, R&B Falcon Corporation had met the conditions on three of the ten
loans, which in aggregate amounted to $496.9 million. During April and May 1999,
R&B Falcon Corporation satisfied the conditions on the seven remaining loans,
which were subsequently funded in the amount of $303.1 million.
Loans to R&B Falcon Corporation at March 31, 1999 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
7-YEAR 10-YEAR TOTAL COLLATERAL
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
Loan to R&B Falcon Corporation........ $112,800 $112,800 $225,600 Peregrine VII
Loan to R&B Falcon Corporation........ 83,000 83,000 166,000 Peregrine IV
Loan to R&B Falcon Corporation........ 52,650 52,650 105,300 Falcon 100
-------- -------- --------
Total....................... $248,450 $248,450 $496,900
======== ======== ========
</TABLE>
(C) LONG-TERM OBLIGATIONS
Long-term obligations at March 31, 1999 consisted of the following (in
thousands):
<TABLE>
<S> <C>
11% Senior Secured Notes due March 2006.................. $400,000
11.375% Senior Secured Notes due March 2009.............. 400,000
--------
Long-term obligations.................................... $800,000
========
</TABLE>
In March 1999, the Company issued $400.0 million of 11% senior secured
notes due March 2006 and $400.0 million of 11.375% senior secured notes due
March 2009. As a result, the Company received proceeds of approximately $800.0
million. The Senior Secured Notes are secured by the Loans to R&B Falcon
Corporation. R&B Falcon Corporation also guaranteed the payment of the Senior
Secured Notes by the Company. Interest is payable semiannually on March 15 and
September 15 on the Senior Secured Notes. R&B Falcon Corporation paid expenses
related to the offering. The Company used the proceeds to loan approximately
$496.9 million to R&B Falcon Corporation and has invested $303.1 million in
short-term investments. The Senior Secured Notes have covenants related to R&B
Falcon Corporation (with which R&B Falcon Corporation was in compliance at March
31, 1999), which limit or prohibit R&B Falcon Corporation's ability to incur
additional indebtedness, create liens and sell assets.
As of March 31, 1999, the Company estimates the fair value of its debt
obligations to be equal to the book value of $800.0 million.
F-10
<PAGE> 103
RBF FINANCE CO.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(D) COMMITMENTS AND CONTINGENCIES
At March 31, 1999, the Company was committed to loan an additional $303.1
million to R&B Falcon Corporation. As of May 24, 1999, all such commitments were
satisfied.
(E) INCOME TAXES
All income before income tax expense was current and generated
domestically. The U.S. statutory tax rate of 35% was used to compute the income
tax expense on income before income tax expense.
(F) CAPITAL SHARES
In March 1999, the Company issued 250 shares of its common stock for their
estimated fair market value of $1,000. As of March 31, 1999, 250 shares of
common stock were issued out of 1,000 shares authorized.
F-11
