<PAGE> 1
FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-89727
[TRANSOCEAN OFFSHORE INC. LOGO][SCHLUMBERGER LOGO]
SPIN-OFF AND MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The boards of directors of Transocean Offshore Inc. and Schlumberger
Limited have each approved transactions in which Schlumberger will spin off its
offshore contract drilling business by distributing to its shareholders the
common stock of Sedco Forex Holdings Limited. Sedco Forex Holdings Limited will
then merge with a wholly owned subsidiary of Transocean. Upon completion of the
merger, Transocean will change its name to Transocean Sedco Forex Inc.
Transocean Sedco Forex will have the world's largest fleet of mobile offshore
drilling rigs and will own, operate or manage 75 rigs, including six newbuilds
currently under construction. Twenty-two of these rigs will be capable of
drilling in water depths of 3,000 feet or greater.
If the transactions are completed, Transocean's shareholders will continue
to own their existing Transocean ordinary shares, and Schlumberger's
shareholders will own the Transocean ordinary shares they receive as a result of
the spin-off and the merger, in addition to their existing Schlumberger shares.
Transocean expects to issue approximately 109 million of its ordinary shares in
the merger, representing about 52% of the total Transocean Sedco Forex ordinary
shares that will be outstanding after the merger.
The transactions cannot be completed without the approval of Schlumberger's
and Transocean's shareholders. Schlumberger's shareholders will vote on the
spin-off of Sedco Forex. Transocean's shareholders will vote on an increase of
Transocean's authorized ordinary share capital and the issuance of Transocean
ordinary shares to Schlumberger's shareholders. We have scheduled separate
meetings to be held on December 10, 1999 for Schlumberger's shareholders and
Transocean's shareholders to vote on these matters.
In addition to the shareholder votes needed to complete the spin-off and
the merger, Transocean's shareholders will also vote on a name change to
"Transocean Sedco Forex Inc." and amendments to Transocean's Long-Term Incentive
Plan and Transocean's Employee Stock Purchase Plan to increase the number of
ordinary shares reserved for issuance under those plans.
The Transocean and Schlumberger boards of directors each recommend that
their respective shareholders vote "FOR" the proposals.
The dates, times and places of these meetings are contained in the attached
notices.
This document provides you with detailed information about the spin-off,
the merger and the shareholder meetings. You can also obtain financial and other
information about Transocean and Schlumberger from documents filed with the
Securities and Exchange Commission. We encourage you to read carefully this
entire document and the documents incorporated by reference.
LOGO
J. Michael Talbert
Chairman of the Board and Chief Executive Officer
Transocean Offshore Inc.
LOGO
Euan Baird
Chairman of the Board and Chief Executive Officer
Schlumberger Limited
SEE "RISK FACTORS" BEGINNING ON PAGE 33 FOR A DISCUSSION OF RISKS THAT SHOULD BE
CONSIDERED BY SCHLUMBERGER'S SHAREHOLDERS AND TRANSOCEAN'S SHAREHOLDERS BEFORE
VOTING AT THEIR RESPECTIVE MEETINGS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE TRANSOCEAN ORDINARY SHARES TO BE
ISSUED IN THE MERGER OR DETERMINED THAT THIS DOCUMENT IS ACCURATE OR ADEQUATE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated October 27, 1999 and is first
being mailed to shareholders of Transocean and Schlumberger on or about November
8, 1999.
<PAGE> 2
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE.
SEE "WHERE YOU CAN FIND MORE INFORMATION" FOR A LISTING OF DOCUMENTS
INCORPORATED BY REFERENCE. TRANSOCEAN DOCUMENTS ARE AVAILABLE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, UPON REQUEST DIRECTED TO JEFFREY L. CHASTAIN,
DIRECTOR OF INVESTOR RELATIONS AND COMMUNICATIONS, TRANSOCEAN OFFSHORE INC., 4
GREENWAY PLAZA, HOUSTON, TEXAS 77046, TELEPHONE (713) 232-7500. SCHLUMBERGER
DOCUMENTS ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, UPON
REQUEST DIRECTED TO SIMONE CROOK, DIRECTOR INVESTOR RELATIONS & COMMUNICATIONS,
SCHLUMBERGER LIMITED, 277 PARK AVENUE, NEW YORK, NEW YORK 10172, TELEPHONE (212)
350-9432. TO ENSURE TIMELY DELIVERY OF THESE DOCUMENTS, ANY REQUEST SHOULD BE
MADE BY DECEMBER 3, 1999. THE EXHIBITS TO THESE DOCUMENTS WILL GENERALLY NOT BE
MADE AVAILABLE UNLESS THEY ARE SPECIFICALLY INCORPORATED BY REFERENCE IN THIS
JOINT PROXY STATEMENT/PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE
SPIN-OFF AND THE MERGER............... 1
SUMMARY............................... 5
The Companies....................... 5
The Transactions.................... 8
Transocean Sedco Forex After the
Merger........................... 8
The Shareholder Meetings............ 8
Schlumberger Vote Required for
Approval of the Schlumberger
Proposal......................... 8
Recommendation to Schlumberger's
Shareholders..................... 8
Opinion of Goldman, Sachs & Co. .... 8
Transocean Votes Required for
Approval of the Transocean
Proposals........................ 9
Recommendation to Transocean's
Shareholders..................... 9
Opinion of Simmons & Company
International.................... 9
Interests of Certain Persons in the
Merger........................... 9
Conditions to the Spin-off and the
Merger........................... 10
Termination of the Merger
Agreement........................ 10
Termination Fees and Expense
Reimbursement.................... 11
Regulatory Approvals................ 11
Accounting Treatment and
Considerations................... 12
Certain U.S. Federal Income Tax
Consequences..................... 12
No Appraisal Rights................. 12
Listing of Transocean Sedco Forex
Ordinary Shares.................. 12
Sedco Forex Employee Matters........ 12
SUMMARY FINANCIAL INFORMATION......... 14
Sources of Information.............. 14
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
How We Prepared the Unaudited Pro
Forma Financial Information...... 14
Transaction-Related Expenses........ 14
SEDCO FOREX SELECTED HISTORICAL
COMBINED FINANCIAL DATA............. 15
TRANSOCEAN SELECTED HISTORICAL
CONSOLIDATED FINANCIAL DATA......... 16
SCHLUMBERGER SELECTED HISTORICAL
CONSOLIDATED FINANCIAL DATA......... 17
TRANSOCEAN SEDCO FOREX UNAUDITED
CONDENSED PRO FORMA COMBINED BALANCE
SHEET............................... 18
TRANSOCEAN SEDCO FOREX UNAUDITED
CONDENSED PRO FORMA COMBINED
STATEMENTS OF OPERATIONS............ 19
TRANSOCEAN SEDCO FOREX NOTES TO
UNAUDITED CONDENSED PRO FORMA
COMBINED FINANCIAL STATEMENTS....... 21
TRANSOCEAN SEDCO FOREX SUPPLEMENTAL
FINANCIAL INFORMATION............... 25
SCHLUMBERGER UNAUDITED CONDENSED PRO
FORMA COMBINED BALANCE SHEET........ 26
SCHLUMBERGER UNAUDITED CONDENSED PRO
FORMA STATEMENTS OF OPERATIONS...... 27
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED COMPARATIVE PER SHARE
DATA.................................. 29
TRANSOCEAN AND SCHLUMBERGER MARKET
PRICE AND DIVIDEND INFORMATION...... 30
DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS.......................... 31
RISK FACTORS.......................... 33
The value of the Transocean ordinary
shares to be received in the
merger will fluctuate. .......... 33
The price of Transocean Sedco Forex
ordinary shares may decline as a
result of the transaction. ...... 33
Transocean Sedco Forex may face
difficulties in integrating the
operations of Sedco Forex and
Transocean....................... 33
The business separation of Sedco
Forex from Schlumberger may
impair assets.................... 33
Transocean is subject to
anti-takeover provisions......... 34
THE TRANSOCEAN EXTRAORDINARY GENERAL
MEETING............................. 35
Time, Date and Place................ 35
Purpose of the Transocean
Extraordinary General Meeting.... 35
Record Date; Voting Rights; Vote
Required for Approval............ 35
Proxies............................. 36
THE SCHLUMBERGER SPECIAL GENERAL
MEETING............................. 38
Time, Date and Place................ 38
Purpose of the Schlumberger General
Meeting.......................... 38
Record Date; Voting Rights; Vote
Required for Approval............ 38
Proxies............................. 39
THE TRANSACTIONS...................... 40
The Business Separation............. 40
The Spin-off........................ 41
The Merger.......................... 41
Background of the Merger............ 41
Transocean's Reasons for the
Merger........................... 43
Recommendation of Transocean's Board
of Directors..................... 44
Schlumberger's Reasons for the
Spin-off and the Merger.......... 44
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Recommendation of Schlumberger's
Board of Directors............... 46
Fairness Opinion -- Simmons &
Company International............ 46
Fairness Opinion -- Goldman, Sachs &
Co. ............................. 52
Transocean Sedco Forex Management... 59
Transocean Sedco Forex Board of
Directors........................ 60
Stock Exchange Listing.............. 61
Accounting Treatment and
Considerations................... 61
Certain U.S. Federal Income Tax
Consequences..................... 61
Regulatory Matters.................. 65
Federal Securities Laws
Consequences; Resale
Restrictions..................... 66
THE TRANSACTION AGREEMENTS............ 68
The Distribution Agreement.......... 68
The Merger Agreement................ 70
Employee Matters Agreement.......... 81
BUSINESS OF SEDCO FOREX............... 84
Drilling Rig Types.................. 84
Fleet Enhancements and Upgrades..... 85
Drilling Rig Status................. 85
Drilling Contracts.................. 87
Significant Clients................. 88
Industry Conditions and
Competition...................... 88
Markets............................. 89
Operating Risks..................... 89
International Operations............ 90
Regulation.......................... 91
Employees........................... 91
Properties.......................... 92
Legal Proceedings................... 92
SEDCO FOREX SELECTED HISTORICAL
COMBINED FINANCIAL DATA............. 93
SEDCO FOREX MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........... 94
Overview............................ 94
Operating Results................... 94
Market Outlook...................... 97
Other Factors Affecting Operating
Results.......................... 98
Liquidity and Capital Resources..... 100
New Accounting Pronouncements....... 102
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Year 2000 Issues...................... 102
Euro Disclosures.................... 105
Quantitative and Qualitative
Disclosures About Market Risk.... 105
MANAGEMENT OF SEDCO FOREX............. 105
Executive Compensation.............. 106
Stock Option Grants Table........... 107
Stock Option Exercises and December
31, 1998 Stock Option Value
Table............................ 108
BUSINESS OF TRANSOCEAN................ 110
MANAGEMENT OF TRANSOCEAN SEDCO
FOREX............................... 112
Directors and Executive Officers.... 112
Compensation of Directors........... 115
Officer and Director
Indemnification.................. 116
INTERESTS OF CERTAIN PERSONS IN THE
MERGER.............................. 116
Existing Schlumberger/Sedco Forex
Officers and Directors Who Will
Join Transocean Sedco Forex at
the Effective Time............... 116
Indemnification of Sedco Forex
Officers and Directors........... 117
Transocean Sedco Forex Chairman's
Consulting Agreement............. 117
Employment Agreements............... 117
Long-Term Incentive Plan............ 118
Performance Award and Cash Bonus
Plan............................. 118
DESCRIPTION OF CAPITAL STOCK OF
TRANSOCEAN.......................... 119
Transocean Ordinary Shares.......... 119
Transocean Preference Shares........ 122
Limitation on Director's
Liability........................ 122
Limitation on Changes in Control.... 122
Transfer Agent and Registrar........ 124
Stock Exchange Listing.............. 124
COMPARISON OF RIGHTS OF
SHAREHOLDERS........................ 125
TRANSOCEAN'S PROPOSAL TO INCREASE ITS
AUTHORIZED ORDINARY SHARE CAPITAL... 134
General............................. 134
Purposes and Effects of Increasing
the Number of Authorized Ordinary
Shares........................... 134
Vote Required; Recommendation of the
Board of Directors............... 135
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROPOSAL TO AMEND TRANSOCEAN'S
LONG-TERM INCENTIVE PLAN............ 135
Description of the Proposal......... 135
Principal Provisions of the
Long-Term Incentive Plan......... 135
U.S. Federal Income Tax
Consequences..................... 137
Vote Required; Recommendation of
Transocean's Board of
Directors........................ 139
PROPOSAL TO AMEND TRANSOCEAN'S
EMPLOYEE STOCK PURCHASE PLAN........ 139
Description of the Proposal......... 139
Principal Provisions of the Employee
Stock Purchase Plan.............. 139
U.S. Federal Income Tax
Consequences..................... 140
Vote Required; Recommendation of
Transocean's Board of
Directors........................ 141
LEGAL MATTERS......................... 141
EXPERTS............................... 141
FUTURE SHAREHOLDER PROPOSALS.......... 142
Transocean Shareholder Proposals.... 142
Schlumberger Shareholder
Proposals........................ 143
WHERE YOU CAN FIND MORE INFORMATION... 143
INDEX TO FINANCIAL STATEMENTS......... F-1
ANNEX A -- Agreement and Plan of Merger
ANNEX B -- Distribution Agreement
ANNEX C -- Opinion of Goldman, Sachs & Co.
ANNEX D -- Opinion of Simmons & Company
International
ANNEX E -- Transocean Long-Term Incentive
Plan
ANNEX F -- Transocean Employee Stock
Purchase Plan
</TABLE>
iii
<PAGE> 5
QUESTIONS AND ANSWERS ABOUT
THE SPIN-OFF AND THE MERGER
Q. WHY ARE TRANSOCEAN AND SCHLUMBERGER
PROPOSING TO MERGE SEDCO FOREX WITH TRANSOCEAN?
A. The boards of directors of Schlumberger and
Transocean believe that the merger offers a unique opportunity to combine
two successful offshore contract drilling businesses into the world's
premier offshore drilling contractor, as measured by its size, worldwide
market presence, financial strength, technically advanced fleet,
engineering capabilities, management expertise and experienced workforce.
These attributes will enable Transocean Sedco Forex to offer:
- Customers -- technically demanding drilling services on a global basis,
backed by technological expertise and financial strength;
- Investors -- an investment in a company that upon completion of the
merger will operate the world's largest fleet of mobile offshore
drilling rigs and is expected to have the largest market capitalization
of any offshore contract driller; and
- Employees -- career opportunities with a financially strong company that
leads its industry in the application of technology and that values
cultural diversity in its workforce.
Q. PLEASE BRIEFLY DESCRIBE THE PROPOSED SPIN-OFF
AND MERGER.
A. Schlumberger will spin off its offshore
contract drilling business by distributing to its shareholders the common stock
of Sedco Forex Holdings Limited. Sedco Forex Holdings Limited will then
merge with a newly formed subsidiary of Transocean and become a wholly
owned subsidiary of Transocean. After the merger, Transocean Offshore Inc.
will change its name to Transocean Sedco Forex Inc.
In this joint proxy statement/prospectus:
- we refer to Transocean Offshore Inc. as "Transocean";
- we refer to Schlumberger Limited as "Schlumberger";
- we use the term "Sedco Forex" when referring to the historical offshore
contract drilling business of Schlumberger that is to be spun off and
merged, as well as when referring to that business as consolidated under
Sedco Forex Holdings Limited from and after the time of the spin-off,
and we also use the term "Sedco Forex" to refer to Sedco Forex Holdings
Limited, in each case as the context requires;
- we refer in some cases to the shareholders of Sedco Forex immediately
after the spin-off and before the merger as "Schlumberger's
shareholders" since, after the spin-off and prior to the merger,
Schlumberger's shareholders will own all of the stock of Sedco Forex;
- we refer to the distribution of the capital stock of Sedco Forex to
Schlumberger's shareholders as the "distribution" or the "spin-off";
- we refer to Transocean after the merger as "Transocean Sedco Forex";
- we refer to Transocean's wholly owned merger subsidiary, Transocean SF
Limited, as "Merger Sub"; and
- we refer to the Agreement and Plan of Merger among Schlumberger, Sedco
Forex Holdings Limited, Transocean and Merger Sub as the "merger
agreement" and the Distribution Agreement between Schlumberger and Sedco
Forex, which provides for the separation of Sedco Forex from the rest of
Schlumberger's business and the ensuing spin-off of Sedco Forex to
Schlumberger's shareholders, as the "distribution agreement."
Q. WHO WILL SERVE AS TRANSOCEAN SEDCO FOREX
DIRECTORS?
A. After the merger, the Transocean Sedco
Forex board of directors will include five designees of Transocean,
including J. Michael Talbert, currently Transocean's Chairman of the Board
and CEO, and five designees of Schlumberger, including Victor E. Grijalva,
currently Vice Chairman of Schlumberger. Mr. Grijalva will serve as
Chairman of the
1
<PAGE> 6
Board of Transocean Sedco Forex and will
also remain Vice Chairman of Schlumberger.
Q. WHO WILL SERVE AS TRANSOCEAN SEDCO FOREX'S
EXECUTIVE OFFICERS?
A. Mr. Talbert will remain CEO of Transocean
Sedco Forex, and most of the Transocean executive officers will continue
to serve as executive officers of Transocean Sedco Forex. In addition,
Jean P. Cahuzac, currently President of Sedco Forex, will become an
Executive Vice President of Transocean Sedco Forex, David Mullen,
currently Director of Personnel for Schlumberger's Geco-Prakla unit, will
become Vice President, Human Resources and Ricardo Rosa, currently
Controller of Sedco Forex, will become Vice President and Controller.
Q. WHY IS SCHLUMBERGER PROPOSING TO SPIN OFF
ITS OFFSHORE CONTRACT DRILLING BUSINESS?
A. Schlumberger's strategy for its oilfield
services segment is to be a leader in providing technologically driven reservoir
optimization services and related integrated services. Schlumberger
believes that the separation of its offshore contract drilling business
from the rest of Schlumberger's oilfield services segment will sharpen
that segment's focus on these core businesses. In addition, Schlumberger
views the spin-off and the merger as an opportunity to provide
Schlumberger's shareholders with ownership in the premier worldwide
offshore contract drilling company as well as continuing ownership in a
more focused Schlumberger.
Q. WHAT IS THE EXPECTED IMPACT OF THE SPIN-OFF
ON SCHLUMBERGER'S FINANCIAL PERFORMANCE?
A. Sedco Forex's net income was $341.6 million
for 1998 and $38.7 million for the six months ended June 30, 1999. As a
result of the spin-off, Schlumberger will no longer own Sedco Forex, and
accordingly, Schlumberger's results of operations will no longer include
Sedco Forex's results and certain other adjustments will be made. See
"-- Schlumberger Unaudited Condensed Pro Forma Statement of Operations."
Q. WHAT WILL SCHLUMBERGER'S SHAREHOLDERS
RECEIVE AS A RESULT OF THE MERGER?
A. In the merger, all of the Sedco Forex shares
received in the spin-off by Schlumberger's shareholders will be converted
into Transocean ordinary shares based on an exchange ratio that will
result in the ownership by Schlumberger's shareholders of about 52% of the
issued Transocean ordinary shares upon completion of the merger. Based on
the number of diluted Transocean ordinary shares and diluted Schlumberger
shares of common stock as of the date of this document, each Schlumberger
shareholder would receive approximately one Transocean ordinary share for
every five shares of Schlumberger common stock the shareholder owns.
Fractional shares will not be issued. Instead, Schlumberger's shareholders
will receive cash for any fractional share to which they would otherwise
be entitled.
Q. WILL HOLDERS OF TRANSOCEAN ORDINARY SHARES
RECEIVE ANY NEW SHARES AS A RESULT OF THE MERGER?
A. Holders of Transocean ordinary shares will
continue to hold the Transocean ordinary shares they own at the effective
time of the merger and will not receive any new shares. After the merger,
these shares will represent an ownership interest in Transocean Sedco
Forex.
Q. PLEASE BRIEFLY DESCRIBE THE EXCHANGE RATIO
PROVIDED FOR IN THE MERGER AGREEMENT.
A. The exchange ratio ensures that, upon closing
of the merger, Schlumberger's shareholders will own about 52% of all of
the issued ordinary shares of Transocean Sedco Forex. The aggregate number
of Transocean ordinary shares to be issued in the merger will not change
due to changes in the stock market value of Transocean ordinary shares
before the merger. Because the market price of Transocean ordinary shares
to be received in the merger will fluctuate, Schlumberger's shareholders
will not be able to determine the exact value of the Transocean ordinary
shares that they will receive in the merger until the merger is completed.
Based on the average closing price of Transocean ordinary shares as
reported in the consolidated reporting system for the period of 20
consecutive trading days ending with October 15, 1999, the value of the
approximately 109 million Transocean ordinary shares to be issued to
Schlumberger's
2
<PAGE> 7
shareholders would be about $3.3 billion.
Q. WHAT ARE THE U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE SPIN-OFF AND THE MERGER?
A. In general, for U.S. federal income tax
purposes, Schlumberger's shareholders should not recognize any gain or
loss as a result of the spin-off or the merger except for cash received,
if any, instead of fractional Transocean ordinary shares.
Q. DO SHAREHOLDERS HAVE APPRAISAL RIGHTS?
A. Under applicable law, none of the shareholders of Schlumberger, Sedco
Forex or Transocean has any right to receive an appraisal of the value of
their shares in connection with the spin-off or the merger.
Q. WHEN DO YOU EXPECT THE MERGER TO BE
COMPLETED?
A. We are working towards completing the
merger as quickly as possible and expect to complete it by the end of
1999.
Q. WHAT DO I NEED TO DO TO VOTE?
A. Transocean's shareholder meeting will take
place on December 10, 1999. Schlumberger's shareholder meeting will also
take place on December 10, 1999. After carefully reading and considering
the information contained in this document and the documents incorporated
by reference, please indicate on the enclosed proxy card how you want to
vote. Mail your signed proxy card in the enclosed return envelope as soon
as possible, so that your shares may be represented at your shareholder
meeting.
Q. WHAT VOTE DOES MY BOARD OF DIRECTORS
RECOMMEND?
A. The Schlumberger board of directors unanimously recommends that
Schlumberger's shareholders vote in favor of the proposed spin-off, which
is a condition to the merger.
The Transocean board of directors unanimously recommends that Transocean's
shareholders vote for the increase in authorized ordinary share capital
and for the issuance of the required number of ordinary shares necessary
to complete the merger, which are both conditions to the merger.
Transocean's board also unanimously recommends that Transocean's
shareholders vote for the name change and the amendments to Transocean's
Long-Term Incentive Plan and its Employee Stock Purchase Plan.
Q. WHAT IF I WANT TO CHANGE MY VOTE?
A. You can change your vote at any time before
your proxy card is voted at your shareholder meeting. You can do this in
one of three ways:
- you can send a written notice stating that you would like to revoke your
proxy;
- you can complete and submit a new proxy card; or
- you can attend your meeting and vote in person.
However, your attendance alone will not revoke your proxy. If you have
instructed a broker to vote your shares, you must follow the procedure
provided by your broker to change those instructions.
Q. WHAT IF I PLAN TO ATTEND MY SHAREHOLDER
MEETING IN PERSON?
A. We recommend that you send in your proxy
anyway. You may still attend the meeting and vote in person.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY
BROKER, WILL MY BROKER VOTE MY SHARES FOR ME WITHOUT MY INSTRUCTIONS?
A. Brokers may vote Transocean shares for the
Transocean proposals to increase authorized ordinary share capital and to
change its name. Brokers may not vote Transocean shares on the Transocean
proposals to issue the ordinary shares necessary to complete the merger
and to amend its Long-Term Incentive Plan and its Employee Stock Purchase
Plan or vote Schlumberger shares for the Schlumberger proposal to approve
the spin-off unless you provide instructions on how to vote. To instruct
your broker properly, follow the directions provided by your broker.
Q. SHOULD I SEND IN MY SHARE CERTIFICATES?
A. No. Transocean's and Schlumberger's shareholders will keep their current
share certificates. The distribution of the Sedco Forex shares will be
made by book-entry transfers. The Sedco Forex shares will then be
exchanged for Transocean ordinary shares in the merger. Transocean Sedco
Forex will send new Transocean Sedco Forex share certificates or notices
of book entry to Schlum-
3
<PAGE> 8
berger's shareholders after the merger is completed.
Q. WHOM DO I CALL IF I HAVE QUESTIONS ABOUT THE
MEETINGS OR THE MERGER?
A. Transocean's shareholders should contact either of the following:
Transocean:
Jeffrey L. Chastain
Director of Investor Relations
and Communications
Transocean Offshore Inc.
4 Greenway Plaza
Houston, Texas 77046
Fax: (713) 232-7001
Phone: (713) 232-7500
the Transocean proxy solicitor:
D. F. King & Co., Inc.
77 Water Street
New York, New York 10005
Fax: (212) 809-8839
Phone: (800) 848-3409
Schlumberger's shareholders should contact either of the following:
Schlumberger:
Simone Crook
Director Investor Relations
& Communications
Schlumberger Limited
277 Park Avenue
New York, New York 10172
Fax: (212) 350-9564
Phone: (212) 350-9432
the Schlumberger proxy solicitor:
D. F. King & Co., Inc.
77 Water Street
New York, New York 10005
Fax: (212) 809-8839
Phone: (800) 848-3409
4
<PAGE> 9
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
spin-off and the merger fully and for a more complete description of the legal
terms of the spin-off and the merger, you should carefully read this entire
document, including the annexes and the other documents to which we have
referred you in "Where You Can Find More Information" on page 143. We have
included page references parenthetically to direct you to more complete
descriptions of the topics presented in this summary.
THE COMPANIES
TRANSOCEAN OFFSHORE INC.
4 Greenway Plaza
Houston, Texas 77046
Phone: (713) 232-7500
Transocean is a leading international provider of offshore contract
drilling services for oil and gas exploration, development and production. As of
September 30, 1999, Transocean owned, had partial ownership in or operated 30
mobile offshore drilling units, including the technologically advanced, ultra-
deepwater drillships Discoverer Enterprise and Discoverer Spirit, and had one
additional Discoverer Enterprise-class drillship under construction. Transocean
contracts these drilling rigs, related equipment and work crews primarily on a
dayrate basis to drill oil and gas wells. Transocean also provides additional
drilling services, including well intervention and management of third-party
well service activities.
For further information on Transocean, see "Business of Transocean" on page 110.
Recent Developments
Transocean recently reported its unaudited financial results for each of
the quarter and three quarters ended September 30, 1999. Net income for the
three months ended September 30, 1999 was $46.9 million or $0.46 per diluted
share on revenues of $204.3 million. Comparative net income and diluted earnings
per share for the corresponding three months in 1998 were $84.4 million and
$0.84, respectively, excluding a nonrecurring after tax gain of $8.5 million, or
$0.08 per diluted share, relating to the sale of certain noncore assets and
surplus drilling components. Revenues in the prior year period were $269.0
million.
For the nine months ended September 30, 1999, net income totaled $188.5
million or $1.87 per diluted share on revenues of $746.2 million. Comparative
net income and diluted earnings per share for the nine months ended September
30, 1998 were $217.7 million and $2.16, respectively, exclusive of nonrecurring,
after tax gains totaling $22.4 million or $0.22 per diluted share relating to
the sale of noncore assets and surplus drilling components and the settlement of
a contract dispute. Revenues during the initial nine months of 1998 were $778.9
million.
The table below sets forth some of the financial results discussed above.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Operating revenues......................... $204,305 $269,002 $746,229 $778,892
Operating income........................... 62,083 120,291 258,875 312,812
Net income................................. 46,869 92,929 188,479 240,150
Earnings per share
Basic.................................... 0.47 0.93 1.88 2.40
Diluted.................................. 0.46 0.92 1.87 2.38
</TABLE>
On October 19, 1999, Transocean executed a commitment letter with a
commercial bank under which the bank will underwrite a $400 million unsecured
five-year term loan facility. Proceeds made available under the facility will be
used to refinance all intercompany indebtedness of Sedco Forex to Schlumberger
upon
5
<PAGE> 10
completion of the merger and for general corporate purposes. Amounts outstanding
under the facility will bear interest at floating rates equal to LIBOR plus a
margin equal to a percentage based on Transocean's credit rating in effect from
time to time or the bank's prime rate, at Transocean's option, and may be
prepaid at any time without premium or penalty. No principal amortization is
required for the first two years of the facility. The facility will be
established under a credit agreement that will contain financial covenants
obligating Transocean to maintain a minimum interest coverage ratio and a
maximum ratio of consolidated indebtedness to total capitalization and will
contain other customary covenants, representations and warranties and conditions
precedent.
SCHLUMBERGER LIMITED
277 Park Avenue
New York, New York 10172-0266
Phone: (212) 350-9400
42, rue Saint Dominique
75007 Paris, France
Phone: (33-1) 4062-1000
Parkstraat 83,
2514 JG The Hague,
The Netherlands
Phone: (31-7) 3310-5447
Through its subsidiaries, Schlumberger engages in the following businesses:
- Oilfield Services, which provides exploration and production services
during the life of an oil and gas reservoir to the petroleum industry
throughout the world;
- Resource Management Services, which includes metering equipment and
systems and related services; and
- Test & Transactions, which includes electronic transactions, automated
test equipment and communications and information technology solutions.
Recent Developments
On October 18, 1999, Schlumberger reported its unaudited financial results
for each of the quarter and three quarters ended September 30, 1999. The table
below shows some of the items contained in that report.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Operating revenues..................................... $2,249 $2,932 $6,730 $9,040
Income (loss) before taxes............................. 172 (12) 468 990
Net income............................................. 139 (29) 355 736
Earnings per share
Basic................................................ 0.25 (0.05) 0.64 1.36
Diluted.............................................. 0.25 (0.05) 0.64 1.31
</TABLE>
The 1998 third quarter results included an after-tax charge of $380
million, or $0.68 per share-diluted. The 1999 first quarter results included an
after-tax charge of $90 million, or $0.16 per share-diluted.
6
<PAGE> 11
SEDCO FOREX HOLDINGS LIMITED
Citco B.V.I. Limited
Citco Building, Wickhams Cay
P.O. Box 662
Road Town, Tortola, British Virgin Islands
Sedco Forex Holdings Limited is a British Virgin Islands company that,
together with its subsidiaries, will hold Schlumberger's offshore contract
drilling service business at the time of the spin-off. Sedco Forex is a leading
international provider of offshore contract drilling services for oil and gas
exploration, development and production. As of September 30, 1999, Sedco Forex
owned, had an ownership interest in or operated 40 mobile offshore drilling
rigs, consisting of three fourth-generation semisubmersibles, twenty second- and
third-generation semisubmersibles, one first-generation semisubmersible, two
drillships, ten jackup rigs and four tenders. Sedco Forex also has under
construction three Sedco Express-class semisubmersibles and one independent-leg
cantilevered jackup rig. In addition, the fleet includes one multi-purpose
service jackup rig, six swamp barges and two land drilling rigs. Sedco Forex
contracts these drilling rigs, related equipment and work crews primarily on a
dayrate basis to drill oil and gas wells. Sedco Forex also provides additional
drilling services, including well intervention and management of third-party
well service activities.
For further information on Sedco Forex, see "Business of Sedco Forex" on
page 84.
7
<PAGE> 12
THE TRANSACTIONS (PAGE 40)
The merger agreement is attached as Annex A to this joint proxy
statement/prospectus. The distribution agreement is attached as Annex B. These
documents provide for the spin-off, merger and related transactions. We urge you
to read these documents carefully.
Transocean and Schlumberger are proposing to merge Sedco Forex with Transocean.
The merger agreement calls for the parties to complete the following steps as
part of the transaction:
- - Schlumberger will consolidate its offshore contract drilling business, other
than some assets and businesses in the Middle East, Indonesia and Lake
Maracaibo, Venezuela, under Sedco Forex Holdings Limited, a wholly owned
subsidiary of Schlumberger;
- - Schlumberger will then distribute the shares of Sedco Forex to Schlumberger's
shareholders so that each Schlumberger shareholder receives one share of Sedco
Forex capital stock for each share of Schlumberger common stock owned;
- - Merger Sub, a wholly owned subsidiary of Transocean, will merge into Sedco
Forex, with Sedco Forex surviving the merger as a wholly owned subsidiary of
Transocean;
- - In exchange for the distributed Sedco Forex common stock, Transocean will
issue to Schlumberger's shareholders a number of Transocean ordinary shares
based on an exchange ratio that will result in the ownership by Schlumberger's
shareholders of about 52% of the total issued Transocean ordinary shares upon
completion of the merger; and
- - If the required number of Transocean ordinary shares are voted in favor of a
name change, Transocean will change its name to "Transocean Sedco Forex Inc."
TRANSOCEAN SEDCO FOREX AFTER THE MERGER (PAGE 59)
After the merger, we expect that Transocean Sedco Forex will have the world's
largest fleet of mobile offshore drilling rigs. It will own, have partial
ownership in or operate 75 mobile offshore drilling rigs, including six
newbuilds under construction. Twenty-two of these rigs will be capable of
drilling in water depths of 3,000 feet or greater.
THE SHAREHOLDER MEETINGS (PAGES 35 AND 38)
The extraordinary general meeting of Transocean's shareholders will be held on
December 10, 1999, at 4:00 p.m., Houston time, at 4 Greenway Plaza, Room C-100
(Mall Level), Houston, Texas.
The special general meeting of Schlumberger's shareholders will be held on
December 10, 1999, at 10:30 a.m. local time at the Avila Beach Hotel, Pennstraat
130, Willemstad, Curacao, Netherlands Antilles.
The record date for Transocean's shareholders entitled to receive notice of and
to vote at Transocean's shareholder meeting was the close of business on
November 1, 1999. On that date, Transocean expects there to be approximately 101
million Transocean ordinary shares issued and entitled to vote at the
extraordinary general meeting.
The record date for Schlumberger's shareholders entitled to receive notice of
and to vote at Schlumberger's shareholder meeting was the close of business on
November 1, 1999. On that date, Schlumberger expects there to be approximately
550 million shares of Schlumberger common stock outstanding and entitled to vote
at the special general meeting.
SCHLUMBERGER VOTE REQUIRED FOR APPROVAL OF THE SCHLUMBERGER PROPOSAL (PAGE 38)
The favorable vote of a majority of the votes cast at the special general
meeting is required to approve and adopt the proposal to spin off the capital
stock of Sedco Forex to Schlumberger's shareholders. This proposal must be
approved to complete the spin-off and the merger.
At least half of the outstanding shares of Schlumberger common stock must be
present, in person or by proxy, to constitute a quorum at the special general
meeting.
RECOMMENDATION TO SCHLUMBERGER'S SHAREHOLDERS (PAGE 46)
SCHLUMBERGER'S BOARD OF DIRECTORS BELIEVES THE SPIN-OFF IS ADVISABLE AND IN THE
BEST INTERESTS OF SCHLUMBERGER'S SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" THE SPIN-OFF PROPOSAL.
OPINION OF GOLDMAN, SACHS & CO. (PAGE 52)
In deciding to approve the merger, Schlumberger's board of directors received
and considered the opin-
8
<PAGE> 13
ion of Goldman, Sachs & Co., its financial advisor, that, as of the date of the
opinion, the exchange ratio under the merger agreement is fair from a financial
point of view to Schlumberger's shareholders, as if they were current holders of
the shares of Sedco Forex capital stock. Goldman Sachs based its opinion on and
delivered it subject to the assumptions, limitations and qualifications stated
in the opinion. The opinion is attached as Annex C to this document. We
encourage you to read the opinion.
TRANSOCEAN VOTES REQUIRED FOR APPROVAL OF THE TRANSOCEAN PROPOSALS (PAGE 35)
- - The proposal for the increase in Transocean's authorized ordinary share
capital requires the approval of holders of the majority of the issued
ordinary shares. This proposal must be approved to complete the spin-off and
the merger, and if approved, this proposal will be implemented only if the
merger is completed.
- - The proposal for the issuance of the Transocean ordinary shares in the merger
requires the affirmative vote of the majority of votes cast on the proposal,
provided that the total number of votes cast on the proposal represents a
majority of the votes entitled to be cast. This proposal must be approved in
order to complete the spin-off and the merger, and, if approved, will be
implemented only if the merger is completed.
- - The proposal to change Transocean's name to Transocean Sedco Forex Inc.
requires the approval of holders of 66 2/3% of the Transocean ordinary shares
voting in person or by proxy at the Transocean extraordinary general meeting.
Approval of this proposal is not necessary to complete the merger and, if
approved, it will be implemented only if the merger is completed.
- - The proposal to amend Transocean's Long-Term Incentive Plan requires the
approval of holders of the majority of ordinary shares present or represented
and entitled to vote at the extraordinary general meeting, provided that the
total number of votes cast on the proposal represents a majority of the votes
entitled to be cast. Approval of this proposal is not necessary to complete
the merger and, if approved, it will be implemented only if the merger is
completed.
- - The proposal to amend Transocean's Employee Stock Purchase Plan requires the
approval of holders of the majority of ordinary shares present or represented
and entitled to vote at the extraordinary general meeting. Approval of this
proposal is not necessary to complete the merger but, if approved, it will be
implemented regardless of whether the merger is completed.
A majority of the issued ordinary shares of Transocean must be present, in
person or by proxy, to constitute a quorum at the extraordinary general meeting.
RECOMMENDATION TO TRANSOCEAN'S SHAREHOLDERS (PAGE 44)
TRANSOCEAN'S BOARD OF DIRECTORS BELIEVES THAT THE INCREASE IN AUTHORIZED
ORDINARY SHARE CAPITAL, THE ISSUANCE OF ORDINARY SHARES IN CONNECTION WITH THE
MERGER WITH SEDCO FOREX, THE NAME CHANGE TO "TRANSOCEAN SEDCO FOREX INC.," AND
THE AMENDMENTS TO TRANSOCEAN'S LONG-TERM INCENTIVE PLAN AND ITS EMPLOYEE STOCK
PURCHASE PLAN ARE ALL ADVISABLE AND IN THE BEST INTERESTS OF TRANSOCEAN'S
SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH OF THE PROPOSALS.
OPINION OF SIMMONS & COMPANY INTERNATIONAL (PAGE 46)
In deciding to approve the merger, Transocean's board of directors received and
considered the opinion of Simmons & Company International, its financial
advisor, that the exchange ratio is fair, from a financial point of view, to
Transocean and its shareholders as of the date of the opinion. Simmons based its
opinion on and delivered it subject to the assumptions, limitations and
qualifications stated in the opinion. The opinion is attached as Annex D to this
joint proxy statement/prospectus. We encourage you to read the opinion.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 116)
In considering the boards' recommendations, shareholders should be aware that
some officers and directors of Transocean and of Schlumberger may have interests
in the spin-off and the merger that may be different from, or in addition to,
those of shareholders generally.
9
<PAGE> 14
CONDITIONS TO THE SPIN-OFF AND THE MERGER (PAGE 76)
The completion of the spin-off and the merger is dependent on a number of
conditions, including the following:
- - adoption by Schlumberger's shareholders of the proposal to approve the
spin-off;
- - adoption by Transocean's shareholders of the proposals to increase
Transocean's authorized ordinary share capital and to issue ordinary shares in
the merger;
- - delivery by Schlumberger to Transocean of the Sedco Forex pre-closing
financial statements required by the merger agreement;
- - Sedco Forex or its subsidiaries having good and valid title to substantially
all of the assets intended to be owned by them following the separation of the
Sedco Forex business, assets and liabilities from the rest of Schlumberger's
business, assets and liabilities;
- - expiration or termination of the relevant waiting period under any
competition, antitrust or premerger law or regulation, where the failure to
observe such a waiting period would have a material adverse effect on Sedco
Forex or Transocean;
- - absence of (1) any court decree, order or injunction prohibiting the merger
and (2) any governmental statute, rule or regulation prohibiting the merger or
making it unlawful;
- - absence of any pending or threatened governmental claim, proceeding or action
seeking to restrain or prohibit the spin-off or the merger; and
- - absence of any event or occurrence having or likely to have a material adverse
effect on Sedco Forex's or Transocean's business, operations, financial
condition or prospects or its ability to complete the merger or fulfill the
conditions to closing of the merger.
TERMINATION OF THE MERGER AGREEMENT (PAGE 78)
The merger agreement may be terminated by the mutual written consent of
Schlumberger/Sedco Forex and Transocean. In addition, either Schlumberger/Sedco
Forex or Transocean may terminate the merger agreement if:
- - the merger has not been completed by April 30, 2000;
- - Schlumberger's shareholders fail to approve the spin-off;
- - Transocean's shareholders fail to approve the required increase in authorized
ordinary share capital or the issuance of Transocean ordinary shares in the
merger; or
- - a court or governmental order, decree, ruling or other action permanently
prohibits the merger.
The merger agreement may also be terminated by Schlumberger/Sedco Forex if:
- - subject to various conditions, including giving prior written notice to
Transocean and the payment of a $100 million termination fee, Schlumberger or
Sedco Forex executes an agreement regarding an alternative transaction after
the Schlumberger board determines that it would be inconsistent with its
fiduciary duties to proceed with the merger in the face of a superior
alternative acquisition proposal for Sedco Forex, or for Schlumberger where
the proposal is conditioned upon termination of the merger agreement;
- - Transocean's board (1) withdraws or materially modifies its approval or
recommendation of the merger or (2) recommends a competing acquisition
proposal for Transocean;
- - Schlumberger provides a timely notice of objection to any plan by Transocean
to transfer any of its material assets or capital shares or those of any
Transocean subsidiary to Transocean or any of its subsidiaries based upon
Schlumberger's reasonable belief that completion of the plan would create a
significant risk of causing a material adverse effect on Transocean or its
ability to complete the merger, and Transocean nevertheless implements the
plan; or
- - Transocean or Merger Sub materially breaches any representation, warranty,
covenant or agreement that would give rise to a failure of a condition to the
merger and such breach is not curable or is not cured within 30 days after
receipt of a notice of such breach.
The merger agreement may also be terminated by Transocean if:
- - subject to various conditions, including giving prior written notice to Sedco
Forex and the payment of a $100 million termination fee, Transocean executes
an agreement regarding an alternative transaction after the Transocean board
10
<PAGE> 15
determines that it is inconsistent with its fiduciary duties to proceed with the
merger in the face of a superior alternative acquisition proposal for
Transocean;
- - Schlumberger's board (1) withdraws or materially modifies its approval or
recommendation of the spin-off or (2) recommends a competing acquisition
proposal for Sedco Forex, or any acquisition proposal for Schlumberger that is
conditioned upon termination of the merger agreement; or
- - Schlumberger or Sedco Forex materially breaches any representation, warranty,
covenant or agreement that would give rise to a failure of a condition to the
merger and such breach is not curable or is not cured within 30 days after
receipt of a notice of such breach.
TERMINATION FEES AND EXPENSE REIMBURSEMENT (PAGE 80)
The merger agreement requires Schlumberger to pay Transocean a $100 million fee
if:
- - the merger agreement is terminated by Schlumberger or Sedco Forex in order to
enter into an agreement concerning a superior alternative acquisition
proposal;
- - the merger agreement is terminated because Schlumberger's shareholders do not
approve the spin-off after the public announcement of a competing acquisition
proposal; or
- - the merger agreement is terminated by Transocean if Schlumberger's board
withdraws or materially modifies its approval or recommendation of the
spin-off after the public announcement of a competing acquisition proposal.
The merger requires Transocean to pay Schlumberger a $100 million fee if:
- - the merger agreement is terminated by Transocean in order to permit Transocean
to enter into an agreement concerning a superior alternative acquisition
proposal;
- - the merger agreement is terminated because Transocean's shareholders do not
approve the required increase to Transocean's authorized ordinary share
capital or the issuance of Transocean ordinary shares in the merger after the
public announcement of a competing acquisition proposal; or
- - the merger agreement is terminated by Schlumberger or Sedco Forex if
Transocean's board withdraws or materially modifies its approval or
recommendation of the merger after the public announcement of a competing
acquisition proposal.
The merger agreement requires Schlumberger to pay Transocean a fee of $10
million to reimburse Transocean for its costs and expenses if the merger
agreement is terminated because Schlumberger's shareholders do not approve the
spin-off and, before the shareholders' vote, there was no public announcement of
a competing proposal to acquire Sedco Forex or to acquire Schlumberger that was
conditioned upon termination of the merger agreement.
The merger agreement requires Transocean to pay Schlumberger a fee of $10
million to reimburse Schlumberger for its costs and expenses if the merger
agreement is terminated because Transocean's shareholders do not approve the
required increase in Transocean's authorized ordinary share capital or the
issuance of Transocean ordinary shares in the merger and, before the
shareholders' vote, there was no public announcement of a competing proposal to
acquire Transocean.
REGULATORY APPROVALS (PAGE 65)
Transocean and Schlumberger have made appropriate filings and have taken, and
will continue to take, other actions necessary to obtain approval of the
proposed merger from governmental regulators, including competition and
antitrust authorities in the U.S., the U.K. and Brazil.
The parties received notice of early termination of the required waiting period
under the U.S. Hart-Scott-Rodino Act on August 16, 1999. The parties also
received clearance from the U.K. competition/antitrust authorities on October
14, 1999.
We expect to obtain all required material regulatory approvals before our
respective shareholder meetings. Transocean and Schlumberger have agreed to
cooperate with each other and use their best efforts to take all action needed
to complete the merger. We are working to obtain the other required regulatory
approvals and consents. However, we can give no assurance as to when or whether
these approvals and consents will be obtained or the terms and conditions that
these consents and approvals may impose.
11
<PAGE> 16
ACCOUNTING TREATMENT AND CONSIDERATIONS (PAGE 61)
Transocean Sedco Forex will account for the merger using the purchase method of
accounting, with Sedco Forex treated as the acquiror. As a result, Transocean
Sedco Forex will record the assets and liabilities of Sedco Forex at historical
amounts, without restatement to fair values. Transocean Sedco Forex will record
the assets and liabilities of Transocean at their estimated fair values at the
date of the merger, with the excess of the purchase price over the sum of such
fair values recorded as goodwill. For this purpose, the purchase price is based
upon the market capitalization of Transocean using an average trading price of
Transocean ordinary shares for a period immediately before and after the
announcement of the merger.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES (PAGE 61)
SCHLUMBERGER'S SHAREHOLDERS
It is a condition to the spin-off that Baker & Botts, L.L.P., counsel to
Schlumberger, issue an opinion to Schlumberger and Sedco Forex to the effect
that, for U.S. federal income tax purposes, the spin-off should qualify as a
tax-free distribution to Schlumberger's shareholders and the merger should
qualify as a tax-free reorganization.
THIS TAX TREATMENT MAY NOT APPLY TO EVERY SCHLUMBERGER SHAREHOLDER. EACH
SCHLUMBERGER SHAREHOLDER SHOULD CONSULT A TAX ADVISOR AS TO THE TAX CONSEQUENCES
OF THESE TRANSACTIONS, INCLUDING ANY ESTATE, GIFT, STATE, LOCAL OR NON-U.S. TAX
CONSEQUENCES OF THE TRANSACTIONS.
TRANSOCEAN'S SHAREHOLDERS
Because holders of Transocean ordinary shares will not receive additional shares
in the merger as a result of their ownership, they will not recognize any gain
or loss relating to such share ownership for U.S. federal income tax purposes.
NO APPRAISAL RIGHTS
Under applicable law, none of the shareholders of Schlumberger, Sedco Forex or
Transocean have any right to an appraisal of the value of their shares in
connection with the spin-off or the merger.
LISTING OF TRANSOCEAN SEDCO FOREX ORDINARY SHARES (PAGE 61)
Transocean will apply to list on the New York Stock Exchange the ordinary shares
to be issued in the merger.
SEDCO FOREX EMPLOYEE MATTERS (PAGE 81)
In contemplation of the spin-off, Schlumberger and Sedco Forex will enter into a
definitive employee matters agreement with respect to personnel and employee
benefit matters. The employee matters agreement will provide for the transfer to
Sedco Forex Holdings Limited or a subsidiary of all persons who are active
employees of Sedco Forex as of the spin-off date, other than those whom
Transocean and Schlumberger agree will remain with Schlumberger.
For a period of one year after the spin-off or until December 31, 2000,
whichever occurs first, Transocean Sedco Forex generally will maintain benefits
and benefit arrangements for Sedco Forex employees that in the aggregate are
substantially comparable to the benefits and benefit arrangements provided by
Schlumberger and its subsidiaries to the Sedco Forex employees as of the date of
the distribution agreement.
Pursuant to the employee matters agreement, Schlumberger will retain some
defined employee-related liabilities, including some pension and severance
benefit responsibilities. Transocean Sedco Forex will assume all other
employment- and benefit-related liabilities of the Sedco Forex employees.
As of the date of the spin-off, Transocean Sedco Forex will adopt the
Schlumberger International Staff Pension Plan as a participating employer for
the benefit of Sedco Forex employees and will maintain its status as a
participating employer through December 31, 2000. Transocean Sedco Forex also
will have the option of adopting other Schlumberger plans covering Sedco Forex
employees as a participating employer through December 31, 2000.
As a result of the spin-off and the merger, all nonvested options to purchase
Schlumberger common stock that are held by Sedco Forex employees will terminate,
and Transocean Sedco Forex will grant fully vested options to acquire Transocean
Sedco Forex ordinary shares to holders of those terminated options. Transocean
Sedco Forex will base the exercise price and number of shares
12
<PAGE> 17
purchasable under each newly granted option on the exercise price and number of
shares purchasable under each terminated option, adjusted to reflect the
relative closing prices of Transocean ordinary shares and shares of Schlumberger
common stock on the day before the spin-off.
Generally, Transocean Sedco Forex will grant these options with an exercise
price below fair market value at the date of grant to the extent a below market
price would be required by application of the exercise price adjustment formula.
However, French-based employees of Sedco Forex who are eligible to receive new
Transocean Sedco Forex options will be granted options with an exercise price
equal to the fair market value of Transocean Sedco Forex ordinary shares at the
date of grant, even if the application of the adjustment formula otherwise would
result in an exercise price below the market price of Transocean Sedco Forex
ordinary shares at that date. To compensate these holders for the resulting
diminution in value, Transocean Sedco Forex will grant additional options with a
fair market value exercise price, the appropriate number of which will be
determined by valuing those options according to the Black-Scholes option
pricing model and related assumptions deemed reasonable by Transocean Sedco
Forex.
All vested options to purchase Schlumberger common stock held by Sedco Forex
employees will remain outstanding as options to purchase Schlumberger common
stock generally for a 90-day period following completion of the merger as
established by Schlumberger's stock option plans. Options to acquire
Schlumberger common stock that are held by persons other than Sedco Forex
employees upon the merger will remain options to purchase Schlumberger shares.
The exercise price and number of shares of Schlumberger common stock purchasable
upon exercise under all Schlumberger options outstanding immediately after
completion of the merger, including vested options held by Sedco Forex
employees, will be equitably adjusted to reflect the approximate decrease in
value of Schlumberger common stock as a result of the spin-off. Shortly after
the transactions are completed, Schlumberger will communicate with affected
optionholders regarding how these options will be adjusted.
13
<PAGE> 18
SUMMARY FINANCIAL INFORMATION
SOURCES OF INFORMATION
Transocean and Schlumberger are providing the following selected financial
information concerning Sedco Forex, Transocean, Schlumberger, and Transocean
Sedco Forex to help you in your analysis of the financial aspects of the
spin-off, the merger and related transactions. We derived this information from
the audited and unaudited financial statements of Sedco Forex, Transocean and
Schlumberger for the periods presented. The information is only a summary, and
you should read it in conjunction with the financial information included or
incorporated by reference in this joint proxy statement/prospectus. See "Where
You Can Find More Information" beginning on page 143 and "Index to Financial
Statements" on page F-1.
HOW WE PREPARED THE UNAUDITED PRO FORMA FINANCIAL INFORMATION
The operating results data assume the spin-off and the merger had been
completed on January 1, 1998, and the balance sheet data assume the spin-off and
the merger had been completed on June 30, 1999.
If Sedco Forex had been spun off and combined with Transocean in the past,
Transocean Sedco Forex and Schlumberger might have performed differently. You
should not rely on the pro forma financial information as an indication of the
financial position or results of operations that Transocean Sedco Forex or
Schlumberger would have achieved had the spin-off and merger taken place earlier
or of the future results that Transocean Sedco Forex or Schlumberger will
achieve after the merger.
Transocean Sedco Forex Unaudited Pro Forma Information
Sedco Forex and Transocean prepared the pro forma combined financial
information of Transocean Sedco Forex using the purchase method of accounting,
with Sedco Forex treated as the acquiror. As a result, Sedco Forex and
Transocean recorded the assets and liabilities of Sedco Forex at historical
amounts, without restatement to fair values. Sedco Forex and Transocean recorded
the assets and liabilities of Transocean at their preliminary estimated fair
values at the date of merger, with the excess of the purchase price over the sum
of such fair values recorded as goodwill. The preliminary estimates of fair
values are subject to change. Reclassifications were made to Sedco Forex
historical amounts to conform to the pro forma presentation.
The Transocean Sedco Forex unaudited condensed pro forma combined financial
statements reflect a total purchase price of $2.98 billion, which was based on
the market capitalization of Transocean, using an average closing price of
Transocean ordinary shares over the seven-day period commencing three days
before July 12, 1999, the date the merger was announced, plus the estimated fair
value of Transocean's stock options at the pro forma balance sheet date, which
will be assumed by Transocean Sedco Forex.
Schlumberger Unaudited Pro Forma Information
The Schlumberger unaudited pro forma financial statements reflect the
spin-off of Sedco Forex and other related party adjustments.
TRANSACTION-RELATED EXPENSES
Transocean estimates that it will incur fees and expenses totaling
approximately $20 million in connection with the merger and related
transactions, including amounts relating to change of control provisions under
some of Transocean's benefit plans. See "Interests of Certain Persons in the
Merger." None of such costs have been included in calculating the purchase
price. Sedco Forex's fees and expenses are expected to be immaterial. After the
merger, Transocean Sedco Forex will incur certain additional charges and
expenses relating to restructuring and integrating the operations of Sedco Forex
and Transocean. Transocean did not adjust the pro forma information for these
additional charges and expenses or for estimated general and administrative
expense savings and operational efficiencies that may be realized as a result of
the merger.
14
<PAGE> 19
SEDCO FOREX SELECTED HISTORICAL COMBINED FINANCIAL DATA
Schlumberger prepared the selected historical combined financial data of
Sedco Forex in the table below using the combined financial statements of Sedco
Forex. Schlumberger derived the combined financial information below for each of
the three years ended December 31, 1998, and the combined balance sheet data as
of December 31, 1997 and 1998, from combined financial statements appearing
elsewhere in this joint proxy statement/prospectus audited by
PricewaterhouseCoopers LLP, independent accountants. Schlumberger derived the
combined statement of income data for the six months ended June 30, 1999 and
1998 and the years ended December 31, 1995 and 1994 and the combined balance
sheet data as of June 30, 1999 and December 31, 1996, 1995 and 1994 from
unaudited combined financial statements. In the opinion of management, the
unaudited interim financial statements for the six months ended June 30, 1999
and 1998 include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the unaudited
periods. Operating results for the six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1999.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------ ----------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF INCOME DATA
Operating revenues.......................................... $ 352 $534 $1,091 $891 $663 $437 $391
Net income.................................................. 39 158 342 260 148 62 34
Pro forma earnings per share
Basic..................................................... 0.35 3.13
Diluted................................................... 0.35 3.13
Pro forma average shares outstanding
Basic(1).................................................. 109 109
Diluted(2)................................................ 109 109
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------------------
1999 1998 1997 1996 1995 1994
----------- ------ ------ ---- ---- ----
(IN MILLIONS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA
Working capital............................................. $ 57 $ 217 $ 168 $113 $130 $ 86
Total assets................................................ 1,515 1,473 1,051 899 781 742
Long-term debt.............................................. 77 86 139 46 40 28
Equity...................................................... 519 564 363 462 574 593
</TABLE>
- ---------------
(1) Average basic shares outstanding represent Transocean Sedco Forex shares to
be issued to Schlumberger's shareholders pursuant to the merger agreement.
(2) Average diluted shares outstanding adjust average basic shares outstanding
for the dilutive effect of stock options.
15
<PAGE> 20
TRANSOCEAN SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Transocean prepared the selected historical consolidated financial data in
the table below using the consolidated financial statements of Transocean.
Transocean derived the consolidated financial information below for each of the
five years ended December 31, 1998, and the consolidated balance sheet data as
of December 31 of each year from 1994 to 1998, from the consolidated financial
statements of Transocean which have been audited by Ernst & Young LLP,
independent auditors. Transocean derived the consolidated statement of
operations data for the six months ended June 30, 1999 and 1998 and the
consolidated balance sheet data as of June 30, 1999 and 1998 from unaudited
consolidated financial statements. The unaudited financial statements include
all adjustments, consisting of normal recurring adjustments, which Transocean
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for the six months
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1999. The data should be read
in conjunction with the consolidated financial statements, related notes and
other financial information incorporated by reference in this joint proxy
statement/prospectus.
The statement of operations data for the year ended December 31, 1996
includes the operating results of Transocean ASA since September 1, 1996, the
effective date of the combination of Transocean ASA with Transocean for
accounting purposes.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------- ---------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ---- -----
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Operating revenues...................................... $ 542 $ 510 $1,090 $ 892 $ 529 $323 $ 243
Operating and maintenance expenses...................... 267 246 485 548 359 229 185
Depreciation and amortization........................... 64 56 117 103 47 27 25
General and administrative expenses..................... 14 15 28 24 15 15 12
Operating income........................................ 197 193 460 217 108 52 21
Net income.............................................. 142 147 343 142 78 47 13
Net income per share(1)(2)
Basic................................................. 1.41 1.47 3.43 1.40 1.09 0.83 0.23
Diluted............................................... 1.41 1.46 3.41 1.38 1.07 0.82 0.23
OTHER FINANCIAL DATA
Cash flows from operating activities.................... $ 320 $ 176 $ 470 $ 164 $ 126 $ 60 $ 64
EBITDA(3)............................................... 267 276 624 331 169 98 45
Cash dividends declared per share(1).................... 0.06 0.06 0.12 0.12 0.12 0.12 0.12
Capital expenditures(4)................................. 253 242 573 406 213 19 59
BALANCE SHEET DATA (at end of period)
Working capital......................................... $ 32 $ 166 $ 169 $ 122 $ 21 $133 $ 79
Property and equipment, net............................. 2,324 1,855 2,128 1,668 1,370 303 326
Total assets............................................ 3,333 2,949 3,251 2,755 2,443 542 493
Total debt.............................................. 729 776 833 733 420 30 30
Long-term debt.......................................... 701 771 814 728 392 30 30
Shareholders' equity.................................... 2,114 1,778 1,979 1,621 1,628 364 321
</TABLE>
- ---------------
(1) Net income per share and cash dividends declared per share have been
retroactively restated to reflect the increased number of shares of common
stock issued and outstanding as a result of a two-for-one stock split
effected in the form of a 100% stock dividend, which was paid in September
1997.
(2) Net income per share amounts prior to 1997 have been restated to comply with
SFAS No. 128, Earnings Per Share.
(3) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. It is presented here because it is a widely accepted financial
indication of a company's ability to incur and service debt. EBITDA is not a
measurement presented in accordance with generally accepted accounting
principles and is not intended to be used in lieu of GAAP presentations of
results of operations and cash provided by operating activities.
(4) Excludes the combination with Transocean ASA.
16
<PAGE> 21
SCHLUMBERGER SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Schlumberger prepared the selected historical consolidated financial data
in the table below using the consolidated financial statements of Schlumberger.
Schlumberger derived the consolidated financial information below for each of
the five years ended December 31, 1998, and the consolidated balance sheet data
as of December 31 of each year from 1994 to 1998, from its financial statements
audited by PricewaterhouseCoopers LLP, independent accountants. Schlumberger
derived the consolidated statement of operations data for the six months ended
June 30, 1999 and 1998 and the consolidated balance sheet data as of June 30,
1999 and 1998 from its unaudited consolidated financial statements which, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
unaudited interim periods. Operating results for the six months ended June 30,
1999 are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1999.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ ----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Operating revenue................................ $ 4,481 $ 6,108 $11,816 $11,543 $ 9,702 $ 8,268 $7,332
Net income(1)(2)................................. 216 766 1,014 1,385 919 692 577
Earnings per share (1)(2)
Basic.......................................... 0.39 1.41 1.87 2.57 1.72 1.31 1.09
Diluted........................................ 0.39 1.36 1.81 2.47 1.69 1.30 1.08
Cash dividends declared per share................ 0.375 0.375 0.75 0.75 0.75 0.7125 0.60
Average shares outstanding:
Basic.......................................... 547 543 544 539 534 529 532
Assuming dilution.............................. 562 564 562 560 546 532 534
OTHER INFORMATION
Fixed asset additions............................ $ 667 $ 835 $ 1,887 $ 1,592 $ 1,220 $ 1,028 $ 849
BALANCE SHEET INFORMATION
Working capital.................................. $ 4,937 $ 3,168 $ 4,887 $ 2,690 $ 1,767 $ 1,456 $1,222
Total assets..................................... 15,743 13,931 16,078 13,186 11,272 9,770 9,109
Long-term debt................................... 3,207 1,308 3,285 1,179 731 731 486
Stockholders' equity............................. 8,145 7,995 8,119 7,381 6,221 5,501 5,081
</TABLE>
- ---------------
(1) The 1998 results include an after-tax charge of $380 million, or $0.68 per
diluted share, consisting of the following:
- A charge of $268 million related to Oilfield Services, including
severance costs of $64 million; facilities closure/relocation costs of
$40 million; operating asset write-offs of $114 million; and $39 million
of customer receivable reserves where collection was considered doubtful
due to the customer's financial condition and/or country risk. This
charge resulted from the slowdown in business.
- A charge of $63 million for merger-related costs in connection with the
acquisition of Camco International Inc., which was accounted for as a
pooling.
- A charge of $43 million related to Resource Management Services and Test
& Transactions, consisting primarily of employee severance, facilities
rationalizations, and environmental costs resulting from a reassessment
of ongoing future monitoring and maintenance requirements at locations no
longer in operation.
(2) The 1999 six months results include an after-tax charge of $90 million, or
$0.16 per share, consisting of the following:
- A charge of $150 million related to Oilfield Services, including
severance costs of $121 million, seismic vessel lay-up costs and
provisions for possible legal claims.
- A charge of $20 million related to Resource Management Services and Test
& Transactions consisting principally of severance costs at several
Resource Management Services facilities.
- A credit of $80 million from the gain on sale of financial instruments
received in connection with the 1998 sale of Retail Petroleum Systems.
17
<PAGE> 22
TRANSOCEAN SEDCO FOREX
UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL DISTRIBUTION PRO FORMA PRO FORMA
SEDCO AGREEMENT SEDCO FOREX HISTORICAL PURCHASE PRO FORMA
FOREX ADJUSTMENTS(1) BEFORE MERGER TRANSOCEAN ADJUSTMENTS(2) COMBINED
---------- -------------- ------------- ---------- -------------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Cash and Cash Equivalents... $ 84,868 $ (49,868)(1a) $ 35,000 $ 55,384 $ -- $ 90,384
Accounts Receivable......... 170,253 -- 170,253 177,572 -- 347,825
Other Current Assets........ 112,253 (40,414)(1b) 71,839 52,420 5,945(2a) 130,204
---------- --------- ---------- ---------- ---------- ----------
Total Current
Assets............ 367,374 (90,282) 277,092 285,376 5,945 568,413
Property and Equipment,
net....................... 1,101,585 -- 1,101,585 2,324,087 487,000(2b) 3,912,672
Goodwill, net............... -- -- -- 666,280 507,252(2c) 1,173,532
Other Assets................ 45,680 (1,099)(1c) 44,581 56,853 21,201(2d) 122,635
---------- --------- ---------- ---------- ---------- ----------
Total Assets........ $1,514,639 $ (91,381) $1,423,258 $3,332,596 $1,021,398 $5,777,252
========== ========= ========== ========== ========== ==========
Current Liabilities......... $ 309,949 $ (72,860)(1d) $ 237,089 $ 253,056 $ 9,072(2e) $ 499,217
Long-Term Debt.............. 583,686 (460,900)(1e) 122,786 701,471 -- 824,257
Deferred Taxes and Other
Credits................... 102,072 (8,910)(1f) 93,162 264,124 149,016(2f) 506,302
Shareholders' Equity........ 518,932 451,289 (1g) 970,221 2,113,945 863,310(2g) 3,947,476
---------- --------- ---------- ---------- ---------- ----------
Total Liabilities
and Shareholders'
Equity............ $1,514,639 $ (91,381) $1,423,258 $3,332,596 $1,021,398 $5,777,252
========== ========= ========== ========== ========== ==========
</TABLE>
See Notes to the Transocean Sedco Forex
Unaudited Condensed Pro Forma Combined Financial Statements
18
<PAGE> 23
TRANSOCEAN SEDCO FOREX
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ---------------------------
SEDCO FOREX TRANSOCEAN ADJUSTMENTS(2) COMBINED
----------- ---------- -------------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Operating Revenues.......................... $351,590 $541,924 $ -- $893,514
-------- -------- -------- --------
Costs and Expenses
Operating and Maintenance................. 240,743 266,827 -- 507,570
Depreciation and Amortization............. 63,739 64,295 15,819(2h) 143,853
General and Administrative................ 8,220 14,010 -- 22,230
-------- -------- -------- --------
312,702 345,132 15,819 673,653
-------- -------- -------- --------
Operating Income............................ 38,888 196,792 (15,819) 219,861
Other Income, Net........................... 717 4,073 7,919(2i) 12,709
-------- -------- -------- --------
Income Before Income Taxes.................. 39,605 200,865 (7,900) 232,570
Income Taxes................................ 911 59,255 (3,651)(2j) 56,515
-------- -------- -------- --------
Net Income.................................. $ 38,694 $141,610 $ (4,249) $176,055
======== ======== ======== ========
Earnings Per Share
Basic..................................... $ 1.41 $ 0.84
======== ========
Diluted................................... $ 1.41 $ 0.84
======== ========
Weighted Average Shares Outstanding
Basic..................................... 100,344 109,111(3) 209,455
Diluted................................... 100,786 109,185(4) 209,971
</TABLE>
See Notes to the Transocean Sedco Forex Unaudited Condensed Pro Forma Combined
Financial Statements
19
<PAGE> 24
TRANSOCEAN SEDCO FOREX
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ------------------------------
SEDCO FOREX TRANSOCEAN ADJUSTMENTS(2) COMBINED
----------- ---------- -------------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Operating Revenues...................... $1,090,523 $1,089,612 $ -- $2,180,135
---------- ---------- ----------- ----------
Costs and Expenses
Operating and Maintenance............. 562,758 484,439 -- 1,047,197
Depreciation and Amortization......... 124,708 116,867 38,917(2h) 280,492
General and Administrative............ 25,986 28,034 -- 54,020
---------- ---------- ----------- ----------
713,452 629,340 38,917 1,381,709
---------- ---------- ----------- ----------
Operating Income........................ 377,071 460,272 (38,917) 798,426
Other Income (Expense), Net............. (3,050) 26,874 8,202(2i) 32,026
---------- ---------- ----------- ----------
Income Before Income Taxes.............. 374,021 487,146 (30,715) 830,452
Income Taxes............................ 32,443 143,730 (7,824)(2j) 168,349
---------- ---------- ----------- ----------
Net Income.............................. $ 341,578 $ 343,416 $ (22,891) $ 662,103
========== ========== =========== ==========
Earnings Per Share
Basic................................. $ 3.43 $ 3.17
========== ==========
Diluted............................... $ 3.41 $ 3.15
========== ==========
Weighted Average Shares Outstanding
Basic................................. 100,083 109,111(3) 209,194
Diluted............................... 100,848 109,144(4) 209,992
</TABLE>
See Notes to the Transocean Sedco Forex
Unaudited Condensed Pro Forma Combined Financial Statements
20
<PAGE> 25
TRANSOCEAN SEDCO FOREX
NOTES TO UNAUDITED CONDENSED PRO FORMA
COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS OR UNLESS OTHERWISE
INDICATED)
(1) Represents the pro forma adjustments to the historical Sedco Forex
balance sheet accounts to reflect the following transactions between
Schlumberger and Sedco Forex to be effected prior to the spin-off as required by
the distribution agreement.
- Cash is adjusted to the required minimum cash balance of $35 million;
- Certain assets and liabilities included in the historical Sedco Forex
accounts are retained by Schlumberger;
- Related party receivable and payable balances are settled;
- Related party debt is adjusted to $435 million, less the capital
expenditure shortfall, plus or minus the working capital adjustment; and
- The net amount of the pro forma distribution is treated as an adjustment
to the net shareholder's equity of Sedco Forex.
A summary of the pro forma distribution agreement adjustments by balance
sheet caption is as follows:
(a) Cash and cash equivalents -- Represents the estimated cash
adjustment to reduce cash to the $35 million required minimum cash balance.
(b) Other current assets -- A reconciliation of the pro forma
distribution agreement adjustments to other current assets is as follows:
<TABLE>
<S> <C>
Deferred tax assets retained by Schlumberger............. $ (2,200)
Settlement of related party receivables.................. (38,214)
--------
Total pro forma adjustment to other current
assets............................................ $(40,414)
========
</TABLE>
(c) Other assets -- Represents deferred tax assets retained by
Schlumberger.
(d) Current liabilities -- A reconciliation of the pro forma
distribution agreement adjustments to current liabilities is as follows:
<TABLE>
<S> <C>
Employee benefit and other liabilities retained by
Schlumberger........................................... $(23,834)
Current tax liabilities retained by Schlumberger......... (14,780)
Settlement of bank overdrafts............................ (6,483)
Settlement of related party payables..................... (27,763)
--------
Total pro forma adjustment to current liabilities... $(72,860)
========
</TABLE>
(e) Long-term debt -- A reconciliation of the pro forma distribution
agreement adjustments to long-term debt is as follows:
<TABLE>
<S> <C>
Reduction in related party debt due to capital
expenditure shortfall................................. $(309,817)
Increase in related party debt due to working capital
adjustment............................................ 12,200
Adjustment of related party debt as required by the
distribution agreement................................ (163,283)
---------
Total pro forma adjustment to long-term debt....... $(460,900)
=========
</TABLE>
21
<PAGE> 26
TRANSOCEAN SEDCO FOREX
NOTES TO UNAUDITED CONDENSED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The capital expenditure shortfall is calculated as the amount by which
actual capital expenditures are less than the forecasted expenditures for
1999, and results in an equivalent reduction in the amount of debt that is
permitted at the date of the spin-off of Sedco Forex from Schlumberger. The
capital expenditure shortfall included above is calculated using
expenditures through the pro forma balance sheet date of June 30, 1999.
Permitted debt will be increased by the amount of capital expenditures
after June 30, 1999 and prior to the distribution date.
(f) Deferred taxes and other credits -- A reconciliation of the pro
forma distribution agreement adjustments to deferred taxes and other
credits is as follows:
<TABLE>
<S> <C>
Postretirement benefit liability retained by
Schlumberger........................................... $ (5,428)
Other employee-related liabilities retained by
Schlumberger........................................... (3,482)
--------
Total pro forma adjustment to deferred taxes and
other credits..................................... $ (8,910)
========
</TABLE>
(g) Shareholder's equity -- A reconciliation of the pro forma
distribution agreement adjustments to shareholder's equity is as follows:
<TABLE>
<S> <C>
Net liabilities to be retained by Schlumberger........... $ 44,225
Cash adjustment for required minimum cash balance, net of
bank overdrafts........................................ (43,385)
Reduction in related party debt due to capital
expenditure shortfall.................................. 309,817
Increase in related party debt due to working capital
adjustment............................................. (12,200)
Settlement of related party balances..................... 152,832
--------
Total pro forma adjustment to shareholder's
equity............................................ $451,289
========
</TABLE>
(2) A summary of the pro forma adjustments to effect the merger is as
follows:
(a) Other current assets -- A reconciliation of the pro forma
adjustments to other current assets is as follows:
<TABLE>
<S> <C>
Fair value adjustment of prepaid periodic survey and
drydock costs........................................... $10,826
Adjustment of deferred tax assets for the net effect of
pro forma adjustments................................... (4,881)
-------
Total pro forma adjustment to other current assets... $ 5,945
=======
</TABLE>
(b) Property and equipment, net -- Represents the adjustment needed to
record Transocean's property and equipment at estimated fair value at the
date of the merger.
(c) Goodwill -- The merger will be accounted for under the purchase
method of accounting, with Sedco Forex treated as the acquiror. The
adjusted pro forma goodwill amount reflects 100% of the excess purchase
price over the preliminary estimated fair values of Transocean's assets and
liabilities (see Note (2g)). The goodwill calculation assumes a purchase
price of $2.98 billion, based on the market capitalization of Transocean,
using an average closing price of Transocean ordinary shares over the
seven-day period commencing three days before July 12, 1999, the date the
merger was announced, plus the estimated fair value at the pro forma
balance sheet date of Transocean's stock options, which will be assumed by
Transocean Sedco Forex. The calculated purchase price is for accounting
purposes only and is not indicative of the price at which Transocean
ordinary shares will trade immediately before the
22
<PAGE> 27
TRANSOCEAN SEDCO FOREX
NOTES TO UNAUDITED CONDENSED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
consummation of the merger or the value of Transocean ordinary shares to be
received by shareholders of Sedco Forex in connection with the merger. The
recording of goodwill and the associated amortization period of 40 years
are supported by the nature of the offshore drilling industry, long-lived
drilling equipment and the long-standing relationships with core customers.
(d) Other assets -- Represents the adjustment needed to record
Transocean's defined benefit pension asset at estimated fair value at the
date of the merger.
(e) Current liabilities -- A reconciliation of the pro forma
adjustment to current liabilities is as follows:
<TABLE>
<S> <C>
Fair value adjustment of Transocean interest rate swap
agreements, net........................................... $ 4,474
Fair value adjustment of accrued periodic survey and drydock
costs..................................................... (12,152)
Effect of change of control provisions in Transocean's bonus
plan...................................................... 2,500
Fees payable associated with the merger..................... 11,850
Costs directly related to the issuance of Transocean
ordinary shares........................................... 2,400
-------
Total pro forma adjustment to current
liabilities..................................... $ 9,072
=======
</TABLE>
(f) Deferred taxes and other credits -- Represents the adjustment to
deferred tax liabilities for the net effect of the pro forma adjustments
($148.9 million) and other fair value adjustments ($0.1 million).
(g) Shareholders' equity -- Represents the difference between the
purchase price (see Note 2(c)) and the book value of the net assets of
Transocean at the pro forma balance sheet date, less $2.4 million of
estimated costs to issue shares.
The purchase price will be allocated based upon the estimated fair
values of Transocean assets and liabilities. For purposes of the Unaudited
Condensed Pro Forma Combined Financial Statements, the purchase price has
been allocated as follows:
<TABLE>
<S> <C>
Historical net book value of Transocean..................... $2,113,945
Fair value adjustment of property and equipment, net........ 487,000
Effect of change of control provisions in Transocean's bonus
plan...................................................... (2,500)
Fair value adjustment of Transocean interest rate swap
agreements, net........................................... (4,474)
Fair value of additional liabilities associated with the
merger.................................................... (11,850)
Fair value adjustment of Transocean defined benefit plans,
net....................................................... 21,075
Fair value adjustment of prepaid and accrued periodic survey
and drydock costs......................................... 22,978
Deferred income tax effect of pro forma adjustments, net.... (153,771)
Goodwill.................................................... 507,252
----------
Total purchase price.............................. $2,979,655
==========
</TABLE>
23
<PAGE> 28
TRANSOCEAN SEDCO FOREX
NOTES TO UNAUDITED CONDENSED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(h) Depreciation and amortization -- A reconciliation of the pro forma
adjustment to depreciation and amortization is as follows:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
---------------- -----------------
<S> <C> <C>
Additional depreciation resulting
from the adjustment to fair value
of Transocean's property and
equipment......................... $10,107 $27,493
Amortization of goodwill resulting
from the merger over a 40-year
estimated life. See Note (2c)..... 5,712 11,424
------- -------
Total pro forma adjustment to
depreciation and
amortization................. $15,819 $38,917
======= =======
</TABLE>
(i) Other income (expense) net -- Represents the elimination of
interest expense associated with related party debt offset by interest
expense on the remaining debt owed to Schlumberger at an assumed rate of
5.6875% and a reduction of interest income associated with the reduction in
cash balances. The remaining debt balance owed to Schlumberger will be
refinanced immediately following the merger.
(j) Income taxes -- Represents the incremental benefit from U.S. and
foreign income taxes related to pro forma adjustments. The amortization of
goodwill and the incremental interest income and expense adjustments are
assumed to be nondeductible for tax purposes.
(3) Basic earnings per share -- The adjustment to pro forma basic weighted
average shares outstanding represents the total estimated Transocean
shares expected to be issued to Schlumberger's shareholders in the
merger.
(4) Diluted earnings per share -- The adjustment to pro forma diluted
weighted average shares outstanding is the sum of the basic weighted
average shares outstanding plus the estimated dilutive effect of
Schlumberger stock options held by Sedco Forex employees.
24
<PAGE> 29
TRANSOCEAN SEDCO FOREX
SUPPLEMENTAL FINANCIAL INFORMATION
In reviewing the unaudited condensed pro forma combined financial
statements, the additional supplemental financial information discussed below
should be considered.
Related Party Transactions
Sedco Forex pays insurance premiums to third-party insurance companies for
some risks where the insurance risk is then assumed by a wholly owned affiliate
of Schlumberger through a reinsurance program. Transocean Sedco Forex does not
currently expect that it would continue this insurance program following the
merger. The historical Sedco Forex financial statements include insurance
expense of approximately $18 million for the six months ended June 30, 1999 and
$55 million for the year ended December 31, 1998 for this insurance program.
Schlumberger cost allocations for research and engineering and general and
administrative expenses, which amounted to $5 million for the six months ended
June 30, 1999 and $13 million for the year ended December 31, 1998, will not be
incurred by Transocean Sedco Forex following the merger. However, some of this
expense reduction will be offset by the costs incurred by Transocean Sedco Forex
to replace these services through contractual arrangements with Schlumberger or
other third parties. The cost of these contractual arrangements or the increased
Transocean Sedco Forex overhead to replace these services, to the extent they
are continued, cannot be reasonably estimated at this time. However, Transocean
Sedco Forex expects that some level of cost savings will be achieved.
Depreciation Expense
Depreciation expense of $64 million for the six months ended June 30, 1999
and $125 million for the year ended December 31, 1998 is included in the Sedco
Forex historical financial statements. As a result of the merger, Transocean
Sedco Forex will conform the estimated lives of the Sedco Forex rigs and
associated equipment to those used by Transocean for similar assets. Since the
useful lives used by Transocean are generally longer than those used by Sedco
Forex, the result will be to reduce depreciation expense. The change in
estimated lives would have reduced historical Sedco Forex depreciation expense
by approximately $30 million for the six months ended June 30, 1999 and
approximately $62 million for the year ended December 31, 1998.
Stock Option Expense
Some of the options to purchase Transocean Sedco Forex ordinary shares to
be granted to Sedco Forex employees in accordance with the employee matters
agreement upon completion of the merger are likely to be granted with exercise
prices below fair market value. The differences between these exercise prices
and fair market value will be recorded as an expense. Based on Schlumberger's
September 30, 1999 closing price of $62 5/16 and Transocean's September 30, 1999
closing price of $30 5/8, the amount of this charge would have been about $3
million. The final amount of this charge cannot be determined until the day
immediately preceding the distribution date.
25
<PAGE> 30
SCHLUMBERGER
UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL SEDCO FOREX PRO FORMA
SCHLUMBERGER BEFORE MERGER ADJUSTMENT(1) SCHLUMBERGER
------------ ------------- ------------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and Cash Equivalents................ $ 4,022,846 $ 35,000 $ -- $ 3,987,846
Accounts Receivable...................... 2,658,038 170,253 -- 2,487,785
Other Current Assets..................... 1,886,019 71,839 45,358 1,859,538
----------- ---------- ------- -----------
Total Current Assets................... 8,566,903 277,092 45,358 8,335,169
Long-Term Investments, held to
maturity............................... 652,573 -- -- 652,573
Property and Equipment, net.............. 4,822,351 1,101,585 -- 3,720,766
Goodwill and Intangibles, net............ 1,269,463 -- -- 1,269,463
Other Assets............................. 431,397 44,581 -- 386,816
----------- ---------- ------- -----------
Total Assets............................. $15,742,687 $1,423,258 $45,358 $14,364,787
=========== ========== ======= ===========
Current Liabilities...................... $ 3,630,047 $ 237,089 $ -- $ 3,392,958
Long-Term Debt........................... 3,207,040 77,428 -- 3,129,612
Related Party Debt....................... -- 45,358 45,358 --
Postretirement Benefits and Other
Credits................................ 760,810 93,162 -- 667,648
Shareholders Equity...................... 8,144,790 970,221 -- 7,174,569
----------- ---------- ------- -----------
Total Liabilities and Shareholders'
Equity................................. $15,742,687 $1,423,258 $45,358 $14,364,787
=========== ========== ======= ===========
</TABLE>
- ---------------
(1) To eliminate related party debt and establish a receivable from Transocean
Sedco Forex pursuant to the distribution agreement.
26
<PAGE> 31
SCHLUMBERGER
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORICAL
-------------------------- PRO FORMA
SCHLUMBERGER SEDCO FOREX ADJUSTMENT SCHLUMBERGER
------------ ----------- ---------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Operating................................. $4,480,725 $351,590 $ -- $4,129,135
Interest and other Income................. 224,560 6,696 -- 217,864
---------- -------- -------- ----------
4,705,285 358,286 -- 4,346,999
---------- -------- -------- ----------
Expenses:
Cost of goods sold and services........... 3,637,975 297,118 17,576(1) 3,358,433
Research and engineering.................. 264,514 6,317 -- 258,197
Marketing................................. 210,754 -- -- 210,754
General................................... 201,839 8,335 -- 193,504
Interest.................................. 94,739 6,911 -- 87,828
---------- -------- -------- ----------
4,409,821 318,681 17,576(1) 4,108,716
---------- -------- -------- ----------
Income Before Taxes......................... 295,464 39,605 (17,576) 238,283
Taxes on Income............................. 79,010 911 -- 78,099
---------- -------- -------- ----------
Net Income.................................. $ 216,454 $ 38,694 $(17,576) $ 160,184
========== ======== ======== ==========
Earnings Per Share:
Basic..................................... $ 0.39 $ 0.30
========== ==========
Diluted................................... $ 0.39 $ 0.28
========== ==========
Weighted Average Shares Outstanding:
Basic..................................... 546,744 -- 546,744
========== ======== ==========
Diluted................................... 561,722 (239)(2) 561,483
========== ======== ==========
Depreciation and Amortization included in
Expenses.................................. $ 563,682 $ 63,739 $ -- $ 499,943
========== ======== ======== ==========
</TABLE>
- ---------------
(1) The $17,576 represents insurance premiums paid to third party insurance
companies for some risks where the insurance risk is then assumed by a
Schlumberger wholly owned affiliated company through a reinsurance program.
In the consolidated accounts of Schlumberger, the Sedco Forex insurance
premium expense is eliminated against the insurance premium income received
by the affiliated company.
(2) The 239 represents the elimination of the dilutive effect of Sedco Forex
exployees' unexercised stock options.
27
<PAGE> 32
SCHLUMBERGER
UNAUDITED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
-------------------------- PRO FORMA
SCHLUMBERGER SEDCO FOREX ADJUSTMENTS SCHLUMBERGER
------------ ----------- -------------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Operating........................... $11,815,553 $1,090,523 $ -- $10,725,030
Interest and other Income........... 181,756 8,750 -- 173,006
----------- ---------- -------- -----------
11,997,309 1,099,273 -- 10,898,036
----------- ---------- -------- -----------
Expenses:
Cost of goods sold and services..... 9,034,409 674,685 54,659(1) 8,414,383
Research and engineering............ 568,225 11,343 -- 556,882
Marketing........................... 467,592 -- -- 467,592
General............................. 454,049 26,274 -- 427,775
Interest............................ 150,161 12,950 -- 137,211
----------- ---------- -------- -----------
10,674,436 725,252 54,659 10,003,843
----------- ---------- -------- -----------
Income Before Taxes................... 1,322,873 374,021 (54,659) 894,193
Taxes on Income....................... 308,674 32,443 -- 276,231
----------- ---------- -------- -----------
Net Income............................ $ 1,014,199 $ 341,578 $(54,659) $ 617,962
=========== ========== ======== ===========
Earnings Per Share:
Basic............................... $ 1.87 $ 1.14
=========== ===========
Diluted............................. $ 1.81 $ 1.10
=========== ===========
Weighted Average Shares Outstanding:
Basic............................... 544,338 -- 544,338
=========== ======== ===========
Diluted............................. 561,855 (288)(2) 561,567
=========== ======== ===========
Depreciation and Amortization included
in Expenses......................... $ 1,136,290 $ 124,708 $ -- $ 1,011,582
=========== ========== ======== ===========
</TABLE>
- ---------------
(1) The $54,659 represents insurance premiums paid to third party insurance
companies for some risks where the insurance risk is then assumed by a
Schlumberger wholly owned affiliated company through a reinsurance program.
In the consolidated accounts of Schlumberger, the Sedco Forex insurance
premium expense is eliminated against the insurance premium income received
by the affiliated company.
(2) The 288 represents the elimination of the dilutive effect of Sedco Forex
employees' unexercised stock options.
28
<PAGE> 33
UNAUDITED COMPARATIVE PER SHARE DATA
The following table compares the net income, cash dividends and book value
per share data for Transocean and Sedco Forex on a historical, pro forma
combined and per share equivalent basis.
You should read the information below together with the historical
financial statements and related notes contained in or incorporated by reference
in this document. See "Where You Can Find More Information" on page 143. The
unaudited pro forma data is for informational purposes only. The companies may
have performed differently had they always been combined. You should not rely on
the pro forma data as being indicative of the historical results that would have
been achieved had the companies always been combined or the future results that
the combined company will experience after the merger.
<TABLE>
<CAPTION>
SEDCO FOREX
UNAUDITED EQUIVALENT
PRO FORMA TRANSOCEAN UNAUDITED
HISTORICAL SEDCO FOREX PRO FORMA
TRANSOCEAN PER UNAUDITED PER
HISTORICAL SCHLUMBERGER PRO FORMA SCHLUMBERGER
PER SHARE SHARE PER SHARE SHARE
DATA DATA(1) DATA(2) DATA(3)
---------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
Net income per share:
Basic..................................... $ 1.41 $0.07 $ 0.84 $0.16
Diluted................................... 1.41 0.07 0.84 0.16
Dividends per share(4)...................... 0.06
Book value per share........................ 21.02 0.95 18.83 3.65
YEAR ENDED DECEMBER 31, 1998
Net income per share:
Basic..................................... $ 3.43 $0.63 $ 3.17 $0.61
Diluted................................... 3.41 0.61 3.15 0.61
Dividends per share(4)...................... 0.12
</TABLE>
- ---------------
(1) Pro forma basic earnings per share and book value per share were calculated
using historical earnings data and assuming that one share of Sedco Forex
common stock is issued in the spin-off for each share of Schlumberger common
stock outstanding. This information gives effect to the spin-off of Sedco
Forex from Schlumberger but does not give effect to the merger of Sedco
Forex and Transocean. As a result, the per share information presented above
does not agree with the per share information presented in the Sedco Forex
financial statements included in this document. This is because the pro
forma per share information included in the Sedco Forex financial statements
is based on the number of shares expected to be issued by Transocean to
Sedco Forex shareholders.
(2) See "Transocean Sedco Forex Unaudited Condensed Pro Forma Combined Financial
Statements."
(3) Equivalent unaudited pro forma per Schlumberger share data represents the
Transocean Sedco Forex pro forma per share data multiplied by an assumed
merger exchange ratio of 0.194.
(4) Transocean has paid quarterly cash dividends of $0.03 per share since the
fourth quarter of 1993. Any future declaration and payment of dividends will
be:
- dependent upon Transocean Sedco Forex's results of operations, financial
condition, cash requirements and other relevant factors;
- subject to the discretion of its board of directors;
- subject to restrictions contained in its revolving credit agreement and
other then-outstanding debt instruments; and
- payable only out of Transocean Sedco Forex's profits or share premium
accounts in accordance with Cayman Islands law.
For a description of Transocean's revolving credit agreement, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" in Transocean's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998, its
Quarterly Reports on Form 10-Q for the periods ended March 31, 1999 and
June 30, 1999 and subsequent SEC filings on these forms.
Because Sedco Forex was a wholly owned subsidiary of Schlumberger for the
periods presented, historical dividends per share are not meaningful.
29
<PAGE> 34
TRANSOCEAN AND SCHLUMBERGER MARKET PRICE AND DIVIDEND INFORMATION
The following table shows the high and low sale prices for a share of
Transocean common stock, and since May 17, 1999, for a Transocean ordinary
share, and for a share of Schlumberger common stock for the periods shown in the
table. It also shows the respective per share cash dividends declared in those
periods. Since June 1993, the date of Transocean's initial public offering,
Transocean ordinary shares have been listed and traded on the New York Stock
Exchange under the symbol "RIG." Schlumberger common stock is listed and traded
on the New York Stock Exchange under the symbol "SLB" and is also traded on the
Paris Stock Exchange, the London Stock Exchange, the Amsterdam Stock Exchange
and the Swiss Stock Exchange. The prices are as reported on the New York Stock
Exchange Composite Transaction Tape. The Transocean data has been adjusted to
reflect a two-for-one stock split effected in September 1997 and the
Schlumberger data has been adjusted to reflect a two-for-one stock split
effected in June 1997.
<TABLE>
<CAPTION>
TRANSOCEAN SCHLUMBERGER
----------------------- -------------------------
CASH CASH
DIVIDENDS DIVIDENDS
HIGH LOW DECLARED HIGH LOW DECLARED
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
1996
First quarter................................. 26 1/2 20 9/16 $0.03 40 5/16 32 11/16 $0.1875
Second quarter................................ 29 1/2 23 1/4 0.03 45 11/16 40 1/16 0.1875
Third quarter................................. 30 7/8 24 7/16 0.03 44 9/16 39 11/16 0.1875
Fourth quarter................................ 35 11/16 28 5/16 0.03 54 1/8 42 1/8 0.1875
1997
First quarter................................. 35 11/16 26 1/8 0.03 58 3/16 49 0.1875
Second quarter................................ 37 5/16 27 1/8 0.03 63 1/4 51 1/8 0.1875
Third quarter................................. 50 1/2 36 5/16 0.03 84 5/8 62 3/8 0.1875
Fourth quarter................................ 60 1/2 39 3/8 0.03 94 7/16 72 3/8 0.1875
1998
First quarter................................. 54 15/16 35 0.03 81 1/2 65 7/8 0.1875
Second quarter................................ 59 15/16 41 11/16 0.03 86 3/4 66 0.1875
Third quarter................................. 46 3/8 23 0.03 69 15/16 43 7/16 0.1875
Fourth quarter................................ 41 1/2 23 9/16 0.03 58 1/4 40 1/16 0.1875
1999
First quarter................................. 31 9/16 19 11/16 0.03 62 5/16 45 7/16 0.1875
Second quarter................................ 32 1/2 22 5/8 0.03 65 7/8 55 1/2 0.1875
Third quarter................................. 36 1/2 25 9/16 0.03 70 11/16 57 11/16 0.1875
Fourth quarter (through October 22, 1999)..... 31 3/16 25 5/8 -- 63 5/16 53 5/8 --
</TABLE>
On July 9, 1999, the last full trading day before Transocean and
Schlumberger announced the proposed merger, Transocean ordinary shares closed at
$29 per share and Schlumberger common stock closed at $64 5/16 per share. On
October 22, 1999, the most recent practicable date before the date of this
document, Transocean ordinary shares closed at $29 1/16 per share and
Schlumberger common stock closed at $60 5/16 per share. Because the exchange
ratio for the merger does not depend on and is not affected by market prices,
and the market price of Transocean ordinary shares is subject to fluctuation,
the market value of the Transocean ordinary shares that Schlumberger's
shareholders will receive in connection with the merger may increase or decrease
before or after the proposed merger. SCHLUMBERGER'S SHAREHOLDERS ARE ENCOURAGED
TO OBTAIN RECENT STOCK QUOTES FOR TRANSOCEAN ORDINARY SHARES AND SCHLUMBERGER
COMMON STOCK.
Following completion of the merger, Transocean Sedco Forex ordinary shares
will continue to trade on the New York Stock Exchange under the symbol "RIG."
30
<PAGE> 35
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This document and the documents incorporated by reference in this joint
proxy statement/prospectus contain both historical and forward-looking
statements. All statements other than statements of historical fact are, or may
be deemed to be, forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Forward-looking statements include the information concerning possible or
assumed future results of operations of Transocean, Schlumberger, Sedco Forex
and Transocean Sedco Forex, including statements about the following subjects:
- business strategies
- operating efficiencies or synergies
- growth opportunities
- competitive position
- market outlook
- expected financial position
- expected results of operations
- future cash flows
- future dividends
- financing plans
- budgets for capital and other expenditures
- timing and cost of completion of capital projects
- expected results of the transactions
- plans and objectives of management
- timing of the transactions
- tax treatment of the transactions
- accounting treatment of the transactions
- transaction-related expenses
- performance of contracts
- outcomes of legal proceedings
- compliance with applicable laws
- adequacy of insurance
- plans and expectations regarding year 2000 issues
Forward-looking statements in this joint proxy statement/prospectus are
identifiable by use of the following words and other similar expressions, among
others:
- "anticipate"
- "believe"
- "budget"
- "could"
- "estimate"
- "expect"
- "forecast"
- "intend"
- "may"
- "might"
- "plan"
- "predict"
- "project"
- "should"
The following factors could affect the future results of operations of
Transocean Sedco Forex or Schlumberger, and could cause those results to differ
materially from those expressed in the forward-looking statements included in
this document or incorporated by reference:
- worldwide demand for oil and gas;
- oil and gas prices;
- the level of activity in offshore oil and gas exploration, development
and production;
- exploration success by producers;
- competition and market conditions in the offshore contract drilling
industry;
- the ability to enter into and the terms of future drilling contracts;
- cost overruns on construction projects;
- work stoppages by shipyard workers;
- delays in construction projects, which in some cases may trigger the
drilling contract customer's right to terminate the drilling contract for
the unit under construction;
- risks inherent in turnkey contracts;
- the availability of qualified personnel;
31
<PAGE> 36
- labor relations and wage negotiations with unions;
- operating hazards;
- political and other uncertainties inherent in non-U.S. operations,
including exchange and currency fluctuations;
- the impact of governmental laws and regulations;
- the adequacy of sources of liquidity;
- the effect of litigation and contingencies;
- the success in implementing a year 2000 compliance plan; and
- the failure of financial and other service providers to be year 2000
compliant on a timely basis.
The above factors are in addition to those factors discussed:
- In this joint proxy statement/prospectus under "Risk Factors," the
"Market Outlook," "Other Factors Affecting Operating Results," "Liquidity
and Capital Resources," "Year 2000 Issues" and "Euro Disclosures"
subsections of "Sedco Forex Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the "Industry
Conditions and Competition," "Markets," "Operating Risks," "International
Operations," "Regulation," and "Legal Proceedings" subsections of
"Business of Sedco Forex" and elsewhere.
- In the documents that Transocean incorporates by reference into this
joint proxy statement/prospectus, including in the "Market Outlook,"
"Other Factors Affecting Operating Results," "Liquidity and Capital
Resources" and "Year 2000 Issues" subsections of the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
sections of Transocean's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 and its Quarterly Reports on Form 10-Q for the
periods ended March 31, 1999 and June 30, 1999 and subsequent SEC filings
on those forms.
- In the documents that Schlumberger incorporates by reference into this
joint proxy statement/prospectus, including in the "Currency Risks,"
"Environmental Matters," "Year 2000 Readiness Disclosure" and "Euro
Disclosures" subsections of the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" sections of Schlumberger's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998
and its Quarterly Reports on Form 10-Q for the periods ended March 31,
1999 and June 30, 1999 and subsequent SEC filings on those forms.
You should not place undue reliance on forward-looking statements. Each
forward-looking statement speaks only as of the date of the particular
statement, and we undertake no obligation to publicly update or revise any
forward-looking statements.
32
<PAGE> 37
RISK FACTORS
In addition to the other information contained in this document and the
documents incorporated by reference, you should carefully consider the following
risk factors before you decide how to vote on the proposed transactions.
THE VALUE OF THE TRANSOCEAN ORDINARY SHARES TO BE RECEIVED IN THE MERGER WILL
FLUCTUATE.
The merger agreement does not contain any provisions for adjustment of the
merger exchange ratio and does not provide for rights of termination by either
party based upon fluctuations in the per share price of the Transocean ordinary
shares prior to the completion of the merger. Because no adjustment will be made
to the exchange ratio, the value of the consideration to be received by
Schlumberger's shareholders in connection with the spin-off and the merger
cannot presently be determined and will vary based upon the market price of
Transocean ordinary shares at the time the merger is completed. Such variations
may be the result of:
- changes in the business or results of operations of Transocean or Sedco
Forex;
- the prospects for the post-merger operations of Transocean Sedco Forex;
- the timing of the merger;
- the worldwide supply/demand balance for oil and gas and the prevailing
commodity price environment;
- competition in the offshore contract drilling industry;
- construction risks associated with Transocean's and Sedco Forex's
respective newbuild programs;
- regulatory considerations;
- general market and economic conditions; and
- other factors beyond the control of Transocean, Schlumberger or Sedco
Forex.
Schlumberger's shareholders are urged to obtain current market quotations for
their shares and for Transocean ordinary shares.
THE PRICE OF TRANSOCEAN SEDCO FOREX ORDINARY SHARES MAY DECLINE AS A RESULT OF
THE TRANSACTION.
Assuming the transactions are approved by Transocean's and Schlumberger's
shareholders and the merger is completed, the number of issued and freely
tradeable Transocean ordinary shares will more than double. As a result of the
issuance of this large number of additional shares, the market price of
Transocean Sedco Forex ordinary shares may experience temporary volatility or
decline unrelated to the financial performance of Transocean Sedco Forex.
TRANSOCEAN SEDCO FOREX MAY FACE DIFFICULTIES IN INTEGRATING THE OPERATIONS OF
SEDCO FOREX AND TRANSOCEAN.
Sedco Forex and Transocean have previously operated separately. The
proposed management team of Transocean Sedco Forex does not have experience with
the combined business. Transocean Sedco Forex may not be able to integrate the
operations of Sedco Forex and Transocean without a loss of key officers,
employees, customers or suppliers, a loss of revenues, an increase in operating
or other costs or other difficulties. In addition, Transocean Sedco Forex may
not be able to realize any operating efficiencies and other benefits expected
from the merger. Finally, the integration of Transocean and Sedco Forex may be
made more difficult or may be otherwise adversely affected by year 2000
problems. Any unexpected costs or delays incurred in connection with such
integration could have an adverse effect on Transocean Sedco Forex's business,
results of operations or financial condition.
THE BUSINESS SEPARATION OF SEDCO FOREX FROM SCHLUMBERGER MAY IMPAIR ASSETS.
The separation of Sedco Forex from the rest of Schlumberger's businesses,
assets and liabilities requires the transfer of assets, including capital stock
and interests in partnerships, limited liability companies and
33
<PAGE> 38
similar entities, and liabilities between Sedco Forex and its subsidiaries, on
the one hand, and Schlumberger and its other subsidiaries, on the other. In
addition, as a part of the business separation, assets and liabilities may be
transferred among Sedco Forex subsidiaries, or between those subsidiaries and
Sedco Forex itself. Some of these transfers may trigger Sedco Forex liabilities
that will not become payable by Sedco Forex until after the merger is completed.
Generally, Sedco Forex will not have any recourse against Schlumberger for these
liabilities except in the case of (1) certain tax liabilities, customs duties
and similar governmental charges for which a claim for indemnification is
asserted within specified time periods following the transfer in question and
(2) liabilities directly arising out of or directly resulting from the
transactions necessary to separate the Sedco Forex business, assets and
liabilities from the rest of Schlumberger's business, assets and liabilities,
except to the extent those liabilities would have directly arisen out of or
directly resulted from the merger.
TRANSOCEAN IS SUBJECT TO ANTI-TAKEOVER PROVISIONS.
Transocean's articles of association contain, and, accordingly, Transocean
Sedco Forex's articles of association will contain, provisions that could
prevent or delay an acquisition of Transocean Sedco Forex by means of a tender
offer, a proxy contest or otherwise. Such provisions also may adversely affect
prevailing market prices for Transocean Sedco Forex's ordinary shares. These
provisions, among other things:
- classify the Transocean Sedco Forex board into three classes of
directors, each of which will serve for staggered three-year periods;
- provide that the Transocean Sedco Forex board may designate the terms of
any new series of preference shares;
- provide that any shareholder of Transocean Sedco Forex who wishes to
propose any business or to nominate a person or persons for the election
as director at any annual meeting may only do so if advance notice is
given to the Secretary of Transocean Sedco Forex;
- provide that the exact number of directors on the board can be set
between two and twelve from time to time by a majority of the whole board
of directors and not by the shareholders;
- provide that directors can be removed from office only for cause, as
defined in the articles of association, by the affirmative vote of the
holders of the issued shares generally entitled to vote;
- provide that any vacancy on the board of directors will be filled by the
affirmative vote of the remaining directors and not by the shareholders;
- provide that any action required or permitted to be taken by the holders
of ordinary shares must be taken at a duly called annual or extraordinary
general meeting of shareholders unless taken by written consent of all
holders of ordinary shares;
- provide that only a majority of the directors may call extraordinary
general meetings of the shareholders;
- limit the ability of the shareholders of Transocean Sedco Forex to amend
or repeal certain provisions of Transocean Sedco Forex's articles of
association; and
- limit transactions between Transocean Sedco Forex and an "interested
shareholder," which is generally defined as a shareholder that, together
with its affiliates and associates, beneficially, directly or indirectly,
owns 15% or more of Transocean Sedco Forex's issued voting shares.
See "Description of Capital Stock of Transocean."
34
<PAGE> 39
THE TRANSOCEAN EXTRAORDINARY GENERAL MEETING
Transocean is furnishing this joint proxy statement/prospectus to its
shareholders in connection with the solicitation of proxies by Transocean's
board of directors for use at the extraordinary general meeting. Transocean is
first mailing this joint proxy statement/prospectus and accompanying form of
proxy to its shareholders beginning on or about November 8, 1999.
TIME, DATE AND PLACE
The extraordinary general meeting of Transocean's shareholders will be held
on December 10, 1999, at 4:00 p.m., Houston time, at 4 Greenway Plaza, Room
C-100 (Mall Level), Houston, Texas 77046.
PURPOSE OF THE TRANSOCEAN EXTRAORDINARY GENERAL MEETING
At the meeting, Transocean's board of directors will ask the shareholders
to vote to approve:
- the increase of Transocean's authorized ordinary share capital to
$3,000,000, consisting of 300,000,000 ordinary shares, par value $0.01
per share;
- the issuance, pursuant to the merger agreement, of Transocean ordinary
shares in exchange for all of the then-outstanding shares of Sedco Forex
capital stock;
- the change of Transocean's name to "Transocean Sedco Forex Inc." as a
special resolution to be implemented only upon completion of the merger;
- the amendment of Transocean's Long-Term Incentive Plan to, among other
things, increase the number of ordinary shares reserved for issuance
under the plan from 6,300,000 to 13,300,000;
- the amendment of Transocean's Employee Stock Purchase Plan to, among
other things, increase the number of ordinary shares reserved for
issuance under the plan from 250,000 to 750,000; and
- any other matters that properly come before the extraordinary general
meeting and any adjournments or postponements of the extraordinary
general meeting.
Transocean's board of directors has unanimously approved the increase in
authorized ordinary share capital, the issuance of ordinary shares to Sedco
Forex shareholders in the merger, the name change and the amendments to
Transocean's Long-Term Incentive Plan and its Employee Stock Purchase Plan, and
unanimously recommends that Transocean's shareholders vote "FOR" the same.
RECORD DATE; VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL
The Transocean board has fixed the close of business on November 1, 1999 as
the record date for Transocean's extraordinary general meeting.
Only holders of record of Transocean ordinary shares on the record date are
entitled to notice of and to vote at the meeting.
On the record date for Transocean's shareholder meeting, Transocean expects
there to be approximately 101 million Transocean ordinary shares issued and
entitled to vote at the meeting. Each Transocean ordinary share is entitled to
one vote.
The presence, in person or by proxy, of the holders of a majority of the
Transocean ordinary shares outstanding is necessary to constitute a quorum at
the extraordinary general meeting. Abstentions, proxies returned without
instructions and broker non-votes will count in the determination of shares
present at the meeting for purposes of determining the presence of a quorum.
35
<PAGE> 40
Assuming the presence of a quorum, the following shareholder votes are
required to approve the indicated proposals at the extraordinary general
meeting.
<TABLE>
<CAPTION>
PROPOSAL VOTE "FOR" REQUIRED
-------- -------------------
<S> <C>
(1) Increase in authorized ordinary share - holders of the majority of ordinary shares
capital issued
(2) Issuance of ordinary shares in the merger - holders of the majority of votes cast at
the meeting, provided votes cast represent
the majority of ordinary shares issued
(3) Name change to "Transocean Sedco Forex - holders of 66 2/3% of votes cast at the
Inc." meeting
(4) Amendment of Long-Term Incentive Plan - holders of the majority of ordinary shares
present or represented and entitled to vote
at the meeting, provided votes cast
represent the majority of ordinary shares
issued
(5) Amendment of Employee Stock Purchase Plan - holders of the majority of ordinary shares
present or represented and entitled to vote
at the meeting
</TABLE>
Approval of the proposals to increase authorized ordinary share capital and
to issue ordinary shares in the merger are conditions to completion of the
merger. Approval of the name change proposal and the proposals to amend
Transocean's Long-Term Incentive Plan and Employee Stock Purchase Plan are not
conditions to the completion of the merger. The proposals to increase authorized
ordinary share capital, to issue ordinary shares in the merger, to change
Transocean's name and to increase the number of ordinary shares available for
grant under the Long-Term Incentive Plan, if approved, will be implemented only
if the merger is completed. The proposal to increase the shares available for
grant under the Employee Stock Purchase Plan, if approved, will be implemented
regardless of whether the merger is completed. A vote in favor of the proposal
to issue ordinary shares in the merger will also constitute a vote in favor of
Transocean's granting fully vested options to purchase Transocean Sedco Forex
ordinary shares to Sedco Forex employees holding nonvested options to purchase
Schlumberger common stock at the effective time of the spin-off, all of which
will terminate by their terms upon completion of the spin-off. The new
Transocean Sedco Forex options will be granted outside of the Long-Term
Incentive Plan, but will be subject to substantially identical terms and
conditions. Transocean Sedco Forex will grant these options with an exercise
price below fair market value at the date of grant to the extent a below market
price would be required by application of the exercise price adjustment formula
set forth in the employee matters agreement. However, French-based employees of
Sedco Forex who are eligible to receive new Transocean Sedco Forex options will
be granted options with an exercise price equal to the fair market value of
Transocean Sedco Forex ordinary shares at the date of grant, even if the
application of the adjustment formula otherwise would result in an exercise
price below the market price of Transocean Sedco Forex ordinary shares at that
date. To compensate these holders for the resulting diminution in value,
Transocean Sedco Forex will grant additional options with a fair market value
exercise price, the appropriate number of which will be determined by valuing
those options according to the Black-Scholes option pricing model and related
assumptions deemed reasonable by Transocean Sedco Forex. Transocean anticipates
that following the merger it will adopt a stand-alone plan pursuant to which
these options will be administered.
The directors and executive officers of Transocean intend to vote their
shares in favor of all of the proposals. On September 30, 1999, directors and
executive officers of Transocean and their affiliates beneficially owned less
than 2% of the issued Transocean ordinary shares.
PROXIES
All ordinary shares of Transocean represented by properly executed proxies
received at or prior to the Transocean extraordinary general meeting and not
revoked will be voted in accordance with the instructions indicated in such
proxies.
A properly executed proxy that is returned without instructions as the vote
desired on any or all of the proposals will be voted "FOR" such proposal or
proposals.
36
<PAGE> 41
Transocean's shareholders may abstain on any or all of the proposals, by
marking "ABSTAIN" with respect to any or all of the proposals.
Under New York Stock Exchange rules, brokers who hold shares in street name
for customers have the authority to vote on "routine" proposals when they have
not received instructions from beneficial owners, but are precluded from
exercising their voting discretion with respect to proposals for "nonroutine"
matters. Proxies submitted by brokers without instructions from customers for
these nonroutine matters are referred to as "broker non-votes." The proposals to
issue Transocean ordinary shares and to amend Transocean's Long-Term Incentive
Plan and its Employee Stock Purchase Plan are non-routine matters under NYSE
rules, while the other Transocean proposals are considered to be routine matters
under these rules.
The following table shows the effect that a proxy without instructions, an
abstention or, in the case of the proposals for non-routine matters, a "broker
non-vote" will have on the votes on Transocean's proposals.
<TABLE>
<CAPTION>
EFFECT ON VOTE
-------------------------------------------------
PROXY WITHOUT
PROPOSAL INSTRUCTIONS ABSTENTION BROKER NON-VOTES
-------- ------------- -------------- ----------------
<S> <C> <C> <C> <C>
(1) Increase in authorized ordinary share "FOR" "AGAINST"(a) Not applicable
capital
(2) Issuance of ordinary shares in the "FOR" None(b) None(c)
merger
(3) Name change to "Transocean Sedco Forex "FOR" None Not applicable
Inc."
(4) Amendment of the Long-Term Incentive "FOR" "AGAINST"(d) None(c)
Plan
(5) Amendment of the Employee Stock Purchase "FOR" "AGAINST"(d) None
Plan
</TABLE>
- ---------------
(a) An abstention on the proposal to increase authorized ordinary share capital
has the effect of a vote "AGAINST" the proposal because that proposal
requires approval by the majority of the holders of all ordinary shares
issued, whether voting or not.
(b) An abstention from voting on the proposal to issue shares in the merger
will not affect the voting on that proposal as long as holders of a
majority of ordinary shares cast votes on the proposal. Otherwise, the
effect of such abstention is a vote "AGAINST" the proposal.
(c) A broker non-vote on these proposals will not affect the voting on them as
long as holders of the majority of ordinary shares cast votes on the
proposal. Otherwise, the effect of such broker non-vote is a vote "AGAINST"
the proposal because the broker has no discretion to vote the shares to
help reach a majority participation in the vote.
(d) An abstention from voting on the proposals to amend and restate the
Long-Term Incentive Plan and the Employee Stock Purchase Plan has the
effect of a vote "AGAINST" those proposals because they require the
approval of the majority of shares present or represented at the meeting
and entitled to vote. An abstention represents a share that is present or
represented and entitled to vote.
Transocean's shareholders may use the accompanying proxy card if they are
unable or do not wish to attend the extraordinary general meeting in person or
if they wish to have their shares voted by proxy even though they do attend the
meeting. Transocean's shareholders may revoke a proxy before it is voted by:
- delivering to the Secretary of Transocean at 4 Greenway Plaza, Houston,
Texas 77046, before or at the meeting, a written notice revoking their
proxy;
- delivering a later-dated, executed proxy card relating to the same
shares; or
- attending the meeting, notifying the Secretary and voting by ballot in
person; however, if a Transocean shareholder attends the meeting, but
does not vote in person, that shareholder's proxy will still be voted.
The cost of solicitation of proxies from holders of Transocean's ordinary
shares will be paid by Transocean. In addition to solicitation by mail,
Transocean will make arrangements with brokerage houses and other custodians,
nominees and fiduciaries to send the proxy materials to beneficial owners, and
Transocean will, upon request, reimburse such brokerage houses and custodians
for their reasonable related expenses. Transocean has retained D.F. King & Co.,
Inc. for a fee of $7,500, plus expenses, to aid in the solicitation of
37
<PAGE> 42
proxies and to verify certain records related to the solicitations. To the
extent necessary in order to ensure sufficient representation at its
extraordinary general meeting, Transocean or its proxy solicitor may request the
return of proxy cards by personal interview, mail, telephone, facsimile or other
means of electronic transmission. The extent to which this will be necessary
depends upon how promptly proxy cards are returned. Transocean's shareholders
are urged to send in their proxies without delay.
THE SCHLUMBERGER SPECIAL GENERAL MEETING
Schlumberger is furnishing this joint proxy statement/prospectus to its
shareholders in connection with the solicitation of proxies from those
shareholders by Schlumberger's board of directors for use at the special general
meeting of Schlumberger's shareholders. Schlumberger is first mailing this joint
proxy statement/prospectus and accompanying form of proxy to its shareholders
beginning on or about November 8, 1999.
TIME, DATE AND PLACE
Netherlands Antilles law and Schlumberger's articles of incorporation
require that all general meetings be held on Curacao in the Netherlands
Antilles. The special general meeting of Schlumberger's shareholders will be
held at Avila Beach Hotel, Pennstraat 130, Willemstad, Curacao, Netherlands
Antilles, on December 10, 1999, starting at 10:30 a.m. local time.
PURPOSE OF THE SCHLUMBERGER GENERAL MEETING
At the special general meeting, and any adjournment or postponement
thereof, Schlumberger will ask its shareholders to consider and vote upon the
proposal to distribute all of the capital stock of Sedco Forex to Schlumberger's
shareholders such that each shareholder receives one share of Sedco Forex
capital stock for each share of Schlumberger common stock owned as of the record
date for the distribution.
If Schlumberger's shareholders adopt and approve the distribution, and when
all the conditions to the distribution and the merger have been satisfied or
waived, the distribution will be made to the shareholders of Schlumberger as of
a subsequent record date to be established by order of Schlumberger's Chairman
of the Board. The same shareholders will then receive the Transocean ordinary
shares to be issued in the merger.
Schlumberger's board of directors has unanimously approved the proposal to
distribute all the capital stock of Sedco Forex to Schlumberger's shareholders
and unanimously recommends that Schlumberger's shareholders vote "FOR" the
distribution.
RECORD DATE; VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL
Schlumberger's board of directors has fixed the close of business on
November 1, 1999 as the record date for Schlumberger's special general meeting.
Only holders of record of shares of Schlumberger common stock on the record
date are entitled to notice of and to vote at the special general meeting. Each
holder of record of Schlumberger common stock as of the record date is entitled
to cast one vote for each share held on all matters submitted to Schlumberger's
shareholders.
On the record date for Schlumberger's special general meeting, Schlumberger
expects that approximately 550 million shares of Schlumberger common stock will
be issued and outstanding and entitled to vote at the meeting.
The presence, in person or by proxy, of the holders of at least half of the
outstanding shares of Schlumberger common stock is necessary to constitute a
quorum at the special general meeting. The affirmative vote of a majority of the
votes cast at the special general meeting is required to approve and adopt the
proposal to distribute all the capital stock of Sedco Forex to Schlumberger's
shareholders such that each shareholder receives one share of Sedco Forex
capital stock for each share of Schlumberger common stock owned as of the record
date for the distribution.
38
<PAGE> 43
On September 30, 1999, directors and executive officers of Schlumberger and
their affiliates beneficially owned approximately 5% of the outstanding
Schlumberger common stock.
PROXIES
All shares of Schlumberger common stock represented by properly executed
proxies received at or before the Schlumberger special general meeting and not
revoked will be voted in accordance with the instructions indicated in such
proxies. If no instructions are indicated on a properly executed returned proxy,
such proxy will be voted "FOR" the approval of the proposal to distribute the
Sedco Forex capital stock.
Abstentions may be specified on the proposal. A properly executed proxy
marked "ABSTAIN" with respect to the proposal will count as present for purposes
of determining the presence of a quorum. That proxy will have no effect on the
vote because the approval or disapproval of the proposal will be determined by
the majority of the votes cast.
Schlumberger's shareholders may use the accompanying Schlumberger proxy
card if they are unable to attend the shareholder meeting in person or wish to
have their shares voted by proxy even if they do attend the shareholder meeting.
Schlumberger's shareholders may revoke a proxy before it is voted by:
- delivering to the Secretary of Schlumberger at 277 Park Avenue, New York,
New York 10172-0266, before or at the shareholder meeting, a written
notice revoking their proxy;
- delivering a later-dated proxy card relating to the same shares; or
- attending the shareholder meeting, notifying the Secretary and voting by
ballot in person; however, if a shareholder attends the shareholder
meeting, but does not vote in person, that shareholder's proxy will still
be voted.
Under New York Stock Exchange rules, brokers who hold shares in street name
for customers have the authority to vote on "routine" proposals when they have
not received instructions from beneficial owners, but are precluded from
exercising their voting discretion with respect to proposals for "nonroutine"
matters. The proposal to distribute Sedco Forex capital stock is a nonroutine
matter under NYSE rules and thus cannot be voted on by brokers without
instructions from beneficial owners.
The cost of solicitation of proxies from Schlumberger's shareholders will
be paid by Schlumberger. In addition to solicitation by mail, Schlumberger will
make arrangements with brokerage houses and other custodians, nominees and
fiduciaries to send the proxy materials to beneficial owners, and Schlumberger
will, upon request, reimburse such brokerage houses and custodians for their
reasonable related expenses. Schlumberger has retained D.F. King & Co., Inc. for
a fee of approximately $11,000, plus expenses, to aid in the solicitation of
proxies and to verify certain records related to the solicitations. To the
extent necessary in order to ensure sufficient representation at its shareholder
meeting, Schlumberger or its proxy solicitor may request the return of proxy
cards by personal interview, mail, telephone, facsimile or other means of
electronic transmission. The extent to which this will be necessary depends upon
how promptly proxy cards are returned. Shareholders are urged to send in their
proxies without delay.
Shareholders should not send in any stock certificates with their proxy
cards. In accordance with the distribution agreement, Schlumberger will
distribute the Sedco Forex shares to its shareholders through an agent who will
make book-entry transfers of the Sedco Forex shares to Schlumberger's
shareholders without the issuance of stock certificates for the Sedco Forex
shares. The Sedco Forex shares will then be exchanged for Transocean ordinary
shares in the merger. As soon as practicable after the consummation of the
merger, Transocean Sedco Forex will send to each of Schlumberger's shareholders
a physical stock certificate or a notice of book entry representing the number
of Transocean Sedco Forex ordinary shares that shareholder is entitled to
receive in the merger.
39
<PAGE> 44
THE TRANSACTIONS
THE BUSINESS SEPARATION
As further described in the distribution agreement, Schlumberger will
consolidate its offshore contract drilling business under its wholly owned
subsidiary, Sedco Forex Holdings Limited. To implement this consolidation,
before the spin-off:
- Schlumberger will transfer to Sedco Forex or its subsidiaries the capital
stock or other equity interests of several direct or indirect
subsidiaries of Schlumberger that conduct portions of Schlumberger's
offshore contract drilling business.
- Schlumberger will transfer to Sedco Forex or its subsidiaries those
assets relating to Schlumberger's offshore contract drilling business
that were previously held by Schlumberger or its subsidiaries other than
Sedco Forex or its subsidiaries, including various drilling rigs, spares
and equipment; shore-based facilities; leases and personal property used
in the business; general intangibles relating to the transferred assets
such as drilling contracts; and patents, designs, drawings and other
intellectual property identified with such rigs and the offshore contract
drilling business.
- Sedco Forex will transfer to Schlumberger or its subsidiaries all of the
capital stock or other equity interests of those subsidiaries of Sedco
Forex that do not conduct Schlumberger's offshore contract drilling
business.
- Schlumberger and Sedco Forex will use their best efforts to separate
various contractual arrangements to provide that those arrangements
relating to Sedco Forex do not remain obligations of Schlumberger and
that those arrangements not relating to Sedco Forex do not remain
obligations of Sedco Forex.
- Schlumberger and Sedco Forex will enter into a definitive employee
matters agreement with respect to personnel and employee benefit matters,
providing for (1) the transfer from Schlumberger to Sedco Forex of all
persons who are active Sedco Forex employees as of the spin-off date,
other than those whom Schlumberger and Transocean agree will remain with
Schlumberger, (2) the allocation of employee-related obligations and
liabilities, (3) the treatment of Schlumberger stock options held by
Sedco Forex employees at the spin-off date and (4) other transitional and
administrative employee matters.
- Schlumberger and Sedco Forex will enter into a tax separation agreement
to allocate responsibility for the payment of taxes and entitlement to
tax refunds, to allocate responsibility and provide for cooperation in
the filing of tax returns and related matters, and to provide for certain
other matters relating to taxes not provided for in the distribution
agreement.
- Schlumberger and Sedco Forex will enter into a transition services
agreement to provide certain general administrative and logistical
support during the transitional period following the merger, which is
expected to cover about two years.
- Schlumberger and Sedco Forex will enter into agreements regarding the use
of shared facilities, such as maintenance yards, inventory warehouse
facilities, office space and data processing systems and for the
provision of transitional services by Sedco Forex to Schlumberger, such
as marine support and marine engineering services.
In addition, after Schlumberger has transferred substantially all of the assets
of the Sedco Forex business into Sedco Forex or its subsidiaries, Schlumberger
will ensure that the outstanding indebtedness of Sedco Forex, including
intercompany indebtedness, will be $435 million, subject to adjustment based on
agreed levels of working capital and capital expenditures, among other matters,
as described in the distribution agreement.
40
<PAGE> 45
THE SPIN-OFF
On a day preceding the merger, all then-outstanding shares of Sedco Forex
capital stock will be distributed by Schlumberger to its shareholders on a pro
rata basis such that each Schlumberger shareholder will receive one share of
Sedco Forex capital stock for each share of Schlumberger common stock held.
THE MERGER
Following the spin-off, Merger Sub, a wholly owned subsidiary of
Transocean, will merge with and into Sedco Forex, which will survive the merger
as a wholly owned subsidiary of Transocean. In the merger, Schlumberger's
shareholders will receive Transocean ordinary shares in exchange for their
shares of Sedco Forex received in the spin-off. The number of Transocean
ordinary shares each Schlumberger shareholder receives will be determined
according to the formula in the merger agreement, which will result in the
ownership by Schlumberger's shareholders of about 52% of the issued Transocean
ordinary shares upon completion of the merger. Instead of fractional shares, the
exchange agent will pay these shareholders cash equal to their proportionate
interest in the net proceeds from the sale on the NYSE of the aggregate of all
fractional Transocean ordinary shares that would otherwise have been issued to
them in the merger.
BACKGROUND OF THE MERGER
Transocean has from time to time evaluated strategic consolidation
opportunities with other offshore drilling contractors since becoming a public
company in 1993, and has pursued such opportunities when its board has
determined them to be in the best interests of Transocean and its shareholders.
The business combination with Transocean ASA in September 1996 is an example of
one such opportunity. Schlumberger has for some time been following a long-term
strategy of focusing on value-added services to optimize reservoir performance.
As part of this strategy, Schlumberger decided to analyze a transaction with
respect to its offshore contract drilling business in order to increase its
focus on its core reservoir optimization services and to create a premier
drilling company.
On March 5, 1999, Euan Baird, the Chairman and Chief Executive Officer of
Schlumberger, telephoned J. Michael Talbert, the Chairman and Chief Executive
Officer of Transocean. Mr. Talbert returned Mr. Baird's call and spoke to Victor
Grijalva, Vice Chairman of Schlumberger, in Mr. Baird's absence. Mr. Grijalva
stated that he and Mr. Baird would like to meet with Mr. Talbert to discuss
whether there were anything the parties might do jointly with their contract
drilling businesses that would be mutually beneficial. He indicated that
Schlumberger was not contemplating an offer for Transocean. Mr. Talbert
responded that Transocean would be interested in exploring such an opportunity,
and they agreed to meet to commence discussions.
On April 19, 1999, Mr. Talbert met with Messrs. Baird and Grijalva. Messrs.
Baird and Grijalva proposed that Schlumberger spin off its offshore contract
drilling business, which would then be combined with Transocean in a merger of
equals. The parties discussed the Schlumberger assets that would be included in
such a transaction. Mr. Baird indicated that, in his view, Mr. Talbert should be
Chief Executive Officer of the combined company and that Transocean and
Schlumberger would each designate an appropriate number of members of the board
of directors. Mr. Talbert indicated that he would discuss the matter with
Transocean's board of directors at its May 13, 1999 meeting prior to proceeding
any further.
At Schlumberger's April 21 board meeting, Mr. Baird, Mr. Grijalva and other
senior executives briefed the board regarding the discussions with Mr. Talbert
and the possible transaction.
At Transocean's May 13 board meeting, Mr. Talbert briefed the Transocean
board regarding the opportunity with Schlumberger. The board discussed the
opportunity and authorized Mr. Talbert to proceed with discussions, and to enter
into a confidentiality/standstill agreement with Schlumberger in customary form.
Following the meeting, Mr. Talbert telephoned Mr. Baird and advised him of
Transocean's interest. On May 17, 1999, Transocean executed a confidentiality
letter in favor of Schlumberger and Schlumberger executed a
confidentiality/standstill letter in favor of Transocean.
41
<PAGE> 46
Senior executives of both parties met on May 20, 1999. At this meeting, the
parties exchanged due diligence information and discussed valuation
methodologies, due diligence issues and tax considerations. Shortly after this
meeting, Transocean engaged Simmons & Company International as its financial
advisor in connection with the proposed transaction. Schlumberger had previously
engaged Goldman, Sachs & Co. as its financial advisor. On June 5, senior
executives of the parties and their respective financial advisors met again to
discuss additional issues in connection with the proposed transaction. The
parties exchanged additional due diligence information and discussed their views
as to the appropriate parameters to be used in the valuation analyses.
From June 8 through June 12, senior executives of Transocean and
Schlumberger and representatives of their respective financial advisors held a
series of meetings. The parties exchanged additional information and indicated
their respective ideas as to the relative enterprise and equity values of
Transocean and Sedco Forex. In addition, Mr. Talbert met separately with Mr.
Baird to discuss corporate governance issues. Mr. Baird proposed that Mr.
Grijalva would be Chairman of the Board of the combined company, and Mr. Baird
and Mr. Talbert discussed the composition of the initial board of directors.
On June 15, Mr. Talbert updated Transocean's corporate governance committee
regarding the status of negotiations. On June 24, the committee held an
additional telephonic meeting for a further update on the transaction. Mr.
Talbert and Robert L. Long, Transocean's Chief Financial Officer, briefed the
committee regarding the discussions to date, and representatives of Simmons
reviewed the valuation and pro forma analyses. Mr. Talbert also briefed the
committee on his corporate governance discussions with Mr. Baird and Mr.
Grijalva. Also on June 24, Transocean sent a proposed term sheet for the
transaction to Schlumberger, and internal and external legal advisors of
Transocean and Schlumberger met to discuss the legal framework for the
transaction, the documents and agreements required, the SEC registration process
and other legal issues. Shortly thereafter, Schlumberger's outside legal
advisors delivered initial drafts of the distribution agreement and the merger
agreement to Transocean and its outside legal advisors.
Commencing June 27, senior executives of Transocean and Schlumberger and
representatives of their respective financial advisors held a series of
negotiations to further define the principal financial and legal terms of the
transaction. The parties agreed on an exchange ratio mechanism that would result
in Schlumberger's shareholders owning 52% of the combined company immediately
following the merger and on the amount of debt to be included on the Sedco Forex
balance sheet at the time of the merger. Mr. Talbert, Mr. Baird and Mr. Grijalva
separately discussed corporate governance issues.
From July 5 to July 10, executives and outside advisors of the parties held
another series of negotiations with a view toward finalizing the definitive
agreements, including related tax and employee benefits matters. Mr. Talbert and
Mr. Grijalva also met to finalize corporate governance issues.
On July 8, Schlumberger's board of directors met to consider the proposed
transaction. Management of Schlumberger presented an overview of the offshore
drilling industry, Schlumberger's strategy and the benefits of the transaction
to Schlumberger's shareholders. Management also discussed the valuations of
Sedco Forex and Transocean and the financial impact of the transaction on
Schlumberger and the combined Transocean Sedco Forex. A representative of
Goldman Sachs also made a financial presentation to the board regarding the
proposed merger and indicated, subject to review of the final documentation,
that it was in the position to render an opinion as to the fairness of the
exchange ratio. Schlumberger's board then unanimously approved the distribution
agreement, the merger agreement and related agreements, and authorized the
officers to enter into these agreements, subject to final changes deemed
appropriate by the officers.
On July 11, the board of directors of Transocean met to consider the
proposed merger and related transactions. Mr. Talbert briefly reviewed the
events that had transpired since the June 24 corporate governance committee
meeting. Representatives of Simmons then reviewed the strategic rationale for
the merger, presented their valuation analyses of Transocean, Sedco Forex and
the combined company, and rendered their opinion that the consideration to be
received in the merger was fair to Transocean and its shareholders from a
financial point of view. Following this presentation and further discussion of
the transaction by the board of directors, the board voted unanimously to
approve the merger agreement and
42
<PAGE> 47
related agreements, and authorized the officers to enter into the merger
agreement and related agreements, subject to final changes deemed appropriate by
the officers.
On July 12, 1999, Goldman Sachs orally rendered their fairness opinion to
Schlumberger. Goldman Sachs later confirmed this opinion in writing as of the
same date. See "-- Fairness Opinion -- Goldman, Sachs & Co."
On July 12, 1999, the parties signed the merger agreement and the
distribution agreement. That morning, the parties issued a press release
announcing the transaction and held a conference call to brief analysts and the
media on the transaction.
TRANSOCEAN'S REASONS FOR THE MERGER
The Transocean board of directors believes that the merger offers a unique
opportunity to combine two successful offshore contract drilling businesses into
the premier offshore drilling contractor, as measured by its size, technically
advanced fleet, financial strength, engineering capabilities, management
expertise and experienced workforce. The board views the merger as an excellent
fit of the culturally diverse workforces of the two companies and their
complementary strategic advantages in key geographic markets.
In reaching its conclusions, Transocean's board of directors considered
many factors, including the following:
- At the time of the merger, Transocean Sedco Forex will be the largest
offshore drilling contractor in the world, operating the largest fleet of
mobile offshore drilling units. It is the board's view that the combined
company will be better positioned to negotiate with customers, including
increasingly larger oil companies formed by industry consolidation, and
will possess the necessary efficiencies and resources to attract
customers and qualified personnel.
- The transaction should reposition the company in the financial markets.
Immediately following the merger, Transocean Sedco Forex will have a
broader group of large institutional investors, which may increase
trading liquidity and potentially enhance trading multiples. In addition,
the improved balance sheet, cash flow and earning capacity of the
combined company should reduce the cost of borrowing and improve the
company's ability to finance the cost of new rig construction and
strategic acquisitions and other capital investments in the development
of its business.
- Transocean Sedco Forex will have a worldwide geographic scope, with a
strong market presence in all major offshore operating areas, including
the U.S. Gulf of Mexico, the North Sea, Brazil, West Africa and Southeast
Asia. This geographic diversification will allow the combined company to
meet its customers' needs on a global basis, may provide regional
economies of scale and should reduce the possible impact of any future
downturn in a single geographic area.
- The technical expertise of both Transocean and Sedco Forex in deepwater
drilling operations as demonstrated by their new rigs under construction.
- The opportunity to create a non-exclusive strategic alliance with
Schlumberger.
- Potential cost savings achievable through elimination of duplicative
overhead and redundant shore-based facilities.
- The financial performance and condition, business operations and future
prospects of Transocean and Sedco Forex.
- The structure of the transactions and the terms and provisions of the
merger agreement, the distribution agreement and the other agreements
executed in connection with the proposed transactions, including the
termination and termination fee provisions of the merger agreement.
- The expected treatment of the merger as a "reorganization" for federal
income tax purposes as described under "-- Certain U.S. Federal Income
Tax Consequences."
43
<PAGE> 48
- The expected accounting treatment of the merger as a purchase, with Sedco
Forex as the accounting acquiror.
- The effect on cash flow and earnings per share of the combined entity as
compared to Transocean on a stand-alone basis.
- The opinion of Simmons & Company International dated July 11, 1999 that
the exchange ratio was fair, from a financial point of view, to
Transocean and its shareholders, and the valuation and pro forma analyses
of Simmons contained therein as described under "-- Fairness
Opinion -- Simmons & Company International."
- The compatibility of the corporate cultures of the management teams and
the culturally diverse workforce of each company.
- The challenges and potential costs of combining and integrating the
businesses, and the attendant risks of not achieving expected cost
savings.
- The shorter-term nature of Sedco Forex's drilling contracts as compared
to Transocean's.
- Cancellation provisions in Sedco Forex's newbuild drilling contracts.
- The fact that the assets, personnel and operations of Sedco Forex as of
the time of the spin-off and merger will not previously have existed as a
separate, consolidated entity within Schlumberger.
- The fact that the historical and projected financial results for Sedco
Forex used to model, negotiate and announce the transaction were
unaudited and were based on numerous assumptions about cost allocations,
among other things.
In determining that the merger was advisable and in the best interests of
Transocean's shareholders, the board of directors of Transocean considered the
enumerated factors as a whole and did not quantify or otherwise assign relative
weights to the different factors. Individual directors may have given different
weights to different factors. Moreover, the foregoing discussion of the reasons
for the merger is not intended to be exhaustive.
RECOMMENDATION OF TRANSOCEAN'S BOARD OF DIRECTORS
FOR THE REASONS DISCUSSED, TRANSOCEAN'S BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER, THE MERGER AGREEMENT AND THE OTHER TRANSACTIONS
CONTEMPLATED IN THE MERGER AGREEMENT AND RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE INCREASE IN AUTHORIZED ORDINARY SHARE CAPITAL AND THE ISSUANCE
OF ORDINARY SHARES NECESSARY TO COMPLETE THE MERGER, AS WELL AS THE NAME CHANGE
TO "TRANSOCEAN SEDCO FOREX INC."
SCHLUMBERGER'S REASONS FOR THE SPIN-OFF AND THE MERGER
Schlumberger's strategy for its oilfield services segment is to be a leader
in providing technologically driven reservoir optimization services and related
integrated services. Schlumberger believes that the separation of its offshore
contract drilling business from the rest of Schlumberger's oilfield services
segment will sharpen the segment's focus on these core businesses. In addition,
Schlumberger views the spin-off and the merger as an opportunity to provide
Schlumberger's shareholders with ownership in a premier worldwide offshore
contract drilling company as well as continuing ownership in a more focused
Schlumberger.
Schlumberger's board of directors has determined that (1) the spin-off of
the capital stock of Sedco Forex to Schlumberger's shareholders and (2) the
merger of Sedco Forex with a subsidiary of Transocean are advisable and in the
best interests of Schlumberger's shareholders. Schlumberger's board of directors
has approved the distribution agreement and the merger agreement and the
transactions those agreements contemplate and recommends that the shareholders
of Schlumberger vote to approve the spin-off.
44
<PAGE> 49
In reaching its conclusion to approve the agreements and the transactions
those agreements contemplate and to recommend that shareholders vote to approve
the spin-off, Schlumberger's board of directors considered many factors,
including:
- A number of strategic alternatives available to Schlumberger with respect
to Sedco Forex and the potential risks and benefits of each alternative.
- The strategic fit of Sedco Forex with Schlumberger.
- The impact of the transactions on Schlumberger's stock price, financial
performance and condition, business operations and prospects.
- The fact that the spin-off will allow Schlumberger management to focus
more on value-added, technology-driven reservoir optimization services
and integrated services.
- The opportunity to create a premier worldwide offshore drilling company
by combining Sedco Forex and Transocean.
- The higher historical volatility of Sedco Forex's business as compared to
the remainder of Schlumberger's business.
- The relative long-term capital intensity of Sedco Forex's business as
compared to the remainder of Schlumberger's business.
- Information concerning the financial performance and condition, business
operations and prospects of Sedco Forex and various other offshore
drilling companies separately and on a combined basis.
- Current industry, economic and market conditions.
- Recent historical market prices and valuation multiples of Schlumberger
and various offshore drilling companies.
- The structure of the transactions and the terms and provisions of the
merger agreement, the distribution agreement and the other agreements
executed in connection with the proposed transactions, including the
termination and termination fee provisions of the merger agreement.
- The expectation that Schlumberger's shareholders will receive Transocean
ordinary shares in a transaction that is not expected to have any
immediate U.S. federal income tax impact to those shareholders, except
for tax on any cash received for fractional shares.
- The expectation that Sedco Forex would be deemed the accounting acquiror
of Transocean under U.S. generally accepted accounting principles, and
the resulting accounting treatment of the transactions.
- The likelihood that the transactions would be consummated.
- The opportunity to enter into a non-exclusive strategic alliance with
Transocean Sedco Forex.
- The fairness opinion of Goldman, Sachs & Co. attached to this joint proxy
statement/prospectus as Annex C and described under the caption
"-- Fairness Opinion -- Goldman, Sachs & Co." and the related financial
analysis and presentation by Goldman Sachs.
In determining that the spin-off and merger were advisable and in the best
interests of Schlumberger's shareholders, Schlumberger's board of directors
considered the factors above as a whole and did not assign specific or relative
weights to those factors. Individual directors may have given different weights
to different factors. Moreover, this discussion of the reasons for the spin-off
and the merger is not intended to be exhaustive. Schlumberger's board of
directors believes that the spin-off and the merger provide Schlumberger's
shareholders with an opportunity to participate in both a more strategically
focused Schlumberger and a premier offshore contract drilling company.
45
<PAGE> 50
RECOMMENDATION OF SCHLUMBERGER'S BOARD OF DIRECTORS
FOR THE REASONS DISCUSSED ABOVE, SCHLUMBERGER'S BOARD OF DIRECTORS
RECOMMENDS THAT THE HOLDERS OF SHARES OF SCHLUMBERGER COMMON STOCK VOTE TO
APPROVE THE SPIN-OFF OF ALL OF THE CAPITAL STOCK OF SEDCO FOREX TO
SCHLUMBERGER'S SHAREHOLDERS PURSUANT TO THE DISTRIBUTION AGREEMENT.
FAIRNESS OPINION -- SIMMONS & COMPANY INTERNATIONAL
On June 7, 1999, Transocean engaged Simmons to act as its financial advisor
in connection with the merger and instructed Simmons to evaluate the fairness of
the merger exchange ratio, as set forth in the merger agreement, to Transocean
and its shareholders from a financial perspective. Transocean directed Simmons
to conduct such investigations as Simmons deemed appropriate for making its
evaluation. On July 11, 1999, Simmons delivered an oral opinion, subsequently
confirmed in writing as of the same date, to Transocean's board of directors.
The opinion stated that, as of such date, the merger exchange ratio was fair to
Transocean and its shareholders from a financial point of view.
The full text of Simmons' opinion, setting forth the assumptions that were
made, factors that were considered and limitations placed upon Simmons' review
in rendering its opinion, is included as Annex D to this joint proxy
statement/prospectus. Simmons' opinion is incorporated herein by reference. The
following summary does not describe all aspects of Simmons' opinion, and it is
qualified in its entirety by reference to the full text of the written opinion.
Transocean's shareholders should read the opinion in its entirety.
Transocean did not impose any limitations on the scope of Simmons'
investigation or the procedures to be followed in rendering the opinion.
Transocean did not request Simmons to make any recommendation, and Simmons did
not make any recommendation to Transocean's board of directors as to the form or
amount of consideration to be issued in the merger. In arriving at its opinion,
Simmons did not ascribe a specific range of values to Transocean or Sedco Forex,
but instead made its determination as to the fairness of the merger exchange
ratio on the basis of the financial and comparative analyses described below.
Simmons' opinion is for the use and benefit of Transocean's board of directors
and was rendered to that board of directors in connection with its consideration
of the merger. Simmons' opinion does not constitute a recommendation to any
shareholder of Transocean regarding how to vote with respect to the merger.
Transocean did not request that Simmons opine as to, and its opinion does not
address, Transocean's underlying business decision to proceed with or effect the
merger. Simmons also expressed no opinion as to the prices at which Transocean
or Transocean Sedco Forex ordinary shares will trade following announcement or
completion of the merger. Transocean's shareholders should not view Simmons'
opinion as providing any assurance that the market value of Transocean Sedco
Forex ordinary shares to be held by shareholders after the merger will be in
excess of the market value of the Transocean ordinary shares owned by such
shareholders at any time before the announcement or completion of the merger.
In reaching its opinion, Simmons reviewed and analyzed, among other things:
- the most recent drafts of the merger agreement, the distribution
agreement and the other ancillary transaction agreements;
- the financial statements and other information concerning Transocean
contained in Transocean's annual reports to shareholders and annual
reports on Form 10-K for each of the three years ended December 31, 1998,
1997 and 1996;
- certain interim reports to Transocean's shareholders, Transocean's
quarterly report on Form 10-Q for the quarter ended March 31, 1999 and
Transocean's proxy statement for its 1999 regular annual meeting;
- the unaudited financial statements and 1998 pro forma statement of
operations with respect to Sedco Forex described in Section 6.7 of the
merger agreement;
- business and financial analyses and information relating to Transocean
and Sedco Forex, including certain internal financial forecasts prepared
and provided to Simmons by the managements of Transocean and
Schlumberger;
46
<PAGE> 51
- publicly available information concerning the trading of, and the trading
market for, Transocean's ordinary shares;
- publicly available information with respect to other companies that
Simmons believed to be comparable to Transocean and Sedco Forex and the
trading markets for those companies' securities;
- publicly available information concerning estimates of the future
operating performance of Transocean, Sedco Forex and the comparable
companies that were prepared by industry analysts unaffiliated with
either Transocean or Sedco Forex and that Simmons considered relevant to
the analyses; and
- publicly available information concerning the nature and terms of certain
other transactions Simmons considered relevant to the analyses.
Additionally, Simmons:
- met with certain officers and employees of Transocean, Schlumberger and
Sedco Forex to discuss the assets, liabilities, operations and historical
and projected performance of Transocean and Sedco Forex;
- discussed with those officers and employees of Transocean, Schlumberger
and Sedco Forex the cost savings and the strategic benefits expected to
result from a combination of Transocean and Sedco Forex; and
- considered other information, financial studies, analyses and
investigations and other financial, economic and market criteria that it
deemed relevant.
Simmons, with Transocean's consent, assumed and relied upon the accuracy
and completeness of all the foregoing information and did not independently
verify any of that information. With respect to financial forecasts, Simmons
utilized certain information set forth in those forecasts and assumed such
information was reasonably prepared on bases reflecting the best estimates and
judgments, as available at the time of preparation, of the respective
managements of Transocean, Schlumberger and Sedco Forex on the future financial
performance of Transocean and Sedco Forex. Simmons did not conduct a physical
inspection of any of the assets, operations or facilities of Transocean or Sedco
Forex and did not make or receive any independent evaluation or appraisal of any
assets or liabilities, contingent or otherwise, of Transocean or Sedco Forex. In
addition, Simmons was not authorized to solicit, and did not solicit, any
indications of interest from any third party with respect to the purchase of all
or a part of Transocean's business. Upon advice of Transocean, including its
legal and accounting advisors, Simmons assumed that the merger should qualify as
a tax-free transaction to Transocean.
Described below are certain financial, comparative and other analyses
Simmons performed in connection with rendering its opinion. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial and comparative analysis and the application of
those methods to the particular circumstances. Therefore, such an opinion is not
easily reduced to a summary description. Furthermore, in reaching its opinion,
Simmons did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgements as to the significance
and relevance of each analysis and factor. Accordingly, Simmons believes that
its analyses must be considered as a whole and that considering any portion of
such analyses and the factors considered, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
the opinion.
In performing its analyses, Simmons made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Transocean or Sedco Forex.
Estimates contained in the analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than as set forth therein. Moreover, analyses relating to
the value of businesses do not purport to be appraisals or to reflect the prices
at which those businesses might actually be sold.
47
<PAGE> 52
THE FOLLOWING SUMMARIES INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT.
TRANSOCEAN'S SHAREHOLDERS SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF
EACH SUMMARY.
1. VALUATION ANALYSES
Simmons prepared valuations of both Transocean and Sedco Forex. In valuing
Sedco Forex, Simmons, as instructed by Transocean, initially considered the
value of Sedco Forex excluding the financial results of seven inland barge rigs,
or "swamp barges," and two land rigs. Because these rigs will be assets of Sedco
Forex, Simmons then added the suggested value, based upon selected valuation
methodologies, of the seven inland barge rigs and two land rigs to the previous
valuation of Sedco Forex. Simmons analyzed the valuations of the separate
businesses conducted by Transocean and by Schlumberger through Sedco Forex
without any consideration of any cost savings or operating synergies resulting
from the merger. In determining valuations, Simmons used the following
methodologies:
- discounted cash flow analysis, including sensitivity analysis;
- contribution analysis;
- comparable companies analysis;
- rig asset values analysis; and
- selected transactions analysis.
Each of these methodologies, except for the selected transactions analysis,
was used to generate a suggested enterprise value contribution range for each of
Transocean and Sedco Forex to Transocean Sedco Forex. The suggested enterprise
value contribution range for Sedco Forex was 47.0% to 50.5% without the seven
inland barge rigs and two land rigs. Simmons adjusted the suggested enterprise
value contribution range for each of Transocean and Sedco Forex for appropriate
on- and off-balance-sheet assets and liabilities to arrive at a suggested equity
value contribution range. The suggested equity value contribution range for
Sedco Forex was:
- 50.3% to 54.3%, when excluding the seven inland barge rigs and two land
rigs; and
- 50.8% to 55.3%, when including the seven inland barge rigs and two land
rigs.
Simmons used the suggested equity value contribution range to evaluate the
merger exchange ratio, which provides for Sedco Forex's shareholders to receive
approximately 52.0% of the diluted ordinary share capital of Transocean Sedco
Forex. The suggested equity contribution range, derived using the various
valuation methodologies described above, supported the conclusion that the
merger exchange ratio is fair to Transocean and Transocean's shareholders from a
financial point of view. The various valuation analyses are summarized below.
- Discounted Cash Flow Analysis. Simmons performed a discounted cash flow
analysis of Transocean and Sedco Forex using financial forecasts through
2004 provided by Transocean. Simmons assessed the suggested enterprise
value contribution of Sedco Forex to Transocean Sedco Forex at 49.5%.
Simmons calculated this suggested enterprise value contribution using
terminal values based on forecasted 2004 results and multiples ranging
from 5.0x to 7.0x earnings before interest, taxes, depreciation and
amortization, commonly known as EBITDA, and discounting those terminal
values to present values using discount rates ranging from 12.0% to
15.0%. Simmons then used this suggested enterprise value contribution
range to determine a suggested equity value contribution of 53.1% by
Sedco Forex to Transocean Sedco Forex.
Based on the assumptions of Transocean's management, Simmons also
developed eight additional financial projections for each of Transocean
and Sedco Forex using varying assumptions as to the market conditions for
various classes of offshore rigs as well as for the occurrence of specific
events relating to Sedco Forex. Using terminal values based on projected
2004 results and on multiples of 6.0x EBITDA and then discounting that
terminal value to present value using a discount rate of 14.0%,
48
<PAGE> 53
Simmons assessed the suggested enterprise value contribution range for
Sedco Forex to Transocean Sedco Forex at 47.0% to 50.5%. Simmons used this
suggested enterprise value contribution range to determine a suggested
equity value contribution for Sedco Forex of 50.3% to 54.3%.
Simmons did not include the financial results of the seven inland barge
rigs and two land rigs of Sedco Forex in the discounted cash flow
analysis.
- Contribution Analysis. Simmons reviewed certain pro forma historical and
forecasted operating and financial information for Transocean and Sedco
Forex, including, among other things:
- pro forma EBITDA;
- pro forma EBITDA less maintenance capital expenditures;
- pro forma unlevered net income; and
- pro forma unlevered after-tax cash flow.
Simmons based both the pro forma historical and the pro forma forecasted
results on financial results and forecasts prepared by the management of
Transocean, Schlumberger and Sedco Forex. Simmons analyzed the relative
income statement contribution of Transocean and Sedco Forex to Transocean
Sedco Forex on a pro forma basis, before taking into account any of the
possible benefits from cost savings or operating synergies that may be
realized following the merger and based on pro forma historical 1997 and
1998 financial data and forecasts of financial data from 1999 through
2004.
The table below shows the enterprise value contributions for Sedco
Forex as indicated by the analysis.
<TABLE>
<CAPTION>
CONTRIBUTION RANGES
--------------------------------------------------------------------
COMBINED
COMBINED PRO FORMA COMBINED PRO FORMA
COMBINED EBITDA, LESS PRO FORMA UNLEVERED
PRO FORMA MAINTENANCE CAPITAL UNLEVERED NET AFTER-TAX
YEARS EBITDA EXPENDITURES INCOME CASH FLOW
- ----- ------------ ------------------- ------------- ---------------
(STATED IN PERCENTAGES)
<S> <C> <C> <C> <C>
Each of 1997, 1998 and
1999.................... 40.0 to 51.1 38.5 to 50.9 -- --
Each of 2000, 2001, 2002,
2003 and 2004........... 45.9 to 47.7 45.0 to 47.3 49.4 to 54.6 44.0 to 49.9
</TABLE>
Based on this contribution analysis, Simmons's suggested enterprise
value contribution range of Sedco Forex to Transocean Sedco Forex was
assessed to be 47.0% to 50.0%. Simmons then used this suggested enterprise
value contribution range to determine a suggested equity value
contribution range for Sedco Forex of 50.3% to 53.7%.
Simmons did not include the financial results of the seven inland barge
rigs and two land rigs of Sedco Forex in the initial contribution
analysis. However, Simmons indicated to the board that based on the
previous methodology and results of the contribution analysis, the seven
inland barge rigs and two land rigs would be expected to increase Sedco
Forex's suggested enterprise value and equity value contribution range by
0.5% to 1.0%, resulting in a suggested equity value contribution range for
Sedco Forex of 50.8% to 54.7%.
- Comparable Companies Analysis. Simmons reviewed and compared certain
financial information relating to Transocean and Sedco Forex to
corresponding financial information, ratios and public market multiples
for eight publicly traded corporations:
- Diamond Offshore Drilling, Inc.
- ENSCO International, Inc.
- Global Marine Inc.
49
<PAGE> 54
- Noble Drilling Corporation
- Pride International, Inc.
- R&B Falcon Corporation
- Rowan Companies, Inc.
- Santa Fe International Corporation
Simmons calculated and compared various financial multiples and ratios.
Simmons calculated the multiples for Transocean and the comparable
companies based on the most recent publicly available information. Simmons
considered enterprise value as a multiple of 1998 EBITDA and as a multiple
of estimated (based on estimates by First Call Corp.) 1999 and 2000
EBITDA. Enterprise value is calculated by adding the market value of
common equity, the estimated market value of debt and minority interests
and then subtracting investments in unconsolidated affiliates and excess
cash.
The table below indicates the suggested multiple ranges for Sedco Forex
based on the multiples of comparable companies:
<TABLE>
<CAPTION>
SEDCO FOREX
YEAR SUGGESTED EBITDA MULTIPLE TRANSOCEAN EBITDA MULTIPLE
- ---- ------------------------- --------------------------
<S> <C> <C>
1998 6.5x to 8.5x 5.9x
1999 12.5x to 15.0x 7.7x*
2000 10.5x to 12.0x 8.8x*
</TABLE>
- ---------------
* Based on estimates provided by Transocean's management.
The table below shows the suggested multiple ranges for Sedco Forex
based on the comparable companies' actual 1998 and estimated 1999 and 2000
price to earnings ratios.
<TABLE>
<CAPTION>
SEDCO FOREX
SUGGESTED PRICE TO TRANSOCEAN
YEAR EARNINGS MULTIPLE PRICE TO EARNINGS RATIO
- ---- ------------------ -----------------------
<S> <C> <C>
1998 9.5x to 12.5x 8.7x
1999 21.0x to 25.0x 13.0x*
2000 20.0x to 24.0x 17.9x*
</TABLE>
- ---------------
* Based on estimates provided by Transocean's management.
The table below shows the suggested multiple ranges for Sedco Forex
based on the comparable companies' 1998 and estimated 1999 and 2000 price
to cash flow ratios.
<TABLE>
<CAPTION>
SEDCO FOREX TRANSOCEAN PRICE
YEAR SUGGESTED CASH FLOW MULTIPLE TO CASH FLOW RATIO
- ---- ---------------------------- ------------------
<S> <C> <C>
1998.. 7.5x to 9.5x 6.4x
1999.. 11.0x to 15.0x 7.9x*
2000.. 11.0x to 13.0x 8.9x*
</TABLE>
- ---------------
* Based on estimates provided by Transocean's management.
Based on the comparable companies analysis, Simmons assessed Sedco
Forex's suggested enterprise value contribution range to Transocean Sedco
Forex to be 46.0% to 51.0%. Simmons then used this suggested enterprise
value contribution range to determine a suggested equity value
contribution range for Sedco Forex of 49.1% to 54.8% based on projected
closing balance sheets.
The financial results of Sedco Forex's seven inland barge rigs and two
land rigs were not included in the initial comparable companies analysis.
Based on EBITDA, inclusion of the financial results of Sedco Forex's seven
inland barge rigs and two land rigs increased the suggested enterprise
value
50
<PAGE> 55
contribution range of Sedco Forex by 0.8% to 1.7%, resulting in a
suggested equity value contribution range for Sedco Forex of 50.0% to
56.7%.
- Rig Asset Values. Simmons assessed Sedco Forex's enterprise value
contribution to Transocean Sedco Forex at 44.0% based on:
- Transocean management's estimates as to the individual rig values for
both Transocean's and Sedco Forex's fleets;
- the estimated value of Transocean's drilling services business; and
- adjustments for incremental capital expenditures needed to complete
Sedco Forex's newbuild program.
This suggested enterprise contribution was then used to determine a
suggested equity contribution of Sedco Forex of 47.2%. Simmons did not
emphasize the rig asset values in arriving at its opinion as Simmons did
not believe the analysis captures the value of the respective businesses
as ongoing enterprises. Furthermore, Simmons based the asset value
estimates on limited information available on recent sales of rigs similar
to those in the Transocean and Sedco Forex rig fleets. Also, the seven
inland barge rigs and two land rigs included in the Sedco Forex fleet were
not included in these rig asset values. Based on Schlumberger's estimated
value of these seven inland barge rigs and two land rigs, Sedco Forex's
suggested enterprise value would be increased by 0.6% and its suggested
equity value contribution would be increased by 0.8%.
- Selected Transactions Analysis. Simmons reviewed certain information
relating to selected transactions in the oil service industry since 1995.
However, due to the limited number of directly comparable transactions in
the current operating environment, Simmons did not determine a suggested
enterprise value or equity value contribution range for Sedco Forex under
this analysis in arriving at its opinion.
2. PRO FORMA MERGER CONSEQUENCE ANALYSIS
Simmons prepared a pro forma merger model that incorporated Transocean's
and Sedco Forex's financial projections based on certain assumptions for the
years 2000 through 2004 as well as the estimated pre-tax cost savings and
synergies resulting from the merger, which assumed no savings in 2000, $15
million in 2001 and $25 million for each of the years 2002, 2003 and 2004.
Simmons then compared the earnings and cash flow of Transocean on a stand-alone
basis to the earnings and cash flow attributable to the Transocean shareholders'
interest in Transocean Sedco Forex. Based on such analysis and excluding
forecast financial results for Sedco Forex's seven inland barge rigs and two
land rigs, the proposed transaction would, on both an earnings basis and a cash
flow basis, be dilutive in 2000 and accretive thereafter. Simmons also conducted
sensitivity analyses for eight additional scenarios developed by Transocean
management, using varying assumptions as to the market conditions for various
classes of offshore rigs as well as for the occurrence of specific events
relating to Sedco Forex. These scenarios were identical to the scenarios used in
the previously described discounted cash flow analysis. Additionally, Simmons
performed several sensitivity analyses for potential operational benefits and
risks not included in the forecasts prepared by Transocean and Sedco Forex.
As a specialized, energy-related investment banking firm, Simmons is
engaged, among other things, in the valuation of businesses and their securities
in connection with mergers and acquisitions, in the management and underwriting
and sales of equity and debt securities to the public and in private placements
of equity and debt securities. The Transocean board selected Simmons because of
its expertise, reputation and familiarity with Transocean and because its
investment banking professionals have substantial experience in transactions
comparable to the merger.
Simmons has previously rendered certain financial advisory and investment
banking services to Transocean, for which it received customary compensation,
including acting as a co-manager in the initial public offering in June 1993 and
a secondary offering of Transocean common stock in July 1995, as well as
providing corporate finance advisory services in conjunction with the merger of
Transocean and Transocean ASA in 1996.
51
<PAGE> 56
Pursuant to the terms of an engagement letter agreement, dated June 7,
1999, between Simmons and Transocean, Transocean has agreed to pay Simmons the
following amounts in association with Simmons's services related to the merger:
- an initial advisory fee of $150,000;
- a fee of $250,000 on August 15, 1999; and
- an additional fee of $11,600,000 upon closing of the merger.
In addition, Transocean has agreed to reimburse Simmons for its reasonable
expenses (including, without limitation, professional and legal fees and
disbursements) incurred in connection with its engagement, and to indemnify
Simmons and certain related persons against certain liabilities in connection
with its engagement, including certain liabilities that may arise under the
federal securities laws.
Simmons may also actively trade the securities of Transocean and
Schlumberger in the ordinary course of its business for its own account and for
the accounts of its customers. Accordingly, Simmons may at any time hold a long
or short position in such securities.
FAIRNESS OPINION -- GOLDMAN, SACHS & CO.
On July 12, 1999, Goldman Sachs rendered its oral opinion, which was
subsequently confirmed by a written opinion dated the same date, to the effect
that, as of that date and based upon and subject to the various considerations
set forth in the opinion, the exchange ratio pursuant to the merger agreement is
fair from a financial point of view to Schlumberger's shareholders, as if they
were current holders of the shares of Sedco Forex capital stock.
THE FULL TEXT OF THE WRITTEN FAIRNESS OPINION OF GOLDMAN SACHS, DATED JULY
12, 1999, WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH SUCH
OPINION, IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX C AND IS
INCORPORATED HEREIN BY REFERENCE. SCHLUMBERGER'S SHAREHOLDERS SHOULD READ THE
OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things:
- the merger agreement;
- the distribution agreement;
- an unaudited balance sheet and combined statement of operations of Sedco
Forex as of and for the year ended December 31, 1998;
- a pro forma combined statement of operations of Sedco Forex for the year
ended December 31, 1998 to reflect the reversal of the effect of certain
non-recurring events and to provide for the elimination of shared costs
and certain intercompany insurance costs;
- Annual Reports to Shareholders and Annual Reports on Form 10-K of
Schlumberger and Transocean for each of the five years ended December 31,
1998;
- interim reports to shareholders and Quarterly Reports on Form 10-Q of
Schlumberger and Transocean deemed relevant;
- other communications from Schlumberger and Transocean to their respective
shareholders deemed relevant; and
- internal financial analyses and forecasts for Sedco Forex and Transocean
deemed relevant that were prepared by their respective managements in
consultation with each other, including certain cost savings and
operating synergies projected by the managements of Sedco Forex and
Transocean to result from the merger.
52
<PAGE> 57
Goldman Sachs also held discussions with members of the senior managements
of Schlumberger, Sedco Forex and Transocean regarding the strategic rationale
for, and the potential benefits of, the merger contemplated by the merger
agreement and the past and current business operations, financial conditions and
future prospects of the respective companies. In addition, Goldman Sachs:
- reviewed with third party consultants their asset valuation estimates of
Sedco Forex's and Transocean's drilling rig fleets;
- reviewed the reported price and trading activity for the Transocean
ordinary shares;
- compared financial and stock market information for Transocean deemed
relevant with similar information for other companies the securities of
which are publicly traded; and
- performed other studies and analyses as Goldman Sachs considered
appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. Goldman Sachs assumed, with
the consent of the Schlumberger board, that the internal financial forecasts
prepared by the managements of Sedco Forex and Transocean, including the
synergies, have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of Sedco Forex and Transocean.
Goldman Sachs also assumed that all material governmental, regulatory or other
consents and approvals necessary for the consummation of the merger will be
obtained without any adverse effect on Sedco Forex or Transocean or on the
contemplated benefits of the transactions contemplated by the merger agreement.
The opinion of Goldman Sachs does not address the relative merits of the
transactions contemplated pursuant to the merger agreement as compared to any
alternative business transaction that might be available to Sedco Forex or
Schlumberger. In addition, Goldman Sachs did not make an independent evaluation
or appraisal of the assets and liabilities of Sedco Forex, Transocean or any of
their subsidiaries and except for the asset valuation estimates of the third
party consultants, Goldman Sachs was not furnished with any such evaluation or
appraisal. Goldman Sachs' advisory services and its opinion were provided for
the information and assistance of the Schlumberger board in connection with its
consideration of the merger. Goldman Sachs' opinion does not constitute a
recommendation as to how the shareholders of Schlumberger should vote with
respect to the spin-off. The opinion relates solely to the exchange ratio in the
merger and does not address, and Goldman Sachs did not opine on, the spin-off or
the prices at which shares of Schlumberger common stock or Transocean ordinary
shares will trade following the merger.
The following is a summary of the material financial analyses reviewed by
Goldman Sachs and used in connection with its financial presentation to the
Schlumberger board on July 8, 1999 and its subsequent fairness opinion, dated
July 12, 1999. It does not purport to be a complete description of the analyses
performed by Goldman Sachs. The order of analyses described, and the results of
those analyses, do not represent relative importance or weight given to those
analyses by Goldman Sachs. The following quantitative information, to the extent
that it is based on market data, is based on market data as it existed at or
about July 2, 1999 and is not necessarily indicative of current market
conditions.
THE SUMMARY INCLUDES INFORMATION PRESENTED IN TABULAR FORMAT. THESE TABLES
SHOULD BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY.
1. CONTRIBUTION ANALYSIS
This analysis evaluates the historical and projected contributions of Sedco
Forex, on a percentage basis, to selected financial information of the combined
company resulting from the merger and compares these contributions to
shareholders' relative equity interests in the combined company resulting from
the merger. Based on the exchange ratio in the merger, former shareholders of
Sedco Forex will own on a diluted basis approximately 52% of the common equity
outstanding of Transocean with the remaining 48% held by existing Transocean
shareholders.
53
<PAGE> 58
Using historical and projected financial information of Sedco Forex and
Transocean from 1997 to 2000, Goldman Sachs computed the range of relative
contribution of Sedco Forex to the combined company in terms of the following:
- earnings before interest, taxes, depreciation and amortization or
EBITDA -- adjusted for Transocean and Sedco Forex debts, in which the
relative EBITDA contribution of Sedco Forex to the combined company was
computed based on the assumption that, as of December 31, 1999, the
projected debt balance for Sedco Forex would be $435 million and for
Transocean would be $876 million;
- net income;
- net income -- adjusted for Sedco Forex debt, in which the relative net
income contribution of Sedco Forex to the combined company was computed
based on the assumption that as of December 31, 1999, the projected debt
balance for Sedco Forex would be $435 million, at an assumed interest
rate of 7.0%; and
- net income -- adjusted for non-recurring tax benefits, in which the
relative net income contribution of Sedco Forex to the combined company
was computed based on the assumptions that (1) the pro forma effective
tax rate of Transocean would be reduced from 29.5% to 24.0% as a result
of Transocean's recent incorporation as a Cayman Islands entity and (2)
Transocean would not incur any tax charge associated with relocating rigs
out of the Gulf of Mexico.
Goldman Sachs also conducted a similar analysis using projected financial
information that included the impact of the new rigs of Sedco Forex and
Transocean on the EBITDAs and net incomes of the respective companies for the
years 1997 to 2000, as if the rigs had been operating at full utilization during
that period.
The table below sets forth the results of the analyses:
<TABLE>
<CAPTION>
RELATIVE CONTRIBUTION
OF SEDCO FOREX
---------------------
FOUR-YEAR FOUR-YEAR
RANGE AVERAGE
--------- ---------
<S> <C> <C>
Performance -- excluding new rigs
EBITDA -- adjusted for Transocean and Sedco Forex debts... 38%-60% 49%
Net income................................................ 33%-65% 49%
Net income -- adjusted for Sedco Forex debt............... 26%-62% 44%
Net income -- adjusted for non-recurring tax benefits..... 25%-60% 42%
Performance -- including new rigs
EBITDA -- adjusted for Transocean and Sedco Forex debts... 46%-61% 54%
Net income................................................ 49%-68% 60%
Net income -- adjusted for Sedco Forex debt............... 46%-66% 58%
Net income -- adjusted for non-recurring tax benefits..... 45%-64% 56%
</TABLE>
Using asset value estimates provided by third party consultants to
Schlumberger, Goldman Sachs computed the relative contribution of Sedco Forex to
the combined company in terms of the following:
- gross asset market value -- including new rigs, in which the relative
asset contribution of Sedco Forex to the combined company was calculated
based on the assumptions that (1) the value of the new rigs, computed
based on current estimates of their construction costs, of Sedco Forex
and Transocean were included in the asset values of the respective
companies; (2) the market conditions were those of December 31, 1998; and
(3) Sedco Forex would have incurred additional debt of $183 million and
Transocean would have incurred additional debt of $66 million, in each
case to cover the estimated construction costs of the new rigs;
- gross asset peak value -- including new rigs, in which the relative asset
contribution of Sedco Forex to the combined company was calculated based
on the assumptions that (1) the value of the new rigs, computed based on
current estimates of their construction costs, of Sedco Forex and
Transocean were
54
<PAGE> 59
included in the asset values of the respective companies; (2) the market
conditions were those of December 31, 1997; and (3) Sedco Forex would
have incurred additional debt of $183 million and Transocean would have
incurred additional debt of $66 million, in each case to cover the
estimated construction costs of the new rigs; and
- gross asset market value -- excluding new rigs, in which the relative
asset contribution of Sedco Forex to the combined company was calculated
based on the assumption that the market conditions were those of December
31, 1998.
- gross asset peak value -- excluding new rigs, in which the relative asset
contribution of Sedco Forex to the combined company was calculated based
on the assumption that the market conditions were those of December 31,
1997.
Goldman Sachs conducted a similar contribution analysis using the net asset
value of the rigs, based on the additional assumption that the projected debt
balance as of December 31, 1999 of Sedco Forex would be $435 million and of
Transocean would be $876 million, using estimates provided by the managements of
Sedco Forex and Transocean for their respective companies. In cases where the
value of the new rigs was included, Goldman Sachs also assumed that Sedco Forex
would have incurred additional debt of $183 million and Transocean would have
incurred additional debt of $66 million to cover the estimated construction
costs of the new rigs.
The table below sets forth the results of the analyses:
<TABLE>
<CAPTION>
CONTRIBUTION BY SEDCO FOREX
-----------------------------
BASED ON GROSS BASED ON NET
ASSET VALUE ASSET VALUE
-------------- ------------
<S> <C> <C>
Market value -- including new rigs......................... 51% 56%
Peak value -- including new rigs........................... 52% 54%
Market value -- excluding new rigs......................... 49% 59%
Peak value -- excluding new rigs........................... 51% 56%
</TABLE>
2. SELECTED COMPANIES ANALYSIS
This analysis assesses how the public market values shares of similar
publicly traded companies. Goldman Sachs reviewed and compared pro forma
financial information of the combined company with financial information of
various publicly traded large service companies and offshore drilling companies.
Goldman Sachs reviewed the following large service companies:
- Schlumberger
- Baker Hughes Incorporated
- Halliburton Co.
Goldman Sachs reviewed the following offshore drilling companies:
- Diamond Offshore Drilling, Inc.
- Ensco International, Inc.
- Global Marine Inc.
- Noble Drilling Corporation
- R&B Falcon Corporation
- Rowan Companies, Inc.
- Santa Fe International Corporation
- Transocean
55
<PAGE> 60
The financial information of the selected companies was based on the
following:
- share prices of the selected companies were based on the closing prices
of their common stock on July 2, 1999;
- dividend yields of the selected companies were computed by annualizing
the companies' quarterly dividends based on their Quarterly Reports on
Form 10-Q for the first quarter of 1999;
- net debts and enterprise values (defined as the sum of equity market
capitalization and net debt) of the selected companies as of the end of
the first quarter of 1999 were based on their Quarterly Reports on Form
10-Q for the first quarter of 1999;
- projected earnings of the selected companies for the years 1999 and 2000
were based on median earnings estimates of the Institutional Brokers
Estimate System as of July 2, 1999;
- EBITDAs of the selected companies for the year 1998 were based on their
Annual Reports on Form 10-K for the year 1998; and
- projected EBITDAs of the selected companies for the years 1999 and 2000
were based on a Goldman Sachs oil services industry research report dated
June 18, 1999; Salomon Smith Barney research reports dated April 20,
1999, April 28, 1999 and May 27, 1999; and estimates of the Institutional
Brokers Estimate System as of July 2, 1999.
The financial information of the combined company was based on the
following:
- pro forma share price of the combined company was calculated based on the
assumption that shares of the combined company would have the same
closing price as that of Transocean ordinary shares as of July 2, 1999;
- pro forma dividend yield of the combined company was calculated based on
the assumption that the combined company would maintain the same dividend
as that of Transocean ordinary shares for the first quarter of 1999;
- pro forma net debt of the combined company was calculated based on
Transocean's net debt of $659 million as per the Form 10-Q for the first
quarter of 1999 and Sedco Forex's pro forma contribution of $435 million;
- pro forma enterprise value of the combined company was calculated based
on the assumption that the combined company would have 209.5 million pro
forma shares outstanding;
- projected pro forma earnings of the combined company for the years 1999
and 2000 were calculated based on the estimates provided by the
managements of Sedco Forex and Transocean for their respective companies;
and
- historical pro forma EBITDA of the combined company for the year 1998 and
projected pro forma EBITDAs of the combined company for the years 1999
and 2000 were calculated based on estimates provided by the managements
of Sedco Forex and Transocean for their respective companies, adjusted
for non-recurring items.
56
<PAGE> 61
The results of the analysis are summarized as follows:
<TABLE>
<CAPTION>
OFFSHORE DRILLING
COMPANIES
LARGE SERVICE COMPANIES (INCLUDING TRANSOCEAN)
----------------------- ------------------------ COMBINED
RANGE MEDIAN RANGE MEDIAN TRANSOCEAN COMPANY
-------------- ------ --------------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Stock Price as a % of 52-week high...... 89%- 93% 93% 39%- 91% 72% 58% n/a
Dividend Yield.......................... 1.1%- 1.4% 1.2% 0.0%- 1.8% 0.2% 0.5% 0.5%
Net Debt/Enterprise Value............... (0.2)%- 21.1% 8.0% (7.2)%- 55.2% 15.3% 19.8% 16.5%
P/E Multiple
1999 (estimated)...................... 51.1x- 66.7x 54.0x 11.9x- 30.6x 22.2x 11.9x 17.0x
2000 (estimated)...................... 31.8x- 38.5x 36.5x 16.0x- 128.8x 26.0x 16.0x 17.3x
EBITDA/Enterprise Value
1998.................................. 10.9x- 13.3x 12.8x 5.1x- 10.1x 6.8x 5.7x 6.0x
1999 (estimated)...................... 11.1x- 18.1x 16.2x 7.0x- 33.5x 12.6x 7.0x 9.5x
2000 (estimated)...................... 9.8x- 14.6x 12.7x 7.0x- 17.9x 9.5x 8.1x 9.1x
</TABLE>
3. PRO FORMA MERGER ANALYSIS
Goldman Sachs analyzed the pro forma financial impact of the merger on the
diluted per share earnings of Transocean ordinary shares on an after-tax basis.
Using estimates provided by the managements of Transocean and Sedco Forex for
their respective companies, Goldman Sachs computed the pro forma per share
earnings of the combined company based on the following assumptions:
- the merger would result in $210 million of incremental goodwill to be
amortized over 40 years;
- Transocean would write up its assets pursuant to the merger by $483
million to be amortized over 18 years;
- Sedco Forex would contribute $435 million of debt to the merger at an
assumed interest rate of 7.0%; and
- the effective tax rates would be 29.5% in 1998 and 24% in 2000.
Based on estimates provided by the management of Sedco Forex, Goldman Sachs
also assumed that the merger would generate $23 million in annual after-tax
synergies.
Goldman Sachs analyzed the impact of the merger on the 1998 per share
earnings of Transocean ordinary shares based on Transocean's reported per share
earnings for the year 1998. Taking synergies into account, the merger would be
12.4% accretive. Without taking synergies into account, the merger would be 8.8%
accretive.
In addition, Goldman Sachs analyzed the impact of the merger on (1) the
1998 per share earnings of Transocean ordinary shares based on Transocean's
reported per share earnings for the year 1998, adjusted for non-recurring gains
totaling $50 million, and (2) the 2000 per share earnings of Transocean ordinary
shares based on Transocean's earnings estimates for the year 2000 provided by
the management of Transocean. Goldman Sachs conducted this analysis by applying
the effective tax rates of 29.5%, 20% and 15%.
The results of the analysis are as follows:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
WITH SYNERGIES WITHOUT SYNERGIES
------------------- -------------------
1998 2000 1998 2000
----- ----------- ----- -----------
(ESTIMATED) (ESTIMATED)
<S> <C> <C> <C> <C>
% Accretion/(Dilution) on per share earnings
(based on an effective tax rate of 29.5%)........... 24.7% 5.0% 20.5% (2.2%)
% Accretion/(Dilution) on per share earnings
(based on an effective tax rate of 20%)............. 15.6% (1.8%) 11.9% (8.1%)
% Accretion/(Dilution) on per share earnings
(based on an effective tax rate of 15%)............. 11.7% (4.7%) 8.1% (10.7%)
</TABLE>
57
<PAGE> 62
Goldman Sachs conducted a similar analysis using earnings estimates for
Transocean provided by the Institutional Brokers Estimate Service as of July 2,
1999. The results of the analysis are as follows:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
WITH SYNERGIES WITHOUT SYNERGIES
------------------- -------------------
1998 2000 1998 2000
----- ----------- ----- -----------
(ESTIMATED) (ESTIMATED)
<S> <C> <C> <C> <C>
% Accretion/(Dilution) on per share earnings
(based on an effective tax rate of 29.5%)........... 24.7% 0.1% 20.5% (6.5%)
% Accretion/(Dilution) on per share earnings
(based on an effective tax rate of 20%)............. 15.6% (6.1%) 11.9% (11.9%)
% Accretion/(Dilution) on per share earnings
(based on an effective tax rate of 15%)............. 11.7% (8.8%) 8.1% (14.2%)
</TABLE>
4. HISTORICAL STOCK TRADING ANALYSIS
Goldman Sachs compared the historical trading prices of Transocean ordinary
shares with the following: (1) the S&P 500 index; and (2) an offshore drilling
composite index comprised of the common stock of (A) Diamond Offshore Drilling,
Inc., (B) Ensco International, Inc., (C) Global Marine Inc., (D) Noble Drilling
Corporation, (E) R&B Falcon Corporation, (F) Rowan Companies, Inc. and (G) Santa
Fe International Corporation. The analysis indicates that:
- for the period from July 3, 1998 to July 6, 1999, the daily trading price
of Transocean ordinary shares decreased by 40%, compared to an increase
of 21% for the S&P 500 index and a decrease of 24% for the offshore
drilling composite index; and
- for the period from July 5, 1996 to July 6, 1999, the weekly trading
price of Transocean ordinary shares increased by 4%, compared to an
increase of 111% for the S&P 500 index and a decrease of 2% for the
offshore drilling composite index.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying the opinion of Goldman Sachs. In arriving at its fairness
determination, Goldman Sachs considered the results of all such analyses and did
not attribute any particular weight to any factor or analysis considered by it;
rather, Goldman Sachs made its determination as to fairness on the basis of its
experience and professional judgment after considering the results of all such
analyses. No company used in the above analyses as a comparison is directly
comparable to Schlumberger or Transocean.
Goldman Sachs prepared these analyses solely for purposes of providing an
opinion to the Schlumberger board. The analyses do not purport to be appraisals,
nor do they necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by these analyses. Because these analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of
Schlumberger, Transocean, Sedco Forex or Goldman Sachs assumes responsibility if
future results are materially different from those forecasted.
As described above, the opinion of Goldman Sachs to the Schlumberger board
was one of many factors taken into consideration by the Schlumberger board in
making its determination to approve the merger agreement. The foregoing summary
does not purport to be a complete description of the analyses performed by
Goldman Sachs.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and
58
<PAGE> 63
valuations for estate, corporate and other purposes. Goldman Sachs is familiar
with Sedco Forex, having provided certain investment banking services to
Schlumberger from time to time, including having acted as its financial advisor
in connection with the merger with Camco International, Inc. in August 1998, and
having acted as financial advisor in connection with, and having participated in
certain negotiations leading to, the merger agreement. Goldman Sachs has also
provided certain investment banking services to Transocean from time to time,
including having acted as (1) financial advisor to Transocean in its merger with
Transocean Drilling ASA in September 1996; (2) lead-managing underwriter of a
public offering of 7.45% Notes due 2027 and 8% Debentures due 2027 in April
1997; and (3) agent in Transocean's stock repurchase program. Goldman Sachs may
provide investment banking services to Transocean or Transocean Sedco Forex in
the future.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may, from time to
time, effect transactions and hold securities, including derivative instruments,
of Schlumberger and Transocean for its own account and for the accounts of
customers. As of July 12, 1999, Goldman Sachs accumulated a net long position of
58,895 shares of Schlumberger common stock and options to sell 123,500 shares of
Schlumberger common stock and a net long position of 128,800 Transocean ordinary
shares and options to sell 20,000 Transocean ordinary shares.
Pursuant to a letter agreement, dated April 12, 1999, between Schlumberger
and Goldman Sachs, Schlumberger engaged Goldman Sachs to act as its financial
advisor in connection with the possible distribution to Schlumberger's
shareholders of the shares of Sedco Forex capital stock and possible merger or
business combination of Sedco Forex with all or substantially all of Transocean.
Pursuant to the terms of this letter:
- if the merger is consummated, Schlumberger will pay Goldman Sachs a
transaction fee equal to $10,000,000 upon consummation of the merger; or
- if the merger agreement is terminated and Schlumberger is entitled to
certain payments according to the terms thereof, Schlumberger will pay
Goldman Sachs a transaction fee equal to 20% of the payment, up to a
maximum amount of $10,000,000, upon receipt of that payment by
Schlumberger.
In addition, Schlumberger has agreed to reimburse Goldman Sachs
periodically, upon request, and upon consummation of the merger or upon
termination of its services pursuant to the letter agreement, for its reasonable
out-of-pocket expenses, including the fees and disbursements of Goldman Sachs'
attorneys, plus any sales, use or similar taxes, including additions to such
taxes, if any, arising in connection with any matter referred to in the letter.
Schlumberger has also agreed to indemnify Goldman Sachs and certain related
persons against certain liabilities in connection with its engagement, including
certain liabilities under federal securities laws.
TRANSOCEAN SEDCO FOREX MANAGEMENT
J. Michael Talbert, the present Chairman of the Board and Chief Executive
Officer of Transocean, will become the President and Chief Executive Officer of
Transocean Sedco Forex.
59
<PAGE> 64
In addition, the following persons will hold the positions set forth
opposite their names below:
<TABLE>
<S> <C>
Jean P. Cahuzac.......... Executive Vice President and President, Europe, Middle
East and Africa
W. Dennis Heagney........ Executive Vice President and President, Asia and the
Americas
Jon C. Cole.............. Executive Vice President, Marketing
Robert L. Long........... Executive Vice President, Chief Financial Officer and
Treasurer
Donald R. Ray............ Senior Vice President, Technical Services
Eric B. Brown............ Vice President, General Counsel and Secretary
Barbara S. Vice President, Information Systems and Communications
Koucouthakis........... Technology
David Mullen............. Vice President, Human Resources
Ricardo Rosa............. Vice President and Controller
</TABLE>
Messrs. Heagney, Cole, Long, Ray and Brown and Ms. Koucouthakis are
currently executive officers of Transocean, and Messrs. Cahuzac, Mullen and Rosa
are currently employed by Schlumberger.
TRANSOCEAN SEDCO FOREX BOARD OF DIRECTORS
Upon completion of the merger, Victor E. Grijalva, the present Vice
Chairman of Schlumberger, will become the Chairman of the board of directors of
Transocean Sedco Forex and is expected to serve until he reaches age 65. Mr.
Grijalva will enter into a consulting agreement with Transocean Sedco Forex in
connection with his becoming Chairman. Mr. Grijalva will also retain his
position as Vice Chairman of Schlumberger. See "Interests Of Certain
Persons -- Transocean Sedco Forex Chairman's Consulting Agreement."
The board of directors of Transocean Sedco Forex will consist initially of
ten members, five of whom the board of directors of Schlumberger has designated
in consultation with Transocean and five of whom the current board of directors
of Transocean has designated in consultation with Schlumberger. Schlumberger and
Transocean will allocate those directors to the three staggered board classes as
evenly as possible. The Transocean Sedco Forex board of directors will have the
following four standing committees: the Audit Committee, the Executive
Compensation Committee, the Finance and Benefits Committee and the Corporate
Governance Committee. Under the merger agreement, Transocean and Schlumberger
agreed that these committees, as well as any other committee of the board of
directors, will consist of an equal number of Transocean and Schlumberger
designees. Transocean and Schlumberger agreed that the Transocean designees to
the board of directors will designate the committee chairmen of the Executive
Compensation and the Finance and Benefits Committees and that the Schlumberger
designees to the board of directors will designate the committee chairmen of the
Audit and Corporate Governance Committees. Transocean and Schlumberger also
agreed that the chairmen of any other committees will be designated as equally
as practicable by their respective board designees. See "Management of
Transocean Sedco Forex."
To configure the board of directors as it will be constituted following the
merger, the four members of the current Transocean board who will not be
continuing directors have submitted their resignations from the board to be
effective after the merger is completed. To fill these vacancies, Schlumberger,
in consultation with Transocean, has designated five nominees, each of whom has
been elected by the Transocean board of directors to be effective after the
merger is completed.
Under the merger agreement, Transocean agreed to use all reasonable efforts
to maintain the proportional allocation between Transocean and Schlumberger
designees to the board and its committees for a period of three years after the
completion of the merger. Transocean and Schlumberger also agreed that if a
director dies, resigns or is removed from the board prior to the expiration of
the three-year period following the merger, the remaining Transocean designees,
if the director was a director designated by Transocean, or Schlumberger
designees, if the director was a director designated by Schlumberger, on the
board will nominate a replacement for action by the full board.
60
<PAGE> 65
STOCK EXCHANGE LISTING
The Transocean Sedco Forex ordinary shares to be issued to Schlumberger's
shareholders in the merger will be listed on the NYSE, subject to official
notice of issuance. The completion of the merger is conditioned upon such
authorization for listing.
ACCOUNTING TREATMENT AND CONSIDERATIONS
Transocean Sedco Forex will account for the merger using the purchase
method of accounting, with Sedco Forex treated as the acquiror. As a result, the
assets and liabilities of Sedco Forex will be recorded at historical amounts,
without restatement to fair values. The assets and liabilities of Transocean
will be recorded at their estimated fair values at the date of the merger, with
the excess of the purchase price over the sum of such fair values recorded as
goodwill. The purchase price is based upon the market capitalization of
Transocean, using an average trading price of Transocean ordinary shares for a
reasonable period of time immediately before and after the merger was announced,
plus the estimated fair value of Transocean stock options assumed by Transocean
Sedco Forex. The purchase price is estimated to be $2.98 billion, which was
calculated using a $29.2411 per share valuation of Transocean ordinary shares.
The calculated purchase price is for accounting purposes only and is not
indicative of the price at which shares of Transocean ordinary shares will trade
immediately before the completion of the merger or the value of the Transocean
ordinary shares to be received by shareholders of Schlumberger in connection
with the merger.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
SCOPE OF DISCUSSION
The following discussion summarizes the material U.S. federal income tax
consequences to Schlumberger's shareholders of (1) the receipt of Sedco Forex
shares in the spin-off and the subsequent exchange of those shares for
Transocean ordinary shares in the merger and (2) the subsequent ownership and
disposition of Transocean ordinary shares. For a description of the manner in
which the spin-off and merger will be carried out, see "The Schlumberger Special
General Meeting," beginning on page 38. This discussion is based upon existing
U.S. tax law, including legislation, regulations, administrative rulings and
court decisions, as in effect on the date of this proxy statement/prospectus,
all of which are subject to change, possibly with retroactive effect.
For purposes of this discussion, (1) a "U.S. holder" is a beneficial owner
of stock that is (a) an individual citizen or resident of the United States, (b)
a corporation created or organized in or under the laws of the United States or
of a state of the United States or the District of Columbia or (c) a
partnership, trust or estate treated, for U.S. tax purposes, as a domestic
partnership, trust, or estate, (2) a "non-U.S. holder" is any shareholder other
than a U.S. holder and (3) the term "U.S. tax" means U.S. federal income tax
under the Internal Revenue Code. The discussion assumes that U.S. holders hold
their Schlumberger shares, the Sedco Forex shares that they will receive in the
spin-off and the Transocean ordinary shares that they will receive in the merger
as a capital asset. Tax consequences that are different from or in addition to
those described below may apply to Schlumberger's shareholders who are subject
to special treatment under U.S. tax law, such as tax exempt organizations,
financial institutions, insurance companies, broker-dealers, persons who hold
their Schlumberger shares as part of a hedge, straddle, wash sale, synthetic
security, conversion transaction or other integrated investment comprised of
Schlumberger shares and one or more other investments, persons who acquired
their shares in compensatory transactions, or non-U.S. holders who are or have
previously been engaged in the conduct of a trade or business in the United
States. The discussion is limited to U.S. federal income tax considerations and
does not address other U.S. federal tax considerations or state, local, or non-
U.S. tax considerations.
THIS SUMMARY IS NOT A SUBSTITUTE FOR AN INDIVIDUAL ANALYSIS OF THE TAX
CONSEQUENCES OF THE SPIN-OFF AND MERGER TO A SCHLUMBERGER SHAREHOLDER. EACH
SCHLUMBERGER SHAREHOLDER SHOULD CONSULT A TAX ADVISOR AS TO THE U.S. FEDERAL
INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS, INCLUDING ANY SUCH CONSEQUENCES
ARISING FROM THE PARTICULAR FACTS AND CIRCUMSTANCES OF THE SCHLUMBERGER
SHAREHOLDER, AND AS TO ANY ESTATE, GIFT, STATE, LOCAL OR NON-U.S. TAX
CONSEQUENCES OF THE TRANSACTIONS.
61
<PAGE> 66
CERTAIN U.S. TAX CONSEQUENCES OF THE SPIN-OFF AND THE MERGER TO U.S. HOLDERS
AND TO SCHLUMBERGER, SEDCO FOREX AND TRANSOCEAN
The spin-off is intended to qualify as a distribution that is tax-free to
Schlumberger's shareholders under Section 355 of the U.S. Internal Revenue Code,
and the merger is intended to qualify as a tax-free reorganization under Section
368(a)(1)(B) of the U.S. Internal Revenue Code. The obligations of Schlumberger
and Sedco Forex to carry out the spin-off and the merger are conditioned upon
the receipt by Schlumberger and Sedco Forex from their counsel, Baker & Botts,
L.L.P., of an opinion that the spin-off and merger should so qualify. It is
anticipated that this opinion will be delivered shortly before the spin-off. The
opinions of Baker & Botts summarized in this joint proxy statement/prospectus
are and will be subject to qualifications and limitations, including those
described below.
On the basis of their opinion regarding the spin-off and the merger, as
just described, in the opinion of Baker & Botts:
- a U.S. holder who complies with the reporting requirements described
below should recognize no gain or loss, and should not otherwise be
required to include any amount in income, as a result of the receipt of
Sedco Forex shares in the spin-off;
- the holder's aggregate basis in the Schlumberger shares and the Sedco
Forex shares held immediately after the spin-off should be equal to the
holder's basis in the Schlumberger shares immediately before the spin-off
and should be allocated between the Schlumberger shares and the Sedco
Forex shares in accordance with the relative fair market values of the
Schlumberger shares and the Sedco Forex shares on the date of the
spin-off;
- the holding period of the Sedco Forex shares should include the holding
period of the Schlumberger stock on which the spin-off of the Sedco Forex
shares is made;
- U.S. holders should recognize no gain or loss on the exchange in the
merger of Sedco Forex shares for Transocean ordinary shares (except that
"5% shareholders" of Transocean Sedco Forex who fail to file a "gain
recognition agreement" with the Internal Revenue Service will be required
to recognize gain on the exchange, as described below);
- the basis of the Transocean ordinary shares received by each U.S. holder
in the merger should be the same as the basis of the Sedco Forex shares
surrendered in exchange for the Transocean ordinary shares, adjusted for
any portion of the holder's basis in the Sedco Forex shares that is
allocable to a fractional share of Transocean ordinary shares;
- the holding period of such Transocean ordinary shares should include the
U.S. holder's holding period in the Sedco Forex shares; and
- a U.S. holder should recognize capital gain or loss on a cash payment for
a fractional share of Transocean ordinary shares in an amount equal to
the difference between the amount of cash received and the portion of the
holder's basis in the Sedco Forex shares surrendered that is allocable to
the fractional share.
In addition, in the opinion of Baker & Botts, (1) without regard to the
rules which would be applicable to Schlumberger if it were a U.S. corporation,
Schlumberger will not be required to include in income any gain arising from the
spin-off because no such gain will be effectively connected with the conduct by
Schlumberger of a trade or business within the United States and (2) Transocean
and Sedco Forex will recognize no gain or loss as a result of the merger.
Since Schlumberger and Sedco Forex are not U.S. corporations, in order to
qualify for tax-free treatment under Section 355, U.S. holders must comply with
reporting requirements prescribed by Treasury regulations under Section 367(b)
of the Internal Revenue Code. In addition, U.S. holders should comply with the
normal reporting requirements applicable to any distribution under Section 355
and reorganization under Section 368 of the Internal Revenue Code. A U.S. holder
may comply with all applicable reporting requirements under Section 367(b),
Section 355 and Section 368 by attaching a statement to the holder's U.S. tax
return for the
62
<PAGE> 67
year in which the spin-off occurs. A form of a statement that, with appropriate
insertions and modifications, U.S. holders may use for this purpose will be
provided with the Transocean Sedco Forex shares issued to these holders. Except
with respect to "5% shareholders" of Transocean Sedco Forex, as described below,
U.S. holders are not subject to any separate reporting requirements with respect
to the merger under Section 367 of the Internal Revenue Code.
A U.S. holder who is a "5% shareholder" of Transocean Sedco Forex after the
merger in accordance with applicable Treasury regulations under Section 367(a)
of the Internal Revenue Code and who would otherwise recognize gain in the
merger on the exchange of Sedco Forex shares for Transocean ordinary shares will
qualify for tax-free treatment in the merger, as described above, only if the
U.S. holder files a "gain recognition agreement" with the Internal Revenue
Service. The general effect of a gain recognition agreement would be to require
the U.S. holder to recognize the holder's gain, with interest, on the exchange
of Sedco Forex shares for Transocean ordinary shares in the event that, at any
time prior to the close of the fifth full calendar year following the year in
which the merger occurs, Transocean Sedco Forex disposes of part or all of the
stock of Sedco Forex or Sedco Forex disposes of substantially all of its assets.
Any U.S. holder who will be a "5% shareholder" of Transocean Sedco Forex after
the merger should consult the holder's own tax adviser concerning the decision
to file a gain recognition agreement and the procedures to be followed in
connection with such filing.
The opinions of counsel referred to above are and will be based on present
law, which is subject to change, possibly with retroactive effect. In providing
its opinions, Baker & Botts has relied and will rely upon the accuracy of
certain representations made to Baker & Botts by representatives of
Schlumberger, Sedco Forex and Transocean, including representations to the
effect that Sedco Forex will not be a passive foreign investment company, as
defined in Section 1297(a) of the U.S. Internal Revenue Code, for the calendar
year in which the merger occurs, and upon the accuracy of other information
provided by Schlumberger to Baker & Botts. In addition, Baker & Botts has relied
and will rely upon the accuracy of the information in this joint proxy
statement/prospectus and in other documents filed by Schlumberger and Transocean
with the SEC. No ruling will be requested from the Internal Revenue Service on
any aspect of the spin-off or merger. The opinions of counsel are not binding
upon the Internal Revenue Service or a court and will not preclude the Internal
Revenue Service or a court from adopting a contrary position.
If the spin-off did not qualify under Section 355 of the U.S. Internal
Revenue Code, each U.S. holder of Schlumberger stock would receive a taxable
distribution in an amount equal to the fair market value of the Sedco Forex
shares received in the spin-off. Such distribution would be taxable as a
dividend to the extent paid out of current and accumulated earnings and profits
of Schlumberger, computed according to U.S. tax principles. The remainder of the
distribution, if any, would be applied against and would reduce the U.S.
holder's basis in the Schlumberger shares and, to the extent exceeding such
basis, would be taxable as a capital gain. The U.S. holder's basis in the Sedco
Forex shares would be equal to the fair market value of that stock on the date
of the spin-off. If the merger did not qualify as a reorganization under Section
368(a)(1)(B) of the U.S. Internal Revenue Code, a U.S. holder would recognize
capital gain or loss in an amount equal to the difference between the aggregate
fair market value of the Transocean ordinary shares that the U.S. holder
received in the merger and the holder's basis in the Sedco Forex shares
surrendered in the exchange.
CERTAIN U.S. TAX CONSEQUENCES OF HOLDING AND DISPOSING OF TRANSOCEAN ORDINARY
SHARES
General
The following is a discussion of the material U.S. federal income tax
consequences of the ownership and disposition of Transocean ordinary shares by
U.S. holders who receive Sedco Forex shares in the spin-off and exchange those
shares for Transocean ordinary shares in the merger. The discussion is subject
to the assumptions and limitations set forth above in "-- Scope of Discussion."
63
<PAGE> 68
Distributions on and Sale of the Transocean Ordinary Shares
U.S. holders will be required to include in gross income as ordinary income
the gross amount of any distribution on the Transocean ordinary shares, to the
extent that the distribution is paid out of Transocean's current or accumulated
earnings and profits as determined for U.S. tax purposes (a "dividend"). These
dividends generally will not be eligible for the dividends received deduction
that is allowed to U.S. corporate shareholders on dividends received from a
domestic corporation. Distributions in excess of those earnings and profits will
be applied first to reduce the U.S. holder's tax basis in the holder's shares.
To the extent that the distribution exceeds the U.S. holder's tax basis, the
excess will constitute gain from a sale or exchange of the shares.
Transocean expects that, for foreign tax credit purposes, dividends paid on
the Transocean ordinary shares will generally be foreign source income and will
be "passive income" or, in some cases, "financial services income." However,
under Section 904(g) of the U.S. Internal Revenue Code, dividends paid by a
foreign corporation that is treated as at least 50% owned by U.S. persons will
be treated as U.S. source income for foreign tax credit purposes to the extent
that the dividends are paid out of earnings and profits from sources within the
United States and are paid out of the earnings and profits of a taxable year of
the foreign corporation in which at least 10% of the total earnings and profits
are from sources within the United States. A portion of the dividends paid by
Transocean may be treated as U.S. source income either under Section 904(g) of
the Code or because the dividends were treated as having been paid out of
earnings and profits accumulated by a U.S. predecessor of Transocean.
A U.S. holder of Transocean ordinary shares will generally recognize gain
or loss for U.S. tax purposes upon the sale or exchange of such shares in an
amount equal to the difference between the amount realized from such sale or
exchange and the U.S. holder's tax basis for such shares. Such gain or loss will
be a capital gain or loss and, in the case of an individual U.S. holder, any
such gain would be subject to U.S. tax at a maximum rate of 20% if the U.S.
holder's holding period for the Transocean ordinary shares at the time of the
sale or exchange exceeds one year.
Special Status of Certain Corporations for U.S. Tax Purposes
For U.S. federal income tax purposes, a foreign (i.e., non-U.S.)
corporation, such as Transocean, is classified as a passive foreign investment
company for each taxable year in which either (1) 75% or more of its gross
income is passive income as defined for U.S. tax purposes or (2) on average for
such taxable year, 50% or more in value of its assets produce passive income or
are held for the production of passive income. For purposes of applying the
foregoing tests, the foreign corporation is deemed to own its proportionate
share of the assets of and to receive directly its proportionate share of the
income of any other corporation of which the foreign corporation owns, directly
or indirectly, at least 25% by value of the stock.
Classification of a foreign corporation as a passive foreign investment
company can have various adverse consequences to U.S. holders. These include
taxation of gain on a sale or other disposition of the stock of the corporation
at ordinary income rates and imposition of an interest charge on gain on or
distributions with respect to the stock. These consequences would not apply if
the U.S. holder elected to treat the foreign corporation as a qualified electing
fund (a "QEF election") for all taxable years during which the U.S. holder held
stock of the corporation and during which the corporation was a passive foreign
investment company. The general effect of a QEF election is to require the U.S.
holder to include in income the holder's pro rata share of the income of the
foreign corporation for each year in which the corporation is classified as a
passive foreign investment company, even if no distributions are received. U.S.
holders of stock of a passive foreign investment company may also make certain
other elections that are not here described.
Transocean believes that it will not be a passive foreign investment
company following the merger. However, the tests for determining passive foreign
investment company status are applied annually, and it is difficult to predict
accurately future income and assets relevant to this determination. Accordingly,
Transocean cannot assure U.S. holders that it will not become a passive foreign
investment company. If Transocean should determine in the future that it is a
passive foreign investment company, it will endeavor so to notify U.S. holders,
although there can be no assurance that it will be able to do so in a timely and
complete manner.
64
<PAGE> 69
U.S. holders should consult their own tax advisers about the passive foreign
investment company rules, including QEF elections.
Transocean would be a controlled foreign corporation if certain U.S.
holders, as described below, owned, actually or constructively, stock
representing more than 50% of the voting power or value of Transocean. Stock
owned by any U.S. holder who owns, actually or constructively, stock
representing 10% or more of the voting power of Transocean would be taken into
account in making the determination just described, but stock owned by other
U.S. holders and stock owned by all non-U.S. holders would be disregarded.
Transocean does not expect to be a controlled foreign corporation following the
merger. If it nevertheless were a controlled foreign corporation, such status
would have no effect on any U.S. holder who at no time owned, actually or
constructively, stock representing 10% or more of the voting power of
Transocean.
United States Information Reporting and Backup Withholding
Dividends on Transocean ordinary shares paid within the United States or
through certain U.S.-related financial intermediaries are subject to information
reporting and may be subject to backup withholding at a 31% rate unless the
holder (1) is a corporation or other exempt recipient or (2) provides a taxpayer
identification number and certifies that no loss of exemption from backup
withholding has occurred. Information reporting requirements and backup
withholding may also apply to the cash proceeds of a sale of the Transocean
ordinary shares.
NON-U.S. HOLDERS
A non-U.S. holder of Schlumberger shares will not in any case be subject to
U.S. federal income or withholding tax on gain or income with respect to the
spin-off and merger, and will not be subject to U.S. federal income or
withholding tax on any gain recognized on a subsequent disposition of Transocean
ordinary shares received in the merger, as long as:
- such income or gain is not effectively connected with the conduct by the
holder of a trade or business within the United States or, if a tax
treaty applies, is not attributable to a permanent establishment or fixed
place of business maintained by the holder in the United States;
- in the case of certain capital gains, the holder either is not present in
the United States for 183 days or more during the taxable year in which
the capital gain is recognized or otherwise qualifies for an exemption;
and
- the holder qualifies for an exemption from backup withholding, as
discussed below.
Moreover, such a holder will not generally be subject to U.S. tax on
distributions made by Transocean on the Transocean ordinary shares. However,
dividends paid by Transocean Sedco Forex to non-U.S. holders out of earnings and
profits accumulated by a U.S. predecessor of Transocean Sedco Forex may be
subject to U.S. withholding tax. In order to qualify for an exemption from
backup withholding tax on dividends on and gain from dispositions of the
Transocean ordinary shares, a non-U.S. holder may be required to provide a
taxpayer identification number, certify the holder's foreign status, or
otherwise establish an exemption.
REGULATORY MATTERS
Transocean and Schlumberger must make certain filings and receive certain
authorizations from various governmental agencies, both in the United States and
internationally, to complete the merger. These filings, notifications and
authorizations relate primarily to antitrust and securities law issues.
Transocean and Schlumberger intend to pursue vigorously all required regulatory
approvals. However, neither Transocean nor Schlumberger can assure that it will
obtain all such approvals by the time of its shareholder meeting or at all. In
addition, neither Transocean nor Schlumberger can assure that governmental
authorities will not impose unfavorable conditions for granting the required
approvals.
65
<PAGE> 70
U.S. ANTITRUST LAWS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the
rules and regulations promulgated thereunder, the parties cannot complete the
merger until they have notified and furnished certain information to the Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice and a specified waiting period expires or is terminated. The parties
received notice of early termination of the required waiting period under the
U.S. Hart-Scott-Rodino Act on August 16, 1999.
OTHER ANTITRUST LAWS
Each other country and U.S. state in which Transocean or Schlumberger has
operations also may review the merger under its antitrust laws. The parties
received clearance from the U.K. competition/antitrust authorities on October
14, 1999. A competition/antitrust filing will also be made in Brazil.
At any time before the completion of the merger, any of the relevant
governmental authorities or a private person or entity could seek under
antitrust laws, among other things, to enjoin the spin-off or the merger or to
cause Transocean or Sedco Forex to divest assets or businesses as a condition to
completing the merger. Neither Transocean nor Schlumberger can assure that a
challenge to the spin-off or the merger will not be made or, if such a challenge
is made, that Transocean, Schlumberger or Sedco Forex will prevail.
Furthermore, any of the relevant governmental authorities or a private
person or entity could seek, under antitrust laws, to take action against
Schlumberger or Transocean after the completion of the merger. Transocean and
Schlumberger are unable to predict whether such action will be taken or what the
outcome of such action may be.
The parties' obligation to complete the merger is subject to the condition
that no decree, order or injunction of a court of competent jurisdiction
prohibits such completion. The parties agreed to use their commercially
reasonable best efforts to have any such decree, order or injunction lifted or
vacated. The parties also conditioned the completion of the merger on the
requirement that no statute, rule or regulation of a governmental authority
prohibits the merger or would make it unlawful.
COOPERATION OF THE PARTIES
Under the merger agreement, the parties agreed to use their best efforts to
cooperate in determining which filings need to be made and which consents,
approvals, permits or authorizations will need to be obtained prior to the
completion of the merger. The parties also agreed to use their best efforts to
make or obtain all material filings, consents, approvals, permits or
authorizations in a timely manner and to furnish each other with necessary
information and reasonable assistance in so doing. Under the merger agreement,
the parties must use their best efforts to take any and all steps necessary to
gain any consents, approvals, permits or authorizations material to completing
the merger or to eliminate any impediments that would restrain, prevent or delay
that completion. However, the merger agreement provides that neither party is
required to dispose of any material amount of assets to obtain any consents,
approvals, permits or authorizations or to remove any impediments to the merger.
FEDERAL SECURITIES LAWS CONSEQUENCES; RESALE RESTRICTIONS
All Transocean ordinary shares that Transocean will issue to Schlumberger's
shareholders in connection with the merger will be freely transferable, except
for certain restrictions applicable to "affiliates" of Sedco Forex under the
Securities Act of 1933. Those affiliates may resell those shares they receive
only in transactions permitted by Rule 145 under the Securities Act or as
otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of Sedco Forex for these purposes generally include individuals or
entities that control, are controlled by, or are under common control with,
Sedco Forex, and would not include shareholders who are not executive officers,
directors or significant shareholders of Sedco Forex.
The merger agreement requires Sedco Forex to prepare and deliver a list
that identifies all persons whom Sedco Forex believes may be deemed to be
affiliates of Sedco Forex prior to the completion of the merger.
66
<PAGE> 71
Sedco Forex is also required, pursuant to the merger agreement, to use its best
efforts to cause each person it identifies on the list as a potential affiliate
to deliver to Transocean, at or prior to the completion of the merger, a written
agreement that such affiliate will not sell, pledge, transfer or otherwise
dispose of any of the Transocean ordinary shares issued to the affiliate
pursuant to the merger unless such sale, pledge, transfer or other disposition
meets one of the following criteria:
- it is made pursuant to an effective registration statement filed under
the Securities Act;
- it is in compliance with Rule 145; or
- it is otherwise exempt from the registration requirements of the
Securities Act.
Transocean's receipt of such an agreement from each potential Rule 145
affiliate is a condition to its obligation to complete the merger.
This joint proxy statement/prospectus does not cover any resales of the
Transocean ordinary shares to be received by Schlumberger's shareholders in the
merger, and no person is authorized to make any use of this joint proxy
statement/prospectus in connection with any such resale.
67
<PAGE> 72
THE TRANSACTION AGREEMENTS
This section describes the material provisions of the distribution
agreement and the merger agreement. The distribution agreement includes the
terms and conditions according to which Sedco Forex will be separated from
Schlumberger and spun off to Schlumberger's shareholders. The merger agreement
includes the terms and conditions according to which a wholly owned subsidiary
of Transocean will merge with and into Sedco Forex, with Sedco Forex surviving
the merger as a wholly owned subsidiary of Transocean. The merger agreement is
attached to this joint proxy statement/prospectus as Annex A, and the
distribution agreement is attached as Annex B. The merger agreement and the
distribution agreement are incorporated into this joint proxy
statement/prospectus by this reference. This section does not describe all of
the provisions of the merger agreement or the distribution agreement, so we urge
you to read those agreements carefully in their entirety.
THE DISTRIBUTION AGREEMENT
SEPARATION OF OFFSHORE CONTRACT DRILLING BUSINESS FROM SCHLUMBERGER
Before Sedco Forex is spun off to Schlumberger's shareholders, it must be
restructured to separate its business, assets and liabilities from
Schlumberger's other business, assets and liabilities. After that separation,
Sedco Forex will own, directly or through subsidiaries, Schlumberger's offshore
contract drilling assets and businesses, other than four jackups and seven
multi-purpose service vessels and related assets in the Middle East, Indonesia
and Lake Maracaibo, Venezuela. At that time, Schlumberger and its remaining
subsidiaries will own substantially all of the Sedco Forex assets that are not
related to the offshore contract drilling business.
The Sedco Forex assets and the Schlumberger assets will, to the extent
reasonably practicable, be separated. Where complete separation is not
reasonably practicable, Sedco Forex and Schlumberger will, subject to
Transocean's consent, enter into appropriate arrangements regarding the use of
shared assets. Additionally, Sedco Forex and Schlumberger will use their best
efforts to amend certain contracts to separate the contractual rights and duties
of Sedco Forex from those of Schlumberger. If an amendment cannot be obtained,
or if an amendment would be ineffective or would adversely affect the rights of
Sedco Forex or Schlumberger under the affected contract, Sedco Forex and
Schlumberger will cooperate in negotiating a mutually agreeable arrangement to
transfer the economic benefit of the contract to the intended party to the
extent possible.
Prior to or in conjunction with the completion of the business separation,
Sedco Forex and Schlumberger will negotiate and execute a reciprocal transition
services agreement anticipated to remain in force for up to two years from the
time that the business separation is complete. Sedco Forex and Schlumberger will
also conclude independent service agreements whereby Sedco Forex will support
certain Schlumberger operations, in some cases for at least three years from the
completion of the merger. Each of these transition services agreements will be
subject to Transocean's consent.
INTERCOMPANY INDEBTEDNESS AND OTHER FINANCING MATTERS
After the end of the month in which Schlumberger notifies Transocean that
it has transferred substantially all of the offshore contract drilling assets to
be transferred to Sedco Forex under the distribution agreement, Schlumberger is
to deliver to Transocean an audited balance sheet as of the end of that month.
As of the date of that pre-closing balance sheet, Sedco Forex will have $435
million in indebtedness, some of which may be intercompany indebtedness. The
$435 million of indebtedness is subject to adjustment for changes in working
capital, capital expenditures and other accounts described in the distribution
agreement between the date of the agreement and the date of the pre-closing
balance sheet. Sedco Forex and Schlumberger will, and will cause their
respective subsidiaries to, pay all other intercompany borrowings and payables
before the date of that balance sheet. Sedco Forex is required to pay off any
intercompany indebtedness included in the $435 million of retained indebtedness
no later than the close of business on the day after the distribution of the
capital stock of Sedco Forex to Schlumberger's shareholders. On the date of the
pre-closing balance sheet, Sedco Forex and its subsidiaries, collectively, are
required to have a minimum
68
<PAGE> 73
of $35 million on hand in cash. See "Summary -- The Companies -- Transocean
Offshore Inc. -- Recent Developments."
OPERATIONS OF SEDCO FOREX AFTER THE PRE-CLOSING BALANCE SHEET DATE
Except as otherwise provided for in the merger agreement, the distribution
agreement or other agreements executed as part of the transaction, after the
date of the pre-closing balance sheet, Sedco Forex will be prohibited from doing
any of the following:
- paying dividends or distributing any cash or cash equivalents to
Schlumberger and its subsidiaries that will not be subsidiaries of Sedco
Forex after the spin-off;
- incurring any indebtedness outside the ordinary course of business; and
- engaging in any transaction with Schlumberger and its subsidiaries that
will not be subsidiaries of Sedco Forex after the spin-off except on an
arm's-length basis on terms no less favorable than Sedco Forex could
obtain from a third party.
RESTRUCTURING LIABILITIES
Generally, Sedco Forex will be responsible for all liabilities associated
with the assets and businesses it will hold when it is distributed to
Schlumberger's shareholders, whether those liabilities arose before or arise
after the spin-off date. Generally, Schlumberger will be responsible for all
liabilities associated with the assets and businesses it will retain following
the spin-off, whether arising before or after the spin-off date. Schlumberger
will also be responsible for any liabilities directly arising out of or directly
resulting from the transactions that are necessary to separate the Sedco Forex
business, assets and liabilities from the rest of Schlumberger's business,
assets and liabilities, except to the extent those liabilities would have
directly arisen out of or directly resulted from the merger. In general,
Schlumberger will be liable for taxes arising from the separation and spin-off,
except for taxes that are first asserted by the local taxing authorities more
than eight years after the spin-off or, in the case of customs duties, more than
six years after the spin-off.
INTERCOMPANY AGREEMENTS
All existing intercompany agreements between Schlumberger and its
subsidiaries that will not be subsidiaries of Sedco Forex after the spin-off, on
the one hand, and Sedco Forex and its subsidiaries, on the other, will be
terminated prior to the spin-off, except for those provided for in the
distribution agreement. Sedco Forex and Schlumberger agreed not to solicit any
active employees of the other for a period of two years after the date of the
spin-off without the prior consent of the other party. Sedco Forex and
Schlumberger also agreed to discontinue the use of any existing materials
referencing the other party no later than six months after the date of the
spin-off.
Prior to the date of the pre-closing balance sheet, Sedco Forex will seek
to terminate all obligations of Schlumberger or its subsidiaries, as guarantor,
original tenant or primary obligor for Sedco Forex liabilities and any liens or
encumbrances on the assets of Schlumberger or its subsidiaries related to the
Sedco Forex liabilities. Likewise, prior to the date of the pre-closing balance
sheet, Schlumberger will seek to terminate all obligations of Sedco Forex as
guarantor, original tenant or primary obligor for the liabilities of
Schlumberger or its subsidiaries and any liens or encumbrances on the assets of
Sedco Forex related to the liabilities of Schlumberger or its subsidiaries.
THE SPIN-OFF
After the separation of Sedco Forex from Schlumberger, Schlumberger will
distribute all outstanding Sedco Forex shares to Schlumberger's shareholders.
Each Schlumberger shareholder will receive one Sedco Forex share for each share
of Schlumberger common stock owned and will continue to own the same number of
shares of Schlumberger common stock. No Sedco Forex shares will be issued with
respect to shares of Schlumberger common stock held by Schlumberger in treasury.
The spin-off is generally subject to the same conditions as the merger and will
not be effected until the other conditions to the merger are fulfilled or
69
<PAGE> 74
waived. See "-- Conditions to the Spin-Off and the Merger." If the parties
terminate the merger agreement, the board of directors of Schlumberger may
abandon the spin-off and terminate the distribution agreement.
THE MERGER AGREEMENT
On a day after the spin-off, Merger Sub, which is a wholly owned subsidiary
of Transocean organized under the laws of the British Virgin Islands, will merge
into Sedco Forex with Sedco Forex surviving as a wholly owned subsidiary of
Transocean. The closing of the merger will take place promptly after all of the
conditions to the merger described in "-- Conditions to the Spin-off and the
Merger" are fulfilled or waived. The merger will be effective at the time
Transocean and Schlumberger specify in the articles of merger they will file in
the British Virgin Islands.
In the merger, shareholders of Schlumberger who receive shares of Sedco
Forex in the spin-off will receive, for each Sedco Forex share held, a number of
Transocean ordinary shares equal to fifty-two forty-eighths times the number of
diluted Transocean ordinary shares, divided by the number of diluted Sedco Forex
shares, in each case as calculated immediately prior to the effectiveness of the
merger. The number of diluted Transocean ordinary shares will be calculated
according to the treasury method under U.S. generally accepted accounting
principles and includes all shares issued at that time and a portion of the
shares issuable pursuant to outstanding options to purchase Transocean ordinary
shares and unvested restricted shares. The number of diluted Sedco Forex shares
will be calculated on the same basis using the treasury method. All nonvested
options to acquire shares of Schlumberger common stock held by Sedco Forex
employees at the spin-off date will be treated as fully vested options to
acquire shares of Sedco Forex common stock. The parties expect there will be
approximately 101 million diluted Transocean ordinary shares and approximately
565 million diluted Sedco Forex shares at the time of the merger. Based on those
estimates, each Sedco Forex share would be converted into approximately 0.194 of
a Transocean ordinary share.
If Transocean changes the number of its ordinary shares or Sedco Forex
changes the number of its shares that are issued and outstanding, in either case
as a result of a stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction, before the effectiveness of the
merger and other than as provided for in the distribution agreement, Transocean
and Schlumberger will adjust the exchange ratio appropriately.
COVENANTS
Interim Operations
Transocean and Sedco Forex agreed to take or refrain from taking the
actions described below from the date of the merger agreement, July 12, 1999,
until the merger is completed or the merger agreement is terminated. Compliance
with these covenants may be modified to allow the transactions contemplated by
the merger agreement, the distribution agreement or any of the other agreements
executed in connection with the spin-off and the merger or by the written
consent of Schlumberger and Transocean. Each of Transocean and Sedco Forex will:
- conduct its operations in the usual, regular and ordinary course in
substantially the same manner as previously conducted;
- use its commercially reasonable best efforts to:
- preserve its business organizations and goodwill;
- keep available the services of its officers and employees; and
- maintain satisfactory business relationships;
- not amend its charter documents;
- promptly notify the other party of any material change in its condition
or business or any material litigation or material governmental
complaints, investigations or hearings, or the material breach of any of
the representations and warranties of the merger agreement;
70
<PAGE> 75
- promptly deliver to the other party any SEC filings it makes;
- not issue any shares of its capital stock, effect any stock split or
otherwise change its capitalization, except upon exercise of options,
warrants and other rights that exist on the date of the merger agreement
or that the merger agreement permits to be issued;
- not grant any new options, warrants or other rights not existing on the
date of the merger agreement to acquire shares of its capital stock,
except for automatic grants to nonemployee directors under existing
plans, certain grants to new employees and other specified option grants;
- not increase any compensation or benefits or enter into or amend any
employment agreement with any officer or director, except as consistent
with past practice;
- not adopt any new employee benefit plan or materially amend any existing
employee benefit plan in any material respect;
- not declare, set aside or pay any dividends on or make other
distributions in respect of any of its capital stock and not redeem,
purchase or otherwise acquire any shares of its capital stock, except:
- Transocean may declare and pay regular, quarterly dividends, consistent
with past practice, not to exceed $0.03 per ordinary share per quarter;
- Transocean may make transfers between its subsidiaries in the ordinary
course of business; and
- before the date of the Sedco Forex pre-closing financial statements
called for under the distribution agreement, Sedco Forex and its
subsidiaries may distribute cash to their parent entities;
- not sell, lease or otherwise dispose of any material assets, except in
the ordinary course of business;
- not acquire or agree to acquire any material business, entity, assets or
securities for an aggregate consideration in excess of $10 million or
where a filing under the U.S. Hart-Scott-Rodino Antitrust Improvements
Act of 1976 or any non-U.S. competition, antitrust or premerger
notification law is required;
- not change any accounting principle or practice except as required by a
change in law or generally accepted accounting principles;
- maintain insurance in such amounts and against such risks and losses as
is customary for it;
- not make or rescind any material tax election;
- not settle or compromise any material tax claim or controversy;
- not materially change its methods of reporting income or deductions for
tax purposes;
- except for (1) general corporate purposes, (2) refinancings of existing
debt, including, in the case of Transocean, the lease securitization
facility incurred to finance the Discoverer Enterprise and Transocean
Amirante capital projects through bank financing, public debt financing
or under Transocean's existing shelf registration statement or otherwise,
(3) financing previously disclosed projects and (4) other immaterial
borrowings, not:
- incur or guarantee any indebtedness for borrowed money;
- issue or sell any debt securities, warrants or rights to acquire any
debt securities, or guarantee any debt securities of others;
- enter into any material lease or create any material encumbrance on any
of its property in connection with any indebtedness, except in the
ordinary course of business;
- not make capital expenditures in excess of $10 million over its
previously disclosed capital expenditure forecast, except, in the case
of Transocean, (1) in connection with the Discoverer Enterprise,
Discoverer Spirit and Discoverer Deep Seas construction projects, (2)
capital expendi-
71
<PAGE> 76
tures reimbursed or included in dayrates under drilling contracts and
(3) capital expenditures deemed necessary by Transocean's management to
secure drilling contracts;
- diligently carry out the covenants and agreements set forth in the
distribution agreement;
- not purchase any Transocean ordinary shares, Schlumberger common stock or
Sedco Forex common stock;
- not take any action likely to delay materially or adversely affect the
ability of any of the parties to obtain required consents,
authorizations, orders or approvals of governmental or other regulatory
authorities;
- not agree to take any action inconsistent with the foregoing;
- not terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it is a party; and
- enforce, to the fullest extent permitted under applicable law, the
provisions of any confidentiality or standstill agreement, including
obtaining injunctions to prevent any breaches of such agreements and
enforcing specifically the terms and provisions of such agreements.
Additional Agreements
Pursuant to the merger agreement, Schlumberger, Sedco Forex and Transocean
also agreed that:
- Transocean will call a meeting of its shareholders as promptly as
practicable to consider and vote upon:
- increasing its authorized ordinary share capital to an amount sufficient
to complete the merger and the related transactions;
- issuing Transocean ordinary shares pursuant to the merger; and
- changing its name to "Transocean Sedco Forex Inc.";
- Schlumberger will call a meeting of its shareholders as promptly as
practicable to consider and vote upon the spin-off;
- the parties will provide to each other access to their respective
properties, records, files and other information as the other parties may
reasonably request;
- the parties will consult with one another and mutually agree upon any
press releases and other announcements regarding the merger;
- Transocean will prepare and submit to the New York Stock Exchange a
listing application covering the Transocean ordinary shares issuable in
the merger and will use its best efforts to obtain, prior to the
effective time, the NYSE's approval for the listing of those shares;
- Sedco Forex will provide Transocean a list of persons who may be its Rule
145 affiliates, and Sedco Forex will use its best efforts to obtain from
each Rule 145 affiliate an undertaking not to transfer Transocean
ordinary shares issued to such person pursuant to the merger except (1)
pursuant to an effective registration statement, (2) in compliance with
Rule 145 or (3) pursuant to an exemption from the registration
requirements under the Securities Act;
- Transocean and Transocean Sedco Forex will indemnify the officers and
directors of Sedco Forex and its subsidiaries and divisions, and will
maintain directors' and officers' liability insurance, provided such
insurance is reasonably available, for those officers and directors
covered by any existing Sedco Forex officers' and directors' insurance,
for six years after the effective time of the merger;
- Transocean will provide at least ten days' prior written notice to
Schlumberger if Transocean proposes to transfer any of its material
assets or capital stock or that of its subsidiaries to any other
subsidiary of Transocean or to Transocean;
72
<PAGE> 77
- the parties will use all commercially reasonable efforts to establish a
nonexclusive strategic alliance on commercially agreed terms to address
integrated services opportunities;
- Sedco Forex will use all commercially reasonable best efforts to
renegotiate a drilling contract for one of its semisubmersibles under
construction to remove the termination provisions for late delivery;
- the parties will promptly make their respective filings and make any
other required submissions under the U.S. Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and any applicable non-U.S. competition,
antitrust or premerger notification laws with respect to the merger;
- the parties will use their reasonable best efforts to cooperate with one
another in:
- determining which filings the parties must make before the effective
time with, and which consents, approvals, permits or authorizations the
parties must obtain before the effective time from, governmental or
regulatory authorities of the United States and other jurisdictions in
connection with the merger and the related transactions; and
- making all such filings and seeking all such consents, approvals,
permits or authorizations in a timely manner;
- the parties will furnish each other with such necessary information and
reasonable assistance that the other parties reasonably request in
connection with their preparation of necessary filings, registrations or
submissions of information to any governmental or regulatory authorities;
- the parties will use their best efforts to avoid the entry of, or to have
vacated or terminated, any decree, order or judgment that would restrain,
prevent or delay the closing; and
- the parties will use their best efforts to take any and all steps
necessary to obtain any consents or eliminate any impediments to the
merger.
However, no party is required to dispose of any material amount of assets to
obtain any consents, approvals, permits or authorizations or to remove any
impediments to the merger.
No Solicitation
Sedco Forex and Schlumberger will not permit any of their officers,
directors, employees, agents or representatives, directly or indirectly, to
solicit, initiate or encourage any inquiry, proposal or offer to merge,
consolidate, purchase or otherwise acquire:
- 15% or more of the consolidated assets of Sedco Forex;
- 15% or more of any class of capital stock of Sedco Forex;
- any subsidiary of Schlumberger that holds 15% or more of the assets of
Sedco Forex; or
- capital stock of Schlumberger, if the transaction is conditioned on
termination of the merger agreement.
Any such proposal, offer or transaction may be referred to in this joint proxy
statement/prospectus as a "Sedco Forex acquisition proposal."
Sedco Forex and Schlumberger agreed not to cooperate with or engage in any
discussions or negotiations concerning a Sedco Forex acquisition proposal. Sedco
Forex and Schlumberger agreed to cease immediately any existing negotiations
with any parties with respect to any of the foregoing. However, nothing
contained in the merger agreement prevents Sedco Forex or Schlumberger from:
- complying with Rule 14e-2 promulgated under the Exchange Act with regard
to a Sedco Forex acquisition proposal; or
73
<PAGE> 78
- before Schlumberger's shareholders approve the spin-off, providing
information to or engaging in any negotiations with any person who has
made an unsolicited bona fide Sedco Forex acquisition proposal with
respect to all the outstanding Sedco Forex common stock or all or
substantially all the assets of Sedco Forex or other unsolicited bona
fide Sedco Forex acquisition proposal that, in the good faith judgment of
a committee composed solely of outside directors of Schlumberger, taking
into account the likelihood of financing and consummation, and based on
the written advice of a financial adviser of recognized national
reputation, is superior to the merger, if that committee, after
consultation with its outside legal counsel, determines that the failure
to do so would be inconsistent with its fiduciary obligations. Any
information so provided is required to be provided pursuant to a
confidentiality agreement at least as favorable to Sedco Forex and
Schlumberger as the confidentiality agreement entered into with
Transocean in connection with the merger.
If Sedco Forex or Schlumberger intends to participate in any discussions or
negotiations or to provide any information to any third party, Sedco Forex or
Schlumberger is required to give prompt prior written notice to Transocean of
each such action. Sedco Forex or Schlumberger is required to notify Transocean
immediately in writing of any requests for information or the receipt of any
Sedco Forex acquisition proposal, including the identity of the person or group
(1) engaging in such discussions or negotiations, (2) requesting such
information or (3) making such Sedco Forex acquisition proposal, and the
material terms and conditions of any Sedco Forex acquisition proposal. Sedco
Forex or Schlumberger is required to keep Transocean fully informed on a timely
basis of the status and details, including any amendments or proposed
amendments, of any such requests, Sedco Forex acquisition proposals or
inquiries.
Transocean will not permit any of its officers, directors, employees,
agents or representatives, directly or indirectly, to solicit, initiate or
encourage any inquiry, proposal or offer to merge, consolidate, purchase or
otherwise acquire 15% or more of its consolidated assets or 15% or more of any
class of its share capital. Any such proposal, offer or transaction may be
referred to in this joint proxy statement/prospectus as a "Transocean
acquisition proposal."
Transocean agreed not to cooperate with or engage in any discussions or
negotiations concerning a Transocean acquisition proposal. Transocean agreed to
cease immediately any existing negotiations with any parties with respect to any
of the foregoing. However, nothing contained in the merger agreement prevents
Transocean from:
- complying with Rule 14e-2 promulgated under the Exchange Act with regard
to a Transocean acquisition proposal; or
- before Transocean obtains the shareholder votes required in connection
with the merger, providing information to or engaging in any negotiations
with any person who has made an unsolicited bona fide Transocean
acquisition proposal with respect to all the outstanding Transocean
ordinary shares or all or substantially all the assets of Transocean
that, in the good faith judgment of a committee composed solely of the
outside directors of Transocean, taking into account the likelihood of
financing and consummation, and based on the written advice of a
financial advisor of recognized national reputation, is superior to the
merger, if that committee, after consultation with its outside legal
counsel, determines that the failure to do so would be inconsistent with
its fiduciary obligations. Any information so provided is required to be
provided pursuant to a confidentiality agreement at least as favorable to
Transocean as the confidentiality agreement entered into with
Schlumberger in connection with the merger.
If Transocean intends to participate in any discussions or negotiations or
provide any information to any third party, Transocean is required to give
prompt prior written notice to Sedco Forex and Schlumberger of each such action.
Transocean is required to notify Sedco Forex and Schlumberger immediately in
writing of any requests for information or the receipt of any Transocean
acquisition proposal, including the identity of the person or group (1) engaging
in such discussions or negotiations, (2) requesting such information or (3)
making such Transocean acquisition proposal, and the material terms and
conditions of any Transocean acquisition proposal. Transocean is required to
keep Sedco Forex and Schlumberger fully informed on a timely
74
<PAGE> 79
basis of the status and details, including any amendments or proposed
amendments, of any such requests, Transocean acquisition proposals or inquiries.
REPRESENTATIONS AND WARRANTIES
Schlumberger and Sedco Forex, on the one hand, and Transocean and Merger
Sub, on the other hand, make various representations and warranties in the
merger agreement which, in the cases of Sedco Forex and Transocean, are
substantially reciprocal. Those representations and warranties include:
- their organization, good standing and foreign qualification;
- the authorization, execution, delivery and enforceability of the merger
agreement, the distribution agreement and related matters;
- capitalization;
- compliance with laws and possession of permits;
- whether each party's execution and delivery of the merger agreement and
distribution agreement or consummation of the transactions contemplated
thereby causes any conflict with charter documents, a default under any
material agreements or a violation of any applicable law;
- the documents and reports Transocean has filed with the SEC, the
financial statements of Sedco Forex and the accuracy of the information
contained in those reports and financial statements;
- litigation;
- whether certain events, changes or effects have occurred;
- taxes;
- retirement and other employee plans and matters relating to the Employee
Retirement Income Security Act of 1974;
- labor matters;
- environmental matters;
- intellectual property matters;
- Year 2000 readiness matters;
- maintenance of insurance;
- brokerage and similar fees;
- receipt of fairness opinions from financial advisors;
- beneficial ownership of another party's common stock;
- qualification of the merger as a reorganization for federal income tax
purposes;
- the shareholder votes required in connection with the merger agreement;
- Transocean's and Sedco Forex's ownership of their respective drilling
rigs and drillships;
- liabilities not disclosed in the materials related to the merger;
- non-compete agreements and material contracts;
- capital expenditure programs;
- material court orders; and
- improper payments.
75
<PAGE> 80
None of these representations and warranties survives the effectiveness of the
merger.
CONDITIONS TO THE SPIN-OFF AND THE MERGER
Conditions to Each Party's Obligations
Schlumberger, Sedco Forex, Transocean and Merger Sub will be obligated to
effect the merger only if the following conditions are satisfied or waived at or
before the closing date.
Shareholder Approval
Transocean shall have received the necessary shareholder approvals to:
- increase its authorized ordinary share capital in an amount sufficient to
complete the merger and the related transactions; and
- issue Transocean ordinary shares pursuant to the merger.
Schlumberger shall have received the necessary shareholder approval to
approve the spin-off.
Antitrust Waiting Periods
Any mandatory waiting period under any applicable non-U.S. competition,
antitrust or premerger notification law or regulation, where the failure to
observe such waiting period would have a material adverse effect on Sedco Forex
or Transocean, shall have expired or been terminated without intervention by a
reviewing agency and without the commencement of proceedings in any court of
competent jurisdiction challenging all or part of the merger, which intervention
or commencement of proceedings would have a material adverse effect on
Transocean or Sedco Forex.
The parties received notice of early termination of the required waiting
period under the U.S. Hart-Scott-Rodino Act on August 16, 1999. The parties also
received clearance from the U.K. competition/antitrust authorities on October
14, 1999.
No Injunctions or Restraints
None of the parties to the merger agreement shall be subject to any decree,
order or injunction of a court of competent jurisdiction that prohibits the
merger. No governmental authority shall have enacted any statute, rule or
regulation that prohibits or makes unlawful the merger.
Registration Statement
The SEC shall have declared the registration statement, of which this joint
proxy statement/prospectus forms a part, to be effective, and no stop order
concerning the registration statement shall be in effect.
NYSE Listing
The New York Stock Exchange shall have authorized for listing the
Transocean ordinary shares to be issued pursuant to the merger.
Spin-off
The spin-off shall have been completed in accordance with the distribution
agreement on a day preceding the closing date of the merger.
Sedco Forex Pre-Closing Financial Statements
Sedco Forex shall have delivered the pre-closing financial statements as
defined in the distribution agreement.
76
<PAGE> 81
Title to Sedco Forex Assets
Sedco Forex or its subsidiaries shall have good and valid title to
substantially all of the Sedco Forex assets, unconditionally and of record,
subject to any permitted liens.
Governmental Claims
There shall not be pending or threatened in writing any governmental claim,
proceeding or action seeking to restrain or prohibit the transactions
contemplated by the merger agreement or any other agreement executed in
connection with the merger or the spin-off.
Transaction Agreements
Schlumberger, Sedco Forex, Transocean and Merger Sub shall have executed
and delivered all agreements contemplated by the merger agreement and the
distribution agreement on or before the spin-off date or the closing date, as
applicable.
Additional Conditions to Obligations of Schlumberger and Sedco Forex to
Effect the Merger
Schlumberger and Sedco Forex are not obligated to effect the merger unless
the following additional conditions are satisfied or waived at or before the
closing date.
Covenants, Representations and Warranties
Transocean and Merger Sub shall have performed in all material respects the
covenants and agreements that the merger agreement requires them to perform on
or before the closing date. The representations and warranties of Transocean and
Merger Sub contained in the merger agreement and in any document delivered in
connection with the merger agreement shall be true and correct in all material
respects as of the date of the merger agreement and as of the closing date.
Representations and warranties made as of a specified date need only be true and
correct in all material respects as of the specified date. Sedco Forex is
entitled to receive a certificate of Transocean and Merger Sub, executed by a
respective President or Vice President, certifying that Transocean's and Merger
Sub's representations and warranties are true and correct.
Tax Opinion
Baker & Botts, L.L.P., counsel to Schlumberger and Sedco Forex, shall have
delivered to Schlumberger and Sedco Forex an opinion, in form and substance
reasonably satisfactory to Schlumberger and Sedco Forex, dated the closing date,
stating that, for U.S. federal income tax purposes:
- the spin-off should qualify as a distribution described in Section 355 of
the U.S. Internal Revenue Code; and
- the merger should qualify as a reorganization under Section 368(a)(1)(B)
of the U.S. Internal Revenue Code.
No Material Adverse Effect
At any time after the date of the merger agreement, no event or occurrence
shall have transpired that has had or is likely to have a material adverse
effect on Transocean. For purposes of the merger agreement, "material adverse
effect" means a material adverse effect or change in:
- the business, operations, financial condition or prospects of a party and
its subsidiaries on a consolidated basis, except for such changes or
effects in general economic, capital market, regulatory or political
conditions or changes that affect generally the offshore drilling
services industry; or
- the ability of the party to consummate the transactions contemplated by
the merger agreement or to fulfill the conditions to closing.
77
<PAGE> 82
Additional Conditions to Obligations of Transocean and Merger Sub to Effect
the Merger
Transocean and Merger Sub are not obligated to effect the merger unless the
following additional conditions are satisfied or waived at or before the closing
date.
Covenants, Representations and Warranties
Schlumberger and Sedco Forex shall have performed in all material respects
the covenants and agreements that the merger agreement requires them to perform
on or before the closing date. The representations and warranties of
Schlumberger and Sedco Forex contained in the merger agreement and in any
document delivered in connection with the merger agreement shall be true and
correct in all material respects as of the date of the merger agreement and as
of the closing date. Representations and warranties made as of a specified date
need only be true and correct in all material respects as of the specified date.
Transocean is entitled to receive a certificate of Sedco Forex and Schlumberger,
executed by a respective President or Vice President, certifying that Sedco
Forex's and Schlumberger's representations and warranties are true and correct.
Tax Opinion
Weil, Gotshal & Manges LLP, counsel to Transocean, shall have delivered to
Transocean an opinion, in form and substance reasonably satisfactory to
Transocean, dated the closing date, stating that, for U.S. federal income tax
purposes, the merger should qualify as a reorganization under Section
368(a)(1)(B) of the U.S. Internal Revenue Code.
No Material Adverse Effect
At any time after the date of the merger agreement, no event or occurrence
shall have occurred that has had or is likely to have a material adverse effect
on Sedco Forex.
Rule 145 Affiliate Agreements
Transocean shall have received a written agreement from each person who is
an "affiliate" of Sedco Forex, as defined under Rule 145 of the Securities Act,
that such person will not sell, pledge, transfer or otherwise dispose of any
Transocean ordinary shares received in the merger except pursuant to an
effective registration statement or in compliance with Rule 145 or an exemption
from the registration requirements of the Securities Act.
TERMINATION OF THE MERGER AGREEMENT
Schlumberger, Sedco Forex and Transocean may terminate the merger agreement
by mutual written consent.
Schlumberger, Sedco Forex or Transocean may terminate the merger agreement
if:
- The parties have not consummated the merger by April 30, 2000, and the
party desiring to terminate the merger agreement for this reason has not
failed to perform or observe in any material respect any of its
obligations under the merger agreement in any manner that caused the
merger not to occur on or before that date.
- At a meeting of the shareholders of Schlumberger, those shareholders do
not approve the spin-off.
- At a meeting of the shareholders of Transocean, those shareholders do not
approve the required increase in Transocean's authorized ordinary share
capital and the issuance of ordinary shares in the merger.
- A U.S. federal or state court of competent jurisdiction or federal or
state or non-U.S. governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken
78
<PAGE> 83
any other action permanently restraining, enjoining or otherwise
prohibiting the merger, and such order, decree, ruling or other action
shall have become final and unappealable.
Sedco Forex or Schlumberger may terminate the merger agreement if:
- Sedco Forex or Schlumberger concurrently enters into a binding written
agreement concerning a transaction that constitutes a superior proposal
for Sedco Forex after the board of directors of Sedco Forex or
Schlumberger:
- determines that proceeding with the merger would be inconsistent with
its fiduciary obligations by reason of the superior proposal; and
- elects to terminate the merger agreement effective before Schlumberger's
shareholders have approved the spin-off.
However, Sedco Forex or Schlumberger may not effect that termination:
- unless and until Transocean receives at least one week's prior written
notice from Sedco Forex of its intention to effect that termination; and
- during that week, Schlumberger and Sedco Forex consider, and cause their
respective financial and legal advisors to consider, any adjustment in
the terms and conditions of the merger agreement that Transocean may
propose.
Any such termination of the merger agreement will not be effective until
Schlumberger has paid to Transocean the $100 million termination fee
described under "-- Expenses and Termination Fees."
- Transocean or Merger Sub has materially breached any representation,
warranty, covenant or agreement set forth in the merger agreement, or any
representation or warranty of Transocean or Merger Sub shall have become
materially untrue, in either case such that a condition to the merger
would not be met, and such breach is not curable or, if curable, is not
cured within 30 days after Sedco Forex gives written notice of the breach
to Transocean, and Sedco Forex is not, at that time, in material breach
of any representation, warranty, covenant or agreement set forth in the
merger agreement.
- the board of directors of Transocean shall have withdrawn or materially
modified, in a manner adverse to Sedco Forex, its approval or
recommendation of the merger or recommended a competing acquisition
proposal for Transocean, or resolved to do so.
- Schlumberger provides a timely objection notice to Transocean pursuant to
the merger agreement concerning a Transocean structuring plan and, after
receipt of such objection notice, Transocean transfers any asset or
capital stock as provided in such structuring plan, and Schlumberger
reasonably believes that implementation of the structuring plan creates
significant risks of causing a Transocean material adverse effect.
A "Transocean structuring plan" refers to a proposal by Transocean to
transfer any of its material assets or capital stock or that of its
subsidiaries to any other subsidiary of Transocean or to Transocean.
Transocean may terminate the merger agreement if:
- Transocean concurrently enters into a binding written agreement
concerning a transaction that constitutes a superior proposal for
Transocean after its board of directors:
- determines that proceeding with the merger would be inconsistent with
its fiduciary obligations by reason of the superior proposal; and
- elects to terminate the merger agreement effective before Transocean's
shareholders have approved the increase in its authorized ordinary share
capital and issuance of its ordinary shares necessary in each case to
complete the merger.
79
<PAGE> 84
However, Transocean may not effect that termination:
- unless and until Sedco Forex receives at least one week's prior written
notice from Transocean of its intention to effect that termination; and
- during that week, Transocean considers, and causes its financial and
legal advisors to consider, any adjustment in the terms and conditions
of the merger agreement that Sedco Forex may propose.
Any such termination of the merger agreement will not be effective until
Transocean has paid to Schlumberger the $100 million termination fee
described under "-- Expenses and Termination Fees."
- Sedco Forex or Schlumberger has materially breached any representation,
warranty, covenant or agreement set forth in the merger agreement, or any
representation or warranty of Sedco Forex or Schlumberger shall have
become materially untrue, in either case such that a condition to the
merger would not be met, and such breach is not curable or, if curable,
is not cured within 30 days after Transocean gives written notice of the
breach to Sedco Forex or Schlumberger, and Transocean is not, at that
time, in material breach of any representation, warranty, covenant or
agreement set forth in the merger agreement.
- the board of directors of Schlumberger shall have withdrawn or materially
modified, in a manner adverse to Transocean, its approval or
recommendation of the spin-off or recommended a competing acquisition
proposal for Sedco Forex, or resolved to do so.
No party may terminate the merger agreement after the effectiveness of the
merger.
EXPENSES AND TERMINATION FEES
Whether or not the merger is consummated, all costs and expenses incurred
in connection with the merger agreement, the distribution agreement and the
transactions contemplated by those agreements will be paid by the party
incurring those expenses, except as expressly provided in those agreements.
Transocean will bear no portion of any expenses incurred by Schlumberger or
Sedco Forex in connection with the separation of Sedco Forex from the rest of
Schlumberger's business or incurred by Schlumberger or Sedco Forex in connection
with the spin-off. However, Transocean and Schlumberger will split evenly SEC
filing fees, printing expenses and some regulatory fees paid by the parties in
connection with the merger.
Schlumberger is required to pay Transocean a cash termination fee of $100
million at the time of the termination if the merger agreement is terminated as
follows:
- by Schlumberger or Sedco Forex because the board of directors of
Schlumberger or Sedco Forex determines that proceeding with the merger
would be inconsistent with its fiduciary duties and concurrently enters
into a binding agreement concerning a transaction that constitutes a
superior proposal for Sedco Forex, or for Schlumberger where the proposal
is conditioned on termination of the merger agreement;
- by Schlumberger, Sedco Forex or Transocean because Schlumberger's
shareholders do not approve the spin-off after the public announcement of
a competing acquisition proposal for Sedco Forex; or
- by Transocean because the board of directors of Schlumberger has
withdrawn or materially modified its approval or recommendation of the
spin-off or recommended a competing acquisition proposal for Sedco Forex
after the public announcement of that competing proposal or receipt by
Schlumberger's or Sedco Forex's board of directors of a competing
acquisition proposal for Sedco Forex, whether or not that proposal is
still pending or has been consummated.
80
<PAGE> 85
Transocean is required to pay Schlumberger a cash termination fee of $100
million at the time of the termination if the merger agreement is terminated as
follows:
- by Transocean because the board of directors of Transocean determines
that proceeding with the merger would be inconsistent with its fiduciary
duties and concurrently enters into a binding agreement concerning a
transaction that constitutes a superior proposal for Transocean;
- by Schlumberger, Sedco Forex or Transocean because Transocean's
shareholders do not approve the proposed increase in Transocean's
authorized ordinary share capital or the issuance of its ordinary shares
in the merger after the public announcement of a competing acquisition
proposal for Transocean; or
- by Schlumberger or Sedco Forex because the board of directors of
Transocean has withdrawn or materially modified its approval or
recommendation of the proposals for Transocean's shareholders, passage of
which is necessary to complete the merger, or recommended a competing
acquisition proposal for Transocean after the public announcement of that
competing proposal or receipt by Transocean's board of directors of a
competing acquisition proposal for Transocean, whether or not that
proposal is still pending or has been consummated.
If the merger agreement is terminated because the shareholders of
Schlumberger do not approve the spin-off and there was no public announcement of
a competing acquisition proposal for Sedco Forex before the shareholders' vote,
then Schlumberger is required to pay Transocean a fee of $10 million to
reimburse it for its costs and expenses incurred in connection with the merger
and related transactions.
If the merger agreement is terminated because the shareholders of
Transocean do not approve the proposed increase in Transocean's authorized
ordinary share capital or the issuance of the ordinary shares in the merger and
there was no public announcement of a competing acquisition proposal for
Transocean before the shareholders' vote, then Transocean is required to pay
Schlumberger a fee of $10 million to reimburse it for its costs and expenses
incurred in connection with the merger and related transactions.
AMENDMENT
The parties may amend the merger agreement, by action taken or authorized
by their boards of directors, at any time before or after approval by the
shareholders of the parties of the matters presented in connection with the
merger. After any shareholder approval, the parties may not amend the merger
agreement if the law requires further approval by those shareholders, unless
such further approval is obtained.
Schlumberger and Sedco Forex may amend the distribution agreement, by
action taken or authorized by their boards of directors, at any time before or
after approval by Schlumberger's shareholders, but any amendment must be
consented to by Transocean in writing.
EMPLOYEE MATTERS AGREEMENT
Before the date on which Schlumberger distributes the capital stock of
Sedco Forex to Schlumberger's shareholders, Schlumberger and Sedco Forex will
enter into a definitive employee matters agreement concerning personnel and
employee benefit matters that will incorporate the basic terms and conditions
set forth below.
Schlumberger and Sedco Forex agreed to amend, modify and/or terminate, as
necessary, the various employee benefit plans, arrangements, policies and
practices of the parties, or to create new employee benefit plans, arrangements,
policies and practices, to transition successfully the Sedco Forex employees
from Schlumberger to Sedco Forex and to accomplish the transactions contemplated
in the merger agreement and distribution agreement.
81
<PAGE> 86
TRANSFER OF EMPLOYEES; BENEFIT MAINTENANCE PERIOD
Not later than the spin-off date, Schlumberger will transfer to Sedco Forex
or its subsidiaries all persons who are active employees of Sedco Forex, each
person who is on an approved leave of absence from Sedco Forex and each person
who is on short-term disability from Sedco Forex. Persons who are on an approved
leave of absence or on short-term disability will be transferred only if such
persons return to the active employment of Sedco Forex. Sedco Forex will
transfer to Schlumberger or its subsidiaries, other than Sedco Forex or a Sedco
Forex subsidiary, all employees of Schlumberger and its subsidiaries other than
Sedco Forex employees described in the first sentence of this paragraph. For a
period of one year after the spin-off date, but not later than December 31,
2000, Transocean Sedco Forex generally will maintain, for Sedco Forex employees,
benefits and benefit arrangements that, in the aggregate, are substantially
comparable to the benefits and benefit arrangements provided by Schlumberger and
its subsidiaries to Sedco Forex employees as of the date of the distribution
agreement.
ALLOCATION OF LIABILITIES
Under the terms of the distribution agreement, generally Schlumberger will
retain the following employee-related liabilities:
- all employment and benefit-related liabilities of Schlumberger employees
and former employees, including former Sedco Forex employees, whether
incurred before or after the spin-off date, including any liabilities
under any benefit and compensation plans, employment and benefit
arrangements maintained by Schlumberger or any Schlumberger subsidiary;
- all benefit-related liabilities concerning Sedco Forex employees,
including former Sedco Forex employees, under all employment and benefit
arrangements maintained by Schlumberger that cover Sedco Forex employees
(1) that are funded through employer or employee contributions and (2) as
to which Schlumberger maintains a separate trust or other funding vehicle
to provide part or all of the benefits pursuant to such plans;
- any liabilities for severance or similar benefits of Sedco Forex
employees incurred by Schlumberger arising before the spin-off date as a
result of the restructuring of Sedco Forex in anticipation of the
spin-off;
- certain identified severance benefit obligations arising after the date
of the spin-off with respect to Sedco Forex employees; and
- the accrued pro-rata liability through the spin-off date with respect to
Sedco Forex employees under the Schlumberger Incentive Compensation Plan
for 1999, and accrued employer contributions through the spin-off date
with respect to Sedco Forex Employees for the Schlumberger International
Staff Profit-Sharing Plan, the Schlumberger Cash Separation Indemnity
Plan and the Schlumberger International Staff Pension Plan.
Sedco Forex generally will assume all other employment and benefit-related
liabilities of the Sedco Forex employees not specifically allocated to
Schlumberger under the employee matters agreement, generally as described above.
PARTICIPATION IN SCHLUMBERGER PLANS
Effective as of the spin-off date, Sedco Forex will adopt the Schlumberger
International Staff Pension Plan as a participating employer for the benefit of
all eligible Sedco Forex employees, including those who are participating in the
Schlumberger International Staff Pension Plan immediately before the spin-off
date. Sedco Forex will maintain its status as a participating employer,
including all rights and responsibilities associated with such status through
December 31, 2000. Effective as of the spin-off date, Sedco Forex may, at its
option, adopt any of the employment and benefit arrangements maintained by
Schlumberger that cover Sedco Forex employees as a participating employer for
the benefit of all eligible Sedco Forex employees, including those employed
after the spin-off date, and may maintain such status as a participating
employer, including all rights and responsibilities associated with such status,
through December 31, 2000. Sedco Forex will pay the employer contributions or
costs for each Sedco Forex employee required under any Schlumberger plan in
which Sedco Forex participates.
82
<PAGE> 87
STOCK OPTIONS
As of the effective time of the spin-off, all nonvested options to purchase
Schlumberger common stock held by Sedco Forex employees at such time will
terminate by their terms. Upon completion of the merger, the Sedco Forex
employees who held these options will be granted fully vested options to acquire
Transocean Sedco Forex ordinary shares. The number of Transocean Sedco Forex
ordinary shares for which a newly granted option will be exercisable will equal
the number of Schlumberger shares subject to the terminated Schlumberger option
times a fraction, the numerator of which is the closing price of Schlumberger
common stock at the close of trading on the day immediately prior to the
spin-off date, determined without regard to the spin-off of Sedco Forex, and the
denominator of which is the price of a Transocean ordinary share at the close of
trading on the day immediately prior to the spin-off date. The exercise price of
each such option will be the price of a Transocean ordinary share at the close
of trading on that date times a fraction, the numerator of which is the exercise
price under the terminated Schlumberger option and the denominator of which is
the price of Schlumberger common stock at the close of trading on the day
immediately prior to the spin-off date, determined without regard to the
spin-off of Sedco Forex. The formula will likely require Transocean Sedco Forex
to grant some of these options with exercise prices below fair market value.
Transocean Sedco Forex will grant these options with an exercise price below
fair market value at the date of grant to the extent a below market price would
be required by application of the exercise price adjustment formula. However,
French-based employees of Sedco Forex who are eligible to receive new Transocean
Sedco Forex options will be granted options with an exercise price equal to the
fair market value of Transocean Sedco Forex ordinary shares at the date of
grant, even if the application of the adjustment formula otherwise would result
in an exercise price below the market price of Transocean Sedco Forex ordinary
shares at that date. To compensate these holders for the resulting diminution in
value, Transocean Sedco Forex will grant additional options with a fair market
value exercise price, the appropriate number of which will be determined by
valuing those options according to the Black-Scholes option pricing models and
related assumptions deemed reasonable by Transocean Sedco Forex.
The Transocean Sedco Forex options will be granted outside of the Long-Term
Incentive Plan, but will be subject to substantially identical terms and
conditions. Transocean anticipates that following the merger it will adopt a
stand-alone plan pursuant to which these newly granted options will be
administered. This plan would be substantially identical to Transocean's
existing Long-Term Incentive Plan, except the new plan would permit Transocean
Sedco Forex to grant these options with an exercise price below fair market
value at the date of grant to the extent a below market price would be required
by application of the exercise price adjustment formula set forth in the
employee matters agreement.
All vested options to purchase Schlumberger common stock held by Sedco
Forex employees will remain outstanding as options to purchase Schlumberger
common stock for the period following completion of the merger established by
Schlumberger's stock option plan, which is generally 90 days after the
completion of the merger. Options to acquire Schlumberger common stock that are
held by persons other than Sedco Forex employees will remain options to purchase
Schlumberger shares. The exercise price and number of shares of Schlumberger
common stock purchasable upon exercise under all Schlumberger options
outstanding immediately after completion of the merger, including those vested
options held by Sedco Forex employees, will be equitably adjusted to reflect the
approximate decrease in the value of Schlumberger common stock as a result of
the spin-off. Shortly after the transactions are completed, Schlumberger will
communicate with affected optionholders regarding how these Schlumberger options
will be adjusted.
OTHER TRANSITIONAL EMPLOYEE MATTERS
Sedco Forex will assume all worker's compensation liability of Sedco Forex
employees after the spin-off date. Schlumberger will administer all Sedco Forex
employees' worker's compensation claims that arose up to the spin-off date for a
period of five years after the spin-off date. However, Sedco Forex will pay all
worker's compensation payments that become due after the spin-off date.
Schlumberger will provide all administrative or professional services
required for the operation of any Sedco Forex plans. Sedco Forex will reimburse
Schlumberger for the cost of such services.
83
<PAGE> 88
BUSINESS OF SEDCO FOREX
The following summary describes Sedco Forex's business as it is expected to
be constituted after its separation from Schlumberger and at the time of its
spin-off to Schlumberger's shareholders.
Sedco Forex is a leading international provider of offshore contract
drilling services for oil and gas exploration, development and production. Sedco
Forex currently owns, has an ownership interest in or operates 40 mobile
offshore drilling rigs. Sedco Forex's fleet consists of three fourth-generation
semisubmersibles, twenty second- and third-generation semisubmersibles, one
first-generation semisubmersible, two drillships, ten jackup rigs and four
tenders. Sedco Forex also has under construction three Sedco Express-class
semisubmersibles, the Sedco Express, Cajun Express and Sedco Energy, and one
independent-leg cantilevered jackup rig, the Trident 20. In addition, the fleet
includes one multi-purpose service jackup rig, six swamp barges and two land
drilling rigs.
Sedco Forex contracts these drilling rigs, related equipment and work crews
primarily on a dayrate basis to drill oil and gas wells. Sedco Forex also
provides additional drilling services, including well intervention and
management of third-party well service activities.
Sedco Forex Holdings Limited is organized as an international business
company under the laws of the British Virgin Islands in 1990. Its registered
office in the British Virgin Islands is located at Citco B.V.I. Limited, Citco
Building, Wickhams Cay, P. O. Box 662, Road Town, Tortola, British Virgin
Islands.
DRILLING RIG TYPES
Sedco Forex principally uses five types of drilling rigs:
- semisubmersibles
- drillships
- jackups
- tenders
- swamp barges
Semisubmersibles are floating vessels that can be submerged such that a
substantial portion of the lower hull is below the water surface during drilling
operations. They are well suited for operations in rough water conditions.
Fourth-generation semisubmersibles are those that were built after the
mid-eighties or have been recently upgraded and have larger physical size than
other semisubmersibles, harsh environment capability, variable deck load
capability of greater than 4,000 metric tons and superior motion
characteristics. Fourth-generation semisubmersibles, which are generally rated
for drilling in water depths of over 4,000 feet, are often considered the most
suitable units for operations in deep water and harsh environments or for
development drilling that requires larger variable loads and the ability to
handle large pieces of subsea equipment. Sedco Forex is constructing three
newbuild semisubmersibles based on Sedco Forex's proprietary Sedco Express
design. See "Sedco Forex Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Drillships are generally self-propelled and designed to drill in the
deepest waters in which offshore drilling rigs currently operate. Shaped like
conventional ships, they are the most mobile of the major rig types. Sedco
Forex's drillships are either dynamically positioned, which allows them to
maintain position without anchors through the use of their onboard propulsion
and station-keeping systems, or are operated in a moored configuration.
Jackup rigs are mobile self-elevating drilling platforms equipped with legs
that can be lowered to the ocean floor until a foundation is established to
support the drilling platform. Once a foundation is established, the drilling
platform is then jacked further up the legs so that the platform is above the
highest expected waves. The rig hull includes the drilling rig, jacking system,
crew quarters, loading and unloading facilities,
84
<PAGE> 89
storage areas, helicopter landing deck and related equipment. They are generally
suited for water depths of 400 feet or less.
Tenders are usually barges or semisubmersibles that are not self-propelled,
but can be moored alongside a platform, and contain quarters, mud pits, mud
pumps, power generation and other equipment. Tenders allow smaller, less costly
platforms to be used for development projects. Self-erecting tenders carry their
own derrick equipment set and have a crane capable of erecting it on the
platform, thereby eliminating the cost associated with a separate derrick house
and related equipment. Tenders are generally suited for water depths of 460 feet
or less.
Swamp barges are usually not self-propelled, but can be moored alongside a
platform, and contain quarters, mud pits, mud pumps, power generation and other
equipment. Like tenders, swamp barges allow smaller, less costly platforms to be
used for development projects. Swamp barges often carry their own derrick
equipment set and crane. Swamp barges are generally suited for water depths of
25 feet or less.
Sedco Forex's drilling equipment is suitable for both exploration and
development drilling, and Sedco Forex is normally engaged in both types of
drilling activity. Sedco Forex's drilling rigs are mobile and can be moved to
new locations in response to client demand. All of the Sedco Forex offshore
drilling units are designed for operations away from port for extended periods
of time and have living quarters for the crews, a helicopter landing deck and
storage space for pipe and drilling supplies.
FLEET ENHANCEMENTS AND UPGRADES
Sedco Forex performed life enhancement and upgrade projects during 1999 for
the Trident IV jackup rig and the Sedco 709 semisubmersible. Sedco Forex spent
in excess of $75 million on these two projects to increase significantly the
capacity, marketability and dayrates of these two rigs. Both of these rigs are
currently under contract.
DRILLING RIG STATUS
The following table shows information about Sedco Forex's drilling rigs,
including rigs under construction, as of September 30, 1999:
<TABLE>
<CAPTION>
DRILLING
YEAR ENTERED WATER DEPTH DEPTH
SERVICE/ CAPABILITY CAPABILITY ESTIMATED
TYPE AND NAME UPGRADED(A) (IN FEET) (IN FEET) LOCATION CLIENT EXPIRATION(B)
- ------------- ------------ ----------- ---------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
SEMISUBMERSIBLES (27)
Actinia......................... 1982 1,500 25,000 Libya Nimir October 1999
Cajun Express(c)................ Newbuild 8,500 25,000 Shipyard Marathon March 2003
(Singapore)
Drillstar(d).................... 1982 1,500 25,000 U.K. -- Idle
FPS Bill Shoemaker(e)........... 1976/1991 1,500 25,000 Canada Husky Oil October 1999
Omega(e)........................ 1983 3,000 25,000 South Africa Soekor December 1999
Sedco 135D...................... 1966/1977 600 25,000 Brazil (f) Idle (f)
Sedco 600....................... 1983/1994 1,500 25,000 Singapore -- Idle
Sedco 601....................... 1983 1,500 25,000 Indonesia Unocal April 2000
Sedco 602....................... 1983 1,500 25,000 Indonesia -- Idle
Sedco 700....................... 1973/1997 3,600 25,000 Turkey/ Arco/Hunt October 1999/ February
Ghana 2000
Sedneth 701..................... 1972/1993 1,500 25,000 Congo Elf April 2000
Sedco 702....................... 1973/1992 1,500 25,000 Australia Globex (g) October 1999 (g)
Sedco 703....................... 1973/1995 1,500 25,000 Australia (h) Idle (h)
Sedco 704....................... 1974/1993 1,000 25,000 U.K. Shell September 1999
Sedco 706....................... 1976/1994 1,000 25,000 U.K. Total June 2000
Sedco 707....................... 1976/1997 6,500 25,000 Brazil Petrobras January 2002
Sedco 708....................... 1976 1,500 25,000 Angola Chevron April 2000
Sedco 709....................... 1977/1999 5,000 25,000 Nigeria Shell April 2002
Sedco 710....................... 1983 6,000 25,000 Brazil Petrobras January 2000
Sedco 711....................... 1982 1,800 25,000 Ireland Enterprise January 2000
</TABLE>
85
<PAGE> 90
<TABLE>
<CAPTION>
DRILLING
YEAR ENTERED WATER DEPTH DEPTH
SERVICE/ CAPABILITY CAPABILITY ESTIMATED
TYPE AND NAME UPGRADED(A) (IN FEET) (IN FEET) LOCATION CLIENT EXPIRATION(B)
- ------------- ------------ ----------- ---------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Sedco 712....................... 1983 1,600 25,000 U.K. Shell December 1999
Sedco 714....................... 1983/1997 1,600 25,000 U.K. Shell October 1999
Sedco Energy(i)................. Newbuild 7,500 25,000 Shipyard Texaco December 2005
(France)
Sedco Explorer(d)............... 1975/1995 1,000 25,000 U.K. -- Idle
Sedco Express(j)................ Newbuild 7,500 25,000 Shipyard Elf February 2003
(France)
Sedco I-Orca(e)................. 1970/1987 900 25,000 South Africa Soekor May 2001
Sovereign Explorer.............. 1984 3,500 25,000 U.K. -- Idle
JACKUPS (12)
Mr. John(k)..................... 1985/1993 N/A N/A Nigeria Texaco December 1999
Trident II...................... 1977/1985 300 25,000 India Enron January 2000
Trident IV...................... 1980/1999 300 25,000 Angola Chevron October 1999
Trident VI...................... 1981 300 21,000 Nigeria -- Idle
Trident VIII.................... 1981 300 21,000 Cameroon Elf Shell November 1999 November
Nigeria 2000
Trident IX(l)................... 1982 400 21,000 Indonesia Gulf November 1999
Trident XII..................... 1982/1992 300 25,000 Brunei Shell June 2000
Trident XIV..................... 1982/1994 300 20,000 Angola Chevron December 1999
Trident 15...................... 1982 300 25,000 Vietnam Petrovietnam December 1999
Trident 16(l)................... 1982 300 25,000 Thailand Harrods February 1999
PTT June 2000
Trident 17...................... 1983 355 25,000 Vietnam JVPC October 1999
Trident 20(m)................... Newbuild 300 Shipyard Elf September 2005
(Azerbaijan)
DRILLSHIPS (2)
Joides Resolution(n)............ 1978 27,000 30,000 Worldwide Texas A&M September 2003
Sagar Vijay(e).................. 1985 2,950 20,000 India ONGC December 2000
TENDERS (4)
Searex 5........................ 1983 440 20,000 Malaysia -- Idle
Searex 9........................ 1981 460 21,000 Congo Elf February 2000
Searex 10....................... 1983/1994 450 21,000 Angola -- Idle
Searex 11....................... 1983 350 20,000 Indonesia Total October 1999
SWAMP BARGES (6)
Searex 4........................ 1981/1989 21 25,000 Nigeria -- Idle
Searex 6........................ 1981/1991 22 25,000 Nigeria -- Idle
Searex 7........................ 1980 25 20,000 Indonesia -- Idle
Searex 8........................ 1985/1989 25 21,000 Indonesia -- Idle
Searex 12....................... 1982/1992 25 25,000 Nigeria Shell August 2000
Hibiscus(m)..................... 1979/1993 25 16,000 Indonesia Total April 2000
LAND RIGS (2)
Rig 1........................... 1976/1996 N/A 15,000 Nigeria Shell October 1999
Rig 54.......................... 1981 N/A 15,000 Nigeria -- Idle
</TABLE>
- ---------------
(a) Dates shown are the original service date and the date of the most recent
upgrade, if any.
(b) Expiration dates represent Sedco Forex's current estimate of the earliest
date the contract for each rig is likely to expire. Some rigs have two
contracts in continuation, so the second line shows the estimated earliest
availability. Some contracts have options under which the rigs could
continue to work on the same terms after the estimated expiration.
(c) The Cajun Express is expected to be operational in the second quarter of
2000. The contract provides for termination if the rig is not delivered by
March 31, 2001.
(d) Operated under a bareboat charter with the rig's owner, Sea Wolf Drilling
Limited, in which Schlumberger has an indirect 25% interest. See Note 12 to
the Combined Financial Statements of Sedco Forex. Although the owner of the
remaining 75% interest in the venture has, to date, not consented to the
transfer of Schlumberger's interest, Schlumberger is taking steps to
achieve resolution of this issue. The
86
<PAGE> 91
parties cannot predict whether Schlumberger's ownership interest in the
venture or the right to use these rigs will be transferred to Transocean
Sedco Forex or whether an alternative resolution acceptable to Transocean
will be achieved.
(e) Operated under a management contract with the rig's owner.
(f) Under contract with Petrobras for the period from third quarter 2000 to
third quarter 2008.
(g) Also under contract with BHP for the period from December 1999 to May 2000.
(h) Under contract with Japex for January 2000 and Inpex for February 2000.
(i) The Sedco Energy is expected to be operational in the first quarter of
2000. If delivery of the rig is delayed beyond the contract delivery date,
the contract provides for a reduction in its term equivalent to the period
of delayed delivery.
(j) The Sedco Express is expected to be operational in the first quarter of
2000. The contract provides for termination if the rig is not delivered by
May 28, 2000.
(k) Considered a multi-purpose service vessel capable of being used for
workovers or associated services.
(l) Owned by an unrelated third party and leased by Sedco Forex. Sedco Forex
has an option to purchase, and the owner has an option to cause Sedco Forex
to purchase, the rig.
(m) Owned by a joint venture owned more than 50% by Sedco Forex. The Trident 20
is expected to be operational in the fourth quarter of 2000. The contract
provides for termination if the rig is not delivered by February 12, 2002.
(n) Currently engaged in scientific geological coring activities; owned by a
joint venture owned 50% by Sedco Forex.
Upon the expiration of existing contracts, there can be no assurance that
such contracts will be renewed or extended, that new contracts will be available
or, if contracts are available, that they will provide revenues adequate to
cover all fixed and variable costs associated with the rigs.
As of September 30, 1999, Sedco Forex's rigs, excluding rigs under
construction, were located in:
- the United Kingdom (7 units);
- Ireland (1 unit);
- Africa-Mediterranean Sea (18 units);
- Middle East-India (2 units);
- Asia (16 units);
- Brazil (3 units); and
- Canada (1 unit).
The Joides Resolution is contracted for a worldwide research program and as
of September 30, 1999 was in a shipyard in Singapore undergoing an upgrade. It
is expected to be back in operation in mid-November 1999.
DRILLING CONTRACTS
Sedco Forex's contracts to provide offshore drilling services are
individually negotiated and vary in their terms and provisions. Sedco Forex
obtains most of its contracts through competitive bidding against other
contractors. Drilling contracts generally provide for payment on a dayrate
basis, with higher rates while the drilling unit is operating and lower rates
for periods of mobilization or when drilling operations are interrupted or
restricted by equipment breakdowns, adverse environmental conditions or other
conditions beyond the control of Sedco Forex. Sedco Forex typically does not
drill turnkey wells, under which the contractor agrees to drill a well to a
specified depth for a fixed price.
87
<PAGE> 92
A dayrate drilling contract generally extends over a period of time
covering either the drilling of a single well or group of wells or covering a
stated term. These contracts typically can be terminated by the client in the
event the drilling unit is destroyed or lost, or if drilling operations are
suspended for a specified period of time as a result of a breakdown of major
equipment or, in some cases, due to other events beyond the control of either
party. In addition, the drilling contracts for Sedco Forex's newbuild rigs
contain termination or term reduction provisions tied to late delivery of these
units.
The contract term in many instances may be extended by the client
exercising options for the drilling of additional wells or for an additional
term. In reaction to depressed market conditions, Sedco Forex's clients may seek
renegotiation of firm drilling contracts to reduce their obligations or may seek
to terminate their contracts by paying a termination fee to Sedco Forex.
SIGNIFICANT CLIENTS
During the past five years, Sedco Forex has engaged in offshore drilling
for most of the world's leading international oil companies or their affiliates,
as well as for many government-controlled and independent oil companies. During
this period, Sedco Forex's principal clients have included Shell, Chevron,
Total, Woodside, Petrobras, Unocal and Elf. During 1998, Shell accounted for
approximately 19 percent of Sedco Forex's consolidated operating revenues. No
other unaffiliated client accounted for ten percent or more of Sedco Forex's
1998 consolidated operating revenues. The loss of any of these major clients
could, at least in the short term, have a material adverse effect on Sedco
Forex.
INDUSTRY CONDITIONS AND COMPETITION
Sedco Forex's business depends on the level of activity in offshore oil and
gas exploration, development and production in markets worldwide. Oil and gas
prices, market expectations of potential changes in these prices and a variety
of political and economic factors significantly affect this level of activity.
Oil and gas prices are extremely volatile and are affected by numerous factors,
including:
- worldwide demand for oil and gas;
- the ability of the Organization of Petroleum Exporting Countries,
commonly called "OPEC," to set and maintain production levels and
pricing;
- the level of production of non-OPEC countries;
- the policies of the various governments regarding exploration and
development of their oil and gas reserves;
- advances in exploration and development technology; and
- the political environment of oil-producing regions.
The offshore contract drilling industry is highly competitive with numerous
industry participants, none of which has a dominant market share. Some of Sedco
Forex's competitors may have greater resources than Sedco Forex.
Drilling contracts are traditionally awarded on a competitive bid basis.
Intense price competition is often the primary factor in determining which
qualified contractor is awarded a job, although rig availability and the quality
and technical capability of service and equipment may also be considered.
Sedco Forex's industry has historically been cyclical. There have been
periods of high demand, short rig supply and high dayrates, followed by periods
of lower demand, excess rig supply and low dayrates. The industry is currently
in a period of low demand, and Sedco Forex is unable to predict when the market
will change and if so, to what extent. In addition, rig availability has
increased as a result of contract expirations and construction by other drilling
contractors of new rigs that are competing with Sedco Forex's rigs. Periods of
excess rig supply intensify the competition in the industry and often result in
rigs being idled for long periods of time.
88
<PAGE> 93
Sedco Forex requires highly skilled personnel to operate and provide
technical services and support for its drilling units. To the extent demand for
drilling services and the size of the worldwide industry fleet increase,
shortages of qualified personnel similar to those experienced in 1996-97 could
arise, creating upward pressure on wages.
As of September 30, 1999, Sedco Forex had four new rigs in shipyards under
construction. These construction projects are subject to the risks of delay or
cost overruns inherent in any large construction project resulting from numerous
factors, including the following:
- shipyard unavailability;
- shortages of equipment, materials or skilled labor;
- unscheduled delays in the delivery of ordered materials and equipment;
- engineering problems, including those relating to the commissioning of
newly designed equipment;
- work stoppages;
- weather interference;
- unanticipated cost increases; and
- difficulty in obtaining necessary permits or approvals.
These factors may contribute to cost variations and delays in the delivery
of Sedco Forex's drilling units under construction. Delays in delivery of these
units would result in delays in contract commencements, resulting in a loss of
revenue to Sedco Forex. These delays may also cause customers to terminate the
drilling contracts for these rigs pursuant to late delivery termination clauses.
In the event of termination of a drilling contract for one of these rigs, it is
unlikely that Sedco Forex would be able to secure a replacement contract on as
favorable terms.
MARKETS
Rigs can be moved from one region to another, but the cost of moving a rig
and the availability of rig-moving vessels may cause the supply and demand
balance to vary somewhat between regions. However, significant variations
between regions do not tend to exist long-term because of rig mobility. Rig
mobility causes markets to be defined more by water depth capability than
region. Sedco Forex has the capability of drilling in water depths from as
shallow as a few feet with its swamp barges to as deep as 6,500 feet with its
Sedco 707 semisubmersible. In addition, each of Sedco Forex's three newbuild
semisubmersibles will be capable of drilling in water depths of at least 7,500
feet.
In recent years, there has been increased emphasis by oil companies on
exploring for hydrocarbons in deeper waters. This is, in part, because of
technological developments that have made such exploration more feasible and
cost-effective. Shallow water regions have been developed much more than deep
water regions because these regions are more accessible and operations there are
less costly to conduct.
OPERATING RISKS
Sedco Forex's operations are subject to the usual hazards inherent in the
drilling of oil and gas wells, such as blowouts, loss of well control,
punchthroughs, cratering or fires, the occurrence of which could result in the
suspension of drilling operations, damage to or destruction of the equipment
involved and injury or death to rig personnel. Operations also may be suspended
because of machinery breakdowns, abnormal drilling conditions, failure of
subcontractors to perform or supply goods or services or personnel shortages. In
addition, offshore drilling operations are subject to perils peculiar to marine
operations, including capsizing, grounding, collision and loss or damage from
severe weather. Damage to the environment could also result from Sedco Forex's
operations, particularly through oil spillage or extensive uncontrolled fires.
89
<PAGE> 94
Sedco Forex maintains broad insurance coverage, including insurance against
general and marine third party liabilities. Sedco Forex's offshore drilling
equipment is insured by all risks physical damage insurance policies, which
cover against marine and other perils, including losses due to capsizing,
grounding, collision, fire, lightning, hurricanes, wind, storms, action of
waves, punchthroughs, cratering, blowouts, explosions and war risks. Sedco Forex
also carries employer's liability and other insurance customary in the offshore
contract drilling business.
Consistent with standard industry practice, Sedco Forex's clients generally
assume, and indemnify Sedco Forex against, well control and subsurface risks
under dayrate contracts. These risks are those associated with the loss of
control of a well, such as blowout or cratering, the cost to regain control or
redrill the well and associated pollution. Sedco Forex typically does not carry
insurance against such risks under dayrate contracts. However, Sedco Forex
cannot guarantee that these clients will necessarily be financially able to
indemnify it against all these risks.
Sedco Forex believes it is adequately insured in accordance with industry
standards against normal risks in its operations; however, such insurance
coverage may not in all situations provide sufficient funds to protect Sedco
Forex from all liabilities that could result from its drilling operations. Sedco
Forex insures its rigs on an agreed value basis that is at least equal to the
net book value of the rig and is regularly reviewed and modified for each
individual rig based on market value, technology, such as deep water or dynamic
positioning capability, utilization, dayrate and earnings potential. This means
that some rigs are not insured for replacement value. Business interruption is
not generally insured against, except in the event of total loss where an
element of lost earnings can be included in the total insured value of the rig.
This "top up" to the insured value is added where considered appropriate.
Accordingly, the occurrence of a casualty or loss against which Sedco Forex is
not fully insured could have a material adverse effect on Sedco Forex's
financial position and results of operations.
Sedco Forex is subject to liability under various environmental laws and
regulations. See "-- Regulation." Generally, Sedco Forex has been able to obtain
some degree of contractual indemnification pursuant to which Sedco Forex's
client agrees to protect and indemnify Sedco Forex from liability for pollution,
well and environmental damages; however, there is no assurance that Sedco Forex
can obtain such indemnities in all of its contracts or that, in the event of
extensive pollution and environmental damages, the clients will have the
financial capability to fulfill their contractual obligations to Sedco Forex.
Also, these indemnities may not be enforceable in all instances. For some
contracts where the risk allocation or counterparty risk exposure is considered
high, Sedco Forex can purchase additional insurance such as "operators extra
expense insurance" against well control risks.
INTERNATIONAL OPERATIONS
Sedco Forex operates in various regions throughout the world that expose
Sedco Forex to various political and other uncertainties, including risks of:
- war and civil disturbances;
- expropriation of equipment;
- the inability to repatriate income or capital; and
- changing taxation policies.
Sedco Forex is protected to a substantial extent against capital loss, but
generally not loss of revenue, from most of these risks through insurance,
indemnity provisions in its drilling contracts or both. As of September 30,
1999, all areas in which Sedco Forex was operating were covered by existing
insurance policies.
Sedco Forex's operations are also subject to significant government
regulation in different jurisdictions. Many governments favor or effectively
require the awarding of drilling contracts to local contractors or require
foreign contractors to employ citizens of, or purchase supplies from, a
particular jurisdiction. These practices
90
<PAGE> 95
may adversely affect Sedco Forex's ability to compete. Sedco Forex expects to
continue its efforts to structure its operations in order to remain competitive
in the international markets.
Another risk inherent in Sedco Forex's operations is the possibility of
currency exchange losses where revenues are received and expenses are paid in
nonconvertible currencies. Sedco Forex may also incur losses as a result of an
inability to collect revenues because of a shortage of convertible currency
available to the country of operations. Sedco Forex seeks to limit these risks
by structuring contracts such that compensation is made in freely convertible
currencies and, to the extent possible, by limiting acceptance of blocked
currencies to amounts that match its expense requirements in local currency.
REGULATION
Sedco Forex's operations are affected from time to time in varying degrees
by governmental laws and regulations. The drilling industry is dependent on
demand for services from the oil and gas exploration industry and, accordingly,
is affected by changing tax and other laws relating to the energy business
generally.
International contract drilling operations are subject to various laws and
regulations in countries in which Sedco Forex operates, including laws and
regulations relating to equipping and operating of drilling units, currency
conversions and repatriation, oil exploration and development, taxation of
offshore earnings and earnings of expatriate personnel and use of local
employees and suppliers by foreign contractors. Governments in some countries
have become increasingly active in regulating and controlling the ownership of
concessions and companies holding concessions, the exportation of oil and other
aspects of the oil industries in their countries. In addition, government
action, including initiatives by OPEC, may continue to cause oil price
volatility. In some areas of the world, this governmental activity has adversely
affected the amount of exploration and development work done by major oil
companies and may continue to do so.
Some of the countries in whose waters Sedco Forex is presently operating or
may operate in the future have regulations covering the discharge of oil and
other contaminants in connection with drilling operations.
In some cases, Sedco Forex, as an operator of mobile offshore drilling
units, may be liable for damages and costs incurred in connection with oil
spills for which it is held responsible, subject to certain limitations. Laws
and regulations protecting the environment have become more stringent in recent
years, and may in certain circumstances impose "strict liability," rendering a
person liable for environmental damage without regard to negligence or fault on
the part of such person. Such laws and regulations may expose Sedco Forex to
liability for the conduct of or conditions caused by others, or for acts that
were in compliance with all applicable laws at the time such acts were
performed. The application of these requirements or the adoption of new
requirements could have a material adverse effect on Sedco Forex's financial
position and results of operations.
Sedco Forex believes that it has conducted its operations in substantial
compliance with applicable environmental laws and regulations governing its
activities. Although significant capital expenditures may be required to comply
with such governmental laws and regulations, such compliance has not materially
adversely affected the earnings or competitive position of Sedco Forex.
EMPLOYEES
As of September 30, 1999, Sedco Forex had approximately 4,500 employees.
Sedco Forex requires highly skilled personnel to operate its drilling units. As
a result, Sedco Forex conducts extensive personnel recruiting, training and
safety programs.
On a worldwide basis, Sedco Forex had approximately 13 percent of its
employees working under collective bargaining agreements at September 30, 1999.
Some of those agreements have expired and negotiations are ongoing for new
contracts. Sedco Forex has not experienced any work stoppages as a result of
these expirations and negotiations. Sedco Forex believes it has good relations
with its employees.
91
<PAGE> 96
PROPERTIES
Sedco Forex owns or leases office space or other facilities in most of the
countries where it conducts operations. Sedco Forex does not consider any of
these facilities to be material to its overall operations.
LEGAL PROCEEDINGS
Global Marine Drilling Company initiated an arbitration proceeding in
London in December 1997 against Sedco Forex. Global Marine alleges a claim for
approximately $85 million against Sedco Forex for an alleged late return of a
chartered rig and for breach of maintenance obligations under the charter. In
February 1998, the tribunal held that the charter expired January 20, 1998, plus
time for physical delivery, meaning Sedco Forex is liable to Global Marine for
the "market dayrate" from that time until actual delivery in 1998. It is
expected that the balance of the proceedings, including the final determination
of any damages, will take place in 2000. On October 15, 1999, an arrestment of
the Sedco Forex rig, Sovereign Explorer, was executed in connection with the
proceedings. The rig is currently idle, and Sedco Forex does not expect this
action to have any impact on the case or the operations of the rig. Sedco Forex
disputes the allegations and arrestment and is vigorously defending the case.
Sedco Forex does not expect that the ultimate liability, if any, resulting from
the matter will have a material adverse effect on its business, financial
position or results of operations.
RIGCO North America, LLC, a subsidiary of Tatham Offshore Inc., filed a
lawsuit in Texas state court in July 1999 asserting various claims against Sedco
Forex in connection with shipyard and rig management contracts for two rigs
managed on behalf of RIGCO. RIGCO alleges breach of contract, negligence and
fraud and claims damages of approximately $51 million, plus exemplary damages,
attorney's fees and other unspecified damages. In August 1999, RIGCO filed for
voluntary bankruptcy protection in bankruptcy court in Texas. As part of the
bankruptcy proceedings, RIGCO filed a preference action against Sedco Forex in
September 1999. RIGCO seeks to avoid alleged transfers of approximately $4.2
million to Sedco Forex and to have those funds returned to the RIGCO bankruptcy
estate. Sedco Forex disputes the allegations and is vigorously defending the
case. Sedco Forex does not expect that the liability, if any, resulting from the
matter will have a material adverse effect on its business, financial position
or results of operations.
The Indian Customs Department, Mumbai, filed a "show cause notice" against
Sedco Forex and various other parties on July 8, 1999. The show cause notice
alleges that the entry into India and other subsequent movements of a rig
operated by Sedco Forex constituted imports and exports for which proper customs
procedures were not followed and customs duties should have been paid, and seeks
payment of customs duties, with interest and penalties, and confiscation of the
rig. Sedco Forex has filed a response to the show cause notice. Hearings on this
matter are continuing, and Sedco Forex expects an initial phase adjudication by
the Customs Department by the first quarter of 2000. Sedco Forex disputes the
allegations and is vigorously defending the case. Sedco Forex does not expect
that the ultimate liability, if any, resulting from the matter will have a
material adverse effect on its business, financial position or results of
operations.
Sedco Forex and its subsidiaries are involved in various other legal
proceedings and claims that have arisen in the ordinary course of business.
Sedco Forex believes that the ultimate liability, if any, resulting from such
matters will not have a material adverse effect on its business, financial
position, or results of operations.
Sedco Forex is involved in certain other legal proceedings with respect to
which Schlumberger has agreed to indemnify Sedco Forex against all costs and
expenses and any ultimate liability that may be incurred.
92
<PAGE> 97
SEDCO FOREX SELECTED HISTORICAL COMBINED FINANCIAL DATA
Schlumberger prepared the selected historical combined financial data of
Sedco Forex in the table below using the combined financial statements of Sedco
Forex. Schlumberger derived the combined financial information below for each of
the three years ended December 31, 1998, and the combined balance sheet data as
of December 31, 1997 and 1998, from combined financial statements appearing
elsewhere in this joint proxy statement/prospectus audited by
PricewaterhouseCoopers LLP, independent accountants. Schlumberger derived the
combined statement of income data for the six months ended June 30, 1999 and
1998 and the years ended December 31, 1995 and 1994 and the combined balance
sheet data as of June 30, 1999 and December 31, 1995 and 1994 from unaudited
combined financial statements. In the opinion of management, the unaudited
interim financial statements for the six months ended June 30, 1999 and 1998
include all adjustments consisting only of normal recurring adjustments
necessary for a fair statement of the results for the unaudited periods.
Operating results for the six months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1999.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------- ----------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF INCOME DATA
Operating revenues.......................................... $352 $534 $1,091 $891 $663 $437 $391
Net income.................................................. 39 158 342 260 148 62 34
Pro forma earnings per share
Basic..................................................... 0.35 3.13
Diluted................................................... 0.35 3.13
Pro forma average shares outstanding
Basic(1).................................................. 109 109
Diluted(2)................................................ 109 109
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------------------
1999 1998 1997 1996 1995 1994
----------- ------ ------ ---- ---- ----
(IN MILLIONS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA
Working capital............................................. $ 57 $ 217 $ 168 $113 $130 $ 86
Total assets................................................ 1,515 1,473 1,051 899 781 742
Long-term debt.............................................. 77 86 139 46 40 28
Equity...................................................... 519 564 363 462 574 593
</TABLE>
- ---------------
(1) Average basic shares outstanding represent Transocean Sedco Forex shares to
be issued to Schlumberger's shareholders pursuant to the merger agreement.
(2) Average diluted shares outstanding adjust average basic shares outstanding
for the dilutive effect of stock options.
93
<PAGE> 98
SEDCO FOREX MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in connection with the information
contained in Sedco Forex's combined financial statements and the notes thereto
included elsewhere in this joint proxy statement/prospectus. As used in this
discussion, the term "Sedco Forex" refers to the historical offshore contract
drilling service business of Schlumberger Limited that is to be spun off and
merged with Transocean and to that business as consolidated under Sedco Forex
Holdings Limited from and after the time of the spin-off.
OVERVIEW
Sedco Forex is a leading international provider of offshore contract
drilling services for offshore oil and gas exploration, development and
production. Sedco Forex currently owns, has an ownership interest in or operates
40 mobile offshore drilling rigs. Sedco Forex's fleet consists of three
fourth-generation semisubmersibles, twenty second- and third-generation
semisubmersibles, one first-generation semisubmersible, two drillships, ten
jackup rigs and four tenders. Sedco Forex also has under construction three
Sedco Express-class semisubmersibles, the Sedco Express, Cajun Express and Sedco
Energy, and one independent-leg cantilevered jackup rig, the Trident 20. In
addition, the fleet includes one multi-purpose service jackup rig, six swamp
barges and two land drilling rigs. Sedco Forex contracts these drilling rigs,
related equipment and work crews primarily on a dayrate basis to drill oil and
gas wells. Sedco Forex also provides additional drilling services, including
well intervention and management of third-party well service activities.
OPERATING RESULTS
Comparative data relating to Sedco Forex's operating results for the three
years ended December 31, 1998, 1997 and 1996 and for the six months ended June
30, 1999 and 1998 are summarized below. The results of interim periods are not
necessarily indicative of a full year's operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- --------------------------
1999 1998 1998 1997 1996
------- ------- -------- ------ ------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Operating...................................... $ 352 $534.4 $1,090.5 $891.3 $663.2
Interest and other income...................... 6.7 3.3 8.8 8.3 8.1
------ ------ -------- ------ ------
358.3 537.7 1,099.3 899.6 671.3
EXPENSES:
Cost of services............................... 297.1 329.3 674.7 561.8 476.3
Research and engineering....................... 6.3 6.1 11.3 9.8 10.2
General and administrative..................... 8.4 12.3 26.3 15.9 13.8
Interest expense, net.......................... 6.9 9.9 13.0 19.6 7.9
------ ------ -------- ------ ------
Income before taxes.............................. 39.6 180.1 374.0 292.5 163.1
Income taxes..................................... (0.9) (21.8) (32.4) (32.0) (15.6)
------ ------ -------- ------ ------
Net income............................. $ 38.7 $158.3 $ 341.6 $260.5 $147.5
====== ====== ======== ====== ======
</TABLE>
Six months ended June 30, 1999 compared to six months ended June 30, 1998
Operating revenues for the six months ended June 30, 1999 were $352 million
compared to $534 million for the same period in 1998, a decrease of $182 million
or 34 percent. The decrease resulted primarily from decreased demand in the
worldwide drilling market as a direct consequence of depressed oil prices in
1998 and early 1999. As a result, average utilization for the first six months
of 1999 fell to 75 percent compared to an average of 96 percent for the same
period in 1998. In addition, average dayrates for the first six months of 1999
fell to approximately $61,000 compared to approximately $67,000 for the same
period in 1998.
94
<PAGE> 99
Cost of services for the six months ended June 30, 1999 was $297 million
compared to $329 million for the same period in 1998, a decrease of $32 million
or 10 percent. The decrease resulted primarily from reduced rig activity in 1999
due to the decline in demand and resulting oversupply of rigs in the market. A
large portion of Sedco Forex's cost of services consists of depreciation and
employee-related costs and is fixed or only semi-variable. Accordingly, cost of
services does not vary in direct proportion to activity. Cost of services for
the six months ended June 30, 1999 also includes charges totaling $42 million in
respect of severance liabilities and provisions for contractual disputes.
Research and engineering expense for the six months ended June 30, 1999 was
$6 million compared to $6 million for the same period in 1998. In both periods,
approximately $2 million of research and engineering expense was allocated by
Schlumberger to Sedco Forex. This allocation is dependent on a number of
factors, including the nature and scale of research and engineering projects,
the level of central costs and the proportion of Sedco Forex's revenues to
Schlumberger's worldwide group revenues. Accordingly, while the allocation
methods are considered to be reasonable, the level of research and engineering
expenses may not be indicative of ongoing costs for Sedco Forex upon completion
of the spin-off from Schlumberger and the merger with Transocean.
General and administrative expense for the six months ended June 30, 1999
was $8 million compared to $12 million for the same period in 1998, a decrease
of $4 million or 33 percent. The decrease resulted from cost reduction measures
taken in response to reduced activity levels and the lower allocation of central
overhead due to Sedco Forex's lower revenues. General and administrative expense
includes an allocation by Schlumberger to Sedco Forex that amounts to
approximately $3 million for the six months ended June 30, 1999 and $5 million
for the same period in 1998. The amount allocated by Schlumberger is dependent
on a number of factors, including the level of central costs and the proportion
of Sedco Forex's revenues to Schlumberger's worldwide group revenues.
Accordingly, while the allocation methods are considered to be reasonable, the
level of general and administrative expenses may not be indicative of ongoing
costs for Sedco Forex upon completion of the spin-off from Schlumberger and the
merger with Transocean.
Interest expense for the six months ended June 30, 1999 was $7 million
compared to $10 million for the same period in 1998, a decrease of $3 million or
30 percent. The net decrease includes an increase in gross interest expense for
the first six months of 1999 to $17 million compared to $11 million for the same
period of 1998. This increase resulted primarily from interest incurred on loans
to finance newbuild construction projects. The increase was more than offset by
the capitalization of $12 million of interest for the period ended June 30, 1999
in respect of construction projects compared to the capitalization of only $2
million for the comparable 1998 period.
Income tax expense for the six months ended June 30, 1999 was $1 million
compared to $22 million for the same period in 1998, a decrease of $21 million
or 95 percent. The decrease resulted primarily from the reduction in activity
and dayrates in countries where taxes are charged on a "deemed profit" basis
(equivalent to a fixed percentage of revenue) coupled with the tax effect of the
charges included in cost of services.
Net income for the six months ended June 30, 1999 was $39 million compared
to $158 million for the same period in 1998, a decrease of $119 million or 75
percent. The decrease resulted primarily from the significant reduction in
revenues compared to 1998, as well as the impact of charges in the first quarter
of 1999.
1998 compared to 1997
Operating revenues for the year ended December 31, 1998 were $1,091 million
compared to $891 million for 1997, an increase of $200 million or 22 percent.
The increase in revenues for 1998 resulted primarily from an increase in
dayrates from an average of approximately $56,000 in 1997 to approximately
$70,000 in 1998 and from increased utilization, which improved from an average
of 90 percent in 1997 to 91 percent in 1998. Dayrates increased in early 1998 as
a result of higher market demand converging with tightening supply.
Cost of services for the year ended December 31, 1998 was $675 million
compared to $562 million for 1997, an increase of $113 million or 20 percent.
The increase in 1998 resulted primarily from rig reactivation
95
<PAGE> 100
and mobilization costs and enhanced maintenance costs and employee compensation.
A large portion of Sedco Forex's cost of services consists of depreciation and
employee-related costs and is fixed or only semi-variable. Accordingly, cost of
services does not vary in direct proportion to activity. Cost of services for
the year ended December 31, 1998 also includes charges totaling $23 million
relating to severance liabilities, the write-down of obsolete fixed assets and
contract disputes.
Research and engineering expense for the year ended December 31, 1998 was
$11 million compared to $10 million for 1997, an increase of $1 million or
approximately 10 percent. The increase in 1998 resulted primarily from the
higher allocation of central overhead due to Sedco Forex's higher revenues. For
1998, approximately $3 million of research and engineering expense was allocated
by Schlumberger to Sedco Forex compared to approximately $2 million in 1997.
This allocation is dependent on a number of factors, including the nature and
scale of research and engineering projects, the level of central costs and the
proportion of Sedco Forex's revenues to Schlumberger's worldwide group revenues.
Accordingly, while the allocation methods are considered to be reasonable, the
level of research and engineering expenses may not be indicative of ongoing
costs for Sedco Forex upon completion of the spin-off from Schlumberger and the
merger with Transocean.
General and administrative expense for the year ended December 31, 1998 was
$26 million compared to $16 million for 1997, an increase of $10 million or 63
percent. The increase in 1998 resulted from the higher allocation of central
overhead due to Sedco Forex's higher revenues and from increased marketing and
business development efforts. General and administrative expense includes an
allocation by Schlumberger to Sedco Forex that amounts to approximately $9
million for 1998 and $4 million for 1997. The general and administrative expense
allocation by Schlumberger to Sedco Forex is dependent on a number of factors,
including the level of central costs and the proportion of Sedco Forex's
revenues to Schlumberger's worldwide group revenues. Accordingly, while the
allocation methods are considered to be reasonable, the level of general and
administrative expenses may not be indicative of ongoing costs for Sedco Forex
upon completion of the spin-off from Schlumberger and the merger with
Transocean.
Interest expense for the year ended December 31, 1998 was $13 million
compared to $20 million for 1997, a decrease of $7 million or 35 percent. The
decrease in 1998 resulted primarily from the capitalization of $9 million in
interest relating to construction projects.
Income tax expense for the year ended December 31, 1998 was $32 million
compared to $32 million for 1997. Sedco Forex operates in a number of countries
where income tax is charged on a deemed profit basis. Accordingly, income tax
expense does not necessarily vary in direct proportion with pre-tax income. The
decrease in income tax expense in relation to pre-tax income for 1998 resulted
primarily from the release of the remaining valuation allowance relating to U.K.
tax loss carryforwards of $15 million. This carryforward, which Sedco Forex
believes will be fully utilized, is available to Sedco Forex indefinitely.
Net income for the year ended December 31, 1998 was $342 million compared
to $261 million for 1997, an increase of $81 million or 31 percent. The increase
in 1998 resulted primarily from higher revenues due to increased dayrates and
rig utilization, partially offset by charges included in cost of services
totaling $20 million.
1997 compared to 1996
Operating revenues for the year ended December 31, 1997 were $891 million
compared to $663 million for 1996, an increase of $228 million or 34 percent.
The increase in revenues for 1997 resulted primarily from increased dayrates,
which improved from an average of approximately $44,000 in 1996 to approximately
$56,000 in 1997. Dayrates increased in 1997 as a result of higher market demand
converging with tightening supply. Rig utilization increased to 90 percent in
1997 from 88 percent in 1996.
Cost of services for the year ended December 31, 1997 was $562 million
compared to $476 million for 1996, an increase of $86 million or 18 percent. The
increase in 1997 resulted primarily from rig reactivation and mobilization costs
and higher maintenance costs and employee compensation. A large portion of Sedco
Forex's cost of services consists of depreciation and employee-related costs and
is generally fixed or only semi-variable. Accordingly, cost of services
generally does not vary in direct proportion to activity.
96
<PAGE> 101
Research and engineering expense for the year ended December 31, 1997 was
$10 million compared to $10 million for 1996. For each of 1997 and 1998,
approximately $2 million of research and engineering expense was allocated by
Schlumberger to Sedco Forex.
General and administrative expense for the year ended December 31, 1997 was
$16 million compared to $14 million for 1996, an increase of $2 million or 14
percent. General and administrative expense includes an allocation by
Schlumberger to Sedco Forex that amounts to approximately $4 million for each of
1997 and 1996.
Interest expense for the year ended December 31, 1997 was $20 million
compared to $8 million for 1996, an increase of $12 million or 150 percent. The
increase in 1997 resulted primarily from the financing of the Trident IX and the
Trident 16 rigs and borrowings to finance the acquisition of the Actinia and the
refinancing of the Sedco 703.
Income tax expense for the year ended December 31, 1997 was $32 million
compared to $16 million for 1996, an increase of $16 million or 100 percent.
Sedco Forex operates in a number of countries where income tax is charged on a
deemed profit basis. Accordingly, income tax expense does not necessarily vary
in direct proportion with pre-tax income. The increase in 1997 resulted
primarily from increased profits that generally were earned in jurisdictions
with higher effective tax rates.
Net income for the year ended December 31, 1997 was $261 million compared
to $148 million for 1996, an increase of $113 million or 76 percent. The
increase in 1997 resulted primarily from increased revenues arising from
improved dayrates.
MARKET OUTLOOK
Rig utilization for the third quarter of 1999 averaged approximately 73
percent fleetwide compared to 74.5 percent fleetwide in the second quarter of
1999. The decrease in fleetwide utilization was primarily due to four rigs
becoming idle upon the expiration of existing contracts in the second quarter
and early in the third quarter, which were not completely offset by three new
contracts starting in the third quarter. Average dayrates during the third
quarter of 1999 declined to approximately $55,400 from approximately $58,200 in
the second quarter of 1999, due primarily to several rigs commencing new
lower-rate contracts during the third quarter or being stacked following
completion of higher rate contracts. As of September 30, 1999, Sedco Forex had
60% of its fleet days committed for the remainder of 1999 and 27% for the year
2000.
Reduced exploration and development activity by Sedco Forex's customers,
resulting from the sustained period of low oil prices from late 1997 through
early 1999 and industry consolidation over the same time period, continued in
the second quarter despite the upturn in prices since February 1999. Rig
availability has also increased as a result of expiring contracts and
construction by drilling contractors of new rigs that are capable of competing
with Sedco Forex's rigs. This decline in exploration and development activity
and increased rig availability has created a highly competitive market for
contract drilling services, with corresponding reductions in utilization and
dayrates for all classes of offshore rigs.
Oil prices have rallied from lows experienced in 1998, reaching a price in
excess of $24 per barrel in September before falling back to about $22 in
October. This level of oil prices suggests that there could be an improving
long-term fundamental outlook for the offshore drilling business. Sedco Forex
has recently experienced an increase in customer inquiries in all of its
principal market areas, but this has not yet led to meaningful increases in
dayrates or rig utilization. It is expected that in the near term, customers
will continue a cautious approach to exploration and development spending until
these commodity price gains prove to be sustainable.
Sedco Forex's efforts to secure contracts for its drilling units becoming
available due to contract expirations have been and will continue to be
adversely affected by continuing market weakness. Some units have been
contracted at lower rates in order to secure work and others have been stacked.
As of September 30, 1999, eight semisubmersibles, one jackup, four swamp barges,
two tenders and one land rig were stacked. However, two idled semisubmersibles
will be reactivated under new contracts scheduled to commence in the fourth
quarter of 1999. In addition to the loss of revenues associated with stacking
rigs and maintaining them
97
<PAGE> 102
in idle status, Sedco Forex has incurred and may incur additional expenses
associated with severance and related payments to rig operating personnel made
redundant as a result.
OTHER FACTORS AFFECTING OPERATING RESULTS
Sedco Forex's business depends on the level of activity in offshore oil and
gas exploration, development and production in markets worldwide. Oil and gas
prices, market expectations of potential changes in these prices and a variety
of political and economic factors significantly affect this level of activity.
Oil and gas prices are extremely volatile and are affected by numerous factors,
including
- worldwide demand for oil and gas;
- the ability of the Organization of Petroleum Exporting Countries,
commonly called "OPEC," to set and maintain production levels and
pricing;
- the level of production of non-OPEC countries;
- the policies of the various governments regarding exploration and
development of their oil and gas reserves;
- advances in exploration and development technology; and
- the political environment of oil-producing regions.
The offshore contract drilling industry is highly competitive with numerous
industry participants, none of which has a dominant market share. Some of Sedco
Forex's competitors may have greater resources than Sedco Forex.
Drilling contracts are traditionally awarded on a competitive bid basis.
Intense price competition is often the primary factor in determining which
qualified contractor is awarded a job, although rig availability and the quality
and technical capability of service and equipment may also be considered.
Sedco Forex's industry has historically been cyclical. There have been
periods of high demand, short rig supply and high dayrates, followed by periods
of lower demand, excess rig supply and low dayrates. The industry is currently
in a period of low demand, and Sedco Forex is unable to predict when the market
will change and if so, to what extent. In addition, rig availability has
increased as a result of contract expirations and construction by other drilling
contractors of new rigs that are competing with Sedco Forex's rigs. Periods of
excess rig supply intensify the competition in the industry and often result in
rigs being idled for long periods of time.
Sedco Forex's customers may terminate many of Sedco Forex's term drilling
contracts if the drilling unit is destroyed or lost or if drilling operations
are suspended for a specified period of time as a result of a breakdown of major
equipment or, in some cases, due to other events beyond the control of either
party. In addition, the drilling contracts for Sedco Forex's newbuild rigs
contain termination or term reduction provisions tied to late delivery of these
units. In reaction to depressed market conditions, Sedco Forex's customers may
also seek renegotiation of firm drilling contracts to reduce their obligations.
As of September 30, 1999, Sedco Forex had four new rigs in shipyards under
construction. These construction projects are subject to the risks of delay or
cost overruns inherent in any large construction project resulting from numerous
factors, including the following:
- shipyard unavailability;
- shortages of equipment, materials or skilled labor;
- unscheduled delays in the delivery of ordered materials and equipment;
- engineering problems, including those relating to the commissioning of
newly designed equipment;
- work stoppages;
98
<PAGE> 103
- weather interference;
- unanticipated cost increases; and
- difficulty in obtaining necessary permits or approvals.
These factors may contribute to cost variations and delays in the delivery
of Sedco Forex's drilling units under construction. Delays in delivery of these
units would result in delays in contract commencements, resulting in a loss of
revenue to Sedco Forex, and may also cause customers to terminate the drilling
contracts for these rigs pursuant to late delivery termination clauses. In the
event of termination of a drilling contract for one of these rigs, it is
unlikely that Sedco Forex would be able to secure a replacement contract on as
favorable terms.
Sedco Forex operates in various regions throughout the world that may
expose Sedco Forex to political and other uncertainties, including risks of:
- war and civil disturbances;
- expropriation of equipment;
- the inability to repatriate income or capital; and
- changing taxation policies.
Sedco Forex is protected to a substantial extent against loss of capital
assets, but generally not loss of revenue, from most of these risks through
insurance, indemnity provisions in its drilling contracts or both. As of
September 30, 1999, all areas in which Sedco Forex was operating were covered by
existing insurance policies.
The offshore drilling business is subject to significant government
regulations in different jurisdictions. Many governments favor or effectively
require the awarding of drilling contracts to local contractors or require
foreign contractors to employ citizens of, or purchase supplies from, a
particular jurisdiction. These practices may adversely affect Sedco Forex's
ability to compete. Sedco Forex expects to continue its efforts to structure its
operations in order to remain competitive in international markets.
Another risk inherent in its operations is the possibility of currency
exchange losses where revenues are received and expenses are paid in
nonconvertible currencies. Sedco Forex may also incur losses as a result of an
inability to collect revenues because of a shortage of convertible currency
available to the country of operation. Sedco Forex seeks to limit these risks by
structuring contracts such that compensation is made in freely convertible
currencies and, to the extent possible, by limiting acceptance of blocked
currencies to amounts that match its expense requirements in local currency.
Sedco Forex requires highly skilled personnel to operate and provide
technical services and support for its drilling units. To the extent demand for
drilling services and the size of the worldwide industry fleet increase,
shortages of qualified personnel similar to those experienced in 1996-97 could
arise, creating upward pressure on wages. Sedco Forex is continuing its
recruitment and training programs as required to meet its anticipated personnel
needs.
On a worldwide basis, Sedco Forex had approximately 13 percent of its
employees working under collective bargaining agreements at September 30, 1999.
Some of those agreements have expired and negotiations are ongoing for new
contracts. Sedco Forex has not experienced any work stoppages as a result of
these expirations and negotiations.
The general rate of inflation in the majority of the countries in which
Sedco Forex operates has been moderate over the past several years and has not
had a material impact on Sedco Forex's results of operations. The increase in
the demand for offshore drilling rigs experienced in 1996 and 1997 led to higher
labor, transportation and other operating expenses as a result of an increased
need for qualified personnel and services. Because of the decline in demand for
offshore drilling services commencing in 1998, these inflationary pressures have
decreased.
99
<PAGE> 104
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH
Six months ended June 30, 1999 compared to six months ended June 30, 1998
Cash flows provided by operations for the six months ended June 30, 1999
were $151 million compared to $165 million for the same period in 1998, a
decrease of $14 million or approximately 8 percent. The decrease in cash flows
provided by operations resulted primarily from reduced net income, partly offset
by movements in working capital.
Cash flows used in investing activities for the six months ended June 30,
1999 were $250 million compared to $160 million for the same period in 1998, an
increase of $90 million or approximately 56 percent. The increase in cash flows
used in investing activities resulted primarily from increased capital
expenditures on construction projects.
Cash flows provided by financing activities for the six months ended June
30, 1999 were $10 million compared to cash flows used in financing activities of
$66 million for the same period in 1998, an increase of $76 million. The
increase in cash provided by financing activities resulted primarily from
proceeds from the issuance of related party debt during the six months ended
June 30, 1999.
1998 compared to 1997
Cash flows provided by operations for the year ended December 31, 1998 were
$473 million compared to $318 million for 1997, an increase of $155 million or
approximately 49 percent. The increase in cash provided by operations resulted
primarily from increased net income.
Cash flows used in investing activities for the year ended December 31,
1998 were $422 million compared to $19 million for the same period in 1997, an
increase of $403 million. The increase in cash used in investing activities
resulted primarily from increased capital expenditures on construction projects
in 1998 and the receipt of proceeds in 1997 from the sale of two rigs.
Cash flows provided by financing activities for the year ended December 31,
1998 were $27 million compared to cash flows used in financing activities of
$269 million for the same period in 1997, an increase of $296 million. The
increase in cash provided by financing activities resulted primarily from
greater proceeds from the issuance of debt during the year ended December 31,
1998 together with the impact of dividends paid in 1997 that were not paid in
1998 and lower repayment of advances from related parties in 1998.
CAPITAL EXPENDITURES
Sedco Forex's investments in its existing fleet and previously announced
fleet additions continue to require significant capital expenditures. Capital
expenditures, including capitalized interest, totaled $425 million during the
year ended December 31, 1998 and are expected to be approximately $581 million
in 1999, including amounts that will be spent on newbuild construction projects
as summarized below. In 1999, Sedco Forex has made capital expenditures
aggregating $250 million through June 30, and approximately $420 million through
September 30.
100
<PAGE> 105
The projected total cost, including capitalized interest, and completion
dates for Sedco Forex's major rig construction projects are as follows:
<TABLE>
<CAPTION>
SEDCO SEDCO CAJUN TRIDENT
EXPRESS ENERGY EXPRESS 20 TOTAL
------- ------- ------- ------- -------
(EXPENDITURES IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Cumulative at December 31, 1998.......... $ 118 $ 107 $ 58 $ 40 $ 323
Actual for six months ended June 30,
1999................................... 60 62 73 23 218
Actual for July 1 to September 30,
1999................................... 41 48 41 21 151
------- ------- ------- ------- -------
Cumulative at September 30, 1999......... 219 217 172 84 692
Projected for fourth quarter 1999........ 33 39 29 21 122
Projected 2000........................... 46 51 64 27 188
------- ------- ------- ------- -------
Projected total cost..................... $ 298 $ 307 $ 264 $ 132 $ 1,002
======= ======= ======= ======= =======
Estimated completion date................ 1Q 2000 1Q 2000 2Q 2000 4Q 2000
</TABLE>
These construction projects are subject to the risks of delay or cost
overruns inherent in any large construction project resulting from numerous
factors, including those listed previously. See "-- Liquidity and Capital
Resources -- Capital Expenditures."
Sedco Forex intends to fund the cash requirements relating to its capital
commitments through available cash balances, borrowings from Schlumberger prior
to the spin-off or third parties and other commercial bank or capital market
financings.
DEBT
Sedco Forex's third-party and related party indebtedness are summarized
below:
Third-party Indebtedness
Sedco Forex has entered into financing arrangements with a commercial bank
for the Trident IX and Trident 16 pursuant to which $60 million was financed
originally in connection with the Trident IX and $60 million was financed
originally in connection with the Trident 16. The payments under these
financings include an interest component of 7.95% for the Trident IX and 7.20%
for the Trident 16, and the remaining terms run through 2003 for the Trident IX
and 2005 for the Trident 16. The arrangements provide for a call right on the
part of Sedco Forex to repay the financings at a predetermined price, which
declines over time, prior to end of the term and to take unencumbered ownership
of the rigs. Additionally, under some circumstances, the bank has a put right to
cause Sedco Forex to repay the financings at the same price as would apply in
the case of a Sedco Forex call. As of June 30, 1999, remaining payments
aggregate $42 million under the Trident IX arrangement and $50 million under the
Trident 16 arrangement. As of September 30, 1999, remaining payments aggregated
$41 million under the Trident IX arrangement and $48 million under the Trident
16 arrangement. Cash to fund the satisfaction of these obligations is expected
to be generated from Sedco Forex's operating activities.
Related Party Indebtedness
At June 30, 1999 Sedco Forex had long-term debt to related parties of $506
million. As of September 30, 1999, this debt totaled $496 million. These loans
bear interest at a rate of LIBOR plus 0.5%. These loans have been used to
finance both Sedco Forex's existing fleet of rigs and ongoing major construction
projects. The loans are repayable in fixed annual amounts over agreement terms
ranging from eight to fourteen years, commencing from the date of drawdown or,
in the case of the construction projects, on commencement of operating
activities by the relevant rig. Sedco Forex has the option to repay the debt in
full at any time, subject to an agreed notice period. Cash to fund the repayment
of these borrowings is expected to be generated from Sedco Forex's operating
activities. Sedco Forex is required to repay the portion of this indebtedness
that remains following the spin-off, which is estimated to be approximately $350
million upon completion of the
101
<PAGE> 106
spin-off. See "Summary -- The Companies -- Transocean Offshore Inc. -- Recent
Developments" and "The Transaction Agreements -- The Distribution
Agreement -- Intercompany Indebtedness and Other Financing Matters."
DERIVATIVE INSTRUMENTS
Occasionally, Sedco Forex uses derivative instruments such as forward
currency contracts and foreign currency options. Forward currency contracts
provide a hedge against currency fluctuations on assets/ liabilities denominated
in other than a functional currency. Options are usually entered into to hedge
against currency variations on firm commitments generally involving the
construction of drilling rigs. Sedco Forex defers gains and losses on these
currency contracts, which qualify as accounting hedges, and recognizes them when
the underlying foreign exchange exposure is realized. See "-- Quantitative and
Qualitative Disclosures About Market Risk."
ASSET DIVESTITURES
In September 1997, Sedco Forex sold two of its rigs, the Sedco Explorer and
the Drill Star, to Sea Wolf Drilling Limited, an entity in which Schlumberger
has an indirect 25% interest and which is 75% owned by a third-party investment
company. The rigs are being operated by Sedco Forex under bareboat charters. The
proceeds from these asset divestitures were used to fund capital expenditures.
See "Business of Sedco Forex -- Drilling Rig Status."
SOURCES OF LIQUIDITY
Sedco Forex believes that its cash and cash equivalents, cash generated
from operations, borrowing capacity and access to other financing sources will
be adequate to meet its anticipated short-term and long-term liquidity
requirements, including scheduled debt repayments and capital expenditures for
new rig construction and upgrade projects.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. In June 1999, the FASB issued
SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of FASB 133 to delay the required effective date
for adoption of SFAS No. 133 to fiscal years beginning after June 15, 2000.
Because of Sedco Forex's limited use of derivatives to manage its exposure to
fluctuations in foreign exchange rates, Sedco Forex does not anticipate that the
adoption of the new statement will have a significant effect on the results of
operations or the financial position of the company. Sedco Forex will adopt SFAS
133 as of January 1, 2001.
YEAR 2000 ISSUES
OVERVIEW
The "year 2000 issue" is the inability of computers and computing
technology to correctly process the year 2000 date change.
Sedco Forex recognizes that the year 2000 issue creates a significant
uncertainty to its business, and has a proactive, year 2000 readiness program.
As part of its program, most nonready systems are being replaced or
upgraded with new systems that will provide certain competitive benefits, as
well as ensure year 2000 readiness to minimize customer and shareholder business
disruptions caused by this issue. Schlumberger formed a company-wide task force
in late 1997 to provide guidance to its business units, including Sedco Forex,
and monitor progress of the program. Sedco Forex has dedicated internal
resources and has consulted with and engaged various third parties, including
outside consultants and service providers, to assist it in its year 2000
efforts.
102
<PAGE> 107
Overall, the program is proceeding on schedule. In 1994, Schlumberger
decided to upgrade its main internal business systems, including those of Sedco
Forex, with year 2000 ready programs. This is expected to be completed by the
end of 1999. Those aspects of Schlumberger's internal business systems that are
not scheduled to be covered by this upgrade effort are being separately
addressed through an upgrade of existing legacy systems to year 2000 ready
status.
PROGRAM
Sedco Forex's year 2000 program uses a business risk assessment and
prioritization approach, and is intended to produce year 2000 ready products and
services and to minimize disruptions in business operations. The program is
divided into three major readiness categories:
- assets
- information technology ("IT")
- commercial
Within each category, there are two program stages:
- Stage I: assessment and preparation -- this stage focuses on up-front
planning, data gathering and correction planning. This includes
-- raising year 2000 awareness;
-- carrying out a detailed asset inventory;
-- assessing the scope of the year 2000 problem;
-- determining appropriate corrections, testing/validation, acceptance and
deployment approaches; and
-- preparing project plans and budgets.
- Stage II: repairs, testing, and deployment -- this stage focuses on
"fixing" year 2000 problems and testing those fixes, followed by
user-acceptance, redeployment and operational validation of the repaired,
replaced or otherwise fixed systems.
Assets. This category consists of (1) equipment that Sedco Forex uses to
provide services to its customers and (2) hardware and software associated with
embedded computer chips that are used in the operation of Sedco Forex's rigs.
Program progress under this category is on schedule with the majority of Stage I
activities completed; Sedco Forex is now finalizing Stage II activities. Sedco
Forex expects activities associated with year 2000 readiness of assets to be
completed by December 1999.
Information Technology. This category deals with traditional IT
infrastructure, such as business applications, computer hardware/software, IT
networks and communication equipment. Implementation of the business
applications software system has been completed. The activities associated with
other systems in this IT category, such as computer hardware/software, IT
networks and communications equipment, also are on schedule. Stage I activities
have been completed and Stage II activities are being finalized and are expected
to be completed by November 1999.
Commercial. This category deals with Sedco Forex's efforts to avoid being
adversely affected by year 2000 issues from external entities, suppliers,
financial institutions and service providers not affiliated with Sedco Forex.
Stage I of the program includes a process for mitigating the year 2000 issues
associated with key suppliers. Sedco Forex is communicating with its key
suppliers, business partners and customers seeking their assurances that they
will be year 2000 ready. Based on responses, Sedco Forex has developed
contingency plans for those areas that pose significant risk from the year 2000
issue; however, Sedco Forex could potentially experience disruptions to some
aspects of its operations from non-compliant systems utilized by unrelated
third-party entities. Work in this category is on schedule. The Stage I
activities have been
103
<PAGE> 108
completed and Stage II efforts are being finalized. Sedco Forex expects these
efforts to be completed by November 1999.
CONTINGENCY PLANNING
Sedco Forex is reviewing the activities associated with each category and
is determining those activities at risk of not being completed in time to
prevent a year 2000 disruption. Appropriate contingency plans are being designed
for each of the "at risk" activities to provide an alternative means of
functioning that minimizes the effect of the potential year 2000 disruption,
both internally and on Sedco Forex's customers. These contingency-planning
activities are expected to be completed in November 1999.
COSTS
Year 2000 program funding requirements have been incorporated into Sedco
Forex's capital and operating plans and are not expected to have a material
adverse impact on its financial condition or results of operations. Sedco Forex
estimates the cost of its year 2000 program to be around $3 million, of which
approximately $2 million has been spent to date. The estimated breakdown of
these costs is 53% for employee resources, 18% for IT-related upgrades and
repair and 29% for non-IT embedded chip technology. In addition, through cost
allocations from Schlumberger, Sedco Forex has contributed to the year 2000 work
performed on common legacy systems. These allocations amounted to less than $1
million. The above costs do not include the normal upgrading of business and
financial systems that would be year 2000 ready, or rationalization costs of
year 2000 ready technology already defined by Sedco Forex's business plans.
RISKS
Dates and schedules for Sedco Forex's year 2000 program are based on
management's best estimates, which involve numerous assumptions, including:
- the results of Stage I assessments;
- the continued availability of certain resources;
- third-parties' year 2000 status and plans; and
- other factors.
There can be no guarantee that these estimates will be achieved, or that
there will not be delays in, or increased costs associated with, implementation
of the year 2000 program. Specific factors that might cause differences between
present estimates and actual results include:
- the availability and cost of skilled personnel;
- consultants, and independent contractors;
- the ability to locate and correct all relevant computer code;
- timely and effective action by third parties and suppliers;
- the ability to implement interfaces between year 2000 ready systems and
those systems not being replaced; and
- similar uncertainties.
Because of the general uncertainty inherent in the year 2000 issues, which
is partially attributable to the interconnection of global businesses, Sedco
Forex cannot assure that it will be able to resolve appropriately all year 2000
issues that may affect its operations and business or expose it to third-party
liability. The failure to correct a year 2000 problem could result in an
interruption in, or a failure of, all or part of normal business activities or
operations. Such failures could materially and adversely affect Sedco Forex's
financial condition and results of operations. Because of the uncertainties
described above, Sedco Forex presently is unable to
104
<PAGE> 109
determine whether the consequences of such year 2000 failures will have a
material impact on its financial condition or results of operations.
EURO DISCLOSURES
On January 1, 1999, the euro became the official single currency of the
European Union. As of that date, the conversion rates of the national currencies
of the eleven member states adopting the euro were fixed irrevocably. The
national currencies will initially remain in circulation as nondecimal subunits
of the euro and will be replaced by euro bills and coins by July 2002. During
the transition period from January 1999 to January 2002, public and private
parties may pay for goods and services using either the euro or the national
currency on a "no compulsion, no prohibition" basis. Sedco Forex operates for
the most part in a U.S. dollar-denominated environment and does not expect the
introduction of the euro to have a material adverse effect on its business,
financial position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. Exposure to market risk for changes in interest rates
relates primarily to Sedco Forex's long-term debt obligations. Because these
obligations consist solely of fixed rate indebtedness or related party variable
rate indebtedness that is required to be repaid following the spin-off, Sedco
Forex does not believe its exposure to interest rate market risk is material.
Foreign Exchange Risk. Sedco Forex operates internationally, resulting in
exposure to foreign exchange risk. Sedco Forex uses a variety of techniques to
minimize the exposure to foreign exchange risk, including customer contract
terms and the use of foreign exchange derivative instruments or spot purchases.
Sedco Forex does not enter into derivative transactions for speculative
purposes. At December 31, 1998, Sedco Forex had no material open foreign
exchange contracts and had foreign currency options totalling $68 million.
MANAGEMENT OF SEDCO FOREX
The following table lists the names, ages as of September 30, 1999 and
titles of the "executive officers" of Sedco Forex, as defined under the rules of
the SEC. The persons listed have no employment relationship with Sedco Forex
Holdings Limited and do not serve as officers or directors of that corporation.
These individuals are employed by various affiliates of Sedco Forex Holdings
Limited that are incorporated in France, the United Kingdom, the United States
and the British Virgin Islands and provide support services to the Sedco Forex
companies.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Jean P. Cahuzac....................... 45 President
Yves Le Moign......................... 45 Business Manager Continental Europe,
CIS & Africa
Ricardo Rosa.......................... 43 Controller
Michael I. Unsworth................... 40 Business Manager Asia
Robert F. MacChesney.................. 42 Business Manager North Sea
Patrick C. Lowe....................... 40 Business Manager North & South America
</TABLE>
Jean P. Cahuzac has served as President of Sedco Forex since January 1999.
He was appointed Vice President-Operations Manager in May 1998, Region
Manager - Europe, Africa and CIS in September 1994 and Vice President/General
Manager - North Sea Region in February 1994. Mr. Cahuzac has been with
Schlumberger since 1979.
Yves Le Moign has served as Business Manager Continental Europe, CIS &
Africa since February 1998. He served as Engineering Manager for Sedco Forex
from March 1994 until February 1998. Mr. Le Moign has been with Schlumberger and
Sedco Forex since 1977.
105
<PAGE> 110
Ricardo Rosa has served as Controller at Sedco Forex since September 1995.
He was appointed Gas Management Controller in October 1993. Mr. Rosa has been
with Schlumberger since 1983.
Michael I. Unsworth has served as Business Manager Asia since March 1998.
He served as Sedco Forex Manager in Indonesia from July 1995 until February 1998
and as Sedco Forex Marketing Manager Scotland prior to July 1995. Mr. Unsworth
has been with Schlumberger since 1981.
Robert F. MacChesney has served as Business Manager North Sea since July
1997. He served as District Manager - Brazil from September 1993 until June
1997. Mr. MacChesney has been with Schlumberger since 1979.
Patrick C. Lowe has served as Business Manager North & South America since
August 1999. He served as Geomarket Manager - Saudi Arabia, Bahrain & Kuwait for
Schlumberger Oilfield Services from February 1998 until August 1999, as Sedco
Forex Division Manager Middle East from September 1996 until February 1998 and
as District Manager - Pakistan from August 1993 until September 1996. Mr. Lowe
has been with Schlumberger since May 1980.
EXECUTIVE COMPENSATION
The table below shows information regarding the compensation for each of
the five most highly compensated Sedco Forex executive officers for the last
three full fiscal years. All share amounts and related matters have been
adjusted to reflect a two-for-one stock split of Schlumberger shares effected in
June 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
NAME AND PRINCIPAL ----------------------------- UNDERLYING ALL OTHER
POSITION WITH SEDCO FOREX SALARY ($)(1) BONUS ($)(1) OPTIONS (#) COMPENSATION ($)(2)
- ------------------------- ------------- ------------ ------------ -------------------
<S> <C> <C> <C> <C> <C>
Jean P. Cahuzac......................... 1998 218,182 64,560 5,000 24,131
President 1997 197,487 49,600 10,000 16,882
1996 202,041 47,990 12,000 17,264
Yves Le Moign........................... 1998 152,728 36,396 0 0
Business Manager 1997 143,627 36,364 3,500 5,675
Continental Europe, CIS 1996 156,123 37,296 5,000 3,741
and Africa
Ricardo Rosa............................ 1998 154,546 32,560 3,000 18,420
Controller 1997 143,627 35,637 10,000 16,884
1996 153,062 39,049 5,000 16,231
Michael I. Unsworth..................... 1998 131,680(3) 36,790 3,000 12,313
Business Manager Asia 1997 92,640 18,548 4,000 16,477
1996 85,800 15,544 4,000 12,313
Robert F. MacChesney.................... 1998 114,375 15,381 0 0
Business Manager 1997 91,700 14,021 6,000 14,142
North Sea 1996 84,900 12,344 5,000 13,402
</TABLE>
- ---------------
(1) Salary and bonus amounts which are paid in non-U.S. currency are converted
into U.S. dollars.
(2) Employer contributions to Schlumberger's Profit Sharing Plans. Contributions
are invested and final amounts depend on investment results.
(3) Includes geographical coefficient of $13,680.
106
<PAGE> 111
STOCK OPTION GRANTS TABLE
The table below contains information with respect to stock options granted
to the executive officers in the last fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS SCHLUMBERGER STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING SEDCO FOREX EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(2) DATE(3) 5% ($)(4) 10% ($)(4)
- ---- -------------- ------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jean P. Cahuzac................... 5,000 28.5 78.375 4/15/08 246,448 624,548
Yves Le Moign..................... 0 -- -- -- -- --
Ricardo Rosa...................... 0 -- -- -- -- --
Michael I. Unsworth............... 3,000 17.1 78.375 4/15/08 147,869 374,729
Robert F. MacChesney.............. 0 -- -- -- -- --
</TABLE>
- ---------------
(1) Schlumberger has not granted any stock appreciation rights. These options
become exercisable in installments of 20% each year following date of the
grant.
(2) The exercise price of the options is equal to the average of the high and
low share price on the option grant date.
(3) The stock options are subject to termination prior to their expiration date
in some cases where employment is terminated.
(4) These columns show the gains the named executives could realize if
Schlumberger's stock appreciates at a 5% or 10% rate. These growth rates are
arbitrary assumptions specified by the Securities and Exchange Commission,
not Schlumberger predictions.
For details concerning the treatment of outstanding options to acquire
Schlumberger common stock held by these executive officers, see "The Transaction
Agreements -- Employee Matters Agreement -- Stock Option Plans."
107
<PAGE> 112
STOCK OPTION EXERCISES AND DECEMBER 31, 1998 STOCK OPTION VALUE TABLE
The following table shows information concerning stock options the
executive officers exercised during last fiscal year, and unexercised stock
options they held as of December 31, 1998:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN THE MONEY
OPTIONS AT OPTIONS AT
SHARES FY-END (#) FY-END ($)(2)
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISES (#) REALIZED ($)(1) UNEXERCISABLE UNEXERCISABLE
- ---- ---------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Jean P. Cahuzac...................... 10,000 426,560 14,800/ 177,846/
22,200 68,970
Yves Le Moign........................ 0 -- 16,500/ 235,110/
7,000 35,979
Ricardo Rosa......................... 2,400 125,251 27,500/ 380,262/
10,000 67,534
Michael I. Unsworth.................. 0 -- 10,200/ 132,807/
10,800 44,685
Robert F. MacChesney................. 0 -- 10,400/ 128,408/
8,600 27,429
</TABLE>
- ---------------
(1) Market value on date of exercise less exercise price.
(2) Closing price of Schlumberger common stock on December 31, 1998 ($46.375)
less the exercise price.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF SEDCO FOREX
The following table shows information concerning the number of shares of
Schlumberger common stock beneficially owned as of September 30, 1999, directly
or indirectly, by the executive officers of Sedco Forex. Except as footnoted,
each named individual has sole voting and investment power over the shares
listed by that individual's name. As of the date of this joint proxy
statement/prospectus, Schlumberger knows of no person who holds five percent or
more of Schlumberger's outstanding common stock.
<TABLE>
<CAPTION>
PERCENTAGE OF
SCHLUMBERGER
BENEFICIAL OWNER SHARES OF SCHLUMBERGER SHARES
- ---------------- ---------------------- -------------
<S> <C> <C>
Ricardo Rosa......................................... 32,922(1) *
Jean P. Cahuzac...................................... 24,949(2) *
Yves Le Moign........................................ 24,631(3) *
Patrick C. Lowe...................................... 23,503(4) *
Robert F. MacChesney................................. 16,484(5) *
Michael I. Unsworth.................................. 10,499(6) *
All executive officers as a group (6 persons)........ 132,988(7) *
</TABLE>
- ---------------
* Less than one percent (1%)
(1) Includes 31,800 shares which Mr. Rosa is deemed to own because he has the
right to acquire such shares within 60 days through the exercise of stock
options.
(2) Includes 22,200 shares which Mr. Cahuzac is deemed to own because he has the
right to acquire such shares within 60 days through the exercise of stock
options.
108
<PAGE> 113
(3) Includes 19,400 shares which Mr. Le Moign is deemed to own because he has
the right to acquire such shares within 60 days through the exercise of
stock options.
(4) Includes 17,600 shares which Mr. Lowe is deemed to own because he has the
right to acquire such shares within 60 days through the exercise of stock
options.
(5) Includes 13,400 shares which Mr. MacChesney is deemed to own because he has
the right to acquire such shares within 60 days through the exercise of
stock options.
(6) Includes 8,400 shares which Mr. Unsworth is deemed to own because he has the
right to acquire such shares within 60 day through the exercise of stock
options.
(7) Includes 112,800 shares the executive officers are deemed to own because
they have the right to acquire such shares within 60 days through the
exercise of stock options.
109
<PAGE> 114
BUSINESS OF TRANSOCEAN
Transocean is a leading international provider of offshore contract
drilling services for oil and gas exploration, development and production.
Transocean owns, has partial ownership interests in or operates 30 mobile
offshore drilling units. Transocean's fleet consists of seven fourth-generation
semisubmersibles, thirteen second- and third-generation semisubmersibles, four
drillships, including two newbuild drillships, the Discoverer Enterprise, which
is currently in the final stages of commissioning and testing, and the
Discoverer Spirit, which is en route to a U.S. Gulf Coast shipyard for
outfitting with drilling equipment, and six jackup rigs. Transocean also has
under construction one additional Discoverer Enterprise-class drillship, to be
named Discoverer Deep Seas. Transocean contracts these drilling rigs, related
equipment and work crews primarily on a dayrate basis to drill offshore wells.
Transocean also provides additional services, including turnkey drilling, coiled
tubing drilling and well intervention and management of third-party well service
activities.
Transocean was founded in 1953 by predecessors of Sonat Inc. and J. Ray
McDermott & Co., Inc. to design and construct the first jackup rig in the Gulf
of Mexico. Transocean, then known as "The Offshore Company," began international
drilling operations in the late 1950s and was one of the first contractors to
offer drilling services in the North Sea. Transocean was publicly traded from
1967 until 1978, when it became a wholly owned subsidiary of Sonat Inc. In June
1993, Transocean, then known as "Sonat Offshore Drilling Inc.," completed an
initial public offering of approximately 60 percent of the outstanding shares of
its common stock. In July 1995, Sonat Inc. sold its remaining 40 percent
interest in Transocean through a secondary public offering and currently owns no
Transocean share capital. In September 1996, Transocean acquired substantially
all of the outstanding capital shares of Transocean ASA, a Norwegian offshore
drilling company, for an aggregate purchase price of approximately $1.5 billion
in common stock and cash, including direct transaction costs and costs of
purchasing minority shares completed in 1997, and changed its name to
"Transocean Offshore Inc." On May 14, 1999, Transocean completed a corporate
reorganization pursuant to which it reorganized from a Delaware corporation into
a Cayman Islands corporation.
Transocean Offshore Inc. is a Cayman Islands corporation with offices
located at 4 Greenway Plaza, Houston, Texas 77046. Its telephone number at that
address is (713) 232-7500.
For a more detailed description of the business of Transocean, see the
description set forth in Transocean's 1998 Annual Report on Form 10-K, which is
incorporated by reference herein. See "Where You Can Find More Information."
Further information about Transocean's drilling rigs, including rigs under
construction, as of September 30, 1999 is set forth below.
<TABLE>
<CAPTION>
YEAR WATER DRILLING
ENTERED DEPTH DEPTH
SERVICE/ CAPABILITY CAPABILITY ESTIMATED
TYPE AND NAME UPGRADED(A) (IN FEET) (IN FEET) LOCATION CLIENT EXPIRATION(B)
- ------------- ----------- ---------- ---------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
FOURTH-GENERATION
SEMISUBMERSIBLES(7)
Polar Pioneer............... 1985 1,500 25,000 Norwegian North Sea Norsk Hydro August 2001
Transocean Arctic(c)........ 1986 1,650 25,000 Norwegian North Sea Statoil February 2002
Henry Goodrich(d)........... 1985 2,000 30,000 U.K. North Sea BP Amoco October 1999
Newfoundland Terra Nova January 2002
Paul B. Loyd, Jr.(d)........ 1991/1993 2,000 25,000 U.K. North Sea BP Amoco January 2000
Transocean Leader........... 1987/1997 4,500 25,000 U.K. North Sea -- Idle
Transocean Rather........... 1988 4,500 25,000 U.S. Gulf of Mexico Mariner Energy November 1999
Transocean Richardson....... 1988 5,000 25,000 U.S. Gulf of Mexico Unocal November 1999
OTHER SEMISUBMERSIBLES(13)
Transocean Explorer......... 1976 1,250 25,000 U.K. North Sea -- Idle
Transocean Discoverer....... 1977/1985 1,250 25,000 U.K. North Sea Talisman February 2000
Transocean Wildcat(c)....... 1977/1985 1,300 25,000 Norwegian North Sea Statoil June 2001
Transocean Winner(c)........ 1983 1,500 25,000 Norwegian North Sea Statoil July 2003
Transocean Searcher(c)...... 1983/1988 1,500 25,000 Norwegian North Sea Statoil July 2003
Transocean Prospect(c)...... 1983/1992 1,500 25,000 Norwegian North Sea Statoil October 2000
Transocean John Shaw........ 1982 1,800 25,000 U.K. North Sea Texaco November 1999
Transocean 96............... 1975/1997 2,300 25,000 U.S. Gulf of Mexico Phillips November 1999
</TABLE>
110
<PAGE> 115
<TABLE>
<CAPTION>
YEAR WATER DRILLING
ENTERED DEPTH DEPTH
SERVICE/ CAPABILITY CAPABILITY ESTIMATED
TYPE AND NAME UPGRADED(A) (IN FEET) (IN FEET) LOCATION CLIENT EXPIRATION(B)
- ------------- ----------- ---------- ---------- -------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Transocean 97............... 1977/1997 2,300 25,000 U.S. Gulf of Mexico -- Idle
Transocean Driller.......... 1991 3,000 25,000 Brazil Petrobras June 2000
Transocean Legend........... 1983 3,500 25,000 Brazil Petrobras December 1999
Transocean Amirante......... 19781997 3,500 25,000 U.S. Gulf of Mexico BP Amoco September 2002
Transocean Marianas......... 1979/1998 7,000 25,000 U.S. Gulf of Mexico Shell September 2003
DRILLSHIPS(5)
Discoverer Seven Seas(e).... 1976/1997 7,000 25,000 Brazil Petrobras February 2002
Discoverer 534(e)........... 1975/1991 7,000 25,000 U.S. Gulf of Mexico BP Amoco February 2000
Discoverer
Enterprise(e)(f).......... 1999 10,000 35,000 U.S. Gulf of Mexico BP Amoco November 2004
Discoverer Spirit(e)(g)..... 2000 10,000 35,000 Astano Shipyard Unocal (g)
Discoverer Deep
Seas(e)(h)................ 2000 10,000 35,000 Astano Shipyard Chevron (h)
JACKUP RIGS(6)
Transocean Jupiter.......... 1981/1997 170 16,000 UAE -- Idle
Offshore Comet.............. 1980 250 20,000 Gulf of Suez, Egypt GUPCO October 2000
Offshore Mercury............ 1969/1998 250 20,000 Gulf of Suez, Egypt GUPCO October 2000
Transocean III.............. 1978/1993 300 20,000 UAE -- Idle
Shelf Explorer.............. 1982 300 25,000 Danish North Sea Maersk August 2000
Transocean Nordic........... 1984 300 25,000 Dutch North Sea Wintershall March 2000
</TABLE>
- ---------------
(a) Dates shown are the original service date and the date of the most recent
significant upgrade, if any.
(b) Expiration dates represent Transocean's current estimate of the earliest
date the contract for each rig is likely to expire. Many contracts permit
the customer to extend the contract.
(c) Participating in a cooperation agreement with Statoil.
(d) Owned by Arcade Drilling AS, a Norwegian company in which Transocean has a
25% interest and which is controlled by a competitor.
(e) Dynamically positioned.
(f) The Discoverer Enterprise is currently in the final stages of commissioning
and testing. The rig will initially be equipped with sufficient riser to
drill in 8,500 feet of water but will be capable of operating in up to
10,000 feet of water with additional riser.
(g) The Discoverer Spirit recently departed Spain and is en route to a U.S.
Gulf Coast shipyard for outfitting with drilling equipment. Transocean
expects it to be operational in the first quarter of 2000, working under a
five-year contract for Spirit Energy 76, a division of Unocal.
(h) The Discoverer Deep Seas is being constructed at the Astano shipyard and is
expected to be operational in the third quarter of 2000, working under a
five-year contract for Chevron. The rig will initially be equipped with
sufficient riser to drill in 8,000 feet of water but will be capable of
operating in up to 10,000 feet of water with additional riser.
111
<PAGE> 116
MANAGEMENT OF TRANSOCEAN SEDCO FOREX
DIRECTORS AND EXECUTIVE OFFICERS
Following the merger, there will be ten directors of Transocean Sedco
Forex. Transocean, in consultation with Schlumberger, has designated five of the
initial directors, and Schlumberger, in consultation with Transocean, has
designated the remaining five directors.
The following table sets forth the names, ages as of September 30, 1999 and
titles of the directors and executive officers of Transocean Sedco Forex
following the merger:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Victor E. Grijalva(1)................. 61 Chairman of the Board of Directors
J. Michael Talbert(2)................. 52 President, Chief Executive Officer and
Director
Jean P. Cahuzac....................... 45 Executive Vice President and
President, Europe, Middle East and
Africa
W. Dennis Heagney..................... 52 Executive Vice President and
President, Asia and the Americas
Jon C. Cole........................... 46 Executive Vice President, Marketing
Robert L. Long........................ 53 Executive Vice President and Chief
Financial Officer
Donald R. Ray......................... 53 Senior Vice President, Technical
Services
Eric B. Brown......................... 48 Vice President, General Counsel and
Secretary
Barbara S. Koucouthakis............... 41 Vice President, Information Systems
and Communications Technology
David Mullen.......................... 41 Vice President, Human Resources
Ricardo Rosa.......................... 43 Vice President and Controller
Richard D. Kinder(2).................. 54 Director
Ronald L. Kuehn, Jr.(2)............... 64 Director
Arthur Lindenauer(1).................. 62 Director
Martin B. McNamara(2)................. 51 Director
Roberto Monti(1)...................... 60 Director
Alain Roger(1)........................ 68 Director
Kristian Siem(2)...................... 50 Director
Ian C. Strachan(1).................... 56 Director
</TABLE>
- ---------------
(1) Schlumberger designee.
(2) Transocean designee.
Victor E. Grijalva will be the Chairman of the Board of Transocean Sedco
Forex following the merger. Mr. Grijalva was named Vice Chairman of Schlumberger
in April 1998. Before serving as Vice Chairman, he served as Executive Vice
President of Schlumberger's Oilfield Services division from 1994 to April 1998
and as Executive Vice President of Schlumberger's Wireline, Testing & Anadrill
division from 1992 to 1994.
J. Michael Talbert will be the President and Chief Executive Officer and a
member of the board of directors of Transocean Sedco Forex following the merger.
Mr. Talbert was named Chairman of the Board and Chief Executive Officer of
Transocean in August 1994. Mr. Talbert is also a director of Equitable
Resources, Inc. Prior to assuming his duties with Transocean, Mr. Talbert served
as President and Chief Executive Officer of Lone Star Gas Company, a natural gas
distribution company and a division of Enserch Corporation.
Jean P. Cahuzac will be the Executive Vice President and President, Middle
East, Europe and Africa of Transocean Sedco Forex following the merger. Mr.
Cahuzac was named President of Sedco Forex in January
112
<PAGE> 117
1999. Mr. Cahuzac was appointed Vice President-Operations Manager of Sedco Forex
in May 1998, Region Manager-Europe, Africa and CIS of Sedco Forex in September
1994 and Vice President/General Manager-North Sea Region of Sedco Forex in
February 1994. Mr. Cahuzac has been employed with Schlumberger since 1979.
W. Dennis Heagney will be the Executive Vice President and President, Asia
and the Americas of Transocean Sedco Forex following the merger. Mr. Heagney was
elected to the board of directors of Transocean effective June 12, 1997 and
President of Transocean effective April 1, 1986. He currently serves in those
capacities and also serves as Chief Operating Officer for Transocean. Mr.
Heagney has been employed by Transocean since 1969 and was elected Vice
President in 1983 and Senior Vice President in 1984.
Jon C. Cole will be the Executive Vice President, Marketing of Transocean
Sedco Forex following the merger. Mr. Cole was elected Senior Vice President of
Transocean effective April 1, 1993, and currently serves in that capacity, with
responsibility for worldwide marketing. He joined Transocean in 1978 and was
elected Vice President in 1990.
Robert L. Long will be the Executive Vice President and Chief Financial
Officer of Transocean Sedco Forex following the merger. Mr. Long was elected
Senior Vice President of Transocean effective May 1, 1990, Treasurer of
Transocean effective September 1, 1997 and currently serves in those capacities
and as Chief Financial Officer of Transocean. He has been employed by Transocean
since 1976 and was elected Vice President in 1987.
Donald R. Ray will be the Senior Vice President, Technical Services of
Transocean Sedco Forex following the merger. He was elected Senior Vice
President of Transocean effective December 1, 1996 and currently serves in that
capacity, with responsibility for technical services. Mr. Ray has been employed
by Transocean since 1972 and has served as a Vice President of Transocean since
1986.
Eric B. Brown will be the Vice President, General Counsel and Secretary of
Transocean Sedco Forex following the merger. Mr. Brown was elected Vice
President and General Counsel of Transocean effective February 1, 1995 and
Secretary of Transocean effective September 29, 1995 and he currently serves in
those capacities. Prior to assuming his current position with Transocean, Mr.
Brown served as General Counsel of Coastal Gas Marketing Company.
Barbara S. Koucouthakis will be the Vice President of Information Systems
and Communications Technology of Transocean Sedco Forex following the merger.
She was elected Controller of Transocean effective January 1, 1990 and Vice
President effective April 1, 1993, and currently serves in those capacities. She
has been employed by Transocean since 1982.
David Mullen will be the Vice President, Human Resources of Transocean
Sedco Forex following the merger. Mr. Mullen has served Schlumberger as Director
of Personnel Geco-Prakla since 1998. Mr. Mullen was elected Managing
Director-Schlumberger (Nigeria) Ltd. in 1996, District Manager-Eastern Venezuela
Schlumberger (Wireline & Testing) in 1994 and has been employed by Schlumberger
since 1983.
Ricardo Rosa will be Vice President and Controller of Transocean Sedco
Forex following the merger. He has served as Controller at Sedco Forex since
September 1995. He was appointed Gas Management Controller in October 1993. Mr.
Rosa has been with Schlumberger since 1983.
Richard D. Kinder will be a director of Transocean Sedco Forex following
the merger. Mr. Kinder is Chairman of the Board and Chief Executive Officer of
Kinder Morgan, Inc. and Kinder Morgan Energy Partners L.P., a master limited
partnership that owns and operates diversified energy assets. He has served
Transocean as a director since November 1994. Mr. Kinder is also a director of
Baker Hughes Incorporated and Waste Management, Inc. During the past five years
prior to assuming his present position, Mr. Kinder served as President and Chief
Operating Officer of Enron Corp.
Ronald L. Kuehn, Jr. will be a director of Transocean Sedco Forex following
the merger. Mr. Kuehn is Chairman of the Board, President and Chief Executive
Officer of Sonat Inc., a diversified natural gas company. He has served
Transocean as a director since 1975. Mr. Kuehn is also a Director of AmSouth
Bancorporation, The Dun & Bradstreet Corporation, Praxair, Inc., Protective Life
Corporation and Union
113
<PAGE> 118
Carbide Corporation, and is a member of the Board of Trustees of Tuskegee
University. During the past five years, Mr. Kuehn has served as an executive
officer of Sonat Inc.
Arthur Lindenauer will be a director of Transocean Sedco Forex following
the merger. Effective January 1, 1999, he became Chairman of Schlumberger
Technology Corporation, Schlumberger's principal U.S. subsidiary. He previously
served as Executive Vice President-Finance and Chief Financial Officer of
Schlumberger from January 1980 to December 1998. Mr. Lindenauer was a partner
with the accounting firm of Price Waterhouse from 1972 to 1980. Mr. Lindenauer
is also a director of the New York Chapter of the Cystic Fibrosis Foundation and
a Trustee of the American University in Cairo.
Martin B. McNamara will be a director of Transocean Sedco Forex following
the merger. Mr. McNamara is Partner-in-Charge of the Dallas, Texas office of the
law firm of Gibson, Dunn & Crutcher and a member of the firm's executive
committee. He has served Transocean as a director since November 1994. During
the past five years, Mr. McNamara has been in the private practice of law.
Roberto Monti will be a director of Transocean Sedco Forex following the
merger. He has served as the Executive Vice President of Exploration and
Production for Repsol YPF since July 1999. He was the President and Chief
Executive Officer of YPF Sociedad Anonima from September 1995 to June 1999 prior
to its acquisition by Repsol. From October 1993 to July 1995, he served as
President of Dowell, a division of Schlumberger.
Alain Roger will be a director of Transocean Sedco Forex following the
merger. He is a retired executive officer of Schlumberger. He served as
Executive Vice President of Health, Safety and Environment for Schlumberger from
October 1993 to December 1995. He served as Executive Vice President of Drilling
and Pumping for Schlumberger from July 1991 to September 1993 and as President
of Sedco Forex from 1985 to 1991.
Kristian Siem will be a director of Transocean Sedco Forex following the
merger. Mr. Siem is Chairman and Chief Executive Officer of Siem Industries,
Inc., an industrial holding company that owns offshore and onshore oil and gas
drilling, subsea construction services and passenger cruise line businesses
through subsidiaries in Bermuda, the U.K., Norway and the U.S. Mr. Siem has
served Transocean as a director since September 1996. During the past five
years, Mr. Siem has served as an executive officer with Siem Industries, Inc.
and as Chairman of Wilrig AS and Transocean ASA, which subsequently combined
with Transocean. Mr. Siem also serves on the boards of Norwegian Cruise Line,
DSND ASA, Ivar Holding ASA, Lambert, Fenchurch Group Holdings plc, Four Seasons
Capital A.B. and Oslo Reinsurance ASA. He was also a member of the board of
directors of Saga Petroleum ASA until its merger with Norsk Hydro in September
1999.
Ian C. Strachan will be a director of Transocean Sedco Forex following the
merger. He currently serves as Deputy Chairman of Invensys plc. He served as
Chief Executive Officer from January 1996 and Executive Director from May 1995
of BTR plc until its merger with Siebe plc in 1999, when it changed its name to
Invensys plc. From 1987 until 1995, Mr. Strachan was with Rio Tinto plc, serving
as Chief Financial Officer and Executive Director from 1989 until 1991 and as
Deputy Chief Executive Officer and Executive Director from 1991 until 1995.
Upon completion of the merger, Victor E. Grijalva, the present Vice
Chairman of Schlumberger, will become the Chairman of the board of directors of
Transocean Sedco Forex and is expected to serve until he reaches age 65. Mr.
Grijalva will enter into a consulting agreement with Transocean Sedco Forex in
connection with his becoming Chairman. Mr. Grijalva will also retain his
position as Vice Chairman of Schlumberger. See "Interests Of Certain
Persons -- Transocean Sedco Forex Chairman's Consulting Agreement."
The board of directors of Transocean Sedco Forex will be divided into three
staggered classes. Messrs. Siem, Talbert, Grijalva and Lindenauer will be the
Class I directors, with terms expiring at the annual shareholders' meeting in
2000. Messrs. Kinder, McNamara and Roger will be the Class II directors, with
terms expiring at the annual shareholders' meeting in 2001. Messrs. Kuehn, Monti
and Strachan will be the
114
<PAGE> 119
Class III directors, with terms expiring at the annual shareholders' meeting in
2002. After the initial expiration of class terms described above, each class
will serve for three-year terms.
The Transocean Sedco Forex board of directors initially will have the
following four standing committees: the Audit Committee, the Executive
Compensation Committee, the Finance and Benefits Committee and the Corporate
Governance Committee. Under the merger agreement, Transocean and Schlumberger
agreed that these committees, as well as any other committee of the board of
directors, will consist of an equal number of Transocean and Schlumberger
designees. The Transocean designees to the board of directors will designate the
committee chairmen of the Executive Compensation and the Finance and Benefits
Committees, and the Schlumberger designees to the board of directors will
designate the committee chairmen of the Audit and Corporate Governance
Committees. The chairmen of any other committees will be designated as equally
as practicable by Transocean's and Schlumberger's respective board designees.
Under the merger agreement, Transocean and Schlumberger agreed to use all
reasonable efforts to maintain the proportional allocation between Transocean
and Schlumberger designees to the board and its committees for a period of three
years after the completion of the merger. Transocean and Schlumberger also
agreed that if a director dies, resigns or is removed from the board prior to
the expiration of the three-year period following the merger, the remaining
Transocean designees, if the director was a director designated by Transocean,
or Schlumberger designees, if the director was a director designated by
Schlumberger, on the board will nominate a replacement for action by the full
board.
COMPENSATION OF DIRECTORS
Following is a summary of Transocean's director compensation as in effect
prior to the spin-off and merger. It is expected that the compensation for
directors will be reviewed by the board of directors of Transocean Sedco Forex
following the merger.
FEES AND RETAINERS
Employees of Transocean receive no extra pay for serving as directors. Each
director who is not an officer or employee of Transocean or any of its
subsidiaries receives an annual retainer of $30,000. A committee chairman
receives an additional $5,000 annual retainer. Non-employee directors also
receive a fee of $1,000 for each board meeting and each board committee meeting
attended, plus expenses incurred where appropriate.
STOCK OPTIONS/STOCK APPRECIATION RIGHTS
When elected, each outside director will be granted options to purchase
4,000 shares of Transocean Sedco Forex ordinary shares at the fair market value
of those shares on the date of grant. Following the initial grant, if the
outside director remains in office, the director is granted additional options
to purchase 4,000 ordinary shares after each annual meeting at the fair market
value of those shares on the date of grant. For tax reasons, directors residing
in Norway may receive stock appreciation rights, commonly referred to as SARs,
instead of options.
Each stock option and SAR has a ten-year term and becomes exercisable in
equal annual installments on the first, second and third anniversaries of the
date of grant assuming continued service on the board. In the event of an
outside director's retirement in accordance with the board's retirement policy
or his or her earlier death or disability, or in the event of a change of
control of Transocean Sedco Forex as described under "Interests of Certain
Persons -- Transocean Benefits Under a Change of Control," options and SARs will
become immediately exercisable and will remain exercisable for the remainder of
their ten-year term. Options and SARs will terminate 60 days after an outside
director leaves the board for any other reason. However, if that person ceases
to be director for the convenience of Transocean Sedco Forex, as determined by
the board, the board may at its discretion accelerate the exercisability of
those options and SARs.
Transocean has reserved an aggregate of 200,000 ordinary shares for
issuance to outside directors under its Long-Term Incentive Plan of which 43,698
remained available for grant as of September 30, 1999. The
115
<PAGE> 120
provisions of this incentive plan relating to grants to outside directors will
terminate on July 1, 2003, unless terminated earlier by the board.
OFFICER AND DIRECTOR INDEMNIFICATION
No Transocean Sedco Forex director will be personally liable to Transocean
Sedco Forex for monetary damages for breach of fiduciary duty as a director,
except for liability
- for any breach of the director's duty of loyalty to Transocean Sedco
Forex;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; or
- for any transaction from which the director derived an improper personal
benefit.
Transocean Sedco Forex will indemnify its officers and directors to the
fullest extent permitted by the laws of the Cayman Islands if they are or become
a party or are threatened to be made a party to, or otherwise require
representation by counsel in connection with, any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, whether or not an action by or in the right of Transocean Sedco
Forex, by reason of any of the following circumstances:
- he is or was an officer or director of Transocean Sedco Forex;
- while serving as an officer or director of Transocean Sedco Forex, he is
or was serving at the request of Transocean Sedco Forex as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise; or
- he took or omitted to take any action while serving in these capacities.
Transocean Sedco Forex officers' and directors' rights to indemnification
will also include the right to be paid in advance by Transocean Sedco Forex for
their expenses to the fullest extent permitted by the laws of the Cayman
Islands. Cayman Islands law does not limit the extent to which a company's
articles of association may provide for the indemnification of its directors,
officers, employees and agents, except to the extent that such provision may be
held by a Cayman Islands court to be contrary to public policy.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
EXISTING SCHLUMBERGER/SEDCO FOREX OFFICERS AND DIRECTORS WHO WILL JOIN
TRANSOCEAN SEDCO FOREX AT THE EFFECTIVE TIME
Upon completion of the merger, Jean P. Cahuzac, currently President of
Sedco Forex, will be appointed Executive Vice President and President, Europe,
Middle East and Africa of Transocean Sedco Forex, and David Mullen, currently
Director of Personnel for Geco Prakla, a unit of Schlumberger, will be appointed
Vice President, Human Resources of Transocean Sedco Forex. In addition, Victor
E. Grijalva, who is currently Vice Chairman of Schlumberger, and Arthur
Lindenauer, who is currently a Senior Advisor of Schlumberger and President of
Schlumberger Technology Corporation, will be elected to the Transocean Sedco
Forex board of directors. Under the merger agreement, Transocean agreed to use
its reasonable best efforts to maintain a 50 percent allocation of directorships
of Transocean Sedco Forex for Schlumberger designees and to maintain the initial
appointments thereunder for a period of three years following the merger.
Pursuant to the merger agreement, Mr. Grijalva will be appointed Chairman
of the Board of Transocean Sedco Forex and will enter into a consulting
agreement with Transocean Sedco Forex. See "-- Transocean Sedco Forex Chairman's
Consulting Agreement."
116
<PAGE> 121
INDEMNIFICATION OF SEDCO FOREX OFFICERS AND DIRECTORS
The merger agreement provides that, following the merger, Transocean Sedco
Forex will indemnify, defend and hold harmless, to the fullest extent permitted
under applicable law, (1) each person who is, or has been at any time prior to
the effective time of the merger, an officer or director of Sedco Forex or any
of its subsidiaries or divisions and (2) each person who served as a director,
officer, trustee or fiduciary of another corporation, partnership, joint
venture, trust, pension or other employee benefit plan or enterprise at the
request of Sedco Forex against all losses, claims, damages, liabilities, costs
or expenses, including attorneys' fees, judgments, fines, penalties and amounts
paid in settlement in connection with any claim, action, suit, proceeding or
investigation that arises out of or pertains to actual or alleged acts or
omissions by them in the capacities set forth in (1) and (2) above. Transocean
Sedco Forex's duty to indemnify, defend and hold harmless applies whether or not
such actions are commenced, asserted or claimed prior to the effective time of
the merger. In the event of such claim, action, suit, proceeding or
investigation, Transocean Sedco Forex is required to pay the fees and expenses
of counsel selected by the party to be indemnified, to the fullest extent
permitted by applicable law in advance of the final disposition of any such
action and cooperate in the defense of any such matter.
The merger agreement provides that the rights to indemnification will
survive the merger and continue in full force and effect for six years after the
completion of the merger. The merger agreement also provides that for a period
of six years after the effective time of the merger, Transocean will maintain
officers' and directors' liability insurance covering those individuals
described in (1) and (2) above who were covered prior to the effective time of
the merger by officers' and directors' liability insurance policies maintained
by Sedco Forex on terms substantially no less advantageous to those individuals
than the existing Sedco Forex insurance, provided that such insurance is
available at a reasonable cost.
TRANSOCEAN SEDCO FOREX CHAIRMAN'S CONSULTING AGREEMENT
As part of the merger and as a condition to his appointment as chairman of
the Transocean board, Victor E. Grijalva, Vice Chairman of Schlumberger, will
enter into a consulting agreement with Transocean Sedco Forex. The consulting
agreement will contain the following material terms:
- Transocean Sedco Forex will nominate Mr. Grijalva to its board of
directors to serve as Chairman until his 65th birthday, at which time he
will resign such position;
- until the time of his resignation, Mr. Grijalva will provide consulting
services to Transocean Sedco Forex, as an independent contractor, with
regard to long-range planning, strategic direction and integration and
rationalization matters;
- Transocean Sedco Forex will pay Mr. Grijalva $400,000 per year;
- Transocean Sedco Forex will indemnify Mr. Grijalva in connection with the
services he provides to the fullest extent available under Transocean
Sedco Forex's articles of association; and
- Mr. Grijalva will be entitled to the non-cash compensation and benefits
Transocean Sedco Forex provides to non-employee directors.
EMPLOYMENT AGREEMENTS
Under each of the agreements described below, a change of control will be
deemed to have occurred upon completion of the spin-off and the merger.
Transocean has entered into employment agreements with its executive
officers, including J. Michael Talbert, W. Dennis Heagney, Robert L. Long, Jon
C. Cole, Donald R. Ray, Eric B. Brown, Barbara S. Koucouthakis and Alan A.
Boussard. The occurrence of a change in control under these agreements triggers
provisions that generally guarantee a minimum salary and bonus for a period of
three years following the change of control. In consideration of cash payments
or, in some cases, elimination of some restrictions on vesting of certain
restricted stock grants, each of these executive officers has agreed to waive
the guarantee of a minimum bonus. The employment agreements also provide
generally that, in the event that the executive
117
<PAGE> 122
officer's employment with Transocean is terminated within three years of a
change of control (1) for reasons other than death, disability or for "cause,"
(2) by the executive officer for good reason, which includes a diminution of
responsibilities or compensation or (3) by a voluntary determination of the
executive officer to leave during the 30-day period immediately following the
first anniversary of the change of control, the executive would receive the
following:
- any unpaid portion of his then-annual base salary and prorated portion of
his highest bonus paid either in the last three years before the change
of control or for the last completed fiscal year after the change of
control (the "highest bonus");
- a lump-sum payment equal to three times the sum of his highest bonus and
his annual base salary, based on the highest monthly salary paid in the
twelve months prior to the change of control;
- health and welfare benefits to him and his family for a three-year period
at least equal to those that would have been provided had his employment
not been terminated; and
- a lump sum amount equal to the excess of (1) the actuarial equivalent of
the benefit under Transocean's Retirement Plan and Supplemental
Retirement Plan had the executive's employment continued for three years
after termination over (2) the actuarial equivalent of the executive's
actual benefit under those plans.
Neither Transocean nor Schlumberger has determined whether any of the above
named executives subject to employment agreements will be terminated following
the effective time of the merger. Assuming that all such executives are
terminated in a qualifying termination of employment, Transocean Sedco Forex
would be required to pay the executive officers aggregate payments currently
estimated to be approximately $15 million.
In addition, the employment agreements provide that Transocean is obligated
to pay an additional amount sufficient to make the executive officer whole with
respect to any excise tax that may be imposed by Section 4999 of the U.S.
Internal Revenue Code and any taxes imposed on such additional amounts.
Because the merger will constitute a change of control under the employment
agreements, each of the above-named executives will have the right to leave
Transocean Sedco Forex voluntarily for any reason at any time during the 30-day
period beginning on the first anniversary of the merger, and in so leaving will
receive the benefits described above.
LONG-TERM INCENTIVE PLAN
The Transocean Long-Term Incentive Plan, which applies to non-employee
directors, officers and other key employees, provides that all outstanding and
unvested options to purchase shares of Transocean ordinary shares, share
appreciation rights and grants of restricted shares will vest upon a change of
control, as defined in the plan. Because of a change in the definition of change
of control that was adopted in April 1996, the merger constitutes a change of
control only for those options, share appreciation rights and restricted shares
awarded after that time. The options so vested will be exercisable for the
duration of their term, notwithstanding an optionee's prior termination of
employment or cessation of service as a director.
With respect to the executive officers of Transocean, an aggregate of
approximately 55,600 Transocean restricted ordinary shares and 440,837 options
to acquire Transocean ordinary shares will vest upon completion of the merger.
With respect to the non-employee directors of Transocean, no restricted ordinary
shares and an aggregate of approximately 44,000 options to acquire Transocean
ordinary shares and 7,300 SARs will vest upon completion of the merger.
PERFORMANCE AWARD AND CASH BONUS PLAN
Under Transocean's Performance Award and Cash Bonus Plan, upon a change of
control as defined in the plan, plan participants will be deemed to have fully
attained all performance objectives under the plan. The merger will constitute a
change of control under the plan. Therefore, performance awards for the portion
of the
118
<PAGE> 123
performance period prior to the change of control will be deemed to be the
maximum amount of the award that, in the judgment of the Executive Compensation
Committee, could have been earned assuming full attainment of the performance
objectives.
DESCRIPTION OF CAPITAL STOCK OF TRANSOCEAN
TRANSOCEAN ORDINARY SHARES
DESCRIPTION OF AUTHORIZED SHARES OF TRANSOCEAN
The following discussion is a summary of Transocean's share capital. This
summary is not complete and is subject to the complete text of Transocean's
memorandum of association and its articles of association. For information on
how to obtain a copy of Transocean's memorandum of association and articles of
association, see "Where You Can Find More Information." We encourage you to read
those documents carefully.
AUTHORIZED SHARE CAPITAL
Transocean's authorized share capital is $6,500,000, divided into
150,000,000 ordinary shares, par value $0.01, and 50,000,000 other shares, par
value $0.10, which shares may be designated and created as shares of any other
classes or series of shares with the respective rights and restrictions
determined by action of the board of directors. If the proposed resolution to
increase the ordinary share capital is approved, Transocean's authorized share
capital will be increased to $8,000,000 and the number of ordinary shares
authorized will increase to 300,000,000. As of September 30, 1999, 100,574,790
ordinary shares and no other class or series of shares had been issued.
VOTING
The holders of Transocean's ordinary shares are entitled to one vote per
share other than on the election of directors.
With respect to the election of directors, each holder of Transocean's
ordinary shares entitled to vote at the election has the right to vote, in
person or by proxy, the number of shares held by him for as many persons as
there are directors to be elected and for whose election that holder has a right
to vote. The directors are divided into three classes, with only one class being
up for election each year. Directors are elected by a plurality of the votes
cast in the election. Cumulative voting, for the election of directors, is
prohibited by Transocean's articles of association.
There are no limitations imposed by Cayman Islands law or Transocean's
articles of association on the right of nonresident shareholders to hold or vote
their Transocean ordinary shares.
The rights attached to any separate class or series of shares, unless
otherwise provided by the terms of the shares of that class or series, may be
varied only with the consent in writing of the holders of all of the issued
shares of that class or series or by a special resolution passed at a separate
general meeting of holders of the shares of that class or series. The necessary
quorum for that meeting is the presence of holders of at least a majority of the
shares of that class or series. Each holder of shares of the class or series
present, in person or by proxy, will have one vote for each share of the class
or series of which he is the holder. Outstanding shares will not be deemed to be
varied by the creation or issuance of additional shares that rank in any respect
prior to or equivalent with those shares.
Under Cayman Islands law, some matters, like altering the memorandum of
association or the articles of association, changing the name of a company,
voluntarily winding up a company or resolving to be registered by way of
continuation in a jurisdiction outside the Cayman Islands, require approval of
the company's shareholders by a special resolution. A special resolution is a
resolution (1) passed by the holders of two-thirds of the shares voted at a
general meeting or (2) approved in writing by all shareholders of a company
entitled to vote at a general meeting of the company.
119
<PAGE> 124
QUORUM FOR GENERAL MEETINGS
The presence of shareholders, in person or by proxy, holding at least a
majority of the issued shares generally entitled to vote at a meeting
constitutes a quorum for the transaction of most business. However, different
quorums are required in some cases to approve a change in Transocean's articles
of association.
Shareholders present, in person or by proxy, holding at least 95% of the
issued shares entitled to vote at a meeting constitutes the required quorum at a
general meeting to consider or adopt a special resolution to amend, vary,
suspend the operation of or disapply any of the following provisions of the
articles of association:
- Section 17 -- which relates to the convening of general meetings;
- Section 19 -- which relates to proceedings and procedures at general
meetings;
- Section 21.1 -- which relates to the election and appointment of
directors;
- Section 26 -- which requires shareholders to approve the sale, lease or
exchange of all or substantially all of Transocean's property or assets;
or
- Section 27 -- which requires shareholders to approve business
combinations with interested shareholders (with the exceptions described
below).
However, shareholders present, in person or by proxy, holding at least a
majority of the issued shares entitled to vote at the meeting constitutes a
quorum if:
- a majority of the board of directors has, at or prior to the meeting,
recommended a vote in favor of the special resolution; and
- in the case of a special resolution to amend, vary, suspend the operation
of or disapply Section 27 of the articles of association, other than a
special resolution referred to below, the favorable board of directors'
recommendation is made at a time when a majority of the board of
directors then in office were directors prior to any person becoming an
interested shareholder during the previous three years or were
recommended for election or elected to succeed those directors by a
majority of those directors.
In addition, shareholders present, in person or by proxy, holding at least
a majority of the issued shares entitled to vote at a meeting constitute the
required quorum to consider or adopt a special resolution to delete Section 27
of the articles of association if:
- the resolution will not be effective until 12 months after the passing of
the resolution; and
- the restriction in Section 27 of the articles of association will
otherwise continue to apply to any business combination between
Transocean and any person who became an interested shareholder on or
before the passing of the resolution.
The shareholders present at a duly constituted general meeting may continue to
transact business until adjournment, despite the withdrawal of shareholders that
leaves less than a quorum.
DIVIDEND RIGHTS
Subject to any rights and restrictions of any other class or series of
shares, the board of directors may, from time to time, declare dividends on the
shares issued and authorize payment of the dividends out of Transocean's
lawfully available funds. The board of directors may declare that any dividend
be paid wholly or partly by the distribution of shares of Transocean and/or
specific assets.
RIGHTS UPON LIQUIDATION
Upon the liquidation of Transocean, after holders of any issued shares
ranking senior to the ordinary shares as to distribution on liquidation or
winding up have been paid in full, or the full amounts have been set aside for
payment, the holders of Transocean's ordinary shares are entitled to receive,
pro rata, any remaining
120
<PAGE> 125
assets of Transocean available for distribution. The liquidator may deduct from
the amount payable in respect of those ordinary shares any liabilities the
holder has to or with Transocean. The assets received by the holders of
Transocean ordinary shares in a liquidation may consist, in whole or in part, of
property. That property is not required to be of the same kind for all
shareholders.
NO SINKING FUND
The Transocean ordinary shares have no sinking fund provisions.
NO LIABILITY FOR FURTHER CALLS OR ASSESSMENTS
The Transocean ordinary shares to be issued in the merger will be duly and
validly issued, fully paid and nonassessable.
NO PREEMPTIVE RIGHTS
Holders of Transocean ordinary shares have no preemptive or preferential
right to purchase any securities of Transocean.
REDEMPTION AND CONVERSION
The Transocean ordinary shares are (1) not convertible into shares of any
other class or series or (2) subject to redemption by Transocean or by the
holder of the shares.
REPURCHASE
Under Transocean's articles of association, Transocean may purchase any
issued ordinary shares in the circumstances and on the terms as are agreed by
Transocean and the holder of the shares. Transocean may, from time to time, with
the agreement of a holder, purchase all or part of the holder's ordinary shares
whether or not Transocean has made a similar offer to all or to any of the other
holders of ordinary shares.
RESTRICTIONS ON TRANSFER
Subject to the rules of any stock exchange on which the ordinary shares may
be listed, the board of directors may, in its absolute discretion and without
assigning any reason, decline to register any transfer of shares.
OTHER CLASSES OR SERIES OF SHARES
The board of directors is authorized, without obtaining any vote or consent
of the holders of any class or series of shares unless expressly provided by the
terms of issue of that class or series, to provide from time to time for the
issuance of other classes or series of shares and to establish the
characteristics of each class or series, including the number of shares,
designations, relative voting rights, dividend rights, liquidation and other
rights, redemption, repurchase or exchange rights and any other preferences and
relative, participating, optional or other rights and limitations not
inconsistent with applicable law.
COMPULSORY ACQUISITION OF SHARES HELD BY MINORITY HOLDERS
An acquiring party is generally able to acquire compulsorily the ordinary
shares of minority holders in one of two ways:
- By a procedure under the Companies Law of the Cayman Islands known as a
"scheme of arrangement." A scheme of arrangement is made by obtaining the
consent of the Cayman Islands corporation, the consent of a Cayman
Islands court and approval of the arrangement by holders of ordinary
shares (1) representing a majority in number of the shareholders present,
in person or by proxy, at the meeting held to consider the arrangement
and (2) holding at least 75% of all the issued ordinary shares other than
those held by the acquiring party, if any. If a scheme of arrangement
121
<PAGE> 126
receives all necessary consents, all holders of ordinary shares of the
company would be compelled to sell their shares under the terms of the
scheme of arrangement.
- By acquiring pursuant to a tender offer 90% of the ordinary shares not
already owned by the acquiring party. If the acquiring party has, within
four months after the making of an offer for all the ordinary shares not
owned by the acquiring party, obtained the approval of not less than 90%
of all the shares to which the offer relates, the acquiring party may, at
any time within two months after the end of that four month period,
require any nontendering shareholder to transfer its shares on the same
terms as the original offer. In those circumstances, nontendering
shareholders will be compelled to sell their shares, unless within one
month from the date on which the notice to compulsorily acquire was given
to the nontendering shareholder, the nontendering shareholder is able to
convince a Cayman Islands court to order otherwise.
TRANSOCEAN PREFERENCE SHARES
Transocean is authorized to issue preference shares but currently has no
preference shares outstanding.
LIMITATION ON DIRECTOR'S LIABILITY
Cayman Islands law, which governs Transocean, does not allow the limitation
of a director's liability for fraud, willful neglect or willful default.
Transocean's articles of association provide that the directors will have no
personal liability to Transocean or, if any, its shareholders for monetary
damages for breach of fiduciary duty as a director, except for:
- breaching the duty of loyalty to the company or, if any, its
shareholders;
- failing to act in good faith;
- engaging in intentional misconduct or a known violation of the law; or
- obtaining an improper personal benefit from the company.
LIMITATION ON CHANGES IN CONTROL
Transocean's articles of association have provisions that could have an
anti-takeover effect. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the board of directors and in the
policies formulated by the board of directors and to discourage transactions
that may involve an actual or threatened change of control of Transocean.
The articles of association provide that Transocean's board of directors
will be divided into three classes serving staggered three-year terms. Directors
can be removed from office only for cause, as defined in the articles of
association, and by the affirmative vote of the holders of a majority of the
issued shares generally entitled to vote. The board of directors does not have
the power to remove directors. Vacancies on the board of directors may only be
filled by the remaining directors and not by the shareholders. Each of these
provisions can delay a shareholder from obtaining majority representation on the
board of directors.
The articles of association provide that the board of directors will
consist of not less than two nor more than twelve persons, the exact number to
be set from time to time by a majority of the whole board of directors.
Accordingly, the board of directors, and not the shareholders, has the authority
to determine the number of directors and could delay any shareholder from
obtaining majority representation on the board of directors by enlarging the
board of directors and filling the new vacancies with its own nominees until a
general meeting at which directors are to be appointed.
The articles of association establish an advance notice procedure that must
be followed by shareholders if they wish to nominate candidates for election as
directors or propose any business at an annual general meeting of shareholders.
The articles of association provide generally that, if a shareholder desires to
nominate candidates for election as directors or to propose any business at an
annual general meeting, he must give Transocean notice not less than 90 days
prior to the anniversary of the originally scheduled date of the
122
<PAGE> 127
immediately preceding annual general meeting. However, if the date of the
forthcoming annual general meeting is more than 30 days before or after the
anniversary date, the deadline is the close of business on the tenth day after
Transocean publicly discloses the meeting date. In each case, the notice must
contain specified information concerning the shareholder submitting the
proposal.
Subject to the terms of any other class of shares in issue, any action
required or permitted to be taken by the holders of Transocean's ordinary shares
must be taken at a duly called annual or special general meeting of shareholders
unless taken by written consent of all holders of ordinary shares. Special
general meetings may only be called by a majority of the entire board of
directors.
The board of directors is authorized, without obtaining any vote or consent
of the holders of any class or series of shares unless expressly provided by the
terms of issue of a class or series, to issue, from time to time, any other
classes or series of shares with the designations and relative powers,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or terms or conditions of redemption as they
consider fit. The board of directors could authorize the issuance of preference
shares with terms and conditions that could discourage a takeover or other
transaction that holders of some or a majority of the ordinary shares might
believe to be in their best interests or in which holders might receive a
premium for their shares over the then market price of the shares. No preference
shares have been issued as of the date of this document.
The special quorum provisions contained in the articles of association
require the holders of 95% of all the voting shares to be present, in person or
by proxy, at a general meeting to consider or adopt a special resolution to
amend, vary, suspend the operation of or disapply the following provisions of
the articles of association, unless a majority of the board of directors has
recommended that the shareholders vote in favor of the special resolution:
- Section 17 -- which relates to the convening of general meetings;
- Section 19 -- which relates to proceedings and procedures at general
meetings;
- Section 21.1 -- which relates to the election and appointment of
directors;
- Section 26 -- which requires shareholders to approve the sale, lease or
exchange of all or substantially all of Transocean's property or assets;
or
- Section 27 -- which requires shareholders to approve business
combinations with interested shareholders (for a description of
exceptions to the quorum requirements to amend Section 27, see "-- Quorum
for General Meetings").
Transocean's articles of association generally prohibit "business
combinations" between Transocean and an "interested shareholder." Specifically,
"business combinations" between an interested shareholder and Transocean are
prohibited for a period of three years after the time the interested shareholder
acquired its shares, unless:
- the business combination or the transaction resulting in the person
becoming an interested shareholder is approved by the board of directors
prior to the date the interested shareholder acquired shares;
- the interested shareholder acquired at least 85% of Transocean's shares
in the transaction in which it became an interested shareholder; or
- the business combination is approved by a majority of the board of
directors and by the affirmative vote of disinterested shareholders
holding at least two-thirds of the shares generally entitled to vote.
"Business combinations" is defined broadly to include mergers,
consolidations of majority owned subsidiaries, sales or other dispositions of
assets having an aggregate value in excess of 10% of the consolidated assets of
Transocean and most transactions that would increase the interested
shareholder's proportionate share ownership in Transocean.
"Interested shareholder" is defined as a person who, together with any
affiliates and/or associates of that person, beneficially owns, directly or
indirectly, 15% or more of the issued voting shares of Transocean.
123
<PAGE> 128
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Transocean's ordinary shares is the
Bank of New York.
STOCK EXCHANGE LISTING
Transocean ordinary shares are listed on the New York Stock Exchange under
the symbol "RIG."
124
<PAGE> 129
COMPARISON OF RIGHTS OF SHAREHOLDERS
As a result of the spin-off and the merger, shareholders of Schlumberger
will also become shareholders of Transocean. The rights of Schlumberger's
shareholders are governed by Netherlands Antilles law, including the Commercial
Code, and Schlumberger's articles of incorporation and bylaws. The rights of
Transocean's shareholders are governed by Cayman Islands law, including the
Companies Law (1998 Revision), and Transocean's memorandum of association and
articles of association.
This section describes some of the material differences between the rights
of Schlumberger's shareholders and the rights of Transocean's shareholders.
However, this section does not describe all of those differences. If you wish to
review all of the differences or see the precise terms of these provisions, you
should read Transocean's memorandum of association and articles of association,
Schlumberger's articles of incorporation and bylaws and the applicable laws in
their entirety. For information on obtaining Transocean's memorandum of
association and articles of association and Schlumberger's articles of
incorporation and bylaws, see "Where You Can Find More Information."
SHAREHOLDER APPROVAL OF BUSINESS COMBINATIONS
<TABLE>
<S> <C>
SCHLUMBERGER TRANSOCEAN
Netherlands Antilles law does not include a statu- Cayman Islands law does not include a statutory
tory merger procedure. However, under Schlum- merger procedure. Cayman Islands law does, however,
berger's articles of incorporation, any sale or other provide for a procedure known as a "scheme of
disposition of all or substantially all of the assets arrangement." A scheme of arrangement is made by
of Schlumberger may only be made pursuant to a obtaining the consent of the Cayman Islands corpo-
resolution duly adopted at a general meeting of ration, the consent of a Cayman Islands court and
shareholders by holders of at least a majority of the approval by holders of ordinary shares (1) repre-
shares of capital stock of Schlumberger at that time senting a majority in number of the shareholders
outstanding and entitled to vote. The notice of any present, in person or by proxy, at the meeting held
such meeting is required to specify the terms of the to consider the arrangement and (2) holding at least
proposed sale or other disposition. 75% of all the issued ordinary shares other than
those held by the acquiring party, if any. If a
scheme of arrangement receives all of the necessary
consents, all holders of ordinary shares of a com-
pany would be compelled to sell their shares under
the terms of the scheme of arrangement. Trans-
ocean's Cayman Islands counsel, Walkers, has ad-
vised that Cayman Islands courts are likely to
sanction such a scheme of arrangement in the absence
of bad faith, fraud or unequal treatment of
shareholders.
In addition, Cayman Islands companies may be acquired
by other corporations by the direct acquisition of
the share capital of the Cayman Islands company or by
direct asset acquisition. Cayman Islands law provides
that when an offer is made for ordinary shares of a
Cayman Islands company and, within four months of the
offer, the holders of not less than 90% of those
shares accept, the offeror may, for two months after
that four-month period, require the remaining
ordinary shareholders to transfer their ordinary
shares on the same terms as the original offer.
</TABLE>
125
<PAGE> 130
<TABLE>
<S> <C>
Transocean's articles of association provide that, in
order for it to sell, lease or exchange all or
substantially all of its property or assets, other
than transactions with entities it controls, it must
first obtain:
- approval of the board of directors; and
- approval of the holders of at least a majority of
the issued shares generally entitled to vote.
</TABLE>
SPECIAL VOTE REQUIRED FOR COMBINATIONS WITH INTERESTED SHAREHOLDERS
<TABLE>
<S> <C>
SCHLUMBERGER TRANSOCEAN
Schlumberger is not subject to any special provi- Transocean's articles of association provide that, in
sions regarding combinations with interested general, it may not engage in a business combina-
shareholders. tion with an interested shareholder for a period of
three years after the time of the transaction in
which the person became an interested shareholder.
The prohibition on business combinations with in-
terested shareholders does not apply in some cases,
including if:
- Transocean's board of directors, prior to the time
of the transaction in which the person became an
interested shareholder, approves (1) the business
combination or (2) the transaction in which the
shareholder becomes an interested shareholder;
- as a result of the business combination, the inter-
ested shareholder owns at least 85% of the voting
shares of Transocean issued at the time the trans-
action commenced; or
- Transocean's board of directors and the holders of
at least 66 2/3% of the outstanding voting shares
not owned by the interested shareholder approve the
business combination on or after the time of the
transaction in which the person became an inter-
ested shareholder.
Transocean's articles of association define an inter-
ested shareholder to include any person who, to-
gether with that person's affiliates or associates,
(1) owns 15% or more of Transocean's issued voting
shares or (2) is an affiliate or associate of Trans-
ocean and owned 15% or more of the outstanding voting
shares of Transocean at any time within the previous
three years.
</TABLE>
126
<PAGE> 131
RESTRICTIONS ON ACQUISITIONS OF LARGE BLOCKS OF SHARES
<TABLE>
<CAPTION>
SCHLUMBERGER TRANSOCEAN
<S> <C>
Under Netherlands Antilles law, when a person's Acquirors of Transocean shares are not subject to any
ownership in voting stock, or right to exercise the such restrictions.
voting rights, of Schlumberger reaches or exceeds 5%,
10%, 33 1/3%, 50% or 66 2/3% of all outstanding
Schlumberger voting shares, that person must promptly
notify Schlumberger in writing. If the voting
percentage equals or exceeds 10%, the acquiring
person is required to include in its notification
whether, during the next 12 months, it is intending
to (1) acquire more voting shares or otherwise extend
its voting rights of Schlumberger or (2) use its
participation in Schlumberger to influence
Schlumberger's board of directors, or to bring about
decisions that do not fit in with normal investment
policies, or to acquire representation in
Schlumberger's board or to obtain proxies for an
upcoming meeting of shareholders. If the acquiring
party states in the notification that it is not
contemplating any of the actions described in (1) or
(2), it may not take any of those actions during that
12-month period without first notifying
Schlumberger's board at least four weeks in advance.
Schlumberger is required to make public any such
notification it receives.
Also under Netherlands Antilles law, before a person
makes an acquisition of Schlumberger stock following
which the person will own more than 20% of the
outstanding voting shares of Schlumberger, the
acquiring person must first notify Schlumberger's
board of directors in writing and give the board at
least two weeks to consult with the acquiring person
regarding the acquisition. If Schlumberger's board
does not consent to the acquisition, there are
restrictions on the manner in which the acquisition
may be made. The offer is required to be made
publicly for all Schlumberger shares. The offering
price shall be payable in cash and be no less than
the greater of (1) the highest price reported for
Schlumberger shares by recognized stock exchanges
during the preceding 12 months and (2) the highest
price offered by the acquiring person and its
affiliates during the preceding 24 months. The offer
must remain outstanding for at least four weeks and
at most ten weeks. The offer may only be subject to
specified permitted conditions, which include: (1)
obtaining tender of at least 50% of the voting
shares; (2) a competing third-party offer not being
announced; (3) all necessary judicial or
administration
</TABLE>
127
<PAGE> 132
<TABLE>
<S> <C>
authorizations being obtained and (4) no
circumstances occurring during the offer period that,
if known by the offering party prior to the offer,
would have caused the offering party to not make the
offer.
</TABLE>
APPRAISAL RIGHTS AND COMPULSORY ACQUISITION
<TABLE>
<CAPTION>
SCHLUMBERGER TRANSOCEAN
<S> <C>
Neither Netherlands Antilles law nor Schlumberger's Neither Cayman Islands law nor Transocean's
articles of incorporation or bylaws specifically memorandum of association or articles of associa-
provides for appraisal rights. tion specifically provides for appraisal rights. How-
ever, in connection with the compulsory transfer of
shares to a 90% shareholder of a Cayman Islands
company as described under "-- Shareholder Approval
of Business Combinations," a minority shareholder may
apply to the court within one month of receiving
notice of the compulsory transfer objecting to that
transfer. In these circumstances, the burden is on
the minority shareholder to show that the court
should exercise its discretion to prevent the
compulsory transfer. Transocean has been advised that
the court is unlikely to grant any relief to the
minority shareholder in the absence of bad faith,
fraud, unequal treatment of shareholders or collu-
sion between the offeror and the holders of the
shares who have accepted the offer as a means of
unfairly forcing out minority shareholders.
</TABLE>
SHAREHOLDER CONSENT TO ACTION WITHOUT MEETING
<TABLE>
<CAPTION>
SCHLUMBERGER TRANSOCEAN
<S> <C>
Schlumberger's articles of incorporation provide that Cayman Islands law and Transocean's articles of
shareholders may take action by written consent if association provide that shareholders may take ac-
signed by the holders of at least a majority of the tion requiring a special resolution without a meeting
outstanding voting shares, or such higher per- only by unanimous written consent.
centage as is required to take such action by
Netherlands Antilles law or Schlumberger's articles
of incorporation. Each shareholder is entitled to
advance notice of any action proposed to be taken by
written consent.
</TABLE>
128
<PAGE> 133
MEETINGS OF SHAREHOLDERS
<TABLE>
<CAPTION>
SCHLUMBERGER TRANSOCEAN
<S> <C>
Under Netherlands Antilles law, a general shareholder Under Transocean's articles of association, a general
meeting is required to be held within nine months of meeting of shareholders is required to be held at
the fiscal year end of Schlumberger, which is least annually. That meeting can be held anywhere.
December 31. Pursuant to Netherlands Antilles law and
Schlumberger's articles of incorporation and bylaws, Under Transocean's articles of association, an
all meetings of shareholders are to be held in extraordinary general meeting of Transocean may be
Curacao. called only by a majority of the board of directors
of Transocean.
Under Schlumberger's articles of incorporation,
general meetings of shareholders, including special
general meetings, may be called by the Chairman, the
President, the board of directors or the holders of
at least half of the outstanding shares of
Schlumberger voting stock. In addition, holders of
one-tenth of the issued capital may petition the
board of directors to convene a shareholder meeting
subject to applicable law.
</TABLE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SCHLUMBERGER TRANSOCEAN
<S> <C>
Schlumberger is required to present its annual fi- Transocean is not required to present its annual
nancial statements to its shareholders for approval financial statements to its shareholders for approval
and adoption. or adoption.
</TABLE>
129
<PAGE> 134
DISTRIBUTIONS AND DIVIDENDS; REPURCHASES AND REDEMPTIONS
<TABLE>
<CAPTION>
SCHLUMBERGER TRANSOCEAN
<S> <C>
Under Netherlands Antilles law and Schlumberger's Transocean is not required to present proposed
articles of incorporation, Schlumberger is required dividends to its shareholders for approval or
to present any proposed dividends to its shareholders adoption.
for approval and adoption. Schlumberger may pay
interim dividends out of its expected current year Under Cayman Islands law, the board of directors of
profits or distribute the undistributed profits of Transocean may declare the payment of dividends to
previous years. If Schlumberger suffers a loss in any the ordinary shareholders out of Transocean's:
year, no dividends may be paid unless Schlumberger
has sufficient undistributed profits or reserves from - profits; or
previous years to cover the loss or until it covers
the loss with profits from subsequent years. - "share premium account," which represents the
excess of the price paid to Transocean on issue of
Under Schlumberger's articles of incorporation, its shares over the par or "nominal" value of those
Schlumberger may repurchase or redeem fully paid shares, which is similar to the U.S. concept of
shares of its stock provided that at least one-fifth additional paid in capital.
of its authorized capital remains outstanding with
holders other than Schlumberger. However, no dividends may be paid if, after pay-
ment, Transocean would not be able to pay its debts
as they come due in the ordinary course of business.
Under Cayman Islands law, shares of a Cayman Islands
company may be redeemed or repurchased out of profits
of the company, out of the proceeds of a fresh issue
of shares made for that purpose or out of capital,
provided the company has the ability to pay its debts
as they come due in the ordinary course of business.
</TABLE>
NUMBER OF DIRECTORS
<TABLE>
<CAPTION>
SCHLUMBERGER TRANSOCEAN
<S> <C>
Under Schlumberger's articles of incorporation, the Under Transocean's articles of association, the min-
minimum number of directors is five and the maximum imum number of directors is two and the maximum
number of directors is 24. number is 12.
</TABLE>
VACANCIES ON BOARD OF DIRECTORS
<TABLE>
<CAPTION>
SCHLUMBERGER TRANSOCEAN
<S> <C>
Vacancies on Schlumberger's board of directors may be Transocean's articles of association provide that a
filled by the remaining directors. However, if the vacancy or a newly created directorship may only be
number of remaining directors is less than a majority filled by a majority of the remaining directors.
of the whole board of directors, then the remaining
directors are required immediately to call a general
meeting of shareholders to fill the vacancies. Newly
created directorships can be filled by Schlumberger's
shareholders.
</TABLE>
130
<PAGE> 135
REMOVAL OF DIRECTORS; STAGGERED TERM OF DIRECTORS
<TABLE>
<CAPTION>
SCHLUMBERGER TRANSOCEAN
<S> <C>
Schlumberger's directors are elected annually at a Transocean's articles of association provide for a
general meeting of Schlumberger's shareholders. classified board of directors and also provide that
Directors may be removed at any general meeting of directors may only be removed by the holders of a
shareholders with or without cause. majority of the shares entitled to vote on the elec-
tion of directors and only for "cause." Transocean's
articles of association define "cause" for this pur-
pose to mean:
- an action by a director involving willful malfea-
sance, which conduct has a material adverse effect
on Transocean; or
- conviction of a felony.
</TABLE>
INSPECTION OF BOOKS AND RECORDS
<TABLE>
<CAPTION>
SCHLUMBERGER TRANSOCEAN
<S> <C>
Netherlands Antilles law does not expressly provide Cayman Islands law does not expressly provide
shareholders of a Netherlands Antilles company with shareholders of a Cayman Islands company with any
any general rights to inspect or obtain copies of the general rights to inspect or obtain copies of the
list of shareholders or corporate records of the list of shareholders or corporate records of a com-
company. However, if shares of a Netherlands An- pany, other than the register of mortgages and
tilles company are not fully paid-up, the company is charges. However, Transocean's articles of associa-
required to maintain a list of the holders and the tion provide that any shareholder may inspect its
amounts paid that is open for public inspection or books and records for a proper purpose. Trans-
copying at its corporate office. ocean's board of directors may establish procedures
or conditions regarding these inspection rights for
the following purposes:
- protecting the interests of Transocean;
- protecting the confidentiality of the information
contained in those books and records;
- the convenience of Transocean; or
- protecting any other interest of Transocean that
the board of directors deems proper.
</TABLE>
131
<PAGE> 136
AMENDMENT OF GOVERNING DOCUMENTS
<TABLE>
<CAPTION>
SCHLUMBERGER TRANSOCEAN
<S> <C>
Schlumberger's articles of incorporation provide that Under Cayman Islands law, Transocean's memorandum of
they may be amended only pursuant to a resolution association and articles of association may only be
adopted at a general meeting of shareholders by the amended by a special resolution of its shareholders.
holders of at least a majority of the shares of Transocean's board of directors may not effect
capital stock of Schlumberger at the time outstanding amendments to Transocean's articles of association on
and entitled to vote. The notice of any such meeting its own. Some amendments to Transocean's articles of
is required to set forth the exact text of the association require as a quorum the presence of
proposed amendment or state that a copy of that text shareholders holding at least 95% of the shares
has been deposited at the Schlumberger office in entitled to vote at that meeting. See "Description of
Curacao for inspection by its shareholders until the Capital Stock of Transocean."
conclusion of the meeting. Schlumberger's bylaws may
only be amended by the board of directors at a
meeting of the board for which notice was given to
all directors specifying the amendment to be voted
on. However, the bylaws may not be amended to be
inconsistent with the articles of incorporation.
</TABLE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
SCHLUMBERGER TRANSOCEAN
<S> <C>
Netherlands Antilles law does not expressly limit the Cayman Islands law does not limit the extent to which
extent to which a company may indemnify its a company may indemnify its directors, officers,
directors, officers, employees and agents. Schlum- employees and agents except to the extent that such
berger's articles of incorporation and bylaws provide provision may be held by the Cayman Islands courts to
that Schlumberger may indemnify its directors, of- be contrary to public policy. For instance, a
ficers, employees and agents and those persons provision purporting to provide indemnification
serving in such capacities for other entities at against the consequences of committing a crime may be
Schlumberger's request for actions by third parties deemed contrary to public policy. In addition, an
against those persons by reason of their serving in officer or director may not be indemnified for his
those capacities if that person acted in good faith own fraud, willful neglect or willful default.
and in a manner he reasonably believed to be in or
not opposed to the best interests of Schlumberger Transocean's articles of association make indemnifi-
and, with respect to any criminal proceeding, he had cation of directors and officers and advancement of
no reason to believe his conduct was unlawful. expenses to defend claims against directors and
Schlumberger's articles of incorporation and bylaws officers mandatory on the part of Transocean to the
allow for the same indemnification with respect to fullest extent allowed by law.
actions against those same persons by or in the right
of Schlumberger except that if such a person is
adjudged liable to Schlumberger by a court,
Schlumberger may only indemnify that person to the
extent a court deems proper.
</TABLE>
132
<PAGE> 137
LIMITED LIABILITY OF DIRECTORS
<TABLE>
<CAPTION>
SCHLUMBERGER TRANSOCEAN
<S> <C>
Netherlands Antilles law provides that a director may Cayman Islands law will not allow the limitation of a
be liable to a company for his negligent acts in the director's liability for his own fraud, willful
performance of his duties. neglect or willful default. Transocean's articles of
association provide that its directors have no
personal liability to Transocean or, if any, its
shareholders for monetary damages for breach of
fiduciary duty as a director, except for:
- breaching the duty of loyalty to Transocean or, if
any, its shareholders;
- failing to act in good faith;
- engaging in intentional misconduct or a known
violation of law; or
- obtaining an improper personal benefit from
Transocean.
</TABLE>
ADVANCE NOTIFICATION REQUIREMENTS FOR PROPOSALS OF SHAREHOLDERS
<TABLE>
<CAPTION>
SCHLUMBERGER TRANSOCEAN
<S> <C>
There are no provisions relating to advance notice Transocean's articles of association require share-
requirements of shareholder proposals under holders wishing to nominate directors or propose
Schlumberger's articles of incorporation or Schlum- business for a shareholders' meeting to give advance
berger's bylaws. However, shareholders of Schlum- notice as described under "Future Shareholder Pro-
berger are required to comply with the advance posals."
notification requirements prescribed by the SEC.
</TABLE>
RESTRICTIONS AS TO PROXIES
<TABLE>
<CAPTION>
SCHLUMBERGER TRANSOCEAN
<S> <C>
Under Schlumberger's bylaws, no director, officer or Transocean's directors, officers and employees are
employee of Schlumberger may act as a proxy at any not subject to such a restriction.
general meeting of shareholders or in connection with
action taken by shareholders without a meeting.
</TABLE>
133
<PAGE> 138
TRANSOCEAN'S PROPOSAL TO INCREASE
ITS AUTHORIZED ORDINARY SHARE CAPITAL
GENERAL
The board of directors of Transocean has unanimously adopted a resolution
to submit to a vote of the shareholders a proposal to increase Transocean's
authorized ordinary share capital to $3,000,000 and the number of authorized
ordinary shares to 300,000,000.
The terms of the additional ordinary shares will be identical to those of
the currently outstanding ordinary shares. However, because shareholders have no
preemptive rights to purchase any additional ordinary shares that may be issued,
the issuance of additional ordinary shares will reduce the percentage interest
of current shareholders in the total outstanding ordinary shares. Approval of
this proposal will not affect the number of other shares authorized. The
relative rights and limitations of the ordinary shares and other shares
authorized would remain unchanged under this proposal.
PURPOSES AND EFFECTS OF INCREASING THE NUMBER OF AUTHORIZED ORDINARY SHARES
If this proposal is approved by Transocean's shareholders and the merger is
completed, the number of ordinary shares that Transocean is authorized to issue
would increase from 150,000,000 to 300,000,000. The additional 150,000,000
shares, if and when issued, would have the same rights and privileges as the
currently issued Transocean ordinary shares.
The primary purpose of the proposed increase in the authorized number of
ordinary shares is to ensure that enough shares are available to complete the
merger. Currently, Transocean has only about 49 million authorized ordinary
shares available for issuance and it expects that it will need to issue about
109 million new ordinary shares in the merger. In addition, Transocean's board
of directors recommends the proposed increase in the authorized number of
ordinary shares over and above that required to complete the merger to ensure an
adequate supply of authorized and unissued ordinary shares for one or more of
the following purposes:
- to provide sufficient ordinary shares to cover obligations under
Transocean's Long-Term Incentive Plan and Employee Stock Purchase Plan;
and
- to raise additional capital for ongoing operations and other corporate
purposes.
Except as described in this joint proxy statement/prospectus, there are
currently no plans or arrangements relating to the issuance of any of the
additional ordinary shares proposed to be authorized. Such shares would be
available for issuance without further action by shareholders, except as
required by New York Stock Exchange rules.
The increase in the number of authorized ordinary shares has not been
proposed for any anti-takeover purpose and the board of directors and members of
management of Transocean have no knowledge of any current effort to obtain
control of Transocean or to accumulate large amounts of its ordinary shares.
However, the availability of additional ordinary shares could make any attempt
to gain control of Transocean or of the board of directors more difficult.
Authorized but unissued ordinary shares could be issued in an effort to dilute
the share ownership and voting power of any person or entity desiring to acquire
control of Transocean. Such issuance may have the effect of discouraging or
lessening the likelihood of the change of control. These shares could also be
issued to other persons or entities who support the board of directors in
opposing a takeover attempt that the board considers not to be in the best
interests of Transocean and its shareholders.
In evaluating this proposal, shareholders should consider the effect of
certain other provisions of Transocean's articles of association that may have
anti-takeover consequences, which are described in this joint proxy
statement/prospectus under "Description of Capital Stock of
Transocean -- Limitation on Changes in Control."
134
<PAGE> 139
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
Approval of this proposal requires the affirmative vote of holders of the
majority of Transocean ordinary shares. Approval of the proposal is a condition
to the merger because Transocean does not have enough authorized but unissued
ordinary shares to effect the merger. If approved, this proposal will be
implemented only if the merger is completed.
FOR THE REASONS DESCRIBED ABOVE, TRANSOCEAN'S BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO INCREASE
TRANSOCEAN'S AUTHORIZED ORDINARY SHARE CAPITAL TO $3,000,000, CONSISTING OF
300,000,000 ORDINARY SHARES, PAR VALUE $0.01 PER SHARE.
PROPOSAL TO AMEND TRANSOCEAN'S LONG-TERM INCENTIVE PLAN
DESCRIPTION OF THE PROPOSAL
The board of directors of Transocean has unanimously adopted a resolution
to submit to a vote of its shareholders a proposal to amend Transocean's
Long-Term Incentive Plan:
- to increase the number of ordinary shares reserved for issuance under the
incentive plan from 6,300,000 to 13,300,000, such increase of 7,000,000
shares to consist of 6,800,000 to be reserved for issuance to employees
and 200,000 shares to be reserved for issuance to outside directors; and
- to increase the aggregate number of shares subject to awards of
freestanding share appreciation rights to employees from 100,000 to
250,000.
Currently under the incentive plan there remain only about 1,300,000 shares
available for issuance in connection with option grants. Because the merger will
approximately double the size of Transocean and the number of employees, the
board believes that the proposed increase in shares reserved for issuance is
necessary to maintain adequate flexibility to use the incentive plan to attract
and retain qualified employees and directors.
PRINCIPAL PROVISIONS OF THE LONG-TERM INCENTIVE PLAN
The following summary of the incentive plan is qualified by reference to
the full text of the current plan, which, as conformed through Amendment No. 1
effected in May 1999, is attached as Annex E to this joint proxy
statement/prospectus.
The incentive plan is administered by the executive compensation committee
of the board of directors, all of the members of which are "non-employee
directors" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934 and "outside directors" within the meaning of Section 162(m) of the U.S.
Internal Revenue Code. It is intended that the grant of awards under the amended
incentive plan, after approval by shareholders, will satisfy the requirements of
Section 162(m) of the code, as applicable to limitations on deductions of
compensation expenses in excess of $1 million for certain executive officers.
The committee designates the employees of Transocean and its subsidiaries
and affiliated companies to be granted awards under the incentive plan and the
type and amount of awards to be granted. The committee has authority to
interpret and amend the incentive plan, adopt administrative regulations for the
operation of the incentive plan and determine and amend the terms of awards to
employees under the incentive plan. However, the committee has no authority to
vary the amount or terms of awards to outside directors from those set forth in
the incentive plan.
Under the incentive plan, options to purchase ordinary shares, share
appreciation rights in tandem with options, freestanding share appreciation
rights, restricted shares and cash performance awards may be granted to
employees at the discretion of the committee. The committee may provide for a
supplemental cash payment upon the exercise of an option or share appreciation
right to cover the employee's tax burden associated with such exercise. In
addition, the incentive plan provides for automatic awards to outside directors
of options to purchase 4,000 ordinary shares or, in the case of outside
directors who reside in Norway,
135
<PAGE> 140
share appreciation rights with respect to 4,000 ordinary shares. An automatic
award to an outside director is granted at the time the individual becomes such
a director, as well as at each annual meeting of Transocean's shareholders at
which the individual remains or is reelected as a director.
The aggregate number of ordinary shares that may be issued under the
incentive plan may not exceed 6,100,000 shares with respect to awards to
employees, reduced by the number of shares which have previously been issued
with respect to awards to employees. Cash tax-offset supplemental payments will
not count against these limits. Lapsed, forfeited or canceled awards, including
options canceled upon the exercise of tandem share appreciation rights, will not
count against these limits and can be regranted under the incentive plan. If the
exercise price of an option is paid in ordinary shares or if ordinary shares are
withheld from payment of an award to satisfy tax obligations with respect to the
award, such shares will also not count against the above limits. No employee may
be granted options or restricted shares with respect to more than 600,000
ordinary shares in any fiscal year. The aggregate number of ordinary shares
subject to awards to outside directors may not exceed 200,000. The aggregate
number of ordinary shares subject to awards of freestanding share appreciation
rights to employees may not exceed 100,000. The shares issued under the
incentive plan may be ordinary shares held in treasury or authorized but
unissued ordinary shares.
Transocean's officers are eligible to participate in the incentive plan, as
are employees of Transocean and its subsidiaries, and of partnerships or joint
ventures in which Transocean and its subsidiaries have a significant ownership
interest, as determined by the committee. Outside directors of Transocean are
automatically granted options or, for outside directors residing in Norway,
share appreciation rights that have the terms specified in the incentive plan.
Outside directors are not eligible for any other awards under the incentive
plan. Approximately 130 current employees and seven current outside directors
have received awards under the incentive plan. It is estimated that the total
number of employees who are eligible to receive awards under the incentive plan
at present would not exceed approximately 140 persons.
The committee determines, in connection with each option awarded to an
employee, the exercise price, whether that price is payable in cash, ordinary
shares or by cashless exercise, the terms and conditions of exercise, whether
the option will qualify as an incentive stock option under the U.S. Internal
Revenue Code, or a non-qualified option, restrictions on transfer of the option
and other provisions not inconsistent with the incentive plan. The committee is
also authorized to grant share appreciation rights to incentive plan
participants, either as freestanding awards or in tandem with an option. Every
share appreciation right entitles the participant, upon exercise of the share
appreciation right, to receive in cash or ordinary shares a value equal to the
excess of the market value of a specified number of ordinary shares at the time
of exercise, over the exercise price established by the committee. The incentive
plan requires that the exercise price of options and share appreciation rights
be at least equal to fair market value on the date of grant, except with respect
to options granted within 90 days of the closing of Transocean's initial public
offering in June 1993. The term of options and share appreciation rights under
the incentive plan may not exceed 10 years, except that the committee may extend
the term for up to one year following the death of the participant.
The committee is authorized to grant employees awards of restricted shares.
The committee determines the terms, conditions, restrictions and contingencies
applicable to awards of restricted shares. Awards of restricted shares may be
designated as "qualified performance-based compensation" under Section 162(m) of
the U.S. Internal Revenue Code. The performance goals will be based on the same
criteria as the cash performance awards discussed below.
The committee may also provide for cash performance awards to employees
based on the achievement of one or more objective performance goals. Cash
performance awards may be designated as "qualified performance-based
compensation" under Section 162(m) of the U.S. Internal Revenue Code. If so
designated, the cash performance awards will be contingent upon the performance
of Transocean during the performance period, as measured by targets established
by the committee, based on any one or more of:
- sales;
- operating profits;
- operating profits before
interest expense and taxes;
- net earnings;
- earnings per share;
- return on equity;
- return on assets;
136
<PAGE> 141
- return on invested capital;
- total shareholder return;
- cash flow;
- debt-to-equity ratio;
- market share;
- stock price;
- economic value added; and
- market value added.
Such performance measures may be applied to Transocean on a consolidated basis
and to a business unit, as an absolute measure or as a measure relative to a
peer group of companies. The committee will establish the performance objectives
for an award in writing no later than 90 days after beginning of the fiscal year
to which the award relates.
The number and kind of shares covered by the incentive plan and by
outstanding awards under the incentive plan and the exercise price of
outstanding awards are subject to adjustment in the event of any:
- reorganization;
- recapitalization;
- stock dividend;
- stock split;
- merger;
- consolidation;
- extraordinary cash dividend;
- split-up;
- spin-off;
- combination; or
- exchange of shares.
Upon the occurrence of a change of control, following the grant of an
award, (1) all outstanding restricted shares will immediately vest, (2) all
options and share appreciation rights held by outside directors will become
immediately exercisable and will remain exercisable for the remainder of their
term, and (3) all outstanding options, tandem share appreciation rights and
freestanding share appreciation rights held by then-current employees will
become immediately exercisable and will remain exercisable for the remainder of
their term.
The incentive plan is not limited in duration by its terms. However,
pursuant to Section 422(b)(2) of the U.S. Internal Revenue Code, no option that
is intended to constitute an incentive stock option may be granted under the
incentive plan after May 1, 2003. The Transocean board of directors may at any
time amend, suspend or terminate the incentive plan, but in doing so cannot
adversely affect any outstanding awards without the grantee's written consent.
In addition, the board of directors may not increase the number of shares
reserved for issuance under the incentive plan or change the minimum option or
share appreciation right price without shareholder approval.
The amount and type of awards to be granted in the future under the
incentive plan to the named officers, to all executive officers as a group and
to all other employees are not currently determinable.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the general rules of present U.S. federal
income tax law relating to the tax treatment of incentive stock options,
non-qualified stock options, share appreciation rights and restricted share
awards issued under the incentive plan. The discussion is general in nature and
does not take into account a number of considerations that may apply based on
the circumstances of a particular participant under the incentive plan,
including the possibility that a participant may not be subject to U.S. federal
income taxation. When the term "Transocean" is used in this section, the term is
understood to mean the U.S. subsidiary of Transocean.
Options. Some of the options issuable under the incentive plan may
constitute "incentive stock options" within the meaning of Section 422 of the
U.S. Internal Revenue Code, while other options granted under the incentive plan
will be non-qualified stock options. The U.S. Internal Revenue Code provides for
tax treatment of stock options qualifying as incentive stock options that may be
more favorable to employees than the tax treatment accorded non-qualified stock
options. Generally, upon the exercise of an incentive stock option, the optionee
will recognize no income for U.S. federal income tax purposes. However, the
difference between the exercise price of the incentive stock option and the fair
market value of the shares at the time of exercise is an item of tax adjustment
that may require payment of an alternative minimum tax. On the sale of shares
137
<PAGE> 142
acquired by exercise of an incentive stock option, assuming that the sale does
not occur within two years of the date of grant of the option or within one year
from the date of exercise, referred to as a disqualifying disposition, any gain
will be taxed to the optionee as the appropriate type of capital gain, depending
on the actual holding period from the exercise date. In contrast, upon the
exercise of a non-qualified option, the optionee recognizes taxable ordinary
income, subject to withholding, in an amount equal to the difference between the
fair market value of the shares on the date of exercise and the exercise price.
Upon any sale of such shares by the optionee, any difference between the sale
price and the fair market value of the shares on the date of exercise of the
non-qualified option will be treated generally as capital gain or loss. No
deduction is available to Transocean upon the grant or exercise of an incentive
stock option, although a deduction may be available if the employee sells the
shares acquired upon exercise before the applicable holding period expires,
whereas upon exercise of a non-qualified stock option, Transocean is entitled to
a deduction in an amount equal to the income recognized by the employee. Except
in the case of the death or disability of an optionee, an optionee has three
months after termination of employment in which to exercise an incentive stock
option and retain favorable tax treatment at exercise. An option exercised more
than three months after an optionee's termination of employment other than upon
death or disability of an optionee cannot qualify for the tax treatment accorded
incentive stock options. Such option would be treated as a non-qualified stock
option instead.
Share Appreciation Rights. The amount of any cash or the fair market value
of any share received by the holder upon the exercise of share appreciation
rights under the incentive plan will be subject to ordinary income tax in the
year of receipt, and Transocean will be entitled to a deduction for such amount.
Restricted Share Awards. Generally, a grant of ordinary shares under the
incentive plan, which shares are subject to vesting and transfer restrictions,
will not result in taxable income to the recipient for U.S. federal income tax
purposes or a tax deduction to Transocean in the year of the grant. Generally,
the recipient will be taxed on the value of the ordinary shares as ordinary
income in the years in which the restrictions on the shares lapse. Such value
will be the fair market value of the shares on the dates the restrictions
terminate, less any consideration paid for the ordinary shares. Under Section
83(b) of the U.S. Internal Revenue Code, any recipient may elect to treat the
fair market value of such shares on the date of such grant as compensation
income in the year of the grant, provided the recipient makes the election
pursuant to Section 83(b) of the code within 30 days after the date of the
grant. In any case, Transocean will receive a deduction for U.S. federal income
tax purposes equal to the amount of compensation included in the recipient's
income in the year in which that amount is so included.
Cash Performance Awards. Payments of cash performance awards will be
ordinary income to the recipient in the year paid, and Transocean will be
entitled to a deduction for such amount in the year in which that amount is so
included.
Other. In general, a U.S. federal income tax deduction is allowed to
Transocean in an amount equal to the ordinary income recognized by a participant
with respect to awards under the incentive plan, provided that such amount
constitutes an ordinary and necessary business expense of Transocean. However,
Transocean will not be entitled to a deduction to the extent compensation in
excess of $1 million is paid to an executive officer named in Transocean's proxy
statement who was employed by Transocean at year-end, unless the compensation
qualifies as "performance based" under Section 162(m) of the U.S. Internal
Revenue Code or certain other exceptions apply. In addition, Transocean will not
be entitled to a deduction with respect to payments to employees that are
contingent upon a change of control if such payments are deemed to constitute
"excess parachute payments" under Section 280G of the U.S. Internal Revenue Code
and do not qualify as reasonable compensation pursuant to that section; such
payments will subject the recipients to a 20 percent excise tax.
A participant's tax basis in shares acquired upon exercise of an option
under the incentive plan is equal to the sum of the price paid for the ordinary
shares, if any, and the amount of ordinary income recognized by the participant
on the receipt or transfer of the shares acquired upon exercise of an option.
The participant's holding period for the shares begins upon the receipt of the
ordinary shares acquired upon exercise of an option. If a participant sells the
ordinary shares, assuming there is no disqualifying disposition of an "incentive
stock option," any difference between the amount realized in the sale and the
participant's tax basis in the
138
<PAGE> 143
shares is taxed as long-term, mid-term or short-term capital gain or loss,
provided the shares are held as a capital asset on the date of sale, and
depending on the participant's holding period for the shares.
VOTE REQUIRED; RECOMMENDATION OF TRANSOCEAN'S BOARD OF DIRECTORS
The affirmative vote of a majority of the Transocean ordinary shares
present or represented and entitled to vote at the extraordinary general meeting
is required for approval of the amendment of the incentive plan, provided that
votes cast represent a majority of ordinary shares issued. For this purpose, an
abstention will count as a vote against the amendment, and broker non-votes
applicable to ordinary shares represented at the meeting will have no effect.
Approval of this proposal is not a condition to the merger but, if
approved, it will be implemented only if the merger is completed.
TRANSOCEAN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
PROPOSAL TO APPROVE AND RATIFY THE ADOPTION OF THE AMENDMENT TO TRANSOCEAN'S
LONG-TERM INCENTIVE PLAN.
PROPOSAL TO AMEND TRANSOCEAN'S EMPLOYEE STOCK PURCHASE PLAN
DESCRIPTION OF THE PROPOSAL
The board of directors of Transocean has unanimously adopted a resolution
to submit to a vote of the shareholders a proposal to amend Transocean's
Employee Stock Purchase Plan to increase the number of ordinary shares reserved
for issuance under the stock purchase plan to 750,000. In addition, if this
proposal is approved and the merger is completed, the stock purchase plan will
be amended to permit eligible participants, including participating Sedco Forex
employees, to make a lump-sum contribution for the plan year 2000 in the first
quarter of the year 2000. The purpose of this amendment is to afford the Sedco
Forex employees the opportunity to transfer their existing account balances
under the Schlumberger discounted stock purchase plan to their new accounts
under the Transocean Sedco Forex employee stock purchase plan.
The purpose of Transocean's stock purchase plan is to encourage and assist
Transocean's employees to acquire an equity interest in Transocean through the
purchase of ordinary shares. Transocean's board of directors believes the stock
purchase plan is achieving its purpose, and believes that to continue to carry
out its purpose and to provide for the approximate doubling in size of the
workforce as a result of the merger, it is necessary to amend the stock purchase
plan to increase the number of ordinary shares reserved for issuance under the
stock purchase plan from 250,000 ordinary shares to 750,000 ordinary shares.
Of the 250,000 ordinary shares reserved for issuance under the plan,
approximately 75,000 shares are expected to remain available after giving effect
to the 1999 purchase period. Approval of the amendment to increase the number of
shares reserved for issuance under the stock purchase plan is not a condition to
the merger. If this proposal is approved, it will be implemented regardless of
whether the merger is completed in order to fulfill Transocean's ongoing
obligations under the plan. The stock purchase plan will terminate after all
Transocean ordinary shares covered by the stock purchase plan have been
purchased, unless Transocean's board of directors terminates it earlier.
PRINCIPAL PROVISIONS OF THE EMPLOYEE STOCK PURCHASE PLAN
The following summary of the stock purchase plan is qualified by reference
to the full text of the current plan, which, as conformed through Amendment No.
1 effected in May 1999, is attached as Annex F to this joint proxy
statement/prospectus.
Under the stock purchase plan, all full-time employees of Transocean, and
of any subsidiary of Transocean, that has, with the consent of Transocean's
board of directors, adopted the stock purchase plan, who do not own, or hold
options to acquire, five percent or more of the total combined voting power or
value of Transocean's ordinary shares are eligible to participate in the stock
purchase plan. As of August 31, 1999, approximately 3,500 employees of
Transocean are eligible to participate in the stock purchase plan. Participants
in the stock purchase plan may purchase Transocean ordinary shares through
payroll deductions
139
<PAGE> 144
on an after-tax basis over a plan year beginning on each January 1 and ending on
the following December 31 during the term of the stock purchase plan. A
participant's right to participate in the stock purchase plan terminates
immediately when a participant ceases to be employed by Transocean. An employee
may elect to participate in the stock purchase plan as of any January 1
following his or her completion of six consecutive months of employment by
Transocean. A participant may elect to make contributions each pay period in an
amount not less than $50, subject to a monthly limitation equal to ten percent
of his base monthly earnings or such other amount established by the Transocean
board of directors compensation committee, taking into account a "maximum share
limitation." The maximum share limitation is the number of ordinary shares
derived by dividing $25,000 by the fair market value, as defined below, of
ordinary shares determined as of the date of grant. The contributions will be
held in trust during a plan year, and interest will be credited to the
participant's account. Unless a participant elects otherwise, the dollar amount
in the participant's account at the end of the plan year will then be used to
purchase as many whole ordinary shares as the funds in his or her account will
allow. The purchase price for the stock will be 85 percent of the lesser of (1)
its fair market value on the first trading day of the plan year or (2) its fair
market value on the last trading day of the plan year. "Fair market value" means
the closing composite sales price per ordinary share on the New York Stock
Exchange on the applicable date. Any cash remaining in the participant's account
will be carried over to the next plan year. If the participant elects not to
purchase ordinary shares at the end of the plan year, such participant will
receive a return of his or her payroll deductions during the plan year plus the
interest accrued on such deductions. At the end of each plan year, participants
will receive a statement of their account balances, including interest earned
and the number of whole ordinary shares purchased and in the accounts. Any
dividends on ordinary shares held in a participant's account will be credited to
his or her account.
A participant may elect to withdraw his or her entire contributions for the
current year from the stock purchase plan at any time prior to the purchase of
Transocean ordinary shares. Any participant who so elects will receive his or
her entire account balance, including interest and dividends, if any. A
participant who suspends his or her payroll deductions or withdraws
contributions cannot resume participation in the stock purchase plan during that
plan year and must reenroll in the stock purchase plan the following year in
order to participate. A participant may also elect at any time to withdraw
ordinary shares held in his or her account for at least one year. A participant
may not sell ordinary shares held in the participant's account for less than
three months. In the event of a participant's death, amounts credited to his or
her account, including interest and dividends, if applicable, will be paid in
cash, and a certificate for any ordinary shares will be delivered to his or her
designated beneficiaries or other legal representative.
Transocean's board of directors generally may amend or terminate the stock
purchase plan at any time, provided that approval of Transocean's shareholders
must be obtained for any amendment to the stock purchase plan if required under
Section 423 of U.S. Internal Revenue Code or any other applicable law or
regulation. Section 423 of the U.S. Internal Revenue Code currently requires
shareholder approval of a plan amendment that would change the number of shares
reserved for issuance under the stock purchase plan.
The shares to be issued pursuant to the stock purchase plan may be ordinary
shares held in treasury or authorized but unissued ordinary shares.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the general rules of present U.S. federal
income tax law relating to the tax treatment of employee stock purchase plans.
The discussion is general in nature and does not take into account a number of
considerations that may apply based on the circumstances of a particular
participant under the stock purchase plan, including the possibility that a
participant may not be subject to U.S. federal income taxation. When the term
"Transocean" is used in this section, the term is understood to mean the U.S.
subsidiary of Transocean.
Transocean intends for the stock purchase plan to constitute an "employee
stock purchase plan" under the provisions of Section 423 of the U.S. Internal
Revenue Code. Stock purchase plan participants will recognize taxable ordinary
income upon disposition of the ordinary shares acquired under the stock purchase
plan if such shares are disposed of in a "disqualifying disposition," which is a
disposition of the shares before
140
<PAGE> 145
the later of (1) two years from the date an option to purchase stock was issued
under the plan or (2) one year from the date that shares acquired pursuant to
the plan were transferred to the participant. This taxable income will equal the
amount by which the fair market value of the shares on the exercise date exceeds
the purchase price of the shares, but in no event will the income recognized
exceed the sales proceeds for such shares reduced by the purchase price for such
shares. If a participant sells or otherwise disposes of his or her shares after
the above holding period so that there is no disqualifying disposition, the
participant would realize ordinary income equal to the lesser of (a) the excess
of the fair market value of the shares at the time of the disposition over the
exercise price or (b) the excess of the fair market value of the shares at the
time the option was granted over the option price. If a participant sells the
ordinary shares acquired under the stock purchase plan, assuming there is no
disqualifying disposition, any difference between the amount realized in the
sale and the participants' tax basis in the shares (which would include any
ordinary income recognized with respect to the shares) is taxed as long-term,
mid-term or short-term capital gain or loss, provided the shares are held as a
capital asset on the date of sale, and depending on the participant's holding
period for the shares.
Transocean is entitled to a deduction for U.S. federal income tax purposes
for dispositions of shares acquired by participants in the stock purchase plan
only to the extent that a participant realizes ordinary income as a result of a
disqualifying disposition of shares acquired under the stock purchase plan.
VOTE REQUIRED; RECOMMENDATION OF TRANSOCEAN'S BOARD OF DIRECTORS
The affirmative vote of a majority of the Transocean ordinary shares
present or represented and entitled to vote at the extraordinary general meeting
is required for approval of the amendment of the stock purchase plan. For this
purpose, an abstention will count as a vote against the amendment, and broker
non-votes applicable to ordinary shares represented at the meeting will have no
effect.
If approved, this proposal will be implemented regardless of whether the
merger is completed.
TRANSOCEAN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
PROPOSAL TO APPROVE AND RATIFY THE ADOPTION OF THE AMENDMENT TO TRANSOCEAN'S
EMPLOYEE STOCK PURCHASE PLAN.
LEGAL MATTERS
The validity of the Transocean ordinary shares to be issued pursuant to the
terms of the merger agreement will be passed upon for Transocean by Walkers,
Cayman Islands.
Baker & Botts, L.L.P., Houston, Texas, will pass upon certain U.S. federal
income tax consequences of the spin-off and the merger for Schlumberger. Weil,
Gotshal & Manges LLP, New York, New York, will also pass upon certain U.S.
federal income tax consequences of the merger for Transocean.
EXPERTS
The combined financial statements of Sedco Forex as of December 31, 1998
and 1997 and for each of the three years in the period ended December 31, 1998
included in this document have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements incorporated in this joint proxy
statement/prospectus by reference to the Annual Report on Form 10-K for
Schlumberger for the year ended December 31, 1998, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Transocean Offshore Inc. appearing
in Transocean's Annual Report (Form 10-K) for the year ended December 31, 1998,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by
141
<PAGE> 146
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
FUTURE SHAREHOLDER PROPOSALS
TRANSOCEAN SHAREHOLDER PROPOSALS
SHAREHOLDER PROPOSALS IN A PROXY STATEMENT.
Rule 14a-8 under the Securities Exchange Act of 1934 addresses when a
company must include a shareholder's proposal in its proxy statement and
identify the proposal in its form of proxy when the company holds an annual or
special meeting of shareholders. Under Rule 14a-8, in order for proposals to be
considered for inclusion in the proxy statement and proxy card relating to the
2000 annual meeting of shareholders of Transocean, those proposals must be
received at Transocean's principal executive offices, 4 Greenway Plaza, Houston,
Texas 77046, by no later than December 13, 2000. However, if the date of the
2000 annual meeting changes by more than 30 days from the date of the 1999
annual meeting, the deadline is a reasonable time before Transocean begins to
print and mail their proxy materials. Transocean will notify shareholders of
this deadline in a Quarterly Report on Form 10-Q or in another communication to
shareholders. Shareholder proposals must also be otherwise eligible for
inclusion.
SHAREHOLDER PROPOSALS AND NOMINATIONS FOR DIRECTORS TO BE PRESENTED AT
MEETINGS.
If you desire to bring a matter before an annual meeting and the proposal
is submitted outside the process of Rule 14a-8, you must follow the procedures
set forth in Transocean's articles of association. The articles of association
provide generally that if you desire to propose any business at an annual
meeting of shareholders, you must give Transocean written notice not less than
90 days prior to the anniversary of the originally scheduled date of the
immediately preceding annual meeting. The deadline under Transocean's articles
of association for submitting proposals will be February 13, 2000 for the 2000
annual meeting unless it is more than 30 days before or after the anniversary of
the 1999 annual meeting. However, if the date of the forthcoming annual meeting
is more than 30 days before or after that anniversary date, the deadline is the
close of business on the tenth day after Transocean publicly discloses the
meeting date. Your notice must set forth:
- a brief description of the business desired to be brought before the
meeting and the reasons for conducting the business at the meeting;
- your name and address;
- a representation that you are a holder of record of Transocean ordinary
shares entitled to vote at the meeting, or if the record date for the
meeting is subsequent to the date required for shareholder notice, a
representation that you are a holder of record at the time of the notice
and intend to be a holder of record on the date of the meeting, and, in
either case, intend to appear in person or by proxy at the meeting to
propose that business; and
- any material interest you have in the business.
If you desire to nominate directors at an annual meeting, you must give
Transocean written notice within the time period described in the preceding
paragraph. If you desire to nominate directors at a special meeting at which the
board of directors has determined that directors will be elected, you must give
Transocean written notice by the close of business on the tenth day following
Transocean's public disclosure of the meeting date. Your notice must set forth:
- your name and address and the name and address of the person or persons
to be nominated;
- a representation that you are a holder of record of Transocean ordinary
shares entitled to vote at the meeting or, if the record date for the
meeting is subsequent to the date required for that shareholder notice, a
representation that you are a holder of record at the time of the notice
and intend to be a
142
<PAGE> 147
holder of record on the date of the meeting and, in either case, setting
forth the class and number of shares so held, including shares held
beneficially;
- a representation that you intend to appear in person or by proxy as a
holder of record at the meeting to nominate the person or persons
specified in the notice;
- a description of all arrangements or understandings between you and each
nominee you propose and any other person or persons under which the
nomination or nominations being made by you;
- any other information regarding each nominee you propose that would be
required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission; and
- the consent of each nominee to serve as a director if so elected.
The chairman of the meeting may refuse to transact any business or to
acknowledge the nomination of any person if you fail to comply with the
foregoing procedures.
You may obtain a copy of Transocean's articles of association, in which
these procedures are set forth, upon written request to Eric B. Brown,
Secretary, Transocean Offshore Inc., 4 Greenway Plaza, Houston, Texas 77046 or
see "Where You Can Find More Information."
SCHLUMBERGER SHAREHOLDER PROPOSALS
In order for a shareholder proposal to be considered for inclusion in
Schlumberger's proxy statement for its 2000 annual general meeting of
shareholders, written proposals must be received by the Secretary of
Schlumberger, 277 Park Avenue, New York, New York 10172-0266, no later than
November 10, 1999. Pursuant to the rules under the Securities Exchange Act of
1934, Schlumberger may use discretionary authority to vote proxies with respect
to shareholder proposals to be presented in person at the 2000 annual general
meeting if the shareholder making the proposal has not given Schlumberger notice
of the proposal by January 25, 2000.
WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires Transocean and Schlumberger to file
information with the Securities and Exchange Commission concerning their
respective business and operations. Accordingly, Transocean and Schlumberger
file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document Transocean and
Schlumberger file at the SEC's public reference rooms located at 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 rooms. These SEC filings are also available to the public on the SEC's
web site at: http://www.sec.gov. Copies of these reports, proxy statements and
other information can also be inspected at the offices of the New York Stock
Exchange at 20 Broad Street, New York, New York 10005.
Transocean has filed with the SEC a registration statement on Form S-4.
This joint proxy statement/prospectus is a part of the registration statement
and constitutes a prospectus of Transocean for the Transocean ordinary shares to
be issued to Schlumberger's shareholders in the merger. As allowed by the SEC
rules, this joint proxy statement/prospectus does not contain all the
information you can find in the registration statement or the exhibits to the
registration statement. For further information with respect to Transocean and
the Transocean ordinary shares, you should consult the registration statement
and its exhibits. Statements contained in this joint proxy statement/prospectus
concerning the provisions of any documents are summaries of those documents, and
we refer you to the document filed with the SEC for additional information. The
registration statement and any of its amendments, including exhibits filed as a
part of the registration statement or an amendment to the registration
statement, are available for inspection and copying as described above.
SEC rules and regulations permit us to "incorporate by reference" the
information Transocean and Schlumberger files with the SEC. This means that we
can disclose important information to you by referring
143
<PAGE> 148
you to the other information Transocean and Schlumberger have filed with the
SEC. The information that we incorporate by reference is considered to be part
of this joint proxy statement/prospectus. Information that Transocean and
Schlumberger file later with the SEC will automatically update and supersede
this information.
We incorporate by reference the documents listed below and any filings
Transocean or Schlumberger will make with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 following the date of this
document, but prior to the date of their respective shareholder meeting:
For Transocean:
- Annual Report on Form 10-K of Transocean for the fiscal year ended
December 31, 1998;
- Quarterly Reports on Form 10-Q for the periods ended March 31, 1999 and
June 30, 1999; and
- Current Reports on Form 8-K dated March 15, 1999, May 17, 1999 and July
27, 1999.
For Schlumberger:
- Annual Report on Form 10-K of Schlumberger for the Fiscal Year ended
December 31, 1998; and
- Quarterly Reports on Form 10-Q for the periods ended March 31, 1999 and
June 30, 1999.
You can request a free copy of the above filings or any filings
subsequently incorporated by reference into this joint proxy
statement/prospectus by writing or calling:
For Transocean:
Transocean Offshore Inc.
4 Greenway Plaza
Houston, Texas 77046
Attn: Jeffrey L. Chastain, Director of Investor Relations and
Communications
Telephone requests may be directed to (713) 232-7500.
For Schlumberger:
Schlumberger Limited
277 Park Avenue
New York, New York 10172
Attn: Simone Crook, Director Investor Relations & Communications
Telephone requests may be directed to (212) 350-9432.
In order to ensure timely delivery of these documents, you should make such
request by December 3, 1999.
Neither Transocean nor Schlumberger has authorized anyone to give any
information or make any representation about the spin-off or the merger or about
the respective companies that differs from or adds to the information in this
joint proxy statement/prospectus or in the documents that Transocean files
publicly with the SEC. Therefore, you should not rely upon any information that
differs from or is in addition to the information contained in this joint proxy
statement/prospectus or in the documents that Transocean files publicly with the
SEC.
If you live in a jurisdiction where it is unlawful to offer to exchange or
sell, to ask for offers to exchange or buy, or to ask for proxies regarding the
securities offered by this joint proxy statement/prospectus, or if you are a
person to whom it is unlawful to direct such activities, the offer presented by
this joint proxy statement/prospectus is not extended to you.
The information contained in this joint proxy statement/prospectus speaks
only as of the date on the cover, unless the information specifically indicates
that another date applies.
144
<PAGE> 149
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SEDCO FOREX HOLDINGS LIMITED COMBINED FINANCIAL STATEMENTS
Report of Independent Accountants......................... F-2
Combined Statements of Income............................. F-3
Combined Balance Sheets................................... F-4
Combined Statements of Cash Flows......................... F-5
Combined Statements of Equity............................. F-6
Notes to Combined Financial Statements.................... F-7
Quarterly Results (Unaudited)............................. F-20
</TABLE>
F-1
<PAGE> 150
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Schlumberger Limited
In our opinion, the accompanying combined balance sheets and the related
combined statements of income, of equity and of cash flows present fairly, in
all material respects, the financial position of Sedco Forex Holdings Limited at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Sedco Forex Holdings Limited's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
August 6, 1999
F-2
<PAGE> 151
SEDCO FOREX HOLDINGS LIMITED
COMBINED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------------- -------------------
1998 1997 1996 1999 1998
---------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Operating............................ $1,090,523 $891,334 $663,245 $351,590 $534,388
Interest and other income............ 8,750 8,242 8,066 6,696 3,348
---------- -------- -------- -------- --------
1,099,273 899,576 671,311 358,286 537,736
---------- -------- -------- -------- --------
Expenses:
Cost of services..................... 674,685 561,784 476,374 297,118 329,339
Research and engineering............. 11,343 9,803 10,179 6,317 6,093
General and administrative........... 26,274 15,891 13,800 8,335 12,361
Interest expense, net................ 12,950 19,639 7,887 6,911 9,868
---------- -------- -------- -------- --------
725,252 607,117 508,240 318,681 357,661
---------- -------- -------- -------- --------
Income before taxes.................... 374,021 292,459 163,071 39,605 180,075
Income taxes........................... 32,443 32,004 15,536 911 21,810
---------- -------- -------- -------- --------
Net income............................. $ 341,578 $260,455 $147,535 $ 38,694 $158,265
========== ======== ======== ======== ========
Unaudited pro forma basic earnings per
share................................ $ 3.13 $ .35
========== ========
Unaudited pro forma basic shares
outstanding.......................... 109,111 109,111
========== ========
Unaudited pro forma diluted earnings
per share............................ $ 3.13 $ .35
========== ========
Unaudited pro forma shares outstanding
assuming dilution.................... 109,144 109,185
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 152
SEDCO FOREX HOLDINGS LIMITED
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1998 1997 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and short-term investments........................ $ 174,481 $ 95,117 $ 84,868
Receivables, less allowance for doubtful accounts of
$829, $1,662 and $5,155............................. 216,209 199,408 170,253
Receivables from related parties....................... 52,620 35,109 38,214
Materials and supplies................................. 45,976 42,419 52,410
Deferred taxes on income............................... -- -- 6,500
Other current assets................................... 25,407 26,520 15,129
---------- ---------- ----------
Total current assets........................... 514,693 398,573 367,374
---------- ---------- ----------
Fixed assets, less accumulated depreciation of
$1,039,538, $931,465 and $1,091,043.................... 915,423 626,324 1,101,585
Deferred taxes on income................................. 17,938 1,899 20,471
Equity in affiliated companies........................... 24,865 24,051 25,209
---------- ---------- ----------
Total assets................................... $1,472,919 $1,050,847 $1,514,639
========== ========== ==========
LIABILITIES AND EQUITY
Current liabilities:
Bank overdrafts........................................ $ 2,990 $ 4,017 $ 6,483
Accounts payable and accrued liabilities............... 180,628 139,922 203,522
Payables to related parties............................ 32,960 14,248 27,763
Estimated liability for taxes on income................ 41,058 26,102 31,584
Current portion of deferred gain....................... 26,000 26,000 26,000
Current portion of long-term debt...................... 14,348 20,689 14,597
---------- ---------- ----------
Total current liabilities...................... 297,984 230,978 309,949
---------- ---------- ----------
Long-term debt........................................... 86,100 139,165 77,428
Postretirement benefits.................................. 5,578 5,277 5,428
Related party debt....................................... 407,402 179,385 506,258
Deferred gain on sale of rigs............................ 97,000 123,000 84,000
Other long-term liabilities.............................. 14,473 10,148 12,644
---------- ---------- ----------
Total liabilities.............................. 908,537 687,953 995,707
Commitments and contingencies (Note 13).................. -- -- --
Equity................................................... 564,382 362,894 518,932
---------- ---------- ----------
Total liabilities and equity................... $1,472,919 $1,050,847 $1,514,639
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 153
SEDCO FOREX HOLDINGS LIMITED
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------- --------------------
1998 1997 1996 1999 1998
--------- --------- --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 341,578 $ 260,455 $ 147,535 $ 38,694 $158,265
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation.............................. 124,707 110,780 103,610 63,739 60,615
Amortization of deferred gain on sale of
rigs.................................... (26,000) (8,667) -- (13,000) (13,000)
1998 and 1999 charges..................... 20,350 -- -- 32,549 --
Deferred taxes on earnings................ (13,039) 501 (2,400) 467 (1,517)
Equity in income of affiliated
companies............................... (5,389) (4,946) (5,647) (2,527) (1,661)
Changes in operating assets and liabilities:
Accounts receivable....................... (18,297) (41,319) (51,191) 45,956 (38,631)
Receivables from related parties.......... (17,511) (5,152) (18,233) 14,406 (6,780)
Materials and supplies.................... (4,077) (8,642) (11,403) (6,434) (7,595)
Accounts payable and accrued
liabilities............................. 27,703 146 61,564 (10,581) 20,515
Payables to related parties............... 18,712 (3,609) 8,215 (5,197) 8,142
Estimated liability for taxes on income... 15,062 6,788 5,201 (9,474) 9,832
Other assets and liabilities, net......... 9,615 12,149 (906) 1,908 (23,153)
--------- --------- --------- --------- --------
Net cash provided by operating activities..... 473,414 318,484 236,345 150,506 165,032
--------- --------- --------- --------- --------
Cash flows from investing activities:
Capital expenditures........................ (424,749) (187,411) (150,757) (250,425) (160,311)
Net proceeds on sale of drilling rigs....... -- 174,000 -- -- --
Sales/retirements of fixed assets and
other..................................... 3,205 (5,842) 1,490 524 643
--------- --------- --------- --------- --------
Net cash used in investing activities......... (421,544) (19,253) (149,267) (249,901) (159,668)
--------- --------- --------- --------- --------
Cash flows from financing activities:
Dividends paid.............................. -- (71,195) (168,341) -- --
Advances and other to related parties....... (140,090) (287,952) (91,201) (84,144) (33,994)
Bank overdrafts............................. (1,027) (11,277) 11,320 3,493 465
Proceeds from issuance of long-term debt.... -- 120,060 15,715 -- --
Payments of principal of long-term debt..... (59,406) (13,369) (6,640) (8,423) (21,385)
Proceeds from issuance of related party
debt...................................... 250,080 40,000 137,000 163,577 --
Payments of principal of related party
debt...................................... (22,063) (45,118) (4,147) (64,721) (10,790)
--------- --------- --------- --------- --------
Net cash provided by (used in) financing
activities.................................. 27,494 (268,851) (106,294) 9,782 (65,704)
--------- --------- --------- --------- --------
Net increase (decrease) in cash and short-term
investments................................. 79,364 30,380 (19,216) (89,613) (60,340)
Cash and short-term investments, beginning of
year........................................ 95,117 64,737 83,953 174,481 95,117
--------- --------- --------- --------- --------
Cash and short-term investments, end of
year........................................ $ 174,481 $ 95,117 $ 64,737 $ 84,868 $ 34,777
========= ========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 154
SEDCO FOREX HOLDINGS LIMITED
COMBINED STATEMENTS OF EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
EQUITY
---------
<S> <C>
Balance, January 1, 1996.................................... $ 573,593
Net income.................................................. 147,535
Dividends paid.............................................. (168,341)
Advances to related parties and other....................... (91,201)
---------
Balance, December 31, 1996.................................. 461,586
---------
Net income.................................................. 260,455
Dividends paid.............................................. (71,195)
Advances to related parties and other....................... (287,952)
---------
Balance, December 31, 1997.................................. 362,894
---------
Net income.................................................. 341,578
Dividends paid.............................................. --
Advances to related parties and other....................... (140,090)
---------
Balance, December 31, 1998.................................. 564,382
---------
Net income (unaudited)...................................... 38,694
Dividends paid (unaudited).................................. --
Advances to related parties and other (unaudited)........... (84,144)
---------
Balance, June 30, 1999 (unaudited).......................... $ 518,932
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 155
SEDCO FOREX HOLDINGS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
1. PRINCIPLES OF COMBINATION AND MERGER
Principles of Combination
The accompanying combined Sedco Forex Holdings Limited financial statements
include the offshore contract drilling service business of Schlumberger Limited
and its subsidiaries ("Schlumberger"), which is comprised of certain businesses,
operations, assets and liabilities of Sedco Forex, its subsidiaries and
Schlumberger, in accordance with a distribution agreement described below
(collectively referred to as "Sedco Forex"). Although Sedco Forex is not a
separate public company, the accompanying combined financial statements are
presented as if Sedco Forex had existed as an entity separate from its parent,
Schlumberger. The combined financial statements include the historical assets,
liabilities, revenues and expenses that were directly related to the offshore
contract drilling service business of Schlumberger during the periods presented
and have been prepared using Schlumberger's historical bases in the assets and
liabilities and the historical results of operations of Sedco Forex.
Certain amounts of Schlumberger's corporate expenses, including centralized
research and engineering, legal, accounting, employee benefits, real estate,
insurance, information technology services, treasury and other corporate and
infrastructure costs, although not directly attributable to Sedco Forex's
operations, have been allocated to Sedco Forex on bases that Schlumberger and
Sedco Forex considered to be a reasonable reflection of the utilization of
services provided or the benefit received by Sedco Forex (see Note 11). However,
the financial information included herein may not reflect the combined financial
position, operating results, changes in equity and cash flows of Sedco Forex in
the future or what they would have been had Sedco Forex been a separate,
stand-alone entity during the periods presented. All significant intercompany
accounts and transactions within Sedco Forex have been eliminated.
Because Sedco Forex was historically not operated as a separate,
stand-alone entity, and in many cases Sedco Forex's results were included in the
consolidated financial statements of Schlumberger on a divisional basis, there
are no separate meaningful historical equity accounts for Sedco Forex. Changes
in stockholders' equity represent Schlumberger's contribution of its net
investment in Sedco Forex after giving effect to the net earnings of Sedco
Forex, dividends paid, plus net cash transfers to and from Schlumberger and
other transfers from Schlumberger.
Certain assets and liabilities included in these financial statements,
primarily associated with employee benefits, income taxes, and balances due to
or from Schlumberger companies other than Sedco Forex, will be retained by
Schlumberger in accordance with the distribution agreement described below. In
addition, certain financial matters have been agreed to which limit debt and
require a minimum cash level at the time of the audited pre-closing financial
statements to be delivered prior to the distribution.
Sedco Forex provides offshore drilling services with semisubmersibles,
jackup rigs, dynamically positioned drillships and drilling tenders to customers
throughout the world.
Distribution to Shareholders and Merger with Transocean Offshore Inc.
On July 12, 1999, Sedco Forex, Schlumberger, Transocean Offshore Inc.
("Transocean") and a wholly owned subsidiary of Transocean entered into a merger
agreement. At the same time, Schlumberger and Sedco Forex entered into a
distribution agreement that provides for a series of combination transactions
which will include: the transfer of certain assets and liabilities between Sedco
Forex and Schlumberger and the distribution of Sedco Forex stock to Schlumberger
shareholders. After the distribution, Sedco Forex will merge with a wholly-owned
subsidiary of Transocean and Schlumberger shareholders will receive shares of
Transocean in exchange for their shares of Sedco Forex. Following the
distribution and merger, Schlumberger shareholders will own approximately 52
percent of the diluted ordinary shares of the combined company that
F-7
<PAGE> 156
SEDCO FOREX HOLDINGS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
will be renamed Transocean Sedco Forex. These transactions are expected to be
completed by December 31, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Combined Financial Statements of Sedco Forex have been prepared in
accordance with accounting principles generally accepted in the United States.
Principles of Combination
All significant intercompany accounts and transactions are eliminated. The
equity method of accounting is used for investments in affiliates in which Sedco
Forex owns between 20% and 50%.
Interim Financial Information
The financial information as of June 30, 1999 and for the six months ended
June 30, 1999 and 1998 is unaudited but includes all adjustments, consisting
only of normal and recurring adjustments, that management considers necessary
for a fair presentation of its financial position, operating results and cash
flows. Results for the six months ended June 30, 1999 are not necessarily
indicative of results to be expected for the full year 1999 or for any future
period.
Revenue Recognition
Operating revenues are recognized as earned, based on contractual daily
rates. In connection with drilling contracts, Sedco Forex may receive lump sum
fees for the mobilization of equipment and personnel or for capital improvements
to rigs. In connection with contracted mobilizations, to the extent that
expenses exceed fees received, the net costs are deferred and amortized over the
appropriate periods of benefit, generally the term of the contract. If losses
are anticipated on the contract, net mobilization costs are expensed
immediately. Profits are recognized based on contractual daily rates.
Use of 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,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. While actual results could differ from these estimates,
management believes that the estimates are reasonable.
Translation of Non-US Currencies
Sedco Forex uses the US dollar as its functional currency. All realized and
unrealized transaction gains and losses are included in income in the period in
which they occur. Transaction gains (losses) included in results of operations
were $1.0 million, $5.0 million, and $(274) in 1998, 1997 and 1996,
respectively.
Investments
Short-term investments are stated at cost plus accrued interest, which
approximates market, and are comprised primarily of Eurodollar time deposits,
certificates of deposit and commercial paper, Canadian treasury bills, Euronotes
and Eurobonds, substantially all denominated in US dollars. These investments
have
F-8
<PAGE> 157
SEDCO FOREX HOLDINGS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
original maturity dates not exceeding three months, and are considered cash
equivalents for purposes of reporting cash flows.
Fair Value of Financial Instruments
The fair value of cash, accounts receivable, trade accounts payable,
short-term borrowings, long-term debt and accrued expenses are not materially
different than their carrying amounts as reported at December 31, 1998 and 1997.
Concentration of Credit Risk
Financial instruments which potentially subject Sedco Forex to
concentration of risk consist primarily of accounts receivable. Sedco Forex
maintains an allowance for uncollectible accounts receivable based upon expected
collectibility. Sedco Forex performs ongoing credit evaluations of its
customers' financial condition.
For the years ended December 31, 1998, 1997 and 1996, one customer
accounted for approximately 19.2%, 24.1%, and 25.6%, respectively, of Sedco
Forex's total revenue. Total accounts receivable from this customer were $44
million and $46 million at December 31, 1998 and 1997, respectively.
Materials and Supplies
Inventories are stated principally at average cost less an allowance for
obsolescence.
Fixed Assets and Depreciation
Fixed assets are stated at cost less accumulated depreciation, which is
provided for by charges to income over the estimated useful lives of the assets
by the straight-line method. Expenditures for renewals, replacements, and
improvements are capitalized. Maintenance and repairs are charged to operating
expenses as incurred. Upon sale or other disposition, the applicable amounts of
asset cost and accumulated depreciation are removed from the accounts and the
net amount, less proceeds from disposal, is charged or credited to income.
Estimated useful lives of rigs range from 10 to 25 years, buildings and
improvements from 10 to 30 years and machinery and equipment from 4 to 12 years.
From time to time, major improvements are performed on the rigs which extend
their useful lives. These improvements are amortized over 10 to 15 years.
Capitalized Interest
Sedco Forex capitalizes interest expense during the new construction or
upgrade of qualifying assets. Interest expense capitalized was $8.7 million for
the year ended 1998 and $11.7 million (unaudited) for the six months ended June
30, 1999. Sedco Forex did not capitalize any interest during 1997 or 1996.
Impairment of Long-Lived Assets
Sedco Forex reviews the appropriateness of the carrying value of its
long-lived assets whenever events or changes in circumstances indicate that the
historical cost carrying value of an asset may no longer be appropriate. Sedco
Forex assesses recoverability of the carrying value of the asset by estimating
the future net cash flows expected to result from the asset, including eventual
disposition. If the future net cash flows are less than the carrying value of
the asset, an impairment loss is recorded equal to the difference between the
asset's carrying value and fair value.
F-9
<PAGE> 158
SEDCO FOREX HOLDINGS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
Research and Engineering
All research and engineering expenditures are expensed as incurred,
including costs relating to patents or rights that may result from such
expenditures. Research and engineering is performed on a centralized basis and
the expense is allocated from Schlumberger to Sedco Forex.
Taxes on Income
Sedco Forex's operating results historically have been included in
Schlumberger's consolidated US and state income tax returns and in tax returns
of Schlumberger's foreign subsidiaries. The provision for income taxes in Sedco
Forex's combined financial statements has been determined on a separate return
basis.
Taxes on income are computed in accordance with the tax rules and
regulations of the taxing authorities where the income is earned. The income tax
rates imposed by these taxing authorities vary substantially. Taxable income may
differ from pre-tax income for financial accounting purposes. Deferred tax
assets and liabilities are recognized for the expected tax consequences of
temporary differences between the tax bases of assets and liabilities and their
reported amounts in the financial statements. A valuation allowance is provided
if it is more likely than not that some or all of the deferred tax asset will
not be realized.
Comprehensive Income
Sedco Forex has no material components of other comprehensive income and
accordingly comprehensive income is the same as net income for all periods
presented.
Derivative Financial Instruments
Occasionally, Sedco Forex uses derivative instruments such as forward
currency contracts and foreign currency options. Forward currency contracts
provide a hedge against currency fluctuations on assets/ liabilities denominated
in other than a functional currency. Options are usually entered into to hedge
against currency variations on firm commitments generally involving the
construction of drilling rigs. Sedco Forex defers gains and losses on these
currency contracts which qualify as accounting hedges and recognizes them when
the underlying foreign exchange exposure is realized. As of December 31, 1998,
options were outstanding for the US dollar equivalent of $68 million in various
foreign currencies.
New Accounting Standards
In 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires that Sedco Forex recognize
all derivative instruments as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The standard is
effective for Sedco Forex for fiscal years beginning after June 15, 2000. Sedco
Forex does not anticipate that the implementation of the new standard in the
first quarter of 2001 will have a material effect on the combined financial
position and results of operations.
3. 1998 CHARGE
During 1998, Sedco Forex recorded a charge of $20.4 million after tax,
which included charges of $3.6 million for severance and termination costs, $9.8
million for asset impairments and a $7 million provision for a potential legal
claim. The severance and termination costs and asset impairment charges resulted
from the slowdown in business. The charge has been classified in cost of
services. As of June 30, 1999, all of the severance and termination costs had
been incurred.
F-10
<PAGE> 159
SEDCO FOREX HOLDINGS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
4. FIXED ASSETS
Fixed assets at December 31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Land........................................................ $ 3,216 $ 3,326
Buildings and improvements.................................. 13,437 8,767
Machinery and equipment..................................... 1,938,308 1,545,696
----------- ----------
Total cost.................................................. 1,954,961 1,557,789
Less: Accumulated depreciation.............................. (1,039,538) (931,465)
----------- ----------
Fixed assets................................................ $ 915,423 $ 626,324
=========== ==========
</TABLE>
Depreciation expense aggregated $125 million in 1998, $111 million in 1997
and $104 million in 1996.
5. DEBT
At December 31, 1998 and 1997, Sedco Forex had $86 million and $139
million, respectively, of long-term debt at fixed rates up to 7.95%, secured by
2 jackup rigs. The financing arrangements provide for a call right on the part
of Sedco Forex to repay the financings prior to expiration of their scheduled
terms, and in some circumstances a put right on the part of the banks to call
Sedco Forex to repay the financings. Under either circumstance, Sedco Forex
would retain ownership of the rigs.
Long-term debt at December 31, 1998, is due as follows: $17.6 million in
2000, $18.0 million in 2001, $19.4 million in 2002, $14.5 million in 2003 and
$16.6 million thereafter.
6. TAXES ON INCOME
Pretax book income subject to US and foreign income taxes for each of the
three years ending December 31, was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
United States........................................ $ 4,590 $ 3,074 $ 1,508
Foreign.............................................. 369,431 289,385 161,563
-------- -------- --------
Pretax income........................................ $374,021 $292,459 $163,071
======== ======== ========
</TABLE>
F-11
<PAGE> 160
SEDCO FOREX HOLDINGS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
The following table shows the components of current and deferred income tax
expense by taxing jurisdiction, both domestic and foreign:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Current:
United States -- federal............................. $ 2,201 $ 108 $ 523
Foreign.............................................. 46,281 31,395 17,413
48,482 31,503 17,936
-------- ------- -------
Deferred:
United States -- federal............................. (1,490) -- --
Foreign.............................................. (14,549) 501 (2,400)
-------- ------- -------
(16,039) 501 (2,400)
-------- ------- -------
Total income tax expense..................... $ 32,443 $32,004 $15,536
======== ======= =======
</TABLE>
At December 31, 1998 and 1997, gross deferred tax assets were $17.9 million
and $1.9 million, respectively. The principal components of net deferred tax
assets were:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
------- ------
<S> <C> <C>
Employee and retiree benefits............................... $ 3,129 $1,724
Accrued liabilities......................................... 226 332
Property, plant and equipment............................... 34 (143)
Net operating loss carryforward............................. 14,549 --
Others, net................................................. -- (14)
------- ------
$17,938 $1,899
======= ======
</TABLE>
In the fourth quarter of 1998, Sedco Forex released the remaining valuation
allowance related to its UK tax loss carryforward. This carryforward, which
Sedco Forex believes will be fully utilized, is available to Sedco Forex
indefinitely. Prior to 1998, Sedco Forex had recorded a 100% valuation allowance
on this tax loss carryforward.
Reconciliation between the US federal income tax rate and the effective tax
rate is:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Statutory tax rate...................................... 35.0% 35.0% 35.0%
Difference in effective tax rate on foreign earnings.... ( 22.4) ( 24.1) ( 25.5)
Net operating loss carryforward......................... ( 3.9) -- --
------ ------ ------
8.7% 10.9% 9.5%
====== ====== ======
</TABLE>
7. PENSION AND OTHER BENEFIT PLANS
Schlumberger sponsors several defined benefit pension plans that cover
substantially all US employees. The benefits are based on years of service and
compensation on a career-average pay basis. These plans are substantially fully
funded with a trustee in respect to past and current service. Charges to expense
are based upon costs computed by independent actuaries. The funding policy is to
contribute annually amounts that are
F-12
<PAGE> 161
SEDCO FOREX HOLDINGS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
allowable for federal income tax purposes. These contributions are intended to
provide for benefits earned to date and those expected to be earned in the
future.
The assumed discount rate, rate of compensation increases and return on
plan assets used to determine pension expense in 1998 were 7.5%, 4.5% and 9%,
respectively. In 1997, the assumptions were 8%, 4.5% and 8.5%, respectively. In
1996, the assumptions were 7.5%, 4.5% and 8.5%, respectively.
Net pension cost in the US for 1998, 1997 and 1996, included the following
components:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Service cost -- benefits earned during the period........... $ 396 $ 243 $ 171
Interest cost on projected benefit obligation............... 460 416 370
Expected return on plan assets (actual return:
1998 -- $1,049; 1997 -- $1,108; 1996 -- $623)............. (485) (392) (346)
Amortization of transition asset............................ (6) (6) (6)
Amortization of prior service cost/other.................... 43 40 64
----- ----- -----
$ 408 $ 301 $ 253
===== ===== =====
</TABLE>
The change in the projected benefit obligation, plan assets and funded
status of the plans at December 31, 1998 and 1997, was as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Projected benefit obligation at beginning of the year....... $6,297 $5,299
Service cost................................................ 396 243
Interest cost............................................... 460 416
Actuarial losses............................................ 467 436
Benefits paid............................................... (277) (229)
Amendments.................................................. -- 132
------ ------
Projected benefit obligation at end of the year............. $7,343 $6,297
Plan assets at market value at beginning of the year........ 6,336 5,100
Actual return on plan assets................................ 1,049 1,108
Employer contribution....................................... 315 357
Benefits paid............................................... (277) (229)
------ ------
Plan assets at market value at end of the year.............. $7,423 $6,336
Excess of assets over projected benefit obligation.......... 80 39
Unrecognized net gain....................................... (366) (290)
Unrecognized prior service cost............................. 402 467
Unrecognized net asset at transition date................... (17) (24)
------ ------
Prepaid pension cost........................................ $ 99 $ 192
====== ======
</TABLE>
Non-US Pension Plans
Outside the US, Sedco Forex sponsors several defined benefit and defined
contribution plans that cover substantially all employees who are not covered by
statutory plans. For defined benefit plans, charges to expense are based upon
costs computed by independent actuaries. These plans are substantially fully
funded with trustees in respect to past and current service. For defined
contribution plans, funding and cost are generally based upon a predetermined
percentage of employee compensation. Expenses for both defined
F-13
<PAGE> 162
SEDCO FOREX HOLDINGS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
benefit plans and defined contribution plans were immaterial to Sedco Forex for
each of the three years ended December 31, 1998.
Other Deferred Benefits
In addition to providing pension benefits, Sedco Forex has other deferred
benefit programs. Expenses for these programs were $9.2 million, $9.1 million
and $8.2 million for 1998, 1997 and 1996, respectively.
Health Care Benefits
Sedco Forex provides health care benefits for certain active employees. The
cost of providing these benefits is recognized as an expense when incurred and
aggregated $721, $668 and $471 in 1998, 1997 and 1996 respectively. Outside the
US, such benefits are mostly provided through government-sponsored programs.
Postretirement Benefits Other Than Pensions
Sedco Forex provides certain health care benefits to former employees who
have retired under the US pension plans.
The principal actuarial assumptions used to measure costs were a discount
rate of 7.5% in 1998 and 8% in 1997 and 1996. The overall medical cost trend
rate assumption beginning December 31, 1996 was 9% graded \to 5% thereafter.
Previously, the overall assumption had been 10% graded to 6% over the next six
years and thereafter.
Net periodic postretirement benefit cost in the US for 1998, 1997 and 1996
included the following components:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the period.............. $136 $ 80 $ 58
Interest cost on accumulated postretirement benefit
obligation................................................ 295 291 328
Amortization of unrecognized net gain and other............. (65) (71) --
---- ---- ----
$366 $300 $386
==== ==== ====
</TABLE>
The changes in accumulated postretirement benefit obligation and funded
status in 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation at the
beginning of the year....................................... $4,056 $3,755
Service cost................................................ 136 80
Interest cost............................................... 295 291
Actuarial losses............................................ 283 171
Benefits paid............................................... (232) (241)
------ ------
Accumulated postretirement benefit obligation at the end of
the year.................................................. 4,538 4,056
Unrecognized net gain....................................... 972 1,148
Unrecognized prior service cost............................. 68 73
------ ------
Postretirement benefit liability at December 31............. $5,578 $5,277
====== ======
</TABLE>
F-14
<PAGE> 163
SEDCO FOREX HOLDINGS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
The components of the accumulated postretirement benefit obligation at
December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $2,417 $2,388
Fully eligible............................................ 815 709
Actives................................................... 1,306 959
------ ------
Accumulated postretirement benefit liability................ $4,538 $4,056
====== ======
</TABLE>
The assumed discount rate used to determine the accumulated postretirement
benefit obligation was 7% for 1998 and 7.5% for 1997.
If the assumed medical cost trend rate was increased by one percentage
point, health care cost in 1998 would have been $0.5 million, and the
accumulated postretirement benefit obligation would have been $5.2 million at
December 31, 1998. If the assumed medical cost trend rate was decreased by one
percentage point, health care cost in 1998 would have been $0.4 million, and the
accumulated postretirement benefit obligation would have been $4.0 million at
December 31, 1998.
8. LEASES AND LEASE COMMITMENTS
Minimum rental commitments under noncancellable operating leases, primarily
real estate and office facilities and bareboat charters, in effect at December
31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1999........................................................ $34,162
2000........................................................ 25,438
2001........................................................ 319
2002........................................................ 52
2003........................................................ 46
Thereafter.................................................. 496
</TABLE>
Operating lease rental expense aggregated $56 million, $30 million and $16
million for 1998, 1997 and 1996, respectively. Included in the rental expense
and future minimum rental commitments above are office space rentals and the
semisubmersible rigs Drillstar and Sedco Explorer. These rigs are being operated
by Sedco Forex under bareboat charters with an entity in which Sedco Forex has a
25% equity interest.
9. SEGMENT AND GEOGRAPHIC AREA INFORMATION
Sedco Forex operates in one industry segment, offshore contract drilling
services. For the years ended December 31, 1998, 1997 and 1996, one customer
accounted for approximately 19.2%, 24.1%, and 25.6%, respectively, of Sedco
Forex's total revenue. Sedco Forex did not have revenue from third-party
customers in its country of domicile during the last three years. Only Nigeria,
Indonesia and the United Kingdom represent countries for which revenues and
long-lived assets exceeded 10% of the totals for the three years ended
F-15
<PAGE> 164
SEDCO FOREX HOLDINGS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
December 31, 1998 and for the sixth month periods ended June 30, 1999 and 1998.
Revenues and long-lived assets for these countries are as follows:
<TABLE>
<CAPTION>
UNITED REST OF
KINGDOM NIGERIA INDONESIA THE WORLD TOTAL
-------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenue (based on location of
customer):
Year ended December 31, 1996... $267,913 $ 97,659 $ 46,274 $251,399 $ 663,245
Year ended December 31, 1997... 312,141 97,140 104,229 377,824 891,334
Year ended December 31, 1998... 344,061 118,935 124,904 502,623 1,090,523
Six months ended June 30, 1998
(unaudited)................. 175,209 53,799 55,581 249,799 534,388
Six months ended June 30, 1999
(unaudited)................. 70,385 27,711 46,168 207,326 351,590
Long-lived assets:
December 31, 1996.............. 205,339 51,248 39,329 279,935 575,851
December 31, 1997.............. 125,387 43,146 44,211 413,580 626,324
December 31, 1998.............. 110,451 59,351 50,283 695,338 915,423
June 30, 1999 (unaudited)...... 108,024 74,475 40,105 878,981 1,101,585
</TABLE>
10. STOCK OPTION PLANS
Schlumberger applies Accounting Principles Board Opinion (APB) 25 and
related Interpretations in accounting for its stock option plans. Accordingly,
no compensation cost has been recognized for its stock option plans. Had
compensation cost for the Schlumberger plans been determined based on the fair
value at the grant dates for awards under these plans, consistent with the
methodology of SFAS 123, Sedco Forex's net income would have been the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income
As reported........................................ $341,578 $260,455 $147,535
Pro forma.......................................... 339,537 259,244 146,817
</TABLE>
As required by SFAS 123, the above pro forma data reflect the effect of
stock option grants during 1998, 1997, and 1996.
During 1998, 1997, 1996 and in prior years, key employees of Sedco Forex
were granted stock options under the Schlumberger stock option plans. For all of
the stock options granted, the exercise price of each option equals the market
price of Schlumberger stock on the date of grant; an option's maximum term is
ten years, and options generally vest in 20% increments over five years.
As required by SFAS 123, the fair value of each grant is estimated on the
date of grant using the multiple option Black-Scholes option-pricing model with
the following weighted-average assumptions used for 1998, 1997 and 1996:
dividend of $0.75; expected volatility of 21%-25% for 1998 grants, 21% for 1997
grants and 20% for 1996 grants; risk-free interest rates of 4.35%-5.62% for the
1998 grants, 5.80%-6.77% for the 1997 grants and 5.09%-6.01% for the 1996
grants; and expected option lives of 5.02 years for the 1998 grants, 5.09 years
for the 1997 grants and 5.39 years for the 1996 grants.
F-16
<PAGE> 165
SEDCO FOREX HOLDINGS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Schlumberger stock option plans for Sedco
Forex as of December 31, 1998, 1997 and 1996, and changes during the years
ending on those dates is presented below:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
1998 EXERCISE 1997 EXERCISE 1996 EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- ------------- -------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year......................... 798,320 $43.60 720,400 $33.18 688,400 $29.61
Granted...................... 14,500 $78.38 167,000 $81.51 203,500 $42.08
Exercised.................... (49,900) $30.31 (89,080) $30.43 (171,500) $29.42
-------- ------ -------- ------ --------- ------
Outstanding at end of year... 762,920 $45.13 798,320 $43.60 720,400 $33.18
======== ======== =========
Options exercisable at
year-end................... 444,220 367,220 324,700
Weighted-average fair value
of options granted during
the year................... $ 23.18 $ 24.04 $ 11.03
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options by range of exercise price at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED NUMBER WEIGHTED
NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE AS OF EXERCISE
RANGE OF EXERCISE PRICES AS OF 12/31/98 LIFE PRICE 12/31/98 PRICE
- ------------------------ -------------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$20.78 -- $20.99.............. 176,400 5.57 $27.30 135,100 $27.28
$30.00 -- $39.99.............. 224,720 3.42 $31.87 206,420 $31.87
$40.00 -- $49.99.............. 188,600 7.30 $42.33 70,100 $42.33
$50.00 -- $59.99.............. 40,200 8.21 $53.84 7,400 $53.65
$80.00 -- $90.50.............. 133,000 8.81 $90.50 25,200 $90.50
------- ---- ------ ------- ------
762,920 6.12 $45.13 444,220 $35.80
======= =======
</TABLE>
11. RELATED PARTY TRANSACTIONS
In certain countries, Sedco Forex participates in Schlumberger's
centralized treasury and cash processes. In these countries, cash is managed
either through zero balance accounts or an interest-bearing offsetting
mechanism. Cash disbursements for operations, acquisitions and other investments
are funded as needed from Schlumberger.
The combined financial statements include allocations of certain corporate
expenses, including centralized research and engineering, legal, accounting,
employee benefits, real estate, insurance, information technology services,
treasury and other corporate and infrastructure costs. These allocations have
been determined on bases that Schlumberger and Sedco Forex considered to be a
reasonable reflection of the utilization of services provided or the benefit
received by Sedco Forex. The allocation methods include relative sales,
headcount, square footage, transaction processing costs, adjusted operating
expenses and others. These allocations resulted in charges of $88 million, $49
million and $37 million being recorded in Sedco Forex's
F-17
<PAGE> 166
SEDCO FOREX HOLDINGS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
results of operations for 1998, 1997 and 1996, respectively, and $38 million
(unaudited) for the six months ended June 30, 1999 and $40 million (unaudited)
for the six months ended June 30, 1998 as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1998 1997 1996 1999 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cost of services..................... $75,085 $42,689 $31,490 $32,349 $33,893
Research and engineering............. $ 3,265 $ 1,850 $ 1,790 $ 2,232 $ 1,635
General and administrative........... $ 9,433 $ 4,416 $ 3,832 $ 3,090 $ 4,686
</TABLE>
At December 31, 1998 and 1997 Sedco Forex had long-term debt from related
parties of $407 million and $179 million, respectively. These loans bear
interest at rates based on fifty basis points over the LIBOR. These loans have
been used to finance both Sedco Forex's existing fleet of rigs and ongoing major
construction projects. The loans are repayable in fixed annual amounts over
agreement terms ranging from eight to fourteen years, commencing from the date
of drawdown or, in the case of the construction projects, on commencement of
operating activities by the relevant rig. Sedco Forex has the option to repay
the debt in full at any time, subject to an agreed notice period. Interest
expense on these loans aggregated $11 million, $10 million and $4 million for
1998, 1997 and 1996, respectively.
The related party receivables and payables balances included in the
combined balance sheets represent amounts arising from intercompany transactions
entered into by Sedco Forex, to settle outstanding customer and trade
receivables and payables with other Schlumberger entities.
There are no formal tax sharing arrangements between Sedco Forex and any
entity of Schlumberger. In certain countries, Sedco Forex is a division of the
Schlumberger legal entity that is the ultimate tax payer in that jurisdiction.
12. INVESTMENTS IN ASSOCIATED COMPANIES
Sedco Forex has a 25% interest in Sea Wolf Drilling Limited. In September
1997, Sedco Forex sold two semisubmersible rigs, Drillstar and Sedco Explorer,
to Sea Wolf Drilling Limited. The rigs are being operated by Sedco Forex under
bareboat charters. The sale resulted in a deferred gain of $157 million which is
being amortized to cost of services over the 6 year life of the bareboat
charter.
Sedco Forex also has a 50% interest in Overseas Drilling Limited ("ODL")
which owns the drillship Joides Resolution. The drill-ship is contracted to
perform drilling and coring operations in deep waters worldwide for the purposes
of scientific research. Sedco Forex manages and operates the vessel on behalf of
ODL.
13. COMMITMENTS AND CONTINGENCIES
A claim for approximately $85 million has been filed against Sedco Forex
for an alleged late return of a chartered rig and for breach of maintenance
obligations under the charter.
In addition, a claim has been filed against Sedco Forex for certain
management contracts entered into by Sedco Forex in connection with two rigs
operated by Sedco Forex. The claim alleges breach of contract, negligence and
fraud and seeks damages of approximately $51 million.
Sedco Forex is also party to various other legal proceedings and claims
which arise in the ordinary course of business and for certain of these
proceedings has been indemnified by Schlumberger.
As of December 31, 1998 there are no such matters pending that Sedco Forex
expects to be material in relation to its business, financial condition, results
of operations or cash flows.
F-18
<PAGE> 167
SEDCO FOREX HOLDINGS LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
Commitments required to complete currently authorized capital expenditures
on rig newbuilds and major conversion projects were approximately $608 million
and $410 million (unaudited) as of December 31, 1998 and June 30, 1999,
respectively.
14. SUPPLEMENTARY INFORMATION
Cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest................................................ $21,436 $19,237 $ 6,061
Income taxes............................................ 30,018 26,181 10,791
</TABLE>
Accounts payable and accrued liabilities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Payroll, vacation and employee benefits..................... $ 93,203 $ 70,800
Trade....................................................... 87,425 69,122
-------- --------
$180,628 $139,922
======== ========
</TABLE>
Other current assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Value added tax receivable.................................. $17,972 $22,369
Other....................................................... 7,435 4,151
------- -------
$25,407 $26,520
======= =======
</TABLE>
15. SUBSEQUENT EVENT
An after-tax charge of $32.5 million was recorded in March 1999. This
charge consisted primarily of severance costs of $13.2 million (600 employees)
and provisions for potential legal claims of $19.3 million.
During March 1999, Sedco Forex obtained two additional loans aggregating
$158 million from a related party. These loans are being used to finance Sedco
Forex's existing fleet of rigs. Both loans bear interest at rates based on a
fixed spread over the LIBOR. Both loans have a repayment term of ten years.
16. INCOME PER COMMON SHARE (UNAUDITED)
Income per common share is calculated in accordance with FASB Statement No.
128, Earnings per Share ("SFAS 128"). Basic income per common share is computed
by dividing the net income applicable to common shares by the weighted average
common shares outstanding during the period. Diluted earnings per common share
would adjust basic income per common share for the effects of any convertible
securities, stock options and other potentially dilutive financial instruments,
only in the periods in which such effort is dilutive.
The pro forma income per common share was calculated based on net income of
Sedco Forex using the number of shares expected to be issued to the shareholders
of Sedco Forex upon the consummation of the merger (Note 1). The pro forma
average common shares outstanding were calculated based on approximately 100.8
million diluted Transocean Offshore Inc. ordinary shares issued on the date the
merger was announced. Upon consummation of the merger Schlumberger shareholders
will own approximately 52% of the diluted Transocean Sedco Forex ordinary shares
and the existing holders of Transocean ordinary shares will own the remaining
48%. Accordingly, the shareholders of Schlumberger will own approximately 109.2
million diluted Transocean Sedco Forex ordinary shares.
Historical earnings per share has not been presented because Sedco Forex
did not have a capital structure as of December 31, 1998.
F-19
<PAGE> 168
SEDCO FOREX HOLDINGS LIMITED
QUARTERLY RESULTS (UNAUDITED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
The following table summarizes the results for each of the four quarters
for the years ended December 31, 1998 and 1997 and for the six month period
ended June 30, 1999. Gross profit equals operating revenue less cost of
services.
<TABLE>
<CAPTION>
OPERATING
-------------------------- NET
REVENUE GROSS PROFIT INCOME
---------- ------------ --------
<S> <C> <C> <C>
Quarters -- 1999
First............................................... $ 189,158 $ 15,298 $ 11,336(1)
Second.............................................. 162,432 39,174 27,358
---------- -------- --------
$ 351,590 $ 54,472 $ 38,694
========== ======== ========
Quarters -- 1998
First............................................... $ 257,935 $ 89,777 $ 67,264
Second.............................................. 276,453 115,272 91,001
Third............................................... 290,093 115,548 92,199(2)
Fourth.............................................. 266,042 95,241 91,114(3)
---------- -------- --------
$1,090,523 $415,838 $341,578
========== ======== ========
Quarters -- 1997
First............................................... $ 192,332 $ 60,867 $ 46,220
Second.............................................. 217,452 73,476 56,024
Third............................................... 235,201 93,881 76,330
Fourth.............................................. 246,349 101,326 81,881
---------- -------- --------
$ 891,334 $329,550 $260,455
========== ======== ========
</TABLE>
- ---------------
(1) Includes after-tax charge of $32.5 million.
(2) Includes after-tax charge of $13.4 million.
(3) Includes after-tax credit of $7.5 million.
F-20
<PAGE> 169
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
SCHLUMBERGER LIMITED,
SEDCO FOREX HOLDINGS LIMITED
AND
TRANSOCEAN OFFSHORE INC.
DATED AS OF JULY 12, 1999
<PAGE> 170
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 THE DISTRIBUTION AND THE MERGER............................. A-1
Section 1.1 The Distribution............................................ A-1
Section 1.2 The Merger.................................................. A-1
Section 1.3 The Closing................................................. A-2
Section 1.4 Effective Time.............................................. A-2
ARTICLE 2 CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION AND TRANSOCEAN.................................. A-2
Section 2.1 Surviving Corporation Memorandum of Association............. A-2
Section 2.2 Surviving Corporation Articles of Association............... A-2
Section 2.3 Transocean Increase of Authorized Capital and Change of
Name........................................................ A-2
ARTICLE 3 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION AND
TRANSOCEAN.................................................. A-2
Section 3.1 Board of Directors of Surviving Corporation................. A-2
Section 3.2 Officers of Surviving Corporation........................... A-2
Section 3.3 Board of Directors of Transocean............................ A-3
Section 3.4 Certain Executive Officers of Transocean.................... A-3
ARTICLE 4 CONVERSION OF SEDCO FOREX COMMON STOCK...................... A-3
Section 4.1 Merger Ratio................................................ A-3
Section 4.2 Conversion of Capital Stock of Merger Sub and Sedco Forex... A-4
Section 4.3 Issuance of Certificates Representing Transocean Ordinary
Shares Pursuant to the Merger............................... A-4
Section 4.4 Adjustment of Merger Ratio.................................. A-5
Section 4.5 Rule 16b-3 Approval......................................... A-5
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SCHLUMBERGER.............. A-6
Section 5.1 Existence; Good Standing.................................... A-6
Section 5.2 Authorization, Validity and Effect of Agreements............ A-6
Section 5.3 Capitalization.............................................. A-6
Section 5.4 No Conflict................................................. A-6
Section 5.5 No Brokers.................................................. A-6
Section 5.6 Opinion of Financial Advisor................................ A-7
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF SEDCO FOREX AND
SCHLUMBERGER................................................ A-7
Section 6.1 Existence; Good Standing; Corporate Authority............... A-7
Section 6.2 Authorization, Validity and Effect of Agreements............ A-7
Section 6.3 Capitalization.............................................. A-7
Section 6.4 Significant Subsidiaries.................................... A-7
Section 6.5 Compliance with Laws; Permits............................... A-8
Section 6.6 No Conflict................................................. A-9
Section 6.7 Sedco Forex Financial Statements............................ A-9
Section 6.8 Litigation.................................................. A-10
Section 6.9 Absence of Certain Changes.................................. A-10
Section Taxes.......................................................
6.10 A-10
Section Employee Benefit Plans......................................
6.11 A-11
Section Labor Matters...............................................
6.12 A-12
Section Environmental Matters.......................................
6.13 A-12
Section Intellectual Property.......................................
6.14 A-13
Section Year 2000 Readiness.........................................
6.15 A-13
Section Insurance...................................................
6.16 A-13
Section No Brokers..................................................
6.17 A-14
</TABLE>
A-i
<PAGE> 171
<TABLE>
<S> <C> <C>
Section 6.18 Transocean Share Ownership.................................. A-14
Section Reorganization..............................................
6.19 A-14
Section Vote Required...............................................
6.20 A-14
Section Ownership of Drilling Rigs and Drillships...................
6.21 A-14
Section Undisclosed Liabilities.....................................
6.22 A-14
Section Certain Contracts...........................................
6.23 A-15
Section Capital Expenditure Program.................................
6.24 A-15
Section Decrees, Etc................................................
6.25 A-15
Section Improper Payments...........................................
6.26 A-15
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF TRANSOCEAN AND MERGER
SUB......................................................... A-16
Section 7.1 Existence; Good Standing; Corporate Authority............... A-16
Section 7.2 Authorization, Validity and Effect of Agreements............ A-16
Section 7.3 Capitalization.............................................. A-16
Section 7.4 Significant Subsidiaries.................................... A-17
Section 7.5 Compliance with Laws; Permits............................... A-17
Section 7.6 No Conflict................................................. A-18
Section 7.7 SEC Documents............................................... A-18
Section 7.8 Litigation.................................................. A-19
Section 7.9 Absence of Certain Changes.................................. A-19
Section Taxes.......................................................
7.10 A-19
Section Employee Benefit Plans......................................
7.11 A-19
Section Labor Matters...............................................
7.12 A-20
Section Environmental Matters.......................................
7.13 A-21
Section Intellectual Property.......................................
7.14 A-21
Section Year 2000 Readiness.........................................
7.15 A-21
Section Insurance...................................................
7.16 A-22
Section No Brokers..................................................
7.17 A-22
Section Opinion of Financial Advisor................................
7.18 A-22
Section Sedco Forex Stock Ownership.................................
7.19 A-22
Section Reorganization..............................................
7.20 A-22
Section Vote Required...............................................
7.21 A-22
Section Ownership of Drilling Rigs and Drillships...................
7.22 A-22
Section Undisclosed Liabilities.....................................
7.23 A-23
Section Certain Contracts...........................................
7.24 A-23
Section Capital Expenditure Program.................................
7.25 A-23
Section Decrees, Etc................................................
7.26 A-24
Section Improper Payments...........................................
7.27 A-24
ARTICLE 8 COVENANTS................................................... A-24
Section 8.1 Conduct of Businesses....................................... A-24
Section 8.2 No Solicitation by Sedco Forex or Schlumberger.............. A-26
Section 8.3 No Solicitation by Transocean............................... A-27
Section 8.4 Meetings of Stockholders.................................... A-28
Section 8.5 Filings; Best Efforts....................................... A-28
Section 8.6 Inspection.................................................. A-29
Section 8.7 Publicity................................................... A-29
Section 8.8 Registration Statement...................................... A-29
Section 8.9 Listing Application......................................... A-30
Section Letters of Accountants......................................
8.10 A-30
Section Agreements of Rule 145 Affiliates...........................
8.11 A-30
Section Expenses....................................................
8.12 A-31
Section Indemnification and Insurance...............................
8.13 A-31
</TABLE>
A-ii
<PAGE> 172
<TABLE>
<S> <C> <C>
Section 8.14 Employee Benefits........................................... A-31
Section Transocean Structuring......................................
8.15 A-32
Section Strategic Alliance..........................................
8.16 A-32
Section Newbuild Contract Renegotiations............................
8.17 A-32
ARTICLE 9 CONDITIONS.................................................. A-32
Section 9.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-32
Section 9.2 Conditions to Obligation of Schlumberger and Sedco Forex to
Effect the Merger........................................... A-33
Section 9.3 Conditions to Obligation of Transocean and Merger Sub to
Effect the Merger........................................... A-33
ARTICLE 10 TERMINATION................................................. A-34
Section Termination by Mutual Consent...............................
10.1 A-34
Section Termination by Transocean or Schlumberger...................
10.2 A-34
Section Termination by Sedco Forex or Schlumberger..................
10.3 A-34
Section Termination by Transocean...................................
10.4 A-35
Section Effect of Termination.......................................
10.5 A-36
Section Extension; Waiver...........................................
10.6 A-36
ARTICLE 11 GENERAL PROVISIONS.......................................... A-37
Section Nonsurvival of Representations, Warranties and Agreements...
11.1 A-37
Section Notices.....................................................
11.2 A-37
Section Assignment; Binding Effect; Benefit.........................
11.3 A-37
Section Entire Agreement............................................
11.4 A-38
Section Amendments..................................................
11.5 A-38
Section Governing Law...............................................
11.6 A-38
Section Counterparts................................................
11.7 A-38
Section Headings....................................................
11.8 A-38
Section Interpretation..............................................
11.9 A-38
Section Waivers.....................................................
11.10 A-38
Section Incorporation of Exhibits...................................
11.11 A-39
Section Severability................................................
11.12 A-39
Section Enforcement of Agreement....................................
11.13 A-39
Section Subsidiaries................................................
11.14 A-39
Section Transocean Guarantee........................................
11.15 A-39
</TABLE>
Exhibits
Exhibit A -- Certain Executive Officers
Exhibit B -- Form of Transocean Officer's Certificate
A-iii
<PAGE> 173
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM WHERE DEFINED
- ------------ -------------
<S> <C>
1998 Pro Forma Statement of Operations...................... Section 6.7(a)
Action...................................................... Section 8.13(a)
Agreement................................................... Preamble
Applicable Laws............................................. Section 6.5(a)
Audited Financial Statements................................ Section 6.7
BVI Law..................................................... Section 1.2
Certificate of Merger....................................... Section 1.4
Closing..................................................... Section 1.3
Closing Date................................................ Section 1.3
Code........................................................ Recitals
Cutoff Date................................................. Section 8.2(d)
Distribution................................................ Recitals
Distribution Agreement...................................... Recitals
Effective Time.............................................. Section 1.4
Environmental Law........................................... Section 6.13(a)
ERISA....................................................... Section 6.11(a)
Exchange Act................................................ Section 4.5
Exchange Agent.............................................. Section 4.3(a)
Exchange Fund............................................... Section 4.3(a)
Form 10..................................................... Section 6.7
Form S-4.................................................... Section 8.8
Hazardous Materials......................................... Section 6.13(b)
HSR Act..................................................... Section 5.4(b)
Indemnified Parties......................................... Section 8.13(a)
Liens....................................................... Section 6.21
Material Adverse Effect..................................... Section 11.9(c)
knowledge................................................... Section 11.9(b)
Merger...................................................... Recitals
Merger Ratio................................................ Section 4.1(a)
Merger Sub.................................................. Preamble
NYSE........................................................ Section 4.3(d)
Objection Notice............................................ Section 8.15
Pension Plan................................................ Section 6.11(d)(ii)
Permitted Liens............................................. Section 6.21
Pre-Closing Balance Sheet................................... Distribution Agreement
Pro Forma Financial Statements.............................. Section 6.7(b)
Proxy Statement/Prospectus.................................. Section 8.8
Record Date................................................. Distribution Agreement
Regulatory Filings.......................................... Section 5.4(b)
Returns..................................................... Section 6.10
Rule 145 Affiliates......................................... Section 8.11
Rule 16b-3.................................................. Section 4.5
Schlumberger................................................ Preamble
Schlumberger Business....................................... Distribution Agreement
Schlumberger Common Stock................................... Recitals
Schlumberger Disclosure Letter.............................. Article 5 Preface
Schlumberger Funded Plans................................... Employee Matters Agreement
Schlumberger Material Adverse Effect........................ Section 11.9(c)
Schlumberger Plans.......................................... Employee Matters Agreement
</TABLE>
A-iv
<PAGE> 174
<TABLE>
<CAPTION>
DEFINED TERM WHERE DEFINED
- ------------ -------------
<S> <C>
Schlumberger Stock Option Plans............................. Employee Matters Agreement
Schlumberger Subsidiaries................................... Distribution Agreement
SEC......................................................... Section 4.2(e)(ii)
Sedco Forex................................................. Preamble
Sedco Forex Acquisition Proposal............................ Section 8.2(a)
Sedco Forex Assets.......................................... Distribution Agreement
Sedco Forex Benefit Plans................................... Section 6.11(a)
Sedco Forex Business........................................ Distribution Agreement
Sedco Forex Common Stock.................................... Recitals
Sedco Forex Disclosure Letter............................... Article 6 preface
Sedco Forex Employee........................................ Employee Matters Agreement
Sedco Forex Financial Statements............................ Section 6.7
Sedco Forex Material Adverse Effect......................... Section 11.9(c)
Sedco Forex Material Contracts.............................. Section 6.23
Sedco Forex Permits......................................... Section 6.5(b)
Sedco Forex Permitted Liens................................. Section 6.21
Sedco Forex Real Property................................... Section 6.5(d)
Sedco Forex Reports......................................... Section 6.7
Sedco Forex Rigs............................................ Section 6.5(c)
Sedco Forex Subsidiaries.................................... Distribution Agreement
Sedco Forex Superior Proposal............................... Section 8.2(a)
Significant Subsidiaries.................................... Section 6.4
Strategic Alliance Agreement................................ Section 8.16
Structuring Plan............................................ Section 8.15
Subsidiary.................................................. Section 11.14
Surviving Corporation....................................... Section 1.2
Tax or Taxes................................................ Section 6.10
Third-Party Provisions...................................... Section 11.3
Transaction Agreements...................................... Recitals
Transocean.................................................. Preamble
Transocean Acquisition Proposal............................. Section 8.3(a)
Transocean Benefit Plans.................................... Section 7.11(a)
Transocean Ordinary Shares.................................. Section 2.3
Transocean Confidentiality Agreement........................ Section 8.2(a)
Transocean Disclosure Letter................................ Article 7 Preface
Transocean Material Adverse Effect.......................... Section 11.9(c)
Transocean Permits.......................................... Section 7.5
Transocean Permitted Liens.................................. Section 7.22
Transocean Preferred Stock.................................. Section 7.3
Transocean Reports.......................................... Section 7.7
Transocean Superior Proposal................................ Section 8.3(a)
Unaudited Financial Statements.............................. Section 6.7(a)
Unaudited Interim Period Financial Statements............... Section 6.7(b)
</TABLE>
A-v
<PAGE> 175
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of July 12,
1999, is among Schlumberger Limited, a company organized under the laws of the
Netherlands Antilles ("Schlumberger"), Sedco Forex Holdings Limited, a company
organized under the laws of the British Virgin Islands ("Sedco Forex"), and
Transocean Offshore, Inc., a company organized under the laws of the Cayman
Islands ("Transocean"). Transocean will cause a company to be organized under
the laws of the British Virgin Islands as a wholly owned subsidiary of
Transocean ("Merger Sub") and will cause Merger Sub to execute and deliver a
counterpart of this Agreement within 10 days following the date hereof.
RECITALS
A. Business Separation. Schlumberger and Sedco Forex have entered into a
Distribution Agreement of even date herewith (the "Distribution Agreement").
Pursuant to the Distribution Agreement, Schlumberger and Sedco Forex intend to
take the steps set forth in the Distribution Agreement to separate the
Schlumberger Business (as defined in the Distribution Agreement) from the Sedco
Forex Business (as defined in the Distribution Agreement), prior to the
Distribution (as defined below).
B. The Distribution. Pursuant to the terms of the Distribution Agreement,
on the Distribution Date, Schlumberger intends to distribute all of the issued
and outstanding shares of capital stock, par value U.S. $.01 per share, of Sedco
Forex ("Sedco Forex Common Stock") on a pro rata basis of one share of Sedco
Forex Common Stock for each outstanding share of common stock, par value U.S.
$.01 per share, of Schlumberger ("Schlumberger Common Stock") outstanding on the
Record Date (as defined in the Distribution Agreement) to the holders of the
Schlumberger Common Stock (the "Distribution").
C. The Merger. At the Effective Time (as defined herein), the parties
intend to effect a merger of Merger Sub with and into Sedco Forex, with Sedco
Forex being the surviving corporation (the "Merger") and Sedco Forex becoming a
wholly owned subsidiary of Transocean.
D. Intended U.S. Tax Consequences. The parties to this Agreement intend
that, for U.S. federal income tax purposes, (1) the Distribution qualify as a
distribution described in Section 355 of the U.S. Internal Revenue Code of 1986,
as amended, and (2) the Merger qualify as a reorganization under Section
368(a)(1)(B) of the Code.
E. Intended U.S. Accounting Treatment. The parties to this Agreement intend
that the Merger be treated as the purchase of Transocean by Sedco Forex for U.S.
generally accepted accounting principles.
F. Transaction Agreements. As used herein, the term "Transaction
Agreements" shall mean the following agreements: (i) the Distribution Agreement;
(ii) the Tax Separation Agreement contemplated by the Distribution Agreement;
(iii) the Transition Services Agreement contemplated by the Distribution
Agreement; and (iv) the Employee Matters Agreement contemplated by the
Distribution Agreement.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE DISTRIBUTION AND THE MERGER
SECTION 1.1 The Distribution. Subject to the terms and conditions of the
Distribution Agreement, the parties thereto shall effect the Distribution and
the other transactions contemplated thereby on a day preceding the Effective
Time (as defined in Section 1.4).
SECTION 1.2 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, Merger Sub shall be merged with and into Sedco
Forex in accordance with this Agreement, and the separate corporate existence of
Merger Sub shall thereupon cease. Sedco Forex shall be the surviving corporation
in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation"). The Merger
A-1
<PAGE> 176
shall have the effects specified herein and in the International Business
Companies Ordinance, 1984, of the British Virgin Islands (the "BVI Law").
SECTION 1.3 The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place (a) at the
offices of Baker & Botts, L.L.P., One Shell Plaza, 910 Louisiana, Houston,
Texas, at 9:00 a.m., local time, on the first business day immediately following
the day on which the last to be fulfilled or waived of the conditions set forth
in Article 9 shall be fulfilled or waived in accordance herewith or (b) at such
other time, date or place as Schlumberger, Sedco Forex and Transocean may agree.
The date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
SECTION 1.4 Effective Time. If all the conditions to the Merger set forth
in Article 9 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 10,
Schlumberger, Sedco Forex, Transocean and Merger Sub shall cause articles of
merger (the "Certificate of Merger") meeting the requirements of the BVI Law to
be properly executed and filed in accordance with the BVI Law on the Closing
Date. The Merger shall become effective at the time of filing of the Certificate
of Merger with the Registrar of the British Virgin Islands in accordance with
the BVI Law or at such later time that the parties hereto shall have agreed upon
and designated in such filing as the effective time of the Merger (the
"Effective Time"). The Effective Time will occur, if at all, no earlier than the
day after the date on which the Distribution occurs.
ARTICLE 2
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION AND TRANSOCEAN
SECTION 2.1 Surviving Corporation Memorandum of Association. The
memorandum of association of Sedco Forex, as amended pursuant to the
Distribution Agreement, shall be amended at the Effective Time to change Sedco
Forex's authorized shares of capital stock to 1,000 shares, par value U.S. $0.01
per share, and, as so amended, shall be the memorandum of association of the
Surviving Corporation, until duly amended in accordance with applicable law.
SECTION 2.2 Surviving Corporation Articles of Association. The articles of
association of Sedco Forex, as amended pursuant to the Distribution Agreement,
shall be amended at the Effective Time to change Sedco Forex's authorized shares
of capital stock to 1,000 shares, par value U.S. $1.00 per share, and, as so
amended, shall be the articles of association of the Surviving Corporation,
until duly amended in accordance with applicable law.
SECTION 2.3 Transocean Increase of Authorized Capital and Change of
Name. In accordance with Cayman Islands law, as of the Effective Time:
(a) The authorized ordinary share capital of Transocean shall be
increased to a number of ordinary shares of US$.01 per share in excess of
that required to consummate the Merger.
(b) The name of Transocean shall be changed to "Transocean Sedco Forex
Inc."
ARTICLE 3
DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION AND TRANSOCEAN
SECTION 3.1 Board of Directors of Surviving Corporation. The directors of
Merger Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation as of the Effective Time, until their successors shall be
elected and qualified or their earlier death, resignation or removal in
accordance with the memorandum of association and articles of association of the
Surviving Corporation.
SECTION 3.2 Officers of Surviving Corporation. The officers of Merger Sub
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation as of the Effective Time, until their
A-2
<PAGE> 177
successors shall be appointed or their earlier death, resignation or removal in
accordance with the memorandum of association and articles of association of the
Surviving Corporation.
SECTION 3.3 Board of Directors of Transocean. (a) The Board of Directors
of Transocean as of the Effective Time shall consist of 10 members, 50% of whom
shall be designated by the Board of Directors of Schlumberger in consultation
with Transocean and 50% of whom shall be designated by the Board of Directors of
Transocean in consultation with Schlumberger, with such persons being allocated
by Transocean or Schlumberger as applicable as nearly as practicable on a
proportionate basis to each of the three classes into which the Board of
Directors is divided in accordance with Transocean's articles of association.
(b) At the Effective Time, the membership of each of the Audit Committee,
the Executive Compensation Committee, the Finance and Benefits Committee, the
Corporate Governance Committee and any other committee of the Board of Directors
of Transocean shall consist of an equal number of persons designated by
Transocean and Schlumberger. The directors designated by Transocean shall
designate the Chairman of the Executive Compensation Committee and the Finance
and Benefits Committee and the directors designated by Schlumberger shall
designate the Chairman of the Audit Committee and the Corporate Governance
Committee. The Chairman of any other committees shall be designated as equally
as practicable by the directors designated by Transocean and the directors
designated by Schlumberger.
(c) Directors of Transocean not continuing as directors after the Effective
Time shall resign from the Board of Directors of Transocean as of the Effective
Time.
(d) Prior to the Effective Time, the Board of Directors of Transocean shall
take such action as may be necessary to cause the Transocean designees who shall
be changing classes to be elected to the appropriate class of the Transocean
Board of Directors as of the Effective Time.
(e) Prior to the Effective Time, the Board of Directors of Transocean shall
take such action as may be necessary to cause the Schlumberger designees to be
elected to the Transocean Board of Directors as of the Effective Time.
(f) Transocean shall use all reasonable efforts to maintain the foregoing
allocations and appointments for a period of three years from the Effective
Time. Transocean shall not nominate or fail to nominate any person contrary to
the above allocations or take any other action designed to or which would
reasonably be expected to alter the above allocations; provided, however, that
nothing herein shall constrain the directors from taking any action they
reasonably believe their fiduciary duties require them to take. In the event
that a director initially designated by Transocean or a director initially
designated by Schlumberger shall die, resign or be removed from the Board of
Directors before the expiration of such three-year period, the remaining
Transocean directors (if he was designated by Transocean) or Schlumberger
directors (if he was designated by Schlumberger) shall nominate his replacement
for action by the full Board as soon as practicable.
SECTION 3.4 Certain Executive Officers of Transocean. As of the Effective
Time, (i) Victor E. Grijalva, the present Vice Chairman of Schlumberger, shall
be the Chairman of the Board of Directors of Transocean Sedco Forex Inc. to
serve until he reaches age 65, provided that as a condition to such appointment
he shall have entered into a consulting agreement with Transocean with respect
to his services as Chairman of the Board as described in this clause (i); and
(ii) J. Michael Talbert, the present Chairman of the Board and Chief Executive
Officer of Transocean, shall be the President and the Chief Executive Officer of
Transocean Sedco Forex Inc. Transocean agrees to enter into such consulting
agreement in the form previously provided by Transocean to Schlumberger. Exhibit
A sets forth certain other executive officers of Transocean as of the Effective
Time.
ARTICLE 4
CONVERSION OF SEDCO FOREX COMMON STOCK
SECTION 4.1 Merger Ratio. For purposes of this Agreement, the "Merger
Ratio" shall equal fifty-two forty-eighths times the number of fully diluted
Transocean Ordinary Shares (calculated according to the treasury method under
U.S. generally accepted accounting principles) immediately prior to the
Effective
A-3
<PAGE> 178
Time divided by the number of fully diluted shares of Sedco Forex Common Stock
(calculated according to the treasury method under U.S. generally accepted
accounting principles) immediately prior to the Effective Time. The Merger Ratio
shall be rounded to the nearest ten-thousandth of a Transocean Ordinary share.
SECTION 4.2 Conversion of Capital Stock of Merger Sub and Sedco Forex.
(a) At the Effective Time, each share of capital stock of Merger Sub
outstanding immediately prior to the Effective Time shall be converted into and
become one fully paid and nonassessable share of capital stock, par value U.S.
$1.00 per share, of the Surviving Corporation. At the Effective Time, each share
of Sedco Forex Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares of Sedco Forex Common Stock to be canceled
without payment of any consideration therefor pursuant to Section 4.2(d)), which
shares shall have been distributed pursuant to the Distribution to holders of
Schlumberger Common Stock as of the Record Date, shall, by virtue of the Merger
and without any action on the part of the holder thereof, be exchanged for and
converted into a number of Transocean Ordinary Shares equal to the Merger Ratio.
(b) At the Effective Time, as a result of the Merger and without any action
on the part of the holder thereof, each share of Sedco Forex Common Stock shall
cease to be outstanding and shall be canceled and retired and shall cease to
exist, and each holder of shares of Sedco Forex Common Stock shall thereafter
cease to have any rights with respect to such shares of Sedco Forex Common
Stock, except the right to receive, without interest, a certificate for
Transocean Ordinary Shares and cash for fractional shares in accordance with
Sections 4.3(b) and 4.3(d) upon the surrender of such Certificate.
(c) Each share of Sedco Forex Common Stock issued and held in Sedco Forex's
treasury and each share of Sedco Forex Common Stock owned by Schlumberger or
Transocean, or any wholly owned Subsidiary of Schlumberger, Sedco Forex or
Transocean, shall, at the Effective Time and by virtue of the Merger, cease to
be outstanding and shall be canceled and retired without payment of any
consideration therefor, and no capital shares of Transocean or other
consideration shall be delivered in exchange therefor.
(d) (i) All options under the Schlumberger Stock Option Plans (as defined
in the Employee Matters Agreement) held by persons who are employees of Sedco
Forex and its Subsidiaries, and not of Schlumberger or its Subsidiaries,
immediately after the Distribution shall be treated as described in the Employee
Matters Agreement.
(ii) Transocean shall take all corporate action necessary to reserve for
issuance a number of Transocean Ordinary Shares equal to the number of
Transocean Ordinary Shares issuable upon the exercise of options to purchase
Transocean Ordinary Shares issued pursuant to the Employee Matters Agreement. At
the Effective Time or as soon as practicable, but in no event more than six
business days thereafter, Transocean shall file with the U.S. Securities and
Exchange Commission (the "SEC") a Registration Statement on Form S-8 (or a
post-effective amendment on Form S-8 with respect to the Form S-4 (as defined in
Section 8.8)) covering all such Transocean Ordinary Shares and shall cause such
registration statement to remain effective for as long as there are outstanding
any options to purchase such shares.
SECTION 4.3 Issuance of Certificates Representing Transocean Ordinary
Shares Pursuant to the Merger.
(a) As of the Effective Time, Transocean shall deposit, or shall cause to
be deposited, with an exchange agent selected by Transocean, which shall be
Transocean's transfer agent for Transocean Ordinary Shares or such other party
reasonably satisfactory to Sedco Forex and Schlumberger (the "Exchange Agent"),
for the benefit of the holders of shares of Sedco Forex Common Stock, for
delivery in accordance with this Article 4, certificates representing the
Transocean Ordinary Shares (or authorize the related book-entry transfer) (such
Transocean Ordinary Shares being hereinafter referred to as the "Exchange Fund")
to be issued pursuant to Section 4.2 in exchange for outstanding shares of Sedco
Forex Common Stock.
(b) Promptly after the Effective Time, Transocean shall cause the Exchange
Agent to mail to each holder of record of Sedco Forex Common Stock (other than
to holders of Sedco Forex Common Stock that, pursuant to Section 4.2(d), are
canceled without payment of any consideration therefor) (i) a certificate
representing that number of whole Transocean Ordinary Shares and (ii) a check
representing the amount of
A-4
<PAGE> 179
cash in lieu of fractional shares, if any, that such holder has the right to
receive in respect of the holder's Sedco Forex Common Stock pursuant to the
provisions of this Article 4, after giving effect to any required withholding
tax. No interest will be paid or accrued on the cash in lieu of fractional
shares, if any, payable to holders of Sedco Forex Common Stock. In the event of
a transfer of ownership of Sedco Forex Common Stock that is not registered in
the transfer records of Sedco Forex, a certificate representing the proper
number of Transocean Ordinary Shares, together with a check for the cash to be
paid in lieu of fractional shares, shall be issued to such a transferee if the
documents presented to the Exchange Agent to evidence and effect such transfer
and to evidence that any applicable stock transfer taxes have been paid are
acceptable to the Exchange Agent.
(c) At or after the Effective Time, there shall be no transfers on the
stock transfer books of Sedco Forex of the shares of Sedco Forex Common Stock
which were outstanding immediately prior to the Effective Time.
(d) No fractional Transocean Ordinary Shares shall be issued pursuant
hereto. In lieu of the issuance of any fractional Transocean Ordinary Shares
pursuant to Section 4.2(b), cash adjustments will be paid to holders in respect
of any fractional Transocean Ordinary Share that would otherwise be issuable,
and the amount of such cash adjustment shall be equal to the proportionate
interest in the net proceeds from the sale or sales by the Exchange Agent in
accordance with the provisions of this Section 4.3(d), on behalf of all such
holders, of the aggregate fractional Transocean Ordinary Shares that would
otherwise be issuable. As soon as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (x) the number of full Transocean
Ordinary Shares delivered to the Exchange Agent by Transocean pursuant to
Section 4.3(a) over (y) the aggregate number of Transocean Ordinary Shares to be
distributed to holders of Sedco Forex Common Stock pursuant to Section 4.3(b)
(such excess being herein called the "Excess Securities"), and the Exchange
Agent, as agent for the former holders of Sedco Forex Common Stock, shall sell
the Excess Securities at the prevailing prices on the New York Stock Exchange,
Inc. (the "NYSE"). The sale of the Excess Securities by the Exchange Agent shall
be executed on the NYSE through one or more member firms of the NYSE and shall
be executed in round lots to the extent practicable. All commissions, transfer
taxes and other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent, incurred in connection with such sale of
Excess Securities shall be paid from the proceeds of such sale. Until the net
proceeds of such sale of Excess Securities have been distributed to the former
stockholders of Sedco Forex, the Exchange Agent will hold such proceeds in trust
for such former stockholders. As soon as practicable after the determination of
the amount of cash to be paid to former stockholders of Sedco Forex in lieu of
any fractional interests, the Exchange Agent shall make available in accordance
with this Agreement such amounts to such former stockholders.
(e) Any portion of the Exchange Fund that remains undistributed to the
former stockholders of Sedco Forex one year after the Effective Time shall be
delivered to Transocean. Any former stockholders of Sedco Forex who have not
theretofore received such portion of the Exchange Fund shall thereafter look
only to Transocean for payment of their shares of Transocean Ordinary Shares and
cash in lieu of fractional shares deliverable to such former stockholders
pursuant to this Agreement.
(f) None of Transocean, Schlumberger, the Surviving Corporation, the
Exchange Agent or any other person shall be liable to any former holder of
shares of Sedco Forex Common Stock for any shares of Transocean Ordinary Shares
or cash in lieu of fractional shares properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
SECTION 4.4 Adjustment of Merger Ratio. In the event that, subsequent to
the date of this Agreement but prior to the Effective Time, Transocean changes
the number of Transocean Ordinary Shares, or Sedco Forex changes the number of
shares of Sedco Forex Common Stock, other than pursuant to the Distribution
Agreement, issued and outstanding as a result of a stock split, reverse stock
split, stock dividend, recapitalization or other similar transaction, the Merger
Ratio and other items dependent thereon shall be appropriately adjusted.
SECTION 4.5 Rule 16b-3 Approval. Transocean agrees that the Transocean
Board of Directors or the Compensation Committee of the Transocean Board of
Directors shall, at or prior to the Effective Time, adopt resolutions
specifically approving, for purposes of Rule 16b-3 ("Rule 16b-3") under the
Securities Exchange
A-5
<PAGE> 180
Act of 1934, as amended (the "Exchange Act"), the receipt, pursuant to Section
4.2, of Transocean Ordinary Shares and, pursuant to the Employee Matters
Agreement, of options to acquire Transocean Ordinary Shares by employees of
Sedco Forex and directors designated by Schlumberger who become executive
officers or directors of Transocean subject to Rule 16b-3.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SCHLUMBERGER
Except as set forth in the disclosure letter delivered to Transocean by
Schlumberger at or prior to the execution hereof (the "Schlumberger Disclosure
Letter") or as contemplated by the Transaction Agreements, Schlumberger
represents and warrants to Transocean that:
SECTION 5.1 Existence; Good Standing. Schlumberger is a corporation duly
incorporated and validly existing under the laws of its jurisdiction of
incorporation.
SECTION 5.2 Authorization, Validity and Effect of Agreements. Schlumberger
has the requisite corporate power and authority to execute and deliver this
Agreement, each "Transaction Agreement" to which it is a party and all other
agreements and documents contemplated hereby or thereby to which it is a party.
The consummation by Schlumberger of the transactions contemplated hereby and by
the Transaction Agreements to which it is a party has been duly authorized by
all requisite corporate action on behalf of Schlumberger, other than, with
respect to the Distribution, the approval of the Distribution by Schlumberger's
stockholders. This Agreement and each of the other Transaction Agreements to
which it is a party constitute or will constitute when executed the valid and
legally binding obligations of Schlumberger, enforceable against Schlumberger in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
SECTION 5.3 Capitalization. As of the date of this Agreement, the
authorized common stock of Schlumberger consists of 1,000,000,000 shares of
Schlumberger Common Stock and, as of June 30, 1999, there were 665,716,058
shares of Schlumberger Common Stock issued, including 118,317,366 shares held in
treasury, and 57,642,247 shares of Schlumberger Common Stock reserved for
issuance upon exercise of outstanding options exercisable for shares of
Schlumberger Common Stock.
SECTION 5.4 No Conflict. (a) Neither the execution and delivery by
Schlumberger of this Agreement or any of the Transaction Agreements to which it
is a party, nor the consummation by Schlumberger of the transactions
contemplated hereby or thereby in accordance with the terms hereof or thereof
will (i) conflict with or result in a breach of any provisions of the deed of
incorporation or bylaws of Schlumberger, or (ii) contravene or conflict with or
constitute a violation of any provision of any law, rule, regulation, judgment,
order or decree binding upon or applicable to Schlumberger or any of its
Subsidiaries, except for such matters described in clause (ii) as do not and are
not likely to have, individually or in the aggregate, a Schlumberger Material
Adverse Effect (as defined in Section 11.9).
(b) Neither the execution and delivery by Schlumberger of this Agreement or
any of the Transaction Agreements to which it is a party, nor the consummation
by Schlumberger of the transactions contemplated hereby or thereby in accordance
with the terms hereof or thereof will require any consent, approval or
authorization of, or filing or registration with, any governmental or regulatory
authority, other than (i) the filing of the Certificate of Merger provided for
in Section 1.4 and (ii) filings required under the U.S. Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Exchange
Act, the Securities Act or applicable state securities and "Blue Sky" laws and
applicable non-U.S. competition, antitrust or premerger notification laws ((i)
and (ii) collectively, the "Regulatory Filings"), except for any consent,
approval or authorization the failure of which to obtain or for any filing or
registration the failure of which to make does not and is not likely to have a
Schlumberger Material Adverse Effect.
SECTION 5.5 No Brokers. Schlumberger has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of Transocean to pay any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this
A-6
<PAGE> 181
Agreement or the consummation of the transactions contemplated hereby, except
that Schlumberger has retained Goldman, Sachs & Co. as its financial advisor,
the arrangements with which have been disclosed in writing to Transocean prior
to the date hereof.
SECTION 5.6 Opinion of Financial Advisor. The Board of Directors of
Schlumberger has received the opinion of Goldman, Sachs & Co. to the effect
that, as of the date of this Agreement, the Merger Ratio is fair, from a
financial point of view, to the holders of Sedco Forex Common Stock.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SEDCO FOREX AND SCHLUMBERGER
Except as set forth in the disclosure letter delivered to Transocean by
Sedco Forex at or prior to the execution hereof (the "Sedco Forex Disclosure
Letter") or as contemplated by the Transaction Agreements, Sedco Forex and
Schlumberger, jointly and severally, represent and warrant to Transocean and
Merger Sub, in each case after giving effect to the transactions contemplated by
the Distribution Agreement (unless otherwise expressly stated), that:
SECTION 6.1 Existence; Good Standing; Corporate Authority. Sedco Forex is
a corporation duly incorporated and validly existing under the laws of its
jurisdiction of incorporation. Sedco Forex is duly qualified to do business and
is in good standing under the laws of any jurisdiction in which the character of
the properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
qualified does not and is not likely to have, individually or in the aggregate,
a Sedco Forex Material Adverse Effect (as defined in Section 11.9). Sedco Forex
has all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted. The copies of Sedco
Forex's memorandum of association and articles of association previously made
available to Transocean are true and correct and contain all amendments as of
the date hereof.
SECTION 6.2 Authorization, Validity and Effect of Agreements. Sedco Forex
has the requisite corporate power and authority to execute and deliver this
Agreement, each Transaction Agreement to which it is a party and all other
agreements and documents contemplated hereby or thereby to which it is a party.
The consummation by Sedco Forex of the transactions contemplated hereby and by
the Transaction Agreements to which it is a party has been duly authorized by
all requisite corporate action on behalf of Sedco Forex. This Agreement and each
Transaction Agreement to which it is a party constitute or will constitute when
executed the valid and legally binding obligations of Sedco Forex, enforceable
against Sedco Forex in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights and general principles of equity.
SECTION 6.3 Capitalization. As of the date of this Agreement, the
authorized capital stock of Sedco Forex consists of 50,000 shares of Sedco Forex
Common Stock. Immediately after the Distribution, there will be issued and
outstanding such number of shares of Sedco Forex Common Stock as is determined
pursuant to the terms of the Distribution Agreement. All such issued and
outstanding shares of Sedco Forex Common Stock are or will be when issued duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. Except as set forth in this Section 6.3 or in the Employee Matters
Agreement, there are no outstanding shares of capital stock and there are no
options, warrants, calls, subscriptions, convertible securities or other rights,
agreements or commitments which obligate Sedco Forex or any Sedco Forex
Subsidiary to issue, transfer or sell any shares of capital stock or other
voting securities of Sedco Forex or any Sedco Forex Subsidiary. Sedco Forex has
no outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of Sedco Forex on any
matter.
SECTION 6.4 Significant Subsidiaries. For purposes of this Agreement,
"Significant Subsidiary" shall mean significant subsidiary as defined in Rule
1-02 of Regulation S-X of the Exchange Act. Each of Sedco Forex's Significant
Subsidiaries is a corporation or other legal entity duly organized, validly
existing and, to the extent such concept or similar concept exists in the
relevant jurisdiction, in good standing under the laws of its jurisdiction of
incorporation or organization, has the corporate or other entity power and
authority to own,
A-7
<PAGE> 182
operate and lease its properties and to carry on its business as it is now being
conducted (and as will be conducted after giving effect to the transfers to such
Significant Subsidiary as contemplated by the Distribution Agreement), and is
duly qualified to do business and is in good standing (where applicable) in each
jurisdiction in which the ownership, operation or lease of its property or the
conduct of its business requires such qualification (or will require such
qualification after giving effect to the transfers to the Significant Subsidiary
contemplated by the Distribution Agreement), except for jurisdictions in which
such failure to be so qualified or to be in good standing would not have a Sedco
Forex Material Adverse Effect. All of the outstanding shares of capital stock
of, or other ownership interests in, each of Sedco Forex's Significant
Subsidiaries are duly authorized, validly issued, fully paid and nonassessable
and are owned, directly or indirectly, by Sedco Forex free and clear of all
Liens.
SECTION 6.5 Compliance with Laws; Permits. Except for such matters as,
individually or in the aggregate, do not or are not likely to have a Sedco Forex
Material Adverse Effect:
(a) None of Schlumberger, any Schlumberger Subsidiary, Sedco Forex,
any Sedco Forex Subsidiary, the Sedco Forex Business or the Sedco Forex
Assets are in violation of any applicable law, rule, regulation, code,
governmental determination, order, treaty, convention, governmental
certification requirement or other public limitation, U.S. or non-U.S.
(collectively, "Applicable Laws"), relating to the ownership or operation
of the Sedco Forex Assets, and no claim is pending or, to the knowledge of
Sedco Forex, threatened with respect to any such matters. No condition
exists that is not disclosed in the Sedco Forex Disclosure Letter and which
does or is likely to constitute a violation of or deficiency under any
Applicable Law relating to the ownership or operation of the Sedco Forex
Assets.
(b) Sedco Forex, the Sedco Forex Business and the Sedco Forex
Subsidiaries hold all permits, licenses, certifications, variations,
exemptions, orders, franchises and approvals of all governmental
authorities necessary for the lawful conduct of their respective businesses
(the "Sedco Forex Permits"). All Sedco Forex Permits are in full force and
effect and there exists no default thereunder or breach thereof, and Sedco
Forex or Schlumberger has no notice or actual knowledge that (i) where such
Sedco Forex Permit is held by Schlumberger or a Schlumberger Subsidiary,
such Sedco Forex Permit would not be transferable to, or renewable by,
Sedco Forex or a Sedco Forex Subsidiary pursuant to the Distribution
Agreement and (ii) such Sedco Forex Permits will not otherwise be renewed
in the ordinary course after the Effective Time. No governmental authority
has given, or to the knowledge of Schlumberger or Sedco Forex threatened to
give, any action to terminate, cancel or reform any Sedco Forex Permit.
(c) Each drilling rig, drillship or other drilling unit forming a part
of the Sedco Forex Business (the "Sedco Forex Rigs") which is subject to
classification is in class according to the rules and regulations of the
applicable classifying body and is duly and lawfully documented under the
laws of its flag jurisdiction. Schlumberger, a Schlumberger Subsidiary,
Sedco Forex or a Sedco Forex Subsidiary has obtained and maintained, or
caused to be obtained and maintained, in full force and effect all permits,
licenses, certificates, operating authorities, orders, exceptions,
franchises, variances, consents, approvals, documentations or other
authorizations required with respect to the operation of the Sedco Forex
Rigs in the areas in which they operate, except where the failure to have
obtained any of the same does not and is not likely to have a Sedco Forex
Material Adverse Effect.
(d) Schlumberger, a Schlumberger Subsidiary, Sedco Forex or a Sedco
Forex Subsidiary possesses all permits, licenses, operating authorities,
orders, exemptions, franchises, variances, consents, approvals or other
authorizations required for the present ownership and operation of the real
property or leaseholds included in the Sedco Forex Assets ("Sedco Forex
Real Property") except where the failure to possess any of the same does
not and is not likely to have a Sedco Forex Material Adverse Effect. There
exists no material default or breach with respect to, and no party or
governmental authority has taken or, to the knowledge of Sedco Forex,
threatened to take, any action to terminate, cancel or reform any such
permit, license, operating authority, order, exemption, franchise,
variance, consent, approval or other authorization pertaining to the Sedco
Forex Real Property where such termination, cancellation or reformation
does not or is not likely to have a Sedco Forex Material Adverse Effect.
A-8
<PAGE> 183
SECTION 6.6 No Conflict. (a) Neither the execution and delivery by Sedco
Forex of this Agreement or any of the Transaction Agreements to which it is a
party nor the consummation by Sedco Forex of the transactions contemplated
hereby or thereby in accordance with the terms hereof or thereof will (i)
conflict with or result in a breach of any provisions of the memorandum of
association or articles of association of Sedco Forex, (ii) violate, or conflict
with, or result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination or in a right of termination or cancellation
of, or give rise to a right of purchase under, or accelerate the performance
required by, or result in the creation of any Lien upon any of the properties of
Sedco Forex or the Sedco Forex Subsidiaries under, or result in being declared
void, voidable, or without further binding effect, or otherwise result in a
detriment to Sedco Forex or any of the Sedco Forex Subsidiaries under, any of
the terms, conditions or provisions of, any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, lease, contract, agreement, joint
venture or other instrument or obligation to which Sedco Forex or any of the
Sedco Forex Subsidiaries is a party, or by which Sedco Forex or any of the Sedco
Forex Subsidiaries or any of their properties is bound or affected or (iii)
contravene or conflict with or constitute a violation of any provision of any
law, rule, regulation, judgment, order or decree binding upon or applicable to
Sedco Forex or any of the Sedco Forex Subsidiaries, except, for such matters
described in clause (ii) or (iii) as do not and are not likely to have,
individually or in the aggregate, a Sedco Forex Material Adverse Effect.
(b) Neither the execution and delivery by Sedco Forex of this Agreement or
any of the Transaction Agreements to which it is a party nor the consummation by
Sedco Forex of the transactions contemplated hereby or thereby in accordance
with the terms hereof or thereof will require any consent, approval or
authorization of, or filing or registration with, any governmental or regulatory
authority, other than the Regulatory Filings, except for any consent, approval
or authorization the failure of which to obtain and for any filing or
registration the failure of which to make does not and is not likely to have a
Sedco Forex Material Adverse Effect.
SECTION 6.7 Sedco Forex Financial Statements. (a) Schlumberger has
previously delivered to Transocean an unaudited balance sheet and combined
statement of operations of the Sedco Forex Business as of and for the period
ended December 31, 1998 (the "Unaudited Financial Statements") and a pro forma
combined statement of operations of the Sedco Forex Business for the year ended
on December 31, 1998 (the "1998 Pro Forma Statement of Operations") based on the
statement of operations from the Unaudited Financial Statements adjusted to
reflect the reversal of the effect of certain non-recurring events and provide
for the elimination of shared costs and certain intercompany insurance costs.
The Unaudited Financial Statements have been prepared in accordance with U.S.
generally accepted accounting principles consistently applied throughout the
periods presented and fairly present; in all material respects, the combined
assets, liabilities (whether accrued, absolute, or contingent), financial
position and results of operations of the Sedco Forex Business as of the date
and for the period indicated. The adjustments reflected in the 1998 Pro Forma
Statement of Operations (i) as related to shared costs, have been determined by
Schlumberger in good faith and upon a reasonable basis, and (ii) as to all other
adjustments, represent the actual adjustment amounts included of such adjustment
item in the Unaudited Financial Statements as to be verified by
PricewaterhouseCoopers LLP.
(b) Sedco Forex will provide to Transocean within 45 days after the date
hereof (i) audited combined financial statements of the Sedco Forex Business as
of and for the periods ended December 31, 1996, 1997 and 1998 (the "Audited
Financial Statements"), (ii) pro forma combined statements of operations for the
periods ended December 31, 1997 and 1998 (the "Pro Forma Statements of
Operations") based on the Statements of Operations from the Audited Financial
Statements, (iii) unaudited financial statements and pro forma statements of
operations for any interim periods (the "Unaudited Interim Period Financial
Statements" and "Interim Period Pro Forma Statements of Operations"), each
prepared on a basis consistent with the Audited Financial Statements and Pro
Forma Statements of Operations and (iv) any and all other financial statements
and financial information required to be included by Regulation S-X of the
Exchange Act in (x) the Registration Statement on Form 10 (or, if such form is
not appropriate, the appropriate form pursuant to the Exchange Act) to be filed
by Sedco Forex with the SEC to effect the registration of the Sedco Forex Common
Stock pursuant to the Exchange Act in connection with the Distribution ("Form
10") and (y) the Proxy
A-9
<PAGE> 184
Statement/Prospectus (as defined in Section 8.8). The Audited Financial
Statements and Unaudited Interim Period Financial Statements will (i) be
prepared in accordance with U.S. generally accepted accounting principles
consistently applied throughout the periods presented and consistent with those
used in the Unaudited Financial Statements and (ii) fairly present in all
material respects the combined assets, liabilities, financial position, results
of operations and cash flows of the Sedco Forex Business as of the dates and for
the periods indicated; provided, however, that any unaudited interim financial
statements will be subject to normal year-end adjustments (all of which are of a
recurring nature and none of which, individually or in the aggregate, would have
or would be likely to have a Sedco Forex Material Adverse Effect and the absence
of none of which adjustments would render such financial statements to be
materially misleading). The Pro Forma Statements of Operations and Interim
Period Pro Forma Statements of Operations will be prepared in all material
respects in accordance with the same procedures used in the 1998 Pro Forma
Statement of Operations. The adjustments reflected in the Pro Forma Statements
of Operations and the Interim Period Pro Forma Statement of Operations (i) as
related to shared costs, will be determined by Schlumberger in good faith and
upon reasonable basis and (ii) as to all other adjustments, will represent the
actual amounts included in the Audited Financial Statements and the Unaudited
Interim Period Financial Statements, for the related periods, as verified by
PricewaterhouseCoopers LLP.
(c) The Pre-Closing Financial Statements (as defined in the Distribution
Agreement) will be prepared in accordance with U.S. generally accepted
accounting principles consistently applied throughout the periods presented and
will fairly present, in all material respects, the consolidated financial
position, results of operations and cash flows of the Sedco Forex Business as of
the date and for the periods indicated. The Audited Financial Statements are
referred to herein as the "Sedco Forex Reports."
SECTION 6.8 Litigation. There are no actions, suits or proceedings pending
against Sedco Forex or any of the Sedco Forex Subsidiaries or, to Sedco Forex's
knowledge, threatened against Sedco Forex or any of the Sedco Forex
Subsidiaries, at law or in equity, or before or by any U.S. federal, state or
non-U.S. court, commission, board, bureau, agency or instrumentality, that are
likely to have, individually or in the aggregate, a Sedco Forex Material Adverse
Effect. There are no outstanding judgments, decrees, injunctions, awards or
orders against Sedco Forex or any of the Sedco Forex Subsidiaries that have had
or are likely to have, individually or in the aggregate, a Sedco Forex Material
Adverse Effect.
SECTION 6.9 Absence of Certain Changes. Since December 31, 1998, other
than the transactions effected pursuant to the Transaction Agreements, there has
not been (i) any event or occurrence that has had or is likely to have a Sedco
Forex Material Adverse Effect, (ii) any material change by Sedco Forex or any of
the Sedco Forex Subsidiaries, when taken as a whole, in any of its accounting
methods, principles or practices or any of its tax methods, practices or
elections, (iii) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of Sedco Forex or any redemption,
purchase or other acquisition of any of its securities or (iv) any increase in
or establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase or other
employee benefit plan, except in the ordinary course of business.
SECTION 6.10 Taxes. (a) Each of Sedco Forex, the Sedco Forex Subsidiaries
and each affiliated, consolidated, combined, unitary or similar group of which
any such corporation is or was a member has (i) duly filed (or there has been
filed on its behalf) on a timely basis with appropriate governmental authorities
all tax returns, statements, reports, declarations, estimates and forms
("Returns") required to be filed by or with respect to it on or prior to the
date hereof, except to the extent that any failure to file does not and is not
likely to have, individually or in the aggregate, a Sedco Forex Material Adverse
Effect, and (ii) duly paid or deposited in full on a timely basis or made
adequate provision in accordance with generally accepted accounting principles
(or there has been paid or deposited or adequate provision has been made on its
behalf) for the payment of all taxes required to be paid by it, except to the
extent that any failure to pay or deposit or make adequate provision for the
payment of such taxes does not and is not likely to have, individually or in the
aggregate, a Sedco Forex Material Adverse Effect.
(b) No audits or other administrative proceedings or court proceedings are
presently pending with regard to any taxes or Returns of Sedco Forex or any of
the Sedco Forex Subsidiaries as to which any taxing authority
A-10
<PAGE> 185
has asserted in writing any claim which, if adversely determined, is likely to
have a Sedco Forex Material Adverse Effect; (ii) no governmental authority is
now asserting in writing any deficiency or claim for taxes or any adjustment to
taxes with respect to which Sedco Forex or any of the Sedco Forex Subsidiaries
may be liable with respect to income and other material taxes which have not
been fully paid or finally settled, which, if adversely determined, is likely to
have a Sedco Forex Material Adverse Effect; (iii) as of the execution of this
Agreement, neither Sedco Forex nor any of the Sedco Forex Subsidiaries has
granted any requests, agreements, consents or waivers to extend the statutory
period of limitations applicable to the assessment of any taxes with respect to
any Returns of Sedco Forex or any of the Sedco Forex Subsidiaries; and (iv)
neither Sedco Forex nor any of the Sedco Forex Subsidiaries is a party to, is
bound by or has any obligation under any tax sharing, allocation or indemnity
agreement or any similar agreement or arrangement that is likely to have a Sedco
Forex Material Adverse Effect.
For purposes of this Agreement, "tax" or "taxes" means all net income,
gross income, gross receipts, sales, use, ad valorem, transfer, accumulated
earnings, personal holding company, excess profits, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, disability, capital stock, or windfall profits taxes, customs duties
or other taxes, fees, assessments or governmental charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority (U.S. or non-U.S.).
SECTION 6.11 Employee Benefit Plans. (a) Schedule 6.11 of the Sedco Forex
Disclosure Letter contains a list of all Sedco Forex Benefit Plans. The term
"Sedco Forex Benefit Plans" means all material employee benefit plans and other
material benefit arrangements, including all "employee benefit plans" as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), whether or not U.S. based plans, and all other employee
benefit, bonus, incentive, deferred compensation, stock option (or other
equity-based), severance, employment, change in control, welfare (including
post-retirement medical and life insurance) and fringe benefit plans or
agreements, whether or not subject to ERISA and whether written or oral,
sponsored, maintained or contributed to or required to be contributed to by
Sedco Forex or any of the Sedco Forex Subsidiaries, to which Sedco Forex or any
of the Sedco Forex Subsidiaries is a party or in which any Person who is
currently, has been or, prior to the Effective Time, is a party or in which any
Person who is currently, has been or, prior to the Effective Time, is expected
to become a Sedco Forex Employee is a participant. Schlumberger will provide
Transocean within 30 days after the date hereof, true and complete copies of the
Sedco Forex Benefit Plans and, if applicable, the most recent Form 5500, summary
plan descriptions, annual reports and actuarial reports, if applicable, for each
such plan.
(b) Except as would not have, individually or in the aggregate, a Sedco
Forex Material Adverse Effect, all applicable reporting and disclosure
requirements have been met with respect to Sedco Forex Benefit Plans; there has
been no "reportable event," as that term is defined in section 4043 of ERISA,
with respect to Sedco Forex Benefit Plans subject to Title IV of ERISA; to the
extent applicable, Sedco Forex Benefit Plans comply, in all material respects,
with the requirements of ERISA and the Code or regulations of any applicable
jurisdiction, and any Sedco Forex Benefit Plan intended to be qualified under
section 401(a) of the Code has been determined by the IRS to be so qualified;
Sedco Forex Benefit Plans have been maintained and operated, in all material
respects, in accordance with their terms, and there are no breaches of fiduciary
duty in connection with Sedco Forex Benefit Plans; there are no pending or, to
Sedco Forex's knowledge, threatened claims against or otherwise involving any
Sedco Forex Benefit Plan and no suit, action or other litigation (excluding
claims for benefits incurred in the ordinary course of Sedco Forex Benefit Plan
activities) has been brought against or with respect to any such Sedco Forex
Benefit Plan; all material contributions required to be made as of the date
hereof to Sedco Forex Benefit Plans have been made or provided for; with respect
to Sedco Forex Benefit Plans or any "employee pension benefit plans," as defined
in section 3(2) of ERISA, that are subject to Title IV of ERISA and have been
maintained or contributed to within six years prior to the Effective Time by
Sedco Forex, the Sedco Forex Subsidiaries or any trade or business (whether or
not incorporated) which is under common control, or which is treated as a single
employer, with Sedco Forex or any of the Sedco Forex Subsidiaries under section
414(b), (c), (m) or (o) of the Code, (i) neither Sedco Forex nor any of the
Sedco Forex Subsidiaries has incurred any direct or indirect liability under
title IV of ERISA in connection with any termination thereof or withdrawal
therefrom; and (ii) there does not exist any
A-11
<PAGE> 186
accumulated funding deficiency within the meaning of section 412 of the Code or
section 302 of ERISA, whether or not waived.
(c) Neither Sedco Forex nor any of the Sedco Forex Subsidiaries nor any
trade or business (whether or not incorporated) which is under common control,
or which is treated as a single employer, with Sedco Forex or any of the Sedco
Forex Subsidiaries under section 414(b), (c), (m) or (o) of the Code,
contributes to, or has an obligation to contribute to, and has not within six
years prior to the Effective Time contributed to, or had an obligation to
contribute to, a "multiemployer plan" within the meaning of section 3(37) of
ERISA, and the execution of, and performance of the transactions contemplated
in, this Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any benefit plan,
policy, arrangement or agreement or any trust or loan that will or may result in
any payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligations to
fund benefits with respect to any employee of Sedco Forex or any Sedco Forex
Subsidiary.
(d) No Sedco Forex Benefit Plan provides medical, surgical,
hospitalization, death or similar benefits (whether or not insured) for
employees or former employees of Sedco Forex or any Sedco Forex Subsidiary for
periods extending beyond their retirement or other termination of service other
than (i) coverage mandated by applicable law, (ii) death benefits under any
"pension plan" or (iii) benefits the full cost of which is borne by the current
or former employee (or his beneficiary).
(e) Each Schlumberger Plan in which a Sedco Forex Employee participates,
which provides for a deferred defined benefit obligation to such an employee, is
a funded plan and constitutes a Schlumberger Funded Plan within the meaning of
the Employee Matters Agreement, the terms of which are attached as Exhibit A to
the Distribution Agreement.
SECTION 6.12 Labor Matters. (a) (i) Neither Sedco Forex nor any of the
Sedco Forex Subsidiaries is a party to, or bound by, any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization (A) covering any U.S. employees or (B) covering, in any
single instance, 10% or more of the employees of the Sedco Forex Business, and
(ii) to Sedco Forex's knowledge, there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being made or
threatened (x) involving any U.S. employees or (y) involving, in any single
instance, 10% or more of the employees of the Sedco Forex Business.
(b) Except for such matters as do not and are not likely to have a Sedco
Forex Material Adverse Effect (i) none of Schlumberger, any Schlumberger
Subsidiary, Sedco Forex or any Sedco Forex Subsidiary has received any written
complaint of any unfair labor practice or other unlawful employment practice or
any written notice of any material violation of any federal, state or local
statutes, laws, ordinances, rules, regulations, orders or directives with
respect to the employment of individuals by, or the employment practices of
Schlumberger, any Schlumberger Subsidiary, Sedco Forex or any Sedco Forex
Subsidiary in connection with, the Sedco Forex Business or the work conditions
with respect to the Sedco Forex Assets or the terms and conditions of employment
and wages and hours in connection with the Sedco Forex Business; and (ii) there
are no unfair labor practice charges or other employee related complaints
against Schlumberger, any Schlumberger Subsidiary, Sedco Forex or any Sedco
Forex Subsidiary pending or, to the knowledge of Sedco Forex threatened, before
any governmental authority by or concerning the employees working in the Sedco
Forex Business.
SECTION 6.13 Environmental Matters. (a) The Sedco Forex Business has been
and is in compliance with all orders of any court, governmental authority or
arbitration board or tribunal or any law, ordinance, rule, regulation or other
legal requirement (including common law) related to human health and the
environment ("Environmental Laws") except for such matters as do not and are not
likely to have, individually or in the aggregate, a Sedco Forex Material Adverse
Effect. There are no past or present facts, conditions or circumstances that
interfere with the conduct of the Sedco Forex Business in the manner now
conducted or which interfere with continued compliance with any Environmental
Law except for such matters as do not and are not likely to have, individually
or in the aggregate, a Sedco Forex Material Adverse Effect.
A-12
<PAGE> 187
(b) No judicial or administrative proceedings or governmental
investigations are pending or, to the knowledge of Sedco Forex, threatened
against the Sedco Forex Business, Sedco Forex or the Sedco Forex Subsidiaries
that allege the violation of or seek to impose liability pursuant to any
Environmental Law, and there are no past or present facts, conditions or
circumstances at, on or arising out of, or otherwise associated with, any
current or former businesses, assets or properties of the Sedco Forex Business,
Sedco Forex or any Sedco Forex Subsidiary, including but not limited to on-site
or off-site disposal, release or spill of any material, substance or waste
classified, characterized or otherwise regulated as hazardous, toxic, pollutant,
contaminant or words of similar meaning under Environmental Laws, including
petroleum or petroleum products or byproducts ("Hazardous Materials") which
violate Environmental Law or are likely to give rise to (i) costs, expenses,
liabilities or obligations for any cleanup, remediation, disposal or corrective
action under any Environmental Law or (ii) claims arising for personal injury,
property damage or damage to natural resources, except for such matters as do
not and are not likely to have a Sedco Forex Material Adverse Effect.
(c) Neither Sedco Forex nor any of the Sedco Forex Subsidiaries has (i)
received any notice of noncompliance with, violation of, or liability or
potential liability under any Environmental Law or (ii) entered into any consent
decree or order or is subject to any order of any court or governmental
authority or tribunal under any Environmental Law or relating to the cleanup of
any Hazardous Materials, except for such matters as do not and are not likely to
have a Sedco Forex Material Adverse Effect.
SECTION 6.14 Intellectual Property. Sedco Forex, the Sedco Forex Business
and the Sedco Forex Subsidiaries own or possess adequate licenses or other valid
rights to use all patents, patent rights, trademarks, trademark rights and
proprietary information used or held for use in connection with their respective
businesses as currently being conducted, except where the failure to own or
possess such licenses and other rights does not and is not likely to have,
individually or in the aggregate, a Sedco Forex Material Adverse Effect, and
there are no assertions or claims challenging the validity of any of the
foregoing that are likely to have, individually or in the aggregate, a Sedco
Forex Material Adverse Effect. The conduct of the Sedco Forex Business', Sedco
Forex's and the Sedco Forex Subsidiaries' respective businesses as currently
conducted does not conflict with any patents, patent rights, licenses,
trademarks, trademark rights, trade names, trade name rights or copyrights of
others that are likely to have, individually or in the aggregate, a Sedco Forex
Material Adverse Effect. There is no material infringement of any proprietary
right owned by or licensed by or to Sedco Forex or any of the Sedco Forex
Subsidiaries that is likely to have, individually or in the aggregate, a Sedco
Forex Material Adverse Effect.
SECTION 6.15 Year 2000 Readiness. The computer software operated, sold or
licensed by Sedco Forex and the Sedco Forex Subsidiaries that is material to
their respective businesses or internal operations is capable of providing or is
being or will be adapted, or is capable of being replaced, to provide
uninterrupted millennium functionality to record, store, process and present
calendar dates falling on or after January 1, 2000, in substantially the same
manner and with substantially the same functionality as such software records,
stores, processes and presents such calendar dates falling on or before December
31, 1999, except matters as do not and is not likely to have a Sedco Forex
Material Adverse Effect. The costs of the adaptations and replacements referred
to in the prior sentence are not likely to have a Sedco Forex Material Adverse
Effect. The foregoing statements constitute "year 2000 readiness disclosure"
within the meaning of the Year 2000 Information Readiness and Disclosure Act of
1998.
SECTION 6.16 Insurance. (a) Except for such matters as do not and are not
likely to have, individually or in the aggregate, a Sedco Forex Material Adverse
Effect, Sedco Forex, the Sedco Forex Business and the Sedco Forex Subsidiaries
maintain insurance coverage with financially responsible insurance companies in
such amounts and against such losses as are customary in the international
offshore drilling business prior to the date hereof.
(b) Except for such matters as do not and are not likely to have,
individually or in the aggregate, a Sedco Forex Material Adverse Effect, no
event relating to Sedco Forex, the Sedco Forex Subsidiaries or the Sedco Forex
Business has occurred that is likely to result in an upward adjustment in
premiums under any insurance policies maintained with respect to the Sedco Forex
Business. Excluding insurance policies that have expired and been replaced in
the ordinary course of business, no insurance policy has been canceled within
the two
A-13
<PAGE> 188
years prior to the date hereof, and to Schlumberger's knowledge, no threat has
been made to cancel any insurance policy of Sedco Forex or any Sedco Forex
Subsidiary during such period. All such insurance will remain in full force and
effect with respect to periods before the Closing or replaced with similar
policies. No event has occurred, including the failure by Sedco Forex or any
Sedco Forex Subsidiary to give any notice or information or by giving any
inaccurate or erroneous notice or information, which materially limits or
impairs the rights of Sedco Forex or any Sedco Forex Subsidiary under any such
insurance policies.
(c) Insurance policies are in effect and coverage thereunder will be
available to Sedco Forex for all personal injury claims disclosed in the Sedco
Forex Disclosure Letter or otherwise included in Sedco Forex Liabilities (as
defined in the Distribution Agreement), with deductibles not exceeding $100,000
per claim for claims in the U.S. and $25,000 per claim for claims elsewhere.
SECTION 6.17 No Brokers. Sedco Forex has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of Sedco Forex or Transocean to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby.
SECTION 6.18 Transocean Share Ownership. Neither Sedco Forex nor any of
the Sedco Forex Subsidiaries owns any capital shares of Transocean or any other
securities convertible into or otherwise exercisable to acquire capital shares
of Transocean.
SECTION 6.19 Reorganization. Neither Sedco Forex nor any of the Sedco
Forex Subsidiaries has taken or failed to take any action, as a result of which
(a) the Merger would not qualify as a reorganization under Section 368(a)(1)(B)
of the Code or (b) the Distribution would not qualify as a distribution
described in Section 355 of the Code.
SECTION 6.20 Vote Required. The affirmative vote of the holders of at
least a majority of the shares of Schlumberger Common Stock voting at the
meeting to be held in accordance with Section 8.4 is the only vote of the
holders of any class or series of Schlumberger capital stock necessary to
approve any transaction contemplated by this Agreement or the other Transaction
Agreements. The vote of the holder of Sedco Forex Common Stock required in
connection with this Agreement and the transactions contemplated hereby has been
obtained.
SECTION 6.21 Ownership of Drilling Rigs and Drillships. As of the date
hereof, Sedco Forex, a Sedco Forex Subsidiary, Schlumberger or a Schlumberger
Subsidiary has, and as of the Effective Time, Sedco Forex or a Sedco Forex
Subsidiary will have, good and marketable title to the assets listed on Schedule
1.01(b) to the Distribution Agreement in each case free and clear of all
mortgages, deeds of trust, liens, security interests, pledges, leases,
conditional sale contracts, claims, charges, liabilities, obligations,
agreements, privileges, easements, rights of way, limitations, reservations,
restrictions, options, rights of first refusal and other encumbrances of every
kind ("Liens") except for (i) defects or irregularities of title or encumbrances
of a nature that do not materially impair the ownership or operation of these
assets and which have not had and are not likely to have a Sedco Forex Material
Adverse Effect, (ii) Liens that secure obligations not yet due and payable or,
if such obligations are due and have not been paid, Liens securing such
obligations that are being diligently contested in good faith and by appropriate
proceedings (any such contests involving an amount in excess of $10 million
being described in the Sedco Forex Disclosure Letter) and (iii) other Liens
disclosed in the Sedco Forex Disclosure Letter (the Liens described in clauses
(i), (ii) and (iii), collectively, "Sedco Forex Permitted Liens"). Sedco Forex
has no notice or actual knowledge that where any such Sedco Forex Asset is held
by Schlumberger or a Schlumberger Subsidiary such Sedco Forex Asset will not be
transferable to Sedco Forex or a Sedco Forex Subsidiary pursuant to the
Distribution Agreement. No such Sedco Forex Asset is leased under an operating
lease from a lessor that, to Schlumberger's knowledge, has incurred non-
recourse Indebtedness to finance the acquisition or construction of such asset.
SECTION 6.22 Undisclosed Liabilities. Neither Sedco Forex, the Sedco Forex
Subsidiaries or the Sedco Forex Business has any liabilities or obligations of
any nature, whether or not fixed, accrued, contingent or otherwise, except
liabilities and obligations that (i) are reflected with reasonable specificity
in the Sedco
A-14
<PAGE> 189
Forex Reports, (ii) are contained in the Sedco Forex Disclosure Schedule or
(iii) do not and are not likely to have, individually or in the aggregate, a
Sedco Forex Material Adverse Effect.
SECTION 6.23 Certain Contracts. (a) As of the date of this Agreement,
neither Schlumberger, any Schlumberger Subsidiary, Sedco Forex or any Sedco
Forex Subsidiary is a party to or bound by (i) any non-competition agreement or
any other agreement or obligation that purports to limit in any material respect
the manner in which, or the localities in which, all or any material portion of
the current Sedco Forex Business is conducted, (ii) any drilling rig
construction or conversion contract included or to be included in the Sedco
Forex Assets, (iii) any drilling contracts of 150 days or greater remaining
duration included or to be included in the Sedco Forex Assets or (iv) any
contract or agreement for the borrowing of money containing covenants or
provisions that would be violated or that would result in a default under such
contract or agreement in the event the Merger or the transactions contemplated
by this Agreement were consummated (all contracts or agreements of the types
described in clauses (i) through (iv) being referred to herein as "Sedco Forex
Material Contracts"). Within 30 days after the date of this Agreement, Sedco
Forex will deliver to Transocean, or make reasonably available to Transocean for
review, complete and correct copies of all Sedco Forex Material Contracts.
(b) Each Sedco Forex Material Contract is valid and binding on (i)
Schlumberger, any Schlumberger Subsidiary, Sedco Forex or any Sedco Forex
Subsidiary that is a party thereto and (ii) to the knowledge of Schlumberger and
Sedco Forex, the other parties thereto and is in full force and effect, and each
of Schlumberger, each Schlumberger Subsidiary, Sedco Forex or each Sedco Forex
Subsidiary, have in all material respects performed all obligations required to
be performed by them to date under each Sedco Forex Material Contract to which
it is a party, except where such failure to be binding or in full force and
effect or such failure to perform does not and is not likely to create,
individually or in the aggregate, a Sedco Forex Material Adverse Effect. Except
for such matters as do not and are not likely to have a Sedco Forex Material
Adverse Effect, none of Schlumberger, any Schlumberger Subsidiary, Sedco Forex
nor any Sedco Forex Subsidiary (x) knows of, or has received written notice of,
any breach of or violation or default under (nor, to the knowledge of Sedco
Forex, does there exist any condition which with the passage of time or the
giving of notice or both would result in such a violation or default under) any
Sedco Forex Material Contract or (y) has received written notice of the desire
of the other party or parties to any such Sedco Forex Material Contract to
exercise any rights such party has to cancel, terminate or repudiate such
contract or exercise remedies thereunder. At the Effective Time, each such Sedco
Forex Material Contract included in the Sedco Forex Assets will be enforceable
by Sedco Forex or a Sedco Forex Subsidiary in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights and general principles of equity.
SECTION 6.24 Capital Expenditure Program. The Sedco Forex Disclosure
Letter accurately sets forth in all material respects, for each of Sedco Forex's
sustaining, life extension and newbuild capital expenditure programs, the
capital expenditures for all such programs that were forecasted to be incurred
in 1999 and 2000, as previously provided to Transocean. The construction in
progress attributable to the newbuilds and included in Sedco Forex's 1998
Audited Financial Statements (excluding capitalized interest on such newbuilds)
and the projected newbuild capital expenditures to be incurred in 1999 and 2000
equal the projected total construction costs to complete such newbuilds, as at
the time of such forecast.
SECTION 6.25 Decrees, Etc. Except for such matters as do not and are not
likely to have a Sedco Forex Material Adverse Effect, (i) no order, writ, fine,
injunction, decree, judgment, award or determination of any court or
governmental authority has been issued or entered against Schlumberger, any
Schlumberger Subsidiary, Sedco Forex or any Sedco Forex Subsidiary that
continues to be in effect that affects the ownership or operation of any of the
Sedco Forex Assets, and (ii) no criminal order, writ, fine, injunction, decree,
judgment or determination of any court or governmental authority has been issued
against Sedco Forex or any Sedco Forex Subsidiary.
SECTION 6.26 Improper Payments. No bribes, kickbacks or other improper
payments have been made by Schlumberger, any Schlumberger Subsidiary, Sedco
Forex or any Sedco Forex Subsidiary or agent of any of them in connection with
the conduct of the Sedco Forex Business or the operation of the Sedco Forex
A-15
<PAGE> 190
Assets, and neither Schlumberger, any Schlumberger Subsidiary, Sedco Forex or
any Sedco Forex Subsidiary nor any agent of any of them has received any such
payments from vendors, suppliers or other persons, where any such payment made
or received would create a Sedco Forex Material Adverse Effect.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF TRANSOCEAN
AND MERGER SUB
Except as set forth in the disclosure letter delivered to Sedco Forex and
Schlumberger by Transocean at or prior to the execution hereof (the "Transocean
Disclosure Letter"), Transocean and Merger Sub, jointly and severally, represent
and warrant to Sedco Forex and Schlumberger that:
SECTION 7.1 Existence; Good Standing; Corporate Authority. Transocean is
and Merger Sub, at the time of its execution of this Agreement, will be a
corporation duly incorporated and validly existing under the laws of its
jurisdiction of incorporation. Transocean is duly qualified to do business and
is in good standing under the laws of any jurisdiction in which the character of
the properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
qualified does not and is not likely to have, individually or in the aggregate,
a Transocean Material Adverse Effect (as defined in Section 11.9). Transocean
has all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted. The copies of
Transocean's memorandum of association and articles of association previously
made available to Sedco Forex are true and correct and contain all amendments as
of the date hereof.
SECTION 7.2 Authorization, Validity and Effect of Agreements. Transocean
has and Merger Sub, at the time of its execution of this Agreement, will have
the requisite corporate power and authority to execute and deliver this
Agreement, each Transaction Agreement to which it is a party and all other
agreements and documents contemplated hereby or thereby to which it is a party.
The consummation by each of Transocean and Merger Sub of the transactions
contemplated hereby, including the issuance and delivery by Transocean of
Transocean ordinary shares pursuant to the Merger, and the consummation by
Transocean of the transactions contemplated by each Transaction Agreement to
which it is a party has been duly authorized by all requisite corporate action
on behalf of Transocean, other than approval of the issuance of Transocean
ordinary shares pursuant to the Merger contemplated hereby by the holders of a
majority of the issued and outstanding Transocean Ordinary Shares as required by
the rules of the NYSE and the approval of the increase in authorized ordinary
share capital and the change of name of Transocean as set forth in Section 2.3,
as required by Cayman Islands law. This Agreement and each Transaction Agreement
to which it is a party constitute or will constitute when executed the valid and
legally binding obligations of each of Transocean and Merger Sub, enforceable
against Transocean or Merger Sub, as applicable, in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
SECTION 7.3 Capitalization. As of the date of this Agreement, the
authorized share capital of Transocean consists of 150,000,000 Transocean
Ordinary Shares and 50,000,000 undesignated shares, par value $0.10 per share,
of Transocean ("Transocean Preferred Shares"), and as of June 30, 1999, there
were 100,563,304 Transocean Ordinary Shares issued, 1,388,779 Transocean
Ordinary Shares reserved for issuance upon exercise of outstanding Transocean
options and no Transocean Preferred Shares issued. All such issued Transocean
Ordinary Shares are or will be when issued duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. The Transocean Ordinary
Shares to be issued in connection with the Merger or pursuant to options issued
pursuant to the Employee Matters Agreement, when issued in accordance with this
Agreement, will be validly issued and fully paid. Except as set forth in this
Section 7.3 or in the Employee Matters Agreement, there are no outstanding
shares or shares of capital stock, and there are no options, warrants, calls,
subscriptions, convertible securities or other rights, agreements or commitments
which obligate Transocean or any of its Subsidiaries to issue, transfer or sell
any shares or shares of capital stock or other voting securities of Transocean
or any of its Subsidiaries. Transocean has no outstanding bonds,
A-16
<PAGE> 191
debentures, notes or other obligations the holders of which have the right to
vote (or which are convertible into or exercisable for securities having the
right to vote) with the stockholders of Transocean on any matter.
SECTION 7.4 Significant Subsidiaries. (a) Each of Transocean's Significant
Subsidiaries is a corporation or other legal entity duly organized, validly
existing and, to the extent such concept or similar concept exists in the
relevant jurisdiction, in good standing under the laws of its jurisdiction of
incorporation or organization, has the corporate or other entity power and
authority to own, operate and lease its properties and to carry on its business
as it is now being conducted, and is duly qualified to do business and is in
good standing (where applicable) in each jurisdiction in which the ownership,
operation or lease of its property or the conduct of its business requires such
qualification, except for jurisdictions in which such failure to be so qualified
or to be in good standing would not have a Transocean Material Adverse Effect.
All of the outstanding shares of capital stock of, or other ownership interests
in, each of Transocean's Significant Subsidiaries are duly authorized, validly
issued, fully paid and nonassessable, and are owned, directly or indirectly, by
Transocean free and clear of all Liens.
(b) As of the Effective Time, all of the outstanding shares of capital
stock of Merger Sub will be owned directly by Transocean. Merger Sub will be
formed solely for the purpose of engaging in the transactions contemplated
hereby and, as of the Effective Time, will have not engaged in any activities
other than in connection with the transactions contemplated by this Agreement.
SECTION 7.5 Compliance with Laws; Permits. Except for such matters as,
individually or in the aggregate, do not or are not likely to have a Transocean
Material Adverse Effect:
(a) None of Transocean, any Subsidiary of Transocean, or Merger Sub
are in violation of any Applicable Laws relating to the ownership or
operation of any of their respective Assets, and no claim is pending or, to
the knowledge of Transocean, threatened with respect to any such matters.
No condition exists that is not disclosed in the Transocean Disclosure
Letter and which does or is likely to constitute a violation of or
deficiency under any Applicable Law relating to the ownership or operation
of the Assets of Transocean, any Subsidiary of Transocean or Merger Sub.
(b) Transocean, each Subsidiary of Transocean and Merger Sub hold all
permits, licenses, certifications, variations, exemptions, orders,
franchises and approvals of all governmental authorities necessary for the
lawful conduct of their respective businesses (the "Transocean Permits").
All Transocean Permits are in full force and effect and there exists no
default thereunder or breach thereof, and Transocean has no notice or
actual knowledge that such Transocean Permits will not be renewed in the
ordinary course after the Effective Time. No governmental authority has
given, or to the knowledge of Transocean threatened to give, any action to
terminate, cancel or reform any Transocean Permit.
(c) Each drilling rig, drillship or other drilling unit owned by
Transocean or a subsidiary of Transocean (the "Transocean Rigs") which is
subject to classification is in class according to the rules and
regulations of the applicable classifying body and is duly and lawfully
documented under the laws of its flag jurisdiction. Transocean or a
Subsidiary of Transocean has obtained and maintained, or caused to be
obtained and maintained, in full force and effect all permits, licenses,
certificates, operating authorities, orders, exceptions, franchises,
variances, consents, approvals, documentations or other authorizations
required with respect to the operation of the Transocean Rigs in the areas
in which they operate, except where the failure to have obtained any of the
same does not and is not likely to have a Transocean Material Adverse
Effect.
(d) Transocean and each Subsidiary of Transocean possesses all
permits, licenses, operating authorities, orders, exemptions, franchises,
variances, consents, approvals or other authorizations required for the
present ownership and operation of all its real property or leaseholds
("Transocean Real Property") except where the failure to possess any of the
same does not and is not likely to have a Transocean Material Adverse
Effect. There exists no material default or breach with respect to, and no
party or governmental authority has taken or, to the knowledge of
Transocean, threatened to take, any action to terminate, cancel or reform
any such permit, license, operating authority, order, exemption, franchise,
variance, consent, approval or other authorization pertaining to the
Transocean Real Property
A-17
<PAGE> 192
where such termination, cancellation or reformation does not or is not
likely to have a Transocean Material Adverse Effect.
SECTION 7.6 No Conflict. (a) Neither the execution and delivery by
Transocean and Merger Sub of this Agreement or any of the Transaction Agreements
to which Transocean or Merger Sub, as applicable, is a party nor the
consummation by Transocean and Merger Sub of the transactions contemplated
hereby or thereby in accordance with the terms hereof or thereof will (i)
conflict with or result in a breach of any provisions of the memorandum of
association or articles of association of Transocean or the memorandum of
association or articles of association of Merger Sub; (ii) violate, or conflict
with, or result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination or in a right of termination or cancellation
of, or give rise to a right of purchase under or accelerate the performance
required by, or result in the creation of any Lien upon any of the properties of
Transocean or its Subsidiaries under, or result in being declared void,
voidable, or without further binding effect, or otherwise result in a detriment
to Transocean or any of its Subsidiaries under any of the terms, conditions or
provisions of, any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, lease, contract, agreement, joint venture or other instrument
or obligation to which Transocean or any of its Subsidiaries is a party, or by
which Transocean or any of its Subsidiaries or any of their properties is bound
or affected; or (iii) contravene or conflict with or constitute a violation of
any provision of any law, rule, regulation, judgment, order or decree binding
upon or applicable to Transocean or any of its Subsidiaries, except for such
matters described in clause (ii) or (iii) as do not and are not likely to have,
individually or in the aggregate, a Transocean Material Adverse Effect.
(b) Neither the execution and delivery by Transocean or Merger Sub of this
Agreement or any of the Transaction Agreements to which Transocean or Merger
Sub, as applicable, is a party nor the consummation by Transocean or Merger Sub
of the transactions contemplated hereby or thereby in accordance with the terms
hereof or thereof will require any consent, approval or authorization of, or
filing or registration with, any governmental or regulatory authority, other
than the Regulatory Filings, and listing of Transocean Ordinary Shares to be
issued in the Merger under the rules of the NYSE, except for any consent,
approval or authorization the failure of which to obtain and for any filing or
registration the failure of which to make does not and is not likely to have a
Transocean Material Adverse Effect.
SECTION 7.7 SEC Documents. Transocean has filed with the SEC all documents
required to be so filed by it since January 1, 1998, and has made available to
Sedco Forex and Schlumberger each registration statement, report, proxy
statement or information statement (other than preliminary materials) it has so
filed since January 1, 1998, each in the form (including exhibits and any
amendments thereto) filed with the SEC (collectively, the "Transocean Reports").
As of their respective dates, each of the Transocean Reports (i) was prepared in
all material respects in accordance with the applicable requirements of the
Securities Act, the Exchange Act and the rules and regulations thereunder and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading except for such statements, if any, as have been modified by
subsequent filings with the SEC prior to the date hereof. Each of the
consolidated balance sheets included in or incorporated by reference into the
Transocean Reports (including the related notes and schedules) fairly presents
in all material respects the consolidated financial position of Transocean and
its Subsidiaries as of its date, and each of the consolidated statements of
income, cash flows and changes in stockholders' equity included in or
incorporated by reference into the Transocean Reports (including any related
notes and schedules) fairly presents in all material respects the results of
operations, cash flows or changes in stockholders' equity, as the case may be,
of Transocean and its Subsidiaries for the periods set forth therein (subject,
in the case of unaudited statements, to (x) such exceptions as may be permitted
by Form 10-Q of the SEC and (y) normal year-end audit adjustments), in each case
in accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. Except as and to
the extent set forth on the consolidated balance sheet of Transocean and its
Subsidiaries at December 31, 1998, including all notes thereto, as of such date,
neither Transocean nor any of its Subsidiaries had any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
that would be required to be reflected on, or reserved against in, a
A-18
<PAGE> 193
balance sheet of Transocean or in the notes thereto prepared in accordance with
generally accepted accounting principles consistently applied, other than
liabilities or obligations which would not have, individually or in the
aggregate, a Transocean Material Adverse Effect.
SECTION 7.8 Litigation. There are no actions, suits or proceedings pending
against Transocean or any of its Subsidiaries or, to Transocean's knowledge,
threatened against Transocean or any of its Subsidiaries, at law or in equity,
or before or by any U.S. federal, state or non-U.S. court, commission, board,
bureau, agency or instrumentality, that are likely to have, individually or in
the aggregate, a Transocean Material Adverse Effect. There are no outstanding
judgments, decrees, injunctions, awards or orders against Transocean or any of
its Subsidiaries that have had or are likely to have, individually or in the
aggregate, a Transocean Material Adverse Effect.
SECTION 7.9 Absence of Certain Changes. Since December 31, 1998, there has
not been (i) any event or occurrence that has had or is likely to have a
Transocean Material Adverse Effect, (ii) any material change by Transocean or
any of its Subsidiaries, when taken as a whole, in any of its accounting
methods, principles or practices or any of its tax methods, practices or
elections, (iii) any declaration, setting aside or payment of any dividend or
distribution in respect of any share capital of Transocean or any redemption,
purchase or other acquisition of any of its securities, except dividends on
Transocean Ordinary Shares at a rate of not more than $0.03 per share per
quarter or (iv) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option, stock purchase or other employee benefit plan, except in the ordinary
course of business.
SECTION 7.10 Taxes. (a) Each of Transocean, its Subsidiaries and each
affiliated, consolidated, combined, unitary or similar group of which any such
corporation is or was a member has (i) duly filed (or there has been filed on
its behalf) on a timely basis with appropriate governmental authorities all
Returns required to be filed by or with respect to it on or prior to the date
hereof, except to the extent that any failure to file does not and is not likely
to have, individually or in the aggregate, a Transocean Material Adverse Effect,
and (ii) duly paid or deposited in full on a timely basis or made adequate
provision in accordance with generally accepted accounting principles (or there
has been paid or deposited or adequate provision has been made on its behalf)
for the payment of all taxes required to be paid by it, including, without
limitation, taxes incurred by Transocean in the corporate reorganization
described in the Proxy Statement of Transocean Offshore Inc. (a Delaware
corporation) and Prospectus for Transocean Offshore Inc. (a Cayman Islands
exempted company limited by shares) dated April 12, 1999, and transactions
associated with such reorganization, except to the extent that any failure to
pay or deposit or make adequate provision for the payment of such taxes does not
and is not likely to have, individually or in the aggregate, a Transocean
Material Adverse Effect.
(b) (i) No audits or other administrative proceedings or court proceedings
are presently pending with regard to any taxes or Returns of Transocean or any
of its Subsidiaries as to which any taxing authority has asserted in writing any
claim which, if adversely determined, is likely to have a Transocean Material
Adverse Effect; (ii) no governmental authority is now asserting in writing any
deficiency or claim for taxes or any adjustment to taxes with respect to which
Transocean or any of its Subsidiaries may be liable with respect to income and
other material taxes which have not been fully paid or finally settled, which,
if adversely determined, is likely to have a Transocean Material Adverse Effect;
(iii) as of the execution of this Agreement, neither Transocean nor any of its
Subsidiaries has granted any requests, agreements, consents or waivers to extend
the statutory period of limitations applicable to the assessment of any taxes
with respect to any Returns of Transocean or any of its Subsidiaries; and (iv)
neither Transocean nor any of its Subsidiaries is a party to, is bound by or has
any obligation under any tax sharing, allocation or indemnity agreement or any
similar agreement or arrangement that is likely to have a Transocean Material
Adverse Effect.
SECTION 7.11 Employee Benefit Plans. (a) Schedule 7.11 of the Transocean
Disclosure Letter contains a list of all Transocean Benefit Plans. The term
"Transocean Benefit Plans" means all material employee benefit plans and other
material benefit arrangements, including all "employee benefit plans" as defined
in Section 3(3) of ERISA, whether or not U.S. based plans, and all other
employee benefit, bonus, incentive, deferred compensation, stock option (or
other equity-based), severance, employment, change in
A-19
<PAGE> 194
control, welfare (including post-retirement medical and life insurance) and
fringe benefit plans or agreements, whether or not subject to ERISA and whether
written or oral, sponsored, maintained or contributed to or required to be
contributed to by Sedco Forex or any of its Subsidiaries, to which Sedco Forex
or any of its Subsidiaries is a party or in which any Person who is currently,
has been or, prior to the Effective Time, is a party or in which any person who
is currently, has been or, prior to the Effective Time, is expected to become an
employee of Transocean is a participant. Transocean will provide Schlumberger,
within 30 days after the date hereof, true and complete copies of the Transocean
Benefit Plans and, if applicable, the most recent Form 5500, summary plan
descriptions, annual reports and actuarial reports, if applicable, for each such
plan.
(b) Except as would not have, individually or in the aggregate, a
Transocean Material Adverse Effect: all applicable reporting and disclosure
requirements have been met with respect to Transocean Benefit Plans; there has
been no "reportable event," as that term is defined in section 4043 of ERISA,
with respect to Transocean Benefit Plans subject to Title IV of ERISA; to the
extent applicable, Transocean Benefit Plans comply, in all material respects,
with the requirements of ERISA and the Code or regulations of any applicable
jurisdiction, and any Transocean Benefit Plan intended to be qualified under
section 401(a) of the Code has been determined by the IRS to be so qualified;
Transocean Benefit Plans have been maintained and operated, in all material
respects, in accordance with their terms, and there are no breaches of fiduciary
duty in connection with Transocean Benefit Plans; there are no pending, or to
Transocean's knowledge threatened, claims against or otherwise involving any
Transocean Benefit Plan, and no suit, action or other litigation (excluding
claims for benefits incurred in the ordinary course of Transocean Benefit Plan
activities) has been brought against or with respect to any such Transocean
Benefit Plan; all material contributions required to be made as of the date
hereof to Transocean Benefit Plans have been made or provided for; with respect
to Transocean Benefit Plans or any "employee pension benefit plans," as defined
in section 3(2) of ERISA, that are subject to title IV of ERISA and have been
maintained or contributed to within six years prior to the Effective Time by
Transocean, its Subsidiaries or any trade or business (whether or not
incorporated) which is under common control, or which is treated as a single
employer, with Transocean or any of its Subsidiaries under section 414(b), (c),
(m) or (o) of the Code, (i) neither Transocean nor any of its Subsidiaries has
incurred any direct or indirect liability under Title IV of ERISA in connection
with any termination thereof or withdrawal therefrom; and (ii) there does not
exist any accumulated funding deficiency within the meaning of section 412 of
the Code or section 302 of ERISA, whether or not waived.
(c) Neither Transocean nor any of its Subsidiaries nor any trade or
business (whether or not incorporated) which is under common control, or which
is treated as a single employer, with Transocean or any of its Subsidiaries
under section 414(b), (c), (m) or (o) of the Code, contributes to, or has an
obligation to contribute to, and has not within six years prior to the Effective
Time contributed to, or had an obligation to contribute to, a "multiemployer
plan" within the meaning of section 3(37) of ERISA, and the execution of, and
performance of the transactions contemplated in, this Agreement will not (either
alone or upon the occurrence of any additional or subsequent events) constitute
an event under any benefit plan, policy, arrangement or agreement or any trust
or loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligations to fund benefits with respect to any
employee of Transocean or any Subsidiary thereof.
(d) No Transocean Benefit Plan provides medical, surgical, hospitalization,
death or similar benefits (whether or not insured) for employees or former
employees of Transocean or any Subsidiaries of Transocean for periods extending
beyond their retirement or other termination of service other than (i) coverage
mandated by applicable law, (ii) death benefits under any "pension plan" or
(iii) benefits the full cost of which is borne by the current or former employee
(or his beneficiary).
SECTION 7.12 Labor Matters. (a) (i) Neither Transocean nor any of its
Subsidiaries is a party to, or bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization (A) covering any U.S. employees or (B) covering, in any single
instance, 10% or more of the employees of Transocean and its Subsidiaries taken
as a whole, and (ii) to Transocean's knowledge, there are no organizational
efforts with respect to the formation of a collective bargaining unit presently
being made or threatened (x) involving any U.S. employees or (y) involving, in
any single instance, 10% or more of the employees of Transocean and its
Subsidiaries taken as a whole.
A-20
<PAGE> 195
(b) Except for such matters as do not and are not likely to have a
Transocean Material Adverse Effect (i) neither Transocean nor any Subsidiary of
Transocean has received any written complaint of any unfair labor practice or
other unlawful employment practice or any written notice of any material
violation of any federal, state or local statutes, laws, ordinances, rules,
regulations, orders or directives with respect to the employment of individuals
by, or the employment practices of, Transocean or any Subsidiary of Transocean
or the work conditions or the terms and conditions of employment and wages and
hours of their respective businesses and (ii) there are no unfair labor practice
charges or other employee related complaints against Transocean or any
subsidiary of Transocean pending or, to the knowledge of Transocean, threatened,
before any governmental authority by or concerning the employees working in
their respective businesses.
SECTION 7.13 Environmental Matters. (a) Transocean and each Transocean
Subsidiary has been and is in compliance with all Environmental Laws except for
such matters as do not and are not likely to have, individually or in the
aggregate, a Transocean Material Adverse Effect. There are no past or present
facts, conditions or circumstances that interfere with the conduct of any of
their respective businesses in the manner now conducted or which interfere with
continued compliance with any Environmental Law, except for such matters as do
not and are not likely to have, individually or in the aggregate, a Transocean
Material Adverse Effect.
(b) No judicial or administrative proceedings or governmental
investigations are pending or, to the knowledge of Transocean, threatened
against Transocean or its Subsidiaries that allege the violation of or seek to
impose liability pursuant to any Environmental Law, and there are no past or
present facts, conditions or circumstances at, on or arising out of, or
otherwise associated with any, current or former businesses, assets or
properties of Transocean or any Subsidiary of Transocean, including but not
limited to on-site or off-site disposal, release or spill of any Hazardous
Materials which violate Environmental Law or are likely to give rise to (i)
costs, expenses, liabilities or obligations for any cleanup, remediation,
disposal or corrective action under any Environmental Law or (ii) claims arising
for personal injury, property damage or damage to natural resources, except for
such matters as do not and are not likely to have a Transocean Material Adverse
Effect.
(c) Neither Transocean nor any of its Subsidiaries has (i) received any
notice of noncompliance with, violation of, or liability or potential liability
under any Environmental Law or (ii) entered into any consent decree or order or
is subject to any order of any court or governmental authority or tribunal under
any Environmental Law or relating to the cleanup of any Hazardous Materials,
except for such matters as do not and are not likely to have a Transocean
Material Adverse Effect.
SECTION 7.14 Intellectual Property. Transocean and its Subsidiaries own or
possess adequate licenses or other valid rights to use all patents, patent
rights, trademarks, trademark rights and proprietary information used or held
for use in connection with their respective businesses as currently being
conducted, except where the failure to own or possess such licenses and other
rights does not and is not likely to have, individually or in the aggregate, a
Transocean Material Adverse Effect, and there are no assertions or claims
challenging the validity of any of the foregoing that are likely to have,
individually or in the aggregate, a Transocean Material Adverse Effect. The
conduct of the Transocean's and its Subsidiaries respective businesses as
currently conducted does not conflict with any patents, patent rights, licenses,
trademarks, trademark rights, trade names, trade name rights or copyrights of
others that are likely to have, individually or in the aggregate, a Transocean
Material Adverse Effect. There is no material infringement of any proprietary
right owned by or licensed by or to Transocean or any of its Subsidiaries that
is likely to have, individually or in the aggregate, a Transocean Material
Adverse Effect.
SECTION 7.15 Year 2000 Readiness. The computer software operated, sold or
licensed by Transocean and its Subsidiaries that is material to their respective
businesses or internal operations is capable of providing or is being or will be
adapted, or is capable of being replaced, to provide uninterrupted millennium
functionality to record, store, process and present calendar dates falling on or
after January 1, 2000 in substantially the same manner and with substantially
the same functionality as such software records, stores, processes and presents
such calendar dates falling on or before December 31, 1999, except matters as do
not and are not likely to have a Transocean Material Adverse Effect. The costs
of the adaptations and replacements referred to in the prior sentence are not
likely to have a Transocean Material Adverse Effect.
A-21
<PAGE> 196
The foregoing statements constitute "year 2000 readiness disclosure" within the
meaning of the Year 2000 Information Readiness and Disclosure Act of 1998.
SECTION 7.16 Insurance. (a) Except for such matters as do not and are not
likely to have, individually or in the aggregate, a Transocean Material Adverse
Effect, Transocean and its Subsidiaries maintain insurance coverage with
financially responsible insurance companies in such amounts and against such
losses as are customary in the international offshore drilling business prior to
the date hereof.
(b) Except for such matters as do not and are not likely to have,
individually or in the aggregate, a Transocean Material Adverse Effect, no event
relating to Transocean and its Subsidiaries has occurred that is likely to
result in an upward adjustment in premiums under any insurance policies they
maintain. Excluding insurance policies that have expired and been replaced in
the ordinary course of business, no insurance policy has been canceled within
the two years prior to the date hereof, and to Transocean's knowledge, no threat
has been made to cancel any insurance policy of Transocean or any Subsidiary of
Transocean during such period. All such insurance will remain in full force and
effect with respect to periods before the Closing or replaced with similar
policies. No event has occurred, including the failure by Transocean or any
Transocean Subsidiary to give any notice or information or by giving any
inaccurate or erroneous notice or information, which materially limits or
impairs the rights of Transocean or any Subsidiary of Transocean under any such
insurance policies.
(c) Insurance policies are in effect and coverage thereunder will be
available to Transocean for all personal injury claims disclosed in the
Transocean Disclosure Letter or otherwise, with deductibles not exceeding
$100,000 per claim for claims in the U.S. or involving U.S. nationals and
$10,000 per claim for other claims.
SECTION 7.17 No Brokers. Transocean has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of Sedco Forex, Schlumberger or Transocean to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, except that Transocean has retained Simmons & Company
International as its financial advisor, the arrangements with which have been
disclosed in writing to Sedco Forex prior to the date hereof.
SECTION 7.18 Opinion of Financial Advisor. The Board of Directors of
Transocean has received the opinion of Simmons & Company International to the
effect that, as of the date thereof, the Merger Ratio is fair to Transocean from
a financial point of view.
SECTION 7.19 Sedco Forex Stock Ownership. Neither Transocean nor any of
its Subsidiaries owns any shares of capital stock of Sedco Forex or Schlumberger
or any other securities convertible into or otherwise exercisable to acquire
capital stock of Sedco Forex or Schlumberger.
SECTION 7.20 Reorganization. Neither Transocean nor any of its
Subsidiaries has taken or failed to take any action, as a result of which (a)
the Merger would not qualify as a reorganization under Section 368(a)(1)(B) of
the Code or (b) the Distribution would not qualify as a distribution described
in Section 355 of the Code.
SECTION 7.21 Vote Required. The affirmative vote of the holders of at
least a majority of the issued Transocean Ordinary Shares to approve the
increase in authorized ordinary share capital and the affirmative vote of at
least two-thirds of the holders of the issued Transocean Ordinary Shares present
in person or by proxy to approve the change of Transocean's name at the meeting
to be held in accordance with Section 8.4 is the only vote of the holders of any
class or series of Transocean share capital necessary to approve such actions
and the transactions contemplated hereby.
SECTION 7.22 Ownership of Drilling Rigs and Drillships. As of the date
hereof, Transocean or a Subsidiary of Transocean has, and as of the Effective
Time, Transocean or a Subsidiary of Transocean will have, good and marketable
title to the drilling rigs and drill ships listed in Transocean's most recent
annual report on Form 10-K, together with any machinery, engines, equipment,
anchors, cable, drilling machinery, drilling equipment (including but not
limited to drill pipe, riser, stabilizers and bottom-hole assemblies),
A-22
<PAGE> 197
pumps, electrical, mechanical, chemical, hydraulic and other systems actually
located on any such rig or drillship, incorporated therein or attached thereto,
in each case, to the extent owned by Transocean or a Subsidiary of Transocean,
or under construction or acquired or purchased therefor (including items in
transit), or for which commitments to purchase have been issued in connection
therewith, and any and all permits, licenses, authorizations and approvals
granted or issued by any regulatory or governing authority pertaining to the
ownership, operation or construction of any such rig or drillship, in each case
free and clear of all Liens except for (i) defects or irregularities of title or
encumbrances of a nature that do not materially impair the ownership or
operation of these assets and which have not had and are not likely to have a
Transocean Material Adverse Effect, (ii) Liens that secure obligations not yet
due and payable or, if such obligations are due and have not been paid, Liens
securing such obligations that are being diligently contested in good faith and
by appropriate proceedings (any such contests involving an amount in excess of
$10 million being described in the Transocean Disclosure Letter) and (iii) other
Liens disclosed in the Transocean Disclosure Letter (the Liens described in
clauses (i), (ii) and (iii), collectively, "Transocean Permitted Liens"). No
such asset is leased under an operating lease from a lessor that, to
Transocean's knowledge, has incurred non-recourse Indebtedness to finance the
acquisition or construction of such asset.
SECTION 7.23 Undisclosed Liabilities. Neither Transocean nor any of its
Subsidiaries has any liabilities or obligations of any nature, whether or not
fixed, accrued, contingent or otherwise, except liabilities and obligations that
(i) are reflected with reasonable specificity in the Transocean Reports, (ii)
are contained in the Transocean Disclosure Schedule or (iii) do not and are not
likely to have, individually or in the aggregate, a Transocean Material Adverse
Effect.
SECTION 7.24 Certain Contracts. (a) As of the date of this Agreement,
neither Transocean nor any Subsidiary of Transocean is a party to or bound by
(i) any non-competition agreement or any other agreement or obligation that
purports to limit in any material respect the manner in which, or the localities
in which, all or any material portion of their respective businesses are
conducted, (ii) any drilling rig construction or conversion contract, (iii) any
drilling contracts of 150 days or greater remaining duration or (iv) any
contract or agreement for the borrowing of money containing covenants or
provisions that would be violated or that would result in a default under such
contract or agreement in the event the Merger or the transactions contemplated
by this Agreement were consummated (all contracts or agreements of the types
described in clauses (i) through (iv) being referred to herein as "Transocean
Material Contracts"). Within 30 days after the date of this Agreement,
Transocean will deliver to Schlumberger, or make reasonably available to
Schlumberger for review, complete and correct copies of all Transocean Material
Contracts.
(b) Each Transocean Material Contract is valid and binding on (i)
Transocean and any Subsidiary of Transocean that are parties thereto and (ii) to
the knowledge of Transocean, the other parties thereto and is in full force and
effect, and Transocean and each of its Subsidiaries have in all material
respects performed all obligations required to be performed by them to date
under each Transocean Material Contract to which it is a party, except where
such failure to be binding or in full force and effect or such failure to
perform does not and is not likely to create, individually or in the aggregate,
a Transocean Material Adverse Effect. Except for such matters as do not and are
not likely to have a Transocean Material Adverse Effect, none of Transocean or
its Subsidiaries (x) knows of, or has received written notice of, any breach of
or violation or default under (nor, to the knowledge of Transocean, does there
exist any condition which with the passage of time or the giving of notice or
both would result in such a violation or default under) any Transocean Material
Contract or (y) has received written notice of the desire of the other party or
parties to any such Transocean Material Contract to exercise any rights such
party has to cancel, terminate or repudiate such contract or exercise remedies
thereunder. At the Effective Time, each such Transocean Material Contract then
in effect will be enforceable by Transocean or a Subsidiary of Transocean in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
and general principles of equity.
SECTION 7.25 Capital Expenditure Program. The Transocean Disclosure Letter
accurately sets forth in all material respects, for each of Transocean's
sustaining, life extension and newbuild capital expenditure programs, the
capital expenditures for all such programs that were forecasted to be incurred
in 1999 and 2000, as previously provided to Schlumberger. The construction in
progress attributable to the newbuilds and
A-23
<PAGE> 198
included in the consolidated balance sheet of Transocean at December 31, 1998
included in the Transocean Reports (excluding capitalized interest on such new,
builds) and the projected newbuild capital expenditures to be incurred in 1999
and 2000 equal the projected total construction costs to complete such
newbuilds, as at the time of such forecast.
SECTION 7.26 Decrees, Etc. Except for such matters as do not and are not
likely to have a Transocean Material Adverse Effect (i) no order, writ, fine,
injunction, decree, judgment, award or determination of any court or
governmental authority has been issued or entered against Transocean or any
Subsidiary of Transocean that continues to be in effect that affects the
ownership or operation of any of their respective assets, and (ii) no criminal
order, writ, fine, injunction, decree, judgment or determination of any court or
governmental authority has been issued against Transocean or any Subsidiary of
Transocean.
SECTION 7.27 Improper Payments. No bribes, kickbacks or other improper
payments have been made by Transocean or any Subsidiary of Transocean or agent
of any of them in connection with the conduct of their respective businesses or
the operation of their respective assets, and neither Transocean, any Subsidiary
of Transocean, nor any agent of any of them has received any such payments from
vendors, suppliers or other persons, where any such payment made or received
would create a Transocean Material Adverse Effect.
ARTICLE 8
COVENANTS
SECTION 8.1 Conduct of Businesses. Prior to the Effective Time, except as
set forth in the Transocean Disclosure Letter or the Sedco Forex Disclosure
Letter or as expressly contemplated by any other provision of this Agreement or
any of the Transaction Agreements to which Transocean or Sedco Forex, as
applicable, is a party, unless Transocean or Sedco Forex, as applicable, has
consented in writing thereto, each of Transocean and Sedco Forex:
(a) shall, and shall cause each of its Subsidiaries (as used in this
Article 8, when referring to (i) Sedco Forex, Sedco Forex shall include the
Sedco Forex Business, and (ii) Subsidiaries of Sedco Forex, Subsidiaries
shall mean the Sedco Forex Subsidiaries) to, conduct its operations
according to their usual, regular and ordinary course in substantially the
same manner as heretofore conducted;
(b) shall use its commercially reasonable best efforts, and shall
cause each of its Subsidiaries to use its commercially reasonable best
efforts, to preserve intact their business organizations and goodwill, keep
available the services of their respective officers and employees and
maintain satisfactory relationships with those persons having business
relationships with them;
(c) shall not amend its memorandum of association or articles of
association;
(d) shall promptly notify the other of any material change in its
condition (financial or otherwise) or business or any material litigation
or material governmental complaints, investigations or hearings (or
communications in writing indicating that such litigation, complaints,
investigations or hearings may be contemplated), or the breach in any
material respect of any representation or warranty contained herein;
(e) shall promptly deliver to the other true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of
this Agreement;
(f) shall not (i) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the
date hereof, or referred to in clause (ii) below and disclosed pursuant to
this Agreement or in connection with transactions permitted by Section
8.1(i), issue any shares of its capital stock, effect any stock split or
otherwise change its capitalization as it existed on the date hereof, (ii)
grant, confer or award any option, warrant, conversion right or other right
not existing on the date hereof to acquire any shares of its capital stock
except the automatic awards to nonemployee directors pursuant to the
Transocean Long-Term Incentive Plan, (iii) increase any compensation or
benefits, except in the ordinary course of business consistent with past
practice, or enter into or amend any employment agreement with any of its
present or future officers or directors, except with new employees
A-24
<PAGE> 199
consistent with past practice or (iv) adopt any new employee benefit plan
(including any stock option, stock benefit or stock purchase plan) or amend
(except as required by law) any existing employee benefit plan in any
material respect, except for changes which are less favorable to
participants in such plans;
(g) shall not (i) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital
stock or (ii) redeem, purchase or otherwise acquire any shares of its
capital stock or capital stock of any of its Subsidiaries, or make any
commitment for any such action, except (x) in the case of Transocean, for
(A) the declaration and payment of regular, quarterly dividends, consistent
with past practice, not to exceed $0.03 per Transocean Ordinary Share per
quarter and (B) transfers between Subsidiaries in the ordinary course of
business and (y) in the case of Sedco Forex and the Sedco Forex
Subsidiaries, those entities may distribute any cash or cash equivalents
held by them to their respective parent entities, but may not distribute
any other material assets except as set forth in the Distribution
Agreement;
(h) shall not, and shall not permit any of its Subsidiaries to, sell,
lease or otherwise dispose of any of its assets (including capital stock of
Subsidiaries) which are material to Sedco Forex or Transocean, as the case
may be, individually or in the aggregate, except in the ordinary course of
business;
(i) shall not, and shall not permit any of its Subsidiaries to, except
pursuant to contractual commitments in effect on the date hereof and
disclosed in the Transocean Disclosure Letter or the Sedco Forex Disclosure
Letter, as the case may be, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any assets or
securities, in each case (i) for an aggregate consideration for all such
acquisitions in excess of $10 million (excluding acquisitions approved in
writing by Transocean and Sedco Forex) or (ii) where a filing under the HSR
Act or any non-U.S. competition, antitrust or premerger notification laws
is required;
(j) shall not, except as may be required as a result of a change in
law or in generally accepted accounting principles, change any of the
accounting principles or practices used by it;
(k) shall, and shall cause any of its Subsidiaries to, use reasonable
efforts to maintain with financially responsible insurance companies
insurance in such amounts and against such risks and losses as are
customary for such party;
(l) shall not, and shall not permit any of its Subsidiaries to, (i)
make or rescind any material express or deemed election relating to taxes
that does or is likely to materially and adversely affect it, including
elections for any and all joint ventures, partnerships, limited liability
companies, working interests or other investments where it has the capacity
to make such binding election, (ii) settle or compromise any material
claim, action, suit, litigation, proceeding, arbitration, investigation,
audit or controversy relating to taxes, that does or is likely to
materially and adversely affect it or (iii) change in any material respect
any of its methods of reporting any item for tax purposes from those
employed in the preparation of its tax returns for the most recent taxable
year for which a return has been filed, that does or is likely to
materially and adversely affect it;
(m) shall not, and shall not permit any of its Subsidiaries to, (i)
incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of such party or any of its Subsidiaries or
guarantee any debt securities of others, (ii) except in the ordinary course
of business, enter into any material lease (whether such lease is an
operating or capital lease) or create any material mortgages, Liens,
security interests or other encumbrances on its property in connection with
any Indebtedness thereof (other than Sedco Forex Permitted Liens with
respect to Sedco Forex and the Sedco Forex Subsidiaries and Transocean
Permitted Liens with respect to Transocean and its Subsidiaries) or (iii)
make or commit to make aggregate capital expenditures in excess of $10
million over the capital expenditures forecast previously disclosed to the
other; provided, however, that in the case of item (i), Sedco Forex,
Transocean or any of their respective Subsidiaries may incur indebtedness
for borrowed money for (w) general corporate
A-25
<PAGE> 200
purposes, (x) refinancings of existing debt, (y) financing existing
projects set forth in the applicable Disclosure Letter and (z) other
immaterial borrowings so long as any such debt incurred may be prepaid
without material prepayment penalties;
(n) shall diligently carry out the covenants and agreements set forth
in the Distribution Agreement with respect to separation of the Sedco Forex
Business;
(o) shall not, and shall cause its Subsidiaries not to, purchase or
otherwise acquire any Transocean Ordinary Shares, Schlumberger Common Stock
or Sedco Forex Common Stock;
(p) subject to Section 8.5, shall not take any action that is likely
to delay materially or adversely affect the ability of any of the parties
hereto to obtain any consent, authorization, order or approval of any
governmental commission, board or other regulatory body or the expiration
of any applicable waiting period required to consummate the Merger;
(q) shall not (i) agree in writing or otherwise to take any of the
foregoing actions or (ii) permit any of its Subsidiaries to agree in
writing or otherwise to take any of the foregoing actions that refer to
Subsidiaries; and
(r) shall not terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of its
respective Subsidiaries is a party; and during such period shall enforce,
to the fullest extent permitted under applicable law, the provisions of
such agreement, including by obtaining injunctions to prevent any breaches
of such agreements and to enforce specifically the terms and provisions
thereof in any court of the United States of America or any state having
jurisdiction.
With respect to all of the matters covered by this Section 8.1,
Schlumberger shall cause Sedco Forex to take or refrain from taking all of the
actions required or prohibited to be taken hereunder.
SECTION 8.2 No Solicitation by Sedco Forex or Schlumberger. (a) Each of
Sedco Forex and Schlumberger agree that (i) neither it nor any of its
Subsidiaries shall, and shall not authorize or permit any of its officers,
directors, employees, agents or representatives (including, without limitation,
any investment banker, attorney or accountant retained by it or any of its
Subsidiaries) to, and on becoming aware of it will stop such person from
continuing to, directly or indirectly solicit, initiate or encourage (including
by way of furnishing nonpublic information), or take any action designed to
facilitate, directly or indirectly, any inquiry, proposal or offer (including,
without limitation, any proposal or offer to its stockholders) with respect to a
tender or exchange offer, merger, consolidation, business combination, purchase
or similar transaction or series of transactions involving, individually or in
the aggregate, (A) 15% or more of the assets of Sedco Forex or the Sedco Forex
Assets (including any ownership interest in any Subsidiary) on a consolidated
basis, (B) 15% or more of any class of capital stock of Sedco Forex, (C) any
Subsidiary of Schlumberger in which 15% or more of the Assets of the Sedco Forex
Business on a consolidated basis are located or (D) capital stock of
Schlumberger, in the case of (D) the consummation of which is conditioned on the
termination of this Agreement (any such proposal, offer or transaction being
hereinafter referred to as a "Sedco Forex Acquisition Proposal") or cooperate
with or assist, participate or engage in any discussions or negotiations
concerning a Sedco Forex Acquisition Proposal; and (ii) it will immediately
cease and cause to be terminated any existing negotiations with any parties
conducted heretofore with respect to any of the foregoing; provided that nothing
contained in this Agreement shall prevent Sedco Forex, Schlumberger or either of
their Boards of Directors from (A) complying with Rule 14e-2 promulgated under
the Exchange Act with regard to a Sedco Forex Acquisition Proposal or (B) prior
to the Cutoff Date, providing information (pursuant to a confidentiality
agreement at least as favorable to Sedco Forex and Schlumberger as the
Confidentiality Agreement dated May 17, 1999, between Transocean and
Schlumberger (the "Transocean Confidentiality Agreement")) to or engaging in any
negotiations or discussions with any person or entity who has made an
unsolicited bona fide Sedco Forex Acquisition Proposal with respect to all the
outstanding Sedco Forex Common Stock or all or substantially all the assets of
Sedco Forex or other unsolicited bona fide Sedco Forex Acquisition Proposal
that, in the good faith judgment of a committee composed solely of the outside
directors of Schlumberger, taking into account the likelihood of financing and
consummation, and based on the written advice of a financial advisor of
recognized national reputation, a copy of which shall be provided to Transocean,
is superior
A-26
<PAGE> 201
to the Merger (a "Sedco Forex Superior Proposal"), if that committee of the
Board of Directors of Schlumberger, after consultation with its outside legal
counsel, determines that the failure to do so would be inconsistent with its
fiduciary obligations.
(b) Prior to taking any action referred to in Section 8.2(a), if Sedco
Forex or Schlumberger intends to participate in any such discussions or
negotiations or provide any such information to any such third party, Sedco
Forex or Schlumberger shall give prompt prior written notice to Transocean of
each such action. Sedco Forex or Schlumberger will immediately notify Transocean
in writing of any such requests for such information or the receipt of any Sedco
Forex Acquisition Proposal, including the identity of the person or group
engaging in such discussions or negotiations, requesting such information or
making such Sedco Forex Acquisition Proposal, and the material terms and
conditions of any Sedco Forex Acquisition Proposal. Sedco Forex or Schlumberger
will keep Transocean fully informed of the status and details (including any
amendments or proposed amendments) on a timely basis of any such requests, Sedco
Forex Acquisition Proposals or inquiries. Any notice under this Section 8.2
shall be given by facsimile with receipt confirmed or personal delivery.
(c) Nothing in this Section 8.2 shall permit Sedco Forex or Schlumberger to
enter into any agreement with respect to a Sedco Forex Acquisition Proposal
during the term of this Agreement, it being agreed that during the term of this
Agreement, Sedco Forex or Schlumberger shall not enter into any agreement with
any person that provides for, or in any way facilitates, a Sedco Forex
Acquisition Proposal, other than a confidentiality agreement at least as
favorable to Sedco Forex and Schlumberger as the Transocean Confidentiality
Agreement.
(d) For purposes hereof, the "Cutoff Date," when used with respect to
Schlumberger, means the date the condition set forth in Section 9.1(a)(i) is
satisfied and, when used with respect to Transocean, means the date the
condition set forth in Section 9.1(a)(ii) is satisfied.
SECTION 8.3 No Solicitation by Transocean. (a) Transocean agrees that (i)
neither it nor any of its Subsidiaries shall, and shall not authorize or permit
any of its officers, directors, employees, agents or representatives (including,
without limitation, any investment banker, attorney or accountant retained by it
or any of its Subsidiaries) to, and on becoming aware of it will stop such
person from continuing to, directly or indirectly solicit, initiate or encourage
(including by way of furnishing nonpublic information), or take any action
designed to facilitate, directly or indirectly, any inquiry, proposal or offer
(including, without limitation, any proposal or offer to its stockholders) with
respect to a tender or exchange offer, merger, consolidation, business
combination, purchase or similar transaction or series of transactions
involving, individually or in the aggregate, 15% or more of the assets
(including any ownership interest in any Subsidiary) on a consolidated basis or
15% or more of any class of share capital of, Transocean (any such proposal,
offer or transaction being hereinafter referred to as a "Transocean Acquisition
Proposal") or cooperate with or assist, participate or engage in any discussions
or negotiations concerning a Transocean Acquisition Proposal; and (ii) it will
immediately cease and cause to be terminated any existing negotiations with any
parties conducted heretofore with respect to any of the foregoing; provided that
nothing contained in this Agreement shall prevent Transocean or its Board of
Directors from (A) complying with Rule 14e-2 promulgated under the Exchange Act
with regard to a Transocean Acquisition Proposal or (B) prior to the Cutoff
Date, providing information (pursuant to a confidentiality agreement at least as
favorable to Transocean as the Transocean Confidentiality Agreement) to or
engaging in any negotiations or discussions with any person or entity who has
made an unsolicited bona fide Transocean Acquisition Proposal with respect to
all the outstanding Transocean Ordinary Shares or all or substantially all the
assets of Transocean that, in the good faith judgment of a committee composed
solely of the outside directors of Transocean, taking into account the
likelihood of financing and consummation, and based on the written advice of a
financial advisor of recognized national reputation, a copy of which shall be
provided to Schlumberger, is superior to the Merger (a "Transocean Superior
Proposal"), if that committee of the Board of Directors of Transocean, after
consultation with its outside legal counsel, determines that the failure to do
so would be inconsistent with its fiduciary obligations.
(b) Prior to taking any action referred to in Section 8.3(a), if Transocean
intends to participate in any such discussions or negotiations or provide any
such information to any such third party, Transocean shall give
A-27
<PAGE> 202
prompt prior written notice to Sedco Forex and Schlumberger of each such action.
Transocean will immediately notify Sedco Forex and Schlumberger in writing of
any such requests for such information or the receipt of any Transocean
Acquisition Proposal, including the identity of the person or group engaging in
such discussions or negotiations, requesting such information or making such
Transocean Acquisition Proposal, and the material terms and conditions of any
Transocean Acquisition Proposal. Transocean will keep Sedco Forex and
Schlumberger fully informed of the status and details (including any amendments
or proposed amendments) on a timely basis of any such requests, Sedco Forex
Acquisition Proposals or inquiries. Any notice under this Section 8.3 shall be
given by facsimile with receipt confirmed or personal delivery.
(c) Nothing in this Section 8.3 shall permit Transocean to enter into any
agreement with respect to a Transocean Acquisition Proposal during the term of
this Agreement, it being agreed that during the term of this Agreement,
Transocean shall not enter into any agreement with any person that provides for,
or in any way facilitates, a Transocean Acquisition Proposal, other than a
confidentiality agreement at least as favorable to Transocean as the Transocean
Confidentiality Agreement.
SECTION 8.4 Meetings of Stockholders. (a) Each of Transocean and
Schlumberger will take all action necessary, in accordance with applicable law
and its memorandum of association and articles of association (Transocean) or
deed of incorporation and bylaws (Schlumberger), to convene a meeting of its
shareholders as promptly as practicable to consider and vote upon (i) in the
case of Transocean (x) to increase its authorized ordinary share capital to
authorize sufficient Transocean Ordinary Shares to consummate the transactions
contemplated hereby, (y) to approve the issuance of Transocean Ordinary Shares
pursuant to the Merger contemplated hereby and (z) to approve the change of name
of Transocean to "Transocean Sedco Forex Inc." and (ii) in the case of
Schlumberger, the approval of the Distribution. Transocean and Schlumberger
shall coordinate and cooperate with respect to the timing of such meetings and
shall use their best efforts to hold such meetings on the same day.
(b) Each of Transocean and Schlumberger, through its Board of Directors,
shall recommend approval of such matters and use its best efforts to solicit
from its shareholders proxies in favor of such matters unless its Board of
Directors determines, after consultation with its counsel, that such actions
would not be consistent with its fiduciary obligations. Additionally, the Board
of Directors of Transocean or the Board of Directors of Schlumberger may at any
time prior to the Effective Time withdraw, modify or change any recommendation
and declaration regarding such matters or recommend and declare advisable any
other offer or proposal, if in the opinion of such Board of Directors after
consultation with its counsel the failure to so withdraw, modify or change its
recommendation and declaration would be inconsistent with its fiduciary
obligations.
SECTION 8.5 Filings; Best Efforts. (a) Subject to the terms and conditions
herein provided, Sedco Forex, Schlumberger and Transocean shall:
(i) promptly (but in not more than 20 business days from the date
hereof) make their respective required filings under the HSR Act and any
applicable non-U.S. competition, antitrust or premerger notification laws
to be made pursuant to Section 9.1(b) of this Agreement and thereafter
shall promptly make any other required submissions under the HSR Act or
such laws;
(ii) use their best efforts to cooperate with one another in (a)
determining which filings are required to be made prior to the Effective
Time with, and which consents, approvals, permits or authorizations are
required to be obtained prior to the Effective Time from governmental or
regulatory authorities of the United States, the several states, and
non-U.S. jurisdictions in connection with the execution and delivery of
this Agreement and the consummation of the Merger and the transactions
contemplated hereby; and (b) obtaining in a timely manner all such filings
and timely seeking all such consents, approvals, permits or authorizations
without causing a Transocean Material Adverse Effect or a Sedco Forex
Material Adverse Effect; and
(iii) furnish the other party with such necessary information and
reasonable assistance as such other parties and their respective affiliates
may reasonably request in connection with their preparation of necessary
filings, registrations or submissions of information to any governmental or
regulatory authori-
A-28
<PAGE> 203
ties, including, without limitation, any filings necessary or appropriate
under the provisions of the HSR Act or any applicable non-U.S. competition,
antitrust or premerger notification laws.
(b) Without limiting Section 8.5(a), Transocean, Schlumberger and Sedco
Forex shall:
(i) each use its best efforts to avoid the entry of, or to have
vacated or terminated, any decree, order or judgment that would restrain,
prevent or delay the Closing; and
(ii) each use its best efforts to take any and all steps necessary to
obtain any consents or eliminate any impediments to the Merger.
(c) Nothing in this Agreement shall require a party to dispose of any
material amount of assets to obtain any consents, approvals, permits or
authorizations or to remove any impediments to the Merger.
SECTION 8.6 Inspection. From the date hereof to the Effective Time, each
of Sedco Forex, Schlumberger and Transocean shall allow all designated officers,
attorneys, accountants and other representatives of Transocean, Schlumberger or
Sedco Forex, as the case may be, access, at all reasonable times, upon
reasonable notice, to the records and files, correspondence, audits and
properties, as well as to all information relating to commitments, contracts,
titles and financial position, or otherwise pertaining to the business and
affairs of Transocean and Sedco Forex and their respective Subsidiaries,
including inspection of such properties; provided that no investigation pursuant
to this Section 8.6 shall affect any representation or warranty given by any
party hereunder, and provided further that notwithstanding the provision of
information or investigation by any party, no party shall be deemed to make any
representation or warranty except as expressly set forth in this Agreement.
Notwithstanding the foregoing, no party shall be required to provide any
information which it reasonably believes it may not provide to the other party
by reason of applicable law, rules or regulations, which constitutes information
protected by attorney/client privilege, or which it is required to keep
confidential by reason of contract or agreement with third parties. The parties
hereto will make reasonable and appropriate substitute disclosure arrangements
under circumstances in which the restrictions of the preceding sentence apply.
Each of Transocean, Schlumberger and Sedco Forex agrees that it will not, and
will cause its respective representatives not to, use any information obtained
pursuant to this Section 8.6 for any purpose unrelated to the consummation of
the transactions contemplated by this Agreement.
SECTION 8.7 Publicity. The parties will consult with each other and will
mutually agree upon any press releases or public announcements pertaining to
this Agreement or the transactions contemplated hereby and shall not issue any
such press releases or make any such public announcements prior to such
consultation and agreement, except as may be required by applicable law or by
obligations pursuant to any listing agreement with any national securities
exchange, in which case the party proposing to issue such press release or make
such public announcement shall use its best efforts to consult in good faith
with the other party before issuing any such press releases or making any such
public announcements.
SECTION 8.8 Registration Statement. (a) Each of Transocean, Schlumberger
and Sedco Forex shall cooperate and promptly prepare and Transocean shall file
with the SEC as soon as practicable a Registration Statement on Form S-4 (the
"Form S-4") under the Securities Act, with respect to Transocean Ordinary Shares
issuable in the Merger, a portion of which Registration Statement shall also
serve as the joint proxy statement with respect to the meetings of the
stockholders of Transocean and of Schlumberger in connection with the Merger and
the Distribution, respectively (the "Proxy Statement/Prospectus"). Schlumberger
and Sedco Forex shall promptly prepare and Sedco Forex shall file with the SEC
as soon as practicable the Form 10. The respective parties will cause the Proxy
Statement/Prospectus, the Form S-4 and the Form 10 to comply as to form in all
material respects with the applicable provisions of the Securities Act, the
Exchange Act and the rules and regulations thereunder. Transocean shall use its
best efforts, and Sedco Forex and Schlumberger will cooperate with Transocean,
to have the Form S-4 declared effective by the SEC as promptly as practicable.
Transocean shall use its reasonable best efforts to obtain, prior to the
effective date of the Form S-4, all necessary non-U.S., state securities law or
"Blue Sky" permits or approvals required to carry out the transactions
contemplated by this Agreement and will pay all expenses incident thereto.
Transocean
A-29
<PAGE> 204
will advise Sedco Forex and Schlumberger, promptly after it receives notice
thereof, of the time when the Form S-4 has become effective or any supplement or
amendment has been filed, the issuance of any stop order, the suspension of the
qualification of Transocean Ordinary Shares issuable in connection with the
Merger for offering or sale in any jurisdiction or any request by the SEC for
amendment of the Proxy Statement/Prospectus or the Form S-4 or comments thereon
and responses thereto or requests by the SEC for additional information. Each of
the parties shall also promptly provide each other party copies of all written
correspondence received from the SEC and summaries of all oral comments received
from the SEC in connection with the transactions contemplated by this Agreement
or any Transaction Agreement. Each of the parties shall promptly provide each
other party with drafts of all correspondence intended to be sent to the SEC in
connection with the transactions contemplated by this Agreement or any
Transaction Agreement and allow each such party a chance to comment thereon
prior to delivery to the SEC.
(b) Transocean and Schlumberger will each use its best efforts to cause the
Proxy Statement/Prospectus to be mailed to its stockholders as promptly as
practicable after the date hereof.
(c) Each of Transocean, Sedco Forex and Schlumberger agrees to ensure that
the information provided by it for inclusion in the Proxy Statement/Prospectus
and each amendment or supplement thereto, at the time of mailing thereof and at
the time of the respective meetings of stockholders of Transocean and of
Schlumberger, or, in the case of information provided by it for inclusion in the
Form S-4 or any amendment or supplement thereto, at the time it is filed or
becomes effective, (i) will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading and (ii) will comply as to form in all material respects
with the provisions of the Securities Act and the Exchange Act.
SECTION 8.9 Listing Application. Transocean shall promptly prepare and
submit to the NYSE a listing application covering the shares of Transocean
Ordinary Shares issuable in the Merger and shall use its best efforts to obtain,
prior to the Effective Time, approval for the listing of such Transocean
Ordinary Shares, subject to official notice of issuance.
SECTION 8.10 Letters of Accountants. (a) Each of Sedco Forex and
Schlumberger shall use its reasonable best efforts to cause to be delivered to
Transocean "comfort" letters of PricewaterhouseCoopers LLP, Sedco Forex's and
Schlumberger's independent public accountants, dated the effective date of the
Form S-4 and the Closing Date, respectively, and addressed to Transocean with
regard to certain financial information regarding Sedco Forex and Schlumberger
included in the Form S-4, in form reasonably satisfactory to Transocean and
customary in scope and substance for "comfort" letters delivered by independent
public accountants in connection with registration statements similar to the
Form S-4.
(b) Transocean shall use its reasonable best efforts to cause to be
delivered to Sedco Forex and Schlumberger "comfort" letters of Ernst & Young
LLP, Transocean's independent public accountants, dated the effective date of
the Form S-4 and the Closing Date, respectively, and addressed to Sedco Forex
and Schlumberger, with regard to certain financial information regarding
Transocean included in the Form S-4, in form reasonably satisfactory to Sedco
Forex and Schlumberger and customary in scope and substance for "comfort"
letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
SECTION 8.11 Agreements of Rule 145 Affiliates. Prior to the Effective
Time, Sedco Forex shall cause to be prepared and delivered to Transocean a list
identifying all persons who Sedco Forex believes may be deemed to be
"affiliates" of Sedco Forex, as that term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act (the "Rule 145 Affiliates"). Sedco Forex shall
use its best efforts to cause each person who is identified as a Rule 145
Affiliate in such list to deliver to Transocean, at or prior to the Effective
Time, a written agreement, in the form to be approved by the parties hereto,
that such Rule 145 Affiliate will not sell, pledge, transfer or otherwise
dispose of any shares of Transocean Ordinary Shares issued to such Rule 145
Affiliate pursuant to the Merger, except pursuant to an effective registration
statement or in compliance with Rule 145 or an exemption from the registration
requirements of the Securities Act.
A-30
<PAGE> 205
SECTION 8.12 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
as expressly provided herein or as otherwise agreed by the parties.
SECTION 8.13 Indemnification and Insurance. (a) From and after the
Effective Time, Transocean and the Surviving Corporation shall indemnify, defend
and hold harmless to the fullest extent permitted under applicable law each
person who is, or has been at any time prior to the Effective Time, an officer
or director of Sedco Forex (or any Subsidiary or division thereof) and each
person who served at the request of Sedco Forex as a director, officer, trustee
or fiduciary of another corporation, partnership, joint venture, trust, pension
or other employee benefit plan or enterprise (individually, an "Indemnified
Party" and, collectively, the "Indemnified Parties") against all losses, claims,
damages, liabilities, costs or expenses (including attorneys' fees), judgments,
fines, penalties and amounts paid in settlement in connection with any claim,
action, suit, proceeding or investigation arising out of or pertaining to acts
or omissions, or alleged acts or omissions, by them in their capacities as such,
whether commenced, asserted or claimed before or after the Effective Time. In
the event of any such claim, action, suit, proceeding or investigation (an
"Action"), (i) Transocean and the Surviving Corporation shall pay, as incurred,
the fees and expenses of counsel selected by the Indemnified Party, which
counsel shall be reasonably acceptable to the Surviving Corporation, in advance
of the final disposition of any such Action to the fullest extent permitted by
applicable law and, if required, upon receipt of any undertaking required by
applicable law, and (ii) Transocean and the Surviving Corporation will cooperate
in the defense of any such matter; provided, however, the Surviving Corporation
shall not be liable for any settlement effected without its written consent
(which consent shall not be unreasonably withheld or delayed), and provided
further, that Transocean and the Surviving Corporation shall not be obligated
pursuant to this Section 8.13 to pay the fees and disbursements of more than one
counsel for all Indemnified Parties in any single Action, unless, in the good
faith judgment of any of the Indemnified Parties, there is or may be a conflict
of interests between two or more of such Indemnified Parties, in which case
there may be separate counsel for each similarly situated group.
(b) The parties agree that the rights to indemnification, including
provisions relating to advances of expenses incurred in defense of any action or
suit, in the certificate of incorporation and bylaws of Sedco Forex and its
Subsidiaries with respect to matters occurring through the Effective Time, shall
survive the Merger and shall continue in full force and effect for a period of
six years from the Effective Time; provided, however, that all rights to
indemnification in respect of any Action pending or asserted or claim made
within such period shall continue until the disposition of such Action or
resolution of such claim.
(c) For a period of six years after the Effective Time, Transocean and the
Surviving Corporation shall cause to be maintained officers' and directors'
liability insurance covering the Indemnified Parties who are, or at any time
prior to the Effective Time, covered by Sedco Forex's existing officers' and
directors' liability insurance policies on terms substantially no less
advantageous to the Indemnified Parties than such existing insurance, provided
that such insurance is available at a reasonable cost.
(d) The rights of each Indemnified Party hereunder shall be in addition to
any other rights such Indemnified Party may have under the certificate of
incorporation or bylaws of Sedco Forex or any of its Subsidiaries, under
applicable law or otherwise. The provisions of this Section 8.13 shall survive
the consummation of the Merger and expressly are intended to benefit each of the
Indemnified Parties.
(e) In the event Transocean, the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity in
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in either such case, proper
provision shall be made so that the successors and assigns of Transocean or the
Surviving Corporation, as the case may be, shall assume the obligations set
forth in this Section 8.13.
SECTION 8.14 Employee Benefits. Employee benefits and related matters
shall be handled as set forth in the Employee Matters Agreement.
A-31
<PAGE> 206
SECTION 8.15 Transocean Structuring. In the event that prior to the
Effective Time, Transocean proposes to, or to cause any of its Subsidiaries to,
transfer any material assets or capital stock of any Subsidiary to any other
Subsidiary or to Transocean (a "Structuring Plan"), Transocean shall give at
least ten (10) business days prior written notice of such Structuring Plan to
Schlumberger setting forth, in reasonable detail, the actions to be taken
pursuant to such Structuring Plan. Within ten (10) business days of receipt of
such notice, Schlumberger may notify Transocean in writing of any objection to
such Structuring Plan (an "Objection Notice") and of its then intention to
exercise its termination right pursuant to Section 10.3(d) of this Agreement in
the event Transocean proceeds with the Structuring Plan. Any failure by
Schlumberger to provide an Objection Notice to Transocean as provided for herein
shall be deemed a waiver of its right under Section 10.3(d) of this Agreement
with respect to such Structuring Plan.
SECTION 8.16 Strategic Alliance. Sedco Forex, Schlumberger and Transocean
shall use all commercially reasonable efforts to establish a non-exclusive
strategic alliance on mutually agreed terms to address integrated services
opportunities (the "Strategic Alliance Agreement").
SECTION 8.17 Newbuild Contract Renegotiations. Sedco Forex shall, and
Schlumberger shall cause Sedco Forex to, use all commercially reasonable best
efforts to renegotiate the Offshore Drilling Contract For the Dynamic Positioned
Drilling Semi-Submersible Sedco Express between Elf Exploration Angola and
Services Petroliers Schlumberger to, among other things, remove the provisions
giving Elf Exploration Angola the right to cancel such contract as a penalty for
late delivery.
ARTICLE 9
CONDITIONS
SECTION 9.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) (i) The Distribution shall have been adopted and approved by the
affirmative vote of holders of a majority of the shares of Schlumberger
Common Stock voting thereon; and
(i) The increase in the authorized ordinary share capital of
Transocean and the issuance of Transocean Ordinary Shares pursuant to this
Agreement shall have been approved by the holders of issued Transocean
Ordinary Shares as and to the extent required by the laws of the Cayman
Islands, Transocean's memorandum of association and articles of association
and the rules of the NYSE.
(b) (i) Any waiting period applicable to consummation of the Merger
under the HSR Act and any voluntary agreement not to consummate the Merger
without prior notice to the U.S. Department of Justice or U.S. Federal
Trade Commission shall have expired or been terminated, (ii) in the event
of any review by the U.K. Office of Fair Trading or, if applicable, the
U.K. Secretary of State for Trade and Industry, indications reasonably
satisfactory to each of Schlumberger and Transocean that the Merger will
not be referred to the Competition Commission shall have been received, and
(iii) any mandatory waiting period under any applicable non-U.S.
competition, antitrust, or premerger notification law or regulation (where
the failure to observe such waiting period referred to in this clause (iii)
would have a Transocean Material Adverse Effect or a Sedco Forex Material
Adverse Effect) shall have expired or been terminated without intervention
by a reviewing agency and without the commencement of proceedings in any
court of competent jurisdiction challenging all or part of the Merger,
which intervention or commencement of proceedings would have a Transocean
Material Adverse Effect or a Sedco Forex Material Adverse Effect.
(c) None of the parties hereto shall be subject to any decree, order
or injunction of a court of competent jurisdiction, U.S. or non-U.S., which
prohibits the consummation of the Merger; provided, however, that, prior to
invoking this condition, each party agrees to comply with Section 8.5, and
with respect to other matters not covered by Section 8.5, to use its
commercially reasonable best efforts to have any such decree, order or
injunction lifted or vacated; and no statute, rule or regulation shall have
A-32
<PAGE> 207
been enacted by any governmental authority which prohibits or makes
unlawful the consummation of the Merger.
(d) The Form S-4 shall have become effective and no stop order with
respect thereto shall be in effect.
(e) The Transocean Ordinary Shares to be issued pursuant to the Merger
shall have been authorized for listing on the NYSE, subject to official
notice of issuance.
(f) The Distribution shall have been consummated in accordance with
the Distribution Agreement on a day preceding the Closing Date.
(g) The Pre-Closing Financial Statements contemplated by the
Distribution Agreement shall have been delivered and Sedco Forex or a Sedco
Forex Subsidiary shall have good and valid title unconditionally and of
record to substantially all of the Sedco Forex Assets, subject to Sedco
Forex Permitted Liens.
(h) There shall not be pending or threatened in writing any
governmental claim, proceeding or action seeking to restrain or prohibit
the transactions contemplated by this Agreement or any Transaction
Agreement.
(i) The Transaction Agreements shall have been executed and delivered
on or prior to the Distribution Date or the Closing Date, as the case may
be.
SECTION 9.2 Conditions to Obligation of Schlumberger and Sedco Forex to
Effect the Merger. The obligation of Schlumberger and Sedco Forex to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date of
the following conditions:
(a) Transocean and Merger Sub shall have performed, in all material
respects, their covenants and agreements contained in this Agreement
required to be performed on or prior to the Closing Date, and the
representations and warranties of Transocean and Merger Sub contained in
this Agreement and in any document delivered in connection herewith shall
be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date (except for representations and
warranties made as of a specified date, which need be true and correct in
all material respects only as of the specified date), and Sedco Forex shall
have received a certificate of each of Transocean and Merger Sub, executed
on its behalf by its President or one of its Vice Presidents, dated the
Closing Date, certifying to such effect.
(b) Schlumberger and Sedco Forex shall have received the opinion of
Baker & Botts, L.L.P., counsel to Sedco Forex, which is required by Section
8.01(f) of the Distribution Agreement. In rendering such opinion, such
counsel shall be entitled to receive and rely upon representations of
officers of Sedco Forex and Schlumberger as to such matters as such counsel
may reasonably request and a certificate of Transocean in substantially the
form of Exhibit B hereto.
(c) At any time after the date of this Agreement, there shall not have
been any event or occurrence, or series of events or occurrences, that has
had or is likely to have, individually or in the aggregate with all other
events or occurrences since the date of this Agreement, a Transocean
Material Adverse Effect.
SECTION 9.3 Conditions to Obligation of Transocean and Merger Sub to
Effect the Merger. The obligations of Transocean and Merger Sub to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date of
the following conditions:
(a) Sedco Forex and Schlumberger shall have performed, in all material
respects their covenants and agreements contained in this Agreement and the
Distribution Agreement required to be performed on or prior to the Closing
Date, and the representations and warranties of Sedco Forex and
Schlumberger contained in this Agreement and in any document delivered in
connection herewith shall be true and correct in all material respects as
of the date of this Agreement and as of the Closing Date (except for
representations and warranties made as of a specified date, which need be
true and correct in all material respects only as of the specified date),
and Transocean shall have received a certificate of each of Sedco Forex and
Schlumberger, executed on its behalf by its President or one of its Vice
Presidents, dated the Closing Date, certifying to such effect.
A-33
<PAGE> 208
(b) Transocean shall have received the opinion of Weil, Gotshal &
Manges LLP, counsel to Transocean, in form and substance reasonably
satisfactory to Transocean and dated the Closing Date to the effect that,
for United States federal income tax purposes, the Merger should qualify as
a reorganization under Section 368(a)(1)(B) of the Code. In rendering such
opinion, such counsel shall be entitled to receive and rely upon
representations of officers of Sedco Forex and Transocean as to such
matters as such counsel may reasonably request.
(c) At any time after the date of this Agreement, there shall not have
been any event or occurrence, or series of events or occurrences, that has
had or is likely to have, individually or in the aggregate with all other
events or occurrences since the date of this Agreement, a Sedco Forex
Material Adverse Effect.
(d) Transocean shall have received from each Rule 145 Affiliate an
agreement to the effect set forth in Section 8.11.
ARTICLE 10
TERMINATION
SECTION 10.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Effective Time by the mutual written consent
of Schlumberger, Sedco Forex and Transocean.
SECTION 10.2 Termination by Transocean or Schlumberger. This Agreement may
be terminated at any time prior to the Effective Time by action of the Board of
Directors of Transocean, Schlumberger or Sedco Forex if:
(a) the Merger shall not have been consummated by April 30, 2000;
provided, however, that the right to terminate this Agreement pursuant to
this clause (a) shall not be available to any party whose failure to
perform or observe in any material respect any of its obligations under
this Agreement in any manner shall have been the cause of, or resulted in,
the failure of the Merger to occur on or before such date;
(b) a meeting (including adjournments and postponements) of
Schlumberger's stockholders for the purpose of obtaining the approval
required by Section 9.1(a)(i) shall have been held and such stockholder
approval shall not have been obtained;
(c) a meeting (including adjournments and postponements) of
Transocean's stockholders for the purpose of obtaining the approval
required by Section 9.1(a)(ii) shall have been held and such stockholder
approval shall not have been obtained; or
(d) a U.S. federal, state or non-U.S. court of competent jurisdiction
or federal, state or non-U.S. governmental, regulatory or administrative
agency or commission shall have issued an order, decree or ruling or taken
any other action permanently restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall
have become final and nonappealable; provided, however, that the party
seeking to terminate this Agreement pursuant to this clause (d) shall have
complied with Section 8.5 and, with respect to other matters not covered by
Section 8.5, shall have used its commercially reasonable best efforts to
remove such injunction, order or decree.
SECTION 10.3 Termination by Sedco Forex or Schlumberger. This Agreement
may be terminated at any time prior to the Effective Time by action of the Board
of Directors of Sedco Forex or of Schlumberger if
(a) Sedco Forex or Schlumberger concurrently enters into a binding
written agreement concerning a transaction that constitutes a Sedco Forex
Superior Proposal after the Board of Directors of Sedco Forex or
Schlumberger determines that proceeding with the Merger would be
inconsistent with its fiduciary obligations by reason of a Sedco Forex
Superior Proposal and elects to terminate this Agreement effective prior to
the Cutoff Date; provided that Sedco Forex or Schlumberger may not effect
such termination pursuant to this Section 10.3(a) unless and until (i)
Transocean receives at least one week's prior written notice from Sedco
Forex or Schlumberger of its intention to effect such termination
A-34
<PAGE> 209
pursuant to this Section 10.3(a); and (ii) during such week, Sedco Forex
and Schlumberger shall, and shall cause their respective financial and
legal advisors to, consider any adjustment in the terms and conditions of
this Agreement that Transocean may propose; and provided, further, that any
termination of this Agreement pursuant to this Section 10.3(a) shall not be
effective until Schlumberger has made the payment required by Section
10.5(a)(i);
(b) (i) there has been a breach by Transocean or Merger Sub of any
representation, warranty, covenant or agreement set forth in this Agreement
or if any representation or warranty of Transocean or Merger Sub shall have
become untrue, in either case such that the conditions set forth in Section
9.2(a) would not be satisfied and (ii) such breach is not curable, or, if
curable, is not cured within 30 days after written notice of such breach is
given to Transocean by Sedco Forex; provided, however, that the right to
terminate this Agreement pursuant to Section 10.3(b) shall not be available
to Sedco Forex if it, at such time, is in material breach of any
representation, warranty, covenant or agreement set forth in this Agreement
such that the condition set forth in Section 9.3(a) shall not be satisfied;
(c) the Board of Directors of Transocean shall have withdrawn or
materially modified, in a manner adverse to Sedco Forex, its approval or
recommendation of the Merger or recommended a Transocean Acquisition
Proposal, or resolved to do so; or
(d) Schlumberger provides a timely Objection Notice to Transocean
pursuant to Section 8.15 of this Agreement in respect of a Transocean
Structuring Plan (which Objection Notice shall not be waived or withdrawn)
and following receipt of such Objection Notice Transocean or any of its
Subsidiaries consummates any of the asset or capital stock transfers
provided for in such Structuring Plan; provided, however, that Schlumberger
shall have the right to terminate this Agreement under this Section 10.3(d)
if, and only if, Schlumberger reasonably believes the consummation of the
Structuring Plan would create a significant risk of causing a Transocean
Material Adverse Effect.
SECTION 10.4 Termination by Transocean. This Agreement may be terminated
at any time prior to the Effective Time by action of the Board of Directors of
Transocean if:
(a) Transocean concurrently enters into a binding written agreement
concerning a transaction that constitutes a Transocean Superior Proposal
after the Board of Directors of Transocean determines that proceeding with
the Merger would be inconsistent with its fiduciary obligations by reason
of a Transocean Superior Proposal and elects to terminate this Agreement
effective prior to the Cutoff Date; provided that Transocean may not effect
such termination pursuant to this Section 10.4(a) unless and until (i)
Sedco Forex receives at least one week's prior written notice from
Transocean of its intention to effect such termination pursuant to this
Section 10.4(a); (ii) during such week, Transocean shall, and shall cause
its respective financial and legal advisors to, consider any adjustment in
the terms and conditions of this Agreement that Sedco Forex may propose;
and provided, further, that any termination of this Agreement pursuant to
this Section 10.4(a) shall not be effective until Transocean has made the
payment required by Section 10.5(b)(i);
(b) (i) there has been a breach by Sedco Forex or Schlumberger of any
representation, warranty, covenant or agreement set forth in this Agreement
or if any representation or warranty of Sedco Forex or Schlumberger shall
have become untrue, in either case such that the conditions set forth in
Section 9.3(a) would not be satisfied and (ii) such breach is not curable,
or, if curable, is not cured within 30 days after written notice of such
breach is given by Transocean to Sedco Forex or Schlumberger, as
applicable; provided, however, that the right to terminate this Agreement
pursuant to Section 10.4(b) shall not be available to Transocean if it, at
such time, is in material breach of any representation, warranty, covenant
or agreement set forth in this Agreement such that the conditions set forth
in Section 9.2(a) shall not be satisfied; or
(c) the Board of Directors of Schlumberger shall have withdrawn or
materially modified, in a manner adverse to Transocean, its approval or
recommendation of the Distribution or recommended a Sedco Forex Acquisition
Proposal, or resolved to do so.
A-35
<PAGE> 210
SECTION 10.5 Effect of Termination. (a) If this Agreement is terminated --
(i) by Schlumberger or Sedco Forex pursuant to Section 10.3(a)
[fiduciary out];
(ii) by Schlumberger, Sedco Forex or Transocean pursuant to Section
10.2(b) [failure to obtain Schlumberger stockholder approval] after the
public announcement of a Sedco Forex Acquisition Proposal; or
(iii) by Transocean pursuant to Section 10.4(c) [withdrawal of
Schlumberger recommendation to stockholders] after the public announcement
or receipt by Schlumberger's or Sedco Forex's Board of Directors of a Sedco
Forex Acquisition Proposal, whether or not the Sedco Forex Acquisition
Proposal is still pending or has been consummated;
then Schlumberger shall pay Transocean a fee of $100 million at the time of such
termination in cash by wire transfer to an account designated by Transocean.
(b) If this Agreement is terminated --
(i) by Transocean pursuant to Section 10.4(a) [fiduciary out];
(ii) by Schlumberger, Sedco Forex or Transocean pursuant to Section
10.2(c) after the public announcement of a Transocean Acquisition Proposal
[failure to obtain Transocean stockholder approval]; or
(iii) by Schlumberger or Sedco Forex pursuant to Section 10.3(c) after
the public announcement or receipt by Transocean's Board of Directors of a
Transocean Acquisition Proposal, whether or not the Transocean Acquisition
Proposal is still pending or has been consummated [withdrawal of Transocean
recommendation to stockholders];
then Transocean shall pay Schlumberger a fee of $100 million at the time of such
termination in cash by wire transfer to an account designated by Schlumberger.
(c) If this Agreement is terminated by Schlumberger, Sedco Forex or
Transocean pursuant to Section 10.2(b) other than in circumstances covered by
Section 10.5(a), then Schlumberger shall pay Transocean a fee of $10 million to
reimburse it for its costs and expenses incurred in connection with this
transaction. If this Agreement is terminated by Schlumberger, Sedco Forex or
Transocean pursuant to Section 10.2(c), other than in circumstances covered by
Section 10.5(b), then Transocean shall pay Schlumberger a fee of $10 million to
reimburse it for its costs and expenses incurred in connection with this
transaction.
(d) In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article 10, all obligations of the parties hereto
shall terminate, except the obligations of the parties pursuant to this Section
10.5 and Section 8.12 and except for the provisions of Sections 11.3, 11.4,
11.6, 11.8, 11.9, 11.12, 11.13 and 11.14, provided that nothing herein shall
relieve any party from any liability for any willful and material breach by such
party of any of its covenants or agreements set forth in this Agreement and all
rights and remedies of such nonbreaching party under this Agreement in the case
of such a willful and material breach, at law or in equity, shall be preserved.
SECTION 10.6 Extension; Waiver. At any time prior to the Effective Time,
each party may by action taken by its Board of Directors, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
A-36
<PAGE> 211
ARTICLE 11
GENERAL PROVISIONS
SECTION 11.1 Nonsurvival of Representations, Warranties and
Agreements. All representations, warranties and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement shall not survive the
Merger; provided, however, that the agreements contained in Article 4 and in
Sections 3.3, 8.11, 8.12, 8.13, 8.14, 8.15, 8.16 and this Article 11 and the
agreements delivered pursuant to this Agreement shall survive the Merger.
SECTION 11.2 Notices. Except as otherwise provided herein, any notice
required to be given hereunder shall be sufficient if in writing, and sent by
facsimile transmission or by courier service (with proof of service), hand
delivery or certified or registered mail (return receipt requested and
first-class postage prepaid), addressed as follows:
(a) if to Schlumberger or Sedco Forex:
Schlumberger Limited
277 Park Avenue, 41st Floor
New York, New York 10172
Attention: Corporate Secretary
Facsimile: (212) 350-8127
with a copy to:
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002-4995
Attention: J. David Kirkland, Jr., Esq.
Facsimile: (713) 229-1522
(b) if to Transocean or Merger Sub:
Transocean Offshore Inc.
4 Greenway Plaza
Houston, Texas 77046
Attention: Corporate Secretary
Facsimile: (713) 232-7600
with a copy to:
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Attention: James L. Rice III, Esq.
Facsimile: (713) 224-9511
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
SECTION 11.3 Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Article 4 and Sections 3.4, 8.13 and 8.14 and except as provided in any
agreements delivered pursuant hereto (collectively, the "Third-Party
Provisions"), nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
successors,
A-37
<PAGE> 212
executors, administrators and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement. The Third-Party Provisions may
be enforced by the beneficiaries thereof.
SECTION 11.4 Entire Agreement. This Agreement, the exhibits to this
Agreement, the other Transaction Agreements, Sedco Forex Disclosure Letter,
Transocean Disclosure Letter and any documents delivered by the parties in
connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto, except that the
Transocean Confidentiality Agreement shall continue in effect. No addition to or
modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
SECTION 11.5 Amendments. This Agreement may be amended by the parties
hereto, by action taken or authorized by their Boards of Directors, at any time
before or after approval of matters presented in connection with the Merger by
the stockholders of Sedco Forex or Transocean, but after any such stockholder
approval, no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
SECTION 11.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
its rules of conflict of laws.
SECTION 11.7 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
SECTION 11.8 Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only and shall be given no
substantive or interpretative effect whatsoever.
SECTION 11.9 Interpretation. In this Agreement:
(a) Unless the context otherwise requires, words describing the
singular number shall include the plural and vice versa, words denoting any
gender shall include all genders, and words denoting natural persons shall
include corporations and partnerships and vice versa.
(b) The phrase "to the knowledge of" and similar phrases relating to
knowledge of Schlumberger, Sedco Forex or Transocean, as the case may be,
shall mean the actual knowledge of its senior management.
(c) "Material Adverse Effect" with respect to Sedco Forex, Transocean
or Schlumberger shall mean a material adverse effect or change on (a) the
business, operations, financial condition or prospects of a party and its
Subsidiaries on a consolidated basis, except for such changes or effects in
general economic, capital market, regulatory or political conditions or
changes that affect generally the offshore drilling services industry or
(b) the ability of the party to consummate the transactions contemplated by
this Agreement or fulfill the conditions to closing. "Sedco Forex Material
Adverse Effect," "Schlumberger Material Adverse Effect" and "Transocean
Material Adverse Effect" mean a Material Adverse Effect with respect to
Sedco Forex and the Sedco Forex Business, Schlumberger and Transocean,
respectively.
SECTION 11.10 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
A-38
<PAGE> 213
SECTION 11.11 Incorporation of Exhibits. The Sedco Forex Disclosure
Letter, Transocean Disclosure Letter and all exhibits attached hereto and
referred to herein are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
SECTION 11.12 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
SECTION 11.13 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled at law or in equity.
SECTION 11.14 Subsidiaries. As used in this Agreement, the word
"Subsidiary," when used with respect to any party, means any corporation or
other organization, whether incorporated or unincorporated, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization or any organization of which such party
is a general partner. When referring to the Subsidiaries of Sedco Forex or
Schlumberger, it is assumed that the Distribution and other transactions
contemplated by Distribution Agreement have already occurred.
SECTION 11.15 Transocean Guarantee. Transocean hereby unconditionally and
irrevocably guarantees to Schlumberger the payment and performance in full of
all obligations of Sedco Forex and the Sedco Forex Subsidiaries that exist as of
the Effective Time under this Agreement and the Transaction Agreements, when and
as such obligations become due and payable or are otherwise required to be
performed. Transocean shall be entitled, however, to exercise all rights and
defenses available to Sedco Forex and Sedco Forex Subsidiaries under applicable
law or under the terms of this Agreement and/or the Transaction Agreements,
except to the extent such defenses stem from the insolvency, bankruptcy or
receivership of Sedco Forex or the Sedco Forex Subsidiaries.
A-39
<PAGE> 214
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
SCHLUMBERGER LIMITED
By: /s/ D.E. BAIRD
----------------------------------
Name: D.E. Baird
Title: Chairman, President and CEO
SEDCO FOREX HOLDINGS LIMITED
By: /s/ JEAN CHEVALLIER
----------------------------------
Name: Jean Chevallier
Title: Attorney-in-Fact
TRANSOCEAN OFFSHORE INC.
By: /s/ J. MICHAEL TALBERT
----------------------------------
Name: J. Michael Talbert
Title: Chairman of the Board and
Chief Executive Officer
A-40
<PAGE> 215
ANNEX B
DISTRIBUTION AGREEMENT
DATED AS OF JULY 12, 1999
BETWEEN
SCHLUMBERGER LIMITED
AND
SEDCO FOREX HOLDINGS LIMITED
<PAGE> 216
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE I DEFINITIONS........................................................... B-1
Section 1.01 General................................................ B-1
ARTICLE II PRELIMINARY TRANSACTIONS.............................................. B-7
Section 2.01 Business Separation.................................... B-7
Section 2.02 Certain Financial Matters.............................. B-8
Section 2.03 Memorandum of Association; Articles of Association..... B-9
Section 2.04 Issuance of Stock...................................... B-9
Section 2.05 Other Agreements....................................... B-10
Section 2.06 Registration........................................... B-10
Section 2.07 Transfers Not Effected Prior to the Distribution;
Transfers Deemed Effective as of the Distribution
Date................................................... B-10
ARTICLE III THE DISTRIBUTION...................................................... B-11
Section 3.01 Record Date and Distribution Date...................... B-11
Section 3.02 The Agent.............................................. B-11
Section 3.03 Delivery of Share Certificate to the Agent............. B-11
Section 3.04 The Distribution....................................... B-11
Section 3.05 Stock Options.......................................... B-11
ARTICLE IV SURVIVAL AND INDEMNIFICATION.......................................... B-11
Section 4.01 Survival of Agreements................................. B-11
Section 4.02 Indemnification........................................ B-11
Section 4.03 Procedures for Indemnification for Third-Party
Claims................................................. B-12
Section 4.04 Reductions for Insurance Proceeds and Other
Recoveries............................................. B-13
Section 4.05 Remedies Cumulative.................................... B-13
ARTICLE V CERTAIN ADDITIONAL COVENANTS.......................................... B-13
Section 5.01 Notices to Third Parties............................... B-13
Section 5.02 Licenses and Permits................................... B-13
Section 5.03 Intercompany Agreements................................ B-14
Section 5.04 Further Assurances..................................... B-14
Section 5.05 Guarantee Obligations and Liens........................ B-14
Section 5.06 Use of Names........................................... B-15
Section 5.07 Restrictions on Hiring Other Party's Employees......... B-15
ARTICLE VI ACCESS TO INFORMATION................................................. B-15
Section 6.01 Provision of Corporate Records......................... B-15
Section 6.02 Access to Information.................................. B-15
Section 6.03 Production of Witnesses................................ B-16
Section 6.04 Retention of Records................................... B-17
Section 6.05 Confidentiality........................................ B-17
Section 6.06 Cooperation with Respect to Government Reports and
Filings................................................ B-17
ARTICLE VII NO REPRESENTATIONS OR WARRANTIES...................................... B-18
Section 7.01 No Representations or Warranties....................... B-18
ARTICLE VIII CONDITIONS............................................................ B-18
Section 8.01 Conditions to the Distribution......................... B-18
</TABLE>
B-i
<PAGE> 217
<TABLE>
<S> <C> <C> <C>
ARTICLE IX MISCELLANEOUS......................................................... B-19
Section 9.01 Assignment; Binding Effect; Benefit.................... B-19
Section 9.02 Entire Agreement....................................... B-19
Section 9.03 Amendment.............................................. B-19
Section 9.04 Governing Law.......................................... B-19
Section 9.05 Counterparts........................................... B-19
Section 9.06 Headings............................................... B-20
Section 9.07 Waivers................................................ B-20
Section 9.08 Incorporation of Exhibits.............................. B-20
Section 9.09 Severability........................................... B-20
Section 9.10 Enforcement of Agreement............................... B-20
Section 9.11 Expenses............................................... B-20
Section 9.12 Notices................................................ B-20
Section 9.13 References; Construction............................... B-21
Section 9.14 Termination............................................ B-21
</TABLE>
<TABLE>
<S> <C>
EXHIBITS
Exhibit A Terms to be contained in Employee Matters Agreement
Exhibit B Form of Tax Separation Agreement
Exhibit C Working Capital Adjustments
</TABLE>
B-ii
<PAGE> 218
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT ("this Agreement"), dated as of July 12, 1999,
is by and between Schlumberger Limited, a company organized under the laws of
the Netherlands Antilles ("Schlumberger"), and Sedco Forex Holdings Limited, a
company organized under the laws of the British Virgin Islands ("Sedco Forex").
RECITALS
The Merger Agreement. Schlumberger, Sedco Forex and Transocean Offshore
Inc., a company organized under the laws of the Cayman Islands ("Transocean"),
have entered into an Agreement and Plan of Merger, dated as of July 12, 1999
(the "Merger Agreement"), pursuant to which, at the Effective Time (as defined
therein), a wholly owned subsidiary of Transocean to be organized under the laws
of the British Virgin Islands ("Merger Sub") will merge with and into Sedco
Forex, with Sedco Forex being the surviving corporation (the "Merger"), and
Sedco Forex will become a wholly owned subsidiary of Transocean.
The Transaction Agreements. This Agreement and the other Transaction
Agreements (as defined herein) set forth certain transactions that are
conditions to consummation of the Merger.
Business Separation. Prior to the Distribution (as defined herein), and
subject to the terms and conditions set forth in this Agreement, Sedco Forex
intends to distribute or cause to be distributed to Schlumberger Subsidiaries
(as defined herein) certain assets that are currently being used in the
Schlumberger Business (as defined herein), and Schlumberger intends to cause to
be transferred to Sedco Forex or, at the direction of Sedco Forex, Sedco Forex
Subsidiaries (as defined herein), certain assets that are currently used in the
Sedco Forex Business (as defined herein); and Schlumberger and Sedco Forex shall
take the further steps set forth in Section 2.01 intended to separate more
completely the Sedco Forex Business from the Schlumberger Business and to ensure
that the active business requirement of Section 355(b)(2) of the Code (as
defined herein) is satisfied.
The Distribution. Subject to the conditions set forth in this Agreement,
all of the issued and outstanding shares of common stock of Sedco Forex, par
value U.S. $.01 per share ("Sedco Forex Common Stock"), will be distributed on a
pro rata basis (the "Distribution") to the holders as of the Record Date (as
defined herein) of the outstanding common stock of Schlumberger, par value U.S.
$.01 per share ("Schlumberger Common Stock").
Intended U.S. Tax Consequences. The parties to this Agreement intend that,
for U.S. federal income tax purposes, (1) the Distribution qualify as a
distribution described in Section 355 of the Code and (2) the Merger qualify as
a reorganization under Section 368(a)(1)(B) of the Code.
Intended U.S. GAAP Consequences. The parties to this Agreement intend that,
for purposes of U.S. generally accepted accounting principles, the Business
Separation be treated as a restructuring of entities under common control with
the result that the net book value of any asset, liability or equity account
that is transferred to or from a member of the Sedco Forex Group from or to,
respectively, a member of the Schlumberger Group shall not be affected.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 GENERAL. As used in this Agreement, the following terms shall
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
Affiliate: with respect to any specified Person, any other Person that,
directly or indirectly, controls, is controlled by, or is under common control
with, such specified Person. For purposes of this definition,
B-1
<PAGE> 219
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by contract or otherwise; provided, however,
that, for purposes of this Agreement, no member of either Group shall be deemed
to be an Affiliate of any member of the other Group.
Agent: the distribution agent to be appointed by Schlumberger to distribute
the shares of Sedco Forex Common Stock pursuant to the Distribution.
Agreement: as defined in the preamble to this Agreement.
Asset: any and all assets and properties, tangible or intangible,
including, without limitation, the following: (i) drilling rigs, drillships and
other equipment relating to the drilling or servicing of oil and gas wells, and
all related equipment and supplies, together with any machinery, engines,
equipment, anchors, cable, drilling machinery, drilling equipment (including but
not limited to drill pipe, riser, stabilizers and bottom-hole assemblies),
pumps, electrical, mechanical, chemical, hydraulic and other systems actually
located on any such rig or drillship, incorporated therein or attached thereto,
or under construction or acquired or purchased therefor (including items in
transit), or for which commitments to purchase have been issued in connection
therewith, and any and all permits, licenses, authorizations and approvals
granted or issued by any regulatory or governing authority pertaining to the
ownership, operation or construction of any such rig or drillship; (ii) rights
under leases, contracts, licenses, permits, distribution arrangements, sales and
purchase agreements, insurance policies, other agreements and business
arrangements; (iii) intangible property rights, inventions, discoveries,
know-how, U.S. and non-U.S. patents and patent applications, trade secrets,
confidential information, registered and unregistered trademarks, service marks,
service names, trade styles and trade names and associated goodwill; statutory,
common law and registered copyrights; applications for any of the foregoing,
rights to use the foregoing and other rights in, to and under the foregoing;
(iv) cash, notes and accounts and notes receivable (whether current or
noncurrent); (v) certificates of deposit, banker's acceptances, stock,
partnership interests, limited liability company interests, joint venture
interests, debentures, evidences of indebtedness, certificates of interest or
participation in profit-sharing agreements, collateral-trust certificates,
preorganization certificates or subscriptions, transferable shares, investment
contracts, voting-trust certificates, puts, calls, straddles, options and other
securities of any kind; (vi) real estate and buildings and other improvements
thereon; (vii) leasehold improvements, fixtures, trade fixtures, machinery,
equipment (including transportation and office equipment), tools, dies and
furniture; (viii) office supplies, production supplies, spare parts, other
miscellaneous supplies and other tangible property of any kind; (ix) computer
equipment and software; (x) raw materials, work-in-progress, finished goods,
consigned goods and other inventories; (xi) prepayments or prepaid expenses;
(xii) claims, causes of action, choses in action, rights under express or
implied warranties, rights of recovery under insurance policies or otherwise and
rights of setoff of any kind; (xiii) the right to receive mail, payments on
accounts receivable and other communications; (xiv) lists of customers, records
pertaining to customers and accounts, personnel records, lists and records
pertaining to customers, suppliers and agents, and books, ledgers, files and
business records of every kind; (xv) advertising materials and other printed or
written materials; (xvi) goodwill as a going concern and other intangible
properties; (xvii) employee contracts, including any rights thereunder to
restrict an employee from competing in certain respects; and (xviii) licenses
and authorizations issued by any governmental authority.
Business: the Sedco Forex Business or the Schlumberger Business, as the
case may be.
Business Separation: the transactions contemplated by Section 2.01 of this
Agreement.
Capex Shortfall: as defined in Section 2.02(f).
Code: the U.S. Internal Revenue Code of 1986, as amended.
Distribution: as defined in the Recitals to this Agreement.
B-2
<PAGE> 220
Distribution Date: the date and time as of which the Distribution shall be
effected, to be determined by, or under the authority of, the Board of Directors
of Schlumberger consistent with this Agreement and as provided for in the Merger
Agreement.
Distribution Ratio: as defined in Section 2.04 of this Agreement.
Effective Time: as defined in the Merger Agreement.
Employee Matters Agreement: the Employee Matters Agreement to be entered
into prior to the Distribution between Schlumberger and Sedco Forex based on the
terms set forth in Exhibit A hereto, with such changes as are mutually agreed
upon by Schlumberger, Sedco Forex and Transocean.
Excess Employee and Other Payables Balance: as defined in Exhibit C.
Excess Suppliers Payable and Accruals Balance: as defined in Exhibit C.
Exchange Act: the U.S. Securities Exchange Act of 1934, as amended,
together with the rules and regulations of the SEC promulgated thereunder.
Form S-4: as defined in the Merger Agreement.
Group: the Schlumberger Group or the Sedco Forex Group, as the case may be.
HSR Act: the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
Indebtedness: of any Person shall mean, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services (excluding trade payables in the ordinary course of business), (iv) the
principal amount for financial reporting purposes of all lease obligations of
such Person that are required to be capitalized for financial reporting
purposes, (v) all unconditional obligations of such Person to purchase, redeem,
retire, defease or otherwise acquire for value any capital stock or other equity
interests of such Person or any warrants, rights or options to acquire such
capital stock or other equity interests and (vi) all Indebtedness of any other
Person of the type referred to in clauses (i) through (vi) guaranteed by such
Person. For purposes of Section 2.02 of this Agreement, "Indebtedness" includes
accrued and unpaid interest on the items described in the preceding sentence.
Indemnifiable Losses: all Losses, Liabilities, damages, claims, demands,
judgments or settlements of any nature or kind, including all reasonable costs
and expenses (legal, accounting or otherwise as such costs are incurred)
relating thereto, suffered (and not actually reimbursed by insurance proceeds)
by an Indemnitee, including any reasonable costs or expenses of enforcing any
indemnity hereunder.
Indemnifying Party: a Person that is obligated under this Agreement to
provide indemnification.
Indemnitee: a Person that may seek indemnification under this Agreement.
Indemnity Payment: an amount that an Indemnifying Party is required to pay
to or in respect of an Indemnitee pursuant to Article IV.
Information: all records, books, contracts, instruments, computer data and
other data and information.
Inventories Differential: as defined in Exhibit C.
Liabilities: all debts, liabilities and obligations, whether absolute or
contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, and whether or not the same would
properly be reflected on a balance sheet.
Liens: as defined in the Merger Agreement.
Litigation Matters: actual, threatened or future litigation,
investigations, claims or other legal matters that have been or may be asserted
against, or otherwise adversely affect, Schlumberger and/or Sedco Forex (or
members of either Group).
B-3
<PAGE> 221
Losses: all losses, claims, damages, liabilities, lawsuits, actions, costs
and expenses, joint and several, including reasonable attorneys' fees.
Material Adverse Effect: as defined in the Merger Agreement.
Merger: as defined in the Recitals to this Agreement.
Merger Agreement: as defined in the Recitals to this Agreement.
Merger Sub: as defined in the Recitals of this Agreement.
Order: any decree, judgment, injunction or other order, whether temporary,
preliminary or permanent.
Other Current Assets Differential: as defined in Exhibit C.
Other Receivables Differential: as defined in Exhibit C.
Permitted Indebtedness: as defined in Section 2.02(b) of this Agreement.
Person: an individual, a partnership, a joint venture, a corporation, a
limited liability company, a trust, an unincorporated organization or any other
entity or a government or any department or agency thereof.
Pre-Closing Balance Sheet Date: the last day of the month in which
Schlumberger advises Sedco Forex (with a copy to Transocean) that substantially
all of the Sedco Forex Assets are owned by members of the Sedco Forex Group
unconditionally and of record, subject to Sedco Forex Permitted Liens; provided,
however, that if Schlumberger and Sedco Forex agree that the Distribution Date
will likely not occur within 75 days of such date, then Schlumberger and Sedco
Forex shall agree, with a Transocean Consent, to a later date within 60 days of
the expected Distribution Date to be the Pre-Closing Balance Sheet Date.
Pre-Closing Financial Statements: shall mean the combined balance sheet of
the Sedco Forex Business as at the Pre-Closing Balance Sheet Date and the
related combined statements of operations and cash flows for the period from
January 1, 1999 through the Pre-Closing Balance Sheet Date, as audited by
PricewaterhouseCoopers LLP; provided, however that if the Pre-Closing Balance
Sheet Date is to occur after December 31, 1999, such financial statements must
separately cover the year ended December 31, 1999 and the period from January 1,
2000 through the Pre-Closing Balance Sheet Date.
Privileged Information: with respect to either Group, Information regarding
a member of such Group, or any of its operations, Assets or Liabilities (whether
in documents or stored in any other form or known to its employees or agents)
that is or may be protected from disclosure pursuant to the attorney-client
privilege, the work product doctrine or other applicable privileges, that a
member of the other Group may come into possession of or obtain access to
pursuant to this Agreement or otherwise.
Proxy Statement/Prospectus: as defined in the Merger Agreement.
Receivables Differential: as defined in Exhibit C.
Record Date: the close of business on the date to be determined by the
Board of Directors of Schlumberger as the record date for determining
stockholders of Schlumberger entitled to receive the Distribution.
Registration Statements: a Registration Statement on Form 10 (or, if such
form is not appropriate, the appropriate form pursuant to the Exchange Act) to
be filed by Sedco Forex with the SEC to effect the registration of the Sedco
Forex Common Stock pursuant to the Exchange Act in connection with the
Distribution (and, if applicable, pursuant to the Securities Act) and the
registration statement to be filed by Transocean with the SEC in connection with
the Merger pursuant to the Securities Act.
Representative: with respect to any Person, any of such Person's directors,
officers, employees, agents, consultants, advisors, accountants, attorneys and
representatives.
Required Minimum Cash Balance: $35,000,000.
B-4
<PAGE> 222
Requisite Approval: the approval of the holders of Schlumberger Common
Stock and Transocean Ordinary Shares as provided for in the Merger Agreement.
Restructuring Liabilities: Losses or Liabilities directly arising out of or
directly resulting from the transactions contemplated by Section 2.01 or Section
2.07(a) to accomplish the Business Separation, or directly arising out of or
directly resulting from the Distribution, but excluding (i) any Taxes (which are
dealt with in the Tax Separation Agreement), (ii) any Losses or Liabilities to
the extent that they would have directly arisen out of or directly resulted from
the Merger, (iii) any items covered by the Transition Services Agreements and
(iv) any costs of Shared Facilities allocated to a member of the Sedco Forex
Group pursuant to Section 2.01(d).
Schlumberger: as defined in the preamble to this Agreement.
Schlumberger Assets: collectively, all Assets of Schlumberger and its
Subsidiaries other than the Sedco Forex Assets.
Schlumberger Business: all of the businesses and operations conducted by
Schlumberger and its Subsidiaries (other than the Sedco Forex Business) at any
time, whether prior to, on or after the Distribution Date.
Schlumberger Common Stock: as defined in the Recitals to this Agreement.
Schlumberger Group: Schlumberger and the Schlumberger Subsidiaries
immediately after the Distribution Date.
Schlumberger Indemnitees: Schlumberger, each Affiliate of Schlumberger
immediately after the Distribution Date and each of their respective present and
former Representatives, and each of the heirs, executors, successors and assigns
of any of the foregoing.
Schlumberger Liabilities: collectively, (i) all Liabilities of Schlumberger
or any Schlumberger Subsidiary or arising out of the Schlumberger Business, or
arising out of or related to any Schlumberger Asset, whether incurred or
occurring before, on or after the Distribution Date, including the Liabilities
of the Schlumberger Group under the Transaction Agreements; (ii) all Liabilities
allocated to Schlumberger pursuant to this Agreement; (iii) all Liabilities set
forth on Schedule 1.01(a) hereto; (iv) all expenses allocated to Schlumberger
under Section 9.11 hereto; and (v) all Restructuring Liabilities.
Schlumberger Material Adverse Effect: as defined in the Merger Agreement.
Schlumberger Subsidiaries: all direct and indirect Subsidiaries of
Schlumberger immediately after the Distribution Date.
SEC: the U.S. Securities and Exchange Commission.
Securities Act: the Securities Act of 1933, as amended, together with the
rules and regulations of the SEC promulgated thereunder.
Sedco Forex: as defined in the preamble to this Agreement.
Sedco Forex Assets: collectively, as of immediately after the Distribution,
all Assets of the Sedco Forex Group, including (i) the rights to use shared
Assets as provided in Article II hereof, (ii) the capital stock of each Sedco
Forex Subsidiary, (iii) all rights of the Sedco Forex Group under the
Transaction Agreements, (iv) the drilling rigs and drillships listed on Schedule
1.01(b) hereto, (v) the Assets listed on Schedule 2.01(c)-1 and (vi) any
additional Assets transferred to Sedco Forex after the Distribution pursuant to
Article II.
Sedco Forex Business: all of the businesses and operations conducted (i) by
Sedco Forex, (ii) by the Subsidiaries of Sedco Forex as of the date of this
Agreement (other than those listed in Schedule 2.01(b)), (iii) by the entities
listed on Schedule 2.01(a), (iv) with the Assets listed on Schedule 2.01(c)-1
(which will be transferred to a member of the Sedco Forex Group) and (v) with
any other Assets allocated to the Sedco Forex Group pursuant to Article II;
provided, however, that the Sedco Forex Business shall not include any
B-5
<PAGE> 223
business or operations conducted with (x) the Assets listed on Schedule
2.01(c)-2 (which will be transferred to a member of the Schlumberger Group) or
(y) any other Assets allocated to the Schlumberger Group pursuant to Article II.
The Sedco Forex Business specifically includes the operation of all of the
drilling rigs and drillships listed on Schedule 1.01(b).
Sedco Forex Common Stock: as defined in the Recitals to this Agreement.
Sedco Forex Group: Sedco Forex and the Sedco Forex Subsidiaries.
Sedco Forex Indemnitees: Sedco Forex, each Affiliate of Sedco Forex
immediately after the Distribution Date and each of their respective present and
former Representatives, and each of the heirs, executors, successors and assigns
of any of the foregoing.
Sedco Forex Liabilities: collectively, (i) except for those Liabilities
described in the definition of Schlumberger Liabilities, all Liabilities arising
out of the Sedco Forex Business, or arising out of or related to any Sedco Forex
Asset, whether incurred or occurring before, on or after the Distribution Date,
including the Liabilities of the Sedco Forex Group under the Transaction
Agreements, (ii) all Liabilities allocated to Sedco Forex pursuant this
Agreement and (iii) all expenses allocated to Sedco Forex under Section 9.11
hereto.
Sedco Forex Material Adverse Effect: as defined in the Merger Agreement.
Sedco Forex Permitted Liens: as defined in the Merger Agreement.
Sedco Forex Subsidiaries: all direct and indirect Subsidiaries of Sedco
Forex immediately after the Distribution Date.
Shared Facilities: any office or other facility (whether owned or leased)
of Schlumberger, Sedco Forex or any of their respective Subsidiaries in which
operations of both the Schlumberger Business and the Sedco Forex Business are
conducted as of the Distribution Date, all of which are listed on Schedule
1.01(c) hereto.
Specified Reserve: as defined in Exhibit C.
Subsidiary: when used with respect to any party means any corporation or
other organization, whether incorporated or unincorporated, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization, or any organization of which such party
is a general partner.
Tax Separation Agreement: the Tax Separation Agreement to be entered into
prior to the Distribution between Schlumberger and Sedco Forex, substantially in
the form of Exhibit B hereto, with such changes as are mutually agreed upon by
Schlumberger, Sedco Forex and Transocean.
Taxes: as defined in the Tax Separation Agreement.
Third-Party Claim: any claim, suit, derivative suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency or commission or any arbitration tribunal
asserted by a Person who or which is neither a party hereto nor an Affiliate of
a party hereto.
Third-Party Provisions: as defined in Section 9.01 of this Agreement.
Transaction Agreements: this Agreement, the Employee Matters Agreement, the
Merger Agreement, the Tax Separation Agreement, the Transition Services
Agreement and the other agreements, if any, entered into or to be entered into
in connection with the Distribution as contemplated by Article II of this
Agreement.
Transition Services Agreement: the Transition Services Agreement to be
entered into between Schlumberger and Sedco Forex pursuant to Section 2.01(g)
hereto.
Transocean: as defined in the Recitals in this Agreement.
Transocean Consent: the consent of Transocean, which consent shall not be
unreasonably delayed or withheld.
B-6
<PAGE> 224
Year 1999 Cash Flow Adjustment: if the Pre-Closing Balance Sheet Date is
prior to January 1, 2000, the amount of the estimated cash flow, calculated as
the Sedco Forex Business's forecasted net income plus depreciation and less
deferred gain amortizations, for the period from the Pre-Closing Balance Sheet
Date through December 31, 1999, as agreed by Schlumberger and Transocean.
Year 2000 Capex Adjustment: if the Pre-Closing Balance Sheet Date is after
December 31, 1999, those amounts expended by the Sedco Forex Business after
December 31, 1999 related to the newbuilds through the Pre-Closing Balance Sheet
Date, but not in excess of $100 million.
Year 2000 Cash Flow Adjustment: if the Pre-Closing Balance Sheet Date is
after December 31, 1999, the amount of the actual cash flow of the Sedco Forex
Business, calculated as the Sedco Forex Business's net income plus depreciation
and less deferred gain amortizations, for the period from January 1, 2000
through the Pre-Closing Balance Sheet Date.
ARTICLE II
PRELIMINARY TRANSACTIONS
SECTION 2.01 BUSINESS SEPARATION. (a) Schlumberger Transfers. On or prior
to the Distribution Date, Schlumberger shall transfer or cause to be transferred
to Sedco Forex or a Sedco Forex Subsidiary designated by Sedco Forex all of the
capital stock of or other equity interests in the entities listed on Schedule
2.01(a).
(a) Sedco Forex Transfers. On or prior to the Distribution Date, Sedco
Forex shall transfer or cause to be transferred to Schlumberger or a
Schlumberger Subsidiary designated by Schlumberger all of the capital stock of
or other equity interests in the entities listed on Schedule 2.01(b).
(b) Separation of Assets. On or prior to the Distribution Date, (i) the
Assets of the Schlumberger Group listed on Schedule 2.01(c)-1 shall be
transferred to a member of the Sedco Forex Group and (ii) the Assets of the
Sedco Forex Group listed on Schedule 2.01(c)-2 shall be transferred to a member
of the Schlumberger Group.
(c) Shared Facilities. On or prior to the Pre-Closing Balance Sheet Date,
Sedco Forex and Schlumberger shall negotiate and the appropriate members of the
Sedco Forex Group and the Schlumberger Group shall execute agreements necessary
to provide for the shared use of the Shared Facilities by the Sedco Forex Group
and the Schlumberger Group (including allocation of costs for permits, licenses,
waste disposal, insurance, taxes, utilities, security and other matters) on an
arm's-length, fair market value basis for some period of time after the
Pre-Closing Balance Sheet Date. Any such agreements shall be subject to a
Transocean Consent and shall be included in the definition of Transaction
Agreements.
(d) Separation of Contractual Arrangements. On or prior to the Pre-Closing
Balance Sheet Date, Schlumberger and Sedco Forex will use their best efforts to
amend, in form and substance reasonably satisfactory to Schlumberger and Sedco
Forex, and subject to a Transocean Consent, all contractual arrangements between
or among Schlumberger, Sedco Forex, their respective Affiliates and any other
Person (other than the contractual arrangements relating to the Distribution and
the Merger) that relate (i) to both the Schlumberger Business and the Sedco
Forex Business, (ii) solely to the Sedco Forex Business, but, by their terms,
contain provisions relating to a member of the Schlumberger Group, so that,
after the Distribution Date, such contractual arrangements (A) will relate
solely to the Sedco Forex Business and (B) will eliminate any provisions
relating to a member of the Schlumberger Group and, in either event, will inure
to the benefit of the Sedco Forex Group on substantially the same economic terms
as such arrangements exist as of the date hereof, or (iii) solely to the
Schlumberger Business, but, by their terms, contain provisions relating to a
member of the Sedco Forex Group, so that after the Pre-Closing Balance Sheet
Date, such contractual arrangements (x) will relate solely to the Schlumberger
Business and (y) will eliminate any provisions relating to a member of the Sedco
Forex Group, and, in either event, will inure to the benefit of the Schlumberger
Group on substantially the same economic terms as such arrangements exist as of
the date hereof. If such amendments cannot be obtained, or if an attempted
amendment thereof would be ineffective or
B-7
<PAGE> 225
would adversely affect the rights of Sedco Forex or Schlumberger thereunder,
Schlumberger and Sedco Forex will cooperate in negotiating a mutually agreeable
arrangement under which the appropriate party will obtain the benefits and
assume the obligations thereunder, including sub-contracting, sub-licensing or
sub-leasing to the intended party, or under which the transferring party will
enforce for the benefit of the transferee party, with the transferee party
assuming the transferring party's obligations, any and all rights of the
transferring party against a third party thereto.
(e) Separation of Employees. The employees of the Sedco Forex Group and the
Schlumberger Group shall be determined as of the Pre-Closing Balance Sheet Date
as provided for under the Employee Matters Agreement.
(f) Transition Services. On or prior to the Pre-Closing Balance Sheet Date,
Sedco Forex and Schlumberger shall negotiate and execute an agreement necessary
to provide for the provision of certain transition services by the Schlumberger
Group to the Sedco Forex Group and by the Sedco Forex Group to the Schlumberger
Group on an arm's-length, fair market value basis for a two-year period after
the Pre-Closing Balance Sheet Date (unless a shorter period is agreed with
regard to particular services). In addition, Schlumberger and Sedco Forex will
enter into a technical support services agreement to support the operations of
Schlumberger's jackup drilling fleet in the Middle East, which is being retained
by Schlumberger, and a marine and maintenance services agreement to support
Schlumberger's workover rig, the "Bima." Such agreement shall be for a minimum
period of three years after the Closing Date and shall be on arm's-length terms
and conditions. Any such agreements shall be subject to a Transocean Consent and
shall be included in the definition of Transaction Agreements.
(g) Costs. Except as otherwise provided in the Transaction Agreements, the
costs (and other out-of-pocket losses) attributable to the separation of the
Assets, including, without limitation, the Shared Facilities, shall be allocated
pursuant to Section 9.11 hereof.
SECTION 2.02 CERTAIN FINANCIAL MATTERS.
(a) General. Prior to the Distribution, Sedco Forex and the Sedco Forex
Subsidiaries shall, except for the transactions described in this Agreement and
in the Transaction Agreements, continue to operate their respective businesses
in the usual, regular and ordinary course, in substantially the same manner as
heretofore conducted.
(b) Permitted Indebtedness: Permitted Indebtedness shall equal U.S. $435.0
million, plus or minus the following adjustments:
(i) minus an amount equal to any Capex Shortfall;
(ii) plus an absolute amount equal to any Receivables Differential, if
positive, or minus an absolute amount equal to any Receivables
Differential, if negative;
(iii) plus an absolute amount equal to any Other Receivables
Differential, if positive, or minus an absolute amount equal to any Other
Receivables Differential, if negative;
(iv) plus an absolute amount equal to any Inventories Differential, if
positive, or minus an absolute amount equal to any Inventories
Differential, if negative;
(v) plus an absolute amount equal to any Other Current Assets
Differential, if positive, or minus an absolute amount equal to any Other
Current Assets Differential, if negative;
(vi) minus an amount equal to any Excess Suppliers Payable and
Accruals Balance;
(vii) minus an amount equal to any Excess Employee and Other Payable
Balance;
(viii) minus an amount equal to any increase in the Specified Reserve;
(ix) plus an amount equal to the Year 1999 Cash Flow Adjustment, if
any;
(x) plus an amount equal to the Year 2000 Capex Adjustment, if any;
and
(xi) minus an amount equal to the Year 2000 Cash Flow Adjustment, if
any.
B-8
<PAGE> 226
(c) Satisfaction of Intercompany Amounts. Immediately following delivery of
the Pre-Closing Financial Statements, each member of the Sedco Forex Group and
each member of the Schlumberger Group shall repay, contribute or otherwise
satisfy all intercompany borrowings, payables or receivables, however arising,
owed by those Persons to a member of the other Group; provided, however, that
the net effect of such satisfaction shall result in the Sedco Forex Business
having, based on amounts reflected in the Pre-Closing Balance Sheet, after
giving effect to the satisfaction of intercompany borrowings, payables and
receivables described above, (i) total combined Indebtedness equal to the
Permitted Indebtedness (calculated according to Section 2.02(b) above) and (ii)
the Required Minimum Cash Balance. Any amount of cash in excess of the Required
Minimum Cash Balance shall be distributed to Schlumberger or its designee. If
any intercompany amount owed by a member of the Sedco Forex Group that is to be
so satisfied cannot be satisfied in accordance with the procedure described in
this paragraph, Schlumberger may elect either to defer the payment or other
settlement of the amount, with a corresponding reduction to Permitted
Indebtedness, or increase the general amounts due from the Schlumberger Group,
in which case, when such amount can be paid, a member of the Schlumberger Group
will furnish Sedco Forex cash equal to the amount to be paid and the appropriate
member of the Sedco Forex Group will then pay the intercompany amount (and any
remaining balances will be canceled). All Indebtedness of the Sedco Forex Group
to the Schlumberger Group shall be paid by the applicable members of the Sedco
Forex Group to the applicable members of the Schlumberger Group no later than
the close of business on the next business day after the Distribution.
(d) Required Cash Contribution. If (x) the net aggregate amount of all
adjustments in clauses (i) through (xi) of Section 2.02(b) and the penultimate
sentence of Section 2.02(c) is a negative number and the absolute value thereof
exceeds (y) the difference between (A) $435.0 million minus (B) total Sedco
Forex Group Indebtedness to non-Affiliates, then the Schlumberger Group shall
(I) make a capital contribution in the form of cash to the Sedco Forex Group in
an absolute amount equal to the difference of (x) minus (y), and (II) the
Schlumberger Group shall contribute additional cash to the Sedco Forex Group in
an amount equal to the amount of all intercompany Indebtedness owed to the
Schlumberger Group by the Sedco Forex Group, which shall then repay all such
intercompany Indebtedness.
(e) Operations After the Pre-Closing Balance Sheet Date. After the
Pre-Closing Balance Sheet Date, except as contemplated by this Agreement or by
the Transaction Agreements, the Sedco Forex Group (i) shall not dividend,
distribute or otherwise transfer to the Schlumberger Group any cash or cash
equivalents; (ii) shall not incur any additional Indebtedness except in the
ordinary course of business; and (iii) shall not engage in any transaction or
conduct any business with the Schlumberger Group except on an arm's-length basis
on terms no less favorable to the Sedco Forex Group than could be obtained from
a third party or on the terms set forth in the Transition Services Agreement. If
Schlumberger contributes any amount of cash to Sedco Forex in order to assist in
the Business Separation after the Pre-Closing Balance Sheet Date, the Sedco
Forex Group may dividend, distribute or otherwise transfer an equivalent amount
of cash to the Schlumberger Group.
(f) Capex Shortfall. As used in this Agreement, "Capex Shortfall" means the
amount, if any, by which aggregate actual expenditures from January 1, 1999
through the Pre-Closing Balance Sheet Date or December 31, 1999, if earlier, for
Sedco Forex's sustaining, life extension and newbuild capital expenditure
programs are less than the forecasted expenditures for those programs for 1999
as reflected in the Sedco Forex Disclosure Letter delivered pursuant to the
Merger Agreement.
SECTION 2.03 MEMORANDUM OF ASSOCIATION; ARTICLES OF ASSOCIATION. Prior to
the Distribution Date, the memorandum of association and articles of association
of Sedco Forex will be amended to increase its authorized shares of capital
stock to a sufficient number of shares in order to consummate the transactions
contemplated hereby and by the Merger Agreement, and to eliminate the
authorization of bearer stock.
SECTION 2.04 ISSUANCE OF STOCK. Prior to the Distribution Date, the
parties hereto shall take all steps necessary so that the number of shares of
Sedco Forex Common Stock outstanding and held by Schlumberger shall equal one
(the "Distribution Ratio") times the number of shares of Schlumberger Common
Stock outstanding on the Record Date.
B-9
<PAGE> 227
SECTION 2.05 OTHER AGREEMENTS. Each of Schlumberger and Sedco Forex shall,
prior to the Distribution Date (and, in the case of the Transition Services
Agreement, prior to the Pre-Closing Balance Sheet Date), enter into, or cause
the appropriate members of the Group of which it is a member to enter into, the
other Transaction Agreements.
SECTION 2.06 REGISTRATION. Prior to the Distribution Date:
(a) The parties shall take such efforts regarding the Registration
Statements and the Proxy Statement/Prospectus as provided in the Merger
Agreement.
(b) The parties hereto shall use reasonable efforts to take all such
action as may be necessary or appropriate under state securities and blue
sky laws or similar requirements of other governmental authorities in
connection with the transactions contemplated by this Agreement.
SECTION 2.07 TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION; TRANSFERS
DEEMED EFFECTIVE AS OF THE DISTRIBUTION DATE.
(a) To the extent that any transfers contemplated by this Article II shall
not have been consummated on or prior to the Distribution Date, the parties
shall cooperate to effect such transfers as promptly following the Distribution
Date as shall be practicable. Nothing herein shall be deemed to require the
transfer of any Assets or the assumption of any Liabilities that by their terms
or operation of law cannot be transferred or assumed; provided, however, that
the Schlumberger Group and the Sedco Forex Group shall cooperate to obtain any
necessary consents or approvals for the transfer of all Assets and the
assumption of all Liabilities contemplated to be transferred or assumed pursuant
to this Article II and shall, even in the absence of any necessary consents or
approvals, transfer the equitable ownership of Assets when such a transfer is
permitted. In the event that any such transfer of Assets or assumption of
Liabilities has not been consummated, effective as of and after the Distribution
Date, the party retaining such Asset or Liability shall thereafter hold such
Asset in trust for the use and benefit of the party entitled thereto (at the
expense of the party entitled thereto) and retain such Liability for the account
of the party by whom such Liability is to be assumed pursuant hereto, and take
such other action as may be reasonably requested by the party to which such
Asset is to be transferred, or by whom such Liability is to be assumed, as the
case may be, in order to place such party, insofar as reasonably possible, in
the same position as would have existed had such Asset or Liability been
transferred or assumed as contemplated hereby. As and when any such Asset
becomes transferable or such Liability can be assumed, such transfer or
assumption shall be effected forthwith. Subject to the foregoing, the parties
agree that, as of the Distribution Date (or such earlier time as any such Asset
may have been acquired or Liabilities assumed), each party hereto shall be
deemed to have acquired complete and sole beneficial ownership over all of the
Assets, together with all rights, powers and privileges incident thereto, and
shall be deemed to have assumed in accordance with the terms of this Agreement
all of the Liabilities, and all duties, obligations and responsibilities
incident thereto, which such party is entitled to acquire or required to assume
pursuant to the terms of this Agreement.
(b) If after two years from the Distribution Date, any Asset remains
subject to an arrangement described in Section 2.07(a), unless the parties elect
to continue such arrangement on such terms as they may mutually agree, such
arrangement shall terminate. In the event of a termination, the beneficial owner
may (i) direct the party acting as trustee to transfer the Asset to the
beneficial owner, at the sole risk of such owner (which will thereafter
indemnify the trustee/transferor from all Losses or Liabilities arising as a
result of such transfer), (ii) direct the party acting as trustee to sell or
liquidate the subject Asset for the account of, and at the sole risk and expense
of, such owner, which shall be entitled to receive all of the net proceeds of
such sale or liquidation or (iii) direct the party acting as trustee to purchase
the affected Asset at a price mutually agreed or, if no such agreement is
reached, at the fair market value thereof as determined by a neutral third-party
appraisal process.
B-10
<PAGE> 228
ARTICLE III
THE DISTRIBUTION
SECTION 3.01 RECORD DATE AND DISTRIBUTION DATE. Subject to the
satisfaction of the conditions set forth in Section 8.01, the Board of Directors
of Schlumberger, consistent with and as provided for in the Merger Agreement and
applicable law, shall, in consultation with Transocean, declare the Distribution
and establish the Record Date and the Distribution Date and any appropriate
procedures in connection with the Distribution.
SECTION 3.02 THE AGENT. Prior to the Distribution Date, Schlumberger shall
enter into an agreement with the Agent providing for, among other things, the
Distribution to the holders of Schlumberger Common Stock in accordance with this
Article III.
SECTION 3.03 DELIVERY OF SHARE CERTIFICATE TO THE AGENT. Prior to the
Distribution Date, Schlumberger shall deliver to the Agent a share certificate
representing, or authorize the related book-entry transfer of, all of the
outstanding shares of Sedco Forex Common Stock to be distributed in connection
with the Distribution, which shall constitute all such shares outstanding. After
the Distribution Date, upon the request of the Agent, Sedco Forex shall provide
all certificates for shares, or authorize any book-entry transfers, of Sedco
Forex Common Stock that the Agent shall require in order to effect the
Distribution.
SECTION 3.04 THE DISTRIBUTION. Subject to the terms and conditions of this
Agreement, Schlumberger shall instruct the Agent to distribute, as of the
Distribution Date, to each holder of record of Schlumberger Common Stock on the
Record Date, a number of shares of Sedco Forex Common Stock equal to the
Distribution Ratio multiplied by the number of shares of Schlumberger Common
Stock held by that Person on the Record Date. Such distribution will be effected
by the book-entry transfer of such shares of Sedco Forex Common Stock to such
holders of record of Schlumberger Common Stock or by the mailing of stock
certificates to such holders. The shares of Sedco Forex Common Stock represented
by such certificates shall constitute all of the outstanding stock of Sedco
Forex.
SECTION 3.05 STOCK OPTIONS. Options to purchase Schlumberger Common Stock
will be treated as set forth in the Employee Matters Agreement.
ARTICLE IV
SURVIVAL AND INDEMNIFICATION
SECTION 4.01 SURVIVAL OF AGREEMENTS. All representations, warranties,
covenants and agreements of the parties hereto contained in this Agreement shall
survive the Distribution Date, except that the indemnification contained in
Section 4.02 with respect to Restructuring Liabilities shall expire three years
after the transfer or other event giving rise to such Restructuring Liability,
unless a specific claim with respect to such item has been delivered pursuant to
this Article IV prior to the end of such three-year period.
SECTION 4.02 INDEMNIFICATION.
(a) Except as specifically otherwise provided in the other Transaction
Agreements, the Sedco Forex Group shall indemnify, defend and hold harmless the
Schlumberger Indemnitees from and against (i) all Indemnifiable Losses arising
out of or due to the failure or alleged failure of any member of the Sedco Forex
Group to pay or satisfy any Sedco Forex Liabilities, whether such Indemnifiable
Losses relate to events, occurrences or circumstances occurring or existing, or
whether such Indemnifiable Losses are asserted, before, on or after the
Distribution Date, or to perform any of its obligations under this Agreement and
(ii) all Indemnifiable Losses arising out of or due to the failure after the
Distribution Date of Sedco Forex or Sedco Forex Subsidiaries to transfer to
Schlumberger or Schlumberger Subsidiaries all of the Sedco Forex Group's right,
title and interest to all Assets transferred or to be transferred to the
Schlumberger Group pursuant to Section 2.01 hereof.
(b) Except as specifically otherwise provided in the other Transaction
Agreements, the Schlumberger Group shall indemnify, defend and hold harmless the
Sedco Forex Indemnitees from and against (i) all
B-11
<PAGE> 229
Indemnifiable Losses arising out of or due to the failure or alleged failure of
any member of the Schlumberger Group to pay or satisfy any Schlumberger
Liabilities, whether such Indemnifiable Losses relate to events, occurrences or
circumstances occurring or existing, or whether such Indemnifiable Losses are
asserted, before, on or after the Distribution Date, or to perform any of its
obligations under this Agreement, and (ii) all Indemnifiable Losses arising out
of or due to the failure of Schlumberger or Schlumberger Subsidiaries to
transfer to Sedco Forex or Sedco Forex Subsidiaries all of the Schlumberger
Group's right, title and interest to all Assets transferred or to be transferred
to the Sedco Forex Group pursuant to Section 2.01 hereof.
(c) Notwithstanding anything to the contrary set forth herein,
indemnification relating to any arrangements between any member of the
Schlumberger Group and any member of the Sedco Forex Group for the provision
after the Pre-Closing Balance Sheet Date of goods and services in the ordinary
course shall be governed by the terms of such arrangements and not by this
Section or as otherwise set forth in this Agreement or the Transaction
Agreements.
(d) Indemnification for matters subject to the Tax Separation Agreement are
governed by the terms, provisions and procedures of that agreement and not this
Article IV.
SECTION 4.03 PROCEDURES FOR INDEMNIFICATION FOR THIRD-PARTY CLAIMS.
(a) Schlumberger shall, and shall cause the other Schlumberger Indemnitees
to, notify Sedco Forex in writing promptly after learning of any Third-Party
Claim for which any Schlumberger Indemnitee intends to seek indemnification from
Sedco Forex under this Agreement. Sedco Forex shall, and shall cause the other
Sedco Forex Indemnitees to, notify Schlumberger in writing promptly after
learning of any Third-Party Claim for which any Sedco Forex Indemnitee intends
to seek indemnification from Schlumberger under this Agreement. The failure of
any Indemnitee to give such notice shall not relieve any Indemnifying Party of
its obligations under this Article except to the extent that such Indemnifying
Party or its Affiliate is actually prejudiced by such failure to give notice.
Such notice shall describe such Third-Party Claim in reasonable detail,
considering the Information provided to the Indemnitee.
(b) Except as otherwise provided in paragraph (c) of this Section, an
Indemnifying Party may, by notice to the Indemnitee and to Schlumberger, if
Sedco Forex is the Indemnifying Party, or to the Indemnitee and Sedco Forex, if
Schlumberger is the Indemnifying Party, at any time after receipt by such
Indemnifying Party of such Indemnitee's notice of a Third-Party Claim, undertake
(itself or through another member of the Group of which the Indemnifying Party
is a member) the defense or settlement of such Third-Party Claim. If an
Indemnifying Party undertakes the defense of any Third-Party Claim, such
Indemnifying Party shall control the investigation and defense or settlement
thereof, and the Indemnitee may not settle or compromise such Third-Party Claim,
except that such Indemnifying Party shall not (i) require any Indemnitee,
without its prior written consent, to take or refrain from taking any action in
connection with such Third-Party Claim, or make any public statement, which such
Indemnitee reasonably considers to be against its interests, nor (ii) without
the prior written consent of the Indemnitee and of Schlumberger, if the
Indemnitee is a Schlumberger Indemnitee, or of the Indemnitee and of Sedco
Forex, if the Indemnitee is a Sedco Forex Indemnitee, consent to any settlement
that does not include as a part thereof an unconditional release of the
Indemnitees from liability with respect to such Third-Party Claim or that
requires the Indemnitee or any of its Representatives or Affiliates to make any
payment that is not fully indemnified under this Agreement or to be subject to
any nonmonetary remedy; and subject to the Indemnifying Party's control rights,
as specified herein, the Indemnitees may participate in such investigation and
defense at their own expense. Following the provision of notices to the
Indemnifying Party, until such time as an Indemnifying Party has undertaken the
defense of any Third-Party Claim as provided herein, such Indemnitee shall
control the investigation and defense or settlement thereof, without prejudice
to its right to seek indemnification hereunder.
(c) An Indemnifying Party shall not be entitled to assume the defense of
any Third-Party Claim (and shall be liable for the reasonable fees and expenses
of counsel (including legal counsel) incurred by the Indemnitee in defending
such Third-Party Claim) if, in the Indemnitee's reasonable judgment, a conflict
of interest between such Indemnitee and such Indemnifying Party exists in
respect of such Third-Party Claim.
B-12
<PAGE> 230
(d) In no event shall an Indemnifying Party be liable for the fees and
expenses of more than one counsel for all Indemnitees (in addition to local
counsel and its own counsel, if any) in connection with any one action, or
separate but similar or related actions, in the same jurisdiction arising out of
the same general allegations or circumstances.
(e) If the Indemnifying Party undertakes the defense or settlement of a
Third-Party Claim, the Indemnitee shall make available to the Indemnifying Party
and its counsel all information and documents reasonably available to it that
relate to any Third-Party Claim, and otherwise cooperate as may reasonably be
required in connection with the investigation, defense and settlement thereof,
subject to the terms and conditions of a mutually acceptable joint defense
agreement. Any joint defense agreement entered into by Sedco Forex or
Schlumberger with any third party relating to any Third-Party Claim shall
provide that Sedco Forex or Schlumberger may, if requested, provide information
obtained through any such agreement to the Sedco Forex Indemnitees and/or the
Schlumberger Indemnitees.
SECTION 4.04 REDUCTIONS FOR INSURANCE PROCEEDS AND OTHER RECOVERIES. The
amount that any Indemnifying Party is or may be required to pay to any
Indemnitee pursuant to this Article IV shall be reduced (retroactively or
prospectively) by any insurance proceeds or other amounts actually recovered
from third parties by or on behalf of such Indemnitee in respect of the related
Indemnifiable Losses. The existence of a claim by an Indemnitee for insurance or
against a third party in respect of any Indemnifiable Loss shall not, however,
delay any payment pursuant to the indemnification provisions contained herein
and otherwise determined to be due and owing by an Indemnifying Party. Rather
the Indemnifying Party shall make payment in full of such amount so determined
to be due and owing by it against an assignment by the Indemnitee to the
Indemnifying Party of the entire claim of the Indemnitee for such insurance or
against such third party. Notwithstanding any other provisions of this
Agreement, it is the intention of the parties hereto that no insurer or any
other third party shall be (i) entitled to a benefit it would not be entitled to
receive in the absence of the foregoing indemnification provisions or (ii)
relieved of the responsibility to pay any claims for which it is obligated. If
an Indemnitee shall have received the payment required by this Agreement from an
Indemnifying Party in respect of an Indemnifiable Losses and shall subsequently
actually receive insurance proceeds or other amounts in respect of such
Indemnifiable Losses, then such Indemnitee shall hold such insurance proceeds in
trust for the benefit of such Indemnifying Party and shall pay to such
Indemnifying Party a sum equal to the amount of such insurance proceeds or other
amounts actually received, up to the aggregate amount of any payments received
from such Indemnifying Party pursuant to this Agreement in respect of such
Indemnifiable Losses.
SECTION 4.05 REMEDIES CUMULATIVE. The remedies provided in this Article IV
shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any other remedies against any Indemnifying
Party. However, the procedures set forth in Section 4.03 shall be the exclusive
procedures governing any indemnity action brought under this Agreement, except
as otherwise specifically provided in any of the other Transaction Agreements.
ARTICLE V
CERTAIN ADDITIONAL COVENANTS
SECTION 5.01 NOTICES TO THIRD PARTIES. In addition to the actions
described in Section 5.02, the members of the Schlumberger Group and the members
of the Sedco Forex Group shall cooperate to make all other filings and to give
notice to and obtain consents from all third parties that may reasonably be
required to consummate the transactions contemplated by this Agreement and the
other Transaction Agreements.
SECTION 5.02 LICENSES AND PERMITS. Each party hereto shall cause the
appropriate members of its Group to prepare and file with the appropriate
licensing and permitting authorities applications for the transfer or issuance,
as may be necessary or advisable in connection with the transactions
contemplated by this Agreement and the other Transaction Agreements, to its
Group of all material governmental licenses and permits required for the members
of its Group to operate their respective Businesses after the Distribution
B-13
<PAGE> 231
Date. The members of the Sedco Forex Group and the members of the Schlumberger
Group shall cooperate and use all reasonable efforts to secure the transfer or
issuance of the licenses and permits.
SECTION 5.03 INTERCOMPANY AGREEMENTS. All contracts, licenses, agreements,
commitments or other arrangements, formal or informal, between any member of the
Schlumberger Group, on the one hand, and any member of the Sedco Forex Group, on
the other hand, in existence as of the Pre-Closing Balance Sheet Date, pursuant
to which any member of either Group makes payments in respect of taxes to any
member of the other Group or provides to any member of the other Group goods or
services (including, without limitation, management, administrative, legal,
financial, accounting, data processing, insurance or technical support), or the
use of any Assets of any member of the other Group, or the secondment of any
employee, or pursuant to which rights, privileges or benefits are afforded to
members of either Group as Affiliates of the other Group, shall terminate as of
the close of business on the day prior to the Pre-Closing Balance Sheet Date (at
which time the Transition Services Agreement shall take effect), except as
specifically provided herein or in the other Transaction Agreements. From and
after the Pre-Closing Balance Sheet Date, no member of either Group shall have
any rights under any such contract, license, agreement, commitment or
arrangement with any member of the other Group, except as specifically provided
in this Agreement or in the other Transaction Agreements.
SECTION 5.04 FURTHER ASSURANCES. In addition to the actions specifically
provided for elsewhere in this Agreement, each of the parties hereto shall use
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
applicable laws, regulations and agreements to consummate and make effective the
transactions contemplated by this Agreement and the other Transaction
Agreements. Without limiting the foregoing, each party hereto shall cooperate
with the other party, and execute and deliver, or use reasonable efforts to
cause to be executed and delivered, all instruments, and to make all filings
with, and to obtain all consents, approvals or authorizations of, any
governmental or regulatory authority or any other Person under any permit,
license, agreement, indenture or other instrument, and take all such other
actions as such party may reasonably be requested to take by any other party
hereto from time to time, consistent with the terms of this Agreement and the
other Transaction Agreements, in order to effectuate the provisions and purposes
of this Agreement.
SECTION 5.05 GUARANTEE OBLIGATIONS AND LIENS.
(a) Schlumberger and Sedco Forex shall cooperate, and shall cause their
respective Groups to cooperate, (x) to terminate, or to cause a member of the
Sedco Forex Group to be substituted in all respects for any member of the
Schlumberger Group in respect of, all obligations of any member of the
Schlumberger Group under any Sedco Forex Liabilities for which such member of
the Schlumberger Group may be liable, as guarantor, original tenant, primary
obligor or otherwise, and (y) to terminate, or to cause Sedco Forex Assets to be
substituted in all respects for any Schlumberger Assets in respect of, any liens
or encumbrances on Schlumberger Assets that are securing any Sedco Forex
Liabilities. If such a termination or substitution is not effected by the
Pre-Closing Balance Sheet Date, (i) Sedco Forex shall indemnify and hold
harmless the Schlumberger Indemnitees for any Indemnifiable Loss arising from or
relating thereto, and (ii) without the prior written consent of Schlumberger,
from and after the Pre-Closing Balance Sheet Date, Sedco Forex shall not, and
shall not permit any member of the Sedco Forex Group to, renew or extend the
term of, increase its obligations under, or transfer to a third party any loan,
lease, contract or other obligation for which a member of the Schlumberger Group
is or may be liable or for which any Schlumberger Asset is or may be encumbered
unless all obligations of the Schlumberger Group and all liens and encumbrances
on any Schlumberger Asset with respect thereto are thereupon terminated by
documentation reasonably satisfactory in form and substance to Schlumberger.
(b) Schlumberger and Sedco Forex shall cooperate, and shall cause their
respective Groups to cooperate, (x) to terminate, or to cause a member of the
Schlumberger Group to be substituted in all respects for any member of the Sedco
Forex Group in respect of, all obligations of any member of the Sedco Forex
Group under any Schlumberger Liabilities for which such member of the Sedco
Forex Group may be liable, as guarantor, original tenant, primary obligor or
otherwise, and (y) to terminate, or to cause Schlumberger Assets to be
substituted in all respects for any Sedco Forex Assets in respect of, any liens
or encumbrances on
B-14
<PAGE> 232
Sedco Forex Assets that are securing any Schlumberger Liabilities. If such a
termination or substitution is not effected by the Pre-Closing Balance Sheet
Date, (i) Schlumberger shall indemnify and hold harmless the Sedco Forex
Indemnitees for any Indemnifiable Loss arising from or relating thereto, and
(ii) without the prior written consent of Sedco Forex, from and after the
Pre-Closing Balance Sheet Date, Schlumberger shall not, and shall not permit any
member of the Schlumberger Group to, renew or extend the term of, increase its
obligations under, or transfer to a third party, any loan, lease, contract or
other obligation for which a member of the Sedco Forex Group is or may be liable
or for which any Sedco Forex Asset is or may be encumbered unless all
obligations of the Sedco Forex Group and all liens and encumbrances on any Sedco
Forex Asset with respect thereto are thereupon terminated by documentation
reasonably satisfactory in form and substance to Sedco Forex.
SECTION 5.06 USE OF NAMES. Any existing printed material, signs, displays
or other materials showing any affiliation or connection of the Sedco Forex
Group or the Schlumberger Group with the other Group, including any names using
"Schlumberger" or "Sedco Forex," as applicable, or a derivative thereof, or any
tradenames or trademarks of the other Group may be used by the other Group only
for a period ending six months after the Distribution Date. On and after the
Distribution Date, none of the Sedco Forex Group or the Schlumberger Group shall
create any new materials showing any affiliation of connection with the other
Group or represent to third parties that it is presently affiliated with any
member of the other Group.
SECTION 5.07 RESTRICTIONS ON HIRING OTHER PARTY'S EMPLOYEES. For a period
of two years after the Distribution Date, no member of the Sedco Forex Group or
the Schlumberger Group will, without the prior written consent of the other,
solicit (other than general solicitations through newspapers or otherwise not
specifically directed at employees of the other Group) the employment of any
person who is a member of the other Group as of immediately after the
Distribution; provided, however, that either Group may solicit any such person
whose employment was terminated by the other Group.
ARTICLE VI
ACCESS TO INFORMATION
SECTION 6.01 PROVISION OF CORPORATE RECORDS. Prior to or as promptly as
practicable after the Distribution Date, Schlumberger may retain complete and
accurate copies of, but shall deliver to Sedco Forex, all corporate books and
records of the Sedco Forex Group in its possession and copies of the relevant
portions of all corporate books and records of the Schlumberger Group relating
directly and predominantly to the Sedco Forex Assets, the Sedco Forex Business,
or the Liabilities of the Sedco Forex Group, including, in each case, all active
agreements, active litigation files and government filings. From and after the
Distribution Date, all such books, records and copies shall be the property of
Sedco Forex. Prior to or as promptly as practicable after the Distribution Date,
Sedco Forex may retain complete and accurate copies of, but shall deliver to
Schlumberger, all corporate books and records of the Schlumberger Group in its
possession and copies of the relevant portions of all corporate books and
records of the Sedco Forex Group relating directly and predominantly to the
Schlumberger Assets, the Schlumberger Business, or the Liabilities of the
Schlumberger Group, including, in each case, all active agreements, active
litigation files and government filings. From and after the Distribution Date,
all such books, records and copies shall be the property of Schlumberger.
SECTION 6.02 ACCESS TO INFORMATION. From and after the Distribution Date,
each of Schlumberger and Sedco Forex shall afford to the other and to the
other's Representatives reasonable access and duplicating rights during normal
business hours to all Information within the possession or control of such
party's Group relating to the other party's Group's pre-Distribution business,
Assets or Liabilities, or relating to or arising in connection with the
relationship between the Groups on or prior to the Distribution Date, insofar as
such access is reasonably required for a reasonable purpose, subject to the
provisions below regarding Privileged Information. Without limiting the
foregoing, Information may be requested under this Section 6.02 for audit,
accounting, claims, litigation and tax purposes, as well as for purposes of
fulfilling disclosure and reporting obligations.
B-15
<PAGE> 233
In furtherance of the foregoing:
(a) Each party hereto acknowledges that: (i) each of Schlumberger and
Sedco Forex (and the members of the Schlumberger Group and the Sedco Forex
Group, respectively) has or may obtain Privileged Information; (ii) there
are a number of Litigation Matters affecting each or both of Schlumberger
and Sedco Forex; (iii) both Schlumberger and Sedco Forex have a common
legal interest in Litigation Matters, in the Privileged Information and in
the preservation of the confidential status of the Privileged Information,
in each case relating to the pre-Distribution business of the Schlumberger
Group or the Sedco Forex Group, or relating to or arising in connection
with the relationship between the Groups on or prior to the Distribution
Date; and (iv) both Schlumberger and Sedco Forex intend that the
transactions contemplated hereby and by the Merger Agreement and the other
Transaction Agreements, and any transfer of Privileged Information in
connection therewith shall not operate as a waiver of any potentially
applicable privilege.
(b) Each of Schlumberger and Sedco Forex agrees, on behalf of itself
and each member of the Group of which it is a member, not to disclose or
otherwise waive any privilege attaching to any Privileged Information
relating to the pre-Distribution business of the Sedco Forex Group or the
Schlumberger Group, respectively, or relating to or arising in connection
with the relationship between the Groups on or prior to the Distribution
Date, without providing prompt written notice to and obtaining the prior
written consent of the other, which consent shall not be unreasonably
withheld and shall not be withheld if the other party certifies that such
disclosure is to be made in response to a likely threat of suspension or
debarment or similar action; provided, however, that Schlumberger and Sedco
Forex shall not be required to give any such notice or obtain any such
consent and may make such disclosure or waiver with respect to Privileged
Information if such Privileged Information relates solely to the pre-
Distribution business of the Schlumberger Group, in the case of
Schlumberger, or the Sedco Forex Group, in the case of Sedco Forex. In the
event of a disagreement between any member of the Schlumberger Group and
any member of the Sedco Forex Group, concerning the reasonableness of
withholding such consent, no disclosure shall be made prior to a resolution
of such disagreement by a court of competent jurisdiction, provided that
the limitations in this sentence shall not apply in the case of disclosure
required by law and so certified as provided in the first sentence of this
paragraph.
(c) Upon any member of the Schlumberger Group or any member of the
Sedco Forex Group receiving any subpoena or other compulsory disclosure
notice from a court, other governmental agency or otherwise, which requests
disclosure of Privileged Information, in each case relating to
pre-Distribution business of the Sedco Forex Group or the Schlumberger
Group, respectively, or relating to or arising in connection with the
relationship between the Groups on or prior to the Distribution Date, the
recipient of the notice shall promptly provide to the other Group
(following the notice provisions set forth herein) a copy of such notice,
the intended response, and all materials or information relating to the
other Group that might be disclosed. In the event of a disagreement as to
the intended response or disclosure, unless and until the disagreement is
resolved as provided in paragraph (b) of this Section, the parties shall
cooperate to assert all defenses to disclosure claimed by either party's
Group and shall not disclose any disputed documents or information until
all legal defenses and claims of privilege have been finally determined,
except as otherwise required by a court order requiring such disclosure.
SECTION 6.03 PRODUCTION OF WITNESSES. Subject to Section 6.02 and provided
that there is no conflict of interest between the Sedco Forex Group and the
Schlumberger Group with respect to the matter, after the Distribution Date, each
of Schlumberger and Sedco Forex shall make, and shall cause each member of the
Schlumberger Group and the Sedco Forex Group, respectively, to make, available
to Sedco Forex or Schlumberger or any member of the Sedco Forex Group or of the
Schlumberger Group, as the case may be, upon written request, such Group's
directors, officers, employees and agents as witnesses to the extent that any
such Person may reasonably be required in connection with any Litigation
Matters, administrative or other proceedings in which the requesting party may
from time to time be involved and relating to the pre-Distribution business of
the Schlumberger Group or the Sedco Forex Group, or relating to or in connection
B-16
<PAGE> 234
with the relationship between the Groups on or prior to the Distribution Date.
The costs and expenses incurred in the provision of such witnesses shall be paid
by the party requesting the availability of such persons.
SECTION 6.04 RETENTION OF RECORDS. Except as otherwise agreed in writing,
or as otherwise provided in the other Transaction Agreements, each of
Schlumberger and Sedco Forex shall, and shall cause the members of the Group of
which it is a member to, retain all Information in such party's Group's
possession or under its control relating directly and predominantly to the
pre-Distribution business, Assets or Liabilities of the other party's Group
until such Information is at least ten years old or until such later date as may
be required by law, except that if, prior to the expiration of such period, any
member of either party's Group wishes to destroy or dispose of any such
Information that is at least three years old, prior to destroying or disposing
of any of such Information, (a) the party whose Group is proposing to dispose of
or destroy any such Information shall provide no less than 30 days' prior
written notice to the other party, specifying the Information proposed to be
destroyed or disposed of, and (b) if, prior to the scheduled date for such
destruction or disposal, the other party requests in writing that any of the
Information proposed to be destroyed or disposed of be delivered to such other
party, the party whose Group is proposing to dispose of or destroy such
Information promptly shall arrange for the delivery of the requested Information
to a location specified by, and at the expense of, the requesting party.
SECTION 6.05 CONFIDENTIALITY. Subject to Section 6.02, which shall govern
Privileged Information, from and after the Distribution Date, each of
Schlumberger and Sedco Forex shall hold, and shall use reasonable efforts to
cause its Affiliates and Representatives to hold, in strict confidence all
Information concerning the other party's Group obtained by it prior to the
Distribution Date or furnished to it by such other party's Group pursuant to
this Agreement or the other Transaction Agreements and shall not release or
disclose such Information to any other Person, except its Affiliates and
Representatives, who shall be advised of the provisions of this Section 6.05,
and each party shall be responsible for a breach by any of its Affiliates or
Representatives; provided, however, that any member of the Schlumberger Group or
the Sedco Forex Group may disclose such Information to the extent that (a)
disclosure is compelled by judicial or administrative process or, based on
advice of such Person's counsel, by other requirements of law or (b) such party
can show that such Information was (i) available to such Person on a
nonconfidential basis (other than from a member of the other party's Group)
prior to its disclosure by the other party's Group, (ii) in the public domain
through no fault of such Person or (iii) lawfully acquired by such Person from
another source after the time that it was furnished to such Person by the other
party's Group, and not acquired from such source subject to any confidentiality
obligation on the part of such source known to the acquiror. Notwithstanding the
foregoing, each of Schlumberger and Sedco Forex shall be deemed to have
satisfied its obligations under this Section 6.05 with respect to any
Information (other than Privileged Information) if it exercises the same care
with regard to such Information as it takes to preserve confidentiality for its
own similar Information.
SECTION 6.06 COOPERATION WITH RESPECT TO GOVERNMENT REPORTS AND
FILINGS. Schlumberger, on behalf of itself and each member of the Schlumberger
Group, agrees to provide any member of the Sedco Forex Group, and Sedco Forex,
on behalf of itself and each member of the Sedco Forex Group, agrees to provide
any member of the Schlumberger Group, with such cooperation and Information as
may be reasonably requested by the other in connection with the preparation or
filing of any government report or other government filing contemplated by this
Agreement or in conducting any other government proceeding relating to the
pre-Distribution business of the Schlumberger Group or the Sedco Forex Group,
Assets or Liabilities of either Group, or relating to or in connection with the
relationship between the Groups on or prior to the Distribution Date. Such
cooperation and Information shall include, without limitation, promptly
forwarding copies of appropriate notices and forms or other communications
received from or sent to any government authority which relate to the
Schlumberger Group, in the case of the Sedco Forex Group, or the Sedco Forex
Group, in the case of the Schlumberger Group. Each party shall make its
employees and facilities available during normal business hours and on
reasonable prior notice to provide explanation of any documents or Information
provided hereunder.
B-17
<PAGE> 235
ARTICLE VII
NO REPRESENTATIONS OR WARRANTIES
SECTION 7.01 NO REPRESENTATIONS OR WARRANTIES. Except as expressly set
forth herein or in any other Transaction Agreement, Sedco Forex and Schlumberger
understand and agree that no member of the Schlumberger Group is representing or
warranting to Sedco Forex or any member of the Sedco Forex Group in any way as
to the Sedco Forex Assets, the Sedco Forex Business or the Sedco Forex
Liabilities. Except as expressly set forth herein or in any other Transaction
Agreement, Schlumberger and Sedco Forex understand and agree that no member of
the Sedco Forex Group is representing or warranting to Schlumberger or any
member of the Schlumberger Group in any way as to the Schlumberger Assets, the
Schlumberger Business or the Schlumberger Liabilities.
ARTICLE VIII
CONDITIONS
SECTION 8.01 CONDITIONS TO THE DISTRIBUTION. The obligations of
Schlumberger and Sedco Forex pursuant to this Agreement to effect the
Distribution shall be subject to the fulfillment (or, if permissible under
applicable law, waiver by Schlumberger) at or prior to the Distribution Date of
the following conditions:
(a) All consents, approvals and authorizations of any governmental
authority legally required for the making of the Distribution and the
consummation of the other transactions contemplated hereby and by the
Transaction Agreements, in form and substance reasonably satisfactory to
Schlumberger, shall have been obtained and be in effect at the Distribution
Date.
(b) (i) Any waiting period applicable to consummation of the Merger
under the HSR Act, and any voluntary agreement not to consummate the Merger
without prior notice to the U.S. Department of Justice or U.S. Federal
Trade Commission, shall have expired or been terminated; (ii) in the event
of any review by the U.K. Office of Fair Trading or, if applicable, the
U.K. Secretary of State for Trade and Industry, indications reasonably
satisfactory to each of Schlumberger and Transocean that the Merger will
not be referred to the Competition Commission shall have been received; and
(iii) any mandatory waiting period under any applicable non-U.S.
competition, antitrust, or premerger notification law or regulation (where
the failure to observe such waiting period referred to in this clause (iii)
would have a Transocean Material Adverse Effect or a Sedco Forex Material
Adverse Effect) shall have expired or been terminated without intervention
by a reviewing agency and without the commencement of proceedings in any
court of competent jurisdiction challenging all or part of the Merger,
which intervention or commencement of proceedings would have a Transocean
Material Adverse Effect or a Sedco Forex Material Adverse Effect.
(c) None of the parties hereto shall be subject to any decree, order
or injunction of a court of competent jurisdiction, U.S. or non-U.S., that
prohibits the consummation of the Distribution or the Merger, and no
statute, rule or regulation shall have been enacted by any governmental
authority that prohibits or makes unlawful the consummation of the
Distribution or the Merger.
(d) The Form S-4 shall have become effective, and no stop order with
respect thereto shall be in effect.
(e) The Requisite Approval shall have been obtained.
(f) Sedco Forex and Schlumberger shall each have received the opinion
of Baker & Botts, L.L.P., counsel to Sedco Forex and Schlumberger, in form
and substance reasonably satisfactory to Sedco Forex and Schlumberger and
dated the Distribution Date to the effect that, for U.S. federal income tax
purposes, (i) the Distribution should qualify as a distribution described
in Section 355 of the Code and (ii) the Merger should qualify as a
reorganization under Section 368(a)(1)(B) of the Code. In rendering such
opinion, such counsel shall be entitled to receive and rely upon
representations of officers of Sedco
B-18
<PAGE> 236
Forex and Schlumberger as to such matters as such counsel may reasonably
request and the certificate of Transocean provided for in Section 9.2(b) of
the Merger Agreement.
(g) There shall not be pending or threatened in writing any (i)
governmental claim, proceeding or action or (ii) any private claim,
proceeding or action, in either case, seeking to restrain, prohibit or seek
damages or other relief in connection with this Agreement, any Transaction
Agreement or any transaction contemplated hereby or thereby that would have
a Schlumberger or Sedco Forex Material Adverse Effect.
(h) Transocean and Merger Sub shall each have performed in all
material respects their respective covenants and agreements contained in
the Merger Agreement required to be performed on or prior to the
Distribution Date and the representations and warranties of Transocean and
Merger Sub contained in the Merger Agreement and in any document delivered
in connection therewith shall be true and correct in all material respects
as of the date of the Merger Agreement and as of the Distribution Date
(except for representations and warranties made as of a specified date,
which need be true and correct in all material respects only as of the
specified date), and Sedco Forex shall have received a certificate of each
of Transocean and Merger Sub, executed on its behalf by its President or
one of its Vice Presidents, dated the Distribution Date, certifying to such
effect.
(i) Sedco Forex and Transocean shall have irrevocably confirmed to
Schlumberger and each other that each condition in Sections 9.1 (other than
9.1(f)), 9.2 and 9.3 of the Merger Agreement to Sedco Forex's and
Transocean's respective obligations to effect the Merger have been
fulfilled or will be fulfilled at the Effective Time or are or have been
waived by Sedco Forex or Transocean, as the case may be.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Section 4.02 and 4.03 and except as provided in any Transaction Agreement or
other agreement delivered pursuant hereto or thereto (collectively, the
"Third-Party Provisions"), nothing in this Agreement, expressed or implied, is
intended to confer on any Person, other than the parties hereto or their
respective heirs, successors, executors, administrators and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement. The
Third-Party Provisions may be enforced by the beneficiaries thereof.
SECTION 9.02 ENTIRE AGREEMENT. This Agreement, the exhibits to this
Agreement and any documents delivered by the parties in connection herewith
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto. No addition to or modification of any provision of
this Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
SECTION 9.03 AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken or authorized by their Boards of Directors, at any time
before or after approval by the stockholders of Schlumberger. Any such amendment
may only be made by an instrument in writing signed on behalf of each of the
parties hereto and shall be subject to receipt of a Transocean Consent.
SECTION 9.04 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
its rules of conflict of laws.
SECTION 9.05 COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all, of the parties
hereto.
B-19
<PAGE> 237
SECTION 9.06 HEADINGS. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only and shall be given no
substantive or interpretative effect whatsoever.
SECTION 9.07 WAIVERS. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
SECTION 9.08 INCORPORATION OF EXHIBITS. All exhibits attached hereto and
referred to herein are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
SECTION 9.09 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms of
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
SECTION 9.10 ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled at law or in equity.
SECTION 9.11 EXPENSES. Except as set forth in Schedule 9.11 hereto,
whether or not the Distribution or the other transactions contemplated by this
Agreement are consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs or expenses.
SECTION 9.12 NOTICES. Any notice hereunder shall be sufficient if in
writing, and sent by facsimile transmission or courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first class postage prepaid), addressed as follows:
If to Schlumberger or any member of the Schlumberger Group, to:
Schlumberger Limited
277 Park Avenue, 41st Floor
New York, New York 10172
Attention: Corporate Secretary
Facsimile: (212) 350-8127
with a copy (which shall not constitute effective notice) to:
Baker & Botts, L.L.P.
3000 One Shell Plaza
Houston, Texas 77002
Attention: J. David Kirkland, Jr.
Facsimile: (713) 229-1205
If to Sedco Forex or any member of the Sedco Forex Group, to:
Schlumberger Limited
277 Park Avenue, 41st Floor
New York, New York 10172
Attention: Corporate Secretary
Facsimile: (212) 350-8127
B-20
<PAGE> 238
if after the Effective Time, with a copy (which shall not constitute
effective notice) to:
Weil, Gotshal & Manges, LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Attention: James L. Rice III, Esq.
Facsimile: (713) 224-9511
If to Transocean, to:
Transocean Offshore Inc.
4 Greenway Plaza
Houston, Texas 77046
Attention: Corporate Secretary
Facsimile: (713) 232-7600
with a copy (which shall not constitute effective notice) to:
Weil, Gotshal & Manges, LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Attention: James L. Rice III, Esq.
Facsimile: (713) 224-9511
or to such other address as any party hereto shall specify by written notice so
given, and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
SECTION 9.13 REFERENCES; CONSTRUCTION. Unless otherwise expressly stated,
references to any "Article," "Exhibit," "Schedule" or "Section" are to Articles,
Exhibits, Schedules and Sections to or of this Agreement. Unless otherwise
expressly stated, clauses beginning with the term "including" set forth examples
only and in no way limit the generality of the matters thus exemplified.
SECTION 9.14 TERMINATION. Notwithstanding any provision hereof, following
termination of the Merger Agreement, this Agreement may be terminated and the
Distribution abandoned at any time prior to the Distribution Date by and in the
sole discretion of the Board of Directors of Schlumberger. In the event of such
termination, no party hereto or to any other Transaction Agreement (other than
the Merger Agreement) shall have any Liability to any Person by reason of this
Agreement or any other Transaction Agreement (other than the Merger Agreement).
B-21
<PAGE> 239
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SCHLUMBERGER LIMITED
By: /s/ D.E. BAIRD
----------------------------------
D.E. Baird
Chairman, President and CEO
SEDCO FOREX HOLDINGS LIMITED
By: /s/ JEAN CHEVALLIER
----------------------------------
Jean Chevallier
Attorney-in-fact
B-22
<PAGE> 240
EXHIBIT B
TAX SEPARATION AGREEMENT
This Agreement is entered into this day of , 1999, by and
between Schlumberger Limited, a Netherlands Antilles corporation
("Schlumberger") and Sedco Forex Holdings Limited, a British Virgin Islands
corporation ("SFHL").
WHEREAS, pursuant to the Distribution Agreement dated as of ,
1999 between Schlumberger and SFHL (the "Distribution Agreement"), the stock of
SFHL will be distributed to the shareholders of Schlumberger (the
"Distribution");
WHEREAS, Schlumberger, SFHL and their affiliates have made, or will make,
certain transfers of assets (including stock) pursuant to section 2.01 of the
Distribution Agreement in preparation for the Distribution; and
WHEREAS, in connection with the Distribution, the parties desire to provide
an allocation of liability for Taxes between Schlumberger and SFHL and to agree
to certain related matters;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth herein, the receipt and sufficiency of which are hereby acknowledged,
Schlumberger and SFHL agree as follows:
ARTICLE I.
DEFINITIONS
When used herein the following terms shall have the following meanings:
"Closing Date" means the date so defined in Section 1.03 of the Agreement
and Plan of Merger dated as of , 1999 among Schlumberger, SFHL,
Transocean Offshore Inc. and [Merger Sub].
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Contribution Date" means the date when a Schlumberger Contributed Asset is
transferred by a member of the Schlumberger Group to a member of the Sedco
Group, in accordance with Section 2.01(c) of the Distribution Agreement, or, in
the case of a Schlumberger Contributed Asset which is described in Section 2.07
of the Distribution Agreement, the earlier of the date when beneficial ownership
of such asset has been transferred to the Sedco Group or the Closing Date.
"Distribution" is defined in the preamble.
"Distribution Agreement" is defined in the preamble.
"ICI" means International Chandlers Inc.
"Indemnified Party" means any party which is seeking indemnification from
an Indemnifying Party pursuant to the provisions of this Agreement.
"Indemnifying Party" means any party from which any Indemnified Party is
seeking indemnification pursuant to the provisions of this Agreement.
"Related Costs" means any losses, damages, liabilities, obligations,
deficiencies, costs and expenses (including, without limitation, reasonable
expenses and fees for attorneys and accountants) incurred by the Indemnified
Party in connection with any asserted deficiency, claim, demand, action, suit,
proceeding, judgment or assessment, including the defense or settlement thereof,
relating to the Taxes or Restructuring Taxes, as the case may be, for which the
Indemnifying Party is responsible to indemnify the Indemnified Party pursuant to
the provisions of this Agreement or in connection with the enforcement of the
provisions of this Agreement relating to such Taxes or Restructuring Taxes.
BB-1
<PAGE> 241
"Restructuring Taxes" means any Taxes directly incurred upon and
attributable to (a) transactions described in sections 2.01(a), (b) and (c) of
the Distribution Agreement and (b) transfers of assets in anticipation of the
Distribution.
"Schlumberger Contributed Assets" means the Assets of the Schlumberger
Group listed on Schedule 2.01(c)-1 attached to the Distribution Agreement.
"Schlumberger Distributed Assets" means the Assets of the Sedco Group
listed on Schedule 2.01(c)-2 attached to the Distribution Agreement.
"Schlumberger Group" means Schlumberger and each entity in which
Schlumberger, directly or indirectly through one or more intermediaries, will
possess 50% or more of the voting power or value of outstanding equity interests
immediately after the Distribution.
"Sedco Group" means SFHL and each entity in which SFHL, directly or
indirectly through one or more intermediaries, will possess 50% or more of the
voting power or value of outstanding equity interests immediately after the
Distribution.
"Tax" means any federal, state, foreign or local income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, franchise,
profits, withholding, social security, unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty or addition thereto.
"Tax Return" means any original or amended return, report, estimate,
statement, declaration or other filing relating to, or required to be filed by
any taxpayer in connection with, the payment or receipt of any refund of any
Tax.
"Taxing Authority" means any governmental authority responsible for the
administration of any Tax.
"U.S. Group" means the affiliated group of corporations filing a
consolidated United States federal income tax return of which Schlumberger
Technology Corporation, a Texas corporation, is the common parent.
ARTICLE II.
GENERAL RULE
Except as otherwise provided in Articles III, IV, and V below:
2.1. Liability of Schlumberger Group. The Schlumberger Group shall be
liable for and shall pay all Taxes imposed upon entities in such group by the
applicable Tax laws, whether such Taxes are attributable to events or periods
before, after or including the Distribution, and shall be entitled to all
refunds with respect to such Taxes.
2.2 Liability of Sedco Group. Except as provided in Section 2.3, the Sedco
Group shall be liable for and shall pay all Taxes imposed upon entities in such
group by the applicable Tax laws, whether such Taxes are attributable to events
or periods before, after or including the Distribution, and shall be entitled to
all refunds with respect to such Taxes.
2.3 Schlumberger Contributed Assets and Schlumberger Distributed
Assets. The members of the Schlumberger Group, jointly and severally, agree to
be liable for and to indemnify and hold harmless the members of the Sedco Group
and their respective affiliates, subsidiaries, officers, directors, employees
and agents (the "Sedco Group Indemnitees") from and against any and all Taxes
and Related Costs that may be imposed upon or assessed in respect of (a) any
Schlumberger Contributed Asset, the ownership, use, operation or leasing
thereof, or any income derived therefrom, for all taxable periods ending on or
prior to the Contribution Date, (b) any Schlumberger Contributed Asset, the
ownership, use, operation or leasing thereof, or any income derived therefrom,
to the extent that such taxes are allocated to the Schlumberger Group pursuant
to Section 2.4, and (c) (except with respect to Taxes and Related Costs
previously paid) any
BB-2
<PAGE> 242
Schlumberger Distributed Asset, the ownership, operation or leasing thereof, or
any income derived therefrom, for any taxable period, whether ending before, on
or after the Closing Date.
2.4 Allocation of Taxes Attributable to Schlumberger Contributed
Assets. In any case in which a Tax is assessed with respect to a Schlumberger
Contributed Asset for a taxable period which includes the Contribution Date (but
does not begin or end on that day), then Taxes, if any, attributable to the
taxable period of the Schlumberger Contributed Asset beginning before and ending
after the Contribution Date shall be allocated to and paid by (a) the
Schlumberger Group for the period up to and including the Contribution Date, and
(b) the Sedco Group for the period subsequent to the Contribution Date. Any
allocation of income or deductions required to determine any Taxes attributable
to any period beginning before and ending after the Contribution Date shall be
made by means of a closing of the books and records of the relevant member of
the Sedco Group as of the close of the Contribution Date, provided that
exemptions, allowances or deductions that are calculated on an annual basis
(including, but not limited to, depreciation and amortization deductions) shall
be allocated between the period ending on the Contribution Date and the period
after the Contribution Date in proportion to the number of days in each such
period.
ARTICLE III.
UNITED STATES FEDERAL INCOME TAX
3.1 Liability of SFHL. SFHL shall be liable for and indemnify and hold
harmless the members of the Schlumberger Group and their respective affiliates,
subsidiaries, officers, directors, employees and agents (the "Schlumberger Group
Indemnitees") from any United States federal income Tax liability (including
Related Costs) of the U.S. Group that is attributable to ICI for Tax periods
ending on or before the date of the Distribution, other than (a) the portion of
such Taxes due per the United States federal income Tax Returns for Tax years
prior to 1999 on file at the time of the Distribution and (b) Restructuring
Taxes and Related Costs. The determination of the United States federal income
Taxes attributable to ICI shall be made on the basis of Treasury Regulation
Section 1.1552-1(a)(2)(ii).
3.2 Liability of Schlumberger. Schlumberger shall be liable for and
indemnify and hold the Sedco Group Indemnitees harmless from any United States
federal income Tax liability of the U.S. Group, other than Taxes for which SFHL
is liable pursuant to section 3.1.
3.3 Refunds. ICI shall be entitled to all refunds of United States federal
income Taxes that are attributable to ICI, within the meaning of the second
sentence of Section 3.1, other than refunds of Restructuring Taxes and Related
Costs which have been paid by Schlumberger. Schlumberger shall be entitled to
all refunds of other United States federal income Taxes of the U.S. Group.
3.4 Returns and Proceedings. Schlumberger shall file all Tax Returns
relating to United States federal income Taxes of the U.S. Group and, to the
extent such Tax Return relates to Taxes for which SFHL is liable under Section
3.1, such Tax Returns shall be filed in a manner consistent with prior practice
unless otherwise required by applicable tax laws.
ARTICLE IV.
RESTRUCTURING TAXES
4.1. Liability for Restructuring Taxes. Schlumberger shall be liable for
and shall indemnify and hold the Sedco Group Indemnitees harmless from
Restructuring Taxes and Related Costs, other than (a) any such Taxes first
asserted by a Taxing Authority more than (i) eight years after the Distribution
(or, if later, the date of transfer of the asset to which such Restructuring Tax
relates) in the case of Taxes other than customs Taxes, or (ii) six years after
the Distribution (or, if later, the date of transfer of the asset to which such
Restructuring Tax relates) in the case of customs Taxes, (b) any such Taxes as
to which SFHL fails to materially comply with the procedures set forth in
sections 4.3 and Article VI and (c) Related Costs with respect to Restructuring
Taxes described in clauses (a) and (b) of this sentence.
BB-3
<PAGE> 243
4.2. Restructuring Tax Refunds. Any refund with respect to Restructuring
Taxes will be paid, or paid over, (a) first, to SFHL to the extent the aggregate
amount of Restructuring Taxes paid that are described in section 4.1(a) exceeds
the aggregate amount of refunds that it previously received pursuant to this
section 4.2(a), (b) second, to Schlumberger to the extent the aggregate
indemnities that it has paid under section 4.1 exceed the refunds it has
previously received under this section 4.2(b) and (c) finally, to SFHL.
4.3. Restructuring Tax Returns. The Sedco Group will report in its Tax
Returns all items which are required to be reflected in such Tax Returns and
which relate to Restructuring Taxes in a manner which is consistent with the
manner in which the Schlumberger Group has treated such items for Tax purposes,
except that the Sedco Group will not be required so to report an item (a) if a
different reporting is otherwise required by applicable tax laws, or (b) unless
the Schlumberger Group shall have provided to the Sedco Group, no later than
thirty days before the due date of the Tax Return in which such item is required
to be reported, a description of the related item, including a statement of the
position underlying the treatment of such item by the Schlumberger Group.
ARTICLE V.
DERIVATIVE LIABILITY
5.1 Schlumberger Derivative Liability. Notwithstanding anything to the
contrary in this Agreement, Schlumberger shall indemnify and hold harmless the
Sedco Group Indemnitees from and against any Tax liability of the Schlumberger
Group or a member thereof for which a member of the Sedco Group is or becomes
liable solely by reason of having been a member of a consolidated, combined,
unitary or similar group for Tax reporting purposes that includes a member of
the Schlumberger Group (including, without limitation, by reason of the
application of Treasury Regulation Section 1.1502-6 promulgated under the Code,
or any similar provision of state, local or foreign Tax law).
5.2 SFHL Derivative Liability. Notwithstanding anything to the contrary in
this Agreement, SFHL shall indemnify and hold harmless the Schlumberger Group
Indemnitees from and against any Tax liability of the Sedco Group or a member
thereof for which a member of the Schlumberger Group is or becomes liable solely
by reason of having been a member of a consolidated, combined, unitary or
similar group for Tax reporting purposes that includes a member of the Sedco
Group (including, without limitation, by reason of the application of Treasury
Regulation Section 1.1502-6 promulgated under the Code, or any similar provision
of state, local or foreign Tax law).
ARTICLE VI.
TAX RETURNS AND TAX PROCEEDINGS
Schlumberger and SFHL shall prepare and file, or cause to be prepared and
filed, any Tax Return required to be filed by a member of the Schlumberger Group
or the Sedco Group, respectively, and shall be entitled to control any audit or
administrative or judicial proceeding (each a "Proceeding") with respect to any
Tax which is shown or required to be shown or reported on a Tax Return which
such party is required to file, provided, however, that to the extent that the
party required to file such Tax Return is an Indemnified Party, (a) the
Indemnified Party shall promptly provide written notice to the Indemnifying
Party of any notice from or contact with a Taxing Authority that is related to a
Tax for which the Indemnifying Party is or may be liable pursuant to this
Agreement, (b) the Indemnified Party shall provide the Indemnifying Party with
copies of any relevant notices or documents received from a Taxing Authority, or
relevant to a Proceeding, relating to Taxes or Restructuring Taxes, (c) the
Indemnifying Party shall be entitled to participate in and comment upon any
Proceeding relating to such Taxes for which the Indemnifying Party is, or may
be, liable under this Agreement, (d) the Indemnified Party shall keep the
Indemnifying Party informed as to the conduct of such Proceedings and deal with
the Indemnifying Party in good faith regarding such Proceedings, and (e) the
Indemnified Party shall not settle or compromise any tax liability in clause (a)
without the prior written consent of the Indemnifying Party, which consent shall
not unreasonably be withheld or delayed. The failure of the Indemnified Party
timely to forward such notification in accordance with the immediately preceding
BB-4
<PAGE> 244
sentence shall not relieve the Indemnifying Party of its obligation to pay the
relevant Tax liability or indemnify the Indemnified Party therefor, except and
to the extent that the failure timely to forward such notification actually
materially prejudices the Indemnifying Party or increases the amount of such Tax
liability. An Indemnifying Party shall have similar rights in respect of
Proceedings relating to refunds of Taxes for which the Indemnifying Party is
liable under this Agreement.
ARTICLE VII.
PAYMENTS
All payments required by this Agreement to be made by an Indemnifying Party
to an Indemnified Party shall be made no later than (a) five days prior to the
date on which the Indemnified Party is required to make a payment of an
indemnified amount or, if later, (b) fifteen days after the Indemnifying Party
has delivered to the Indemnified Party a demand for such payment in accordance
with Section 8.10. Any such payment which is not made by the date specified in
the immediately preceding sentence will bear interest from such date at the
one-year London Interbank Offered Rate.
ARTICLE VIII.
MISCELLANEOUS
8.1. Assignment; Binding Effect; Benefit. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by either of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
8.2. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings between the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
8.3. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to its rules of
conflict of laws.
8.4. Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
8.5. Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretative effect whatsoever.
8.6. Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
8.7. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms of
provisions of this Agreement in any other jurisdiction. If
BB-5
<PAGE> 245
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
8.8 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which they are entitled at law or in equity.
8.9 Expenses. Except as otherwise provided herein, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such costs or expenses.
8.10 Notices. Any notice hereunder shall be sufficient if in writing, and
sent by facsimile transmission or courier service (with proof of service), hand
delivery or certified or registered mail (return receipt requested and first
class postage prepaid), addressed as provided in section 9.12 of the
Distribution Agreement or to such other address as any party hereto shall
specify by written notice so given, and such notice shall be deemed to have been
delivered as of the date so telecommunicated, personally delivered or mailed.
IN WITNESS WHEREOF, Schlumberger, on behalf of the Schlumberger Group, and
SFHL, on behalf of the Sedco Group, have caused this Agreement to be signed by
their respective duly authorized officers as of the date first above written.
SCHLUMBERGER LIMITED
(on behalf of itself and each
entity in the Schlumberger Group)
By:
----------------------------------
Name:
Title:
SEDCO FOREX HOLDINGS LIMITED
(on behalf of itself and each entity
in the Sedco Group)
By:
----------------------------------
Name:
Title:
BB-6
<PAGE> 246
EXHIBIT C
WORKING CAPITAL ADJUSTMENTS
Working Capital of Sedco Forex, as reflected on the Pre-Closing Balance
Sheet, will comprise the following captions:
Cash
Customer Receivables and Allowance for Doubtful Accounts
Other Receivables
Inventories Net of Obsolescence Provision
Other Current Assets
Suppliers Payable and Accruals
Employee and Other Payables
Customer Receivables will comprise billed and unbilled Customer Receivables
and all associated Allowances for Doubtful Accounts. A "Receivables
Differential" means that Customer Receivables represents less than an amount
equal to 60 Days Sales Outstanding (the "Minimum Customer Receivables Amount"),
applying the formula utilized by Sedco Forex in the normal course of business,
in which case there exists a negative differential amount equal to the Minimum
Customer Receivables Amount less the amount of Customer Receivables, or that
Customer Receivables represents more than an amount equal to 70 Days Sales
Outstanding (the "Maximum Customer Receivables Amount"), in which case there
exists a positive differential amount equal to the amount of Customer
Receivables less the Maximum Customer Receivables Amount. "Allowance for
Doubtful Accounts" will comprise reserves covering specific amounts, both billed
and unbilled, and, in accordance with Sedco Forex's normal method for
establishing such reserves, will be excluded from the calculation of Days Sales
Outstanding and will not affect the computation of the Receivables Differential.
Other Receivables will comprise amounts reimbursable by customers, advances
to employees and other sundry amounts due from third parties. An "Other
Receivables Differential" means that Other Receivables are less than
$20,000,000, in which case there exists a negative differential amount equal to
the shortfall, or that Other Receivables exceeds $25,000,000, in which case
there exists a positive differential amount equal to the excess. It is expressly
agreed that all items due to or from any member of the Schlumberger Group,
whether billed or unbilled, will be excluded from the balance for the purposes
of this calculation.
Inventories will comprise the cost of materials and supplies, whether
stored on board the rigs, onshore at Sedco Forex, vendor or third-party
facilities, or in transit. An "Inventories Differential" means that inventories,
excluding any amount related to newbuild rigs, stated at cost and before any
reduction for obsolescence reserve, amount to less than $49,000,000, in which
case there exists a negative differential amount equal to the shortfall, or that
such inventories exceed $53,000,000, in which case there exists a positive
differential amount equal to the excess. This range will be adjusted downward by
the value of the drilling rig Omega's consigned inventory in the event that the
charter for the Omega is terminated and inventory on consignment is returned to
the rig owner. The obsolescence reserve will be fixed at approximately
$10,000,000.
Other Current Assets will comprise prepaid expenses, value added taxes
recoverable, sundry deposits and deferred operating and financial costs
associated with prevailing and future contracts. An "Other Current Assets
Differential" means that, excluding all balances related to hedges and related
premiums, deferred operating costs and value added taxes recoverable, Other
Current Assets is less than $3,000,000, in which case there exists a negative
differential amount equal to the shortfall, or that such Other Current Assets
exceeds $6,000,000, in which case there exists a positive differential amount
equal to the excess.
Suppliers Payable and Accruals will comprise all amounts due to
non-Affiliates, whether invoiced or not, for goods and services rendered on or
before the Pre-Closing Balance Sheet Date. An "Excess Suppliers Payable and
Accruals Balance" exists when Suppliers Payable and Accruals, excluding those
relating to capital expenditures on newbuilds, exceeds $47,000,000.
BC-1
<PAGE> 247
Employee and Other Payables will comprise short-term or long-term amounts
payable to or for the benefit of employees, payroll withholdings and deductions,
state and local taxes, value added taxes payable, deferred revenues, specific
reserves for identified liabilities, whether contingent or not, and
miscellaneous accruals associated with operations in the ordinary course. An
"Excess Employee and Other Payables Balance" exists when, excluding liabilities
related to employees and related benefits, state and local taxes, valued added
taxes payable, deferred revenues, and any specific reserves for identified
liabilities, Employee and Other Payables exceeds $10,000,000.
The "Specified Reserve" will be the amount reflected in the Pre-Closing
Balance Sheet as a reserve for the second item listed under "Pending Claims" on
the Sedco Forex Litigation and Claims Report dated 5 July, 1999 attached to
Schedule 6.8 of the Sedco Forex Disclosure Letter. Any increase in such reserve
from that reflected in Schedule 6.8 to the Sedco Forex Disclosure Letter shall
be taken into account as set forth in Section 2.02(b).
BC-2
<PAGE> 248
ANNEX C
[GOLDMAN SACHS LETTERHEAD]
PERSONAL AND CONFIDENTIAL
- --------------------------------------------------------------------------------
July 12, 1999
Board of Directors
Schlumberger Limited
277 Park Avenue
New York, NY 10172
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to the holders of shares of common stock, par value $0.01 per share (the
"Schlumberger Shares"), of Schlumberger Limited ("Schlumberger"), as if they
were the current holders of the shares of capital stock, par value $0.01 per
share (the "Shares"), of Sedco Forex Holdings Limited (the "Company"), of the
Merger Ratio (as defined below) pursuant to the Agreement and Plan of Merger
(the "Agreement"), dated as of July 12, 1999, among Schlumberger, the Company
and Transocean Offshore, Inc. ("Transocean"). Pursuant to the Agreement, a
wholly-owned subsidiary of Transocean will be merged with and into the Company
(the "Merger") and each outstanding Share will be converted into a number of
ordinary shares, par value $0.01 per share, of Transocean (the "Transocean
Ordinary Shares") equal to fifty-two forty-eighths times the number of fully
diluted Transocean Ordinary Shares (calculated according to the treasury method
under U.S. generally accepted accounting principles) immediately prior to the
Effective Time (as defined in the Agreement) divided by the number of fully
diluted Shares (calculated according to the treasury method under U.S. generally
accepted accounting principles) immediately prior to the Effective Time (the
"Merger Ratio"). We understand that the Company is a wholly-owned subsidiary of
Schlumberger and that pursuant to a Distribution Agreement, dated as of July 12,
1999, between Schlumberger and the Company (the "Distribution Agreement"), the
Company will own certain assets of Sedco Forex, a business division of
Schlumberger, and Schlumberger will distribute all of the outstanding Shares on
a pro rata basis to holders of Schlumberger Shares at least one day prior to the
Effective Time (the "Distribution").
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having provided certain investment banking services to Schlumberger
from time to time, including having acted as its financial advisor in connection
with the merger with Camco International Inc. in August 1998, and having acted
as its financial advisor in connection with, and having participated in certain
of the negotiations leading to, the Agreement. We also have provided certain
investment banking services to Transocean from time to time, including (i)
having acted as financial advisor to Sonat Offshore Drilling Inc., a predecessor
to Transocean, in its merger with Transocean Drilling A/S in September 1996;
(ii) having acted as lead-managing underwriter of a public offering of 7.45%
Notes due 2027 and 8% Debentures due 2027 in April 1997; and (iii) having acted
as agent in Transocean's stock repurchase program. Goldman, Sachs & Co. may
provide investment banking services to Transocean in the future. Goldman, Sachs
& Co. provides a full range of financial advisory and securities services and,
in the course of its normal trading activities, may, from time to time, effect
transactions and hold
[LOGO]
C-1
<PAGE> 249
securities, including derivative instruments, of Schlumberger and Transocean for
its own account and for the accounts of customers. As of the date hereof,
Goldman, Sachs & Co. accumulated a net long position of 58,895 Schlumberger
Shares and options to sell 123,500 Schlumberger Shares and a net long position
of 128,800 Transocean Ordinary Shares and options to sell 20,000 Transocean
Ordinary Shares.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Distribution Agreement; an unaudited balance sheet and combined
statement of operations of the Sedco Forex Business (as defined in the
Distribution Agreement) as of and for the year ended December 31, 1998; a pro
forma combined statement of operations of the Sedco Forex Business for the year
ended December 31, 1998 to reflect the reversal of the effect of certain
non-recurring events and provide for the elimination of shared costs and certain
intercompany insurance costs; Annual Reports to Stockholders and Annual Reports
on Form 10-K of Schlumberger and Transocean for the five years ended December
31, 1998; certain interim reports to stockholders and Quarterly Reports on Form
10-Q of Schlumberger and Transocean; certain other communications from
Schlumberger and Transocean to their respective stockholders; and certain
internal financial analyses and forecasts for the Company and Transocean
prepared by their respective managements in consultation with each other,
including certain cost savings and operating synergies projected by the
managements of the Company and Transocean to result from the Merger (the
"Synergies"). We also have held discussions with members of the senior
managements of Schlumberger, the Company and Transocean regarding the strategic
rationale for, and the potential benefits of, the Merger contemplated by the
Agreement and the past and current business operations, financial condition and
future prospects of their respective companies. We also have reviewed with third
party consultants their asset valuation estimates of the Company's and
Transocean's drilling rig fleets. In addition, we have reviewed the reported
price and trading activity for Transocean Ordinary Shares, compared certain
financial and stock market information for Transocean with similar information
for certain other companies the securities of which are publicly traded and
performed such other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and completeness
for purposes of rendering this opinion. In that regard, we have assumed with
your consent that the internal financial forecasts prepared by the managements
of the Company and Transocean, including the Synergies, have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the Company and Transocean. We also have assumed that all material
governmental, regulatory or other consents and approvals necessary for the
consummation of the Merger will be obtained without any adverse effect on the
Company or Transocean or on the contemplated benefits of the transaction
contemplated by the Agreement. Our opinion does not address the relative merits
of the transactions contemplated pursuant to the Agreement as compared to any
alternative business transaction that might be available to the Company or
Schlumberger. In addition, we have not made an independent evaluation or
appraisal of the assets and liabilities of the Company or Transocean or any of
their subsidiaries and except for the asset valuation estimates referred to in
the third paragraph of this opinion, we have not been furnished with any such
evaluation or appraisal. Our advisory services and the opinion expressed herein
are provided for the information and assistance of the Board of Directors of
Schlumberger in connection with its consideration of the Merger and does not
constitute a recommendation as to how any holder of Schlumberger Shares should
vote with respect to the Distribution. Our opinion relates solely to the Merger
Ratio in the Merger and does not address, and we are not opining upon, the
Distribution or the prices at which the Schlumberger Shares or Transocean
Ordinary Shares will trade following the Merger.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Merger Ratio
pursuant to the Agreement is fair from a financial point of view to the holders
of the Schlumberger Shares, as if they were the current holders of the Shares.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
- ------------------------------------
GOLDMAN, SACHS & CO.
C-2
<PAGE> 250
ANNEX D
July 11, 1999 CONFIDENTIAL
Board of Directors
Transocean Offshore Inc.
4 Greenway Plaza
Houston, Texas 77046
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Transocean Offshore Inc. ("Transocean" or the "Company") and its
shareholders of the Merger Ratio (as defined below) as set forth in the
Agreement and Plan of Merger to be dated July 12, 1999 among Schlumberger
Limited ("Schlumberger"), Sedco Forex Holdings Limited ("Sedco Forex"), a
wholly-owned subsidiary of the Company ("Merger Sub"), and the Company (the
"Merger Agreement"). The Merger Agreement provides for, among other things, the
merger of Merger Sub with and into Sedco Forex with Sedco Forex becoming a
wholly-owned subsidiary of the Company (the "Merger"). Prior to the
effectiveness of the Merger, pursuant to the Distribution Agreement to be dated
July 12, 1999 between Schlumberger and Sedco Forex, Schlumberger will separate
the Schlumberger business from the Sedco Forex business and all of the issued
and outstanding common shares of Sedco Forex will then be distributed to the
holders of Schlumberger common stock on a pro rata basis of one share of Sedco
Forex common stock for each outstanding share of common stock of Schlumberger.
In the Merger, each issued and outstanding share of Sedco Forex common stock
will be exchanged for and converted into a number of Transocean ordinary shares
equal to fifty-two forty-eighths times the number of fully diluted Transocean
ordinary shares divided by the number of fully diluted common shares of Sedco
Forex (the "Merger Ratio").
In arriving at our opinion we reviewed and analyzed, among other things, the
following: (i) the drafts dated July 9, 1999 of the Merger Agreement, the
Distribution Agreement and the ancillary transaction agreements; (ii) the
financial statements and other information concerning the Company contained in
the Company's Annual Reports to stockholders and Annual Reports on Form 10-K for
each of the three years ended December 31, 1998, 1997 and 1996, certain interim
reports to the Company's shareholders, the Company's Quarterly Report on Form
10-Q for the quarter ended March 31,1999 and the Company's most recent Proxy
Statement; (iii) the unaudited financial statements and 1998 pro forma statement
of operations with respect to the Sedco Forex business described in Section 6.7
of the Merger Agreement; (iv) certain business and financial analysis and
information relating to the Company and Sedco Forex, including certain internal
financial forecasts prepared by management of the Company and by the management
of Schlumberger, provided to us by the Company and Schlumberger; (v) certain
publicly available information concerning the trading of, and the trading market
for, the Company's ordinary shares; (vi) certain publicly available information
with respect to certain other companies that we believe to be comparable to the
Company and Sedco Forex and the trading markets for certain of such other
companies' securities; (vii) certain publicly available information concerning
estimates of the future operating performances of the Company and Sedco Forex
and the comparable companies prepared by industry analysts unaffiliated with
either the Company or Sedco Forex; and (viii) certain publicly available
information concerning the nature and terms of certain other transactions we
considered relevant to the analysis. We also met with certain officers and
employees of the Company, Schlumberger and Sedco Forex to discuss the assets,
liabilities, operations and businesses of the Company and Sedco Forex and to
discuss the cost savings and the strategic benefits expected to result from a
combination of the businesses of the Company and Sedco Forex. We also considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria which we deemed relevant.
In arriving at this opinion, we, with your consent, assumed and relied upon the
accuracy and completeness of all the foregoing information and did not
independently verify any of such information. With respect to financial
forecasts, we utilized certain information set forth therein and assumed that
such information was reasonably prepared on bases reflecting the best estimates
and judgments of the management of the Company
D-1
<PAGE> 251
and Schlumberger and Sedco Forex as to the future financial performance of the
Company and Sedco Forex, as available at the time of preparation. We did not
conduct a physical inspection of any of the assets, operations or facilities of
the Company or Sedco Forex and did not make or receive any independent
evaluation or appraisal of any assets or liabilities (contingent or otherwise)
of the Company or Sedco Forex. In addition, you have not authorized us to
solicit, and we have not solicited, any indications of interest from any third
party with respect to the purchase of all or a part of the Company's business.
Upon advice of the Company and its legal and accounting advisors, we have
assumed that the Merger will qualify as a tax-free transaction to the
shareholders of the Company.
We are serving as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services. As a
specialized energy-related investment banking firm, Simmons & Company
International is engaged, among other things, in the valuation of businesses and
their securities in connection with mergers and acquisitions, in the management
and underwriting and sales of equity and debt securities to the public and in
private placements of equity and debt securities. In addition, in the ordinary
course of business, we may actively trade the securities of Transocean and
Schlumberger for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
We also have from time to time been engaged by the Company to provide general
corporate financial advisory services.
You agree that this opinion letter is for the use and benefit of the Board of
Directors of the Company, and may not be used for any other purpose without our
prior written consent, other than for including with the Company's registration
statement relating to the Merger. This opinion does not address the merits of
the underlying decision by the Company to enter into the Merger Agreement and
does not constitute a recommendation to any Transocean shareholder as to how
such shareholder should vote on the Merger or on any matter related thereto. We
are not expressing any opinion herein as to the prices at which Transocean
ordinary shares will trade following announcement or consummation of the Merger.
The opinion expressed herein is necessarily based upon conditions as they exist
and can be evaluated on, and on the information made available at, the date
hereof.
Based upon and subject to the foregoing, we are of the opinion that on the date
hereof the Merger Ratio is fair to the Company and its shareholders from a
financial point of view.
Sincerely,
John R. Rutherford
Managing Director
Simmons & Company International
D-2
<PAGE> 252
ANNEX E
LONG-TERM INCENTIVE PLAN
OF
TRANSOCEAN OFFSHORE INC.
(AS AMENDED AND RESTATED AS OF MARCH 12, 1998
AND AS CONFORMED THROUGH AMENDMENT NO. 1 DATED MAY 14, 1999)
I. GENERAL
1.1 PURPOSE OF THE PLAN
The Long-Term Incentive Plan (the "Plan") of Transocean Offshore Inc., a
Cayman Islands exempted company (the "Company"), is intended to advance the best
interests of the Company and its subsidiaries by providing Directors and
employees with additional incentives through the grant of options ("Options") to
purchase ordinary shares, par value US $0.01 per share, of the Company
("Ordinary Shares"), share appreciation rights ("SARs"), restricted Ordinary
Shares ("Restricted Shares") and cash performance awards ("Cash Awards"),
thereby increasing the personal stake of such Directors and employees in the
continued success and growth of the Company.
1.2 ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Executive Compensation Committee
or other designated committee (the "Committee") of the Board of Directors of the
Company (the "Board of Directors") which shall consist of at least two Directors
all of whom (i) are not eligible for awards under Articles II and III of the
Plan, (ii) are "non-employee directors" within the meaning of Rule 16b-3 under
the Securities Exchange Act of 1934, and (iii) are Outside Directors satisfying
the requirements of Section 162(m) of the Internal Revenue Code of 1986, as
amended, or any successor thereto (the "Code"). The Committee shall have
authority to interpret conclusively the provisions of the Plan, to adopt such
rules and regulations for carrying out the Plan as it may deem advisable, to
decide conclusively all questions of fact arising in the application of the
Plan, and to make all other determinations necessary or advisable for the
administration of the Plan. Notwithstanding the foregoing, the Committee shall
have no power or discretion to vary the amount or terms of awards under Article
IV of the Plan, except as provided in Section 6.2. All decisions and acts of the
Committee shall be final and binding upon all affected Plan participants.
(b) The Committee shall designate the eligible employees, if any, to be
granted awards under Articles II and III and the type and amount of such awards
and the time when awards will be granted. All awards granted under the Plan
shall be on the terms and subject to the conditions hereinafter provided.
1.3 ELIGIBLE PARTICIPANTS
Employees, including officers, of the Company and its subsidiaries, and of
partnerships or joint ventures in which the Company and its subsidiaries have a
significant ownership interest as determined by the Committee (all of such
subsidiaries, partnerships and joint ventures being referred to as
"Subsidiaries") shall be eligible for awards under Articles II, III and V of the
Plan. Directors who are not employees of the Company or its Subsidiaries shall
not be eligible for awards under Articles II, III and V.
Each Director of the Company who is not an officer or employee of the
Company or any of its subsidiaries (an "Eligible Director") shall automatically
be granted awards under Article IV of the Plan. Each Eligible Director to whom
Options or SARs are granted under Article IV is hereinafter referred to as a
"Participant."
1.4 AWARDS UNDER THE PLAN
Awards to employees under Articles II and III may be in the form of (i)
Options to purchase Ordinary Shares, (ii) Shares Appreciation Rights which may
be either freestanding or issued in tandem with Options, (iii) Restricted
Ordinary Shares, (iv) Supplemental Payments which may be awarded with respect to
E-1
<PAGE> 253
Options, Shares Appreciation Rights and Restricted Ordinary Shares, or (v) any
combination of the foregoing. Awards to employees under Article V will be in the
form of performance awards payable in cash.
Awards to Eligible Directors under Article IV shall be in the form of (i)
Options to purchase Ordinary Shares and Supplemental Payments with respect
thereto, or (ii) solely in the case of Eligible Directors residing in Norway,
freestanding SARs.
1.5 SHARES SUBJECT TO THE PLAN
The aggregate number of Ordinary Shares which may be issued with respect to
awards made under Articles II and III shall not exceed 6,100,000 shares, reduced
by the number of shares which have been issued pursuant to such Articles prior
to the date of this Amendment and Restatement. In addition, the aggregate number
of Ordinary Shares which may be issued with respect to awards made under Article
IV shall not exceed 200,000, reduced by the number of shares which have been
issued pursuant to such Article prior to the date of this Amendment and
Restatement. At no time shall the number of shares issued plus the number of
shares estimated by the Committee to be ultimately issued with respect to
outstanding awards under the Plan exceed the number of shares that may be issued
under the Plan. No employee shall be granted Share Options, freestanding Share
Appreciation Rights, or Restricted Ordinary Shares, or any combination of the
foregoing, with respect to more than 600,000 Ordinary Shares in any fiscal year
(subject to adjustment as provided in Section 6.2). No employee shall be granted
a Supplemental Payment in any fiscal year with respect to more than the number
of Ordinary Shares covered by Share Options, freestanding Share Appreciation
Rights or Restricted Ordinary Shares awards granted to such employee in such
fiscal year. Shares distributed pursuant to the Plan may consist of authorized
but unissued shares or treasury shares of the Company, as shall be determined
from time to time by the Board of Directors.
If any Option under the Plan shall expire, terminate or be canceled
(including cancellation upon the holder's exercise of a related Share
Appreciation Right) for any reason without having been exercised in full, or if
any Restricted Ordinary Shares shall be forfeited to the Company, the
unexercised Options and forfeited Restricted Ordinary Shares shall not count
against the above limit and shall again become available for grants under the
Plan (regardless of whether the holder of such Options or shares received
dividends or other economic benefits with respect to such Options or shares).
Ordinary Shares equal in number to the shares surrendered in payment of the
option price, and Ordinary Shares which are withheld in order to satisfy
federal, state or local tax liability, shall not count against the above limit
and shall again become available for grants under the Plan. Only the number of
Ordinary Shares actually issued upon exercise of a Share Appreciation Right or
payment of a Supplemental Payment shall count against the above limit, and any
shares which were estimated to be used for such purposes and were not in fact so
used shall again become available for grants under the Plan.
Freestanding Shares Appreciation Rights which may be settled solely in cash
shall be issued with respect to no more than an aggregate of 100,000 underlying
shares. Such SARs shall not count against the limits set forth above on the
number of Ordinary Shares which may be issued under the Plan. If any
freestanding SAR shall expire, terminate, or be canceled for any reason without
having been exercised in full, the unexercised SARs shall not count against this
limit and shall again become available for grants under the Plan.
1.6 OTHER COMPENSATION PROGRAMS
The existence and terms of the Plan shall not limit the authority of the
Board of Directors in compensating Directors and employees of the Company and
its subsidiaries in such other forms and amounts, including compensation
pursuant to any other plans as may be currently in effect or adopted in the
future, as it may determine from time to time.
E-2
<PAGE> 254
II. SHARE OPTIONS AND SHARE APPRECIATION RIGHTS
2.1 TERMS AND CONDITIONS OF OPTIONS
Subject to the following provisions, all Options granted under the Plan to
employees of the Company and its Subsidiaries shall be in such form and shall
have such terms and conditions as the Committee, in its discretion, may from
time to time determine.
(a) Option Price. The option price per share shall not be less than
the fair market value of the Ordinary Shares (as determined by the
Committee) on the date the Option is granted. Notwithstanding the
foregoing, the option price per share with respect to any Option granted by
the Committee within 90 days of the closing of the initial public offering
of the Company's Ordinary Shares shall be at the initial public offering
price for such Shares.
(b) Term of Option. The term of an Option shall not exceed ten years
from the date of grant, except as provided pursuant to Section 2.1(g) with
respect to the death of an optionee. No Option shall be exercised after the
expiration of its term.
(c) Exercise of Options. Options shall be exercisable at such time or
times and subject to such terms and conditions as the Committee shall
specify in the Option grant. The Committee shall have discretion to at any
time declare all or any portion of the Options held by any optionee to be
immediately exercisable. An Option may be exercised in accordance with its
terms as to any or all shares purchasable thereunder.
(d) Payment for Shares. The Committee may authorize payment for shares
as to which an Option is exercised to be made in cash, Ordinary Shares, by
"cashless exercise" or in such other manner as the Committee in its
discretion may provide.
(e) Nontransferability of Options. No Option or any interest therein
shall be transferable by the optionee other than by will or by the laws of
descent and distribution. During an optionee's lifetime, all Options shall
be exercisable only by such optionee or by the guardian or legal
representative of the optionee.
(f) Shareholder Rights. The holder of an Option shall, as such, have
none of the rights of a shareholder.
(g) Termination of Employment. The Committee shall have discretion to
specify in the Option grant or an amendment thereof, provisions with
respect to the period during which the Option may be exercised following
the optionee's termination of employment. Notwithstanding the foregoing,
the Committee shall not permit any Option to be exercised beyond the term
of the Option established pursuant to Section 2.1(b), except that the
Committee may provide that, notwithstanding such Option term, an Option
which is outstanding on the date of an optionee's death shall remain
outstanding and exercisable for up to one year after the optionee's death.
(h) Change of Control. Notwithstanding the exercisability schedule
governing any Option, upon the occurrence of a Change of Control (as
defined in Section 6.10) all Options outstanding at the time of such Change
of Control and held by optionees who are employees of the Company or its
Subsidiaries at the time of such Change of Control shall become immediately
exercisable and, unless the optionee agrees otherwise in writing, shall
remain exercisable for the remainder of the Option term.
2.2 SHARE APPRECIATION RIGHTS IN TANDEM WITH OPTIONS
(a) The Committee may, either at the time of grant of an Option or at any
time during the term of the Option, grant Share Appreciation Rights with respect
to all or any portion of the Ordinary Shares covered by such Option. A tandem
Share Appreciation Right may be exercised at any time the Option to which it
relates is then exercisable, but only to the extent the Option to which it
relates is exercisable, and shall be subject to the conditions applicable to
such Option. When a tandem Share Appreciation Right is exercised, the Option to
which it relates shall cease to be exercisable to the extent of the number of
shares with respect to which the
E-3
<PAGE> 255
tandem Share Appreciation Right is exercised. Similarly, when an Option is
exercised, the tandem Share Appreciation Rights relating to the shares covered
by such Option exercise shall terminate. Any tandem Share Appreciation Right
which is outstanding on the last day of the term of the related Option (as
determined pursuant to Section 2.1(b)) shall be automatically exercised on such
date for cash without any action by the optionee.
(b) Upon exercise of a tandem Share Appreciation Right, the holder shall
receive, for each share with respect to which the tandem Share Appreciation
Right is exercised, an amount (the "Appreciation") equal to the amount by which
the fair market value (as defined below) of a share of Ordinary Shares on the
date of exercise of the Share Appreciation Right exceeds the option price per
share of the Option to which the tandem Share Appreciation Right relates. For
purposes of the preceding sentence, the fair market value of a share of Ordinary
Shares shall be the average of the high and low prices of such shares as
reported on the consolidated reporting system. The Appreciation shall be payable
in cash, Ordinary Shares, or a combination of both, at the option of the
Committee, and shall be paid within 30 days of the exercise of the tandem Share
Appreciation Right.
(c) Notwithstanding the foregoing, if a tandem Share Appreciation Right is
exercised within 60 days of the occurrence of a Change of Control, (i) the
Appreciation and any Supplemental Payment (as defined in Section 2.4) to which
the holder is entitled shall be payable solely in cash, and (ii) in addition to
the Appreciation and the Supplemental Payment (if any), the holder shall
receive, in cash, (1) the amount by which the greater of (a) the highest market
price per share of Ordinary Shares during the 60-day period preceding exercise
of the tandem Share Appreciation Right or (b) the highest price per share of
Ordinary Shares (or the cash-equivalent thereof as determined by the Board of
Directors) paid by an acquiring person during the 60-day period preceding a
Change of Control, exceeds the fair market value of a share of Ordinary Shares
on the date of exercise of the tandem Share Appreciation Right, plus (2) if the
holder is entitled to a Supplemental Payment, an additional payment, calculated
under the same formula as used for calculating such holder's Supplemental
Payment, with respect to the amount referred to in clause (1) of this sentence.
2.3 FREESTANDING SHARE APPRECIATION RIGHTS
The Committee may grant Freestanding Share Appreciation Rights to employees
of the Company and its Subsidiaries, in such form and having such terms and
conditions as the Committee, in its discretion, may from time to time determine,
subject to the following provisions.
(a) Base Price and Appreciation. Each freestanding SAR shall be
granted with a base price, which shall not be less than the fair market
value of the Ordinary Shares (as determined by the Committee) on the date
the SAR is granted. Upon exercise of a freestanding SAR, the holder shall
receive, for each share with respect to which the SAR is exercised, an
amount (the "Appreciation") equal to the amount by which the fair market
value (as defined below) of an Ordinary Share on the date of exercise of
the SAR exceeds the base price of the SAR. For purposes of the preceding
sentence, the fair market value of an Ordinary Share shall be the average
of the high and low prices of such shares as reported on the New York Stock
Exchange composite tape. The Appreciation shall be payable in cash and
shall be paid within 30 days of the exercise of the SAR.
(b) Term of SAR. The term of a freestanding SAR shall not exceed ten
years from the date of grant, except as provided pursuant to Section 2.3(f)
with respect to the death of the grantee. No SAR shall be exercised after
the expiration of its term. Any freestanding SAR which is outstanding on
the last day of its term (as such term may be extended pursuant to Section
2.3(f)) and as to which the Appreciation is a positive number on such date
shall be automatically exercised on such date for cash without any action
by the grantee.
(c) Exercise of SARs. Freestanding SARs shall be exercisable at such
time or times and subject to such terms and conditions as the Committee may
specify in the SAR grant. The Committee shall have discretion to at any
time declare all or any portion of the freestanding SARs then outstanding
to be immediately exercisable. A freestanding SAR may be exercised in
accordance with its terms in whole or in part.
E-4
<PAGE> 256
(d) Nontransferability of SARs. No SAR or any interest therein shall
be transferable by the grantee other than by will or by the laws of descent
and distribution. During a grantee's lifetime, all SARs shall be
exercisable only by such grantee or by the guardian or legal representative
of the grantee.
(e) Shareholder Rights. The holder of an SAR shall, as such, have none
of the rights of a shareholder.
(f) Termination of Employment. The Committee shall have discretion to
specify in the SAR grant or an amendment thereof, provisions with respect
to the period during which the SAR may be exercised following the grantee's
termination of employment. Notwithstanding the foregoing, the Committee
shall not permit any SAR to be exercised beyond the term of the SAR
established pursuant to Section 2.3(b), except that the Committee may
provide that, notwithstanding such SAR term, an SAR which is outstanding on
the date of a grantee's death shall remain outstanding and exercisable for
up to one year after the grantee's death.
(g) Change of Control. Notwithstanding the exercisability schedule
governing any SAR, upon the occurrence of a Change of Control (as defined
in Section 6.10) all SARs outstanding at the time of such Change of Control
and held by grantees who are employees of the Company or its Subsidiaries
at the time of such Change of Control shall become immediately exercisable
and, unless the grantee agrees otherwise in writing, shall remain
exercisable for the remainder of the SAR term. In addition, the Committee
may provide that if a freestanding SAR is exercised within 60 days of the
occurrence of a Change of Control, in addition to the Appreciation the
holder shall receive, in cash, the amount by which the greater of (a) the
highest market price per Ordinary Share during the 60-day period preceding
exercise of the SAR or (b) the highest price per Ordinary Share (or the
cash equivalent thereof as determined by the Board of Directors) paid by an
acquiring person during the 60-day period preceding a Change of Control,
exceeds the fair market value of an Ordinary Share on the date of exercise
of the SAR.
2.4 SUPPLEMENTAL PAYMENT ON EXERCISE OF OPTIONS OR SHARE APPRECIATION RIGHTS
The Committee, either at the time of grant or at the time of exercise of
any Option or tandem Share Appreciation Right, may provide for a supplemental
payment (the "Supplemental Payment") by the Company to the optionee with respect
to the exercise of any Option or tandem Share Appreciation Right. The
Supplemental Payment shall be in the amount specified by the Committee, which
shall not exceed the amount necessary to pay the income tax payable to the
national government with respect to both exercise of the Option or tandem Share
Appreciation Right and receipt of the Supplemental Payment, assuming the
optionee is taxed at the maximum effective income tax rate applicable thereto.
The Committee shall have the discretion to grant Supplemental Payments that are
payable solely in cash or Supplemental Payments that are payable in cash,
Ordinary Shares, or a combination of both, as determined by the Committee at the
time of payment. The Supplemental Payment shall be paid within 30 days of the
date of exercise of an Option or Share Appreciation Right (or, if later, within
30 days of the date on which income is recognized for federal income tax
purposes with respect to such exercise).
2.5 STATUTORY OPTIONS
Subject to the limitations on Option terms set forth in Section 2.1, the
Committee shall have the authority to grant (i) incentive shares options within
the meaning of Section 422 of the Code and (ii) Options containing such terms
and conditions as shall be required to qualify such Options for preferential tax
treatment under the Code as in effect at the time of such grant. Options granted
pursuant to this Section 2.4 may contain such other terms and conditions
permitted by Article II of this Plan as the Committee, in its discretion, may
from time to time determine (including, without limitation, provision for Share
Appreciation Rights and Supplemental Payments), to the extent that such terms
and conditions do not cause the Options to lose their preferential tax
treatment. To the extent the Code and Regulations promulgated thereunder require
a plan to contain specified provisions in order to qualify options for
preferential tax treatment, such provisions shall be deemed to be stated in this
Plan.
E-5
<PAGE> 257
III. RESTRICTED ORDINARY SHARES
3.1 TERMS AND CONDITIONS OF RESTRICTED ORDINARY SHARES AWARDS
Subject to the following provisions, all awards of Restricted Ordinary
Shares under the Plan to employees of the Company and its Subsidiaries shall be
in such form and shall have such terms and conditions as the Committee, in its
discretion, may from time to time determine.
(a) The Restricted Ordinary Shares award shall specify the number of
Restricted Ordinary Shares to be awarded, the price, if any, to be paid by
the recipient of the Restricted Ordinary Shares, and the date or dates on
which the Restricted Ordinary Shares will vest. The vesting of Restricted
Ordinary Shares may be conditioned upon the completion of a specified
period of service with the Company or its Subsidiaries, upon the attainment
of specified performance goals, or upon such other criteria as the
Committee may determine in its sole discretion.
(b) Share certificates representing the Restricted Ordinary Shares
granted to an employee shall be registered in the employee's name. Such
certificates shall either be held by the Company on behalf of the employee,
or delivered to the employee bearing a legend to restrict transfer of the
certificate until the Restricted Ordinary Shares has vested, as determined
by the Committee. The Committee shall determine whether the employee shall
have the right to vote and/or receive dividends on the Restricted Ordinary
Shares before they have vested. No Restricted Ordinary Shares may be sold,
transferred, assigned, or pledged by the employee until such shares have
vested in accordance with the terms of the Restricted Ordinary Shares
award. In the event of an employee's termination of employment before all
of his Restricted Ordinary Shares have vested, or in the event other
conditions to the vesting of Restricted Ordinary Shares have not been
satisfied prior to any deadline for the satisfaction of such conditions set
forth in the award, the Restricted Ordinary Shares which have not vested
shall be forfeited and any purchase price paid by the employee shall be
returned to the employee. At the time Restricted Ordinary Shares vests
(and, if the employee has been issued legended certificates of Restricted
Ordinary Shares, upon the return of such certificates to the Company), a
certificate for such vested shares shall be delivered to the employee (or
the Beneficiary designated by the employee in the event of death), free of
all restrictions.
(c) Notwithstanding the vesting conditions set forth in the Restricted
Ordinary Shares award, (i) the Committee may in its discretion accelerate
the vesting of Restricted Ordinary Shares at any time, and (ii) all
Restricted Ordinary Shares shall vest upon a Change of Control of the
Company.
3.2 PERFORMANCE AWARDS UNDER SECTION 162(m) OF THE CODE
The Committee shall have the right to designate awards of Restricted
Ordinary Shares as "Performance Awards." Notwithstanding any other provisions of
this Article III, awards so designated shall be granted and administered in a
manner designed to preserve the deductibility of the compensation resulting from
such awards in accordance with Section 162(m) of the Code. The grant or vesting
of a Performance Award shall be subject to the achievement of performance
objectives (the "Performance Objectives") established by the Committee based on
one or more of the following criteria, in each case applied to the Company on a
consolidated basis and/or to a business unit, and either as an absolute measure
or as a measure of comparative performance relative to a peer group of
companies: sales, operating profits, operating profits before interest expense
and taxes, net earnings, earnings per share, return on equity, return on assets,
return on invested capital, total shareholder return, cash flow, debt to equity
ratio, market share, share price, economic value added, and market value added.
The Performance Objectives for a particular Performance Award relative to a
particular fiscal year shall be established by the Committee in writing no later
than 90 days after the beginning of such year. The Committee shall have the
authority to determine whether the Performance Objectives and other terms and
conditions of the award are satisfied, and the Committee's determination as to
the achievement of Performance Objectives relating to a Performance Award shall
be made in writing. The Committee shall have discretion to modify or waive the
Performance Objectives or conditions to the grant or vesting of a
E-6
<PAGE> 258
Performance Award only to the extent that the exercise of such discretion would
not cause the Performance Award to fail to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code.
3.3 SUPPLEMENTAL PAYMENT ON VESTING OF RESTRICTED ORDINARY SHARES
The Committee, either at the time of grant or at the time of vesting of
Restricted Ordinary Shares, may provide for a Supplemental Payment by the
Company to the employee in an amount specified by the Committee which shall not
exceed the amount necessary to pay the federal income tax payable with respect
to both the vesting of the Restricted Ordinary Shares and receipt of the
Supplemental Payment, assuming the employee is taxed at the maximum effective
federal income tax rate applicable thereto and has not elected to recognize
income with respect to the Restricted Ordinary Shares before the date such
Restricted Ordinary Shares vest. The Supplemental Payment shall be paid within
30 days of each date that Restricted Ordinary Shares vest. The Committee shall
have the discretion to grant Supplemental Payments that are payable solely in
cash or Supplemental Payments that are payable in cash, Ordinary Shares, or a
combination of both, as determined by the Committee at the time of payment.
IV. SHARES OPTIONS OR FREESTANDING
SHARES APPRECIATION RIGHTS FOR DIRECTORS
4.1 GRANT OF OPTIONS OR FREESTANDING SARS
Each person who becomes an Eligible Director (other than a person who first
becomes an Eligible Director on the date of an annual meeting of the Company's
shareholders) shall be granted, effective as of the date such person becomes an
Eligible Director, (i) an Option to purchase 4,000 Ordinary Shares, if such
person is not then residing in Norway, or (ii) a freestanding SAR with respect
to 4,000 Ordinary Shares, if such person is then residing in Norway. Each person
who is or becomes an Eligible Director on the date of an annual meeting of the
Company's shareholders and whose service on the Board of Directors will continue
after such meeting shall be granted, effective as of the date of such meeting,
(i) an Option to purchase 4,000 Ordinary Shares, if such person is not then
residing in Norway, or (ii) a freestanding SAR with respect to 4,000 Ordinary
Shares, if such person is then residing in Norway.
4.2 TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Article shall have the following terms and
conditions:
(a) Option Price. The option price per share shall be the closing
sales price of an Ordinary Share on the date the Option is granted (or, if
Ordinary Shares are not traded on such date, on the immediately preceding
date on which Ordinary Shares are traded).
(b) Term of Option. Each Option shall expire ten years from the date
of grant, except as provided in Section 4.2(c) with respect to the death of
an optionee. No Option shall be exercised after the expiration of its term.
(c) Exercise of Options. Subject to Section 4.2(g) and the remainder
of this paragraph, each Option shall become exercisable in installments as
follows: (1) a total of 1,333 Ordinary Shares may be purchased through
exercise of the Option on or after the first anniversary of the date of
grant; (2) a total of 2,666 Ordinary Shares may be purchased through
exercise of the Option on or after the second anniversary of the date of
grant; and (3) a total of 4,000 Ordinary Shares may be purchased through
exercise of the Option on or after the third anniversary of the date of
grant. If a Participant ceases to be a Director of the Company as a result
of death, disability, or retirement from the Board of Directors on his
Retirement Date (as defined in Section 4.2(i)), each Option shall
immediately become fully exercisable and shall remain exercisable for the
remainder of its term, except that an Option which is outstanding on the
date of an optionee's death shall remain outstanding and exercisable for a
term of the greater of ten years from the date of grant or one year after
the optionee's death. If a Participant ceases to be a Director
E-7
<PAGE> 259
of the Company for any reason not set forth in the preceding sentence, no
additional portions of the Option will become exercisable, and the portion
of the Option that is then exercisable shall expire if not exercised within
60 days after cessation of service as a Director. An Option may be
exercised in accordance with its terms as to any or all shares purchasable
thereunder.
(d) Payment for Shares. Payment for shares as to which an Option is
exercised shall be made in cash, Ordinary Shares, by "cashless exercise,"
or a combination thereof, in the discretion of the Participant. Ordinary
Shares delivered in payment of the Option price shall be valued at the
average of the high and low prices of such Ordinary Shares on the date of
exercise (or, if Ordinary Shares is not traded on such date, at the
weighted average of the high and low prices on the nearest trading dates
before and after such date).
(e) Nontransferability of Options. No Option or any interest therein
shall be transferable by the Participant other than by will or by the laws
of descent and distribution. During a Participant's lifetime, all Options
shall be exercisable only by such Participant or by the guardian or legal
representative of the Participant.
(f) Shareholder Rights. The holder of an Option shall, as such, have
none of the rights of a shareholder.
(g) Change of Control. Notwithstanding any other provisions of the
Plan, upon the occurrence of a Change of Control (as defined in Section
6.10) all Options outstanding at the time of such Change of Control shall
become immediately exercisable and shall remain exercisable for the
remainder of their term.
(h) Tax Status. The Options granted under this Article shall be
"non-qualified" options, and shall not be incentive share options as
defined in Section 422 of the Code.
(i) Retirement Date. For purposes of this Article, a Participant's
Retirement Date shall mean the date on which the Participant shall be
required to retire from the Board of Directors under the retirement
policies of the Board of Directors as in effect on the date of the
Participant's retirement.
4.3 TERMS AND CONDITIONS OF FREESTANDING SHARE APPRECIATION RIGHTS
Each Freestanding Share Appreciation Right granted under this Article shall
have the following terms and conditions:
(a) Base Price and Appreciation. The base price of the SAR shall be
the closing sales price of an Ordinary Share on the date the SAR is granted
(or, if Ordinary Shares are not traded on such date, on the immediately
preceding date on which the Ordinary Shares are traded). Upon exercise of
an SAR, the holder shall receive, for each share with respect to which the
SAR is exercised, an amount (the "Appreciation") equal to the amount by
which the fair market value of an Ordinary Share on the date of exercise of
the SAR exceeds the base price of the SAR. For purposes of the preceding
sentence, the fair market value of an Ordinary Share shall be the average
of the high and low prices of such shares as reported on the New York Stock
Exchange composite tape. The Appreciation shall be payable in cash and
shall be paid within 30 days of the exercise of the SAR.
(b) Term of SAR. Each SAR shall expire ten years from the date of
grant, except as provided in Section 4.3(c) with respect to the death of a
Participant. No SAR shall be exercised after the expiration of its term.
(c) Exercise of SARs. Subject to Section 4.3(f) and the remainder of
this paragraph, each SAR shall become exercisable in installments as
follows: (1) the SAR shall be exercisable with respect to a total of 1,333
Ordinary Shares on or after the first anniversary of the date of grant; (2)
the SAR shall be exercisable with respect to a total of 2,666 Ordinary
Shares on or after the second anniversary of the date of grant; and (3) the
SAR shall be exercisable with respect to a total of 4,000 Ordinary Shares
on or after the third anniversary of the date of grant. If a Participant
ceases to be a Director of the Company as a result of death, disability, or
retirement from the Board of Directors on his Retirement Date (as defined
E-8
<PAGE> 260
in Section 4.2(i)), each SAR shall immediately become fully exercisable and
shall remain exercisable for the remainder of its term, except that
notwithstanding the term of the SAR, an SAR which is outstanding on the
date of a Participant's death shall remain outstanding and exercisable for
a term of the greater of ten years from the date of grant or one year after
the Participant's death. If a Participant ceases to be a Director of the
Company for any reason not set forth in the preceding sentence, no
additional portions of the SAR will become exercisable, and the portion of
the SAR that is then exercisable shall expire if not exercised within 60
days after cessation of service as a Director. An SAR may be exercised in
accordance with its terms in whole or in part.
(d) Nontransferability of SARs. No SAR or any interest therein shall
be transferable by the Participant other than by will or by the laws of
descent and distribution. During a Participant's lifetime, all SARs shall
be exercisable only by such Participant or by the guardian or legal
representative of the Participant.
(e) Shareholder Rights. The holder of an SAR shall, as such, have none
of the rights of a shareholder.
(f) Change of Control. Notwithstanding any other provisions of the
Plan, upon the occurrence of a Change of Control (as defined in Section
6.10) all SARs outstanding at the time of such Change of Control shall
become immediately exercisable and shall remain exercisable for the
remainder of their term.
(g) Special Provisions. Notwithstanding the foregoing provisions of
Section 4.3, the freestanding SARs granted to Eligible Directors residing
in Norway who were first elected to the Board of Directors in 1996 (and who
waived the grant of an Option to which they were then entitled under the
terms of the Plan as then in effect) with respect to their initial election
to the Board of Directors (i) shall have a base price equal to the closing
sales price of the Ordinary Shares on the date of their initial election,
and (ii) shall have exercise and expiration dates determined as if such
SARs had been granted on the date of their initial election.
4.4 SUPPLEMENTAL PAYMENT ON EXERCISE OF PRIOR AWARDS OF OPTIONS OR SARS
(a) Supplemental Payments. Within 30 days of each date that an Option
or SAR granted prior to the date of this Amendment and Restatement is
exercised, a Supplemental Payment shall be paid to the Participant (or to
the Participant's Beneficiary in the event of death), in cash, in an amount
equal to the amount necessary to pay the income tax payable to the national
government where the Director resides with respect to both the exercise of
such Option or SAR and receipt of the Supplemental Payment, assuming the
Participant is taxed at the maximum effective income tax rate applicable
thereto; provided, however, that no such payment shall be made if the
Participant has waived his right to the payment pursuant to Section 4.4(b).
(b) Waiver. The Committee may grant an additional Option or SAR, as
applicable, to any Participant who agrees in writing to waive the right to
receive a supplemental cash payment under Section 4.4(a). Such Option or
SAR shall be immediately exercisable. All other provisions of Section 4.2
or 4.3 will apply as though the date of acceptance of the Option or SAR
were the date of grant. Notwithstanding the foregoing, however, in no event
shall (i) the number of Ordinary Shares subject to this Section 4.4(b)
exceed 50,000, or (ii) the number of SARs subject to this Section 4.4(b)
exceed 50,000.
V. CASH PERFORMANCE AWARDS
5.1 TERMS AND CONDITIONS OF CASH PERFORMANCE AWARDS
A "Cash Award" is a cash bonus paid solely on account of the attainment of
one or more objective performance goals that have been preestablished by the
Committee. Each Cash Award shall be subject to such terms and conditions,
restrictions and contingencies, if any, as the Committee shall determine.
Restrictions and contingencies limiting the right to receive a cash payment
pursuant to a Cash Award shall be
E-9
<PAGE> 261
based on the achievement of single or multiple performance goals over a
performance period established by the Committee. No employee shall receive Cash
Awards during any calendar year aggregating in excess of $1 million.
5.2 PERFORMANCE OBJECTIVES UNDER SECTION 162(M) OF THE CODE
The Committee shall have the right to designate Cash Awards as "Cash
Performance Awards." Notwithstanding any other provisions of this Article V,
awards so designated shall be granted and administered in a manner designed to
preserve the deductibility of the compensation resulting from such awards in
accordance with Section 162(m) of the Code. The payment of a Cash Performance
Award shall be subject to the achievement of performance objectives (the
"Performance Objectives") established by the Committee based on one or more of
the following criteria, in each case applied to the Company on a consolidated
basis and/or to a business unit, and either as an absolute measure or as a
measure of comparative performance relative to a peer group of companies: sales,
operating profits, operating profits before interest expense and taxes, net
earnings, earnings per share, return on equity, return on assets, return on
invested capital, total shareholder return, cash flow, debt to equity ratio,
market share, share price, economic value added, and market value added.
The Performance Objectives for a particular Cash Performance Award relative
to a particular fiscal year shall be established by the Committee in writing no
later than 90 days after the beginning of such year. The Committee shall have
the authority to determine whether the Performance Objectives and other terms
and conditions of the award are satisfied, and the Committee's determination as
to the achievement of Performance Objectives relating to a Cash Performance
Award shall be made in writing.
VI. ADDITIONAL PROVISIONS
6.1 GENERAL RESTRICTIONS
Each award under the Plan shall be subject to the requirement that, if at
any time the Committee shall determine that (i) the listing, registration or
qualification of the Ordinary Shares subject or related thereto upon any
securities exchange or under any state or federal law, or (ii) the consent or
approval of any government regulatory body, or (iii) an agreement by the
recipient of an award with respect to the disposition of Ordinary Shares is
necessary or desirable (in connection with any requirement or interpretation of
any federal or state securities law, rule or regulation) as a condition of, or
in connection with, the granting of such award or the issuance, purchase or
delivery of Ordinary Shares thereunder, such award may not be consummated in
whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.
6.2 ADJUSTMENTS FOR CHANGES IN CAPITALIZATION
In the event of a scheme of arrangement, reorganization, recapitalization,
Ordinary Share split, Ordinary Share dividend, combination of shares, rights
offer, liquidation, dissolution, merger, consolidation, spin-off, sale of
assets, payment of an extraordinary cash dividend, or any other change in or
affecting the corporate structure or capitalization of the Company, the
Committee shall make appropriate adjustment in the number and kind of shares
authorized by the Plan (including any limitations on individual awards), in the
number, price or kind of shares covered by the awards and in any outstanding
awards under the Plan; provided, however, that no such adjustment shall increase
the aggregate value of any outstanding award.
6.3 AMENDMENTS
(a) The Board of Directors may amend the Plan from time to time. No such
amendment shall require approval by the shareholders unless shareholder approval
is required to satisfy Rule 16b-3 under the Securities Exchange Act of 1934 or
Section 162(m) of the Code, or by applicable law or stock exchange requirements.
E-10
<PAGE> 262
(b) The Committee shall have the authority to amend any grant to include
any provision which, at the time of such amendment, is authorized under the
terms of the Plan; however, no outstanding award may be revoked or altered in a
manner unfavorable to the holder without the written consent of the holder.
(c) If a Participant has ceased or will cease to be a Director of the
Company for the convenience of the Company (as determined by the Board of
Directors), the Board of Directors may amend all or any portion of such
Participant's Options or SARs so as to make such Options or SARs fully
exercisable and/or specify a schedule upon which they become exercisable, and/or
permit all or any portion of such Options or SARs to remain exercisable for such
period designated by it, but not beyond the expiration of the term established
pursuant to Section 4.2(b) or 4.3(b). A Participant shall not participate in the
deliberations or vote by the Board of Directors under this paragraph with
respect to his Options or SARs. The exercise periods of Options or SARs
established by the Board of Directors pursuant to this paragraph shall override
the provisions of Section 4.2(c) or 4.3(c) to the extent inconsistent therewith.
6.4 CANCELLATION OF AWARDS
Any award granted under Articles II and III of the Plan may be canceled at
any time with the consent of the holder and a new award may be granted to such
holder in lieu thereof, which award may, in the discretion of the Committee, be
on more favorable terms and conditions than the canceled award; provided,
however, that the Committee may not reduce the exercise or base price of
outstanding Options or SARs where the existing exercise or base price is higher
than the then current market price of the Ordinary Shares.
6.5 BENEFICIARY
An employee or Participant may file with the Company a written designation
of Beneficiary, on such form as may be prescribed by the Committee, to receive
any Options, SARs, Restricted Shares, Ordinary Shares and Supplemental Payments
that become deliverable to the employee or Participant pursuant to the Plan
after the employee's or Participant's death. An employee or Participant may,
from time to time, amend or revoke a designation of Beneficiary. If no
designated Beneficiary survives the employee or Participant, the executor or
administrator of the employee's or Participant's estate shall be deemed to be
the employee's or Participant's Beneficiary.
6.6 WITHHOLDING
(a) Whenever the Company proposes or is required to issue or transfer
Ordinary Shares under the Plan, the Company shall have the right to require the
award holder to remit to the Company an amount sufficient to satisfy any
applicable withholding tax liability prior to the delivery of any certificate
for such shares. Whenever under the Plan payments are to be made in cash, such
payments shall be net of an amount sufficient to satisfy any withholding tax
liability.
(b) An employee entitled to receive Ordinary Shares under the Plan who has
not received a cash Supplemental Payment may elect to have the withholding tax
liability (or a specified portion thereof) with respect to such Ordinary Shares
satisfied by having the Company withhold from the shares otherwise deliverable
to the employee Ordinary Shares having a value equal to the amount of the tax
liability to be satisfied with respect to the Ordinary Shares. An election to
have all or a portion of the tax liability satisfied using Ordinary Shares shall
comply with such requirements as may be imposed by the Committee.
6.7 NON-ASSIGNABILITY
Except as expressly provided in the Plan, no award under the Plan shall be
assignable or transferable by the holder thereof except by will or by the laws
of descent and distribution. During the life of the holder, awards under the
Plan shall be exercisable only by such holder or by the guardian or legal
representative of such holder.
E-11
<PAGE> 263
6.8 NON-UNIFORM DETERMINATIONS
Determinations by the Committee under the Plan (including, without
limitation, determinations of the persons to receive awards under Articles II
and III; the form, amount and timing of such awards; the terms and provisions of
such awards and the agreements evidencing same; and provisions with respect to
termination of employment) need not be uniform and may be made by it selectively
among persons who receive, or are eligible to receive, awards under the Plan,
whether or not such persons are similarly situated.
6.9 NO GUARANTEE OF EMPLOYMENT OR DIRECTORSHIP
The grant of an award under the Plan shall not constitute an assurance of
continued employment for any period or any obligation of the Board of Directors
to nominate any Director for re-election by the Company's shareholders.
6.10 CHANGE OF CONTROL
A "Change of Control" means:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding ordinary shares of the
Company (the "Outstanding Company Ordinary Shares") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation or other entity controlled by the Company or (iv) any
acquisition by any corporation or other entity pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 6.10; or
(b) Individuals who, as of the date hereof, constitute the Board of
the Company (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board of the Company; provided, however, that for
purposes of this Section 6.10 any individual becoming a director subsequent
to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board of the Company; or
(c) Consummation of a scheme of arrangement, reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Ordinary Shares and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of, respectively, the then
outstanding ordinary shares or shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the
corporation or other entity resulting from such Business Combination
(including, without limitation, a corporation or other entity which as a
result of such transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately prior
to such Business Combination of the Outstanding Company Ordinary Shares and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding any corporation or other entity resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company
or such corporation or other entity resulting from such Business
Combination) beneficially
E-12
<PAGE> 264
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding ordinary shares or shares of common stock of the corporation or
other entity resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such corporation
or other entity except to the extent that such ownership existed prior to
the Business Combination and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the action
of the Board of the Company providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
6.11 DURATION AND TERMINATION
(a) The Plan shall be of unlimited duration. Notwithstanding the foregoing,
no incentive Share option (within the meaning of Section 422 of the Code) shall
be granted under the Plan, and no Options or SARs shall be granted under the
Plan to Eligible Directors under Article IV, after May 1, 2003, but awards
granted prior to such dates may extend beyond such dates, and the terms of this
Plan shall continue to apply to all awards granted hereunder.
(b) The Board of Directors may discontinue or terminate the Plan at any
time. Such action shall not impair any of the rights of any holder of any award
outstanding on the date of the Plan's discontinuance or termination without the
holder's written consent.
6.12 EFFECTIVE DATE
The original effective date of the Plan was May 1, 1993. This amendment and
restatement of the Plan shall be effective March 12, 1998.
/s/ ERIC B. BROWN
------------------------------------
Eric B. Brown
Corporate Secretary
E-13
<PAGE> 265
ANNEX F
TRANSOCEAN OFFSHORE INC.
EMPLOYEE STOCK PURCHASE PLAN
(EFFECTIVE MAY 14, 1998 AND AS CONFORMED THROUGH AMENDMENT NO. 1 DATED MAY 14,
1999)
1. PURPOSE
The Transocean Offshore Inc. Employee Stock Purchase Plan (the "Plan") is
designed to encourage and assist all employees of Transocean Offshore Inc., a
Cayman Islands exempted company limited by shares ("Transocean") and
Subsidiaries (as defined in Section 4) (hereinafter collectively referred to as
the "Company"), where permitted by applicable laws and regulations, to acquire
an equity interest in Transocean through the purchase of ordinary shares, par
value US$.01 per share, of Transocean ("Ordinary Shares"). It is intended that
this Plan shall constitute an "employee stock purchase plan" within the meaning
of Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
2. ADMINISTRATION OF THE PLAN
The Plan shall be administered and interpreted by the Finance and Benefits
Committee (the "Committee") appointed by the Board of Directors of Transocean
(the "Board"), which Committee shall consist of at least two (2) persons. The
Committee shall supervise the administration and enforcement of the Plan
according to its terms and provisions and shall have all powers necessary to
accomplish these purposes and discharge its duties hereunder including, but not
by way of limitation, the power to (a) employ and compensate agents of the
Committee for the purpose of administering the accounts of participating
employees; (b) construe or interpret the Plan; (c) determine all questions of
eligibility; and (d) compute the amount and determine the manner and time of
payment of all benefits according to the Plan.
The Committee may act by decision of a majority of its members at a regular
or special meeting of the Committee or by decision reduced to writing and signed
by all members of the Committee without holding a formal meeting. The Committee
may delegate its duties and authority under this Plan to one or more officers of
the Company, and actions taken by such duly authorized officers shall be deemed
to be actions of the Committee.
3. NATURE AND NUMBER OF SHARES
The Ordinary Shares subject to issuance under the terms of the Plan shall
be Transocean's authorized but unissued Ordinary Shares, previously issued
Ordinary Shares reacquired and held by Transocean or Ordinary Shares purchased
on the open market. The aggregate number of Ordinary Shares which may be issued
under the Plan shall not exceed two hundred fifty thousand (250,000) Ordinary
Shares. All Ordinary Shares purchased under the Plan, regardless of source,
shall be counted against the two hundred fifty thousand (250,000) Ordinary Share
limitation.
In the event of any scheme of arrangement, reorganization, share split,
reverse share split, share dividend, combination of shares, merger,
consolidation, offering of rights or other similar change in the capital
structure of Transocean, the Committee may make such adjustment, if any, as it
deems appropriate in the number, kind and purchase price of the Ordinary Shares
available for purchase under the plan and in the maximum number of Ordinary
Shares which may be issued under the Plan, subject to the approval of the Board
and in accordance with Section 19.
4. ELIGIBILITY REQUIREMENTS
Each "Employee" (as hereinafter defined), except as described in the next
following paragraph, shall become eligible to participate in the Plan in
accordance with Section 5 on the first "Enrollment Date" (as defined therein)
following employment by the Company. Participation in the Plan is voluntary.
F-1
<PAGE> 266
The following Employees are not eligible to participate in the Plan:
(a) Employees who would, immediately upon enrollment in the Plan, own
directly or indirectly, or hold options or rights to acquire, an aggregate
of five percent (5%) or more of the total combined voting power or value of
all outstanding shares of all classes of the Company or any subsidiary (in
determining share ownership of an individual, the rules of Section 424(d)
of the Code shall be applied, and the Committee may rely on representations
of fact made to it by the employee and believed by it to be true); and
(b) Employees of Transocean who are customarily employed for less than
twenty (20) hours per week or less than five (5) months in any calendar
year; and
(c) Employees of any Subsidiary who are excluded under the terms of
any agreement evidencing the adoption of the Plan.
"Employee" shall mean any individual employed by Transocean or any
Subsidiary (as hereinafter defined). "Subsidiary" shall mean any corporation (a)
which is in an unbroken chain of corporations beginning with Transocean if, on
or after the Effective Date, each of the corporations other than the last
corporation in the chain owns share possessing fifty percent (50%) or more of
the total combined voting power of all classes of shares in one of the other
corporations in the chain and (b) which has adopted the Plan with the approval
of the Committee.
5. ENROLLMENT
Each eligible Employee of Transocean or any Subsidiary as of May 14, 1998
(the "Effective Date" herein) may enroll in the Plan as soon as administratively
feasible after the Effective Date, as determined by the Committee. Each other
eligible Employee of Transocean or a participating Subsidiary who thereafter
becomes eligible to participate may enroll in the Plan on the first January 1
following the date he first meets the eligibility requirements of Section 4. Any
eligible Employee not enrolling in the Plan when first eligible may enroll in
the Plan on any subsequent January 1. Any eligible Employee may enroll or
re-enroll in the Plan on the dates hereinabove prescribed or such other specific
dates established by the Committee from time to time ("Enrollment Dates"). In
order to enroll, an eligible Employee must complete, sign and submit the
appropriate form to the person designated by the Committee.
6. METHOD OF PAYMENT
Payment for shares is to be made as of the applicable "Purchase Date" (as
defined in Section 9) through payroll deductions on an after-tax basis (with no
right of prepayment) over the Plan's designated purchase period (the "Purchase
Period"), with the first such deduction commencing with the first payroll period
ending after the Enrollment Date. Each Purchase Period under the Plan shall be a
period of one (1) year beginning on each January 1 and ending on the following
December 31 or such other period as the Committee may prescribe; provided,
however, that the initial Purchase Period beginning on the Effective Date shall
commence on the Effective Date and end on December 31, 1998. Each participating
Employee (hereinafter referred to as a "Participant") will authorize such
deductions from his pay for each month during the Purchase Period and such
amounts will be deducted in conformity with his employer's payroll deduction
schedule; provided, however, that payroll withholding during the initial
Purchase Period will begin as soon as administratively feasible, after the
Effective Date, as is determined by the Committee in its discretion.
Each Participant may elect to make contributions each pay period in amounts
not less than fifty dollars ($50), not to exceed a monthly contribution equal to
ten percent (10%) of the Participant's monthly compensation (base pay and
overtime pay associated with base pay, but excluding premium or special pay and
overtime associated therewith) (or such other dollar amounts as the Committee
may establish from time to time before an Enrollment Date for all purchases to
occur during the relevant Purchase Period). In establishing other dollar amounts
of permitted contributions, the Committee may take into account the "Maximum
Share Limitation" (as defined in Section 8). The rate of contribution shall be
designated by the Participant in the enrollment form.
F-2
<PAGE> 267
A Participant may elect to increase or decrease the rate of contribution
effective as of the first day of the Purchase Period by giving prior written
notice to the person designated by the Committee on the appropriate form. A
Participant may not elect to increase or decrease the rate of contribution
during a Purchase Period. A Participant may suspend payroll deductions at any
time during the Purchase Period, by giving prior written notice to the person
designated by the Committee on the appropriate form. If a Participant elects to
suspend his payroll deductions, such Participant's account will continue to
accrue interest and will be used to purchase share at the end of the Purchase
Period. A Participant may also elect to withdraw his entire contributions for
the current Purchase Period in accordance with
Section 8, by giving prior written notice to the person designated by the
Committee on the appropriate form. Any Participant who withdraws his
contributions will receive, as soon as practicable, his entire account balance,
including interest and dividends, if any. Any Participant who suspends payroll
deductions or withdraws contributions during any Purchase Period cannot resume
payroll deductions during such Purchase Period and must re-enroll in the Plan in
order to participate in the next Purchase Period.
Except in case of cancellation of election to purchase, death, resignation
or other terminating event, the amount in a Participant's account at the end of
the Purchase Period will be applied to the purchase of Ordinary Shares.
7. CREDITING OF CONTRIBUTIONS, INTEREST AND DIVIDENDS
Contributions shall be credited to a Participant's account as soon as
administratively feasible after payroll withholding. Unless otherwise prohibited
by laws and regulations, Participant contributions will receive interest at a
rate realized for the investment vehicle or vehicles designated by the Committee
for purposes of the Plan. Interest will be credited to a Participant's account
from the first date on which such Participant's contributions are deposited with
the investment vehicle until the earlier of (a) the end of the Purchase Period
or (b) in the event of cancellation, death, resignation or other terminating
event, the last day of the month prior to the date on which such contributions
are returned to the Participant. Dividends on shares held in a Participant's
account in the Plan will also be credited to such Participant's account if the
Participant is enrolled for the Purchase Period in which the dividends are paid.
Any such contributions, interest and dividends shall be deposited in or held by
a bank or financial institution designated by the Committee for this purpose
(the "Custodian").
8. GRANT OF RIGHT TO PURCHASE SHARES ON ENROLLMENT
Enrollment in the Plan by an Employee on an Enrollment Date will constitute
the grant by the Company to the Participant of the right to purchase Ordinary
Shares under the Plan. Re-enrollment by a Participant in the Plan will
constitute a grant by the Company to the Participant of a new opportunity to
purchase shares on the Enrollment Date on which such re-enrollment occurs. A
Participant who has not (a) terminated employment, (b) withdrawn his
contributions from the Plan, or (c) notified the Company in writing, by December
1 (or such date as the Committee shall establish), of his election to withdraw
his payroll deductions plus interest as of December 31 will have Ordinary Shares
purchased for him on the applicable Purchase Date, and he will automatically be
re-enrolled in the Plan on the Enrollment Date immediately following the
Purchase Date on which such purchase has occurred, unless each Participant
notifies the person designated by the Committee on the appropriate form that he
elects not to re-enroll.
Each right to purchase Ordinary Shares under the Plan during a Purchase
Period shall have the following terms:
(a) the right to purchase Ordinary Shares during a particular Purchase
Period shall expire on the earlier of: (A) the completion of the purchase
of shares on the Purchase Date occurring in the Purchase Period, or (B) the
date on which participation of such Participant in the Plan terminates for
any reason;
(b) payment for shares purchased will be made only through payroll
withholding and the crediting of interest and dividends, if applicable, in
accordance with Sections 6 and 7;
(c) purchase of shares will be accomplished only in accordance with
Section 9;
F-3
<PAGE> 268
(d) the price per share will be determined as provided in Section 9;
(e) the right to purchase shares (taken together with all other such rights
then outstanding under this Plan and under all other similar share purchase
plans of Transocean or any Subsidiary) will in no event give the Participant the
right to purchase a number of shares during a calendar year in excess of the
number of Ordinary Shares derived by dividing twenty-five thousand dollars
($25,000) by the fair market value of the Ordinary Shares (the "Maximum Share
Limitation") on the applicable Grant Date determined in accordance with Section
9;
(f) shares purchased under this Plan may not be sold within three (3)
months of the Purchase Date, unless the Compensation Committee, in its sole
discretion, waives this requirement; and
(g) the right to purchase shares will in all respects be subject to the
terms and conditions of the Plan, as interpreted by the Committee from time to
time.
9. PURCHASE OF SHARES
The right to purchase Ordinary Shares granted by the Company under the Plan
is for the term of a Purchase Period. The fair market value of the Ordinary
Shares ("Fair Market Value") to be purchased during such Purchase Period will be
the closing composite sales price per share of the Ordinary Shares in the New
York Stock Exchange Composite Transactions Quotations on the first trading day
of the calendar month of January, or such other trading date designated by the
Committee (the "Grant Date"); provided, however, that for the Purchase Period
which begins on the Effective Date, the Grant Date shall be the Effective Date.
The Fair Market Value of the Ordinary Shares will again be determined in the
same manner on the last trading day of the calendar month of December, or such
other trading date designated by the Committee (the "Purchase Date"); however,
in no event shall the Committee, in the exercise of its discretion, designate a
Purchase Date beyond twelve (12) months from the related Enrollment Date or
otherwise fail to meet the requirements of Section 423(b)(7) of the Code. These
dates constitute the date of grant and the date of exercise for valuation
purposes of Section 423 of the Code.
As of the Purchase Date, the Committee shall apply the funds then credited
to each Participant's account to the purchase of whole Ordinary Shares. The cost
to the Participant for the shares purchased during a Purchase Period shall be
the lower of:
(a) eighty-five percent (85%) of the Fair Market Value of Ordinary
Shares on the Grant Date; or
(b) eighty-five percent (85%) of the Fair Market Value of Ordinary
Shares on the Purchase Date.
Certificates evidencing shares purchased shall be delivered to the
Custodian or to any other bank or financial institution designated by the
Committee for this purpose or delivered to the Participant (if the Participant
has elected by written notice to the Committee to receive the certificate) as
soon as administratively feasible after the Purchase Date; however, certificates
shall not be delivered to the Participant within one (1) year of the Purchase
Date of the underlying shares, except as otherwise provided herein.
Notwithstanding the foregoing, Participants shall be treated as the record
owners of their shares effective as of the Purchase Date. Shares that are held
by the Custodian or any other designated bank or financial institution shall be
held in book entry form. Any cash equal to less than the price of a whole share
of Ordinary Shares shall be credited to a Participant's account on the Purchase
Date and carried forward in his account for application during the next Purchase
Period. Any Participant (i) who purchases shares at the end of a Purchase Period
and is not re-enrolled in the Plan for the next Purchase Period or (ii) who
withdraws his contributions from the Plan prior to the next Purchase Date will
receive a certificate for the number of shares held in his account for at least
one (1) year as of the most recent Purchase Date and any cash, dividends or
interest remaining in his account. Such Participant may elect to receive a
certificate for the remaining number of shares held in his account one (1) year
after such shares were purchased or, if earlier, upon such Participant's
termination of employment. This one-year requirement may be waived by the
Committee, in its sole discretion. Until such certificates are distributed to
the Participant, the Participant will not be permitted to transfer ownership of
the certificates except as contemplated by Section 10 or Section 14 of the Plan.
Any
F-4
<PAGE> 269
Participant who terminates employment will receive a certificate for the number
of shares held in his account and a cash refund attributable to amounts equal to
less than the price of a whole share, and any accumulated contributions,
dividends and interest. If for any reason the purchase of shares with a
Participant's allocations to the Plan exceeds or would exceed the Maximum Share
Limitation, such excess amounts shall be refunded to the Participant as soon as
practicable after such excess has been determined to exist.
If as of any Purchase Date the shares authorized for purchase under the
Plan are exceeded, enrollments shall be reduced proportionately to eliminate the
excess. Any funds that cannot be applied to the purchase of shares due to excess
enrollment shall be refunded as soon as administratively feasible, including
interest determined in accordance with Section 7. The Committee in its
discretion may also provide that excess enrollments may be carried over to the
next Purchase Period under this Plan or any successor plan according to the
regulations set forth under Section 423 of the Code.
10. WITHDRAWAL OF SHARES AND SALE OF SHARES
(a) A Participant may elect to withdraw at any time (without withdrawing
from participation in the Plan) shares which have been held in his account for
at least one (1) year by giving notice to the person designated by the Committee
on the appropriate form. Upon receipt of such notice from the person designated
by the Committee, the Custodian, bank or other financial institution designated
by the Committee for this purpose will arrange for the issuance and delivery of
such shares held in the Participant's account as soon as administratively
feasible.
(b) Notwithstanding anything in the Plan to the contrary, a Participant may
sell shares which are held in his account, including shares which have been held
in his account for less than one (1) year, but not less than three (3) months as
provided in Section 8(vi) by giving notice to the person designated by the
Committee on the appropriate form. Upon receipt of such notice from the person
designated by the Committee, the Custodian, bank or other financial institution
designated by the Committee for this purpose will arrange for the sale of such
Participant's shares. Any sale will be deemed to occur on the last business day
of the month in which the Participant provides such notice to the person
designated by the Committee, or at such other time as the Committee shall
establish. The proceeds of any sale under this subsection 10(b), less any
associated commissions or required withholding for taxes, shall be paid to the
Participant as soon as practicable after the sale.
11. TERMINATION OF PARTICIPATION
The right to participate in the Plan terminates immediately when a
Participant ceases to be employed by the Company for any reason whatsoever
(including death, unpaid disability or when the Participant's employer ceases to
be a Subsidiary) or the Participant otherwise becomes ineligible. Participation
also terminates immediately when the Participant voluntarily withdraws his
contributions from the Plan. Participation terminates immediately after the
Purchase Date if the Participant is not re-enrolled in the Plan for the next
Purchase Period or if the Participant has suspended payroll deductions during
any Purchase Period and has not re-enrolled in the Plan for the next Purchase
Period. As soon as administratively feasible after termination of participation,
the Committee shall pay to the Participant or his beneficiary or legal
representative all amounts credited to his account, including interest and
dividends, if applicable, determined in accordance with Section 7, and shall
cause a certificate for the number of shares held in his account to be delivered
to the Participant, subject to the restrictions in Section 9. For purposes of
the Plan, a Participant is not deemed to have terminated his employment if he
transfers employment from Transocean to a Subsidiary, or vice versa, or
transfers employment between Subsidiaries.
12. UNPAID LEAVE OF ABSENCE
Unless the Participant has voluntarily withdrawn his contributions from the
Plan, shares will be purchased for his account on the Purchase Date next
following commencement of an unpaid leave of absence by such Participant,
provided such leave does not constitute a termination of employment. The number
of shares to be purchased will be determined by applying to the purchase the
amount of the Participant's
F-5
<PAGE> 270
contributions made up to the commencement of such unpaid leave of absence plus
interest on such contributions and dividends, if applicable, both determined in
accordance with Section 7. If the Participant's unpaid leave of absence both
commences and terminates during the same Purchase Period and he has resumed
eligible employment prior to the Purchase Date related to that Purchase Period,
he may also resume payroll deductions immediately, and shares will be purchased
for him on such Purchase Date as otherwise provided in Section 9.
13. DESIGNATION OF BENEFICIARY
Each Participant may designate one or more beneficiaries in the event of
death and may, in his sole discretion, change such designation at any time. Any
such designation shall be effective upon receipt by the person designated by the
Committee and shall control over any disposition by will or otherwise.
As soon as administratively feasible after the death of a Participant,
amounts credited to his account, including interest and dividends, if
applicable, determined in accordance with Section 7, shall be paid in cash and a
certificate for any shares shall be delivered to the Participant's designated
beneficiaries or, in the absence of such designation, to the executor,
administrator or other legal representative of the Participant's estate. Such
payment shall relieve the Company of further liability to the deceased
Participant with respect to the Plan. If more than one beneficiary is
designated, each beneficiary shall receive an equal portion of the account
unless the Participant has given express contrary instructions.
14. ASSIGNMENT
Except as provided in Section 13, the rights of a Participant under the
Plan will not be assignable or otherwise transferable by the Participant, other
than by will or the laws of descent and distribution or pursuant to a "qualified
domestic relations order," as defined in Section 414(p) of the Code. No
purported assignment or transfer of such rights of a Participant under the Plan,
whether voluntary or involuntary, by operation of law or otherwise, shall vest
in the purported assignee or transferee any interest or right therein
whatsoever, but immediately upon such assignment or transfer, or any attempt to
make the same, such rights shall terminate and become of no further effect. If
this provision is violated, the Participant's election to purchase Ordinary
Shares shall terminate, and the only obligation of the Company remaining under
the Plan will be to pay to the person entitled thereto the amount then credited
to the Participant's account. No Participant may create a lien on any funds,
securities, rights or other property held for the account of the Participant
under the Plan, except to the extent that there has been a designation of
beneficiaries in accordance with the Plan, and except to the extent permitted by
will or the laws of descent and distribution if beneficiaries have not been
designated. A Participant's right to purchase shares under the Plan shall be
exercisable only during the Participant's lifetime and only by him.
15. COSTS
All costs and expenses incurred in administering this Plan shall be paid by
the Company. Any brokerage fees for the sale of shares purchased under the Plan
shall be paid by the Participant.
16. REPORTS
At the end of each Purchase Period, the Company shall provide or cause to
be provided to each Participant a report of his contributions, including
interest earned, and the number of whole Ordinary Shares purchased with such
contributions by that Participant on each Purchase Date.
17. EQUAL RIGHTS AND PRIVILEGES
All eligible Employees shall have equal rights and privileges with respect
to the Plan to the extent necessary to enable the Plan to qualify for U.S. tax
purposes as an "employee share purchase plan" within the meaning of Section 423
or any successor provision of the Code and related regulations. Any provision of
the Plan which is inconsistent with Section 423 or any successor provision of
the Code shall without further act or
F-6
<PAGE> 271
amendment by the Company be reformed to comply with the requirements of Section
423. This Section 17 shall take precedence over all other provisions in the
Plan.
18. RIGHTS AS SHAREHOLDERS
A Participant will have no rights as a shareholder under the election to
purchase until he becomes a shareholder as herein provided. A Participant will
become a shareholder with respect to shares for which payment has been completed
as provided in Section 9 at the close of business on the last business day of
the Purchase Period.
19. MODIFICATION AND TERMINATION
The Board may amend or terminate the Plan at any time insofar as permitted
by law. No amendment shall be effective unless within one (1) year after it is
adopted by the Board it is approved by the holders of Transocean's outstanding
shares if and to the extent such amendment is required to be approved by
shareholders in order to cause the rights granted under the Plan to purchase
Ordinary Shares to meet the requirements of Section 423 of the Code (or any
successor provision).
The Plan shall terminate after all Ordinary Shares issued under the Plan
have been purchased, unless terminated earlier by the Board or unless additional
Ordinary Shares is issued under the Plan with the approval of the shareholders.
In the event the Plan is terminated, the Committee may elect to terminate
all outstanding rights to purchase shares under the Plan either immediately or
upon completion of the purchase of shares on the next Purchase Date, unless the
Committee has designated that the right to make all such purchases shall expire
on some other designated date occurring prior to the next Purchase Date. If the
rights to purchase shares under the Plan are terminated prior to expiration, all
funds contributed to the Plan which have not been used to purchase shares shall
be returned to the Participants as soon as administratively feasible, including
interest and dividends, if applicable, determined in accordance with Section 7.
20. BOARD AND SHAREHOLDER APPROVAL; EFFECTIVE DATE
This Plan was adopted by the Board on March 12, 1998. This Plan shall be
effective as of the Effective Date. Notwithstanding the foregoing, the adoption
of this Plan is expressly conditioned upon the approval by the holders of a
majority of outstanding Ordinary Shares at the 1998 annual meeting of
shareholders. If the shareholders of the Company should fail so to approve this
Plan on or before such date, this Plan shall terminate and cease to be of any
further force or effect and all purchases of Ordinary Shares under the Plan
shall be null and void.
21. GOVERNMENTAL APPROVALS OR CONSENTS
This Plan and any offering or sale made to Employees under it are subject
to any governmental approvals or consents that may be or become applicable in
connection therewith. Subject to the provisions of Section 19, the Board may
make such changes in the Plan and include such terms in any offering under the
Plan as may be desirable to comply with the rules or regulations of any
governmental authority.
22. LISTING OF SHARES AND RELATED MATTERS
If at any time the Board or the Committee shall determine, based on opinion
of legal counsel, that the listing, registration or qualification of the shares
covered by the Plan upon any national securities exchange or reporting system or
under any state or federal law is necessary or desirable as a condition of, or
in connection with, the sale or purchase of shares under the Plan, no shares
will be sold, issued or delivered unless and until such listing, registration or
qualification shall have been effected or obtained, or otherwise provided for,
free of any conditions not acceptable to legal counsel.
F-7
<PAGE> 272
23. EMPLOYMENT RIGHTS
The Plan shall neither impose any obligation on Transocean or on any
Subsidiary to continue the employment of any Participant, nor impose any
obligation on any Participant to remain in the employ of Transocean or of any
Subsidiary.
24. WITHHOLDING OF TAXES
The Committee may make such provisions as it may deem appropriate for the
withholding of any taxes which it determines is required in connection with the
purchase of Ordinary Shares under the Plan.
25. SUBSIDIARY TERMS
In addition to changes in eligibility requirements, the adopting
Subsidiaries may make any changes in the terms of this Plan applicable to their
Employees as shall be acceptable to the Committee, provided that such changes do
not cause the Plan to fail to comply with the requirements of Section 423 of the
Code, to the extent it is applicable.
26. GOVERNING LAW
The Plan and rights to purchase shares that may be granted hereunder shall
be governed by and construed and enforced in accordance with the laws of the
state of Texas.
27. USE OF GENDER
The gender of words used in the Plan shall be construed to include
whichever may be appropriate under any particular circumstances of the
masculine, feminine or neuter genders.
28. OTHER PROVISIONS
The agreements to purchase Ordinary Shares under the Plan shall contain
such other provisions as the Committee and the Board shall deem advisable,
provided that no such provision shall in any way be in conflict with the terms
of the Plan.
29. EFFECTIVE DATE
The Plan shall be effective as of May 14, 1998.
/s/ ERIC B. BROWN
------------------------------------
Eric B. Brown
Secretary
F-8
