<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 1-7746
-------------------
TRANSOCEAN OFFSHORE INC.
(Exact name of registrant as specified in its charter)
--------------------
DELAWARE 72-0464968
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4 GREENWAY PLAZA
HOUSTON, TEXAS 77046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 871-7500
--------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
As of October 31, 1998, 100,551,127 shares of common stock, par value $.01
per share, of Transocean Offshore Inc. were outstanding.
================================================================================
<PAGE>
TRANSOCEAN OFFSHORE INC.
INDEX TO FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1998 and 1997......... 2
Condensed Consolidated Balance Sheets
September 30, 1998 and December 31, 1997........................ 3
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997................... 4
Notes to Condensed Consolidated Financial Statements............. 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 10
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk...... 21
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings............................................... 22
ITEM 6. Exhibits and Reports on Form 8-K................................ 22
</TABLE>
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements of Transocean Offshore Inc. and
consolidated subsidiaries (the "Company") included herein have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and notes normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. These financial statements should be read in conjunction with the
audited consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating Revenues $269,002 $223,201 $778,892 $650,910
- ---------------------------------------------------------------------------------------------------------
Costs and Expenses
Operating and maintenance 113,104 129,965 359,601 408,584
Depreciation and amortization 29,297 26,001 85,478 76,246
General and administrative 6,310 6,296 21,001 18,452
- ---------------------------------------------------------------------------------------------------------
148,711 162,262 466,080 503,282
- ---------------------------------------------------------------------------------------------------------
Operating Income 120,291 60,939 312,812 147,628
- ---------------------------------------------------------------------------------------------------------
Other Income (Expense), Net
Equity in earnings of joint ventures 3,350 3,248 8,240 8,133
Interest income 562 743 2,514 1,593
Interest expense, net of amounts capitalized (4,889) (5,671) (17,571) (16,502)
Gain on termination of cash flow sharing agreement - - 21,290 -
Other, net 12,501 (1,298) 13,354 (1,911)
- ---------------------------------------------------------------------------------------------------------
11,524 (2,978) 27,827 (8,687)
- ---------------------------------------------------------------------------------------------------------
Income Before Income Taxes 131,815 57,961 340,639 138,941
Income Taxes 38,886 18,842 100,489 44,197
- ---------------------------------------------------------------------------------------------------------
Net Income $ 92,929 $ 39,119 $240,150 $ 94,744
=========================================================================================================
Earnings Per Share
Basic $ 0.93 $ 0.39 $ 2.40 $ 0.93
=========================================================================================================
Diluted $ 0.92 $ 0.38 $ 2.38 $ 0.92
=========================================================================================================
Weighted Average Shares Outstanding
Basic 100,283 101,280 100,015 101,545
- ---------------------------------------------------------------------------------------------------------
Diluted 100,869 102,807 100,861 103,048
- ---------------------------------------------------------------------------------------------------------
Dividends Paid Per Share $ 0.03 $ 0.03 $ 0.09 $ 0.09
=========================================================================================================
</TABLE>
See accompanying notes.
2
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
(In thousands, except share data)
ASSETS
<S> <C> <C>
Cash and Cash Equivalents $ 30,681 $ 54,225
Accounts Receivable 245,539 199,716
Deferred Income Taxes 3,967 4,418
Materials and Supplies 35,004 30,917
Prepayments 5,071 9,389
Other Current Assets 21,004 8,425
- ----------------------------------------------------------------------------
Total Current Assets 341,266 307,090
- ----------------------------------------------------------------------------
Property and Equipment 2,548,094 2,113,462
Less Accumulated Depreciation 505,214 445,488
- ----------------------------------------------------------------------------
Property and Equipment, net 2,042,880 1,667,974
- ----------------------------------------------------------------------------
Goodwill, net 679,725 693,154
Investments in and Advances to Joint Ventures 52,176 45,869
Other Assets 32,642 41,001
- ----------------------------------------------------------------------------
Total Assets $3,148,689 $2,755,088
============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable $ 40,070 $ 62,997
Accrued Income Taxes 68,302 47,002
Current Portion of Long-Term Debt 4,798 4,812
Other Current Liabilities 68,331 70,381
- ----------------------------------------------------------------------------
Total Current Liabilities 181,501 185,192
- ----------------------------------------------------------------------------
Long-Term Debt 853,134 728,282
Deferred Income Taxes 210,827 171,306
Other Long-Term Liabilities 34,739 49,130
- ----------------------------------------------------------------------------
Total Long-Term Liabilities 1,098,700 948,718
- ----------------------------------------------------------------------------
Preferred Stock, $0.10 par value; 50,000,000
shares authorized, none issued and outstanding - -
Common Stock, $0.01 par value; 150,000,000 shares
authorized, 104,335,127 shares issued and
100,551,127 shares outstanding at September 30,
1998, and 103,700,638 shares issued and
99,916,638 shares outstanding at December 31, 1997 1,043 1,037
Less Common Stock in Treasury, at cost;
3,784,000 shares at September 30, 1998 and
December 31, 1997 (144,297) (144,297)
Additional Paid-in Capital 1,525,295 1,509,110
Retained Earnings 486,447 255,328
- ----------------------------------------------------------------------------
Total Stockholders' Equity 1,868,488 1,621,178
- ----------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $3,148,689 $2,755,088
============================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1998 1997
---------- --------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 240,150 $ 94,744
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 85,478 76,246
Deferred income taxes 39,972 4,886
Equity in earnings of joint ventures (8,240) (8,133)
Gain on disposal of assets (16,725) (295)
Deferred income, net (6,908) 12,572
Deferred expenses, net 3,405 (14,375)
Other, net 5,522 (10,867)
Changes in operating assets and liabilities,
net of effects from divestiture
Accounts receivable (47,243) (28,517)
Accounts payable (21,195) 11,013
Income taxes receivable/payable, net 30,101 (5,091)
Other current assets (12,725) (7,485)
Other current liabilities (4,166) (3,428)
- -------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 287,426 121,270
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (458,012) (307,243)
Proceeds from disposal of assets 13,316 891
Distributions from (Investments in) joint ventures, net 4,359 (419)
Divestitures of non-core drilling services activities and assets 10,000 105,584
Cash balances of activities divested - (6,109)
Other (529) (1,587)
- -------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (430,866) (208,883)
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) on revolving credit facility 129,700 (88,761)
Exercise of stock options 6,678 7,101
Dividends paid (9,030) (9,124)
Repayment of notes payable (4,616) -
Proceeds of public debt offering, net - 299,209
Proceeds from project financing agreement - 188,428
Repayments on term loan facility - (193,250)
Financing costs - (5,210)
Treasury shares purchased - (96,308)
Sale of note receivable - 11,000
Other, net (2,836) 973
- -------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 119,896 114,058
- -------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (23,544) 26,445
- -------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Period 54,225 24,154
- -------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 30,681 $ 50,599
=================================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL
BASIS OF CONSOLIDATION - The accompanying condensed consolidated financial
statements of Transocean Offshore Inc. and its consolidated subsidiaries (the
"Company") have been prepared without audit in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and
Exchange Commission. Accordingly, pursuant to such rules and regulations, these
financial statements do not include all disclosures required by generally
accepted accounting principles for complete financial statements. Operating
results for the three and nine month periods ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. In connection with the preparation of these financial
statements, management was required to make estimates and assumptions that
affect the reported amount of assets, liabilities, revenues, expenses and
disclosure of contingent liabilities. Actual results could differ from such
estimates. The accompanying condensed consolidated financial statements and
notes thereto should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
EARNINGS PER SHARE - In 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
per Share. SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is
similar to fully diluted earnings per share which was previously not required to
be reported if the effect of the dilution was less than three percent. Earnings
per share amounts for all periods have been presented, and where appropriate,
restated to conform to the SFAS No. 128 requirements.
STOCK SPLIT - In August 1997, the Board of Directors declared a two-for-one
stock split to be effected in the form of a 100 percent stock dividend. The
dividend was paid September 19, 1997 to stockholders of record on September 5,
1997. All references in the financial statements to number of shares and per
share amounts have been retroactively restated to reflect the increased number
of shares of common stock issued and outstanding as a result of the dividend.
SUPPLEMENTARY CASH FLOW INFORMATION - Cash payments for interest and income
taxes, net were $36.8 million and $31.5 million, respectively, for the nine
months ended September 30, 1998 and $18.7 million and $44.5 million,
respectively, for the nine months ended September 30, 1997.
GOODWILL - Goodwill is amortized on a straight-line basis over 40 years.
Accumulated amortization as of September 30, 1998 and December 31, 1997 totaled
$38.2 million, and $24.8 million, respectively.
CAPITALIZED INTEREST - Interest costs for construction and upgrade of qualifying
assets are capitalized. The Company capitalized interest costs on construction
work in progress of $10.0 million and $25.0 million for the three and nine
months ended September 30, 1998 and $5.2 million and $12.9 million in the
corresponding periods of 1997.
RECLASSIFICATIONS - Certain reclassifications have been made to prior period
amounts to conform with the current period's presentation.
5
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
INTERIM FINANCIAL INFORMATION - The financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results for the interim periods. Such adjustments are considered to be of a
normal recurring nature unless otherwise identified.
NEW ACCOUNTING PRONOUNCEMENTS - In February 1998, the FASB issued SFAS No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits. This
Statement revises employers' disclosures about pension and other postretirement
benefit plans in annual financial statements. SFAS No. 132 is effective for
fiscal years beginning after December 15, 1997. The Company adopted this
standard in the first quarter of 1998.
In March 1998, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use. This statement provides guidance on accounting
for the costs of software developed or obtained for internal use. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998. The Company will
adopt this standard in the first quarter of 1999. Its adoption is not expected
to have a material effect on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in fiscal
years beginning after June 15, 1999. Because of the Company's limited use of
derivatives to manage its exposure to fluctuations in foreign exchange rates and
interest rates, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.
NOTE 2 - UPGRADE AND EXPANSION OF DRILLING FLEET
The Company made capital additions of $458.0 million during the nine months
ending September 30, 1998, primarily relating to its previously announced fleet
additions and upgrades. During the nine months ending September 30, 1998, the
Company spent $94.1 million on the conversion of the Transocean Marianas, $109.4
million on the construction of the deepwater drillship Discoverer Enterprise,
and $95.1 million and $96.5 million on the construction of the deepwater
drillships to be named "Discoverer Spirit" and "Discoverer Deep Seas",
respectively. The Company spent approximately $41.6 million during the nine
months ended September 30, 1998 for upgrades and improvements on its operating
fleet of offshore rigs.
6
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - DEBT
Debt is comprised of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(In thousands)
<S> <C> <C>
Revolving Credit Facility $336,100 $206,400
Project Financing Agreement 196,210 196,210
8.00% Debentures, net of discount 199,236 199,216
7.45% Notes 100,000 100,000
6.90% Notes Payable 25,384 30,000
Other 1,002 1,268
- -------------------------------------------------------------------
Total Debt 857,932 733,094
Less Current Maturities 4,798 4,812
- -------------------------------------------------------------------
Total Long-Term Debt $853,134 $728,282
===================================================================
</TABLE>
CREDIT AGREEMENT - In connection with the 1996 combination with Transocean ASA,
the Company entered into a secured credit agreement dated as of July 30, 1996
with a group of banks led by ABN AMRO Bank, N.V. (the "Credit Agreement"). The
Credit Agreement, as subsequently amended, provides for unsecured borrowing by
the Company under a revolving credit facility in the amount of $540 million (the
"Revolving Credit Facility"). Loans under the Credit Agreement bear interest,
at the option of the Company, at a base rate or LIBOR plus a margin (0.25
percent at September 30, 1998) that varies depending on the Company's funded
debt to total capital ratio or its public senior unsecured debt rating.
In May 1998, the Credit Agreement was amended to remove certain restrictions
that affected borrowing capability, allow for additional indebtedness subject to
financial covenants, and enable the Company to grant liens on new assets to
secure additional indebtedness.
PROJECT FINANCING AGREEMENT - In connection with the on-going construction of
the Discoverer Enterprise and the completed upgrade of the Transocean Amirante,
the Company's wholly owned subsidiary, Transocean Enterprise Inc. (the
"Borrower"), obtained a project financing agreement effective December 27, 1996
from a group of banks led by ABN AMRO Bank, N.V., as agent (the "Project
Financing Agreement"). Approximately $338.7 million is available for drawdowns
during the construction period and is available in two tranches. The first
tranche of $66.0 million is to be repaid upon completion of construction and
acceptance of the two rigs by Amoco Exploration and Production Company
("Amoco"), which is contracting the rigs for a period of up to five years
following completion. It bears an interest rate of LIBOR plus a margin of 0.35
percent. The Company expects to lend Transocean Enterprise Inc. the necessary
funds to repay the $66.0 million through borrowing under the Revolving Credit
Facility. The second tranche of up to $272.7 million (of which $130.2 million in
borrowings were outstanding as of September 30, 1998) bears an interest rate of
LIBOR plus 0.85 percent during the construction period and is convertible to
term financing upon completion of construction and acceptance of the two rigs by
Amoco. The term financing, which is to be repaid out of cash flows from the two
drilling units, matures over a period of five years. The Company expects the
term financing to consist of borrowings under a lease securitization facility
provided by the agent at a floating interest rate (which has been converted to a
fixed rate by the interest rate swap transactions described below) plus a margin
of 0.28 percent for amounts fully amortized by cash flows from the Amoco
contracts and a margin of 0.58 percent for remaining amounts, if any.
7
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Project Financing Agreement requires acceptance of the two drilling units by
Amoco, repayment of the first tranche and conversion of the second tranche to
term financing no later than December 31, 1998. Due to construction delays, the
Discoverer Enterprise is not expected to be completed until late in the first
quarter of 1999, and could be delayed into the second quarter of 1999. The
Transocean Amirante was accepted by Amoco and commenced operations in July 1997.
The Borrower currently is in the process of amending the Project Financing
Agreement to accommodate these construction delays.
During the third quarter of 1998, Transocean Enterprise Inc. amended the terms
of its two interest rate swap transactions, which effectively lock in a fixed
interest rate for the term financing under the Project Financing Agreement, to
adjust the payment schedule for the anticipated construction delays. In
connection with the amendment, the fixed rate Transocean Enterprise Inc. will
pay increased from an average of 6.4 percent to 6.545 percent. The variable
interest rates Transocean Enterprise Inc. will receive in the swap transactions
has decreased from an average of 5.7 percent as of December 31, 1997 to 5.2
percent as of September 30, 1998. The net unrealized loss on the interest rate
swaps is $11.1 million as of September 30, 1998.
NOTE 4 - TERMINATION OF CASH FLOW SHARING AGREEMENT
The Company and Global Marine Inc. ("Global Marine") were parties to an
agreement pursuant to which the Company participated in the cash flow from three
jackup drilling rigs owned and operated by Global Marine and Global Marine
participated in the cash flow from one of the Company's jackup drilling rigs,
the Transocean Nordic. During April 1997, Global Marine initiated arbitration
proceedings against the Company in the United Kingdom with respect to various
disputed matters under the agreement. In March 1998, the Company reached an
agreement with Global Marine that terminated the cash flow sharing agreement,
effective February 1, 1998, with certain continuing rights if any of the rigs
are sold within three years, and settled all disputed matters. Under the terms
of this agreement, the Company received $29.8 million in cash in settlement of
outstanding accounts receivable and to terminate the cash flow sharing
agreement, resulting in an after tax gain of $13.8 million, or $0.14 per share,
diluted.
8
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - EARNINGS PER SHARE
The reconciliation of the numerator and denominator used for the computation of
basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1998 1997 1998 1997
-------- -------- --------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net Income for basic
and diluted earnings per share $ 92,929 $ 39,119 $240,150 $ 94,744
================================================================================================
Weighted-average shares
for basic earnings per share 100,283 101,280 100,015 101,545
Effect of dilutive securities
Employee stock options and unvested stock grants 586 1,527 846 1,503
- ------------------------------------------------------------------------------------------------
Adjusted weighted-average shares and assumed
conversions for diluted earnings per share 100,869 102,807 100,861 103,048
================================================================================================
Basic earnings per share $ 0.93 $ 0.39 $ 2.40 $ 0.93
================================================================================================
Diluted earnings per share $ 0.92 $ 0.38 $ 2.38 $ 0.92
================================================================================================
</TABLE>
NOTE 6 - BUSINESS DIVESTITURES
In August 1998, the Company sold certain non-core assets within its drilling
services line of business to a subsidiary of Dailey International Inc. for $10.0
million in cash, resulting in a pre-tax gain of approximately $8.2 million ($5.3
million after tax or $0.05 per share, diluted).
In May 1997, the Company divested certain non-core activities and associated
assets within its drilling services line of business originally acquired in the
1996 combination with Transocean ASA by selling the shares of a new corporate
entity, Procon Offshore ASA, to investors in Norway. The divestiture had no
material effect on the financial results of the Company. The net proceeds from
the sale were approximately $105.6 million, goodwill was reduced by
approximately $68.7 million and no gain or loss was recognized on the sale.
9
<PAGE>
ITEM 2. 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 the Company's consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
OVERVIEW
Transocean Offshore Inc. is a leading international provider of deepwater and
harsh-environment contract drilling services for oil and gas wells. The Company
currently owns, has ownership interests in or operates 31 mobile offshore
drilling rigs (including one unit not yet in service). Transocean's fleet
consists of seven fourth-generation semisubmersibles, fourteen second- and
third-generation semisubmersibles, four drillships and six jackup rigs. In
addition, the Company has under construction two new technologically advanced,
ultra-deepwater drillships. The Company contracts these drilling rigs, related
equipment and work crews primarily on a dayrate basis to drill offshore wells.
The Company also provides additional drilling services, including turnkey
drilling, coiled tubing drilling and well engineering and planning.
In September 1997, the Company effected a two-for-one split of its common stock
in the form of a 100 percent stock dividend. All references in this report to
number of shares and per share amounts have been retroactively restated to
reflect the increased number of shares of common stock issued and outstanding as
a result of the dividend.
10
<PAGE>
OPERATING RESULTS
Comparative data relating to the Company's operating revenues and operating
income by segment and geographic area follows. In the table and related
discussion below, the "Mobile Units" segment consists of the results of
operations for drilling rigs contracted to customers primarily on a dayrate
basis. The "Drilling Services" segment includes results of all other drilling
services provided by the Company, including turnkey operations. Certain
reclassifications have been made to prior period amounts to conform with the
current period's presentation.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES (a)
Mobile Units
U.S. Gulf of Mexico $ 77,075 $ 61,106 $208,938 $147,083
North Sea and Europe 115,905 86,757 339,012 254,548
Other Western Hemisphere 42,694 2,844 108,787 12,549
Other Eastern Hemisphere 16,958 21,514 48,224 59,493
- ---------------------------------------------------------------------------------
252,632 172,221 704,961 473,673
- ---------------------------------------------------------------------------------
Drilling Services 16,370 50,980 73,931 177,237
- ---------------------------------------------------------------------------------
Total Revenues $269,002 $223,201 $778,892 $650,910
=================================================================================
OPERATING INCOME (LOSS) (b)
Mobile Units
U.S. Gulf of Mexico $ 48,871 $ 36,479 $127,782 $ 85,560
North Sea and Europe 43,108 21,832 119,274 46,280
Other Western Hemisphere 25,050 638 63,011 4,053
Other Eastern Hemisphere 10,705 10,091 26,451 28,345
Other (3,531) (3,045) (9,105) (8,322)
- ---------------------------------------------------------------------------------
124,203 65,995 327,413 155,916
- ---------------------------------------------------------------------------------
Drilling Services 2,632 1,492 7,272 11,050
Corporate Expenses (6,544) (6,548) (21,873) (19,338)
- ---------------------------------------------------------------------------------
Operating Income $120,291 $ 60,939 $312,812 $147,628
=================================================================================
</TABLE>
(a) Intersegment eliminations are not material.
(b) Amounts shown are after applicable depreciation and amortization.
11
<PAGE>
QUARTER ENDED SEPTEMBER 30, 1998, COMPARED TO QUARTER ENDED SEPTEMBER 30, 1997
Net income for the quarter ended September 30, 1998 was $92.9 million or $0.92
per share, diluted, compared to $39.1 million or $0.38 per share, diluted, for
the third quarter of 1997, an increase of $53.8 million or $0.54 per share,
diluted. The increase for 1998 resulted primarily from increases in dayrates
and rig utilization and lower operating and maintenance costs. In August 1998,
the Company also recognized a non-recurring $13.2 million pre-tax gain ($8.5
million after tax or $0.08 per share, diluted) on the sale of certain non-core
assets within the Company's Drilling Services business segment and surplus
drilling components.
Revenues were $269.0 million for the quarter ended September 30, 1998, compared
to $223.2 million for the prior year quarter, an increase of $45.8 million or 21
percent. Operating income was $120.3 million in the third quarter of 1998
compared to $60.9 million in the third quarter of 1997, an increase of $59.4
million or 98 percent.
Revenues and operating income from Mobile Units increased significantly in the
third quarter of 1998, compared to the prior year quarter. Rig utilization
increased to 98 percent in the third quarter of 1998 from 91 percent in the
third quarter of 1997, reflecting reduced downtime for rig repairs and upgrades.
The average dayrate for the Company's semisubmersible drilling rigs and
drillships was approximately $124,800 in the third quarter of 1998, compared to
approximately $96,700 in the third quarter of 1997, an increase of 29 percent.
The Company's jackup drilling rigs experienced a similar percentage increase in
average dayrates.
In the U.S. Gulf of Mexico, the increase in revenues and operating income
resulted primarily from higher average dayrates and the results of two
additional rigs that were in the shipyard undergoing upgrades in the prior year
quarter. These increases were offset by the relocation of a rig to Trinidad
during the second quarter of 1998. In the North Sea and Europe, increases
resulted from higher average dayrates and lower downtime for repairs and marine
surveys compared to the prior period. In addition, the prior year period
included the impact of a work stoppage in September 1997 by offshore workers,
which affected three rigs operating in Norway. Operating results in Other
Western Hemisphere significantly increased in the current quarter due to higher
average dayrates, the relocation of two rigs from the U.S. Gulf of Mexico,
including one that was in the shipyard during the prior year quarter, the
relocation of one rig that had operated in Other Eastern Hemisphere in 1997, and
the inclusion of results from one rig that had operated in an unconsolidated
joint venture in the prior year. Other Eastern Hemisphere experienced a
decrease in revenues from 1997 as a result of the relocation of a rig to Other
Western Hemisphere in the first quarter of 1998. This decrease was partially
offset by increases in rig utilization and average dayrates for the current
period.
Revenues from Drilling Services decreased and operating income increased
slightly in the third quarter of 1998, compared to the prior year quarter. The
decrease in revenue primarily reflects the completion of one turnkey well
offshore Mexico and one turnkey well in the Gulf of Mexico during the third
quarter 1997 while the current year period does not include any turnkey well
completions.
Depreciation and amortization expense increased by $3.3 million in the three
month period ending September 30, 1998 over the same period in 1997. The
increase was due primarily to additional depreciation resulting from the
capitalization of property and equipment associated with the Company's major
upgrade and construction projects.
Other income increased to $11.5 million in the three month period ending
September 30, 1998, compared to other expense of $3.0 million in the prior year.
In the current quarter, the Company recognized a $13.2
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<PAGE>
million pre-tax gain on the sale of certain non-core assets within its Drilling
Services business segment and surplus drilling equipment.
Income tax expense increased by $20.0 million due primarily to higher pre-tax
earnings in the third quarter of 1998 over the same period in 1997. The
Company's effective tax rate was lower in the third quarter of 1998 compared to
the same period in 1997 due to an increase in the permanent reinvestment of
earnings of certain foreign subsidiaries.
NINE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Net income for the nine months ended September 30, 1998 was $240.2 million or
$2.38 per share, diluted, compared to $94.7 million or $0.92 per share, diluted,
for the first nine months of 1997, an increase of $145.5 million or $ 1.46 per
share, diluted. The increase for 1998 resulted primarily from increases in
dayrates and rig utilization and lower operating and maintenance costs,
partially offset by an increase in depreciation and amortization expense. The
Company also recognized a one-time $21.3 million pre-tax gain ($13.8 million
after tax or $0.14 per share, diluted) on the termination of a cash flow sharing
agreement with Global Marine Inc. ("Global Marine") and a non-recurring $13.2
million pre-tax gain ($8.5 million after tax or $0.08 per share, diluted) on the
sale of certain non-core assets within the Company's Drilling Services business
segment and surplus drilling components in the current period.
Revenues were $778.9 million for the nine months ended September 30, 1998,
compared to $650.9 million for the first nine months of 1997, an increase of
$128.0 million or 20 percent. Operating income was $312.8 million in 1998
compared to $147.6 million in 1997, an increase of $165.2 million or 112
percent.
Revenues and operating income from Mobile Units increased significantly for the
nine months ended September 30, 1998, compared to the first nine months of 1997.
Rig utilization increased to 98 percent in 1998 from 91 percent in the first
nine months of 1997, reflecting reduced downtime for rig repairs and upgrades.
The average dayrate for the Company's semisubmersible drilling rigs and
drillships was approximately $118,200 in 1998, compared to approximately $91,900
in the first nine months of 1997, an increase of 29 percent. The Company's
jackup drilling rigs experienced a similar percentage increase in average
dayrates.
In the U.S. Gulf of Mexico, the increase in revenues and operating income for
the nine months ended September 30, 1998 resulted primarily from higher average
dayrates and the results of three additional rigs that were in the shipyard
undergoing upgrades for a significant portion of the prior year period. These
increases were offset by the relocation of a rig to Trinidad during the current
year. In the North Sea and Europe, increases resulted from higher average
dayrates and lower downtime for repairs and marine surveys over the prior
period. Operating results in Other Western Hemisphere significantly increased
in the current year due to higher average dayrates, the relocation of two rigs
from the U.S. Gulf of Mexico for a portion of the current period, including one
that was in the shipyard during 1997, the relocation of one rig that had
operated in Other Eastern Hemisphere in 1997, and the inclusion of results from
one rig that had operated in an unconsolidated joint venture in the prior year.
Other Eastern Hemisphere experienced a decrease in operating results from 1997
primarily due to the relocation of a rig to Other Western Hemisphere in the
first quarter of 1998. This decrease was partially offset by increases in rig
utilization and average dayrates for the current period.
Revenues and operating income from Drilling Services decreased for the nine
month period ending September 30, 1998, compared to the same period in 1997.
This decrease primarily reflects the May 1997 divestiture of certain non-core
activities and assets originally acquired in the 1996 combination with
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<PAGE>
Transocean ASA and the cessation of turnkey drilling services in the U.S. Gulf
of Mexico in the first quarter of 1998.
Depreciation and amortization expense increased by $9.2 million in the nine
month period ending September 30, 1998 over the same period in 1997. The
increase was due primarily to additional depreciation resulting from the
capitalization of property and equipment associated with the Company's major
upgrade and construction projects.
Corporate expenses increased $2.6 million, from $19.3 million in the first nine
months of 1997 to $21.9 million in the current period, reflecting the increased
activities of the Company. The previously announced fleet expansion projects
require expanded recruiting and training activities for drilling crews. The
Company also continues to upgrade and expand its communication and data
processing systems to more effectively manage its geographically diversified
operations.
Other income increased to $27.8 million in the nine month period ending
September 30, 1998, compared to other expense of $8.7 million in the prior year.
In 1998, the Company recognized $34.5 million in pre-tax gains on the
termination of a cash flow sharing agreement with Global Marine and the sale of
certain non-core assets within its Drilling Services business segment and
surplus drilling equipment.
Income tax expense increased by $56.3 million due primarily to higher pre-tax
earnings in the nine month period ending September 30, 1998, compared to the
prior period. The Company's effective tax rate was lower in the nine months
ending September 30, 1998 compared to the same period in 1997 due to an increase
in the permanent reinvestment of earnings of certain foreign subsidiaries.
MARKET OUTLOOK
Fleet utilization continued at high levels in the third quarter of 1998 with a
rate of 98% fleetwide and 99% for the Company's 20 fully owned and active
floating drilling units. Average dayrates also continued to improve from the
second quarter, up approximately 6% fleetwide and up 7% for the Company's
floaters, due primarily to several rigs rolling over to higher contract rates
and to the Transocean Marianas commencing operations during the third quarter.
The backlog of contracts in place for the Company's 20 fully owned and active
floaters, averaging 24 months, should enable the Company to maintain similar
utilization and average dayrate levels for these units through the first half of
1999. However, the period of lower oil prices that began in the latter part of
1997 has continued and has resulted in a weakening in the market for offshore
drilling rigs generally, as oil companies have adjusted exploration and
development spending plans to reflect the lower prices and correspondingly
reduced cash flow levels. This weakening has been most pronounced in the market
for jackups and less capable floaters, but has also begun to have an impact on
the market for deepwater and high-specification floaters. Dayrates for these
units have begun to decrease from peak levels experienced in recent quarters.
The Company anticipates that contracts being negotiated in the near-term for
units becoming available through 1999 will be adversely affected by this market
weakness.
Historically, the contract drilling market has been highly competitive and
cyclical and affected significantly by prevailing oil and gas prices. As a
result, the Company cannot predict the extent to which current market conditions
will continue. Although the continued weakness in oil prices has not materially
affected the dayrates and utilization of the Company's rigs as of the date of
this quarterly report, to the extent that low oil prices continue to reduce
demand for contract drilling services, the Company anticipates that utilization
and dayrates for its fleet would be adversely affected.
A number of drilling contractors are upgrading existing rigs or constructing new
rigs that will be capable of competing with the Company's deepwater and harsh-
environment rigs. Although most of these rigs are being
14
<PAGE>
built pursuant to long-term contract commitments, there can be no assurance
that, upon the expiration of such contracts and the contracts for the Company's
rigs, the then-current market conditions will be favorable. Historically,
drilling contractors have tended to overbuild drilling units in response to
increased demand, and small changes in the supply and demand balance could lead
to increased volatility in dayrates.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH
Cash flows provided by operations were $287.4 million for the nine months ended
September 30, 1998, compared to $121.3 million for the nine months ended
September 30, 1997, an increase of $166.1 million. The increase in cash
provided by operations was due primarily to higher cash flows from net income in
the nine months ending September 30, 1998 compared to the 1997 period, partially
offset by a decrease due to changes in working capital components.
Cash flows used in investing activities increased $222.0 million from $208.9
million in the nine months ended September 30, 1997 to $430.9 million in the
current period. The increase in cash used in investing activities resulted
primarily from an increase in capital expenditures relating to rig construction
and upgrade projects partially offset by proceeds from disposal of assets. In
addition, in the nine months ended September 30, 1997, the Company received
proceeds from the divestiture of certain non-core drilling services activities
and assets.
Cash flows provided by financing activities increased $5.8 million from $114.1
million in the nine months ended September 30, 1997 to $119.9 million in the
current year period. During 1998, the Company increased its net borrowings
under its revolving credit facility. In the nine months ended September 30,
1997, the Company received proceeds from the sale of a note receivable, the
issuance of public debt, and borrowings under its project financing facility.
These proceeds were partially offset by the repurchase of Company common stock
and net repayments of amounts outstanding under its Credit Agreement referred to
below.
CAPITAL EXPENDITURES
The Company's investments in its existing fleet and previously announced fleet
additions continue to require significant capital expenditures. Capital
expenditures totaled $458 million during the nine months ending September 30,
1998 and are expected to be approximately $190 million during the remainder of
the year, including amounts that will be spent on the construction of the
deepwater drillships to be named "Discoverer Spirit" and "Discoverer Deep Seas".
15
<PAGE>
The following table summarizes actual and projected expenditures (including
capitalized interest) for the Company's major construction and conversion
projects.
<TABLE>
<CAPTION>
Transocean Discoverer Discoverer Discoverer
Expenditures in millions Marianas Enterprise Spirit Deep Seas
- ------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cumulative at December 31, 1997 $174 $148 $ - $ -
Actual for the nine months ended
September 30, 1998 94 109 95 97
- -------------------------------------------------------------------------------------------------
Cumulative at September 30, 1998 268 258 95 97
Projected - quarter ended December 31, 1998 20 55 50 30
Projected - 1999 through completion - 45 175 195
- -------------------------------------------------------------------------------------------------
Projected Total Costs $288 $358 $320 $322
=================================================================================================
</TABLE>
The amounts shown for the Discoverer Enterprise include certain costs not
expected to be incurred in connection with the construction of the Discoverer
Spirit and Discoverer Deep Seas, including: engineering design costs that will
not be repeated because the Discoverer Spirit and Discoverer Deep Seas are the
same design as the Discoverer Enterprise; lifting and other construction costs
that will be contracted on a lump sum basis rather than time and materials; and
incremental capitalized interest and administrative costs attributable to
project delays, some of which are due to weather and other factors beyond the
control of the Company. The Discoverer Enterprise is expected to be completed
late in the first quarter of 1999, but could be delayed into the second quarter
of 1999.
As with any major construction project that takes place over an extended period
of time, the actual costs, the timing of expenditures, and the project
completion date may vary from estimates based on numerous factors, including
finalization of the design, actual terms of awarded contracts, weather, exchange
rates, and the market demand for components and resources required for drilling
unit construction. The Company intends to fund the cash requirements relating
to these capital commitments through available cash balances, borrowings under
the Credit Agreement referred to below and other commercial bank or capital
market financings, including potential public offerings under the Company's
shelf registration statement (discussed below) and, in the case of the
Discoverer Enterprise, financing under the Project Financing Agreement referred
to below.
ACQUISITIONS
The Company regularly reviews possible acquisitions of businesses and drilling
units, and may from time to time in the future make significant capital
commitments for such purposes. Any such acquisition could involve the payment
by the Company of a substantial amount of cash and the issuance of a substantial
number of shares of common stock. The Company would expect to fund the cash
portion of any such acquisition through cash balances on hand, the incurrence of
additional debt, sales of assets or common stock, or a combination thereof.
TERMINATION OF CASH FLOW SHARING AGREEMENT
The Company and Global Marine Inc. ("Global Marine") were parties to an
agreement pursuant to which the Company participated in the cash flow from three
jackup drilling rigs owned and operated by Global Marine and Global Marine
participated in the cash flow from one of the Company's jackup drilling rigs,
the Transocean Nordic. In April 1997, Global Marine initiated arbitration
proceedings against the Company in the United Kingdom with respect to various
disputed matters under the agreement. In March 1998, the Company reached an
agreement with Global Marine that terminated the cash flow sharing agreement,
16
<PAGE>
effective February 1, 1998, with certain continuing rights if any of the rigs
are sold within three years, and settled all disputed matters. Under the terms
of this agreement, the Company received $29.8 million in cash in settlement of
outstanding accounts receivable and to terminate the cash flow sharing
agreement, resulting in an after tax gain of $13.8 million, or $0.14 per share,
diluted. The net proceeds were used to repay debt.
ASSET DIVESTITURES
In August 1998, the Company sold certain non-core assets within its Drilling
Services business segment to a subsidiary of Dailey International Inc. for $10.0
million in cash, resulting in a pre-tax gain of approximately $8.2 million ($5.3
million after tax or $0.05 per share, diluted). In addition, the Company sold
surplus drilling components for $6.6 million in proceeds, resulting in a non-
recurring pre-tax gain of approximately $5.0 million ($3.3 million after tax or
$0.03 per share, diluted). The net proceeds were used to repay debt.
AUTHORIZED STOCK REPURCHASE
In May 1997, the Company's Board of Directors authorized the repurchase of up to
$200 million worth of shares of the Company's common stock from time to time on
the open market or in privately negotiated transactions. After purchases made
during 1997, approximately $105 million remains available under this authority.
The Board of Directors regularly reviews the possibility of repurchasing common
stock in light of prevailing stock prices and the financial position of the
Company.
DEBT
CREDIT AGREEMENT - In connection with the 1996 combination with Transocean ASA,
the Company entered into a secured credit agreement dated as of July 30, 1996
with a group of banks led by ABN AMRO Bank, N.V. (the "Credit Agreement"). The
Credit Agreement, as subsequently amended, provides for borrowing by the Company
under a revolving credit facility in the amount of $540 million (the "Revolving
Credit Facility"). Loans under the Credit Agreement bear interest, at the
option of the Company, at a base rate or LIBOR plus a margin (0.25 percent at
September 30, 1998) that varies depending on the Company's funded debt to total
capital ratio or its public senior unsecured debt rating. The Credit Agreement
requires compliance with various restrictive covenants, including an interest
coverage ratio, which could limit the Company's ability to pay dividends in the
future. The Credit Agreement has a maturity date of July 2002. As of September
30, 1998, $336.1 million in borrowings were outstanding under the Credit
Agreement.
PROJECT FINANCING AGREEMENT - In connection with the on-going construction of
the Discoverer Enterprise and the completed upgrade of the Transocean Amirante,
the Company's wholly owned subsidiary, Transocean Enterprise Inc. (the
"Borrower"), obtained a project financing agreement effective December 27, 1996
from a group of banks led by ABN AMRO Bank, N.V., as agent (the "Project
Financing Agreement"). Approximately $338.7 million is available for drawdowns
during the construction period and is available in two tranches. The first
tranche of $66.0 million is to be repaid upon completion of construction and
acceptance of the two rigs by Amoco Exploration and Production Company
("Amoco"), which is contracting the rigs for a period of up to five years
following completion. It bears an interest rate of LIBOR plus a margin of 0.35
percent. The Company expects to lend Transocean Enterprise Inc. the necessary
funds to repay the $66.0 million through borrowing under the Revolving Credit
Facility. The second tranche of up to $272.7 million (of which $130.2 million in
borrowings were outstanding as of September 30, 1998) bears an interest rate of
LIBOR plus 0.85 percent during the construction period and is convertible to
term financing upon completion of construction and acceptance of the two rigs by
Amoco. The term financing, which is to be repaid out of cash flows from the two
drilling units, matures over a period of five years. The Company expects the
term financing to consist of borrowings under a lease securitization facility
provided by the agent at a floating interest rate (which has been converted to a
fixed rate by the interest rate swap transactions
17
<PAGE>
described below) plus a margin of 0.28 percent for amounts fully amortized by
cash flows from the Amoco contracts and a margin of 0.58 percent for remaining
amounts, if any. As of September 30, 1998, $196.2 million in borrowings were
outstanding under the Project Financing Agreement.
The Project Financing Agreement requires acceptance of the two drilling units by
Amoco, repayment of the first tranche and conversion of the second tranche to
term financing no later than December 31, 1998. Due to construction delays, the
Discoverer Enterprise is not expected to be completed until late in the first
quarter of 1999, and could be delayed into the second quarter of 1999. The
Transocean Amirante was accepted by Amoco and commenced operations in July 1997.
The Borrower currently is in the process of amending the Project Financing
Agreement to accommodate these construction delays.
During the third quarter of 1998, Transocean Enterprise Inc. amended the terms
of its two interest rate swap transactions, which effectively lock in a fixed
interest rate for the term financing under the Project Financing Agreement, to
adjust the payment schedule for the anticipated construction delays. In
connection with the amendment, the fixed rate Transocean Enterprise Inc. will
pay increased from an average of 6.4 percent to 6.545 percent. The variable
interest rates Transocean Enterprise Inc. will receive in the swap transactions
has decreased from an average of 5.7 percent as of December 31, 1997 to 5.2
percent as of September 30, 1998. The net unrealized loss on the interest rate
swaps is $11.1 million as of September 30, 1998.
LETTERS OF CREDIT
The Company had letters of credit outstanding at September 30, 1998 totaling
$35.8 million, including $28.2 million relating to a legal dispute with Kvaerner
Installasjon a.s (see Part II. Item 1. Legal Proceedings). The remaining $7.6
million guarantees various insurance and contract bidding activities.
SHELF REGISTRATION
In July 1998, the Company filed with the Securities and Exchange Commission
(the "SEC") a $450 million shelf registration statement on Form S-3 for the
proposed offering from time to time of senior or subordinated debt securities,
preferred stock, common stock and warrants to purchase debt securities,
preferred stock, common stock or other securities. The registration statement
was declared effective by the SEC on July 20, 1998. The new registration
statement effectively amends and carries forward the unused portion of the
Company's prior registration statement on Form S-3 without registering any
additional amount of securities.
DERIVATIVE INSTRUMENTS
The Company enters into a variety of derivative financial instruments in
connection with the management of its exposure to fluctuations in foreign
exchange rates and interest rates. The Company does not enter into derivative
transactions for speculative purposes; however, for accounting purposes certain
transactions may not meet the criteria for hedge accounting.
Gains and losses on foreign exchange derivative instruments, which qualify as
accounting hedges, are deferred and recognized when the underlying foreign
exchange exposure is realized. Gains and losses on foreign exchange derivative
instruments, which do not qualify as hedges for accounting purposes, are
recognized currently based on the change in market value of the derivative
instruments. At September 30, 1998, the Company did not have any foreign
exchange derivative instruments not qualifying as hedges. The Company
recognized a net pre-tax loss of $1.5 million on such instruments for the nine
months ended September 30, 1997.
18
<PAGE>
The Company uses interest rate swap agreements to effectively convert a portion
of its floating rate debt to a fixed rate basis, reducing the impact of interest
rate changes on future income. Interest rate swaps are designated as a hedge of
underlying future interest payments. The interest rate differential to be
received or paid on the swaps is recognized over the lives of the swaps as an
adjustment to interest expense. At September 30, 1998, the net unrealized loss
on open interest rate swaps was $11.1 million. (See "--Liquidity and Capital
Resources--Debt--Project Financing Agreement".)
SOURCES OF LIQUIDITY
The Company believes that its cash and cash equivalents, cash generated from
operations, borrowings available under its Credit Agreement, Project Financing
Agreement 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, upgrade and
conversion projects.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1998, the Financial Accounting Standards Board ("FASB"), issued
Statement of Financial Accounting Standards ("SFAS") No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits. This Statement
revises employers' disclosures about pension and other postretirement benefit
plans in annual financial statements. SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997. The Company adopted this standard in
the first quarter of 1998.
In March 1998, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use. This statement provides guidance on accounting
for the costs of software developed or obtained for internal use and is
effective for fiscal years beginning after December 15, 1998. The Company will
adopt this standard in the first quarter of 1999. Its adoption is not expected
to have a material effect on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in fiscal
years beginning after June 15, 1999. Because of the Company's limited use of
derivatives to manage its exposure to fluctuations in foreign exchange rates and
interest rates, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.
YEAR 2000 ISSUE
The Company has instituted a plan to address the Year 2000 issue for its
computer systems, microprocessors, operational and control systems and other
significant computer-based devices and applications. It is possible that certain
of these systems will not be able to process dates beginning in the year 2000,
as many such systems are based on storing two digits to identify a particular
year rather than a full four digits and are not designed to take into account
the start of a new century. The Company's plan focuses on ensuring Year 2000
compliance in two distinct areas--(1) rig-based operational systems and control
devices and (2) all other business, financial and engineering systems, including
third-party systems that the Company may rely on. The plan is being implemented
under the direction of senior management by the Company's information systems
and technology personnel and operations personnel with appropriate expertise,
with the goal of ensuring compliance of critical systems during the second half
of 1999.
With respect to rig-based systems, the Company has instituted an ongoing
compliance procedure that includes an initial survey followed by analysis,
vendor participation, corrective action, testing and continuous
19
<PAGE>
reappraisal. The Company conducted a survey of computer systems, computer-
controlled equipment, control systems, and electronic devices, including
equipment with embedded microprocessors, onboard each rig to identify those
systems and devices to be reviewed for Year 2000 compliance. The Company has
requested letters of compliance from its third-party vendors and suppliers and,
in addition, is conducting its own tests where possible to verify compliance.
Critical systems and devices identified by the survey that are likely to be
affected by the Year 2000 issue are in the process of being modified or
replaced. A number of these systems and devices had already been identified for
renewal or replacement in connection with the Company's ongoing maintenance
programs. In some cases, systems or equipment may be covered by warranties,
while other vendors are providing software upgrades at minimal costs. The
Company believes its Year 2000 compliance plan has adequately identified and
addressed Year 2000 issues with respect to critical operational and safety
systems and devices. The Company's drilling units are composed of many stand-
alone systems provided by a wide diversity of manufacturers. As such, the
Company believes the risk of a failure that would affect the functionality or
safety of the fleet is minimal, and the Company does not believe that the Year
2000 issue will have a significant effect on the operations of its drilling
units. The Company expects to complete implementation of its compliance plan for
rig-based systems during the second half of 1999.
With respect to business, financial and engineering systems, the Company
surveyed all of its internal systems worldwide and identified those software and
hardware systems determined not to be Year 2000 compliant. Letters of
compliance are being obtained from all vendors of standard systems, and the
Company plans to conduct tests of selected systems to provide an enhanced degree
of confidence for Year 2000 compliance. Replacement or modification of known
non-compliant systems has commenced, and the Company expects to complete this
process during the second half of 1999. In addition to its internal systems, the
Company also relies, directly and indirectly, on the systems of third parties,
such as its banks and investment managers, for the accurate exchange of data and
for financial processing capabilities. The Company is contacting these third
parties to determine what actions may be needed to mitigate its risks relating
to the failure of such third parties to be Year 2000 compliant in a timely
fashion. The effect, if any, on the Company's results of operations arising
from the failure of these third parties to be Year 2000 compliant is not
reasonably estimable at this time.
The Company has spent approximately $0.5 million through September 30, 1998 and
expects additional expenditures to be less than $1 million to complete
implementation of its Year 2000 plan. The Company is in the process of
evaluating where contingency plans may be required in the event of Year 2000
related disruptions. Although the Company's failure to fully implement its Year
2000 compliance plan or the occurrence of an unexpected Year 2000 problem could
result in the disruption of normal business activities or operations and have a
material adverse effect on the Company's results of operations, liquidity or
financial condition, based upon the work performed to date and the anticipated
completion of the plan during the second half of 1999, the Company does not
believe that such matters will have a material adverse effect. With respect to
third parties, however, there can be no assurance that their systems will be
rendered Year 2000 compliant on a timely basis or that any resulting Year 2000
issues would not have an adverse effect on the results of operations of the
Company.
FORWARD-LOOKING INFORMATION
The statements included in this quarterly report regarding future financial
performance and results of operations and other statements that are not
historical facts are 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. Statements to the effect that the Company or management "anticipates,"
"believes," "estimates," "expects," "predicts," or "projects" a particular
result or course of events, or that such result or course of events "may" or
"should" occur, and similar expressions, are also intended to identify forward-
looking statements. Forward-looking statements in this quarterly report
include, but are not limited to, statements
20
<PAGE>
involving expected capital expenditures, the timing of completion of capital
projects, the Company's plans and expectations with regard to Year 2000 issues,
the expected amendment of the Project Financing Agreement and the Company's
expectations with regard to market outlook. Such statements are subject to
numerous risks, uncertainties and assumptions, including but not limited to
uncertainties relating to industry and market conditions, prices of crude oil
and natural gas, exploration success by producers in deepwater and harsh-
environment regions, foreign exchange and currency fluctuations, changes in
existing tax laws, political instability in foreign jurisdictions, construction
delays due to weather and other causes, the labor market for skilled personnel
in the offshore drilling industry, the outcome of annual labor negotiations with
unions representing certain Norwegian offshore workers, the success of the
Company in implementing its Year 2000 compliance plan, the failure of financial
and other service providers to be Year 2000 complaint on a timely basis, and
other factors discussed in this quarterly report and in the Company's other
filings with the Securities and Exchange Commission. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those indicated.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--Debt--Project Financing
Agreement" and "--Liquidity and Capital Resources--Derivative Instruments."
21
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has certain claims pending involving a dispute of work performance
by and amounts owed to the Kvaerner shipyard in Norway and contested tax
assessments by the municipality of Rio de Janeiro, Brazil. These matters have
been previously discussed and reported in the Company's Annual Report on Form
10-K for the year ended December 31, 1997 and Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998. With respect to the Kvaerner dispute, the
Company has now instituted an action in the Norwegian courts alleging that it
owes no additional amounts and that the $28.2 million letter of credit
outstanding should be released. Other than as stated herein, there have been no
material developments in these previously reported matters.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed in connection with this Report:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.1 Employment Agreement dated as of August 12, 1998 between Alan A.
Broussard and Transocean Offshore Inc.
10.2 Deferred Compensation Plan of Transocean Offshore Inc. effective July
1, 1998.
27.1 Financial Data Schedule.
- -------------------
</TABLE>
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ending
September 30, 1998.
22
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on November 12, 1998.
TRANSOCEAN OFFSHORE INC.
By: /s/ Robert L. Long
------------------------------------
Robert L. Long
Senior Vice President
(Principal Financial Officer)
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT by and between Transocean Offshore Inc., a Delaware corporation
(the "Company"), and Alan B. Broussard (the "Executive"), dated as of the 12th
day of August, 1998.
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the Change of
Control Period (as defined in Section 1(b)) on which a Change of
Control (as defined in Section 2) occurs. Anything in this Agreement
to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated prior to the
date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i)
was at the request of a third party who has taken steps reasonably
calculated to effect a Change of Control or (ii) otherwise arose in
connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the
date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and
each annual anniversary thereof shall be hereinafter referred to as
the "Renewal Date"), unless previously terminated, the Change of
Control Period shall be automatically extended so as to terminate
three years
<PAGE>
from such Renewal Date, unless at least 60 days prior to the Renewal
Date the Company shall give notice to the Executive that the Change of
Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(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 shares
of common stock of the Company (the "Outstanding Company Common
Stock") 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 controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that 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;
or
(c) Consummation of a 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 Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common
2
<PAGE>
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 resulting from such Business
Combination (including, without limitation, a corporation 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 Common Stock and Outstanding Company Voting
Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly
or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding
voting securities of such corporation 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 execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive in
its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary
of such date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant
of those held, exercised and assigned at any time during the 120-
day period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Effective Date
or any office or location less than 35 miles from such location.
3
<PAGE>
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company
and, to the extent necessary to discharge the responsibilities
assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period it shall not
be a violation of this Agreement for the Executive to (A) serve
on corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments, so
long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of
the Company in accordance with this Agreement. It is expressly
understood and agreed that, to the extent that any such
activities have been conducted by the Executive prior to the
Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto)
subsequent to the Effective Date shall not thereafter be deemed
to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary"), which shall
be paid at a monthly rate, at least equal to twelve times the
highest monthly base salary paid or payable, including any base
salary which has been earned but deferred, to the Executive by
the Company and its affiliated companies in respect of the
twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the
last salary increase awarded to the Executive prior to the
Effective Date and thereafter at least annually. Any increase in
Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased. As used in this Agreement,
the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the
Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the
4
<PAGE>
Employment Period, an annual bonus (the "Annual Bonus") in cash
at least equal to the Executive's highest bonus under the
Company's Performance Award and Cash Bonus Plan, or any
comparable bonus under any predecessor or successor plan, for the
last three full fiscal years prior to the Effective Date
(annualized in the event that the Executive was not employed by
the Company for the whole of such fiscal year) (the "Recent
Annual Bonus"). Each such Annual Bonus shall be paid no later
than the end of the third month of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and
programs applicable generally to other peer executives of the
Company and its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both
regular and special incentive opportunities, to the extent, if
any, that such distinction is applicable), savings opportunities
and retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as
in effect at any time during the 120-day period immediately
preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its
affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company and
its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with
benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in
effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to
the Executive, those provided generally at any
5
<PAGE>
time after the Effective Date to other peer executives of the
Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company and
its affiliated companies in effect for the Executive at any time
during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without
limitation, tax and financial planning services, payment of club
dues, and, if applicable, use of an automobile and payment of
related expenses, in accordance with the most favorable plans,
practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time
during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive
personal secretarial and other assistance, at least equal to the
most favorable of the foregoing provided to the Executive by the
Company and its affiliated companies at any time during the 120-
day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company
and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall
be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company
and its affiliated companies as in effect for the Executive at
any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
6
<PAGE>
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 12(b) of this
Agreement of its intention to terminate the Executive's employment.
In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by
the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for
180 consecutive business days as a result of incapacity due to mental
or physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to
the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) The willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of
its affiliates (other than any such failure resulting from
incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive
by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not
substantially performed the Executive's duties; or
(ii) The willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without
reasonable belief that the Executive's action or omission was in the
best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chief Executive Officer or a senior
officer of the Company or based upon the
7
<PAGE>
advice of counsel for the Company shall be conclusively presumed to be
done, or omitted to be done, by the Executive in good faith and in the
best interests of the Company. The cessation of employment of the
Executive shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and
held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with
counsel, to be heard before the Board), finding that, in the good
faith opinion of the Board, the Executive is guilty of the conduct
described in subparagraph (i) or (ii) above, and specifying the
particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean:
(i) The assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this
Agreement, or any other action by the Company which results in a
diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) Any failure by the Company to comply with any of the provisions
of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith
and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) The Company's requiring the Executive to be based at any office
or location other than as provided in Section 4(a)(i)(B) hereof
or the Company's requiring the Executive to travel on Company
business to a substantially greater extent than required
immediately prior to the Effective Date;
(iv) Any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this
Agreement; or
(v) Any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
8
<PAGE>
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive. Anything in
this Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the 30-day period immediately
following the first anniversary of the Effective Date shall be deemed
to be a termination for Good Reason for all purposes of this
Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section
12(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date
shall be not more than thirty days after the giving of such notice).
The failure by the Executive or the Company to set forth in the Notice
of Termination any fact or circumstance which contributes to a showing
of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by
the Executive for Good Reason, the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be,
(ii) if the Executive's employment is terminated by the Company other
than for Cause or Disability, the Date of Termination shall be the
date on which the Company notifies the Executive of such termination
and (iii) if the Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of
death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during
the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason:
9
<PAGE>
(i) The Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the higher of (1) the Recent Annual
Bonus and (11) the Annual Bonus paid or payable, including
any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of
less than twelve full months or during which the Executive
was employed for less than twelve full months), for the most
recently completed fiscal year during the Employment Period,
if any (such higher amount being referred to as the "Highest
Annual Bonus") and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365 and
(3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in
clauses (1), (2), and (3) shall be hereinafter referred to
as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum
of (x) the Executive's Annual Base Salary and (y) the
Highest Annual Bonus; and
C. an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's qualified
defined benefit retirement plan (the "Retirement Plan")
(utilizing actuarial assumptions no less favorable to the
Executive than those in effect under the Company's
Supplemental Retirement Plan immediately prior to the
Effective Date and assuming benefits commence at age 65),
and any excess or supplemental retirement plan in which the
Executive participates (together, the "SERP") which the
Executive would receive if the Executive's employment
continued for three years after the Date of Termination
assuming for this purpose that all accrued benefits are
fully vested, and, assuming that the Executive's
compensation in each of the three years is that required by
Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial
equivalent of the Executive's actual benefit (paid or
payable), if any, under the
10
<PAGE>
Retirement Plan and the SERP as of the Date of Termination;
(ii) Should the Executive move his residence in order to pursue other
business opportunities within three years of the Date of
Termination (or until his normal retirement date, whichever is
sooner), the Company shall reimburse him for any expenses
incurred in that relocation (including taxes payable on the
reimbursement) which are not reimbursed by another employer;
provided, however, that the Executive shall be entitled to such
reimbursement with respect to only one such relocation, the
Executive shall be entitled to specify the relocation for which
reimbursement hereunder is to be made. Benefits under this
provision will include the assistance, at no cost to the
Executive, in selling his home and other assistance which was
customarily provided to executives transferred within the Company
or between the Company and its subsidiaries prior to the
Effective Date;
(iii) For three years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall
continue benefits to the Executive and/or the Executive's family
at least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies
described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more
favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company
and its affiliated companies and their families, provided,
however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical and
other welfare benefits described herein shall be secondary to
those provided under such other plan during such applicable
period of eligibility. For purposes of determining eligibility
(but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs
and policies, the Executive shall be considered to have remained
employed until three years after the Date of Termination and to
have retired on the last day of such period;
(iv) The Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of
which shall be selected by the Executive in his sole discretion;
and
11
<PAGE>
(v) To the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive
is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its
affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of
Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive's estate
or beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(b)
shall include, without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least equal to
the most favorable benefits provided by the Company and affiliated
companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs,
practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries
at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or
the Executive's beneficiaries, as in effect on the date of the
Executive's death with respect to other peer executives of the Company
and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations
shall be paid to the Executive in a lump sum in cash within 30 days of
the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at
least equal to the most favorable of those generally provided by the
Company and its affiliated companies to disabled executives and/or
their families in accordance with such plans, programs, practices and
policies relating to disability, if any, as in effect generally with
respect to other peer executives and their families at any time during
the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in
effect at any time thereafter
12
<PAGE>
generally with respect to other peer executives of the Company and its
affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive
other than the obligation to pay to the Executive (x) his Annual Base
Salary through the Date of Termination, (y) the amount of any
compensation previously deferred by the Executive, and (z) Other
Benefits, in each case to the extent theretofore unpaid. If the
Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall
terminate without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor, subject
to Section 12(f), shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan, policy, practice or program of, or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice
or program, or contract or agreement except as explicitly modified by this
Agreement.
8. Full Settlement. The Company's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and
such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or
any guarantee of performance thereof (including as a result of any contest
by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the
applicable Federal rate
13
<PAGE>
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986,
as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined
without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled
to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 9(a), if it shall be determined
that the Executive is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced
Amount") that could be paid to the Executive such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations required
to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment, and the
assumptions to be utilized in arriving at such determination, shall be
made by Ernst & Young, L.L.P. or such other certified public
accounting firm as may be designated by the Executive (the "Accounting
Firm") which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days of the receipt
of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm
to make the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder). All fees
and expenses of the Accounting
14
<PAGE>
Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 9, shall be paid by the Company to
the Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time
of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment") consistent with the
calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by
the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but no later than ten business
days after the Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the
date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) Give the Company any information reasonably requested by the
Company relating to such claim;
(ii) Take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company;
(iii) Cooperate with the Company in good faith in order effectively
to contest such claim; and
(iv) Permit the Company to participate in any proceedings relating to
such claim;
15
<PAGE>
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section
9(c)) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is
made that the Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
16
<PAGE>
10. Confidential Information. The Executive shall hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained
by the Executive during the Executive's employment by the Company or any of
its affiliated companies and which shall not be or become public knowledge
(other than by acts by the Executive or representatives of the Executive in
violation of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior
written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or
data to anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this Section 10
constitute a basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
12. Miscellaneous.
(a) AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO PRINCIPLES OF
CONFLICT OF LAWS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement
may not be amended or
17
<PAGE>
modified otherwise than by a written agreement executed by the parties
hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed
as follows:
If to the Executive:
Alan B. Broussard
277 Sugarberry Circle
Houston, Texas 77024
If to the Company:
Transocean Offshore Inc.
4 Greeenway Plaza
Houston, Texas 77046
Attention: General Counsel
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v) of this
Agreement, shall not be deemed to be a waiver of such provision or
right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the
18
<PAGE>
Company is "at will" and, subject to Section 1 (a) hereof, prior to
the Effective Date, the Executive's employment and/or this Agreement
may be terminated by either the Executive or the Company at any time
prior to the Effective Date, in which case the Executive shall have no
further rights under this Agreement. From and after the Effective
Date, this Agreement shall supersede any other agreement between the
parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
---------------------------------------
Alan B. Broussard
TRANSOCEAN OFFSHORE INC.
By:
------------------------------------
J. Michael Talbert
Chairman
19
<PAGE>
EXHIBIT 10.2
TRANSOCEAN OFFSHORE INC.
DEFERRED COMPENSATION PLAN
THIS PLAN, made and executed at Houston, Texas by TRANSOCEAN OFFSHORE INC.,
a Delaware corporation (the "Company"), is being established primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees of the Company and its participating affiliates and
for the purpose of providing non-employee members of the Board of Directors of
the Company the ability to defer receipt of all or part of their compensation
from the Company.
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. Unless the context clearly indicates otherwise,
when used in this Plan:
(a) "Account" means a Participant's Deferral Account and/or Employer
Account, as the case may be.
(b) "Adjustment Date" means the last day of each calendar quarter and
such other dates as the Administrative Committee in its discretion may
prescribe.
(c) "Affiliated Company" means any corporation or organization which
together with the Company would be treated as a single employer under
Section 414 of the Code.
(d) "Administrative Committee" means the committee designated pursuant
to Section 2.1 to administer this Plan.
(e) "Change of Control" means:
(i) 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 (A) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (B) 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 (i), the following acquisitions shall not
constitute a Change of Control: (A) any acquisition directly from the
Company, (B) any acquisition by the Company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (D) any acquisition
by any corporation pursuant to a transaction which complies with clauses
(A), (B) and (C) of subsection (iii) of this Section 1.1(e); or
(ii) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board;
<PAGE>
provided, however, that 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; or
(iii) Consummation of a 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, (A) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly
or indirectly, more than 50% of, respectively, the then outstanding 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 resulting from such Business
Combination (including, without limitation, a corporation 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 Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding any corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (C) 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
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(g) "Company" means TRANSOCEAN OFFSHORE INC., a Delaware corporation,
and its successors.
(h) "Compensation Committee" means the Compensation Committee of the
Board of Directors of the Company.
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<PAGE>
(i) "Deferral Account" means the account established and maintained on the
books of an Employer to record a Participant's interest under this Plan
attributable to amounts credited to such Participant pursuant to Sections 3.1,
3.2, 3.3 and/or 3.5.
(j) "Director" means a member of the Board of Directors of the Company who
is not also an Employee; provided, however, that no Director who is not already
a member of the Board of Directors of the Company immediately prior to a Change
of Control shall become eligible to participate in this Plan upon or after a
Change of Control.
(k) "Effective Date" means July 1, 1998.
(l) "Election Period" means
(i) such period immediately prior to the beginning of a Plan Year (or,
with respect to the Short Plan Year, the period immediately prior to the
Effective Date) specified by the Administrative Committee for the making of
deferral elections for such Plan Year pursuant to Sections 3.1, 3.2 and/or 3.5,
(ii) for purposes of Sections 3.1 and 3.5, solely with respect to
individuals who first become Eligible Employees or Directors after the beginning
of a Plan Year (or Short Plan Year), the period of 30 days (or shorter period as
may be prescribed by the Administrative Committee) beginning on the date such
individual becomes an Eligible Employee or Director, as the case may be,
(iii) with respect to deferral elections pursuant to Section 3.3,
such period determined in accordance with Section 3.3, or
(iv) with respect to a Participant whose Account is credited with an
Employer contribution or who has entered into a Deferred Compensation Award
Agreement pursuant to Section 3.4 prior to making any deferral election pursuant
to this Plan, the period immediately prior to the date such Employer
contribution is credited or such Deferred Compensation Award Agreement is signed
by the Participant as may be specified by the Administrative Committee).
(m) "Eligible Employee" means any Employee who is one of a select group of
management or highly compensated employees and
(i) whose annual base salary equals or exceeds $125,000, or
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<PAGE>
(ii) whose annual base salary equals or exceeds $100,000 and whose
position is of significant impact on the operations of his or her Employer as
determined by the Administrative Committee in its absolute discretion;
provided, however, that no Employee who is not already an Eligible Employee
immediately prior to a Change of Control shall become eligible to participate in
this Plan upon or after a Change of Control.
(n) "Employee" means an employee of an Employer.
(o) "Employer" includes the Company and any Affiliated Company which adopts
this Plan with the consent of the Compensation Committee in accordance with
Section 6.5.
(p) "Employer Account" means the account established and maintained on the
books of an Employer to record an Employee Participant's interest under this
Plan attributable to amounts credited to such Participant pursuant to Section
3.4.
(q) "Net Amount Payable" means the gross amount payable to a Participant
by the Company or other Employer absent a deferral election under this Plan
minus all amounts to be deducted from the gross amount other than income tax
withholding, amounts deferred under a cash or deferred arrangement subject to
Section 401(k) of the Internal Revenue Code and deferrals under this Plan.
(r) "Participant" means a Director, former Director, Eligible Employee or
former Eligible Employee for whom an Account is being maintained under this
Plan.
(s) "Plan" means this Transocean Offshore Inc. Deferred Compensation Plan,
as in effect from time to time on and after the Effective Date.
(t) "Plan Year" means each calendar year commencing after the Short Plan
Year.
(u) "Short Plan Year" means the period commencing on the Effective Date and
ending on December 31, 1998.
(v) "Termination Date" means with respect to an Employee Participant, the
termination of employment with an Employer or Affiliated Company for any reason
other than death or transfer to employment with another Employer or Affiliated
Company, and with respect to a Director Participant, the termination of service
as a Director of the Company.
4
<PAGE>
ARTICLE II.
PLAN ADMINISTRATION
Section 2.1 Administrative Committee. This Plan shall be administered by
an Administrative Committee composed of at least three individuals appointed by
the Compensation Committee. Each member of the Administrative Committee so
appointed shall serve in such office until his or her death, resignation or
removal by the Compensation Committee. The Compensation Committee may remove
any member of the Administrative Committee at any time by giving written notice
thereof to the members of the Administrative Committee. Vacancies shall
likewise be filled from time to time by the Compensation Committee. The
Administrative Committee shall have discretionary and final authority to
interpret and implement the provisions of the Plan, including without
limitation, authority to determine eligibility for benefits under the Plan. The
Administrative Committee shall act by a majority of its members at the time in
office and such action may be taken either by a vote at a meeting or in writing
without a meeting. The Administrative Committee may adopt such rules and
procedures for the administration of the Plan as are consistent with the terms
hereof and shall keep adequate records of its proceedings and acts. Every
interpretation, choice, determination or other exercise by the Administrative
Committee of any power or discretion given either expressly or by implication to
it shall be conclusive and binding upon all parties having or claiming to have
an interest under the Plan or otherwise directly or indirectly affected by such
action, without restriction, however, on the right of the Administrative
Committee to reconsider and redetermine such action.
Section 2.2 Appointment of Independent Committee.
(a) Upon a Change of Control, an Independent Committee consisting of
at least three members shall be appointed by the Compensation Committee
subject to the written approval of a majority of the Participants in the
Plans on the date of such Change of Control. Each member of the
Independent Committee so appointed shall serve in such office until his or
her death, resignation or removal. The Compensation Committee may remove
any member of the Independent Committee by giving written notice thereof to
all Plan Participants and all members of the Independent Committee;
provided, however, that no member of the Independent Committee may be
removed by the Compensation Committee except with the written consent of a
majority of the Plan Participants. Vacancies on the Independent Committee
shall be filled from time to time by the Compensation Committee subject to
the written approval of a majority of the Participants in the Plans on the
date such vacancy is filled.
(b) The Independent Committee shall act by a majority of its members
at the time in office and such action may be taken either by a vote at a
meeting or in writing without a meeting. The Independent Committee may by
such majority action authorize any one or more of its members to execute
any document or documents on behalf of the Independent Committee. Every
interpretation, choice, determination or other exercise by the Independent
Committee of any power or discretion given either expressly or by
implication to it shall be conclusive and binding upon all parties having
or claiming to have an interest under the Plan or otherwise directly or
indirectly affected by such action,
5
<PAGE>
without restriction, however, on the right of the Independent Committee to
reconsider and redetermine such action.
(c) Any provision of this Plan to the contrary notwithstanding, in the
event that (i) the Compensation Committee shall not appoint an Independent
Committee within 30 days following a Change of Control or a majority of the
Participants in the Plans do not approve in writing at least three members
selected by the Compensation Committee to serve on an Independent Committee
within such 30-day period or (ii) the Compensation Committee does not fill
a vacancy on the Independent Committee within 30 days of the date such
office becomes vacant or a majority of the Participants in the Plans do not
approve in writing the Compensation Committee's selection to fill a vacancy
on the Independent Committee within such 30-day period, then the
Participants in the Plans shall elect, by majority vote, up to three
individuals to the extent necessary to ensure that the Independent
Committee consists of three members.
(e) Any provision of this Plan to the contrary notwithstanding, on and
after the date of a Change of Control, the Independent Committee appointed
in accordance with this Section shall be responsible for the administration
of this Plan and shall have all of the powers, duties, responsibilities and
obligations of the Administrative Committee as provided hereunder. In
addition, the Independent Committee shall determine the amount of the
irrevocable contributions to be made by the Company to the Deferred
Compensation Trust established in accordance with Section 6.2 hereof, and
have all authority otherwise allocated to the Administrative Committee
under the terms of said Deferred Compensation Trust to determine the
entitlement of Plan Participants and beneficiaries to benefits under the
terms of the Plan, the amounts payable with respect to each Plan
Participant (and his or her beneficiaries), the form in which such amounts
are to be paid and the time of commencement for payment of such amounts,
and to direct the trustee of the Deferred Compensation Trust to make
payments to Plan Participants and their beneficiaries in accordance with
such determinations.
6
<PAGE>
ARTICLE III.
DEFERRED COMPENSATION PROVISIONS
Section 3.1 Base Salary Deferral Election. During the Election Period
prior to the beginning of each Plan Year (and the Short Plan Year), or with
respect to a new Eligible Employee the Election Period during a Plan Year (or
the Short Plan Year), an Eligible Employee may elect to have the payment of an
amount of up to 90% of the annual base salary otherwise payable by an Employer
to such Eligible Employee for such Plan Year (or the Short Plan Year), but not
in excess of the Net Amount Payable of such base salary, deferred for payment in
the manner and at the time specified in Article IV; provided, however, that the
Administrative Committee may in its discretion establish a minimum amount that
an Eligible Employee may elect to defer for a Plan Year (or the Short Plan Year)
pursuant to this Section 3.1. The amount of annual base salary a Participant
elects to defer pursuant to this Section 3.1 shall be deducted from the
Participant's pay in substantially equal amounts over all pay periods during the
Plan Year (or Short Plan Year). All elections made pursuant to this Section 3.1
shall be made in writing on a form prescribed by and filed with the
Administrative Committee and shall be irrevocable; provided, however, that
effective as of the first day of any calendar quarter during a Plan Year, an
Eligible Employee may revoke his or her deferral election and thereby suspend
further salary deferrals for the remainder of such Plan Year by providing
written notice thereof to the Administrative Committee no later than 15 days
prior to the effective date of such suspension. Any Eligible Employee who so
suspends his or her salary deferrals pursuant to this Section shall not be
permitted to elect future salary deferrals pursuant to this Section to be
effective earlier than the first day of the next Plan Year.
Section 3.2 Performance Award Cash Bonus Deferral Election. During the
Election Period prior to the beginning of each Plan Year (but not the Short Plan
Year), an Eligible Employee may elect to have the payment of an amount up to
100% of any future bonus otherwise payable pursuant to the Performance Award
Cash Bonus Plan by an Employer with respect to services to be performed by such
Eligible Employee during such Plan Year, but not in excess of the Net Amount
Payable of such bonus, deferred for payment in the manner and at the time
specified in Article IV; provided, however, that the Administrative Committee
may in its discretion establish a minimum amount that an Eligible Employee may
elect to defer for a Plan Year pursuant to this Section 3.2. All elections made
pursuant to this Section 3.2 shall be made in writing on a form prescribed by
and filed with the Administrative Committee and shall be irrevocable.
Section 3.3 Special Payment Deferral Election. In addition to the above,
during the Election Period prescribed pursuant to this Section, an Eligible
Employee may elect to have the payment of an amount of up to 100% of any bonus
or other special payment as may be designated by the Chief Executive Officer of
the Company (or with respect to amounts otherwise payable to the Chief Executive
Officer of the Company, designated by the Chairman of the Compensation
Committee) otherwise payable by an Employer with respect to such Eligible
Employee, but not in excess of the Net Amount Payable of such bonus or special
payment, deferred for payment in the manner and at the time specified in Article
IV with the deferral election to be made in the manner and during the Election
Period prescribed by the Chief Executive Officer of the Company (or with respect
to amounts otherwise payable to the Chief Executive Officer of the Company, the
Chairman of the Compensation Committee); provided, however, that any such
election must be made in writing by the Eligible Employee prior to the time at
which the Eligible Employee otherwise is entitled to receive payment of the
amount from the Employer and shall be irrevocable.
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<PAGE>
Section 3.4 Employer Contributions. For each Plan Year (and the Short
Plan Year) each Employer shall credit to the Employer Accounts as an Employer
contribution such amount, if any, to be determined by the Compensation
Committee. Any Employer contribution so determined for a Plan Year shall be
credited to Participants' Employer Accounts at the time and in the manner
described in Section 3.6. In addition, the Chief Executive Officer of the
Company may enter into "Deferred Compensation Award Agreements" with such
Eligible Employees as may from time to time be approved by the Compensation
Committee. Such Agreements shall provide for the grant of a deferred
compensation award, either fixed as to amount or determinable pursuant to a
formula, to the Eligible Employee subject to such vesting requirements,
including performance criteria, as shall be approved by the Compensation
Committee.
Section 3.5 Director Fee Deferral Election. During the Election Period
prior to the beginning of each Plan Year (and the Short Plan Year), or with
respect to a new Director the Election Period during a Plan Year (or the Short
Plan Year), a Director may elect to have the payment of an amount of up to 100%
of the cash fees otherwise payable by the Company to such Director for services
rendered to the Company as a member of its Board of Directors, including
services on a committee of the Board of Directors, for such Plan Year (or the
Short Plan Year), but not in excess of the Net Amount Payable of such fees,
deferred for payment in the manner and at the time specified in Article IV;
provided, however, that the Administrative Committee may in its discretion
establish a minimum amount that a Director may elect to defer for a Plan Year
(or the Short Plan Year) pursuant to this Section 3.5. The amount of Director
fees a Participant elects to defer pursuant to this Section 3.5 shall be
deducted from the Participant's fees during the Plan Year (or Short Plan Year).
All elections made pursuant to this Section 3.5 shall be made in writing on a
form prescribed by and filed with the Administrative Committee and shall be
irrevocable; provided, however, that effective as of the first day of any
calendar quarter during a Plan Year, a Director may revoke his or her deferral
election and thereby suspend further fee deferrals for the remainder of such
Plan Year by providing written notice thereof to the Administrative Committee no
later than 15 days prior to the effective date of such suspension. Any Director
who so suspends his or her deferrals pursuant to this Section shall not be
permitted to elect future fee deferrals pursuant to this Section to be effective
earlier than the first day of the next Plan Year.
Section 3.6 Accounts and Allocations.
(a) An Employer shall establish and maintain on its books a Deferral
Account and an Employer Account for each Eligible Employee employed by such
Employer who elects to participate in this Plan. The Company shall
establish and maintain on its books a Deferral Account for each Director
who elects to participate in this Plan. Each such Account shall be
designated by the name of the Participant for whom it is established. The
Administrative Committee may require separate subaccounts to be maintained
within a Participant's Deferral Account and Employer Account.
(b) Amounts deferred for a Participant pursuant to Sections 3.1, 3.2,
3.3 and/or 3.5 shall be credited by the Employer to such Participant's
Deferral Account as of
8
<PAGE>
the date such amounts otherwise would have been paid to such Participant by
such Employer.
(c) The amount of any deferred compensation award pursuant to Section
3.4 hereof which vests pursuant to the terms of a Deferred Compensation
Award Agreement entered into with an Eligible Employee shall be credited to
such Participant's Deferral Account as of the date of such vesting, if such
individual is an Eligible Employee as of the date of vesting.
(d) Any Employer contribution declared for a Plan Year pursuant to
Section 3.4 shall be credited to the Employer Accounts of those Employee
Participants specified by the Compensation Committee at the time and in the
manner determined by the Compensation Committee in its absolute discretion.
(e) An Employer shall continue maintaining a Participant's Accounts as
long as a positive balance remains credited to such Accounts.
Section 3.7 Account Adjustments. As of each Adjustment Date, the amount
credited to a Participant's Accounts as of the preceding Adjustment Date, less
any distributions or forfeitures made with respect to such Accounts since such
preceding Adjustment Date, shall be adjusted by reference to the fluctuations in
value, taking into account gain, loss, expenses and other adjustments, of the
investment indices selected by the Participant for the investment adjustment of
his or her Accounts, with such adjustments to be made in the manner prescribed
by the Administrative Committee. Following such adjustment, the amounts
credited to a Participant's Accounts shall be increased to take into account
additional deferrals and contributions credited to such Accounts since the
preceding Adjustment Date. The Administrative Committee shall have sole and
absolute discretion with respect to the number and type of investment indices
made available for selection by Participants pursuant to this Section, the
timing of Participant elections and the method by which adjustments are made.
The designation of investment indices by the Administrative Committee shall be
for the sole purpose of adjusting Accounts pursuant to this Section and this
provision shall not obligate the Employers to invest or set aside any assets for
the payment of benefits hereunder; provided, however, that an Employer may
invest a portion of its general assets in investments, including investments
which are the same as or similar to the investment indices designated by the
Administrative Committee and selected by Participants, but any such investments
shall remain part of the general assets of such Employer and shall not be deemed
or construed to grant a property interest of any kind to any Participant,
designated beneficiary or estate. The Administrative Committee shall notify the
Participants of the investment indices available and the procedures for making
and changing elections.
Section 3.8 Vesting. Subject to Section 4.5, all amounts credited to a
Participant's Deferral Account shall be fully vested and nonforfeitable at all
times. Any amounts attributable to Employer contributions made for a Plan Year
pursuant to Section 3.4 which are credited to Participants' Employer Accounts
shall be subject to such vesting schedule as the Compensation Committee shall
establish for such contributions in its sole and absolute discretion; provided,
however, that all amounts credited to Participants' Employer Accounts shall be
100% vested and nonforfeitable on and after the date of a Change of Control.
9
<PAGE>
ARTICLE IV.
BENEFITS
Section 4.1 Source of Benefit Payments. Benefit payments to be made with
respect to an Employee Participant's Accounts maintained pursuant to the Plan
will be paid in cash and will be the obligation solely of the Employer
maintaining such Accounts. Benefit payments to be made with respect to a
Director Participant's Accounts maintained pursuant to the Plan will be paid in
cash and will be the obligation solely of the Company.
Section 4.2 Amount of Benefit Payments. The amount payable from a
Participant's Accounts shall be determined based upon the vested amount credited
to such Accounts as of the Adjustment Date last preceding the date of payment
plus any contributions and deferrals credited to and less any distributions or
withdrawals made from such Accounts since such Adjustment Date. The amount of
each payment made with respect to a Participant's Accounts and any forfeiture
amounts applied pursuant to Section 4.5 shall be deducted from the balance
credited to such Accounts at the time of payment or forfeiture.
Section 4.3 Termination. Upon a Participant's Termination Date, the
amount payable from such Participant's Accounts, as determined in accordance
with Section 4.2, shall be paid to such Participant (or, in the event of his or
her subsequent death, to the beneficiary or beneficiaries designated by such
Participant pursuant to Plan Section 4.6) in one of the following forms as
elected by the Participant during the Participant's initial Election Period or
in a subsequent election made in accordance with Section 4.8:
(a) a single lump sum to be paid as soon as practicable following the
Participant's Termination Date or the Participant's attainment of age 65,
as designated by the Participant in his or her election; or
(b) if the amount payable from a Participant's Accounts is $50,000 or
more as of the Termination Date, annual installments over the period
certain designated by the Participant in his or her election which may not
exceed 15 years, commencing in payment as soon as practicable following the
Termination Date or the Participant's attainment of age 65, as designated
by the Participant in his or her election, with each annual installment
equal to the Account balance multiplied by a fraction the numerator of
which is one and the denominator of which is the number of payments
remaining;
provided, however, that if a Participant who is entitled to a delayed lump sum
or installment payments hereunder encounters an unforeseeable emergency (as
determined in accordance with Section 4.7 hereof), the Administrative Committee,
in its absolute discretion, may direct the Employer to accelerate such portion
of the delayed lump sum or installment payments as the Administrative Committee
shall determine to be necessary to alleviate the severe financial hardship of
the Participant caused by such unforeseeable emergency.
Section 4.4 Death. Upon a Participant's Termination Date arising by
reason of death, the amount payable from such Participant's Accounts, as
determined in accordance with Section 4.2, shall be paid by the Employer to the
beneficiary or beneficiaries designated by such Participant
10
<PAGE>
pursuant to Section 4.6 in one of the following forms as elected by the
Participant during the Participant's initial Election Period or in a subsequent
election made in accordance with Section 4.8:
(a) a single lump sum to be paid as soon as practicable following the
Participant's death; or
(b) if the amount payable from the Participant's Accounts is $50,000
or more as of the date of the Participant's death, annual installments over
the period certain designated by the Participant in his or her election
which may not exceed 15 years, commencing in payment as soon as practicable
following the Participant's death with each annual installment equal to the
Account balance multiplied by a fraction the numerator of which is one and
the denominator of which is the number of payments remaining;
provided, however, that if a beneficiary of a deceased Participant who is
entitled to installment payments hereunder encounters an unforeseeable emergency
(as determined in accordance with Section 4.7 hereof), the Administrative
Committee, in its absolute discretion, may direct the Employer to accelerate
such portion of the installment payments as the Administrative Committee shall
determine to be necessary to alleviate the severe financial hardship of the
beneficiary caused by such unforeseeable emergency.
Section 4.5 Option to Request Immediate Payout. Each Participant (or
beneficiary in the case of a deceased Participant) shall have the right at any
time, but no more frequently than one time during any calendar year, to elect a
lump sum payment in an amount equal to:
(a) all or any portion (but not less than $5,000 or, if less, the
entire amount credited to the Participant's Accounts) of the amount payable
from the Participant's Accounts, determined in accordance with Section 4.2,
minus
(b) a forfeiture amount equal to 10% of the amount elected for
withdrawal as provided in (a) above.
A Participant's election for an immediate payout pursuant to this Section must
be in the form of a written notice provided to the Administrative Committee.
The Administrative Committee shall notify any Employer maintaining a
Participant's Accounts with respect to such Participant of the election and the
amount so determined, less the amount forfeited as provided above, shall be paid
to the Participant (or, in the case of a deceased Participant, to the
beneficiary or beneficiaries designated by such Participant pursuant to Section
4.6) by the Employers no later than fifteen days following receipt of notice by
the Administrative Committee.
Section 4.6 Designation of Beneficiaries. Any amount payable under this
Plan on account of the death of a married Participant shall be paid when
otherwise due hereunder to the surviving spouse of such Participant unless such
Participant designates otherwise with the written consent of his or her spouse.
Any amount payable under this Plan on account of the death of a Participant who
is not married or who is married but has designated, as provided above, a
beneficiary other than his or her spouse, shall be paid when otherwise due
hereunder to
11
<PAGE>
the beneficiary or beneficiaries designated by such Participant. Such
designation of beneficiary or beneficiaries shall be made in writing on a form
prescribed by and filed with the Administrative Committee and shall remain in
effect until changed by such Participant by the filing of a new beneficiary
designation form with the Administrative Committee. If an unmarried Participant
fails to so designate a beneficiary, or in the event all of a Participant's
designated beneficiaries are individuals who either predecease the Participant
or survive the Participant but die prior to receiving the full amount payable
under this Plan, any remaining amount payable under this Plan shall be paid when
otherwise due hereunder to such Participant's spouse if living at the time of
the Participant's death or, if not, to the Participant's estate.
Section 4.7 Hardship Distributions. If a Participant encounters an
unforeseeable emergency, the Administrative Committee in its absolute discretion
may direct the Employer maintaining such Participant's Accounts to pay to such
Participant and deduct from such Accounts such portion of the vested amount then
credited to such Accounts (including, if appropriate, the entire amount
determined in accordance with Section 4.2) as the Administrative Committee shall
determine to be necessary to alleviate the severe financial hardship of such
Participant caused by such unforeseeable emergency. For this purpose, an
"unforeseeable emergency" shall be a severe financial hardship to the
Participant resulting from a sudden and unexpected illness or accident of the
Participant or of a dependent of the Participant, loss of the Participant's
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant. The circumstances that will constitute an unforeseeable emergency
will depend upon the facts of each case, but in any case, payment may not be
made to the extent that such hardship is or may be relieved (i) through
reimbursement or compensation by insurance or otherwise, (ii) by liquidation of
the Participant's assets, to the extent liquidation of such assets would not
itself cause severe financial hardship, or (iii) by cessation of deferrals under
the Plan. No distribution shall be made to a Participant pursuant to this
Section 4.7 unless such Participant requests such a distribution in writing and
provides to the Administrative Committee such information and documentation with
respect to his or her unforeseeable emergency as may be requested by the
Administrative Committee.
Section 4.8 Change of Distribution Form. Each Participant may elect at
any time after a Participant's initial Election Period, but no more often than
once during each calendar year, to change the distribution form elected with
respect to all amounts credited to such Participant's Accounts; provided,
however, that such election shall not be effective unless made at least twelve
months preceding the Participant's Termination Date.
Section 4.9 Accelerated Distribution of Reclassified Amounts. In the
event that the Internal Revenue Service formally assesses a deficiency against a
Participant on the grounds that an amount credited to such Participant's
Accounts under this Plan is subject to federal income tax (the "Reclassified
Amount") earlier than the time payment otherwise would be made to the
Participant pursuant to this Plan, then the Administrative Committee shall
direct the Employer maintaining such Participant's Accounts to pay to such
Participant and deduct from such Accounts the Reclassified Amount. No payment
made to a Participant pursuant to this Section 4.9 shall be subject to
forfeiture as provided in Section 4.5 hereof.
12
<PAGE>
ARTICLE V.
AMENDMENT AND TERMINATION
Section 5.1 Amendment and Termination. The Compensation Committee shall
have the right and power at any time and from time to time to amend this Plan,
in whole or in part, on behalf of all Employers, and to terminate this Plan or
any Employer's participation hereunder. Any amendment to or termination of this
Plan shall be made by or pursuant to a resolution duly adopted by the
Compensation Committee and shall be evidenced by such resolution or by a written
instrument executed by such person as the Compensation Committee shall authorize
for such purpose. Any provision of this Plan to the contrary notwithstanding,
no amendment to or termination of this Plan shall reduce the amounts actually
credited to a Participant's Accounts as of the date of such amendment or
termination, or further defer the dates for the payment of such amounts, without
the consent of the affected Participant. Upon termination of this Plan, the
Compensation Committee, in its sole discretion, may require the Administrative
Committee to calculate final Account balances as of such Adjustment Date as it
may prescribe, and direct each Employer to make immediate lump sum payments to
each Participant (or beneficiary in the case of a deceased Participant) with
respect to which such Employer maintains an Account in the amount determined to
be credited to such Participant's Accounts as of such final Adjustment Date.
Section 5.2 Change of Control. The preceding provisions of this Article
to the contrary notwithstanding, no action taken on or after a Change of Control
to amend or terminate this Plan shall be effective unless written consent
thereto is obtained from a majority of the Participants.
ARTICLE VI.
MISCELLANEOUS PROVISIONS
Section 6.1 Nature of Plan and Rights. This Plan is unfunded and
maintained by the Employers primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
and directors of the Employers. The Accounts established and maintained under
this Plan by an Employer are for its accounting purposes only and shall not be
deemed or construed to create a trust fund or security interest of any kind for
or to grant a property interest of any kind to any Participant, designated
beneficiary or estate. The amounts credited by an Employer to Accounts
maintained under this Plan are and for all purposes shall continue to be a part
of the general assets and liabilities of such Employer, and to the extent that a
Participant, designated beneficiary or estate acquires a right to receive a
payment from such Employer pursuant to this Plan, such right shall be no greater
than the right of any unsecured general creditor of such Employer.
Section 6.2 Deferred Compensation Trust. An Employer may, but shall not
be required to, establish a trust (the "Deferred Compensation Trust") which
satisfies the requirements of the model trust prescribed by the Internal Revenue
Service in Revenue Procedure 92-64 (or otherwise constitutes a grantor trust, of
which the Employer is the grantor, within the meaning of subpart E, part I,
subchapter J, chapter 1, subtitle A of the Code) into which the Employer will
13
<PAGE>
contribute funds to be used to fund the benefit payments under this Plan without
accelerating the timing of income recognition for federal income tax purposes
for the Participant or beneficiary; provided, however, that, as soon as
possible, but in no event more than 30 days following the date of a Change of
Control, each Employer shall (i) establish (if such Employer has not already) a
Deferred Compensation Trust governed by such provisions and with a trustee as
may be acceptable to the Independent Committee, (ii) make an irrevocable
contribution to the Deferred Compensation Trust in an amount, as determined by
the Independent Committee which when added to the total value of the assets of
the Deferred Compensation Trust at such time equals the total amount credited to
all Accounts under the Plan as of the date on which the Change of Control
occurred, and (iii) on and after the date of the Change of Control, make monthly
contributions to the Deferred Compensation Trust in amounts sufficient, as
determined by the Independent Committee, to maintain the total value of the
Deferred Compensation Trust assets at an amount equal to the total amount
credited to all Accounts under the Plan. Any provision of this Plan to the
contrary notwithstanding, on and after the date of a Change of Control, the
assets of the Deferred Compensation Trust, including any additional
contributions made by the Employer in accordance with this Section 6.2 for the
period following such Change of Control and any earnings on the assets of the
Deferred Compensation Trust, shall be held exclusively for the benefit of those
individuals (or their beneficiaries) who were Participants in the Plan or
beneficiaries thereof immediately prior to such Change of Control, subject to
the claims of general creditors of the Employer under federal and state law as
set forth in the Deferred Compensation Trust.
Section 6.3 Spendthrift Provision. No Account balance or other right or
interest under this Plan of a Participant, designated beneficiary or estate may
be assigned, transferred or alienated, in whole or in part, either directly or
by operation of law, and no such balance, right or interest shall be liable for
or subject to any debt, obligation or liability of such Participant, designated
beneficiary or estate.
Section 6.4 Employment Noncontractual. The establishment of this Plan
shall not enlarge or otherwise affect the terms of any Participant's employment
with an Employer or service as a Director of the Company, and each Employer may
terminate an Employee Participant's employment and the Company may terminate a
Director Participant's service as a Director as freely and with the same effect
as if this Plan had not been established.
Section 6.5 Adoption by Other Employers. With the consent of the
Compensation Committee, this Plan may be adopted by any Affiliated Company, such
adoption to be effective as of the date specified by such Affiliated Company at
the time of adoption.
Section 6.6 Claims Procedure. If any person (hereinafter called the
"Claimant") feels that he or she is being denied a benefit to which he or she is
entitled under this Plan, such Claimant may file a written claim for said
benefit with the Administrative Committee. Within sixty days following the
receipt of such claim the Administrative Committee shall determine and notify
the Claimant as to whether he or she is entitled to such benefit. Such
notification shall be in writing and, if denying the claim for benefit, shall
set forth the specific reason or reasons for the denial, make specific reference
to the pertinent provisions of this Plan, and advise the Claimant that he or she
may, within sixty days following the receipt of such notice, in writing request
to appear before the Administrative Committee or its designated representative
for a hearing to review such denial. Any such hearing shall be scheduled at the
mutual convenience of
14
<PAGE>
the Administrative Committee or its designated representative and the Claimant,
and at any such hearing the Claimant and/or his or her duly authorized
representative may examine any relevant documents and present evidence and
arguments to support the granting of the benefit being claimed. The final
decision of the Administrative Committee with respect to the claim being
reviewed shall be made within sixty days following the hearing thereon, and
Administrative Committee shall in writing notify the Claimant of said final
decision, again specifying the reasons therefor and the pertinent provisions of
this Plan upon which said final decision is based. The final decision of the
Administrative Committee shall be conclusive and binding upon all parties having
or claiming to have an interest in the matter being reviewed.
Section 6.7 Reimbursement of Expenses. In the event that a dispute arises
between a Participant or beneficiary and the Company or other Employer liable
for payments with respect to the payment of benefits hereunder and the
Participant or beneficiary is successful in pursuing a benefit to which he or
she is entitled under the terms of the Plan against the Company or such other
Employer or any other party in the course of litigation or otherwise and incurs
attorneys' fees, expenses and costs in connection therewith, the Company or such
other Employer against whom the Participant or beneficiary has been successful
in pursuing a benefit under this Plan shall reimburse the Participant or
beneficiary for the full amount of any such attorneys' fees, expenses and costs.
Section 6.8 Withholding Tax. There shall be deducted from all amounts
paid under this Plan any taxes required to be withheld by any Federal, state,
local or other government. The Participant and/or his or her beneficiary
(including his or her estate) shall bear all taxes on amounts paid under this
Plan to the extent that no taxes are withheld, irrespective of whether
withholding is required. The Participant will be required to pay to his or her
Employer the amount of any federal, state or local taxes required by law to be
withheld in connection with the Plan in the event that such Participant is not
being paid by an Employer or amounts being paid by an Employer to such
Participant are insufficient to satisfy any such withholding obligation.
Section 6.9 Applicable Law. This Plan shall be governed and construed in
accordance with the internal laws (and not the principles relating to conflicts
of laws) of the State of Texas, except where superseded by federal law.
IN WITNESS WHEREOF, this Plan has been executed on this _____ day of
______________, 1998, to be effective as of the Effective Date.
TRANSOCEAN OFFSHORE INC.
By
-----------------------------
Title:
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 30,681 50,599
<SECURITIES> 0 0
<RECEIVABLES> 245,539 159,745
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 341,266 274,357
<PP&E> 2,548,094 2,036,191
<DEPRECIATION> 505,214 445,425
<TOTAL-ASSETS> 3,148,689 2,655,153
<CURRENT-LIABILITIES> 181,501 194,298
<BONDS> 853,134 619,097
0 0
0 0
<COMMON> 1,043 1,037
<OTHER-SE> 1,867,445 1,623,620
<TOTAL-LIABILITY-AND-EQUITY> 3,148,689 2,655,153
<SALES> 0 0
<TOTAL-REVENUES> 778,892 650,910
<CGS> 0 0
<TOTAL-COSTS> 466,080 503,282
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 17,571 16,502
<INCOME-PRETAX> 340,639 138,941
<INCOME-TAX> 100,489 44,197
<INCOME-CONTINUING> 240,150 94,744
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 240,150 94,744
<EPS-PRIMARY> 2.40 0.93
<EPS-DILUTED> 2.38 0.92<F1>
<FN>
<F1>Reflects adoption of SFAS No. 128, Earnings per share, and a two-for-one stock
split paid in September 1997.
</FN>
</TABLE>
