<PAGE> 1
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 MARCH 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_____TO_____
ROWAN COMPANIES, INC.
---------------------
(Exact name of registrant as specified in its charter)
Delaware 1-5491 75-0759420
- ------------------------------- --------------- -------------------
(State or other jurisdiction of Commission File (I.R.S. Employer
incorporation or organization) Number Identification No.)
5450 Transco Tower, 2800 Post Oak Boulevard, Houston, Texas 77056-6196
- ----------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(713) 621-7800
-------------------------------------------------------
Registrant's telephone number, including area code
Inapplicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
The number of shares of common stock, $.125 par value, outstanding at April 30,
1998 was 86,947,657.
<PAGE> 2
ROWAN COMPANIES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. Financial Information:
Consolidated Balance Sheet --
March 31, 1998 and December 31, 1997........................2
Consolidated Statement of Income --
Three Months Ended March 31, 1998
and 1997....................................................4
Consolidated Statement of Cash Flows --
Three Months Ended March 31, 1998
and 1997....................................................5
Notes to Consolidated Financial Statements..................6
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...............................................8
PART II. Other Information:
Submission of Matters to a Vote
of Security Holders........................................12
Exhibits and Reports on Form 8-K...........................12
</TABLE>
<PAGE> 3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 116,617 $ 108,332
Receivables - trade and other ............................ 124,527 133,627
Inventories - at cost:
Raw materials and supplies ............................. 72,922 69,621
Work-in-progress ....................................... 29,688 25,974
Finished goods ......................................... 5,718 6,321
Prepaid expenses ......................................... 9,263 7,694
Deferred tax assets ...................................... 39,609 60,809
------------ ------------
Total current assets .......................... 398,344 412,378
------------ ------------
INVESTMENT IN AND ADVANCES TO 49% OWNED COMPANY ............ 25,737
------------ ------------
PROPERTY, PLANT AND EQUIPMENT - at cost:
Drilling equipment ....................................... 972,429 965,292
Aircraft and related equipment ........................... 208,977 202,044
Manufacturing plant and equipment ........................ 65,688 60,902
Construction in progress ................................. 242,564 195,996
Other property and equipment ............................. 102,521 94,476
------------ ------------
Total ......................................... 1,592,179 1,518,710
Less accumulated depreciation and amortization ........... 852,922 841,550
------------ ------------
Property, plant and equipment - net ......... 739,257 677,160
------------ ------------
OTHER ASSETS AND DEFERRED CHARGES .......................... 5,796 6,860
------------ ------------
TOTAL ......................................... $ 1,143,397 $ 1,122,135
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
-2-
<PAGE> 5
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable - trade ........................................................ $ 24,116 $ 22,839
Other current liabilities ....................................................... 52,616 58,687
---------- ----------
Total current liabilities ............................................... 76,732 81,526
---------- ----------
LONG-TERM DEBT - less current maturities ............................................ 238,135 256,150
---------- ----------
OTHER LIABILITIES ................................................................... 50,390 50,457
---------- ----------
DEFERRED CREDITS:
Income taxes .................................................................... 74,757 74,956
Gain on sale/leaseback transactions ............................................. 5,160 5,948
---------- ----------
Total deferred credits .................................................. 79,917 80,904
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value:
Authorized 5,000,000 shares issuable in series:
Series III Preferred Stock, authorized 10,300 shares, none outstanding
Series A Junior Preferred Stock, authorized
1,500,000 shares, none issued
Common stock, $.125 par value:
Authorized 150,000,000 shares; issued 88,333,951 shares at March 31, 1998
and 88,162,101 shares at December 31, 1997 .................................... 11,042 11,020
Additional paid-in capital .......................................................... 414,156 411,812
Retained earnings ................................................................... 275,510 232,751
Less cost of 1,457,919 treasury shares .............................................. 2,485 2,485
---------- ----------
Total stockholders' equity .............................................. 698,223 653,098
---------- ----------
TOTAL ................................................................... $1,143,397 $1,122,135
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE> 6
ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For The Three Months
Ended March 31,
------------------------
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
REVENUES:
Drilling services ...................................... $ 124,225 $ 89,603
Manufacturing sales and services ....................... 37,477 36,644
Aviation services ...................................... 22,212 18,518
--------- ---------
Total .......................................... 183,914 144,765
--------- ---------
COSTS AND EXPENSES:
Drilling services ...................................... 48,511 65,971
Manufacturing sales and services ....................... 30,924 32,085
Aviation services ...................................... 23,580 20,064
Depreciation and amortization .......................... 11,879 11,367
General and administrative ............................. 4,503 4,292
--------- ---------
Total .......................................... 119,397 133,779
--------- ---------
INCOME FROM OPERATIONS ..................................... 64,517 10,986
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense ....................................... (4,277) (7,344)
Less interest capitalized .............................. 3,425 1,941
Gain on disposals of property, plant and equipment ..... 477 894
Interest income ........................................ 1,702 1,316
Other - net ............................................ 131 72
--------- ---------
Other income (expense) - net ................... 1,458 (3,121)
--------- ---------
INCOME BEFORE INCOME TAXES ................................. 65,975 7,865
Provision for income taxes ............................. 23,216 234
--------- ---------
INCOME BEFORE EXTRAORDINARY CHARGE ......................... 42,759 7,631
Extraordinary charge from early redemption of debt ..... 3,478
--------- ---------
NET INCOME (Note 4)......................................... $ 42,759 $ 4,153
========= =========
PER SHARE OF COMMON STOCK (Note 5):
Basic:
Income before extraordinary charge ................... $ .49 $ .09
Extraordinary charge from early redemption of debt ... .04
--------- ---------
Net income .......................................... $ .49 $ .05
========= =========
Diluted:
Income before extraordinary charge ................... $ .48 $ .09
Extraordinary charge from early redemption of debt ... .04
--------- ---------
Net income .......................................... $ .48 $ .05
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
-4-
<PAGE> 7
ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For The Three Months
Ended March 31,
----------------------------
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CASH PROVIDED BY (USED IN):
Operations:
Net income .................................................................. $ 42,759 $ 4,153
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization ............................................ 11,879 11,367
Gain on disposals of property, plant and equipment ....................... (477) (894)
Compensation expense ..................................................... 1,210 1,236
Change in sale/leaseback payable ......................................... (2,191) (4,536)
Amortization of sale/leaseback gain ...................................... (788) (789)
Provision for pension and postretirement benefits ........................ 1,882 2,248
Deferred income taxes .................................................... 21,001 (100)
Extraordinary charge from early redemption of debt ....................... 3,550
Other - net .............................................................. 36 1,319
Changes in current assets and liabilities:
Receivables- trade and other ............................................. 9,100 5,510
Inventories .............................................................. (5,811) (3,746)
Other current assets ..................................................... (1,569) 7,700
Current liabilities ...................................................... (3,845) 9,003
Net changes in other noncurrent assets and liabilities ...................... 1,213 (300)
----------- -----------
Net cash provided by operations ................................................ 74,399 35,721
----------- -----------
Investing activities:
Property, plant and equipment additions ..................................... (68,524) (38,774)
Proceeds from disposition of investment in 49% owned company ................ 19,550
Repayments from affiliates .................................................. 225
Proceeds from disposals of property, plant and equipment .................... 668 1,802
----------- -----------
Net cash used in investing activities .......................................... (48,306) (36,747)
----------- -----------
Financing activities:
Proceeds from borrowings .................................................... 18,141 20,709
Repayments of borrowings .................................................... (36,156) (80)
Other - net ................................................................. 207 96
----------- -----------
Net cash provided by financing activities ...................................... (17,808) 20,725
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS ............................................. 8,285 19,699
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .................................... 108,332 97,225
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD .......................................... $ 116,617 $ 116,924
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE> 8
ROWAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements of the Company included herein
have been prepared without audit pursuant to generally accepted
accounting principles and the rules and regulations of the Securities
and Exchange Commission. Certain information and notes have been
condensed or omitted pursuant to such rules and regulations and the
Company believes that the disclosures included herein are adequate. It
is suggested that these condensed financial statements be read in
conjunction with the financial statements and related notes included in
the Company's 1997 Annual Report to Stockholders incorporated by
reference in the Form 10-K for the year ended December 31, 1997.
2. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments and reclassifications,
which are of a normal recurring nature, necessary to present fairly its
financial position as of March 31, 1998 and December 31, 1997, and the
results of its operations and its cash flows for the three months ended
March 31, 1998 and 1997.
3. The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results to be expected for the full
year.
4. The Company's adoption, effective January 1, 1998, of Statements of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", and No. 132, "Employers' Disclosures about Pension and Other
Postretirement Benefits", did not materially affect its financial
statement disclosure. For the periods presented herein, the Company has
no items of "other comprehensive income" as defined in Statement 130.
-6-
<PAGE> 9
5. Computation of basic and diluted earnings per share is as follows (in
thousands except per share amounts):
<TABLE>
<CAPTION>
For The
Three Months Ended
March 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Weighted average shares of common
stock outstanding ........................................ 86,846 85,625
Stock options and related (treasury stock method) .......... 1,550 1,789
Shares issuable from assumed conversion of floating
rate subordinated debentures.............................. 966 1,373
---------- ----------
Weighted average shares for diluted
earnings per share calculation ........................... 89,362 88,787
========== ==========
Income before extraordinary charge ......................... $ 42,759 $ 7,631
Extraordinary charge from early redemption of debt.......... 3,478
---------- ----------
Net income for basic calculation ........................... 42,759 4,153
Subordinated debenture interest, net of
income tax effect ........................................ 79
---------- ----------
Net income for diluted calculation ......................... $ 42,759 $ 4,232
========== ==========
Basic earnings per share:
Income before extraordinary charge ...................... $ .49 $ .09
Extraordinary charge .................................... .04
---------- ----------
Net income .............................................. $ .49 $ .05
========== ==========
Diluted earnings per share:
Income before extraordinary charge ...................... $ .48 $ .09
Extraordinary charge .................................... .04
---------- ----------
Net income .............................................. $ .48 $ .05
========== ==========
</TABLE>
-7-
<PAGE> 10
ROWAN COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to
Three Months Ended March 31, 1997
The Company achieved net income of $42.8 million in the first quarter
of 1998 compared to $4.2 million in the same period of 1997. The improved
performance resulted primarily from the continued strengthening of offshore
drilling day rates and improvement in the Company's manufacturing operations.
The previous period's results included charges of $20 million related to
concluding the Company's turnkey drilling business and $3.5 million from
redeeming early certain 11 7/8% Senior Notes.
A comparison of the revenues and operating profit (loss) from drilling,
manufacturing, aviation and consolidated operations for the first quarters of
1998 and 1997, respectively, is reflected below (dollars in thousands):
<TABLE>
<CAPTION>
Drilling Manufacturing Aviation Consolidated
--------------------- --------------------- --------------------- ----------------------
1998 1997 1998 1997 1998 1997 1998 1997
--------- --------- -------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 124,225 $ 89,603 $ 37,477 $ 36,644 $ 22,212 $ 18,518 $ 183,914 $ 144,765
Percent of Consolidated
Revenues 68% 62% 20% 25% 12% 13% 100% 100%
Operating Profit (Loss)(1) $ 68,271 $ 16,017 $ 5,324 $ 3,696 $ (4,575) $ (4,435) $ 69,020 $ 15,278
</TABLE>
- ------------------------------------------------------
(1) Income (loss) from operations before deducting general and administrative
expenses.
As reflected above, the Company's consolidated operating results
increased by more than 350% when comparing the first quarters of 1998 and 1997.
Day rate drilling revenues increased by $34.6 million or 39% as the Company's
offshore fleet achieved 98% utilization during the first quarter of 1998, which
was unchanged from the first quarter of 1997, and a 37% increase in average day
rates between periods. Related expenses increased by $3.0 million, or 7%,
between periods, primarily as a result of compensation increases for operating
personnel.
First quarter 1997 operating results included an approximately $20
million loss from concluding the Company's turnkey drilling operations. The
Company currently has no turnkey wells in progress nor any plans for additional
turnkey work at this time.
The 44% improvement shown above in the Company's manufacturing
profitability between periods primarily reflects the increased contribution of
the marine group. During the quarter, the Company provided design and components
("LeTourneau kit") toward the construction of two new Super 116 Class rigs. Both
kits, which were sold in 1997, should be completed during 1998. The division's
-8-
<PAGE> 11
external backlog grew by about $7 million during the quarter to $64.6 million at
March 31, 1998, a level 62% higher than a year ago. Manufacturing operations
exclude approximately $15.8 million of products and services provided to the
Company's drilling division during the first quarter of 1998, most of which was
attributable to construction progress on Rowan Gorillas V and VI, compared to
$16.9 million in the same period of 1997.
The aviation operating results in both periods reflect the normal
seasonal slowdown in flying activity in Alaska. The Company's disposition in
January 1998 of its 49% interest in the Dutch helicopter joint venture KLM ERA
did not have a material impact on the its first quarter 1998 results of
operations.
Perceptible trends in the offshore drilling markets in which the
Company is currently operating and the number of Company-operated rigs in each
of those markets are as follows:
<TABLE>
<CAPTION>
AREA RIGS PERCEPTIBLE INDUSTRY TRENDS
- ----------------- --------- --------------------------------------------------------------
<S> <C> <C>
Gulf of Mexico 14 Continuing high levels of exploration and development activity
North Sea 5 Continuing high levels of drilling activity for jack-up rigs
Eastern Canada 2 Improving demand
</TABLE>
The preceding table reflects the relocation in April 1998 of Rowan
Gorilla II to eastern Canada from the Gulf of Mexico.
Perceptible trends in the aviation markets in which the Company is
currently operating and the number of Company-operated aircraft based in each of
those markets are as follows:
<TABLE>
<CAPTION>
AREA AIRCRAFT PERCEPTIBLE INDUSTRY TRENDS
- ----------------- --------- --------------------------------------------------------------
<S> <C> <C>
Alaska 68 Normal seasonal improvement
Gulf of Mexico 49 Moderately improving market conditions
</TABLE>
The drilling and aviation markets in which the Company competes
frequently experience significant changes in supply and demand. Offshore
drilling utilization and day rates are primarily a function of the demand for
drilling services, as measured by the level of exploration and development
expenditures, and the supply of capable drilling equipment. These expenditures,
in turn, are affected by many factors such as existing and newly discovered oil
and natural gas reserves, political and regulatory policies, seasonal weather
patterns, contractual requirements under leases or concessions, trends in
finding and extraction costs and, probably most influential, oil and natural gas
prices. The Company's aviation operations are also affected by such factors, as
flying in support of offshore energy operations remains a major source of
business and Alaska operations are hampered each winter. The volatile nature of
such factors prevents the Company from being able to accurately predict whether
existing market conditions or the perceptible market trends reflected in the
preceding tables will continue. In response to fluctuating market conditions,
the Company can, as it has done in the past, relocate its drilling rigs and
aircraft from one geographic area to another, but only when such moves are
economically justified. Assuming such conditions and trends prevail, the Company
should continue to experience increased profitability throughout the remainder
of 1998.
-9-
<PAGE> 12
The Company's manufacturing operations are considerably less volatile
than its drilling and aviation operations and, given current backlog levels and
barring unforeseen circumstances, should continue to contribute positive
operating results throughout the remainder of 1998.
LIQUIDITY AND CAPITAL RESOURCES
A comparison of key balance sheet figures and ratios as of March 31,
1998 and December 31, 1997 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Cash and cash equivalents $116,617 $108,332
Current assets $398,344 $412,378
Current liabilities $76,732 $81,526
Current ratio 5.19 5.06
Long-term debt $238,135 $256,150
Stockholders' equity $698,223 $653,098
Long-term debt/total capitalization .25 .28
</TABLE>
Reflected in the comparison above are the effects in the first quarter
of 1998 of net cash provided by operations of $74.4 million, capital
expenditures of $68.5 million, proceeds from borrowings of $18.1 million,
proceeds from the disposition of the Company's 49% interest in KLM ERA
Helicopters of $19.6 million and the repayments of borrowings of $36.2 million.
Capital expenditures during the first quarter were primarily related to
construction of Rowan Gorilla V and Rowan Gorilla VI , each being an enhanced
version of the Company's Gorilla Class jack-ups featuring a combination drilling
and production capability. The rigs are being constructed at the Company's
Vicksburg, Mississippi shipyard and should be completed during 1998 and 1999,
respectively. The Company is financing up to $153 million of the cost of Gorilla
V through a 12-year bank loan guaranteed by the Maritime Administration of the
U. S. Department of Transportation under its Title XI Program. At March 31,
1998, the Company had drawn down about $128 million under the facility, $67
million of which bears a fixed interest rate of 6.94% until July 2010 and the
remainder at floating rates averaging 6.3%.
The Company has begun ordering long lead-time items for Rowan Gorilla
VII, the construction of which will begin later this year and is expected to be
completed during 2000. The Company intends to pursue outside financing for
Gorilla VI and Gorilla VII if necessary, but believes that internally generated
working capital may be sufficient to finance construction of both rigs if
operating conditions continue to improve as expected. There can be no assurance
that working capital will be adequate throughout the period required to complete
construction or that outside financing will be available.
The Company estimates remaining 1998 capital expenditures will be
between $150 million and $160 million, including approximately $125-135 million
for Gorillas V, VI and VII. The Company may also spend amounts to acquire
additional aircraft as market conditions justify and to upgrade existing
offshore rigs and manufacturing facilities.
-10-
<PAGE> 13
At March 31, 1998, the Company had available $45 million under a
three-year $155 million bank revolving credit facility. The $110 million
outstanding under the credit line bore interest at 6.09% on March 31, 1998.
In March 1998, the Company repaid the balance of $36.2 million of
promissory notes originally issued in February 1994 in connection with the
acquisition of its manufacturing operations.
Based upon current operating levels and the previously discussed market
trends, management believes that 1998 operations, together with existing working
capital and available financial resources, will generate sufficient cash flow to
sustain planned capital expenditures and debt service requirements at least
through the remainder of 1998.
At March 31, 1998, approximately $115 million of the Company's retained
earnings was available for the payment of dividends under the most restrictive
provisions of the Company's debt agreements.
The Company believes that its exposure to potential year 2000 software
problems is limited and the costs associated with readying its information
systems will not materially impact its financial position or results of
operations. The Company expects to substantially complete modifications to its
information systems during 1998 and will expense such costs as they are
incurred.
This report contains forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including, without limitation,
statements as to the expectations, beliefs and future expected financial
performance of the Company that are based on current expectations and are
subject to certain risks, trends and uncertainties that could cause actual
results to differ materially from those projected by the Company. Among the
factors that could cause actual results to differ materially are the following:
o oil and natural gas prices
o the level of offshore expenditures by energy companies
o the general economy, including inflation
o weather conditions in the Company's principal operating areas
o environmental and other laws and regulations
Other relevant factors have been disclosed in the Company's filings with the
U.S. Securities and Exchange Commission.
-11-
<PAGE> 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders on April 24, 1998, stockholders
elected the three nominees for Class I Director as set forth in the
Company's Proxy Statement relating to the meeting. With respect to such
election, proxies were solicited pursuant to Regulation 14 under the
Securities Exchange Act of 1934 and there was no solicitation in
opposition to such nominees. Of the Company's 86,864,282 shares of
record, 78,251,930 were voted at the meeting in person or by proxy. The
following numbers of votes were cast as to the Class I Director
nominees: H. E. Lentz, 77,616,322 votes for and 635,608 votes withheld;
Wilfred P. Schmoe, 77,580,910 votes for and 671,020 votes withheld; and
Charles P. Siess, Jr., 77,578,573 votes for and 673,357 votes withheld.
Also at the meeting, stockholders approved, for consideration by the
Board of Directors, the following proposals, as set forth in the
Company's Proxy Statement relating to the meeting:
The proposal pertinent to the Rowan Companies, Inc. 1998
Nonemployee Director Stock Option Plan. The proposal received
60,234,906 votes in the affirmative, or 77% of the votes cast,
while 5,643,751 shares, or 7%, were voted against the proposal.
Shares that abstained from voting totaled 12,373,273.
The proposal pertinent to the Rowan Companies, Inc. 1998
Convertible Debenture Incentive Plan. The proposal received
61,695,409 votes in the affirmative, or 79% of the votes cast,
while 4,130,167 shares, or 5%, were voted against the proposal.
Shares that abstained from voting totaled 12,426,354.
The proposal pertinent to amendment and restatement of the Rowan
Companies, Inc. 1988 Nonqualified Stock Option Plan. The proposal
received 45,997,125 votes in the affirmative, or 59% of the votes
cast, while 19,818,654 shares, or 25%, were voted against the
proposal. Shares that abstained from voting totaled 12,436,151.
Item 6. Exhibits and Reports on Form 8-K
(a) The following is a list of Exhibits filed with this Form 10-Q:
10a Restated 1988 Nonqualified Stock Option Plan of the Company
10b 1998 Nonemployee Director Stock Option Plan of the Company
10c 1998 Convertible Debenture Incentive Plan of the Company
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
first quarter of fiscal year 1998.
-12-
<PAGE> 15
SIGNATURES
Pursuant to the requirements 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.
ROWAN COMPANIES, INC.
(Registrant)
Date: May 13, 1998 /s/ E. E. THIELE
--------------------------------------
E. E. Thiele
Senior Vice President- Finance,
Administration and Treasurer
(Chief Financial Officer)
Date: May 13, 1998 /s/ W. H. WELLS
--------------------------------------
W. H. Wells
Controller
(Chief Accounting Officer)
-13-
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER ------------
- -------
<S> <C>
10a Restated 1988 Nonqualified Stock Option Plan of the Company
10b 1998 Nonemployee Director Stock Option Plan of the Company
10c 1998 Convertible Debenture Incentive Plan of the Company
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10a
ROWAN COMPANIES, INC.
RESTATED 1988 NONQUALIFIED STOCK OPTION PLAN
I. PURPOSE OF THE PLAN
The Rowan Companies, Inc. Restated 1988 Nonqualified Stock Option Plan (the
"Plan") is intended to provide a means whereby certain employees of Rowan
Companies, Inc., a Delaware corporation (the "Company"), and its subsidiaries
may develop a sense of proprietorship and personal involvement in the
development and financial success of the Company, and to encourage them to
remain with and devote their best efforts to the business of the Company,
thereby advancing the interests of the Company and its shareholders.
Accordingly, the Company may grant to certain employees ("Optionees") the option
("Option") to purchase shares of the common stock of the Company ("Stock"), as
hereinafter set forth. Options granted under the Plan are not intended to be
incentive stock options within the meaning of section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Plan constitutes a
restatement and continuation without gap or interruption of the Rowan Companies,
Inc. 1988 Nonqualified Stock Option Plan. The effective date of the restatement
of the Plan is April 24, 1998. As restated, the Plan governs both Options
granted after April 24, 1998 and, unless otherwise specifically provided herein,
Options granted before April 24, 1998.
II. ADMINISTRATION
The Plan shall be administered by a committee (the "Committee") of, and
appointed by, the Board of Directors of the Company (the "Board"). Unless the
Board determines otherwise, the Committee shall be constituted so as to permit
the Plan to comply with Rule 16b-3, as currently in effect or as hereinafter
modified or amended ("Rule 16b-3"), promulgated under the Securities Exchange
Act of 1934, as amended (the "1934 Act"). The Committee shall have sole
authority to select the Optionees from among those individuals eligible
hereunder and to establish the number of shares which may be issued under each
Option. In selecting the Optionees from among individuals eligible hereunder and
in establishing the number of shares that may be issued under each Option, the
Committee may take into account the nature of the services rendered by such
individuals, their present and potential contributions to the Company's success
and such other factors as the Committee in its discretion shall deem relevant.
The Committee is authorized to interpret the Plan and may from time to time
adopt such rules and regulations, consistent with the provisions of the Plan, as
it may deem advisable to carry out the Plan. All decisions made by the Committee
in selecting the Optionees, in establishing the number of shares which may be
issued under each Option and in construing the provisions of the Plan and any
Option shall be final.
III. OPTION AGREEMENTS
A. Each Option shall be evidenced by a written agreement between the
Company and the Optionee ("Option Agreement") which shall contain such terms and
conditions as may be approved by the Committee. The terms and conditions of the
respective Option Agreements need not be identical.
B. For all purposes under the Plan, the fair market value of a share of
Stock on a particular date shall be equal to the mean of the high and low sales
prices of the Stock as reported on the New York Stock Exchange; or, if no prices
are reported on that date, on the last preceding date on which such prices of
the Stock are so reported. In the event Stock is not publicly traded at the time
a determination of its value is required to be made hereunder or the foregoing
methodology is not appropriate for determining the fair market value of Stock as
determined by the Committee for any reason, the determination of its fair market
value shall be made by the Committee in such manner as it deems appropriate.
C. Except as provided herein, each Option and all rights granted thereunder
shall not be transferable other than by will or the laws of descent and
distribution and shall be exercisable during the Optionee's
<PAGE> 2
lifetime only by the Optionee or, in the case of the Optionee's death or
incapacity, by the Optionee's guardian or legal representative. The Committee
may, in its discretion, provide in an Option agreement that any Option may be
transferred in whole or in part.
IV. ELIGIBILITY OF OPTIONEE
Options may be granted only to individuals who are employees (including
officers and directors who are also employees) of the Company or any parent or
subsidiary corporation (as defined in section 425 of the Code) of the Company at
the time the Option is granted. Options may be granted to the same individual on
more than one occasion.
V. SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options granted
under the Plan shall not exceed 10,000,000 shares of Stock (which number
reflects an increase of 3,000,000 shares effective as of April 24, 1998). Such
shares may consist of authorized but unissued shares of Stock or previously
issued shares of Stock reacquired by the Company. Any of such shares which
remain unissued and which are not subject to outstanding Options at the
termination of the Plan shall cease to be subject to the Plan, but, until
termination of the Plan, the Company shall at all times make available a
sufficient number of shares to meet the requirements of the Plan. Should any
Option hereunder expire or terminate prior to its exercise in full, the shares
theretofore subject to such Option may again be subject to an Option granted
under the Plan. The aggregate number of shares which may be issued under the
Plan shall be subject to adjustment in the same manner as provided in Paragraph
VIII hereof with respect to shares of Stock subject to Options then outstanding.
Exercise of an Option in any manner shall result in a decrease in the number of
shares of Stock which may thereafter be available, both for purposes of the Plan
and for sale to any one individual, by the number of shares as to which the
Option is exercised.
VI. OPTION PRICE
The purchase price of Stock issued under each Option shall be determined by
the Committee, but such purchase price shall not be less than the par value of
Stock.
VII. TERM OF PLAN
Except with respect to Options then outstanding, if not sooner terminated
under the provisions of Paragraph IX, the Plan shall terminate upon and no
further Options shall be granted after January 21, 2008. The expiration of the
Plan will not affect the validity of Options outstanding at that time.
VIII. RECAPITALIZATION OR REORGANIZATION
A. The existence of the Plan and the Options granted hereunder shall not
affect in any way the right or power of the Board or the shareholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
B. The shares with respect to which Options may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Option may thereafter be exercised (i) in the event
of an increase in the number of outstanding shares shall be proportionately
increased, and the purchase price per share shall be proportionately reduced,
and (ii) in the
<PAGE> 3
event of a reduction in the number of outstanding shares shall be
proportionately reduced, and the purchase price per share shall be
proportionately increased.
C. If the Company recapitalizes, reclassifies its capital stock, or
otherwise changes its capital structure (a "recapitalization"), the number and
class of shares of Stock covered by an Option theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of stock and securities to which the Optionee would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to the
recapitalization, the Optionee had been the holder of record of the number of
shares of Stock then covered by such Option. If (i) the Company shall not be the
surviving entity in any merger, consolidation or other reorganization (or
survives only as a subsidiary of an entity), (ii) the Company sells, leases or
exchanges all or substantially all of its assets to any other person or entity,
(iii) the Company is to be dissolved and liquidated, (iv) any person or entity,
including a "group" as contemplated by Section 13(d)(3) of the 1934 Act,
acquires or gains ownership or control (including, without limitation, power to
vote) of more than 50% of the outstanding shares of the Company's voting stock
(based upon voting power), or (v) as a result of or in connection with a
contested election of directors, the persons who were directors of the Company
before such election shall cease to constitute a majority of the Board (each
such event is referred to herein as a "Corporate Change"), no later than (a) ten
days after the approval by the shareholders of the Company of such merger,
consolidation, reorganization, sale, lease or exchange of assets or dissolution
or such election of directors or (b) thirty days after a change of control of
the type described in Clause (iv), the Committee, acting in its sole discretion
without the consent or approval of any Optionee, shall act to effect one or more
of the following alternatives, which may vary among individual Optionees and
which may vary among Options held by any individual Optionee: (1) accelerate the
time at which Options then outstanding may be exercised so that such Options may
be exercised in full for a limited period of time on or before a specified date
(before or after such Corporate Change) fixed by the Committee, after which
specified date all unexercised Options and all rights of Optionees thereunder
shall terminate, (2) require the mandatory surrender to the Company by selected
Optionees of some or all of the outstanding Options held by such Optionees
(irrespective of whether such Options are then exercisable under the provisions
of the Plan) as of a date, before or after such Corporate Change, specified by
the Committee, in which event the Committee shall thereupon cancel such Options
and the Company shall pay to each Optionee an amount of cash per share equal to
the excess, if any, of the amount calculated in Subparagraph (d) below (the
"Change of Control Value") of the shares subject to such Option over the
exercise price(s) under such Options for such shares, (3) make such adjustments
to Options then outstanding as the Committee deems appropriate to reflect such
Corporate Change (provided, however, that the Committee may determine in its
sole discretion that no adjustment is necessary to Options then outstanding) or
(4) provide that the number and class of shares of Stock covered by an Option
theretofore granted shall be adjusted so that such Option shall thereafter cover
the number and class of shares of stock or other securities or property
(including, without limitation, cash) to which the Optionee would have been
entitled pursuant to the terms of the agreement of merger, consolidation or sale
of assets and dissolution if, immediately prior to such merger, consolidation or
sale of assets and dissolution, the Optionee had been the holder of record of
the number of shares of Stock then covered by such Option.
D. For the purposes of clause (2) in Subparagraph (c) above, the "Change of
Control Value" shall equal the amount determined in clause (i), (ii) or (iii),
whichever is applicable, as follows: (i) the per share price offered to
shareholders of the Company in any such merger, consolidation, reorganization,
sale of assets or dissolution transaction, (ii) the price per share offered to
shareholders of the Company in any tender offer or exchange offer whereby a
Corporate Change takes place, or (iii) if such Corporate Change occurs other
than pursuant to a tender or exchange offer, the fair market value per share of
the shares into which such Options being surrendered are exercisable, as
determined by the Committee as of the date determined by the Committee to be the
date of cancellation and surrender of such Options. In the event that the
consideration offered to shareholders of the Company in any transaction
described in this Subparagraph (d) or Subparagraph (c) above consists of
anything other than cash, the Committee shall determine the fair cash equivalent
of the portion of the consideration offered which is other than cash.
E. Any adjustment provided for in Subparagraphs (b) or (c) above shall be
subject to any required shareholder action.
<PAGE> 4
F. Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Options theretofore granted or the purchase price per
share.
IX. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Options have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided, that no change in any Option theretofore granted may be made
which would materially impair the rights of the Optionee without the consent of
such Optionee; and provided, further, that the Board may not make any alteration
or amendment which would materially increase the benefits accruing to
participants under the Plan, increase the aggregate number of shares which may
be issued pursuant to the provisions of the Plan, or extend the term of the
Plan, without the approval of the shareholders of the Company.
X. SECURITIES LAWS
A. The Company shall not be obligated to issue any Stock pursuant to any
Option granted under the Plan at any time when the offering of the shares
covered by such Option have not been registered under the Securities Act of 1933
and such other state and federal laws, rules or regulations as the Company or
the Committee deems applicable and, in the opinion of legal counsel for the
Company, there is no exemption from the registration requirements of such laws,
rules or regulations available for the offering and sale of such shares.
B. It is intended that the Plan and any grant of an Option made to a person
subject to Section 16 of the 1934 Act meet all of the requirements of Rule
16b-3. If any provision of the Plan or any such Option would disqualify the Plan
or such Option under, or would otherwise not comply with, Rule 16b-3, such
provision or Option shall be construed or deemed amended to conform to Rule
16b-3. Nevertheless, the Board shall have discretion to cause the Plan to be
administered or otherwise operated without complying with Rule 16b-3, and none
of the Board, the Committee, or the Company shall be liable to any Optionee or
other person for failure of the Plan or any award under the Plan to comply with
Rule 16b-3.
<PAGE> 1
EXHIBIT 10b
ROWAN COMPANIES, INC.
1998 NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
I. PURPOSE OF THE PLAN
The Rowan Companies, Inc. 1998 Nonemployee Directors Stock Option Plan (the
"Plan") is intended to provide a means whereby directors of Rowan Companies,
Inc., a Delaware corporation (the "Company"), who are not employees of the
Company or its subsidiaries may develop a sense of proprietorship and personal
involvement in the development and financial success of the Company and whereby
the economic interests of such directors may be more closely aligned with those
of the Company's shareholders, thereby advancing the interests of the Company
and its shareholders. Accordingly, the Company may grant to such directors
("Optionees") the option ("Option") to purchase shares of the common stock of
the Company ("Stock"), as hereinafter set forth. Options granted under the Plan
are not intended to be incentive stock options within the meaning of section
422(b) of the Internal Revenue Code of 1986, as amended (the "Code").
II. ADMINISTRATION
The Plan shall be administered by the full Board of Directors of the
Company (the "Board"). Unless the Board determines otherwise, any and all
actions taken by the Board with respect to the Plan or in exercising its duties,
powers and responsibilities under the Plan shall be effected in a manner which
permits the Plan to comply with Rule 16b-3, as currently in effect or as
hereinafter modified or amended ("Rule 16b-3"), promulgated under the Securities
Exchange Act of 1934, as amended (the "1934 Act"). The Board shall have sole
authority to select the Optionees from among those individuals eligible
hereunder and to establish the number of shares which may be issued under each
Option. In selecting the Optionees from among individuals eligible hereunder and
in establishing the number of shares that may be issued under each Option, the
Board may take into account such factors as the Board in its discretion shall
deem relevant. The Board is authorized to interpret the Plan and may from time
to time adopt such rules and regulations, consistent with the provisions of the
Plan, as it may deem advisable to carry out the Plan. All decisions made by the
Board in selecting the Optionees, in establishing the number of shares which may
be issued under each Option and in construing the provisions of the Plan and any
Options shall be final.
III. OPTION AGREEMENTS
(a) Each Option shall be evidenced by a written agreement between the
Company and the Optionee ("Option Agreement") which shall contain such terms and
conditions as may be approved by the Board. The terms and conditions of the
respective Option Agreements need not be identical.
(b) For all purposes under the Plan, the fair market value of a share of
Stock on a particular date shall be equal to the mean of the high and low sales
prices of the Stock reported on the New York Stock Exchange on that date; or, if
no prices are reported on that date, on the last preceding date on which such
prices of the Stock are so reported. In the event Stock is not publicly traded
at the time a determination of its value is required to be made hereunder or the
foregoing methodology is not appropriate for determining the fair market value
of Stock as determined by the Board for any reason, the determination of its
fair market value shall be made by the Board in such manner as it deems
appropriate.
(c) Except as provided herein, each Option and all rights granted
thereunder shall not be transferable other than by will or the laws of descent
and distribution be exercisable during the Optionee's lifetime only by the
Optionee or, in the case of the Optionee's death or incapacity, by the
Optionee's guardian or legal
<PAGE> 2
representative. The Board may, in its discretion, provide in an Option agreement
that the Option granted thereby to a director may be transferred in whole or in
part.
IV. ELIGIBILITY OF OPTIONEE
Options may be granted only to individuals who are directors of the Company
and who are not also employees of the Company or any parent or subsidiary
corporation (as defined in section 425 of the Code) of the Company at the time
the Option is granted. Options may be granted to the same individual on more
than one occasion.
V. SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options granted
under the Plan shall not exceed 200,000 shares of Stock. Such shares may consist
of authorized but unissued shares of Stock or previously issued shares of Stock
reacquired by the Company. Any of such shares which remain unissued and which
are not subject to outstanding Options at the termination of the Plan shall
cease to be subject to the Plan, but, until termination of the Plan, the Company
shall at all times make available a sufficient number of shares to meet the
requirements of the Plan. Should any Option hereunder expire or terminate prior
to its exercise in full, the shares theretofore subject to such Option may again
be subject to an Option granted. The aggregate number of shares which may be
issued under the Plan shall be subject to adjustment in the same manner as
provided in Paragraph VIII hereof with respect to shares of Stock subject to
Options then outstanding. Exercise of an Option in any manner shall result in a
decrease in the number of shares of Stock which may thereafter be available for
purposes of the Plan by the number of shares as to which the Option is
exercised.
VI. OPTION PRICE
The purchase price of Stock issued under each Option shall be determined by
the Board, but such purchase price shall not be less than the fair market value
of the Stock subject to the Option on the date the Option is granted.
VII. TERM OF PLAN
The Plan shall be effective as of April 24, 1998, subject to its approval
by the stockholders of the Company. Except with respect to Options then
outstanding, if not sooner terminated under the provisions of Paragraph IX, the
Plan shall terminate upon and no further Options shall be granted after the
expiration of fifteen years from the effective date of the Plan. The expiration
of the Plan will not affect the validity of Options outstanding at that time.
VIII. RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Options granted hereunder shall not
affect in any way the right or power of the Board or the shareholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
(b) The shares with respect to which Options may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Option may thereafter be exercised (i) in the event
of an increase in the number of outstanding shares shall be
<PAGE> 3
proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per
share shall be proportionately increased.
(c) If the Company recapitalizes, reclassifies its capital stock, or
otherwise changes its capital structure (a "recapitalization"), the number and
class of shares of Stock covered by an Option theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of stock and securities to which the Optionee would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to the
recapitalization, the Optionee had been the holder of record of the number of
shares of Stock then covered by such Option. If (i) the Company shall not be the
surviving entity in any merger, consolidation or other reorganization (or
survives only as a subsidiary of an entity), (ii) the Company sells, leases or
exchanges all or substantially all of its assets to any other person or entity,
(iii) the Company is to be dissolved and liquidated, (iv) any person or entity,
including a "group" as contemplated by Section 13(d)(3) of the 1934 Act,
acquires or gains ownership or control (including, without limitation, power to
vote) of more than 50% of the outstanding shares of the Company's voting stock
(based upon voting power), or (v) as a result of or in connection with a
contested election of directors, the persons who were directors of the Company
before such election shall cease to constitute a majority of the Board (each
such event is referred to herein as a "Corporate Change"), no later than (a) ten
days after the approval by the shareholders of the Company of such merger,
consolidation, reorganization, sale, lease or exchange of assets or dissolution
or such election of directors or (b) thirty days after a change of control of
the type described in Clause (iv), the Board, acting in its sole discretion
without the consent or approval of any Optionee, shall act to effect one or more
of the following alternatives, which may vary among individual Optionees and
which may vary among Options held by any individual Optionee: (1) accelerate the
time at which Options then outstanding may be exercised so that such Options may
be exercised in full for a limited period of time on or before a specified date
(before or after such Corporate Change) fixed by the Board, after which
specified date all unexercised Options and all rights of Optionees thereunder
shall terminate, (2) require the mandatory surrender to the Company by selected
Optionees of some or all of the outstanding Options held by such Optionees
(irrespective of whether such Options are then exercisable under the provisions
of the Plan) as of a date, before or after such Corporate Change, specified by
the Board, in which event the Board shall thereupon cancel such Options and the
Company shall pay to each Optionee an amount of cash per share equal to the
excess, if any, of the amount calculated in Subparagraph (d) below (the "Change
of Control Value") of the shares subject to such Option over the exercise
price(s) under such Options for such shares, (3) make such adjustments to
Options then outstanding as the Board deems appropriate to reflect such
Corporate Change (provided, however, that the Board may determine in its sole
discretion that no adjustment is necessary to Options then outstanding) or (4)
provide that the number and class of shares of Stock covered by an Option
theretofore granted shall be adjusted so that such Option shall thereafter cover
the number and class of shares of stock or other securities or property
(including, without limitation, cash) to which the Optionee would have been
entitled pursuant to the terms of the agreement of merger, consolidation or sale
of assets and dissolution if, immediately prior to such merger, consolidation or
sale of assets and dissolution, the Optionee had been the holder of record of
the number of shares of Stock then covered by such Option.
(d) For the purposes of clause (2) in Subparagraph (c) above, the "Change
of Control Value" shall equal the amount determined in clause (i), (ii) or
(iii), whichever is applicable, as follows: (i) the per share price offered to
shareholders of the Company in any such merger, consolidation, reorganization,
sale of assets or dissolution transaction, (ii) the price per share offered to
shareholders of the Company in any tender offer or exchange offer whereby a
Corporate Change takes place, or (iii) if such Corporate Change occurs other
than pursuant to a tender or exchange offer, the fair market value per share of
the shares into which such Options being surrendered are exercisable, as
determined by the Board as of the date determined by the Board to be the date of
cancellation and surrender of such Options. In the event that the consideration
offered to shareholders of the Company in any transaction described in this
Subparagraph (d) or Subparagraph (c) above consists of anything other than cash,
the Board shall determine the fair cash equivalent of the portion of the
consideration offered which is other than cash.
<PAGE> 4
(e) Any adjustment provided for in Subparagraphs (b) or (c) above shall be
subject to any required shareholder action.
(f) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Options theretofore granted or the purchase price per
share.
IX. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Options have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided, that no change in any Option theretofore granted may be made
which would materially impair the rights of the Optionee without the consent of
such Optionee; and provided, further, that the Board may not make any alteration
or amendment which would materially increase the benefits accruing to
participants under the Plan, increase the aggregate number of shares which may
be issued pursuant to the provisions of the Plan or extend the term of the Plan,
without the approval of the shareholders of the Company.
X. SECURITIES LAWS
(a) The Company shall not be obligated to issue any Stock pursuant to any
Option granted under the Plan at any time when the offering of the shares
covered by such Option have not been registered under the Securities Act of 1933
and such other state and federal laws, rules or regulations as the Company or
the Board deems applicable and, in the opinion of legal counsel for the Company,
there is no exemption from the registration requirements of such laws, rules or
regulations available for the offering and sale of such shares.
(b) It is intended that the Plan and any grant of an Option made to a
person subject to Section 16 of the 1934 Act meet all of the requirements of
Rule 16b-3. If any provision of the Plan or any such Option would disqualify the
Plan or such Option under, or would otherwise not comply with, Rule 16b-3, such
provision or Option shall be construed or deemed amended to conform to Rule
16b-3. Nevertheless, the Board shall have discretion to cause the Plan to be
administered or otherwise operated without complying with Rule 16b-3, and
neither the Board nor the Company shall be liable to any Optionee or other
person for failure of the Plan or any award under the Plan to comply with Rule
16b-3.
<PAGE> 1
EXHIBIT 10c
ROWAN COMPANIES, INC.
1998 CONVERTIBLE DEBENTURE INCENTIVE PLAN
1. Purpose. The Rowan Companies, Inc. 1998 Convertible Debenture Incentive
Plan (the "Plan") is intended to promote the interests of Rowan Companies, Inc.
(the "Company") and its stockholders by allowing officers and other key
personnel of the Company and its subsidiaries the opportunity to invest in
corporate debt in the form of the Company's floating interest rate subordinated
debentures (the "Debentures") which are convertible into shares of Preferred
stock, $1 par value, of the Company (the "Preferred Stock"), which shares of
Preferred Stock are convertible into shares of common stock of the Company (the
"Common Stock"), thereby giving key personnel added incentive to work toward the
continued growth and success of the Company. The Company's Board of Directors
also contemplates that the Plan will enable the Company and its subsidiaries to
compete more effectively for the services of management personnel needed for the
continued growth and success of the Company.
2. Issuance of the Debentures. The Company shall have authority to issue
Debentures in such amounts and to such of the key employees of the Company and
its subsidiaries (as defined by Section 425 of the Internal Revenue Code of
1954, as amended) as the Committee (as defined in Section 9) shall from time to
time determine. Such employees purchasing Debentures are designated herein as
"Purchasers".
3. General Terms and Conditions of the Debentures.
Section 3.1. General. The Committee shall from time to time determine with
respect to each series of Debentures to be issued the interest rate thereof, the
conversion price applicable thereto (including the conversion ratio of the
Preferred Stock), and such other terms and conditions of the Debentures, all to
the extent not inconsistent with the provisions of this Plan.
Section 3.2. Form and Term of Debentures. Debentures will be issued in
series, the terms and conditions of which may differ among series and shall be
in such form and in such denominations as the Committee may approve. Each series
will be due not earlier than five years, or later than ten years, from the date
of issuance, or on such earlier date as the Company redeems any Debentures,
which date is referred to herein as the "Due Date".
Section 3.3. Conversion of the Debentures. Subject to the provisions of
this Section 3.3, the Debentures will be convertible at the conversion price in
effect at the time of conversion into fully paid and non-assessable shares of
Preferred Stock, which will immediately be convertible into fully paid and
non-assessable shares of Common Stock of the Company, at any time in portions
and after time periods determined by the Committee, which in no event will be
less than one year after the date of issuance until the close of business on the
Due Date. Each series of Debentures shall be convertible into a separate series
of Preferred Stock. The conversion privilege with respect to any Debenture may
be exercised only by a Purchaser thereof, by the estate of a deceased Purchaser
or a beneficiary under such estate, or by a transferee of the Debenture as
provided for therein.
Upon termination of a Purchaser's employment except as described in (a),
(b), (c) or (d) below, a Purchaser's conversion privilege shall terminate. Upon
termination of employment as described in any of (a), (b), (c) or (d) below, the
Purchaser may thereafter exercise his conversion privilege at any time prior to
the earlier of the Due Date or:
(a) If Employee's employment with the Company terminates by reason of
Retirement (as defined in Appendix A hereto), the date which is five years
following the date of such Retirement, but only as to the portion or
portions of the Debenture as provided for therein that Purchaser was
entitled to convert as of the date of such Retirement, plus such additional
portion or portions, if any, that the Committee, in its sole discretion,
determines to be convertible as of the date of such Retirement.
<PAGE> 2
(b) If Employee dies within the five-year period following the date of
Employee's termination of employment by reason of Retirement (in which case
conversion may be effected as applicable by Employee's estate, or the
person who acquires this Debenture by bequest or inheritance or otherwise
by reason of the death of Employee), the date which is two years following
the date of Employee's death, but only as to the portion or portions of the
Debenture as provided for therein that Purchaser was entitled to convert as
of the date Employee's employment terminated by reason of Retirement.
(c) If Employee's employment with the Company terminates by reason of
Disability (as defined in Appendix A hereto), Employee may convert this
Debenture in full at any time during the period of five years following the
date of such termination.
(d) If Employee dies while in the employ of the Company or within the
five-year period following the date of Employee's termination of employment
by reason of Disability, Employee's estate, or the person who acquires this
Debenture by bequest or inheritance or by reason of the death of Employee,
may convert this Debenture in full at any time during the period of two
years following the date of Employee's death.
In the case of (a), (b), (c) and (d), any and all questions as to whether
and when there has been a termination of a Purchaser's employment, and the cause
of such termination, shall be determined by the Committee using whatever
evidence as it may require, such determination or determinations being final and
controlling on all interested parties.
The conversion privilege with respect to any Debenture (i) will terminate
if the Purchaser, without the Company's consent, sells, assigns, transfers,
pledges, hypothecates or otherwise disposes of a Debenture except as permitted
by Section 3.4 and (ii) will not be exercisable during such time as the
Debenture is pledged to secure loans as permitted by Section 3.4.
In no event may any Purchaser or the estate of a deceased Purchaser or a
beneficiary under such estate exercise the conversion privilege associated with
a Debenture prior to one year from the date of issuance of such Debenture or
after the Due Date.
Notwithstanding the foregoing or any provision in the Plan to the contrary,
effective with the occurrence of a Corporate Change, as defined in the Company's
Restated 1988 Nonqualified Stock Option Plan, each Debenture that has been
issued and outstanding for more than one year as of the date of the Corporate
Change shall automatically be fully convertible on and after the date of such
Corporate Change.
Section 3.4. Transfer and Pledge of Debentures. A Purchaser may not sell,
assign, transfer, pledge, hypothecate or otherwise dispose of a Debenture except
by (i) will or the laws of descent and distribution or (ii) a pledge ("Permitted
Pledge") of Debentures to a lender (which may be the Company if a loan is made
pursuant to Section 8 hereof) as security for loans to provide all or part of
the financing to purchase the Debentures. If such loan shall be made by other
than the Company, the Purchaser shall give advance written notice to the Company
prior to making any Permitted Pledge and the Purchaser and such Lender shall
give notice of discharge of any Debenture from a Permitted Pledge, which notice
shall be conclusive evidence that the conversion privilege with respect to such
Debenture will again be exercisable subject to the provisions of Section 3.3.
Section 3.5. Redemption of Debentures. The Company may, upon at least
thirty days prior written notice to the affected Debenture holder or holders,
redeem on any interest payment date, any or all of the Debentures issued under
this Plan. The Company shall redeem on the next interest payment date after
termination of the conversion privilege with respect thereto any Debenture with
respect to which the conversion privilege has terminated pursuant to clauses
(a), (b), (c) or (d) of Section 3.3. The holder of any Debenture redeemed
pursuant to this Section 3.5 shall be entitled to receive only the face amount
of the Debenture plus accrued interest thereof to the Due Date.
4. Authorized Amount of Debentures. The Company may issue up to
$30,000,000.00 in aggregate principal amount of all Debentures.
<PAGE> 3
5. Effective Date. The Plan shall become effective upon approval thereof by
the vote of the holders of a majority of the shares of Common Stock of the
Company voting at the 1998 Annual Meeting of Stockholders, and shall expire when
all of the Company's obligations with respect to all of the outstanding
Debentures have been discharged; provided, however, that no Debenture shall be
issued after April 24, 2008.
6. Offers and Sales Price of Debentures. The Debentures shall be sold by
the Company to Purchasers at a price equal to the higher of (a) face value plus
any accrued interest to the date of sale or (b) the fair market value of the
Debentures as of the date the Purchaser elects to purchase the Debentures, as
determined by an independent investment banking firm. If the Internal Revenue
Service determines that the value of a Debenture at the time of sale exceeded
its sale price and if (a) the Company receives a federal income tax benefit as a
result of such determination and (b) the Purchaser has contested such
determination in a manner which the Company determines to be appropriate under
the circumstances, then the Company will pay to the Purchaser or his estate or a
beneficiary under his estate the lesser of (x) the federal income tax benefit
derived by the Company as a result of the sale of the Debenture to the Purchaser
or (y) the amount estimated by the Company (based on the highest marginal
federal income tax rate applicable with respect to compensation income for the
year in which the sale occurred and the amount determined by the Internal
Revenue Service to be taxable income to the Purchaser as a result of his
purchase of the Debenture) to be Purchaser's federal income tax liability
resulting from his purchase of the Debenture.
The Debentures may be offered only on the dates of regularly-scheduled
meetings of the Company's Board of Directors (any such date is referred to
herein as an "Offering Date"). An employee may elect to purchase all or none of
the Debentures offered to him on an Offering Date by giving written notice to
the Company of his election within 10 business days of such Offering Date.
Payment for such Debentures shall be in cash or in Common Stock (valued at the
mean of the high and low sales price of Common Stock prior to the date of such
payment, as shown on the Composite Tape for securities listed on the New York
Stock Exchange) and shall be made within 20 business days of such Offering Date.
7. Conversion Price. The price (the "Conversion Price") at which shares of
Preferred Stock shall be delivered upon conversion of a series of Debentures
shall be set at a price at least equal to the mean of the high and low sales
price of the Company's Common Stock on the date of sale of such series of
Debentures, as shown on the Composite Tape for securities listed on the New York
Stock Exchange. The number of shares of Common Stock which shall be delivered
upon conversion of any shares of a series of Preferred Stock (the "Conversion
Ratio") shall not exceed the face value of the related Debentures which were
converted into such Preferred Stock divided by the mean of the high and low
sales price of the Company's Common Stock on the date of sale of such series of
Debentures, as shown on the Composite Tape for securities listed on the New York
Stock Exchange. Upon any change in the capital stock of the Company, through
merger, consolidation, reorganization, recapitalization, stock dividend, stock
split, spin-off, split up, dividend in kind or other change in the corporate
structure or distribution to stockholders, appropriate adjustments to the
Conversion Price and Conversion Ratio and the kind of shares delivered upon
conversion of the Debentures and Preferred Stock may be made by the Committee
(or, if the Company is not the surviving corporation in any such transaction,
the board of directors of the surviving corporation) with respect to both
outstanding and unissued Debentures and Preferred Stock. If the Internal Revenue
Service determines that the conversion of Debentures into Preferred Stock or
that the subsequent conversion of Preferred Stock into Common Stock is a taxable
transaction and if (a) the Company receives a federal income tax benefit as a
result of such determination and (b) the Purchaser has contested such
determination in a manner which the Company deems to be appropriate under the
circumstances, then the Company will pay the Purchaser or his estate or a
beneficiary under his estate the lesser of (x) the federal income tax benefit
derived by the Company with respect to such conversion or (y) the amount
estimated by the Company (based on the highest marginal federal income tax rate
applicable with respect to compensation income for the year in which the
conversion occurred and the amount determined by the Internal Revenue Service to
be taxable income to the Purchaser as a result of such conversion) to be
Purchaser's federal income tax liability resulting from such conversion.
8. Company Loans. The Company may, from time to time, make loans ("Company
Loans") to Purchasers for the purpose of providing all or part of the financing
necessary to purchase any Debenture; provided, however, that the maximum amount
of the Company Loan shall not exceed the purchase price of
<PAGE> 4
the Debentures. Subject to the foregoing, Company Loans may be made to such
Purchasers in such amounts bearing interest at such rates (not less than the
higher of the interest rate on the Debenture or a floating rate determined under
Sections 483 and 1274(d) of the Internal Revenue Code of 1986, as amended),
shall be secured by a pledge of and lien on the Debenture (which may be inferior
to the pledge and lien securing a bank loan) and on such other terms and
conditions as the Committee may from time to time approve.
9. Administration. The Plan shall be administered by a committee of the
Board of Directors (the "Committee"), which shall consist of three or more
persons. No Debentures may be sold to any member of the Committee during the
term of his membership on the Committee. No person shall be eligible to serve on
the Committee unless he is a "disinterested person" within the meaning of
Paragraph (d)(3) of Rule 16b-3, under the Securities Exchange Act of 1934 or any
successor thereto as then in effect ("Rule 16b-3"). The members of the Committee
shall be appointed by the Board of Directors, and any vacancy on the Committee
shall be filled by the Board of Directors.
Subject to the foregoing paragraphs, the Committee shall interpret the Plan
and the Debentures sold under the Plan, shall make such rules as it deems
necessary for the proper administration of the Plan, shall make all other
determinations necessary or advisable for the administration of the Plan and
shall correct any defect or supply any omission or reconcile any inconsistency
in the Plan or in any Debenture in the manner and to the extent the Committee
deems desirable to administer the Plan or the Debentures. The Committee's
determination of any matter within its authority shall be conclusive and binding
upon the Company and all other persons.
10. Amendment and Discontinuance. Subject to the provisions of this Section
10, the Committee may amend, suspend or terminate the Plan. No amendment,
suspension or termination of the Plan may:
(a) Without the consent of the holder of a Debenture, terminate his
Debenture or adversely affect his rights under the Debenture in any
material respect;
(b) Without the consent of a majority of the shares of voting stock of
the Company voting at any meeting of Stockholders (i) increase the amount
of Debentures available under the Plan, (ii) change materially the persons
eligible to purchase Debentures under the Plan, (iii) increase materially
the benefits under the Plan, or (iv) extend the termination date of the
Plan; or
(c) Cause the plan to fail to meet the requirements of Rule 16b-3.
11. Other Provisions.
(a) The Purchaser of a Debenture shall not be entitled to any rights as a
stockholder of the Company until such Purchaser has exercised the conversion
privilege contained in the Debenture.
(b) No Debenture shall be construed as limiting any right which the Company
or any subsidiary of the Company may have to terminate at any time, with or
without cause, the employment of a Purchaser to whom a Debenture has been sold.
(c) Notwithstanding any provision of the Plan or the terms of any Debenture
sold pursuant to the Plan, (i) the Company shall not be required to issue any
Debentures hereunder if such issuance would, in the judgment of the Committee,
constitute a violation of any state or Federal law, or of the rules or
regulations of any governmental regulatory body, and (ii) any amount of interest
paid or payable on a Debenture which exceeds the amount legally payable to a
Purchaser under the applicable usury laws will be paid by the Company as
compensation to the Purchaser.
<PAGE> 5
APPENDIX A
TO
1998 CONVERTIBLE DEBENTURE INCENTIVE PLAN
Retirement. For purposes of the Plan, a Purchaser shall be deemed to have
terminated employment by reason of "Retirement" if such Purchaser voluntarily
terminates employment on or after having attained the age of 60 while employed
by the Company or an affiliate of the Company.
Disability. For purposes of the Plan, a Purchaser shall be deemed to have
terminated his employment with the Company or an affiliate of the Company by
reason of "Disability" if at the time of such termination of employment he has a
mental or physical condition which totally and presumably permanently prevents
him from engaging in any substantial gainful employment with the Company which
(i) did not arise while engaged in or as a result of being engaged in an illegal
act or enterprise, (ii) did not result from chronic alcoholism, addiction to
narcotics or the use of illegal or unauthorized drugs in any manner, (iii) did
not result from service in the Armed Forces of the United States which entitled
the Purchaser to a veteran's disability pension, and (iv) did not arise while
employed by an employer other than the Company or a subsidiary or affiliated
corporation of the Company. The existence of such Disability must be certified
by two duly licensed and practicing physicians selected, respectively, at the
direction of the Committee and at the direction of the Purchaser or his
representative. If they fail to agree, a third physician shall be selected at
the direction of the Committee, and the determination of any two of such three
physicians shall be final and controlling on all interested parties. The
determination of any such physicians shall be evidenced by appropriate written
certifications delivered to the Committee. Notwithstanding the foregoing, the
Committee may, in its discretion, waive the requirement for certification of
Disability by licensed physicians, and, in lieu of such certification, rely on
such other appropriate medical evidence of Disability as is deemed satisfactory
by the Committee.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ROWAN COMPANIES, INC. FOR THE THREE MONTHS
ENDED MARCH 31, 1998 INCLUDED IN ITS FORM 10-Q FOR THE QUARTERLY PERIOD THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 116,617
<SECURITIES> 0
<RECEIVABLES> 124,527
<ALLOWANCES> 0
<INVENTORY> 108,328
<CURRENT-ASSETS> 398,344
<PP&E> 1,592,179
<DEPRECIATION> 852,922
<TOTAL-ASSETS> 1,143,397
<CURRENT-LIABILITIES> 76,732
<BONDS> 238,135
0
0
<COMMON> 11,042
<OTHER-SE> 687,181
<TOTAL-LIABILITY-AND-EQUITY> 1,143,397
<SALES> 35,810
<TOTAL-REVENUES> 183,914
<CGS> 24,892
<TOTAL-COSTS> 119,397
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 852
<INCOME-PRETAX> 65,975
<INCOME-TAX> 23,216
<INCOME-CONTINUING> 42,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,759
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.48
</TABLE>
