<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1999
REGISTRATION NO. 333-88855
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ROWAN COMPANIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 75-0759420
(State or Other Jurisdiction of Incorporation (I.R.S. Employer Identification No.)
or Organization)
</TABLE>
2800 POST OAK BOULEVARD
SUITE 5450
HOUSTON, TEXAS 77056-6196
(713) 621-7800
(Address, including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------------
C. R. PALMER
2800 POST OAK BOULEVARD
SUITE 5450
HOUSTON, TEXAS 77056-6196
(713) 621-7800
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------------
Copies to:
<TABLE>
<S> <C>
ROBERT V. JEWELL T. MARK KELLY
ANDREWS & KURTH L.L.P. VINSON & ELKINS L.L.P.
4200 CHASE TOWER 2300 FIRST CITY TOWER
600 TRAVIS 1001 FANNIN
HOUSTON, TEXAS 77002-3090 HOUSTON, TEXAS 77002-6760
(713) 220-4200 (713) 758-2222
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
REGISTRATION NO. 333-88855
SUBJECT TO COMPLETION, DATED NOVEMBER 19, 1999
PROSPECTUS
10,000,000 SHARES
[ROWAN COMPANIES, INC. LOGO]
ROWAN COMPANIES, INC.
COMMON STOCK
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Rowan Companies, Inc. is offering 10,000,000 shares of its common stock. Our
common stock is listed on the New York Stock Exchange and the Pacific
Exchange-Stock & Options under the symbol "RDC." On November 18, 1999, the last
reported sale price on the New York Stock Exchange was $18 5/16 per share.
INVESTING IN THE SHARES INVOLVES RISKS. RISK FACTORS BEGIN ON PAGE 5.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to Rowan (before expenses)......................... $ $
</TABLE>
Rowan has also granted the underwriters the right to purchase up to 1,500,000
additional shares of common stock within 30 days to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Lehman Brothers expects to deliver the shares to purchasers on or about November
, 1999.
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LEHMAN BROTHERS
November , 1999
<PAGE> 3
[INSIDE FRONT COVER]
[PHOTO OF THE ROWAN-ODESSA AND THE GILBERT ROWE PREPARING TO TEST THE
TANZANITE DISCOVERY WELL]
<PAGE> 4
YOU SHOULD ONLY RELY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT, AND THE UNDERWRITERS HAVE NOT,
AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE
OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN
JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. YOU SHOULD NOT ASSUME THAT
THE INFORMATION CONTAINED IN THIS PROSPECTUS OR THE DOCUMENTS INCORPORATED BY
REFERENCE IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF THOSE DOCUMENTS. NO
ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO PERMIT A
PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS
PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES AND CANADA ARE REQUIRED TO
INFORM THEMSELVES ABOUT AND TO OBSERVE THE RESTRICTIONS OF THAT JURISDICTION
RELATED TO THIS OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Where You Can Find More Information.... i
Incorporation of Documents by
Reference............................ ii
Prospectus Summary..................... 1
Forward-Looking Statements............. 5
Risk Factors........................... 5
Use of Proceeds........................ 9
Price Range of Common Stock............ 10
Dividend Policy........................ 10
Capitalization......................... 11
Selected Financial Data................ 12
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 13
Business............................... 22
Management............................. 30
Material United States Federal Tax
Consequences to Non-United States
Holders of Common Stock.............. 31
Underwriting........................... 33
Legal Matters.......................... 35
Experts................................ 35
</TABLE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission under the Securities
Exchange Act of 1934. The registration statement of which this prospectus forms
a part and these reports, proxy statements and other information can be
inspected and copied at the Public Reference Room maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of the materials may also be obtained from the Commission at
prescribed rates by writing to the Public Reference Room maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the Commission at 1-800-SEC-0330.
We have filed with the Commission a registration statement on Form S-3
under the Securities Act with respect to our offering of common stock. This
prospectus, which constitutes a part of the registration statement, does not
contain all the information set forth in the registration statement and the
attached schedules and exhibits.
The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding us. The reports, proxy and information statements
and other information about us can be downloaded from the Commission's website
and can also be inspected and copied at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005, on which our common
stock is traded.
i
<PAGE> 5
INCORPORATION OF DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to incorporate by
reference the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information that we file with the Securities and Exchange
Commission after the date of the registration statement of which this prospectus
forms a part will automatically update and supersede the information in this
prospectus. Accordingly, we incorporate by reference the documents listed below:
1. Rowan's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
2. Rowan's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1999;
3. Rowan's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1999;
4. Rowan's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1999;
5. The description of Rowan's common stock contained in the
registration statement on Form 8-A (No. 1-5491) filed on May 13,
1993 and the description of the preferred stock purchase rights
contained in Rowan's registration statement on Form 8-A/A filed on
August 6, 1997, in each case as amended;
6. The Annual Report of LeTourneau, Inc.'s Savings and Investment Plan
filed on Form 11-K on June 29, 1999; and
7. The Annual Report of Rowan's Savings and Investment Plan filed on
Form 11-K on June 29, 1999.
All reports and other documents we subsequently file pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus
shall be incorporated by reference into this prospectus and deemed to be part of
this prospectus from the date of the filing of such reports and documents.
We will provide without charge to each person to whom this prospectus is
delivered, upon written or oral request, a copy of any or all documents that are
incorporated into this prospectus by reference, other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
the documents that this prospectus incorporates. You should direct such requests
to: Rowan Companies, Inc., 2800 Post Oak Boulevard, Suite 5450, Houston, Texas
77056-6196, telephone: (713) 621-7800, Attention: Vice President -- Investor
Relations.
ii
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus and the documents incorporated by reference. This summary is not
complete and may not contain all of the information that you should consider
before investing in our common stock. You should read carefully the entire
prospectus and the information incorporated by reference. In this prospectus,
references to "we," "us" and "our" are to Rowan Companies, Inc. and its
subsidiaries.
ROWAN
Rowan Companies, Inc. is a major provider of international and domestic
offshore contract drilling services to the energy industry. Our marine drilling
fleet operates primarily in the Gulf of Mexico, offshore eastern Canada and the
North Sea. Our rig fleet features larger, deep-water type self-elevating, or
"jack-up," mobile offshore drilling platforms capable of drilling to 30,000 feet
in water depths of up to 550 feet, subject to geographic locations and weather
conditions. Currently, the fleet includes 13 cantilever jack-up rigs, featuring
three harsh environment "Gorilla Class rigs" and one "Super Gorilla Class rig"
and eight conventional jack-up rigs, with two more Super Gorilla Class rigs now
under construction. We have upgraded four of the conventional jack-up rigs to
have skid-off capabilities. In addition, we operate one semi-submersible rig
capable of drilling to 25,000 feet in water depths of up to 1,200 feet. We also
offer onshore drilling services in the continental United States and Alaska
through a fleet of 14 land rigs.
The Super Gorilla Class rigs are designed to be able to operate year-round
in water depths of up to 400 feet in the North Sea and other key harsh
environment markets under weather conditions that would exist during "100-year"
storms, thereby diminishing the weather related down time associated with
floating units. As new oil and gas deposits are being found in smaller
reservoirs and in harsher environments, the ability of these Super Gorilla Class
rigs to move onto a location and simultaneously perform both drilling and
production activities enables our customers to reduce exploration and production
costs and capital expenditures that would otherwise be needed to construct and
eventually abandon platforms.
Complementing our contract drilling businesses are:
- the LeTourneau marine construction facility, which has designed and built
over one-third of all mobile offshore jack-up drilling rigs, including
all 21 operated by us;
- an international aviation service business operating helicopters and
fixed-wing aircraft; and
- a manufacturing facility which produces heavy equipment for the mining,
timber and transportation industries and operates a mini-steel mill that
recycles scrap steel and produces steel plate.
ROWAN'S STRATEGY
Our business strategy is to be the leading provider of technologically
advanced, higher margin contract drilling services to the deep-water jack-up rig
market. We operate our company to take advantage of cyclical upturns and to
minimize the effects of cyclical downturns. Key elements of this strategy
include:
- Geographic focus on higher margin markets -- focus our drilling
operations in the Gulf of Mexico, offshore eastern Canada and the North
Sea;
- Provide high quality equipment -- offer technologically advanced
LeTourneau-designed jack-up rigs capable of operating in harsh
environments;
- Opportunistically reinvest in rig fleet -- time our capital expenditures
to take advantage of market cycles;
- Maintain a prudent financial plan -- maintain a conservative capital
structure and contract for shorter periods to take advantage of rising
day rates; and
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<PAGE> 7
- Develop and retain a qualified and loyal workforce -- maintain an
experienced workforce, even through cyclical downturns, rewarding
competence and loyalty.
MARKET CONDITIONS
While the drilling industry has benefited from the recent increase in oil
and natural gas prices, the industry is still suffering from a decline in rig
utilization and day rates that began in mid-1998. During the second quarter of
1998, offshore drilling activity began to decline in response to weak oil prices
that had been declining since 1997. This decline in prices was generally
attributable to increased worldwide production coupled with slowing global
demand. Energy companies responded to depressed prices by reducing their
drilling expenditures, either by allowing contract options to lapse or by
canceling or deferring planned drilling projects. Our drilling operations have
only recently begun to recover from the industry-wide downturn that began in
mid-1998. We believe that if oil and natural gas prices remain at or around
current levels, the offshore drilling market, especially in the Gulf of Mexico,
will improve.
SUMMARY OPERATING DATA
The following table shows the utilization of our offshore drilling rigs
during each quarter of 1999:
<TABLE>
<CAPTION>
AT
MARCH 31, 1999 JUNE 30, 1999 SEPTEMBER 30, 1999 NOVEMBER 18, 1999
---------------------- ---------------------- ---------------------- ----------------------
NUMBER NUMBER NUMBER NUMBER
TYPE AND LOCATION OF RIG(1) OF UNITS UTILIZATION OF UNITS UTILIZATION OF UNITS UTILIZATION OF UNITS UTILIZATION
- --------------------------- -------- ----------- -------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gulf of Mexico:
350feetrigs............ 8 38% 8 79% 8 92% 9 89%(3)
300feetrigs............ 1 0% 3 17% 3 54% 3 100%
250feetrigs............ 4 33% 4 57% 4 72% 4 75%(3)
All jack-ups........ 13 34% 15 66% 15 79% 16 88%(3)
Semi-submersible....... 1 74% 1 88% 1 0% 1 100%
North Sea:
Gorillas(2)............ 1 100% 1 100% 1 100% 1 100%
116-C's................ 4 67% 2 65% 2 34% 1 0%
All jack-ups(2)..... 5 73% 3 73% 3 56% 2 50%
Canada:
Gorillas............... 2 100% 2 100% 2 100% 2 100%
All jack-ups(2).......... 20 50% 20 71% 20 78% 20 85%
All offshore rigs(2)..... 21 51% 21 72% 21 74% 21 86%
</TABLE>
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(1) Location at period end.
(2) Excludes Gorilla V, which, as a result of a contract termination, is
currently the subject of litigation. Please read "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Nine Months Ended September 30, 1999 Compared to Nine Months
Ended September 30, 1998."
(3) Two jack-up rigs, the Rowan Halifax, which is having its legs extended to a
350 feet water depth capability, and the Rowan Houston, which is being
converted from a slot rig to a cantilever rig, have been contracted and are
expected to commence drilling operations on or about December 1, 1999. At
that time, Rowan's Gulf of Mexico fleet utilization will be 100%.
2
<PAGE> 8
THE OFFERINGS
Common Stock Offered....... 10,000,000 shares
Common Stock to be
Outstanding After the
Offering(1).............. 93,267,971 shares, assuming no exercise of the
underwriters' over-allotment option
Use of Proceeds............ To repay advances outstanding under our revolving
credit facility ($110 million at September 30,
1999) and for general corporate purposes
- ---------------
(1) Excludes 5,013,016 shares of common stock reserved for issuance under
employee and director compensation plans. Please read notes 2 and 3 to our
audited consolidated financial statements in our annual report on Form 10-K
for 1998.
3
<PAGE> 9
SUMMARY FINANCIAL DATA
The following table sets forth selected financial data of Rowan for each of
the periods indicated. This information should be read in conjunction with the
consolidated financial statements and related notes incorporated by reference
from our annual report on Form 10-K for the fiscal year ended December 31, 1998,
the unaudited interim financial statements and the related notes included in our
quarterly report on Form 10-Q for the quarter ended September 30, 1999 and the
information set forth under "Selected Financial Data" in this prospectus. Please
read "Incorporation of Documents by Reference." Information for the nine months
ended September 30, 1999, in the opinion of our management, contains all
adjustments necessary for a fair presentation and is not necessarily indicative
of the results to be expected for the full year. Amounts are in thousands except
per share amounts and ratios.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- -------------------
1996 1997 1998 1998 1999
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<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Drilling services................ $316,123 $434,004 $431,664 $359,192 $189,670
Manufacturing sales and
services....................... 143,768 154,852 158,913 119,431 69,653
Aviation services................ 111,269 106,396 115,773 93,001 79,822
-------- -------- -------- -------- --------
Total....................... 571,160 695,252 706,350 571,624 339,145
-------- -------- -------- -------- --------
Income (loss) from operations....... 78,671 182,456 182,212 178,241 (14,387)
Interest expense -- net............. (25,031) (16,242) (1,236) (1,071) (8,503)
Interest income..................... 4,157 5,190 7,205 5,179 3,565
Net income (loss)................... $ 61,338 $146,659(1) $124,460 $119,643 $(12,023)
Net income (loss) per share:
Basic............................ $ 0.72 $ 1.70(1) $ 1.45 $ 1.39 $ (0.14)
Diluted.......................... 0.70 1.65(1) 1.43 1.36 (0.14)
OTHER FINANCIAL DATA:
Depreciation and amortization....... $ 47,882 $ 47,078 $ 49,703 $ 36,847 $ 40,856
Capital expenditures................ 117,947 180,066 247,747 180,136 166,266
</TABLE>
<TABLE>
<CAPTION>
AT
DECEMBER 31, AT SEPTEMBER 30, 1999
------------ ---------------------------
1998 ACTUAL AS ADJUSTED(2)
------------ ---------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 148,834 $ 60,047 $ 126,820
Accounts receivable.................................. 81,097 91,142 91,142
Working capital...................................... 286,059 210,581 277,354
Property, plant and equipment -- net................. 877,197 1,001,211 1,001,211
Total assets......................................... 1,249,108 1,298,659 1,365,432
Current maturities of long-term debt................. 12,756 18,433 18,433
Long-term debt....................................... 310,250 368,154 258,154
Stockholders' equity................................. 729,996 720,095 896,868
Current ratio........................................ 4.59x 3.58x 4.40x
Long-term debt/total capitalization(3)............... 0.30 0.34 0.22
</TABLE>
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(1) Includes a $9.8 million ($.12 per basic and $.11 per diluted share)
extraordinary charge in connection with the redemption of long-term debt.
(2) As adjusted to reflect the sale of the shares of common stock offered hereby
at an assumed offering price of $18.3125 per share and the repayment of the
$110 million outstanding under our revolving credit facility.
(3) Total capitalization consists of long-term debt plus stockholders' equity.
4
<PAGE> 10
FORWARD-LOOKING STATEMENTS
We believe that some statements contained or incorporated by reference in
this prospectus are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 and are considered prospective.
These include statements contained under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." The following statements are or may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995:
- statements before, after or including the words "may," "will," "could,"
"should," "believe," "expect," "future," "potential," "anticipate,"
"intend," "plan," "estimate" or "continue" or the negative or other
variations of these words; and
- other statements about matters that are not historical facts.
We may not achieve future results covered by the forward-looking
statements. The statements are subject to risks, trends, uncertainties and other
factors that could cause actual results to differ materially from the future
results that the statements express or imply. Among the factors that could cause
actual results to differ materially are:
- oil, natural gas and other commodity prices;
- the level of offshore expenditures by energy companies;
- the general economy, including inflation;
- weather conditions in our principal operating areas;
- environmental and other laws and regulations; and
- the level of merger and acquisition activity in the businesses in which
we operate.
Please do not put undue reliance on these forward-looking statements, which
speak only as of the date of this prospectus.
RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information contained and incorporated by reference in this
prospectus, before deciding to invest in our common stock.
DEPRESSED OIL AND NATURAL GAS PRICES COULD GREATLY REDUCE DEMAND FOR OUR
OFFSHORE DRILLING AND RELATED SERVICES.
The success of our offshore drilling, manufacturing and aviation operations
depends upon the condition of the oil and gas industry, particularly the level
of offshore drilling activity. Demand for our offshore drilling and related
services is vulnerable to periodic declines in drilling activity typically
associated with depressed oil and natural gas prices. Oil and natural gas prices
have historically been volatile, and the offshore drilling market was generally
depressed from the early 1980s until the mid-1990s.
While the drilling industry has benefited from the recent increase in oil
and natural gas prices, the industry is still suffering from a decline in rig
utilization and day rates that began in mid-1998. During the second quarter of
1998, offshore drilling activity began to decline in response to weak oil prices
that had been declining since 1997. This decline in prices was generally
attributable to increased worldwide production coupled with slowing global
demand. Energy companies responded to depressed prices by reducing their
drilling expenditures, either by allowing contract options to lapse or by
canceling or deferring planned drilling projects. Our drilling operations have
only recently begun to recover from the industry-wide downturn that began in
mid-1998.
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<PAGE> 11
Demand for drilling services also depends on additional factors that are
beyond our control, including:
- fluctuations in the worldwide demand for oil and natural gas;
- the willingness and ability of the Organization of Petroleum Exporting
Countries to limit production levels and influence prices; and
- the level of production in non-OPEC countries.
Our drilling and aviation operations will be adversely affected by future
declines in oil and natural gas prices, but we cannot predict the extent of that
effect. We also cannot assure you that a reduction in offshore drilling activity
will not occur for other reasons. In addition, the ongoing consolidation of the
oil and gas industry, as evidenced by several recent mergers among major energy
companies, has temporarily reduced the amount of money spent on drilling and
drilling-related services.
OUR RESULTS OF OPERATIONS WILL BE ADVERSELY AFFECTED IF WE ARE UNABLE TO SECURE
CONTRACTS ON OUR THREE SUPER GORILLA CLASS RIGS.
A customer notified us in January 1999 that our one-year North Sea drilling
contract for Gorilla V was being prematurely terminated. Our customer has
alleged a performance breach under the contract relating to equipment problems.
We do not believe that we breached the contract and are currently pursuing legal
remedies both in London and in Houston, Texas to enforce our rights. Pending the
outcome of this litigation, all current rig costs for Gorilla V are being
expensed, resulting in a charge to earnings and a corresponding reduction in
pre-tax income. We cannot accurately predict how long this dispute will last or
what its economic effect will be. Please read "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998 -- Drilling Operations."
In addition to Gorilla V, we are building two more Super Gorilla Class
rigs -- Gorilla VI and Gorilla VII. We have assembled a significant portion of
Gorilla VI and began construction of Gorilla VII in July 1999. As was the case
for Gorilla V, the construction costs of Gorilla VI and Gorilla VII are being
financed through the U.S. Department of Transportation's Maritime
Administration's Title XI Program. These rigs are particularly suited for
drilling projects in the North Sea, which is experiencing low levels of demand
for drilling rigs. If we are unable to secure drilling contracts for Gorilla VI
and Gorilla VII, it would have a negative impact on our results of operations.
WE EXPERIENCED OPERATING LOSSES IN THE FIRST TWO QUARTERS OF 1999, AND THIS
TREND MAY CONTINUE.
We suffered net operating losses and a net cash deficit in each of the
first two quarters of 1999 largely because of the decline in rig utilization and
day rates described above. The timing of shipments by our manufacturing division
and weakness in our aviation operations contributed to this deficit. In the
third quarter, prevailing market conditions caused average day rates to continue
declining, though rig utilization increased during this period, and we reported
a slight profit. The volatility underlying the drilling industry prevents us
from accurately predicting future operating conditions and results.
OUR FLEET EXPANSION PROGRAM MAY RESULT IN SHORT-TERM LIQUIDITY PROBLEMS.
We began a fleet expansion program in 1995 that represented our first new
construction since the mid-1980s. In total, three Super Gorilla Class heavy-duty
jack-up rigs will be constructed under the program at a total cost of
approximately $600-650 million. Capital expenditures in 1998 included $172
million for completion of Gorilla V and construction of Gorilla VI and Gorilla
VII. Capital expenditures in 1999 are estimated to be approximately $200
million, which includes approximately $125 million for construction of Gorilla
VI and Gorilla VII.
Gorilla V and Gorilla VI are substantially financed through 12-year notes
guaranteed by the U.S. Department of Transportation's Maritime Administration
under its Title XI Program. Under the MARAD financing, each note is
collateralized by the rig whose construction it finances. We guaranteed
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<PAGE> 12
construction of the rigs and are obligated for the repayment of the debt. We
have secured MARAD financing for Gorilla VII on terms similar to those obtained
for Gorilla V and Gorilla VI.
At September 30, 1999, we had $45 million available under our revolving
credit facility maturing in October 2000. Out of the proceeds of this offering,
we plan to repay all outstanding advances and cancel our revolving credit
facility. After this offering, we do not anticipate having any immediate
financing needs. If we were to need additional financing and are unable to
obtain it at commercially favorable rates, we could experience liquidity
problems.
OUR BUSINESS IS COMPETITIVE AND WE MAY BE UNABLE TO COMPETE SUCCESSFULLY.
The drilling, manufacturing and aviation markets are highly competitive,
and no single competitor is dominant. In the drilling market, a general
oversupply of rigs has lasted for well over a decade, and we believe that
competition for drilling contracts will continue to be intense for the
foreseeable future. The aviation and manufacturing markets are also
characterized by vigorous competition among several competitors. Some of our
competitors possess greater financial resources than we do.
WE ARE SUBJECT TO OPERATING RISKS SUCH AS BLOWOUTS AND WELL FIRES THAT COULD
RESULT IN ENVIRONMENTAL DAMAGE, PROPERTY LOSS, PERSONAL INJURY AND DEATH.
Our drilling operations are subject to many hazards that could increase the
likelihood of accidents. Accidents can result in:
- costly delays or cancellations of drilling operations;
- serious damage to or destruction of equipment;
- personal injury or death;
- significant impairment of producing properties, lease blocks or
geophysical formations; and
- major environmental damage.
Our offshore drilling operations are also subject to marine hazards, either
at offshore sites or while drilling equipment is under tow, such as vessel
capsizings, collisions or groundings. In addition, raising and lowering the legs
of jack-up rigs, ballasting semi-submersible units and drilling into
high-pressure formations are complex, hazardous activities and frequently cause
problems.
Our manufacturing and aviation operations also present serious risks. Our
manufacturing processes could pollute the air, land and inland waters, and the
products we manufacture could be implicated in lawsuits alleging environmental
harm, property loss, personal injury and death. Operating helicopters and
fixed-wing aircraft is similarly hazardous, particularly in Alaska where weather
conditions can be severe.
We have had accidents in the past demonstrating some of the hazards
described above, including high pressure drilling accidents resulting in lost or
damaged drilling formations, towing accidents resulting in lost drilling
equipment and flying accidents resulting in lost aircraft and deaths. While we
have not yet suffered any material uninsured losses:
- we may experience a higher number of accidents in the future than
expected;
- our insurance coverage may prove inadequate to cover losses that are
greater than anticipated;
- our insurance deductibles may increase; or
- our insurance premiums may be increased to the point where maintaining
our current level of coverage is prohibitively expensive.
Should any of these events materialize, future operating losses could have a
significant adverse impact on our business.
7
<PAGE> 13
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION AND ENVIRONMENTAL RISK.
Our drilling, manufacturing and aviation operations subject us to many
government regulations, particularly with respect to equipping drilling vessels
and aircraft and engaging in drilling. Government regulations also determine the
level of taxation to which we and our customers are subject and the
environmental precautions we and they must take. The United States and other
governments in countries where we operate impose extensive regulations governing
environmental protection and pollution control. Some of these regulations impose
liability without regard to negligence or fault. In addition, environmental laws
and regulations, whether currently in effect or enacted in the future, may
increase our cost of doing business and discourage our customers from drilling
for hydrocarbons, thereby reducing demand for our services. We may be liable for
damages resulting from pollution of offshore waters and, under United States
regulations, must establish financial responsibility in order to drill offshore.
POLITICAL AND ECONOMIC CONDITIONS IN COUNTRIES IN WHICH WE OPERATE COULD
ADVERSELY AFFECT US.
Our foreign operations are subject to political, economic and other risks
not encountered in our domestic operations, including:
- uncertain economic conditions in areas where we provide drilling and
aviation services and manufacture products;
- the lack of well-developed legal systems in some foreign jurisdictions,
which could make it difficult for us to enforce our contractual rights;
- restrictions on the right to convert or repatriate currency; and
- expropriation of property, including our customers' drilling rights.
FAILURE OF COMPUTER SYSTEMS TO RECOGNIZE THE YEAR 2000 COULD HAVE AN ADVERSE
EFFECT ON OUR BUSINESS.
Year 2000 problems could result from computer hardware and software using
two digits rather than four to define the applicable year. These problems
include operational inefficiencies, systems failures, business disruptions and
lost revenues attributable to the inability of these two digit systems to
recognize the year 2000.
Although we expect to be year 2000 compliant by January 1, 2000, in a worst
case scenario, our failure -- or the failure of third parties upon whom we
rely -- to achieve year 2000 readiness could adversely affect our operations.
We have not yet deemed it necessary to formulate any year 2000 contingency
plans, but will continue to monitor our year 2000 status and that of our
customers and vendors and develop contingency plans if necessary. Please read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION, BYLAWS AND RIGHTS
PLAN COULD MAKE IT DIFFICULT FOR HOLDERS OF OUR COMMON STOCK TO RECEIVE A
PREMIUM FOR THEIR SHARES UPON A CHANGE OF CONTROL.
Holders of the common stock of acquisition targets typically receive a
premium for their shares upon a change of control. Delaware law and the
following provisions, among others, of our Certificate of Incorporation, Bylaws
and Rights Plan could have the effect of delaying or preventing a change of
control and could thereby prevent holders of our common stock from receiving
such a premium:
- The affirmative vote of 80% of the outstanding shares of our capital
stock is required to approve business combinations that have not been
approved by our board of directors. We are also subject to a provision of
Delaware corporate law that prohibits us from engaging in a business
combination with any interested stockholder for three years from the date
that person became an interested stockholder unless specified conditions
are met.
8
<PAGE> 14
- Special meetings of stockholders may not be called by anyone other than
the chairman of the board, our president, our board of directors or the
executive committee of our board.
- Our board of directors is divided into three classes whose terms end in
successive years, so that less than a majority of our board comes up for
election at any annual meeting.
- Our board of directors has the authority to issue up to 5,000,000 shares
of preferred stock and to determine the voting rights and other
privileges of these shares without any vote or action by our
stockholders.
- We have issued "poison pill" rights under our Rights Plan, which could
have the effect of discouraging unsolicited acquisition proposals.
USE OF PROCEEDS
Assuming a public offering price of $18.3125 per share, the net proceeds to
Rowan from the sale of the 10,000,000 shares of common stock in this offering
will be approximately $176.8 million ($203.3 million if the underwriters
exercise their over-allotment option) after deducting the underwriting discount
and $400,000 of estimated offering expenses.
We will use the net proceeds from this offering to repay the $110 million
outstanding under our revolving credit facility and for general corporate
purposes. Pending such uses, we will invest the net proceeds in short-term
investment grade securities.
Advances under our revolving credit facility bear interest at a variable
rate of LIBOR plus .40%. The revolving credit facility will mature in October
2000. As of September 30, 1999, $110 million was outstanding under our revolving
credit facility with an interest rate of 5.81%.
9
<PAGE> 15
PRICE RANGE OF COMMON STOCK
Our common stock is listed on the New York Stock Exchange and the Pacific
Exchange-Stock & Options under the symbol "RDC." The following table sets forth
the range of high and low sales prices per share of common stock for the periods
indicated, as reported on the New York Stock Exchange.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997
First Quarter............................................. $29.00 $18.63
Second Quarter............................................ 28.63 16.75
Third Quarter............................................. 36.88 28.19
Fourth Quarter............................................ 43.94 26.50
1998
First Quarter............................................. $32.00 $22.44
Second Quarter............................................ 32.50 18.75
Third Quarter............................................. 20.63 9.00
Fourth Quarter............................................ 15.94 9.13
1999
First Quarter............................................. $14.19 $ 8.50
Second Quarter............................................ 19.94 11.38
Third Quarter............................................. 20.94 15.81
Fourth Quarter (through November 18, 1999)................ 18.56 13.75
</TABLE>
On November 18, 1999, the last reported sale price of our common stock on
the New York Stock Exchange was $18.3125 per share. As of September 30, 1999,
there were 3,022 record owners of our common stock.
DIVIDEND POLICY
During the past three years, we have not declared or paid a dividend on our
common stock and do not intend to do so in the near future. Any future
determination as to the declaration and payment of dividends will be at the
discretion of our board of directors and will depend on then existing
conditions, including our financial condition, results of operations,
contractual restrictions, capital requirements, business prospects and such
other factors as the board deems relevant.
Our debt agreements limit the amount of dividends payable on our common
stock. For a description of these restrictions, please read Notes 2 and 5 of our
notes to consolidated financial statements in our annual report on Form 10-K for
1998.
10
<PAGE> 16
CAPITALIZATION
The following table sets forth our current maturities of long-term debt and
our consolidated capitalization as of September 30, 1999, and as adjusted to
give effect to the sale of the shares of common stock in this offering and the
application of the net proceeds therefrom (in thousands except share data):
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999
---------------------------
ACTUAL AS ADJUSTED(1)
---------- --------------
<S> <C> <C>
Current maturities of long-term debt........................ $ 18,433 $ 18,433
========== ==========
Long-term Debt:
$155 million bank revolving credit facility expiring in
October 2000(2)........................................ $ 110,000 $ --
6.94% Title XI note payable due 2010; secured by Gorilla
V(3)................................................... 55,836 55,836
6.15% Title XI note payable due 2010; secured by Gorilla
V(3)................................................... 71,743 71,743
Floating-rate Title XI note payable due 2012; secured by
Gorilla VI(4).......................................... 130,575 130,575
---------- ----------
Total long-term debt.............................. $ 368,154 $ 258,154
---------- ----------
Stockholders' equity:
Preferred Stock, $1.00 par value; 5,000,000 shares
authorized, issuable in series:
Series III Preferred Stock; 10,300 shares authorized,
none outstanding..................................... -- --
Series A Preferred Stock; 4,800 shares authorized, none
outstanding.......................................... -- --
Series B Preferred Stock; 4,800 shares authorized, none
outstanding.......................................... -- --
Series A Junior Preferred Stock; 1,500,000 shares
authorized, none issued.............................. -- --
Common Stock, $.125 par value; 150,000,000 shares
authorized; 89,027,290 shares issued (as adjusted,
93,267,971 shares issued)(5)........................... 11,128 11,658
Additional paid-in capital................................ 425,113 540,022
Retained earnings......................................... 345,188 345,188
Cost of 5,759,319 treasury shares (as adjusted, 0 treasury
shares)................................................ (61,334) --
---------- ----------
Total stockholders' equity........................ 720,095 896,868
---------- ----------
Total capitalization.............................. $1,088,249 $1,155,022
========== ==========
</TABLE>
- ---------------
(1) As adjusted for the sale of the common stock offered hereby (including the
treasury shares), at an assumed offering price of $18.3125 per share, and
the repayment of all amounts outstanding under our revolving credit
facility.
(2) Outstanding advances under our revolving credit facility bear a variable
rate of interest equal to LIBOR plus .40% per annum. At September 30, 1999,
the interest rate was approximately 5.81%.
(3) These notes are payable in 24 semi-annual installments through July 2010.
(4) This note consists of construction advances for Gorilla VI which bear a
variable rate of interest equal to LIBOR plus .30% per annum. At September
30, 1999, the interest rate was approximately 6.3%. We may fix the interest
rate on outstanding advances at any time and are obligated to fix the
interest rate on all outstanding advances on the earlier of September 15,
2002 or two years following delivery of the rig. The first of 24 semi-annual
installments is due on September 15, 2000.
(5) Excludes 5,013,016 shares of common stock reserved for issuance under
employee and director compensation plans. Please read notes 2 and 3 to our
audited consolidated financial statements in our annual report on Form 10-K
for 1998.
11
<PAGE> 17
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of Rowan for each of
the periods indicated. This information should be read in conjunction with the
consolidated financial statements and related notes incorporated by reference
from our annual report on Form 10-K for the fiscal year ended December 31, 1998,
the unaudited interim financial statements and the related notes included in our
quarterly report on Form 10-Q for the quarter ended September 30, 1999. Please
read "Incorporation of Documents by Reference." Information for the nine months
ended September 30, 1999, in the opinion of our management, contains all
adjustments necessary for a fair presentation and is not necessarily indicative
of the results to be expected for the full year. Amounts are in thousands except
per share amounts and ratios.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Drilling services.............. $245,917 $250,080 $316,123 $434,004 $431,664 $359,192 $189,670
Manufacturing sales and
services..................... 96,664 133,755 143,768 154,852 158,913 119,431 69,653
Aviation services.............. 95,578 87,462 111,269 106,396 115,773 93,001 79,822
-------- -------- -------- -------- -------- -------- --------
Total...................... 438,159 471,297 571,160 695,252 706,350 571,624 339,145
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations.... (1,407) (2,255) 78,671 182,456 182,212 178,241 (14,387)
Interest expense -- net.......... (27,530) (27,702) (25,031) (16,242) (1,236) (1,071) (8,503)
Interest income.................. 4,813 5,209 4,157 5,190 7,205 5,179 3,565
Net income (loss)................ $(22,989) $(18,436) $ 61,338 $146,659(1) $124,460 $119,643 $(12,023)
Net income (loss) per share:
Basic.......................... $ (0.27) $ (0.22) $ 0.72 $ 1.70(1) $ 1.45 $ 1.39 $ (0.14)
Diluted........................ (0.27) (0.22) 0.70 1.65(1) 1.43 1.36 (0.14)
OTHER FINANCIAL DATA:
Depreciation and amortization.... $ 50,790 $ 50,555 $ 47,882 $ 47,078 $ 49,703 $ 36,847 $ 40,856
Capital expenditures............. 43,377 33,881 117,947 180,066 247,747 180,136 166,266
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30, 1999
-------------------------------------------------------- ---------------------------
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED(2)
-------- -------- -------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........ $111,070 $ 90,338 $ 97,225 $ 108,332 $ 148,834 $ 60,047 $ 126,820
Accounts receivable.............. 78,317 87,811 112,836 133,627 81,097 91,142 91,142
Working capital.................. 195,945 200,588 232,045 330,852 286,059 210,581 277,354
Property, plant and equipment --
net............................ 506,121 487,039 546,200 677,160 877,197 1,001,211 1,001,211
Total assets..................... 805,179 802,488 899,308 1,122,135 1,249,108 1,298,659 1,365,432
Note payable and current
maturities of long-term debt... 289 7,039 3,932 -- 12,756 18,433 18,433
Long-term debt................... 248,504 247,744 267,321 256,150 310,250 368,154 258,154
Stockholders' equity............. 442,347 429,155 496,219 653,098 729,996 720,095 896,868
Current ratio.................... 4.39x 3.75x 3.72x 5.06x 4.59x 3.58x 4.40x
Long-term debt/total
capitalization(3).............. 0.36 0.37 0.35 0.28 0.30 0.34 0.22
</TABLE>
- ---------------
(1) Includes a $9.8 million ($.12 per basic and $.11 per diluted share)
extraordinary charge in connection with the redemption of long-term debt.
(2) As adjusted to reflect the sale of the shares of common stock in this
offering at an assumed offering price of $18.3125 per share and the
repayment of all amounts outstanding under our revolving credit facility.
(3) Total capitalization consists of long-term debt plus stockholders' equity.
12
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
Oil prices, which had begun to decline in late 1997 from the low $20s per
barrel, continued to fall throughout 1998 to around $11 at year end. This
decline resulted from excessive worldwide inventories of oil, which was caused
by:
- increased OPEC production quotas in late-1997;
- reduced Asian demand due to economic instability;
- increased UN-approved Iraqi production; and
- mild weather conditions.
By mid-year 1998, demand for drilling services began to wane, and rig
utilization and day rates dropped to levels from which they only recently have
begun to recover. The full effect of lower oil prices on niche markets like the
North Sea, where longer-term contracts are the rule, has lagged into 1999. We
believe any significant recovery is unlikely until late 2000. The weakness in
oil markets spurred the consolidation of many major oil companies as reserves
could be acquired more economically than discovered and developed and economies
of scale were perceived to be a benefit.
We believe that day rates and utilization will gradually recover because:
- global demand for oil and gas is growing, with worldwide oil demand
having grown every year since 1983, a cumulative 26% in the last 15
years;
- existing oil and gas reserves are depleting rapidly;
- in March 1999, OPEC agreed to and actually implemented, for the third
time in a year, reductions in production quotas;
- inventories of oil and related products have steadily declined during
1999, to the point where most current inventory estimates are at or below
1998 levels;
- several independent producers have recently announced increases in their
1999 drilling budgets;
- a recently-published survey indicates that "a record 73% of respondents
plan to increase [exploration and production] spending in 2000," with
most expecting increases of more than 10% (in the case of major
companies, however, a significant portion of these increases will
apparently be committed to drilling in areas outside our market); and
- the burden of UK tax policies, often a significant hindrance to North Sea
exploration and production activity, has been alleviated somewhat with
the recent reinstatement of capital gains tax rollover relief and the
continued deferral of a petroleum revenue tax increase.
In summary, many of the short-term trends that coincided during late-1997
and early-1998, which drove the price of oil to historic lows and depressed the
entire drilling industry to levels not seen since the mid-1980s, have reversed,
setting the stage for a return of industry conditions like those enjoyed during
the 1995-1997 period. In short, we believe the 1998-99 market conditions were an
aberration, a momentary correction in an otherwise positive trend line.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Rowan incurred a net loss of $12.0 million in the first nine months of 1999
compared to net income of $119.6 million in the same period of 1998. Although
oil and natural gas prices have recently improved, their prolonged weakness
during 1998 and early-1999 significantly reduced worldwide drilling activity
during the period, with adverse consequences for Rowan's rig utilization,
average day rates and drilling
13
<PAGE> 19
operating results. Continued weakness in other commodity prices resulted in an
unfavorable contribution from Rowan's manufacturing operations during the period
and a significant decline from the prior year.
A comparison of revenues and operating profit (loss) from drilling,
manufacturing, aviation and consolidated operations for the first nine months of
1999 and 1998, respectively, is reflected below (dollars in thousands):
<TABLE>
<CAPTION>
DRILLING MANUFACTURING AVIATION CONSOLIDATED
------------------- ------------------ ----------------- -------------------
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- ------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $189,670 $359,192 $69,653 $119,431 $79,822 $93,001 $339,145 $571,624
Percent of Consolidated
Revenues........................ 56% 63% 21% 21% 23% 16% 100% 100%
Operating Profit (Loss)(1)........ $ 2,910 $173,493 $(1,461) $ 13,376 $(1,775) $ 5,017 $ (326) $191,886
</TABLE>
- ---------------
(1) Income (loss) from operations before deducting general and administrative
expenses.
As shown above, Rowan's consolidated operating results decreased by $192.2
million when comparing the first nine months of 1999 and 1998. Drilling revenues
declined by $169.5 million or 47% as Rowan's offshore fleet was only 63%
utilized during the first nine months of 1999, compared to 92% in the first nine
months of 1998, and suffered a 26% decrease in average operating day rates
between periods. Related expenses decreased by $1.6 million, or 1%, between
periods, despite the addition of Gorilla V costs which, as a result of a
contract termination now in litigation, had no offsetting revenues.
The $14.8 million decline shown above in Rowan's manufacturing results
between periods primarily reflects the decreased contributions from the
equipment and marine groups. The equipment group continued to suffer the effects
of weak commodity prices, while the marine group's operations were reduced
following the completion, in late-1998, of two Super 116-C rig kits. The
division's external backlog was at $9.7 million at September 30, 1999, $20.5
million or 68% below the year-ago level. Manufacturing operations exclude
approximately $100 million of products and services provided to the Rowan's
drilling division during the first nine months of 1999, most of which was
attributable to construction progress on Gorilla VI and Gorilla VII, compared to
$88 million in the same period of 1998.
The aviation operating results in both periods reflect the normal reduced
flying activity in Alaska throughout much of the first four months of the year,
although the 1999 results were also hampered by reduced energy-related flying
activity in the Gulf of Mexico and lower revenues than the previous period from
fire control services.
Perceptible trends in the offshore drilling markets in which Rowan is
currently operating and the number of Rowan-operated rigs in each of those
markets are as follows:
<TABLE>
<CAPTION>
AREA RIGS PERCEPTIBLE INDUSTRY TRENDS
- ---- -------- ---------------------------
<S> <C> <C>
Gulf of Mexico............................ 17 Moderately improving exploration and
development activity
North Sea................................. 2 Reduced levels of drilling activity for
jack-up rigs
Eastern Canada............................ 3 Generally stable demand
---
Total.............................. 22
</TABLE>
The preceding table reflects the relocation of the cantilever jack-up
Rowan-Halifax from the North Sea to the Gulf of Mexico and Gorilla V from the
North Sea to offshore eastern Canada.
Perceptible trends in the aviation markets in which the Rowan is currently
operating and the number of Rowan-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 decline
Gulf of Mexico............................ 46 Moderately improving market conditions,
particularly for deep water operations
---
Total.............................. 114
</TABLE>
14
<PAGE> 20
The drilling and aviation markets in which Rowan 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.
Rowan'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 by weather each winter. The volatile nature of
these factors prevents Rowan 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,
Rowan can relocate its drilling rigs and aircraft from one geographic area to
another, but only when it believes such moves are economically justified.
Rowan's drilling operations continue to be adversely impacted by the
effects of the dramatic decline in world oil prices that occurred throughout
1998 and early-1999. Most energy companies have significantly reduced their 1999
drilling budgets from 1998 levels and many of the major oil companies continue
to be preoccupied with internal merger issues. Recently, following improved OPEC
production discipline, oil and natural gas prices have strengthened, bid
activity for Gulf of Mexico jack-ups has improved and several independent energy
companies have announced increases in their 1999 drilling budgets. As a result,
Rowan believes that offshore drilling activity in the Gulf of Mexico will
continue to improve. Conversely, Rowan believes significant additional North Sea
drilling activity will not materialize during the remainder of 1999 or the first
half of 2000 and, as a result, recently relocated three of its Class 116-C
jack-ups from that market to the improving Gulf of Mexico market and Gorilla V
to offshore eastern Canada. There can be no assurance that drilling market
conditions will continue improving or that Rowan's operations will not be more
adversely affected should current market conditions deteriorate.
Though considerably less volatile than its drilling and aviation
operations, Rowan's manufacturing operations have also been adversely impacted
by depressed world commodity prices -- in particular, prices for copper, iron
ore, coal, gold and diamonds. Although the prices of some of these commodities
have recently improved, backlog remains well below year-ago levels. With reduced
worldwide demand for drilling services, additional rig kit sales in the near
term are unlikely. Rowan believes that without additional strengthening of
commodity prices, its manufacturing operations may not be profitable in 1999.
In January 1999, British American Offshore Limited, our wholly owned UK
subsidiary, received notification from Amoco (U.K.) Exploration Company that its
one-year North Sea drilling contract for Gorilla V was being terminated for an
alleged performance breach of contract relating to equipment problems. Amoco
filed a lawsuit against British American in London seeking a declaration that
the contract termination was proper and seeking damages. British American
counter-claimed, alleging that Amoco's termination was wrongful and seeking
damages equal to the full value of the contract if performed plus costs. A trial
on the contractual issues is scheduled to take place in London during May 2000.
Rowan believes the contract was wrongfully terminated and has filed a separate
action in state court in Houston, Texas alleging tortious conduct in connection
with the contract termination seeking both compensatory and punitive damages.
Although the Texas suit is scheduled for trial in February 2000, the foreign
defendants have asserted jurisdictional challenges which may delay the scheduled
trial date. Discovery on jurisdictional and merit issues is underway. Rowan
cannot predict the outcome of either lawsuit.
15
<PAGE> 21
Three Years Ended December 31, 1998
The following analysis highlights Rowan's operating results for the years
indicated (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Revenues:
Drilling................................................. $431.7 $434.0 $316.1
Manufacturing............................................ 158.9 154.9 143.8
Aviation................................................. 115.8 106.4 111.3
------ ------ ------
Total............................................ $706.4 $695.3 $571.2
====== ====== ======
Operating Profit (Loss)*:
Drilling................................................. $180.1 $185.0 $ 79.3
Manufacturing............................................ 18.9 16.3 9.5
Aviation................................................. 1.6 (1.9) 6.5
------ ------ ------
Total............................................ $200.6 $199.4 $ 95.3
====== ====== ======
Net Income................................................. $124.5 $146.7 $ 61.3
====== ====== ======
</TABLE>
- ---------------
* Income (loss) from operations before deducting general and administrative
expenses.
The return of weakness and instability to oil and gas prices during 1998
significantly curtailed worldwide drilling activity by year-end, effectively
reversing, in a period of months, the substantial industry improvements realized
over the previous three years.
During the 1995-97 period, worldwide demand for energy products grew, the
spread between oil and natural gas prices and the cost of finding and recovering
reserves remained attractive and the availability of capable equipment
continually declined. Such increasingly favorable economic conditions prompted a
surge in drilling activity throughout the period that enabled Rowan to achieve
record revenues and profitability in 1997. With its existing offshore drilling
fleet virtually 100% utilized from mid-1995 through mid-1998, and at continually
increasing drilling day rates, Rowan implemented during this period a strategic
plan aimed at significantly expanding its revenue base through the construction
of newer and more capable offshore drilling equipment and the reactivation of
its domestic land drilling business.
The year 1998 began with oil prices in decline but still at profitable
levels. However, months of increased worldwide production coupled with slowing
global demand kept downward pressure on oil. When per barrel prices approached
$15.00 during the second quarter, market conditions began to measurably weaken.
At that point, energy companies began suspending portions of their drilling
programs and reducing their 1998 drilling budgets. By mid-year, Rowan began
experiencing curtailed drilling assignments in its most prominent market, the
Gulf of Mexico, and was forced to offer significantly reduced day rates. During
the latter part of 1998, with oil prices at historical lows, Rowan's domestic
day rates were at levels less than half of that obtained earlier in the year,
and its fleet utilization suffered dramatically. Though Rowan's 1998 drilling
operations yielded revenues and results comparable to the record levels attained
in 1997, the trend over the last half of the year was decidedly unfavorable.
The manufacturing division has continued to provide meaningful returns
while assuming a lead role in Rowan's offshore drilling fleet expansion program.
During 1998, the manufacturing division delivered Rowan's Gorilla V jack-up and
completed for others the design and major components comprising a "kit" for two
new jack-up rigs. Also, during 1998, the manufacturing division achieved
significant progress on Gorilla VI and began ordering long lead-time components
for Gorilla VII.
During the past three years, Rowan's aviation division has continued to
diversify its flight services and the variances in revenues and operating
results reflected above were largely due to fluctuating forest fire control
activities.
16
<PAGE> 22
Results for 1998 included higher provisions for income taxes due primarily
to the availability, in prior years, of offsetting tax credit and loss
carryforwards.
From late 1995 through early 1997, Rowan's results were impaired by
unsuccessful turnkey drilling operations. In early 1997, Rowan ceased turnkey
drilling activities and recognized a $20.2 million loss on its one well in
progress. Turnkey operations incurred a loss of $4.0 million in 1996. Rowan is
not pursuing any turnkey work at this time.
During 1997, Rowan redeemed early its $200 million of 11 7/8% Senior Notes
and incurred $9.8 million of net extraordinary charges consisting primarily of
redemption premiums.
Drilling Operations. Rowan's drilling operating results are generally a
function of rig rates and activity achieved in its offshore drilling business
conducted primarily in the Gulf of Mexico, the North Sea and offshore eastern
Canada. Such rates and activity are primarily determined by the level of
offshore expenditures by energy companies and the availability of competitive
equipment.
Market conditions in the offshore drilling industry deteriorated in 1998
after improving almost continuously during the previous two years. For most of
the 1996-1997 period, the demand for offshore drilling equipment effectively
equaled or exceeded the supply, particularly in the areas in which Rowan
operates. Throughout 1996, both the Gulf of Mexico and North Sea markets offered
improving returns primarily due to growing worldwide demand for oil and natural
gas. Activity and day rates in the Gulf of Mexico were enhanced by strong
natural gas prices, while North Sea utilization held at virtually 100% due to
the scarcity of harsh environment drilling equipment. During this period,
technological advances such as horizontal drilling and production techniques and
3-D seismic became established and substantially enhanced the economics of oil
and gas exploration and production. As a result, deep-water prospects in the
Gulf of Mexico became economically viable, budding drilling markets such as west
Africa, southeast Asia and The Netherlands strengthened and drilling assignments
began to lengthen. The tightening of drilling markets worldwide continued
throughout 1997 and Rowan's operations, featuring long-legged jack-ups designed
for harsh environments, yielded record results.
In 1998, the dramatic weakening of oil and natural gas prices yielded a
substantial decline in offshore drilling, especially in the highly competitive
Gulf of Mexico market. During the second quarter, energy companies began
reducing their drilling expenditures by first allowing options on the primarily
short-term contracts to lapse and eventually canceling planned drilling
projects. Activity was further impaired following announcements of several
energy company mergers due to the uncertainty created within the merging
companies' drilling staffs, plans and budgets. The more exclusive markets like
the North Sea, with premium equipment and generally longer-term contracts, were
more resilient, though by year end, indications of future deterioration, such as
the early cancellation of term contracts, became apparent. As a result, Rowan's
Gulf of Mexico fleet suffered a 20% decline to 79% utilization in 1998 while its
six North Sea rigs were 90% utilized. Rowan's efforts to maintain Gulf of Mexico
day rates provided a nominal increase in average day rates in 1998 compared to
1997, though average rates still declined by as much as 50% during 1998, while
the North Sea fleet averaged a 44% increase in day rates between years. Rowan
expanded its Canadian presence during 1998 with the relocation of Gorilla II,
and that market remained relatively strong throughout the year.
Overall, Rowan's worldwide fleet of 21 jack-ups (two of which are leased)
was utilized 85%, 99% and 97% in 1998, 1997 and 1996, respectively, while
Rowan's semi-submersible achieved utilization of 62%, 99% and 100%,
respectively. Rowan considers only revenue-producing days in computing rig
utilization.
The effects of fluctuations in activity and day rates are shown in the
following analysis of changes in Rowan's contract drilling revenues (in
millions):
<TABLE>
<CAPTION>
1997 TO 1998 1996 TO 1997
------------ ------------
<S> <C> <C>
Utilization................................................. $(54.4) $ 11.7
Drilling rates.............................................. 52.1 124.5
</TABLE>
17
<PAGE> 23
These fluctuations yielded a $2.3 million or less than 1% decrease in 1998
drilling revenues compared to 1997, which was 37% higher than 1996. Contract
drilling expenses were about 11% higher in 1998 compared to 1997, which was 7%
higher than 1996, primarily as a result of wage increases for operating
personnel and higher rig mobilization costs.
Rowan's land drilling operations experienced a 25% decline in activity in
1998 for the reasons noted previously, though average day rates were maintained
near 1997 levels. Two of Rowan's deep-well land rigs were under contract in
Louisiana for most of 1998, and five other rigs worked sporadically in Louisiana
and Texas throughout the year.
During 1998, Rowan completed the refurbishment of two additional land rigs.
These two rigs and Rowan's five other land rigs were idle during 1998. The cost
of maintaining the idle rigs is modest and the remaining investment in such rigs
is not significant.
The drilling markets in which Rowan competes frequently experience
significant fluctuations in 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 volatile nature of
such factors prevents Rowan from being able to accurately predict whether
existing market conditions will continue beyond the near term. In response to
fluctuating market conditions, Rowan can, as it has done in the past, relocate
its drilling rigs from one geographic area to another, but only when such moves
are economically justified.
With historically low oil prices, virtually every energy company
significantly reduced its 1998 drilling program and had, as of March 1, 1999,
announced further reductions in its 1999 drilling budget. Rowan experienced
several curtailed drilling assignments in 1998 and, as noted below, is currently
litigating a canceled drilling contract. As of March 1, 1999, only eight of
Rowan's 14 Gulf of Mexico rigs were working, and at rates well below those
averaged during 1998, and two of Rowan's six North Sea rigs were idle. At these
levels, Rowan's drilling operations may not be profitable. There can be no
assurance that Rowan's operations will not be more adversely affected should
these market conditions persist or that these market conditions will not
deteriorate further. During the first quarter of 1999, Rowan took advantage of
the lull in activity by utilizing its drilling personnel to make enhancements to
and carryout necessary maintenance on its idle rigs.
Aviation Operations. Although the aviation division's operating results are
still heavily influenced by oil and natural gas exploration and production,
principally in the Gulf of Mexico, and seasonal weather conditions, primarily in
Alaska, the division has continued to diversify its flight services. Rowan
offers, among other services, forest fire control, commuter airline services and
flightseeing, and has developed and sold auxiliary fuel tanks for helicopters.
Aviation revenues increased by 9% in 1998 compared to 1997, which was 4%
lower than 1996. Aviation division expenses in 1998 were up by 6% over 1997,
which was 3% higher than 1996. During 1998, Rowan enjoyed increased activity in
virtually all markets, including a 149% increase in forest fire control revenues
and a 16% increase in tourism-related revenues. Flying for energy companies in
the Gulf of Mexico improved by about 16% in 1998 as a late 1997 rate increase
and the addition of longer-range aircraft to serve primarily deep-water
customers combined to offset the effects of the generally deteriorating offshore
drilling business.
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<PAGE> 24
The number of aircraft operated by Rowan at the end of each of the last
three years and the revenue hours for each of those years are reflected in the
following table:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Twin-Engine Helicopters:
Number................................................... 64 63 62
Revenue Hours............................................ 30,124 32,504 34,848
Single-Engine Helicopters:
Number................................................... 26 31 26
Revenue Hours............................................ 14,422 14,652 11,466
Fixed-Wing Aircraft:
Number................................................... 21 21 21
Revenue Hours............................................ 22,465 22,042 20,669
</TABLE>
On January 30, 1998, Rowan agreed to terminate its ownership in KLM ERA
Helicopters, its Dutch affiliate, in return for cash and equipment approximating
the carrying value of its 49% interest.
Changes in energy company exploration and production activities, seasonal
weather patterns and other factors can affect the demand for flight services in
the aviation markets in which Rowan competes. Rowan can, as it has done in the
past, move aircraft from one market to another, but only when the likelihood of
higher returns makes such action economical.
Manufacturing Operations. Rowan's manufacturing division generated a 3%
increase in revenues in 1998 compared to 1997, which was 8% higher than 1996,
and a 16% increase in profitability between periods, while devoting substantial
efforts towards the design and construction of its Gorilla V and Gorilla VI
jack-up rigs.
A 62% increase in marine group sales, primarily reflecting delivery of the
bulk of two Super 116-C jack-up rig kits, combined with a 13% increase in steel
sales, on a 10% increase in external shipments, more than offset a 14% decline
in heavy equipment group sales. Weak commodities prices constrained the heavy
equipment group to sales of 30 new cranes, mining loaders, log stackers and
container stackers during 1998, compared to 37 units in 1997, and no real
increase in parts sales over the prior year.
Consolidated manufacturing operations exclude approximately $109 million of
products and services provided to Rowan's drilling division in 1998, most of
which was attributable to construction progress on Gorillas V and VI, compared
to $83 million in 1997. The marine group completed and delivered Gorilla V
during the fourth quarter of 1998.
External manufacturing backlog at December 31, 1998 was approximately $8
million, or $50 million less than a year ago, with the decline most prominent in
the marine group following completion of the two rig kits. Though considerably
less volatile than its drilling and aviation operations, Rowan's manufacturing
operations were still being adversely impacted by depressed world commodities
prices during the first quarter of 1999 to such an extent that Rowan believes
that if such prices do not improve, its manufacturing operations may not be
profitable in 1999.
19
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
A comparison of key balance sheet amounts and ratios as of September 30,
1999 and December 31, 1998 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Cash and cash equivalents.................................. $ 60,047 $148,834
Current assets............................................. $292,171 $365,652
Current liabilities........................................ $ 81,590 $ 79,593
Current ratio.............................................. 3.58 4.59
Long-term debt............................................. $368,154 $310,250
Stockholders' equity....................................... $720,095 $729,996
Long-term debt/total capitalization........................ 0.34 0.30
</TABLE>
Reflected in the comparison above are the effects in the first nine months
of 1999 of net cash provided by operations of $12.4 million, capital
expenditures of $166.3 million and net borrowings of $63.6 million.
Capital expenditures during the first nine months of 1999 were primarily
related to construction of Gorilla VI and Gorilla VII, each being a Super
Gorilla Class rig, like Gorilla V, featuring simultaneous drilling and
production capabilities. The rigs are being constructed at Rowan's Vicksburg,
Mississippi shipyard and should be completed by mid-2000 and year-end 2001,
respectively.
Rowan is financing up to $171 million of the cost of Gorilla VI through a
12-year bank loan guaranteed by the U.S. Department of Transportation's Maritime
Administration under its Title XI Program. At September 30, 1999, Rowan had
drawn down approximately $136 million under the facility, bearing interest at a
floating rate of approximately 6.30%. In addition, Rowan has secured Title XI
government-guaranteed financing for up to $185 million of the cost of Gorilla
VII on terms and conditions similar to those obtained for Gorilla V and Gorilla
VI. Rowan has guaranteed construction of Gorilla V, Gorilla VI and Gorilla VII
and is obligated for the repayment of the debt incurred to construct these rigs.
Rowan expects the combined construction cost of Gorilla V, Gorilla VI and
Gorilla VII to be approximately $600-$650 million.
Rowan estimates remaining 1999 capital expenditures will be approximately
$35 million, including approximately $25 million for Gorilla VI and Gorilla VII.
Rowan may also spend amounts to acquire additional aircraft as market conditions
justify and to upgrade existing offshore rigs and manufacturing facilities.
At September 30, 1999, Rowan had available $45 million under its revolving
credit facility maturing in October 2000. The $110 million outstanding under the
credit line bore interest at 5.81% on September 30, 1999. Rowan currently has no
other available credit facilities. Out of the proceeds of this offering, Rowan
plans to repay all outstanding advances and cancel the revolving credit
facility. Although we do not currently anticipate needing a line of credit, we
believe such financing could be arranged if necessary.
Based upon current operating levels, the previously discussed market trends
and expected net proceeds from this offering, management believes that 1999
operations, together with existing working capital and available financial
resources, will generate sufficient cash flow to sustain Rowan's planned capital
expenditures and debt service requirements for at least the next 12 months.
At September 30, 1999, approximately $150 million of Rowan's retained
earnings was available for the payment of dividends under the most restrictive
provisions of Rowan's debt agreements.
Rowan believes that its exposure to potential year 2000 computer-related
problems is limited and the costs associated with readying its information
systems and computer-controlled equipment will not materially impact its
financial position or results of operations.
20
<PAGE> 26
Over the past several years, Rowan has devoted substantial efforts towards
upgrading and enhancing its drilling and aviation information systems as a
matter of course. Such modifications necessarily contemplated year 2000
compliance, the cost of which has been expensed as incurred, but is not
separately identifiable. These upgrades and enhancements are complete, and Rowan
believes its drilling and aviation information systems are year 2000 compliant.
Modifications to Rowan's manufacturing information systems have been
undertaken only during the past few years. Rowan estimates the cost of year 2000
compliance for its manufacturing systems will be approximately $4 million, about
$3.4 million of which has been expensed to date. Rowan believes that all
necessary mission-critical modifications have been completed.
Rowan will continue to assess and test its computer-controlled equipment
for year 2000 compatibility, but has heretofore discovered no significant
deficiencies. Rowan's operations are not highly dependent upon any single
customer or vendor, and Rowan believes that the risk of a material interruption
in its business as a result of year 2000 software problems associated with a
single customer or vendor is remote.
Although Rowan expects to be year 2000 compliant prior to year end, in a
"most-reasonably-likely-worst-case-scenario," failure by Rowan or by third
parties to fully implement appropriate year 2000 plans could adversely affect
Rowan's operations. Such adverse effects could include, among other things,
business disruptions, increased costs and loss of business.
Rowan has not yet deemed necessary any year 2000 contingency plans, but
will continue to monitor its own year 2000 status as well as that of its
customers and vendors and, if warranted, develop any necessary contingency
plans.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, which establishes accounting and
reporting standards for derivative instruments and for hedging activities. In
June 1999, the FASB issued SFAS No. 137, which delays the effective date of SFAS
No. 133 to fiscal years beginning after June 15, 2000. Rowan held no derivatives
in 1999 or 1998 and believes that SFAS No. 133, when adopted effective January
1, 2001, will not materially impact its financial position results of
operations.
Rowan believes that its exposure to risk of earnings loss due to changes in
market interest rates is not significant.
21
<PAGE> 27
BUSINESS
OVERVIEW
Rowan Companies, Inc. provides contract drilling services primarily in the
Gulf of Mexico, the North Sea and offshore eastern Canada. Rowan's offshore
fleet features 21 mobile deep-water jack-up rigs capable of drilling to depths
of up to 30,000 feet, including three Gorilla Class rigs designed for harsh
drilling environments and one Super Gorilla Class rig. Two more Super Gorilla
Class rigs are now under construction. All of Rowan's jack-up rigs available for
work in the Gulf of Mexico are currently under contract. One additional rig is
being upgraded to a cantilever and another is having additional leg sections
installed. Rowan's contract drilling services also extend onshore, with a fleet
of 14 land rigs offered for drilling in the continental United States and
Alaska.
Rowan was organized in 1947 as a Delaware corporation and is a successor to
a contract drilling business conducted since 1923 under the name Rowan Drilling
Company, Inc.
Complementing Rowan's contract drilling business are:
- the LeTourneau marine construction facility, which has designed and built
over one-third of all mobile offshore jack-up drilling rigs, including
all 21 operated by Rowan;
- an international aviation service business operating helicopters and
fixed-wing aircraft; and
- a manufacturing facility which produces heavy equipment for the mining,
timber and transportation industries and operates a mini-steel mill that
recycles scrap steel and produces steel plate.
The following charts illustrate the respective percentages of revenues and
property, plant and equipment (net) represented by each of Rowan's business
activities:
[GRAPH SHOWING REVENUES FOR YEAR ENDED DECEMBER 31, 1998 CONSISTING OF 61% FROM
DRILLING OPERATIONS, 23% FROM MANUFACTURING OPERATIONS AND 16% FROM AVIATION
OPERATIONS]
[GRAPH SHOWING PROPERTY, PLANT & EQUIPMENT -- NET AS OF DECEMBER 31, 1998
CONSISTING OF 82% IN DRILLING OPERATIONS, 11% IN AVIATION OPERATIONS AND 7% IN
MANUFACTURING OPERATIONS]
STRATEGY
Our business strategy is to be the leading provider of technologically
advanced, higher margin contract drilling services to the deep-water jack-up rig
market. We operate our company to take advantage of cyclical upturns and to
minimize the effects of cyclical downturns. Key elements of this strategy
include:
- Geographic focus on higher margin markets. We focus our drilling
operations in the deep-water jack-up segment of the Gulf of Mexico, the
southern gas sector and harsh environment areas of the North Sea and
offshore eastern Canada. These areas tend to enable our customers to take
advantage of our technologically advanced fleet of deep-water jack-up
rigs, including our hostile environment Gorilla and Super Gorilla Class
rigs and enable us to achieve higher margins. By focusing on these select
markets, we are also able to take advantage of the knowledge resulting
from long term operations in these areas.
- Provide high quality equipment. We acquired Marathon LeTourneau, a marine
construction and manufacturing business, in 1994. LeTourneau has built
over one-third of all mobile offshore jack-up
22
<PAGE> 28
drilling rigs ever built, including all 21 operated by us. LeTourneau's
expertise in designing and constructing hostile environment jack-up rigs
has facilitated the construction of our Gorilla and Super Gorilla Class
rigs, the most technologically advanced jack-up rigs in the industry.
LeTourneau also provides us with a cost advantage in constructing and
maintaining rigs for our own use as opposed to contracting with third
parties.
- Opportunistically reinvest in rig fleet. We seek to design and build
high-quality, technologically advanced rigs and utilize cyclical
downturns to refurbish and upgrade them so that their availability is not
interrupted when markets improve.
- Maintain a prudent financial plan. We generally enter into shorter term
contracts so that we maintain the flexibility to capture higher day rates
in improving markets. We balance the risks associated with this strategy
by maintaining a strong balance sheet, avoiding excessive indebtedness
and maintaining large cash reserves.
- Develop and retain a qualified and loyal workforce. We hire employees at
entry-level positions, maintain crews on our rigs during downturns, and
retain them by promoting from within and rewarding competency and
loyalty. We believe this results in higher morale and better retention of
our workforce, resulting in superior service delivery to our customers.
Our senior management team has an average of more than 21 years of
service at Rowan.
DRILLING OPERATIONS
In 1998, Rowan's drilling operations generated an operating profit (income
from operations before deducting general and administrative expenses) of $180.1
million, or 90% of the company's consolidated operating profit for the year.
During the first nine months of 1999, Rowan's drilling operations generated an
operating profit of $2.9 million.
Offshore Operations
Since 1970, Rowan's drilling operations have featured jack-up rigs
performing both exploratory and development drilling and, in certain areas, well
workover operations. Rowan operates larger, deep-water type jack-up rigs capable
of drilling to 30,000 feet in water depths of up to 550 feet, depending on the
size of the rig, its geographic location and weather conditions.
A jack-up rig is a floating hull with three independently elevating legs,
drilling equipment, supplies, crew quarters, loading and unloading facilities, a
helicopter landing deck and other related equipment. Drilling equipment includes
engines, drawworks or hoist, derrick, pumps to circulate the drilling fluid,
drill pipe and drilling bits. Rowan's rigs are equipped with propulsion
thrusters to assist in towing. At the drilling site, the legs are lowered until
they penetrate the ocean floor and the hull is jacked-up on the legs to the
desired elevation above the water. The hull then serves as a drilling platform
until the well is completed at which time the hull is lowered into the water,
the legs are elevated and the rig is towed to the next drilling site.
Rowan's cantilever jack-ups can extend that portion of the hull containing
the drilling equipment over fixed production platforms so that development or
workover operations on the platforms can be carried out with a minimum of
interruption to production. In 1989, Rowan acquired and developed "skid base"
technology enabling its conventional jack-up rigs to work over wells on a
production platform that previously required a cantilever jack-up or platform
rig.
23
<PAGE> 29
The following table describes Rowan's offshore drilling rigs as of November
16, 1999, including their drilling capabilities, year placed in service and
geographic location:
<TABLE>
<CAPTION>
DEPTH(B): YEAR PLACED IN
NAME/CLASS(A) WATER/DRILLING SERVICE LOCATION
- ------------- -------------- -------------- --------
<S> <C> <C> <C>
Cantilever Jack-up Rigs:
Gorilla II 200-C (d)(f)(g)............. 328feet/30,000feet 1984 Eastern Canada
Gorilla III 200-C (d)(f)(g)............ 328feet/30,000feet 1984 Eastern Canada
Gorilla IV 200-C (d)(f)(g)............. 328feet/30,000feet 1986 North Sea
Gorilla V 219-C (e)(f)(h)(p)........... 400feet/30,000feet 1998 North Sea
Rowan-California 116-C (c)(f).......... 300feet/30,000feet 1983 Gulf of Mexico
Rowan-Halifax 116-C (c)(f)(l)(o)....... 350feet/30,000feet 1982 Gulf of Mexico
Cecil Provine 116-C (c)(f)(m).......... 300feet/30,000feet 1982 Gulf of Mexico
Arch Rowan 116-C (c)(f)(g)............. 225feet/30,000feet 1981 North Sea
Gilbert Rowe 116-C (c)(f)(g)(k)........ 350feet/30,000feet 1981 Gulf of Mexico
Charles Rowan 116-C (c)(f)(g)(k)....... 350feet/30,000feet 1981 Gulf of Mexico
Rowan-Paris 116-C (f)(g)(k)............ 350feet/30,000feet 1980 Gulf of Mexico
Rowan-Middleton 116-C (f)(g)(k)........ 350feet/30,000feet 1980 Gulf of Mexico
Rowan-Fort Worth 116-C (f)(g)(k)....... 350feet/30,000feet 1978 Gulf of Mexico
Conventional Jack-up Rigs:
Rowan-Juneau 116 (c)(f)(i)............. 300feet/30,000feet 1977 Gulf of Mexico
Rowan-Odessa 116 (f)(i)(k)............. 350feet/30,000feet 1977 Gulf of Mexico
Rowan-Louisiana 84 (f)(i)(k)........... 350feet/30,000feet 1975 Gulf of Mexico
Rowan-Alaska 84 (f)(i)(k).............. 350feet/30,000feet 1975 Gulf of Mexico
Rowan-Texas 52 (f)..................... 250feet/20,000feet 1973 Gulf of Mexico
Rowan-Anchorage 52 (f)................. 250feet/20,000feet 1972 Gulf of Mexico
Rowan-New Orleans 52 (f)(j)............ 250feet/20,000feet 1971 Gulf of Mexico
Rowan-Houston 52 (f)(n)................ 250feet/20,000feet 1970 Gulf of Mexico
Semi-Submersible Rig: Rowan-Midland
(f).................................... 1,200feet/25,000feet 1976 Gulf of Mexico
</TABLE>
- ---------------
(a) Classes 219-C ("Super Gorilla"), 200-C ("Gorilla"), 116-C, 116, 84 and 52
are nomenclature assigned by LeTourneau, Inc. to jack-ups of its design and
construction.
(b) Indicates rated water depth in current location and rated drilling depth,
respectively.
(c) Unit modified to increase operating capability in hostile environments.
(d) Gorilla Class unit designed for extreme hostile environment capability.
(e) Super Gorilla Class unit (an enhanced version of the Gorilla Class)
designed for extreme hostile environment capability.
(f) Unit equipped with a "top-drive" drilling system.
(g) Unit equipped with three mud pumps.
(h) Unit equipped with four mud pumps.
(i) Unit equipped with a "skid base" unit.
(j) Unit equipped with drilling/heavy-lift crane option.
(k) Unit equipped with leg extensions.
(l) Rig sold in December 1984 and leased back through March 2008.
(m) Rig sold in December 1985 and leased back through December 2000.
(n) Unit being upgraded to a cantilever rig.
(o) Unit being upgraded to 350 feet water depth capability.
(p) Unit preparing to be mobilized from the North Sea to offshore eastern
Canada.
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<PAGE> 30
Rowan's Gorilla Class rigs, Gorillas II, III and IV, are a heavier-duty
class of jack-up rig, intended to drill up to 30,000 feet in water depths up to
328 feet in extreme hostile environments (winds up to 100 miles per hour and
seas up to 90 feet).
During the fourth quarter of 1998, Rowan completed construction of the
first of three Super Gorilla Class rigs, Gorilla V, which is the world's largest
bottom-supported mobile offshore drilling unit. Gorilla V is a combination
drilling and production unit capable of operating year-round in 400 feet of
water south of the 61st parallel in the North Sea, within the worst case
combination of 100-year storm criteria for waves, wave periods, winds and
currents. Rowan believes that Gorilla V's combined drilling and production
capabilities make Gorilla V an attractive lower cost alternative to customers as
compared to the traditional method of installing a fixed platform for producing
wells once they have been drilled. Rowan financed $153.1 million of the cost of
Gorilla V through bank loans guaranteed by the U.S. Department of
Transportation's Maritime Administration under its Title XI Program.
In October 1996, Rowan announced plans for the construction of two
additional Super Gorilla Class rigs, Gorilla VI and Gorilla VII. To date, Rowan
has completed construction of a significant portion of Gorilla VI and has begun
construction on Gorilla VII. Rowan has secured Title XI bank financing for up to
$171.0 million of the cost of Gorilla VI and up to $185.4 million of the cost of
Gorilla VII on terms and conditions similar to those obtained for Gorilla V.
Gorilla VI should be completed by mid-2000 and Gorilla VII by year-end 2001.
This fleet expansion program began in 1995 and represents Rowan's first new
construction since the mid-1980s. Since that time, Rowan's capital expenditures
have been primarily for enhancements to existing drilling rigs and manufacturing
facilities and for the purchase of aircraft. Of Rowan's 17 remaining jack-up
rigs, six cantilever rigs and one conventional rig have been modified to provide
a degree of hostile environment operating capability, while five cantilever rigs
and three conventional rigs can operate in water depths up to 350 feet.
Rowan takes advantage of lulls in drilling activity to perform needed
maintenance and make certain enhancements to its drilling fleet.
Rowan's semi-submersible rig is utilized principally for offshore
exploratory drilling from a floating position and is capable of drilling to
25,000 feet in water depths of up to 1,200 feet. A semi-submersible drilling rig
consists of a drilling platform raised above multiple hulls by columns. The
hulls are flooded and submerged beneath the water surface, in which position the
rig is anchored during drilling operations. The drilling platform contains the
same type of equipment found on a jack-up rig. After completion of the well, the
submerged hull is deballasted to reduce vessel draft and facilitate towing to
another drilling location.
Onshore Operations
Rowan has drilling equipment, personnel and camps available on a contract
basis for exploration and development of onshore areas. Onshore rigs were
constructed at various dates between 1960 and 1982, utilizing, in some
instances, new as well as used equipment. Most of the rigs have been
substantially rebuilt subsequent to their dates of construction. Rowan currently
owns 14 deep-well land rigs with drilling capabilities ranging from 20,000 to
30,000 feet.
Rowan's deep-well land rigs are currently located in Texas, Louisiana,
Oklahoma, and Alaska. During 1998, these rigs had an average utilization rate of
29%, and of 23% during the first nine months of 1999. The cost of maintaining
these rigs is modest, and the remaining investment in the rigs is not
significant.
The drilling equipment comprising an onshore rig consists basically of
engines, drawworks or hoist, derrick, pumps to circulate the drilling fluid,
drill pipe and drilling bits. The type of rig required by a customer depends
upon the anticipated well depth, terrain and conditions in the drilling area.
Contracts
Rowan's onshore and offshore drilling contracts generally provide for
compensation on a day rate basis and are usually obtained either through
competitive bidding or individual negotiations. A number of factors
25
<PAGE> 31
affect a drilling contractor's ability, both onshore and offshore, to obtain
contracts at a profitable rate within an area. Such factors include the location
and availability of equipment, its suitability for the project, the comparative
cost of the equipment, the competence of personnel and the reputation of the
contractor. Profitability may also be dependent upon receiving adequate
compensation for the cost of moving equipment to drilling locations.
When weak market conditions characterized by declining drilling day rates
prevail, Rowan generally accepts lower rate contracts in an attempt to maintain
its competitive position and to offset the substantial costs of maintaining and
reactivating stacked rigs. When drilling markets are strong and increasing rates
prevail, Rowan generally pursues short rather than long-term contracts for its
offshore rigs to maximize its ability to obtain rate increases and pass through
any cost increases to customers.
Rowan's drilling contracts are either "well-to-well", "multiple well" or
for a fixed term generally ranging from four to twelve months. Well-to-well
contracts are cancelable by either party upon completion of drilling at any one
site, and fixed-term contracts usually provide for termination by either party
if drilling operations are suspended for extended periods by events of force
majeure. While most fixed-term contracts are for relatively short periods, some
fixed-term and well-to-well contracts continue for a longer period than the
original term or for a specific series of wells. Many offshore contracts contain
renewal or extension provisions exercisable at the option of the customer at
prices agreeable to Rowan and most require additional payments for mobilization
and demobilization costs. Rowan's contracts for work in foreign countries
generally provide for payment in United States dollars except for minimal
amounts required to meet local expenses.
MANUFACTURING OPERATIONS
In 1994, Rowan acquired the net assets of Marathon LeTourneau Company,
headquartered in Longview, Texas. In 1998, the LeTourneau manufacturing division
generated an operating profit of $18.9 million, or 9% of Rowan's operating
profit for the year. During the first nine months of 1999, the division
generated an operating loss of $1.5 million. External manufacturing backlog for
all product lines was approximately $9.7 million at September 30, 1999. Rowan
holds a number of patents on its inventions and the "LeTourneau" name is
considered to be significant to its product lines.
LeTourneau operates:
- a marine group that has designed and built over one-third of all mobile
offshore jack-up drilling rigs, including all 21 operated by Rowan;
- a manufacturing facility that produces heavy equipment such as front-end
loaders with a 50-ton capacity; and
- a mini-steel mill that recycles scrap and is capable of producing 120,000
tons of steel plate per year.
Marine Construction. LeTourneau's Vicksburg, Mississippi shipyard was
reactivated during 1995-1996 following Rowan's announcement of the planned
construction of the Gorilla V and is dedicated to providing equipment, spare
parts and engineering support to the offshore drilling industry. The yard
currently employs about 850 people, most of whom have been hired since 1995.
Some rig component manufacturing and marine repair services, as well as marine
design engineering, continue to be performed at LeTourneau's Longview, Texas
facility.
The marine group delivered the Gorilla V in late-1998 and is currently
constructing Rowan's two additional Super Gorilla Class jack-up rigs. Also in
1998, the marine group completed two Super 116-C Class drilling rig kits for
others.
Heavy Equipment. The mining equipment product line features front-end
loaders with bucket capacities of 17, 22, 28 and 33 cubic yards and off-road
trucks with capacities of 190 and 200 tons. LeTourneau's loaders and trucks are
generally used in coal, gold, copper and iron ore mines and utilize
26
<PAGE> 32
LeTourneau's patented diesel electric-drive system with solid state controls.
This system allows large, mobile equipment to stop, start and reverse without
gear shifting and high maintenance braking. LeTourneau loaders can load trucks
in the 85-ton to 310-ton range. LeTourneau's mining equipment and parts are
distributed through a worldwide network of independent distributors and a
company-owned distribution network serving the western United States.
The timber equipment product line features diesel electric powered log
stackers with either two or four wheel drive configurations and load capacities
ranging from 35 to 65 tons. LeTourneau is the only manufacturer that sells
electrically powered jib cranes rated from 25,000 to 52,000 lbs. at a reach of
100 to 150 feet and with a 360-degree rotation. LeTourneau's timber equipment is
marketed primarily in North America through independent distributors and a
Company-owned distribution network in the northwestern United States.
LeTourneau's transportation equipment line produces several different types
of material handling equipment, such as 50-ton capacity, diesel electric, gantry
cranes and large forklift-type vehicles, called side porters, used for lifting,
transporting and stacking large shipping containers and trailers at ports and
rail yards. Gantry cranes can span up to seven container rows plus a truck aisle
and stack 9 1/2-feet tall containers up to five high. Gantry cranes equipped
with a spreader can lift containers from the top and have retractable arms for
loading and unloading piggyback trailers. LeTourneau's transportation equipment
is marketed primarily in North America through independent distributors and a
Company-owned distribution network in the northwestern United States.
LeTourneau also sells parts and components to repair and maintain mining,
timber and transportation equipment. Equipment parts are marketed through one
independent distributor and a Company-owned distribution network in the United
States with 17 parts-stocking locations, one independent distributor in Canada
with 19 parts-stocking locations, and 31 other international distributors with
more than 50 parts-stocking locations.
Steel Mill. LeTourneau's Longview, Texas mini-steel mill produces carbon,
alloy and specialty steel plate products. LeTourneau concentrates on "niche"
markets that require alloy, specialty steel grades, or "exotic" versions of
carbon steel products, including mold steels, tool steels, aircraft quality
steels, 400 series stainless steel and hydrogen-induced, crack-resistant steels.
External steel sales, which are garnered through a direct sales force, consist
primarily of steel plate, but also include forging ingots and value-added
fabrication of steel products. Steel products are generally sold to steel
service centers, fabricators, manufacturers and forge shops. The market for
carbon steel plate products and fabricated products is regional and encompasses
Texas, Oklahoma, Louisiana, Mississippi and Arkansas. LeTourneau ships alloy and
specialty grades of plate products nationally and exports quantities to Mexico
and Canada. The forging ingot market is concentrated in the Gulf Coast region of
Texas. Carbon and alloy plate products are also used internally in the
production of heavy equipment and parts.
LeTourneau engages in a limited amount of research and product development,
primarily to increase the capacity of and provide innovative improvements to its
product lines. Rowan evaluates on an ongoing basis the LeTourneau product and
service lines with the intention of making enhancements.
27
<PAGE> 33
AVIATION OPERATIONS
Rowan's wholly-owned subsidiary, Era Aviation, Inc., provides contract and
charter helicopter and fixed-wing aviation services principally in Alaska, the
coastal areas of Louisiana and Texas, and the western United States. In 1998,
the aviation division generated an operating profit of $1.6 million. On
September 30, 1999, the following helicopters and fixed-wing aircraft made up
the division's fleet:
<TABLE>
<CAPTION>
NUMBER OF
TYPE PASSENGERS AIRCRAFT
- ---- ---------- ---------
<S> <C> <C>
HELICOPTERS:
Twin-engine turbine:
Sikorsky S-61N......................................... 26 3
Eurocopter AS-332L Super Puma.......................... 19 2
Bell 212............................................... 14 16
Bell 412............................................... 14 14
Sikorsky S-76A+........................................ 13 2
Eurocopter BO-105CBS................................... 5 27
--
Total twin-engine turbine......................... 64
--
Single-engine turbine:
Bell 206LR............................................. 6 5
Eurocopter AS350B-2 AStar.............................. 6 26
--
Total single-engine turbine....................... 31
--
Total helicopters............................ 95
==
FIXED-WING:
Convair 580............................................... 50 5
DeHavilland Twin Otter.................................... 9-19 10
DeHavilland Dash 8........................................ 37 2
DC-3...................................................... 28 2
--
Total fixed-wing............................. 19
==
</TABLE>
Rowan's helicopter services in recent years have featured flightseeing,
forest fire control and support for oil and gas related operations from Era's
primary bases in Anchorage, Alaska, and Lake Charles, Louisiana. Services
provided offshore Louisiana and Texas are primarily oil and gas-related while
the majority of helicopter services in the western United States are provided to
governmental agencies in support of forest fire control.
Rowan is the third largest helicopter operator in the Gulf of Mexico. Since
1979, Rowan has been providing charter and contract helicopter services in the
Gulf of Mexico area, primarily to the offshore oil and gas industry. Operations
are conducted from the division office in Lake Charles, Louisiana and from bases
in the Louisiana cities of Morgan City, Cameron, New Iberia, Intracoastal City,
Venice, Fourchon, Houma, Schriever and Johnson Bayou and the Texas cities of
Houston, Corpus Christi, Bay City and Sabine Pass.
Rowan is the largest helicopter operator in Alaska. It provides charter
services from bases at Anchorage, Deadhorse (on the North Slope), Juneau and
several other Alaska locations. Rowan's charter and contract services are
provided throughout Alaska with particular emphasis in the tourism, oil, mining
and fishing sectors.
Helicopters are usually operated on a seasonal basis in Alaska because of
the prevalent climatic conditions. The peak utilization period in Alaska is May
through September, with the winter months comprising the least active period.
The seasonal nature of the Alaska business has been ameliorated in most years by
moving helicopters on a limited basis to the Gulf of Mexico area and to the west
and northwest regions of the United States and various overseas locations.
28
<PAGE> 34
Since 1983, Rowan has operated a scheduled commuter airline service in
Alaska encompassing the transportation of passengers, mail and cargo. Era
currently serves Valdez, Kenai, Homer, Kodiak, Iliamna and Cordova, with
seasonal service to Whitehorse from its base hub in Anchorage. In addition, it
services 17 remote villages from its hub in Bethel, Alaska. Rowan operates under
a code sharing agreement with Alaska Airlines which is the largest carrier of
passengers from the contiguous United States to Alaska. Rowan's commuter airline
is the largest airline operation of that type within the state of Alaska and is
the second largest carrier of passengers into and out of the Anchorage
International Airport, including the large jet carriers.
Since 1987, Rowan has manufactured and marketed, from its Gulf Coast
Division facility at Lake Charles, Louisiana, a composite external auxiliary
fuel tank for use on several helicopters, including the Bell 205, 212 and 412,
the military "Huey" and the American Eurocopter BK-117. The tank system provides
enhanced flight range with nominal drag while increasing the passenger capacity.
Sales to date have been to both civilian and military customers, including
emergency float systems for US Army UH-1 Helicopters. Other aircraft accessories
are also manufactured at the facility.
Contracts
Era's flight services generally are provided through master service
agreements, term contracts or day-to-day charter arrangements. Master service
agreements require incremental payments based on usage, usually have fixed terms
ranging from one month to one year and generally are cancelable upon notice by
either party in 30 days or less. Term contracts generally are noncancelable and
require payments, depending upon their duration, as follows: up to one
month -- either incremental payments based on usage or incremental payments plus
a base daily rental; and one month to one year -- incremental payments based on
usage plus a base monthly rental. Day-to-day charters have the same compensation
arrangements as up to one-month term contracts. Because master service
agreements and day-to-day charters are Era's most prevalent contracts, Rowan
believes that the contract status of its aircraft as discussed in the following
paragraph is more informative than backlog information, which it believes is
neither calculable nor meaningful.
Era aircraft available for operation on September 30, 1999 consisted of 95
helicopters (including 49 based in Alaska and 46 in the Gulf of Mexico area) and
19 fixed-wing aircraft (based in Alaska).
29
<PAGE> 35
MANAGEMENT
<TABLE>
<CAPTION>
YEARS
OF
NAME AGE SERVICE POSITION WITH ROWAN
- ---- --- ------- -------------------
<S> <C> <C> <C>
C. Robert Palmer..................... 64 39 Chairman, President and Chief Executive Officer;
Education: BS in Mechanical Engineering and MS
in Engineering Administration, Southern
Methodist University
Robert G. Croyle..................... 56 26 Executive Vice President and Director of Rowan;
Director of the Drilling, Aviation and
Manufacturing subsidiaries; Education: BA in
Government, Franklin & Marshall College and JD,
University of Texas School of Law; completed the
Columbia University Executive Development
Program
Daniel F. McNease.................... 48 25 Executive Vice President and Director of Rowan;
Director and President of Drilling Division
Subsidiaries, Education: BS in Polymer Science,
University of Southern Mississippi; completed
the Columbia University Executive Development
Program
Edward E. Thiele..................... 59 30 Senior Vice President and Chief Financial
Officer of Rowan; Education: BBA in Accounting,
University of Texas at Austin; completed the
Columbia University Executive Development
Program
Paul L. Kelly........................ 60 17 Senior Vice President, Special Projects
(business development; government and industry
affairs); Education: BA in Political Science,
Yale University and JD, Yale University Law
School
John L. Buvens, Jr. ................. 43 18 Vice President, Legal; General Counsel for
Rowan; Education: BBA in General Business,
University of Texas at Austin and JD, South
Texas College of Law; completed the Columbia
University Executive Development Program
Dan C. Eckermann..................... 51 13 Vice President, Manufacturing; President and
Chief Executive Officer -- LeTourneau, Inc.;
Education: BS in Mechanical Engineering, Texas
A&M University at College Station
Charles W. Johnson................... 55 22 Vice President, Aviation; President and Chief
Operating Officer -- Era Aviation, Inc.;
Education: completed the Stanford University
Graduate School of Business Executive Program
for Small Companies
Mark A. Keller....................... 47 7 Vice President, Marketing -- North American
Drilling; Education: Business Major, Texas A&M
University at College Station
Bill S. Person....................... 51 32 Vice President, Industrial Relations; Education:
BBA in Management, Texas Tech University;
completed the Columbia University Executive
Development Program
William C. Provine................... 52 12 Vice President, Investor Relations; Education:
BBA in Finance, Texas Christian University
Venkatesh V. Shetti.................. 53 28 Manager of Engineering; Education: BE in
Mechanical Engineering, Shivaji
University -- India and ME in Mechanical
Engineering, Lamar University
William H. Wells..................... 37 5 Controller; Education: BBA in Accounting,
University of Texas at Austin
Mark H. Hay.......................... 55 20 Corporate Secretary; Education: BBA in
Accounting; University of Texas at Austin
Lynda A. Aycock...................... 53 27 Assistant Secretary and Assistant Treasurer;
Education: Accounting Major, Northwestern State
University
P. Glyn Wheeler...................... 52 24 Assistant Treasurer and Corporate Tax Director;
Education: BBA in Finance, University of Texas
at Austin and JD, University of Houston Law
School
</TABLE>
30
<PAGE> 36
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF COMMON STOCK
The following is a summary of material U.S. federal income and estate tax
consequences expected to result under current law from the ownership and
disposition of common stock by non-U.S. holders of common stock. You are a
"non-U.S. holder" if you are a beneficial owner of common stock who is not:
- A citizen or resident of the United States,
- A corporation, partnership or other entity created or organized in or
under the laws of the United States or any state thereof,
- An estate whose income is includable in gross income for U.S. federal
income tax purposes regardless of its source, or
- A trust whose administration is subject to the primary supervision of a
United States court and which has one or more U.S. persons who have the
authority to control all substantial decisions of the trust.
This summary does not address all of the U.S. federal income and estate tax
considerations that may be relevant to you in light of your particular
circumstances or if you are subject to special treatment under United States
federal income tax laws. This summary also does not discuss any aspect of state,
local or foreign taxation. This summary is based on current provisions of the
Internal Revenue Code, Treasury regulations, judicial opinions, published
positions of the U.S. Internal Revenue Service and other applicable authorities,
all of which are subject to change, possibly with retroactive effect.
Prospective purchasers of common stock are advised to consult their own tax
advisors with respect to the particular tax consequences to them of owning and
disposing of common stock, including the consequences under the laws of any
state, local or foreign jurisdiction.
DIVIDENDS
Any dividends paid to you on shares of common stock will be subject to
withholding of U.S. federal income tax at a rate of 30%, unless a lower rate is
prescribed under an applicable tax treaty. U.S. federal income tax withholding
will not be required, however, if the dividends are effectively connected with
your conduct of a trade or business within the United States or, in the case of
an applicable tax treaty, are attributable to a U.S. permanent establishment you
maintain. Dividends that are effectively connected with the conduct of a trade
or business within the United States, or are attributable to a U.S. permanent
establishment will be subject to U.S. federal income tax on a net income basis
which is not collected by withholding provided you file the appropriate
certification with us or our agent. Any dividends received by a foreign
corporation that are effectively connected with the conduct of a trade or
business within the United States may also be subject to a "branch profits tax"
at a rate of 30% or such lower rate as may be specified by an applicable tax
treaty.
For purposes of the withholding tax rules discussed above and for purposes
of determining the applicability of a tax treaty rate under current U.S.
Treasury Regulations, dividends paid to an address outside the United States
will be presumed to be paid to a resident of the country of address, unless the
payor has knowledge to the contrary. Under recently issued U.S. Treasury
Regulations (referred to as "final regulations") that are effective for payments
made after December 31, 2000, you will be required to satisfy applicable
certification and other requirements to claim the benefit of a tax treaty rate.
In addition, under the final regulations, in the case of common stock held by a
foreign partnership:
- The certification requirement generally will be applied to the partners
of the partnership.
- The partnership will be required to provide certain information,
including a U.S. taxpayer identification number.
31
<PAGE> 37
If you are eligible for a reduced rate of U.S. federal income tax
withholding pursuant to a tax treaty you may obtain a refund of any excess
amounts currently withheld by filing an appropriate claim for refund with the
Internal Revenue Service.
SALE OR DISPOSITION OF COMMON STOCK
You generally will not be subject to U.S. federal income tax in respect of
any gain recognized on the sale or other taxable disposition of common stock so
long as:
- The gain is not effectively connected with your conduct of a trade or
business within the United States, nor under an applicable tax treaty is
attributable to a U.S. permanent establishment you maintain.
- You are an individual who holds the common stock as a capital asset, you
are not present in the United States for 183 or more days during the
taxable year of the disposition, and you do not have a "tax home" in the
United States for U.S. federal income tax purposes nor do you maintain an
office or other fixed place of business in the United States to which
that gain is attributable.
- You are not subject to tax pursuant to the provisions of U.S. federal
income tax law applicable to certain U.S. expatriates.
- Our common stock continues to be "regularly traded on an established
securities market" for U.S. federal income tax purposes and you have not
held, directly or indirectly, at any time during the five-year period
ending on the date of disposition (or, if shorter, your holding period)
more than five percent of our outstanding common stock.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, we must report annually to the Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to you. These reporting
requirements apply regardless of whether withholding was reduced by an
applicable tax treaty. Copies of these information returns may also be made
available under the provisions of a treaty or information exchange agreement
with the tax authorities in the country in which you reside or are established.
Under current law, U.S. backup withholding tax generally will not apply to
dividends paid on common stock to a non-U.S. holder at an address outside the
United States unless the payor has knowledge that the payee is a U.S. person.
Backup withholding tax is a withholding tax currently imposed at the rate of 31%
on certain payments to persons who fail to furnish the information required
under U.S. information reporting requirements. Under the final regulations,
dividends paid on common stock after December 31, 2000 may be subject to
information reporting and backup withholding unless applicable certification
requirements are satisfied.
Payment of the proceeds from a sale of common stock to or through a U.S.
office of a broker will be subject to information reporting and backup
withholding unless the owner certifies as to its status as a non-U.S. holder
under penalties of perjury or otherwise establishes an exemption. Payment of the
proceeds from a sale of common stock to or through a non-U.S. office of a broker
generally will not be subject to information reporting or backup withholding.
However, if the broker is a U.S. person, a "controlled foreign corporation" or a
foreign person that derives 50% or more of its gross income from the conduct of
a trade or business in the United States, the payment will be subject to
information reporting, but currently not backup withholding, unless the broker
has documentary evidence in its records that the owner is a non-U.S. holder and
certain other conditions are met or the owner otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules will be credited
against your U.S. federal income tax liability, if any, or refunded, provided
you furnish the required information to the Internal Revenue Service.
32
<PAGE> 38
ESTATE TAX
The fair market value of common stock owned, or treated as owned, by an
individual at the time of his death will be includable in his gross estate for
U.S. federal estate tax purposes and thus may be subject to U.S. federal estate
tax, even though the individual at the time of death is neither a citizen of nor
domiciled in the United States, unless an applicable estate tax treaty provides
otherwise.
UNDERWRITING
Under the underwriting agreement dated the date of this prospectus the
underwriters named below, for whom Lehman Brothers Inc. is acting as sole
representative, have each agreed to purchase from Rowan the respective number of
shares shown opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------------------------------ ----------
<S> <C>
Lehman Brothers Inc.........................................
----------
Total............................................. 10,000,000
==========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares are subject to conditions contained in the underwriting
agreement, and that if any of the shares are purchased by the underwriters under
the underwriting agreement, then all of the shares which the underwriters have
agreed to purchase under the underwriting agreement must be purchased. The
conditions contained in the underwriting agreement include the requirement that
the representations and warranties made by Rowan to the underwriters are true,
that there is no material change in the financial markets and that Rowan
delivers to the underwriters customary closing documents.
The sole representative has advised Rowan that the underwriters propose to
offer the shares directly to the public at the public offering price set forth
on the cover page of this prospectus, and to dealers, who may include the
underwriters, at the public offering price less a selling concession not in
excess of $ per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $ per share to brokers and dealers.
After the offering, the sole representative may change the offering price and
other selling terms.
Rowan has granted to the underwriters an option to purchase up to an
additional 1,500,000 shares, exercisable solely to cover over-allotments, if
any, at the public offering price less the underwriting discounts and
commissions shown on the cover page of this prospectus. The underwriters may
exercise this option at any time until 30 days after the date of the
underwriting agreement. If this option is exercised, each underwriter will be
committed, subject to conditions, to purchase a number of additional shares
proportionate to the underwriter's initial commitment as indicated in the
preceding table and Rowan will be obligated, under the over-allotment option, to
sell the shares to the underwriters.
The following table shows the per share and total public offering price,
underwriting discount to be paid by Rowan to the underwriters and the proceeds
before expenses to Rowan. This information is presented assuming either no
exercise or full exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
PER WITHOUT WITH
SHARE OPTION OPTION
-------- -------- --------
<S> <C> <C> <C>
Public offering price....................................... $ $ $
Underwriting discount....................................... $ $ $
Proceeds, before expenses, to Rowan......................... $ $ $
</TABLE>
33
<PAGE> 39
Rowan has agreed that, without the prior consent of Lehman Brothers Inc.,
it will not, directly or indirectly, offer, sell or otherwise dispose of any
shares or any securities which may be converted into or exchanged for any shares
for a period of 90 days from the date of this prospectus. Certain of Rowan's
executive officers and directors have agreed that, without the prior written
consent of Lehman Brothers Inc., they will not, directly or indirectly, offer,
sell or otherwise dispose of any shares or any securities which may be converted
into or exchanged for any shares for the period ending 60 days after the date of
this prospectus.
Rowan has agreed to indemnify the underwriters against liabilities,
including liabilities under the Securities Act and to contribute, under certain
circumstances, to payments that the underwriters may be required to make for
these liabilities.
Until the distribution of the shares is completed, rules of the Securities
and Exchange Commission may limit the ability of the underwriters to bid for and
purchase shares. As an exception to these rules, the sole representative is
permitted to engage in transactions that stabilize the price of the shares.
These transactions may consist of bids or purchases for the purposes of pegging,
fixing or maintaining the price of the shares.
The underwriters may create a short position in the shares in connection
with the offering, which means that they may sell more shares than are set forth
on the cover page of this prospectus. If the underwriters create a short
position, then the sole representative may reduce that short position by
purchasing shares in the open market. The sole representative also may elect to
reduce any short position by exercising all or part of the over-allotment
option.
The sole representative may impose a penalty bid on certain underwriters.
This means that if the sole representative purchases shares in the open market
to reduce the underwriters' short position or to stabilize the price of the
shares, it may reclaim the amount of the selling concession from the
underwriters who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither Rowan nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the shares. In addition, neither Rowan
nor any of the underwriters makes any representation that the sole
representative will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
This prospectus is not, and under no circumstances is to be construed as,
an advertisement or a public offering of the shares in Canada or any province or
territory thereof. Any offer or sale of shares in Canada will be made only under
an exemption from the requirements to file a prospectus and an exemption from
the dealer registration requirement in the relevant province or territory of
Canada in which such offer or sale is made.
Each underwriter has represented and agreed that: (i) it has not offered or
sold and will not offer or sell, in the United Kingdom by means of any document,
any shares other than to people whose ordinary business it is to buy, hold,
manage or dispose of investments, whether as principal or agent for purposes of
their business or otherwise in circumstances which do not constitute an offer to
the public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Securities Act in 1986 in relation to the
shares; and (iii) it has only issued or passed on, and will only issue or pass
on, to any person in the United Kingdom, a document received by it in connection
with the offering of the shares if that person is of a kind described in Article
11(3) of the Financial Services Act of 1986 (Investment Advertisements)
(Exemptions) Order 1996, or is a person to whom the document may otherwise be
lawfully issued or passed on.
34
<PAGE> 40
The shares offered in this prospectus are only being registered for
offering in the United States. No action will be taken by Rowan or by the
underwriters in any other jurisdiction where action is required to permit a
public offering of the shares offered in this prospectus. People who obtain this
prospectus are required by Rowan and by the underwriters to inform themselves
about and to observe any restrictions on the offering of the shares and the
distribution of this prospectus.
Purchasers of the shares offered in this prospectus may be required to pay
stamp taxes and other charges under the laws and practices of the country of
purchase, in addition to the offering price listed on the cover of this
prospectus.
As permitted by Rule 103 of Regulation M promulgated by the Securities and
Exchange Commission under the Exchange Act, the underwriters, if any, that are
market makers, referred to as passive market makers, in the common stock, may
make bids for or purchases of the common stock on the New York Stock Exchange
until such time, if any, when a stabilizing bid for such securities has been
made. Rule 103 generally provides that:
- a passive market maker's net daily purchases of the common stock may not
exceed 30% of its average daily trading volume in such securities for the
two full consecutive calendar months (or any 60 consecutive days ending
within the 10 days) immediately preceding the filing date of the
registration statement of which this prospectus forms a part;
- a passive market maker may not effect transactions or display bids for
the common stock at a price that exceeds the highest independent bid for
the common stock by persons who are not passive market makers; and
- bids made by passive market makers must be identified as such.
Some of the underwriters or their affiliates have from time to time
provided investment banking and financial advisory services to Rowan and its
affiliates in the ordinary course of business, for which they have received
customary fees, and they may continue to provide such services to Rowan and its
affiliates in the future.
Mr. H.E. Lentz, a director of Rowan, is a managing director of Lehman
Brothers Inc.
The common stock is listed for quotation on the New York Stock Exchange and
the Pacific Exchange-Stock & Options under the symbol "RDC."
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Rowan by Andrews & Kurth L.L.P., Houston, Texas. Certain legal matters
relating to this offering will be passed upon for the U.S. underwriters and the
international managers by Vinson & Elkins L.L.P., Houston, Texas. Vinson &
Elkins L.L.P. has provided legal services to Rowan in the past on matters
unrelated to this offering and expects to do so in the future.
EXPERTS
The consolidated financial statements of Rowan Companies, Inc. and
subsidiaries as of December 31, 1998 and 1997, and for each of the three years
in the period ended December 31, 1998 incorporated in this prospectus by
reference from Rowan's Annual Report on Form 10-K for the year ended December
31, 1998 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
35
<PAGE> 41
[INSIDE BACK COVER]
[PHOTOGRAPH OF GORILLA V EN ROUTE TO
THE NORTH SEA ON BOARD THE DOCKWISE TRANSSHELF]
<PAGE> 42
10,000,000 SHARES
ROWAN COMPANIES, INC.
COMMON STOCK
---------------------------
PROSPECTUS
NOVEMBER , 1999
---------------------------
LEHMAN BROTHERS
LOGO
<PAGE> 43
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the offerings are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 46,257
NASD Filing Fee............................................. 17,140
NYSE and Pacific Listing Fee................................ 49,500
Printing Expenses........................................... 125,000
Legal Fees and Expenses..................................... 100,000
Accounting Fees and Expenses................................ 50,000
Transfer Agent Fees and Expenses............................ 5,000
Miscellaneous Expenses...................................... 7,103
--------
Total............................................. $400,000
</TABLE>
15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL")
authorizes, inter alia, a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that such person is or was an officer or director of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A Delaware corporation may
indemnify past or present officers and directors of such corporation or of
another corporation or other enterprise at the former corporation's request, in
an action by or in the right of the corporation to procure a judgment in its
favor under the same conditions, except that no indemnification is permitted
without judicial approval if such person is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in defense of any action referred to above, or in defense of any
claim, issue or matter therein, the corporation must indemnify him against the
expenses (including attorney's fees) which he actually and reasonably incurred
in connection therewith. Section 145 further provides that any indemnification
shall be made by the corporation only as authorized in each specific case upon a
determination by the (i) stockholders, (ii) board of directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding or (iii) independent counsel if a quorum of disinterested
directors so directs. Section 145 provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which a person
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 145 of the DGCL also empowers Rowan to purchase and maintain
insurance on behalf of any person who is or was an officer or director of Rowan
against liability asserted against or incurred by him in any such capacity,
whether or not Rowan would have the power to indemnify such officer or director
against such liability under the provisions of Section 145. Rowan maintains a
directors' and officers' liability policy for such purposes.
Article 13 of Rowan's Restated Certificate of Incorporation and Article
VII, Section 1 of Rowan's Bylaws each provide that directors, officers,
employees and agents shall be indemnified to the fullest extent permitted by
Section 145 of the DGCL.
The Underwriting Agreement (Exhibit 1.1 hereto) contains provisions
indemnifying Rowan and its directors and officers that sign the Registration
Statement against certain liabilities in connection with the offering.
II-1
<PAGE> 44
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following exhibits are filed as part of this Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement
4.1 -- Restated Certificate of Incorporation of the Company
dated February 17, 1984 incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement No.
333-84369 on Form S-8 (File No. 1-5491) and Exhibits 4.4,
4.5, 4.6, 4.7, 4.8 and 4.9 below
4.2 -- Bylaws of the Company, amended as of July 14, 1998,
incorporated by reference to Exhibit 3 to the Company's
Form 10-Q for the fiscal quarter ended June 30, 1998
(File No. 1-5491)
4.3 -- Rights Agreement as amended between the Company and
Citibank, N.A. as Rights Agent incorporated by reference
to Exhibit 4d to the Company's Form 10-K for the fiscal
year ended December 31, 1997 (File No. 1-5491)
4.4 -- Certificate of Change of Address of Registered Office and
of Registered Agent dated July 25, 1984 incorporated by
reference to Exhibit 4.4 to the Company's Registration
Statement No 333-84369 on Form S-8 (File No. 1-5491)
4.5 -- Certificate of Amendment of Certificate of Incorporation
dated April 24, 1987 incorporated by reference to Exhibit
4.5 to the Company's Registration Statement No. 333-84369
on Form S-8 (File No. 1-5491)
4.6 -- Certificate of Designation of the Company's Series A
Junior Preferred Stock dated March 2, 1992 incorporated
by reference to Exhibit 4.6 to the Company's Registration
Statement No. 333-84369 on Form S-8 (File No. 1-5491)
4.7 -- Certificate of Designation of the Company's Series III
Preferred Stock dated November 30, 1994 incorporated by
reference to Exhibit 4.7 to the Company's Registration
Statement No. 333-84369 on Form S-8 (File No 1-5491)
4.8 -- Certificate of Designation of (and Certificate of
Correction related thereto) the Company's Series A
Preferred Stock dated August 5, 1998 and January 28,
1999, respectively, incorporated by reference to Exhibit
4.8 to the Company's Registration Statement No. 333-84369
on Form S-8 (File No. 1-5491)
4.9 -- Certificate of Designation of the Company's Series B
Preferred Stock dated June 24, 1999 incorporated by
reference to Exhibit 4.9 to the Company's Registration
Statement No. 333-84369 on Form S-8 (File No. 1-5491)
4.10 -- Specimen Common Stock certificate incorporated by
reference to Exhibit 4h to the Company's Form 10-K for
the fiscal year ended December 31, 1996 (File No. 1-5491)
5.1* -- Opinion of Andrews & Kurth L.L.P. regarding legality of
securities being registered
23.1* -- Consent of Deloitte & Touche LLP
23.2* -- Consent of Andrews & Kurth L.L.P. (included in Exhibit
5.1)
24.1* -- Powers of Attorney
27.1 -- Financial Data Schedule (incorporated by reference to
Exhibit 27 to Rowan's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999)
</TABLE>
- ---------------
* Filed herewith
17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new Registration Statement relating to the securities
II-2
<PAGE> 45
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of the Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 46
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas on November 19, 1999.
ROWAN COMPANIES, INC.
By: /s/ C.R. PALMER
----------------------------------
C. R. Palmer
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <C> <S>
/s/ C. R. PALMER Chairman of the Board, November 19, 1999
- ----------------------------------------------------- President and Chief
C. R. Palmer Executive Officer
(Principal Executive
Officer)
/s/ E. E. THIELE (Principal Financial November 19, 1999
- ----------------------------------------------------- Officer)
E. E. Thiele
/s/ WILLIAM H. WELLS (Principal Accounting November 19, 1999
- ----------------------------------------------------- Officer)
William H. Wells
* Director November 19, 1999
- -----------------------------------------------------
Ralph E. Bailey
* Director November 19, 1999
- -----------------------------------------------------
Henry O. Boswell
* Director November 19, 1999
- -----------------------------------------------------
Hans M. Brinkhorst
* Director November 19, 1999
- -----------------------------------------------------
R. G. Croyle
* Director November 19, 1999
- -----------------------------------------------------
H. E. Lentz
* Director November 19, 1999
- -----------------------------------------------------
D. F. McNease
* Director November 19, 1999
- -----------------------------------------------------
Lord Moynihan
</TABLE>
II-4
<PAGE> 47
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <C> <S>
* Director November 19, 1999
- -----------------------------------------------------
Wilfred P. Schmoe
* Director November 19, 1999
- -----------------------------------------------------
Charles P. Siess, Jr.
* Director November 19, 1999
- -----------------------------------------------------
C. W. Yeargain
By*:/s/ C.R. PALMER
- -----------------------------------------------------
C. R. Palmer,
as attorney-in-fact
</TABLE>
II-5
<PAGE> 48
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement
4.1 -- Restated Certificate of Incorporation of the Company
dated February 17, 1984 incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement No.
333-84369 on Form S-8 (File No. 1-5491) and Exhibits 4.4,
4.5, 4.6, 4.7, 4.8 and 4.9 below
4.2 -- Bylaws of the Company, amended as of July 14, 1998,
incorporated by reference to Exhibit 3 to the Company's
Form 10-Q for the fiscal quarter ended June 30, 1998
(File No. 1-5491)
4.3 -- Rights Agreement as amended between the Company and
Citibank, N.A. as Rights Agent incorporated by reference
to Exhibit 4d to the Company's Form 10-K for the fiscal
year ended December 31, 1997 (File No. 1-5491)
4.4 -- Certificate of Change of Address of Registered Office and
of Registered Agent dated July 25, 1984 incorporated by
reference to Exhibit 4.4 to the Company's Registration
Statement No 333-84369 on Form S-8 (File No. 1-5491)
4.5 -- Certificate of Amendment of Certificate of Incorporation
dated April 24, 1987 incorporated by reference to Exhibit
4.5 to the Company's Registration Statement No. 333-84369
on Form S-8 (File No. 1-5491)
4.6 -- Certificate of Designation of the Company's Series A
Junior Preferred Stock dated March 2, 1992 incorporated
by reference to Exhibit 4.6 to the Company's Registration
Statement No. 333-84369 on Form S-8 (File No. 1-5491)
4.7 -- Certificate of Designation of the Company's Series III
Preferred Stock dated November 30, 1994 incorporated by
reference to Exhibit 4.7 to the Company's Registration
Statement No. 333-84369 on Form S-8 (File No 1-5491)
4.8 -- Certificate of Designation of (and Certificate of
Correction related thereto) the Company's Series A
Preferred Stock dated August 5, 1998 and January 28,
1999, respectively, incorporated by reference to Exhibit
4.8 to the Company's Registration Statement No. 333-84369
on Form S-8 (File No. 1-5491)
4.9 -- Certificate of Designation of the Company's Series B
Preferred Stock dated June 24, 1999 incorporated by
reference to Exhibit 4.9 to the Company's Registration
Statement No. 333-84369 on Form S-8 (File No. 1-5491)
4.10 -- Specimen Common Stock certificate incorporated by
reference to Exhibit 4h to the Company's Form 10-K for
the fiscal year ended December 31, 1996 (File No. 1-5491)
5.1* -- Opinion of Andrews & Kurth L.L.P. regarding legality of
securities being registered
23.1* -- Consent of Deloitte & Touche LLP
23.2* -- Consent of Andrews & Kurth L.L.P. (included in Exhibit
5.1)
24.1* -- Powers of Attorney
27.1 -- Financial Data Schedule (incorporated by reference to
Exhibit 27 to Rowan's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999)
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
11,500,000
ROWAN COMPANIES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
_______________, 1999
LEHMAN BROTHERS INC.,
As Representative of the several
Underwriters named in Schedule 1,
Three World Financial Center
New York, New York 10285
Dear Sirs:
Rowan Companies, Inc., a Delaware corporation (the "Company"), proposes
to sell 10,000,000 shares (the "Firm Stock") of the Company's common stock, par
value $0.125 per share (the "Common Stock"). It is understood that, subject to
the conditions hereinafter stated, the Firm Stock will be sold to the several
Underwriters named in Schedule 1 hereto (the "Underwriters") in connection with
the offering and sale of such Firm Stock in the United States and Canada to
United States and Canadian Persons. Lehman Brothers Inc. shall act as the sole
representative (the "Representative") of the several Underwriters.
In addition, the Company proposes to grant to the Underwriters an
option to purchase up to an additional 1,500,000 shares of the Common Stock on
the terms and for the purposes set forth in Sections 2 and 4 (the "Option
Stock"). The Firm Stock and the Option Stock, if purchased, are hereinafter
collectively called the "Stock." This is to confirm the agreement concerning the
purchase of the Stock from the Company by the Underwriters.
1. Representations, Warranties and Agreements of the Company.
The Company represents, warrants and agrees that:
(a) A registration statement on Form S-3 with respect to the
Stock has (i) been prepared by the Company in conformity with
the requirements of the United States Securities Act of 1933,
as amended (the "Securities Act"), and the rules and
regulations (the "Rules and Regulations") of the United States
Securities and Exchange Commission (the "Commission")
thereunder, (ii) been filed with the Commission under the
Securities Act and (iii) become effective under the Securities
Act. Copies of such registration statement have been delivered
by the Company to you. As used in this Agreement, "Effective
Time" means the date and the time as of which such
registration statement, or the most recent post-effective
amendment thereto, if any, was declared effective by the
Commission; "Effective Date" means the date of the Effective
Time; "Preliminary Prospectus" means each prospectus included
in such registration statement, or amendments thereof, before
it became effective under the Securities Act and any
prospectus filed with the Commission by
<PAGE> 2
the Company with the consent of the Representative pursuant to
Rule 424(a) of the Rules and Regulations; "Registration
Statement" means such registration statement, as amended at
the Effective Time, including any documents incorporated by
reference therein at such time and all information contained
in the final prospectus filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations in accordance with
Section 5 hereof and deemed to be a part of the registration
statement as of the Effective Time pursuant to paragraph (b)
of Rule 430A of the Rules and Regulations and any new
registration statement registering additional securities
pursuant to Rule 462(b)(3) of the Rules and Regulations; and
"Prospectus" means such final prospectus, as first filed with
the Commission pursuant to paragraph (1) or (4) of Rule 424(b)
of the Rules and Regulations. Reference made herein to any
Preliminary Prospectus or to the Prospectus shall be deemed to
refer to and include any documents incorporated by reference
therein pursuant to Item 12 of Form S-3 under the Securities
Act, as of the date of such Preliminary Prospectus or the
Prospectus, as the case may be, and any reference to any
amendment or supplement to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include any
document filed under the United States Securities Exchange Act
of 1934, as amended (the "Exchange Act"), after the date of
such Preliminary Prospectus or the Prospectus, as the case may
be, and incorporated by reference in such Preliminary
Prospectus or the Prospectus, as the case may be; and any
reference to any amendment to the Registration Statement shall
be deemed to include any periodic report of the Company filed
with the Commission pursuant to Section 13(a) or 15(d) of the
Exchange Act after the Effective Time that is incorporated by
reference in the Registration Statement. To the best of the
Company's knowledge, information and belief, having made
reasonable inquiries, the Commission has not issued any order
preventing or suspending the use of any Preliminary
Prospectus.
(b) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration
Statement or the Prospectus will, when they become effective
or are filed with the Commission, as the case may be, conform
in all material respects to the requirements of the Securities
Act and the Rules and Regulations and do not and will not, (i)
as of the applicable effective date (as to the Registration
Statement and any amendment thereto) contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or omit to state a material fact
necessary to make the statements therein not misleading and
(ii) as of the applicable filing date (as to the Prospectus
and any amendment or supplement thereto) contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading; provided that the Company
makes no representation or warranty as to information
contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written
information furnished to
2
<PAGE> 3
the Company through the Representative by or on behalf of any
Underwriter specifically for inclusion therein.
(c) The documents incorporated by reference in the Preliminary
Prospectus and the Prospectus have been prepared by the
Company in all material respects in conformity with the
requirements of the Exchange Act and the rules and regulations
thereunder and such documents have been timely filed as
required thereby and, when read as a whole together with the
other information in the Prospectus, at the Effective Time,
did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Company and each of the subsidiaries which are listed
on Schedule 2 hereto, (each, a "Significant Subsidiary" and
collectively, the "Significant Subsidiaries"), have been duly
incorporated and are validly existing as corporations in good
standing under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business and are in
good standing as foreign corporations in each jurisdiction in
which their respective ownership or lease of property or the
conduct of their respective businesses requires such
qualification (except where the failure to so qualify would
not have a material adverse effect on the Company and the
Significant Subsidiaries taken as a whole), and have all power
and authority necessary to own or hold their respective
properties and to conduct the businesses in which they are
engaged.
(e) The filing of the Registration Statement and the execution
and delivery by the Company of this Agreement, and the
consummation of the transactions contemplated hereby and
thereby, have been duly authorized by the board of directors
of the Company, and all necessary corporate action to
authorize and approve the same has been taken. The Stock and
all of the authorized shares of Common Stock have been duly
authorized and all of the issued and outstanding shares of
Common Stock are, and all of the Firm Shares and the Option
Shares, as the case may be, when issued, delivered and paid
for will be, validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the
ownership thereof. None of the Shares of Stock when delivered
will be subject to any lien, claim, encumbrance, preemptive
right or any other claim of any third party. The Stock
conforms, or will, when issued, conform, in all material
respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. The capitalization
of the Company as of September 30, 1999 is as set forth in the
Prospectus (except for exercises of options since such date
under the Company's existing stock option plans). Except as
disclosed in the Prospectus, there are no outstanding options
or warrants to purchase any shares of the capital stock of the
Company or securities convertible into or exchangeable for any
shares of the capital stock of the Company. The Company has
all requisite corporate power and authority to issue, sell,
and deliver the Stock in
3
<PAGE> 4
accordance with and upon the terms and conditions set forth in
this Agreement and in the Registration Statement and
Prospectus.
(f) The execution, delivery and performance of this Agreement
by the Company and the consummation of the transactions
contemplated hereby will not conflict with or result in a
breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other material agreement or
instrument to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries is
bound or to which any of the property or assets of the Company
or any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or
by-laws of the Company or any of its subsidiaries or any
statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties
or assets; and except for the registration of the Stock under
the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state or
foreign securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is
required for the execution, delivery and performance of this
Agreement by the Company and the consummation of the
transactions contemplated hereby.
(g) There are no contracts, agreements or understandings
between the Company and any person granting such person the
right to require the Company to file a registration statement
under the Securities Act with respect to any securities of the
Company owned or to be owned by such person or to require the
Company to include such securities in the securities
registered pursuant to the Registration Statement.
(h) Except as described in the Prospectus, the Company has not
sold or issued any shares of Common Stock during the six-month
period preceding the date of the Prospectus, including any
sales pursuant to Rule 144A under, or Regulations D or S of,
the Securities Act, other than shares issued pursuant to
employee benefit plans, qualified stock options plans or other
employee compensation plans or pursuant to outstanding
options, rights or warrants.
(i) Neither the Company nor any of its subsidiaries has
sustained, since the date of the latest audited financial
statements included or incorporated by reference in the
Prospectus, any material loss or interference with its
business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and,
since such date, there has not been any change in the capital
stock (except for exercises of options since such date under
the
4
<PAGE> 5
Company's existing stock option plans) or long-term debt of
the Company or any of its subsidiaries or any material adverse
change, or any development involving a prospective material
adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries,
otherwise than as set forth or contemplated in the Prospectus.
(j) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration
Statement or included or incorporated by reference in the
Prospectus present fairly the financial condition and results
of operations of the entities purported to be shown thereby,
at the dates and for the periods indicated, and have been
prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the
periods involved.
(k) Deloitte & Touche LLP, who has certified certain financial
statements of the Company, whose report appears in the
Prospectus or is incorporated by reference therein and who has
delivered the initial letter referred to in Section 7(g)
hereof, are independent public accountants as required by the
Securities Act and the Rules and Regulations.
(l) The Company and each of its subsidiaries have good and
marketable title in fee simple to all real property and good
and marketable title to all personal property owned by them,
in each case free and clear of all liens, encumbrances and
defects except such as are described in the Prospectus or such
as would not have a material adverse effect on the
consolidated financial position, stockholders' equity, results
of operations, business or prospects of the Company and its
subsidiaries; and all real property and buildings held under
lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and
buildings by the Company and its subsidiaries.
(m) The Company and each of its subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks
the Company believes is adequate for the conduct of their
respective businesses and the value of their respective
properties and as is customary for companies engaged in
similar businesses in similar industries.
(n) Except as described in the Prospectus, there is no
litigation or governmental proceeding pending to which the
Company or any of its subsidiaries is a party or of which any
property or assets of the Company or any of its subsidiaries
is the subject which, if determined adversely to the Company
or any of its subsidiaries, is reasonably likely to have a
material adverse effect on the consolidated financial
position, stockholders' equity, results of operations,
business or prospects of the Company and its subsidiaries; and
to the best of the Company's knowledge, no such
5
<PAGE> 6
proceedings are threatened or contemplated by governmental
authorities or threatened by others.
(o) The conditions for use of Form S-3, as set forth in the
General Instructions thereto, have been satisfied.
(p) There are no contracts or other documents which are
required to be described in the Prospectus or filed as
exhibits to the Registration Statement by the Securities Act
or by the Rules and Regulations which have not been described
in the Prospectus or filed as exhibits to the Registration
Statement or incorporated therein by reference as permitted by
the Rules and Regulations.
(q) No relationship, direct or indirect, exists between or
among the Company on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company
on the other hand, which is required to be described in the
Prospectus which is not so described.
(r) No labor disturbance by the employees of the Company
exists or, to the knowledge of the Company, is imminent which
is reasonably likely to have a material adverse effect on the
consolidated financial position, stockholders' equity, results
of operations, business or prospects of the Company and its
subsidiaries.
(s) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder
("ERISA"); no "reportable event" (as defined in ERISA) has
occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the
Company has not incurred and does not expect to incur
liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as
amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension
plan" for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would
cause the loss of such qualification.
(t) The Company has filed all federal, state and local income
and franchise tax returns required to be filed through the
date hereof and has paid (other than filings or payments
relating to taxes being contested in good faith and for which
an adequate reserve or accrual has been established in
accordance with generally accepted accounting principles) all
taxes due thereon, and no tax deficiency has been determined
adversely to the Company or any of its subsidiaries which has
had (nor does the Company have any knowledge of any tax
deficiency which, if determined
6
<PAGE> 7
adversely to the Company or any of its subsidiaries, is
reasonably likely to have) a material adverse effect on the
consolidated financial position, stockholders' equity, results
of operations, business or prospects of the Company and its
subsidiaries.
(u) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may
otherwise be disclosed in the Prospectus, the Company has not
(i) issued or granted any securities (except for exercises of
options since such date under the Company's existing stock
option plans), (ii) incurred any liability or obligation,
direct or contingent, other than liabilities and obligations
which were incurred in the ordinary course of business, (iii)
entered into any transaction not in the ordinary course of
business or (iv) declared or paid any dividend on its capital
stock.
(v) The Company (i) makes and keeps accurate books and records
and (ii) maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions
are recorded as necessary to permit preparation of its
financial statements and to maintain accountability for its
assets, (C) access to its assets is permitted only in
accordance with management's authorization and (D) the
reported accountability for its assets is compared with
existing assets at reasonable intervals.
(w) Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws, (ii) is in default, and
no event has occurred which, with notice or lapse of time or
both, would constitute such a default, in the due performance
or observance of any term, covenant or condition contained in
any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which it is a party or by
which it is bound or to which any of its properties or assets
is subject or (iii) is in violation of any law, ordinance,
governmental rule, regulation or court decree to which it or
its property or assets may be subject or has failed to obtain
any license, permit, certificate, franchise or other
governmental authorization or permit necessary to the
ownership of its property or to the conduct of its business,
which default or violation in the case of clauses (ii) and
(iii), individually or in the aggregate, could have a material
adverse effect on the consolidated financial position,
stockholders' equity, results of operations, business or
prospects of the Company and its subsidiaries.
(x) Neither the Company nor any of its subsidiaries, nor to
the knowledge of the Company, any director, officer, agent,
employee or other person associated with or acting on behalf
of the Company or any of its subsidiaries, has used any
corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political
activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision
of the Foreign Corrupt Practices Act of 1977; or
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<PAGE> 8
made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment.
(y) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment
of toxic wastes, medical wastes, hazardous wastes or hazardous
substances by the Company or any of its subsidiaries (or, to
the knowledge of the Company, any of their predecessors in
interest) at, upon or from any of the property now or
previously owned or leased by the Company or its subsidiaries
in violation of any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit or which would
require remedial action under any applicable law, ordinance,
rule, regulation, order, judgment, decree or permit, except
for any violation or remedial action which would not have, or
could not be reasonably likely to have, singularly or in the
aggregate with all such violations and remedial actions, a
material adverse effect on the consolidated financial
position, stockholders' equity, results of operations,
business or prospects of the Company and its subsidiaries;
there has been no material spill, discharge, leak, emission,
injection, escape, dumping or release of any kind onto such
property or into the environment surrounding such property of
any toxic wastes, medical wastes, solid wastes, hazardous
wastes or hazardous substances due to or caused by the Company
or any of its subsidiaries, except for any such spill,
discharge, leak, emission, injection, escape, dumping or
release which would not have or would not be reasonably likely
to have, singularly or in the aggregate with all such spills,
discharges, leaks, emissions, injections, escapes, dumpings
and releases, a material adverse effect on the consolidated
financial position, stockholders' equity, results of
operations, business or prospects of the Company and its
subsidiaries; and the terms "hazardous wastes", "toxic
wastes", "hazardous substances" and "medical wastes" shall
have the meanings specified in any applicable local, state,
federal and foreign laws or regulations with respect to
environmental protection.
(z) Neither the Company nor any subsidiary is an "investment
company" within the meaning of such term under the United
States Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder.
2. Purchase of the Stock by the Underwriters. On the basis of
the representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 10,000,000 shares of
the Firm Stock to the several Underwriters, and each of the Underwriters,
severally and not jointly, agrees to purchase the number of shares of the Firm
Stock set opposite that Underwriter's name in Schedule 1 hereto. The respective
purchase obligations of the Underwriters with respect to the Firm Stock shall be
rounded among the Underwriters to avoid fractional shares, as the Representative
may determine.
In addition, the Company grants to the Underwriters an option
to purchase up to 1,500,000 shares of Option Stock. Such option is granted for
the purpose of covering over-
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<PAGE> 9
allotments, if any, in the sale of Firm Stock and is exercisable as provided in
Section 4 hereof. Shares of Option Stock shall be purchased severally for the
account of the Underwriters in proportion to the number of shares of Firm Stock
set opposite the name of such Underwriters in Schedule 1 hereto. The respective
purchase obligations of each Underwriter with respect to the Option Stock shall
be adjusted by the Representative so that no Underwriter shall be obligated to
purchase Option Stock other than in 100-share amounts. The price of both the
Firm Stock and any Option Stock shall be $_____ per share.
The Company shall not be obligated to deliver any of the Stock
to be delivered on any Delivery Date (as hereinafter defined), as the case may
be, except upon payment for all the Stock to be purchased on such Delivery Date
as provided herein.
3. Offering of Stock by the Underwriters. Upon authorization
by the Representative of the release of the Firm Stock, the several Underwriters
propose to offer the Firm Stock for sale upon the terms and conditions set forth
in the Prospectus.
4. Delivery of and Payment for the Stock. Delivery of the Firm
Stock to the Underwriters against payment of the purchase price therefor in
immediately available funds by wire transfer shall be made prior to 1:00 p.m.,
New York time, on November __, 1999, in book-entry form through the facilities
of The Depository Trust Company, New York, New York ("DTC"), or at such other
date or place as shall be determined by agreement between the Representative and
the Company. This date and time are sometimes referred to as the "First Delivery
Date." Delivery of the documents required by Section 7 hereof with respect to
Firm Stock shall be made at such time and date at the offices of Andrews & Kurth
L.L.P., 4200 Chase Tower, Houston, Texas 77002, or at such other date or place
as shall be determined by agreement between the Representative and the Company.
The option granted in Section 2 will expire 30 days after the date of
this Agreement and may be exercised in whole or in part from time to time by
written notice being given to the Company by the Representative. Such notice
shall set forth the aggregate number of shares of Option Stock as to which the
option is being exercised, the names in which the shares of Option Stock are to
be registered, the denominations in which the shares of Option Stock are to be
issued, as determined by the Representative, and the date and time, as
determined by the Representative and the Company, when the shares of Option
Stock are to be delivered; provided, however, that this date and time shall not
be earlier than the First Delivery Date nor earlier than the second business day
after the date on which the option shall have been exercised nor later than the
fifth business day after the date on which the option shall have been exercised.
The date and time the shares of Option Stock are delivered are sometimes
referred to as a "Second Delivery Date" and the First Delivery Date and any
Second Delivery Date are sometimes each referred to as a "Delivery Date".
Delivery of the Option Stock to the Underwriters shall be made
in book-entry form through the facilities of the DTC (or at such place as the
Representative and the Company may mutually agree upon), against payment of the
purchase price therefor in immediately available funds
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<PAGE> 10
by wire transfer. Such payment and delivery shall be made at 10:00 a.m., New
York time, on the Second Delivery Date (which may be the same as the First
Delivery Date), unless some other date and time are agreed upon.
5. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by
the Representative and to file such Prospectus pursuant to
Rule 424(b) under the Securities Act not later than the
Commission's close of business on the second business day
following the earlier of (i) the execution and delivery of
this Agreement, or (ii) the date such Prospectus is first used
following effectiveness of the Registration Statement, or, if
applicable, such earlier time as may be required by Rule
430A(a)(3) under the Securities Act; to make no further
amendment or any supplement to the Registration Statement or
to the Prospectus prior to the last Delivery Date except as
permitted herein or required by law or the Rules and
Regulations; for so long as the delivery of a prospectus is
required in connection with the offering or sale of the Stock,
to advise the Representative, promptly after it receives
notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or
any supplement to the Prospectus or any amended Prospectus has
been filed and to furnish the Representative with copies of
any amendment or supplement that is not in the form of a
report or statement filed under the Exchange Act and the rules
and regulations thereof; to file promptly all reports and any
definitive proxy or information statements required to be
filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act for so long as
the delivery of a Prospectus is required in connection with
the offering or sale of the Stock subsequent to the date of
the Prospectus; to advise the Representative, promptly after
it receives notice thereof, of the issuance by the Commission
of any stop order with respect to the Company or of any order
preventing or suspending the use of any Preliminary Prospectus
or the Prospectus, of the suspension of the qualification of
the Stock for offering or sale in any jurisdiction, of the
initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending
or supplementing of the Registration Statement or the
Prospectus or for additional information; and, in the event of
the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the
Prospectus or suspending any such qualification, to use
promptly its reasonable best efforts to obtain its withdrawal;
(b) To furnish promptly to the Representative and to
counsel for the Underwriters a signed copy of the Registration
Statement as originally filed with the Commission, and each
amendment thereto filed with the Commission, including all
consents and exhibits filed therewith;
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<PAGE> 11
(c) To deliver promptly to the Representative such
number of the following documents as the Representative shall
reasonably request: (i) conformed copies of the Registration
Statement as originally filed with the Commission and each
amendment thereto (in each case excluding exhibits other than
this Agreement and the computation of per share earnings),
(ii) each Preliminary Prospectus, the Prospectus and any
amended or supplemented Prospectus and (iii) any document
incorporated by reference in the Prospectus (excluding
exhibits thereto); and, if the delivery of a prospectus is
required at any time after the Effective Time in connection
with the offering or sale of the Stock and (i) if at such time
any events shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, when such Prospectus is delivered, not misleading,
or, (ii) if for any other reason it shall be necessary to
amend or supplement the Prospectus or to file under the
Exchange Act any document incorporated by reference in the
Prospectus in order to comply with the Securities Act or the
Exchange Act, to notify the Representative and, upon its
request, to file such document and to prepare and furnish
without charge to each Underwriter and to any dealer in
securities as many copies as the Representative may from time
to time reasonably request of an amended or supplemented
Prospectus which will correct such statement or omission or
effect such compliance.
(d) To file promptly with the Commission any
amendment to the Registration Statement or the Prospectus or
any supplement to the Prospectus that may be required, in the
judgment of the Company and the Representative, by the
Securities Act or is requested by the Commission;
(e) Prior to filing with the Commission any amendment
to the Registration Statement or supplement to the Prospectus,
any document incorporated by reference in the Prospectus or
any Prospectus pursuant to Rule 424 of the Rules and
Regulations, to furnish a copy thereof to the Representative
and counsel for the Underwriters and obtain the consent of the
Representative to the filing; provided that, the foregoing
restriction shall not preclude from filing any document
required to be filed under the Exchange Act without the
consent of the Representative;
(f) As soon as practicable after the Effective Date,
to make generally available to the Company's security holders
and to deliver to the Representative an earnings statement of
the Company and its subsidiaries (which need not be audited)
complying with Section 11(a) of the Securities Act and the
Rules and Regulations (including, at the option of the
Company, Rule 158);
(g) For a period of five years following the
Effective Date, to furnish to the Representative copies of all
materials furnished by the Company to its shareholders
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<PAGE> 12
and all public reports and all reports and financial
statements furnished by the Company to the principal national
securities exchange upon which the Common Stock may be listed
pursuant to requirements of or agreements with such exchange
or to the Commission pursuant to the Exchange Act or any rule
or regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as
the Representative may reasonably request to qualify the Stock
for offering and sale under the securities laws of such
jurisdictions as the Representative may request and to comply
with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Stock; provided,
however, that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not now
so qualified or take any action that would subject it to
service of process in suits (other than suits arising out of
the offer or sale of the Stock) in any jurisdiction where it
is not now so subject;
(i) For a period of 90 days from the date of the
Prospectus, not to, directly or indirectly, (1) offer for
sale, sell, pledge or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock or
securities convertible into or exchangeable for Common Stock
(other than the Stock and shares issued pursuant to employee
benefit plans, qualified stock option plans or other employee
compensation plans existing on the date hereof or pursuant to
currently outstanding options, warrants or rights), or sell or
grant options, rights or warrants with respect to any shares
of Common Stock or securities convertible into or exchangeable
for Common Stock (other than the grant of options pursuant to
option plans existing on the date hereof), or (2) enter into
any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or
risks of ownership of such shares of Common Stock, whether any
such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or other securities, in
cash or otherwise, in each case without the prior written
consent of Lehman Brothers Inc.; and to cause each officer and
director of the Company listed on Schedule 3 to furnish to the
Representative, prior to the First Delivery Date, a letter or
letters, in the form of Exhibit A attached hereto;
(j) Prior to the Effective Date, to apply for the
listing of the Stock on the New York Stock Exchange, Inc. and
the Pacific Exchange--Stock & Options and to use its
reasonable best efforts to complete that listing, subject only
to official notice of issuance;
(k) To apply the net proceeds from the sale of the
Stock being sold by the Company as set forth in the
Prospectus; and
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<PAGE> 13
(l) To take such steps as shall be necessary to
ensure that neither the Company nor any subsidiary shall
become an "investment company" within the meaning of such term
under the United States Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
6. Expenses. The Company agrees to pay (a) the costs incident
to the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus or
any document incorporated by reference therein, all as provided in this
Agreement; (d) the costs of producing and distributing this Agreement and any
other related documents in connection with the offering, purchase, sale and
delivery of the Stock; (e) the filing fees incident to securing any required
review by the National Association of Securities Dealers, Inc. of the terms of
sale of the Stock; (f) the fees and expenses of listing the Stock on the New
York Stock Exchange, Inc. and the Pacific Exchange--Stock & Options; (g) the
fees and expenses of qualifying the Stock under the securities laws of the
several jurisdictions as provided in Section 5 (h) and of preparing, printing
and distributing a Blue Sky Memorandum (including related fees and expenses of
counsel to the Underwriters); and (i) all other costs and expenses incident to
the performance of the obligations of the Company under this Agreement; provided
that, except as provided in this Section 6 and in Section 11, the Underwriters
shall pay their own costs and expenses, including the costs and expenses of
their counsel, any transfer taxes on the Stock which they may sell and the
expenses of advertising any offering of the Stock made by the Underwriters.
7. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
contained herein, to the performance by the Company of its obligations
hereunder, and to each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with
the Commission in accordance with Section 5(a); no stop order
suspending the effectiveness of the Registration Statement or
any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the
Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement or the
Prospectus or otherwise shall have been complied with.
(b) No Underwriter shall have discovered and
disclosed to the Company on or prior to such Delivery Date
that the Registration Statement or the Prospectus or any
amendment or supplement thereto contains an untrue statement
of a fact which, in the opinion of Vinson & Elkins L.L.P.,
counsel for the Underwriters, is material or omits to state a
fact which, in the opinion of such counsel, is material and is
required to be stated therein or is necessary to make the
statements therein not misleading.
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<PAGE> 14
(c) All corporate proceedings and other legal matters
incident to the authorization, form and validity of this
Agreement, the Stock, the Registration Statement and the
Prospectus, and all other legal matters relating to this
Agreement and the transactions contemplated hereby shall be
reasonably satisfactory in all material respects to counsel
for the Underwriters, and the Company shall have furnished to
such counsel all documents and information that they may
reasonably request to enable them to pass upon such matters.
(d) Andrews & Kurth L.L.P. shall have furnished to
the Representative its written opinion, as counsel to the
Company, addressed to the Underwriters and dated such Delivery
Date, in form and substance reasonably satisfactory to the
Representative, to the effect that:
(i) The Company and each of its Significant
Subsidiaries have been duly incorporated and are
validly existing as corporations in good standing
under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business
(except where the failure to so qualify would not
have a a material adverse effect on the consolidated
financial position, stockholders' equity, results of
operations, business or prospects of the Company and
the Significant Subsidiaries) and are in good
standing as foreign corporations in each jurisdiction
in which their respective ownership or lease of
property or the conduct of their respective
businesses requires such qualification and have all
power and authority necessary to own or hold their
respective properties and conduct the businesses in
which they are engaged;
(ii) There are no preemptive or other rights
to subscribe for or to purchase, nor any restriction
upon the voting or transfer of, any shares of the
Stock pursuant to the Company's charter or by-laws or
any agreement or other instrument known to such
counsel;
(iii) The authorized capital stock of the
Company as of September 30, 1999 is as set forth in
the Prospectus, and the capital stock of the Company
conforms in all material respects to the description
thereof contained in the Prospectus. To the best of
such counsel's knowledge, except as disclosed in the
Prospectus, there are no outstanding options or
warrants to purchase any shares of capital stock of
the Company or securities convertible into or
exchangeable for any shares of capital stock of the
Company. The Company has all requisite corporate
power and authority to issue, sell and deliver the
Stock in accordance with and upon the terms and
conditions set forth in this Agreement and in the
Registration Statement and Prospectus. The issuance
of the Stock has been duly and validly authorized
and, when
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<PAGE> 15
issued and paid for by the Underwriters in accordance
with the terms of this Agreement, the Stock will be
fully paid and nonassessable. All of the issued
shares of capital stock of each Significant
Subsidiary of the Company have been duly and validly
authorized and issued and are fully paid,
non-assessable and are owned directly or indirectly
by the Company, free and clear of all liens,
encumbrances, equities or claims; the Stock is
approved for listing, subject to official notice of
issuance on the New York Stock Exchange and the
Pacific Exchange - Stock & Options;
(iv) To the best of such counsel's knowledge
and other than as set forth in the Prospectus, there
are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a
party or of which any property or assets of the
Company or any of its subsidiaries is the subject,
and of a character required to be disclosed in the
Registration Statement which are not adequately
disclosed in the Prospectus.
(v) The Registration Statement has become
effective under the Securities Act as of the date and
time specified in such opinion, and to the best of
such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement has
been issued, no proceeding for that purpose is
pending or threatened by the Commission and all
filings required by Rule 424(b) of the Rules and
Regulations have been made;
(vi) The Registration Statement and the
Prospectus and any further amendments or supplements
thereto made by the Company prior to such Delivery
Date (other than the financial statements and related
schedules therein, as to which such counsel need
express no opinion) comply as to form in all material
respects with the requirements of the Securities Act
and the Rules and Regulations; the documents
incorporated by reference in the Prospectus, when
they became effective or were filed with the
Commission, as the case may be, complied as to form
in all material respects with the requirements of the
Securities Act or the Exchange Act, as applicable,
and the rules and regulations of the Commission
thereunder;
(vii) The statements contained in the
Prospectus under the caption "Material United States
Federal Tax Consequences to Non-United States Holders
of Common Stock," insofar as they describe United
States federal statutes, rules and
regulations, constitute a fair summary thereof;
(viii) To the best of such counsel's knowledge,
there are no contracts or other documents which are
required to be described in the Prospectus or filed
as exhibits to the Registration Statement by the
Securities Act or by the Rules and Regulations which
have not been described or filed as exhibits to
15
<PAGE> 16
the Registration Statement or incorporated therein by
reference as permitted by the Rules and Regulations;
(ix) This Agreement has been duly authorized,
executed and delivered by the Company;
(x) The execution and delivery of this
Agreement and the consummation of the transactions
contemplated hereby will not conflict with or result
in a breach or violation of, or constitute a default
under, the certificate of incorporation or by-laws of
the Company or any indenture, mortgage, deed of
trust, loan agreement or other agreement or
instrument known to such counsel to which the Company
or any of its Significant Subsidiaries is a party or
by which the Company or any of its Significant
Subsidiaries is bound or to which any of the property
or assets of the Company or any of its Significant
Subsidiaries is subject, nor will such actions result
in any violation of any law, rule or administrative
regulation, or any decree known to such counsel, of
any court or governmental agency or body having
jurisdiction over the Company, its Significant
Subsidiaries or their property, or result in the
creation of any lien, charge, claim or encumbrance
upon any property or asset of the Company or any of
its Significant Subsidiaries; and, except for the
registration of the Stock under the Securities Act
and such consents, approvals, authorizations,
registrations or qualifications as may be required
under the Exchange Act and applicable state or
foreign securities laws in connection with the
purchase and distribution of the Stock by the
Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such
court or governmental agency or body is required for
the execution, delivery and performance of this
Agreement by the Company and the consummation of the
transactions contemplated hereby; and
(xi) There are no contracts, agreements or
understandings between the Company and any person
granting such person the right to require the Company
to file a registration statement under the Securities
Act with respect to any securities of the Company
owned or to be owned by such person or to require the
Company to include such securities in the securities
registered pursuant to the Registration Statement.
In rendering such opinion, such counsel may state
that its opinion is limited to matters governed by the Federal
laws of the United States of America, the laws of the States
of Texas and New York and the General Corporation Law of the
State of Delaware. Such counsel shall also have furnished to
the Representative a written statement, addressed to the
Underwriters and dated such Delivery Date, in form and
substance satisfactory to the Representative, to the effect
that (x) such counsel has
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<PAGE> 17
acted as counsel to the Company on a regular basis (although
the Company is also represented by its General Counsel), has
acted as counsel to the Company in connection with previous
financing transactions and has acted as counsel to the Company
in connection with the preparation of the Registration
Statement, and (y) based on the foregoing, no facts have come
to the attention of such counsel which lead it to believe that
(I) the Registration Statement, as of the Effective Date,
contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or
necessary in order to make the statements therein not
misleading, or that the Prospectus contains any untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under
which they were made, not misleading or (II) any document
incorporated by reference in the Prospectus, when they became
effective or were filed with the Commission, as the case may
be, contained in the case of a registration statement which
became effective under the Securities Act, any untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to
make the statements therein not misleading, or, in the case of
other documents which were filed under the Exchange Act with
the Commission, an untrue statement of a material fact or
omitted to state a material fact necessary in order to make
the statements therein, in light of the circumstances under
which they were made, not misleading. The foregoing opinion
and statement may be qualified by a statement to the effect
that such counsel does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained
in the Registration Statement or the Prospectus except for the
statements made in the Prospectus under the captions in
clauses (ii) and (vii) above; insofar as such statements
relate to the Stock and concern legal matters.
The opinions requested in subsection (d)(i) and
(d)(iii) above with respect to the Significant Subsidiaries,
in subsection (d)(iv) above with respect to legal proceedings,
in subsection (d)(viii) above with respect to material
contracts, in subsection (d)(x) above with respect to no
conflicts, breaches, violations, defaults or creation or
imposition of liens, charges, claims or encumbrances and in
subsection (d)(xi) above with respect to registration rights
may be rendered by John Buvens, Vice President and General
Counsel of the Company. The opinion rendered by Mr. Buvens
shall also include a statement covering the matters set forth
under clause (y) in the immediately preceding paragraph.
(e) The Representative shall have received from
Vinson & Elkins L.L.P., counsel for the Underwriters, such
opinion or opinions, dated such Delivery Date, with respect to
the issuance and sale of the Stock, the Registration
Statement, the Prospectus and other related matters as the
Representative may reasonably require, and the Company shall
have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass
upon such matters.
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(f) At the time of execution of this Agreement, the
Representative shall have received from Deloitte & Touche LLP
a letter, in form and substance satisfactory to the
Representative, addressed to the Underwriters and dated the
date hereof (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are
in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X
of the Commission, (ii) stating, as of the date hereof (or,
with respect to matters involving changes or developments
since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more
than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the financial
information and other matters ordinarily covered by
accountants' "comfort letters" to underwriters in connection
with registered public offerings.
(g) With respect to the letter of Deloitte & Touche
LLP referred to in the preceding paragraph and delivered to
the Representative concurrently with the execution of this
Agreement (the "initial letter"), the Company shall have
furnished to the Representative a letter (the "bring-down
letter") of such accountants, addressed to the Underwriters
and dated such Delivery Date (i) confirming that they are
independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants
under Rule 2-01 of Regulation S-X of the Commission, (ii)
stating, as of the date of the bring-down letter (or, with
respect to matters involving changes or developments since the
respective dates as of which specified financial information
is given in the Prospectus, as of a date not more than five
days prior to the date of the bring-down letter), the
conclusions and findings of such firm with respect to the
financial information and other matters covered by the initial
letter and (iii) confirming in all material respects the
conclusions and findings set forth in the initial letter.
(h) The Company shall have furnished to the
Representative a certificate, dated such Delivery Date, of its
Chairman of the Board, its President or a Vice President and
its Chief Financial Officer stating that:
(i) The representations, warranties and
agreements of the Company in Section 1 are true and
correct as of such Delivery Date; the Company has
complied with all its agreements contained herein;
and the conditions set forth in Sections 7(a) and
7(i) have been fulfilled; and
(ii) They have carefully examined the
Registration Statement and the Prospectus and, in
their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include
any untrue statement of a material fact and did not
omit to state a material fact required to be stated
18
<PAGE> 19
therein or necessary to make the statements therein
not misleading, and (B) since the Effective Date no
event has occurred which should have been set forth
in a supplement or amendment to the Registration
Statement or the Prospectus.
(i) (i) Neither the Company nor any of its
subsidiaries shall have sustained since the date of the latest
audited financial statements included or incorporated by
reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus or (ii)
since such date there shall not have been any change in the
capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries,
otherwise than as set forth or contemplated in the Prospectus,
the effect of which, in any such case described in clause (i)
or (ii), is, in the judgment of the Representative, so
material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the
delivery of the Stock being delivered on such Delivery Date on
the terms and in the manner contemplated in the Prospectus.
(j) Subsequent to the execution and delivery of this
Agreement (i) no downgrading shall have occurred in the rating
accorded the Company's debt securities by any "nationally
recognized statistical rating organization", as that term is
defined by the Commission for purposes of Rule 436(g)(2) of
the Rules and Regulations and (ii) no such organization shall
have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any
of the Company's debt securities.
(k) Subsequent to the execution and delivery of this
Agreement there shall not have occurred any of the following:
(i) trading in securities generally on the New York Stock
Exchange or the American Stock Exchange or in the
over-the-counter market, or trading in any securities of the
Company on any exchange or in the over-the-counter market,
shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body
or governmental authority having jurisdiction, (ii) a banking
moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged
in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have
been a declaration of a national emergency or war by the
United States or (iv) there shall have occurred such a
material adverse change in general economic, political or
financial conditions (or the effect of international
conditions on the financial markets in the United States shall
be such) as to make it, in the judgment of
19
<PAGE> 20
the Representative, impracticable or inadvisable to proceed
with the public offering or delivery of the Stock being
delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(l) The New York Stock Exchange, Inc. shall have
approved the Stock for listing, subject only to official
notice of issuance.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
8. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each
Underwriter, its officers and employees and each person, if any, who controls
any Underwriter within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof (including, but not limited to, any loss, claim, damage, liability or
action relating to purchases and sales of Stock), to which that Underwriter,
officer, employee or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto, (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading or
(iii) any act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Stock or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based upon
matters covered by clause (i) or (ii) above (provided that the Company shall not
be liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct), and shall reimburse each Underwriter and each
such officer, employee or controlling person promptly upon demand for any legal
or other expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or in any such amendment or
supplement, in reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company through the Representative
by or on behalf of any Underwriter specifically for inclusion therein which
information consists solely of the information specified in Section 8(e). The
foregoing
20
<PAGE> 21
indemnity agreement is in addition to any liability which the Company may
otherwise have to any Underwriter or to any officer, employee or controlling
person of that Underwriter; provided, however, that with respect to any untrue
statement or omission made in the Preliminary Prospectus, the indemnity
agreement contained in this Section 8(a) shall not inure to the benefit of the
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased the Stock concerned if, to the extent such sale was an
initial sale by such Underwriter and any such loss, claim, damage or liability
of such Underwriter is a result of the fact that both (A) a copy of the
Prospectus was not sent or given to such person at or prior to the time of the
written confirmation of the sale of such Stock to such person, and (B) the
untrue statement or omission in the Preliminary Prospectus was corrected in the
Prospectus; provided further, however, that this limitation shall have no effect
unless the Company has complied with its obligation under Section 5(c) of this
Agreement and the Underwriter has a legal obligation to deliver a Prospectus to
the person asserting any such losses, claims, damages or liabilities.
(b) Each Underwriter, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and employees, each of its
directors, and each person, if any, who controls the Company within the meaning
of the Securities Act, from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof, to which the Company or any
such director, officer or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in any Preliminary Prospectus,
the Registration Statement or the Prospectus or in any amendment or supplement
thereto, or (B) in any Blue Sky Application or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to make
the statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information concerning
such Underwriter furnished to the Company through the Representative by or on
behalf of that Underwriter specifically for inclusion therein, and shall
reimburse the Company and any such director, officer or controlling person for
any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred. The foregoing indemnity agreement is in
addition to any liability which any Underwriter may otherwise have to the
Company or any such director, officer, employee or controlling person.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may
21
<PAGE> 22
have to an indemnified party otherwise than under this Section 8. If any such
claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Representative shall have the right to employ counsel to represent jointly
the Representative and those other Underwriters and their respective officers,
employees and controlling persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the Underwriters
against the Company under this Section 8 if, in the reasonable judgment of the
Representative, it is advisable for the Representative and those Underwriters,
officers, employees and controlling persons to be jointly represented by
separate counsel, and in that event the fees and expenses of such separate
counsel shall be paid by the Company, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to the fees
and expenses of any local counsel that may be retained for the action) for all
such indemnified parties. No indemnifying party shall (i) without the prior
written consent of the indemnified parties (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the consent of
the indemnifying party or if there be a final judgment of the plaintiff in any
such action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) If the indemnification provided for in this Section 8
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a) or 8(b) in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other from
the offering of the Stock or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and the Underwriters on the
other with respect to the statements or omissions which resulted in such loss,
claim, damage
22
<PAGE> 23
or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other with respect to such offering shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Stock purchased under this Agreement (before deducting expenses)
received by the Company on the one hand, and the total underwriting discounts
and commissions received by the Underwriters with respect to the shares of the
Stock purchased under this Agreement on the other hand, bear to the total gross
proceeds from the offering of the shares of the Stock under this Agreement, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Underwriters, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 8 were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 8 shall be deemed
to include, for purposes of this Section 8(d), any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8(d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Stock underwritten by
it and distributed to the public was offered to the public exceeds the amount of
any damages which such Underwriter has otherwise paid or become liable to pay by
reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute as provided in this Section 8(d) are
several in proportion to their respective underwriting obligations and not
joint.
(e) The Underwriters severally confirm and the Company
acknowledges that the statements with respect to the public offering of the
Stock by the Underwriters and the over-allotment option set forth on the cover
page of, the list of Underwriters and their respective participation in the sale
of Stock under the caption "Underwriting" in, and the paragraphs addressing the
underwriting discount, concessions and reallowances, stabilization, short
positions, syndicate transactions, penalty bids, the performance of investment
banking and financial advisory services by the Underwriters and limitations on
sales in the United Kingdom under the caption "Underwriting" in, the Prospectus
are correct and constitute the only information concerning such Underwriters
furnished in writing to the Company by or on behalf of the Underwriters
specifically for inclusion in the Registration Statement and the Prospectus.
23
<PAGE> 24
9. Defaulting Underwriters.
If, on either Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining
non-defaulting Underwriters shall be obligated to purchase the Stock which the
defaulting Underwriter agreed but failed to purchase on such Delivery Date in
the respective proportions which the number of shares of the Firm Stock set
opposite the name of each remaining non-defaulting Underwriter in Schedule 1 or
2 hereto bears to the total number of shares of the Firm Stock set opposite the
names of all the remaining non-defaulting Underwriters in Schedule 1 or 2
hereto; provided, however, that the remaining non-defaulting Underwriters shall
not be obligated to purchase any of the Stock on such Delivery Date if the total
number of shares of the Stock which the defaulting Underwriter or Underwriters
agreed but failed to purchase on such date exceeds 9.09% of the total number of
shares of the Stock to be purchased on such Delivery Date, and any remaining
non-defaulting Underwriter shall not be obligated to purchase more than 110% of
the number of shares of the Stock which it agreed to purchase on such Delivery
Date pursuant to the terms of Section 3. If the foregoing maximums are exceeded,
the remaining non-defaulting Underwriters, or those other underwriters
satisfactory to the Representative who so agree, shall have the right, but shall
not be obligated, to purchase, in such proportion as may be agreed upon among
them, all the Stock to be purchased on such Delivery Date. If the remaining
Underwriters or other underwriters satisfactory to the Representative do not
elect to purchase the shares which the defaulting Underwriter or Underwriters
agreed but failed to purchase on such Delivery Date, this Agreement (or, with
respect to the Second Delivery Date, the obligation of the Underwriters to
purchase, and of the Company to sell, the Option Stock) shall terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
that the Company will continue to be liable for the payment of expenses of the
non-defaulting Underwriters to the extent set forth in Sections 6 and 11. As
used in this Agreement, the term "Underwriter" includes, for all purposes of
this Agreement unless the context requires otherwise, any party not listed in
Schedule 1 or 2 hereto who, pursuant to this Section 9, purchases Firm Stock
which a defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting
Underwriter of any liability it may have to the Company for damages caused by
its default. If other underwriters are obligated or agree to purchase the Stock
of a defaulting or withdrawing Underwriter, either the Representative or the
Company may postpone the Delivery Date for up to seven full business days in
order to effect any changes that in the opinion of counsel for the Company or
counsel for the Underwriters may be necessary in the Registration Statement, the
Prospectus or in any other document or arrangement.
10. Termination. The obligations of the Underwriters hereunder
may be terminated by the Representative by notice given to and received by the
Company prior to delivery of and payment for the Firm Stock if, prior to that
time, any of the events described in Sections 7(i) or 7(j), shall have occurred
or if the Underwriters shall decline to purchase the Stock for any reason
permitted under this Agreement.
11. Reimbursement of Underwriters' Expenses. If the Company
shall fail to tender the Stock for delivery to the Underwriters by reason of any
failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed, or because any other
24
<PAGE> 25
condition of the Underwriters' obligations hereunder required to be fulfilled by
the Company is not fulfilled, the Company will reimburse the Underwriters for
all reasonable out-of-pocket expenses (including fees and disbursements of
counsel) incurred by the Underwriters in connection with this Agreement and the
proposed purchase of the Stock, and upon demand the Company shall pay the full
amount thereof to the Representative. If this Agreement is terminated pursuant
to Section 9 by reason of the default of one or more Underwriters, the Company
shall not be obligated to reimburse any defaulting Underwriter on account of
those expenses.
12. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or
sent by mail, telex or facsimile transmission to Lehman
Brothers Inc., Three World Financial Center, New York, New
York 10285, Attention: Syndicate Department (Fax:
212-526-6588), with a copy, in the case of any notice pursuant
to Section 8(c), to the Director of Litigation, Office of the
General Counsel, Lehman Brothers Inc., 3 World Financial
Center, 10th Floor, New York, NY 10285;
(b) if to the Company, shall be delivered or sent by
mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention:
General Counsel (Fax: (713) 960-7658);
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representative, which address will be supplied to any other party hereto by the
Representative upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Underwriters by Lehman Brothers Inc.
13. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the Underwriters, the Company
and their respective successors. This Agreement and the terms and provisions
hereof are for the sole benefit of only those persons, except that (A) the
representations, warranties, indemnities and agreements of the Company contained
in this Agreement shall also be deemed to be for the benefit of the person or
persons, if any, who control any Underwriter within the meaning of Section 15 of
the Securities Act and (B) the indemnity agreement of the Underwriters contained
in Section 8(b) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers of the Company who have signed the
Registration Statement and any person controlling the Company within the meaning
of Section 15 of the Securities Act. Nothing in this Agreement is intended or
shall be construed to give any person, other than the persons referred to in
this Section 13, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
25
<PAGE> 26
14. Survival. The respective indemnities, representations,
warranties and agreements of the Company and the Underwriters contained in this
Agreement or made by or on behalf on them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Stock and shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any of them or any person controlling any of them.
15. Definition of the Term "Business Day." For purposes of
this Agreement, "business day" means each Monday, Tuesday, Wednesday, Thursday
or Friday which is not a day on which banking institutions in New York are
generally authorized or obligated by law or executive order to close.
16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
17. Conflicts. The Company and the Underwriters acknowledge
that Andrews & Kurth L.L.P., which will be acting as counsel to the Company in
connection with the offer and sale of the Stock, also acts as counsel from time
to time to one or more of the Underwriters in connection with unrelated matters.
The Company and the Underwriters consent to Andrews & Kurth L.L.P. so acting as
counsel to the Company. The Company and the Underwriters also acknowledge that
Vinson & Elkins L.L.P., which is acting as counsel to the Underwriters in
connection with the offer and sale of Stock, also acts as counsel from time to
time to the Company in connection with unrelated matters. The Company and the
Underwriters consent to Vinson & Elkins L.L.P. so acting as counsel to the
Underwriters.
18. Counterparts. This Agreement may be executed in one or
more counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
19. Headings. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
If the foregoing correctly sets forth the agreement between
the Company and the Underwriters, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
ROWAN COMPANIES, INC.
By:
----------------------------------------
Name:
Title:
Accepted:
26
<PAGE> 27
LEHMAN BROTHERS INC.
For itself and as Representative
of the several Underwriters
named in Schedule 1 hereto
By: -------------------------------------------
Authorized Representative
27
<PAGE> 28
SCHEDULE 1
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ------
<S> <C>
Lehman Brothers Inc...........................................
[Names of other Underwriters]
------
Total....................................................
======
</TABLE>
28
<PAGE> 29
SCHEDULE 2
Significant Subsidiaries
Era Aviation, Inc. (Washington)
Rowan International, Inc. (Panama)
Rowandrill, Inc. (Texas)
Rowan Drilling Company, Inc. (Texas)
Atlantic Maritime Services, Inc. (Texas)
Rowan Petroleum, Inc. (Texas)
LeTourneau, Inc. (Texas)
<PAGE> 30
SCHEDULE 3
Executive Officers and Directors
<PAGE> 31
EXHIBIT A
LOCK-UP LETTER AGREEMENT
LEHMAN BROTHERS INC.
As Representative of the
several Underwriters
named in Schedule 1
Three World Financial Center
New York, NY 10285
Dear Sirs:
The undersigned understands that you and certain other firms propose to
enter into an Underwriting Agreement (the "Underwriting Agreement") providing
for the purchase by you and such other firms (the "Underwriters") of shares (the
"Shares") of Common Stock, par value $0.125 per share (the "Common Stock"), of
Rowan Companies, Inc. (the "Company") and that the Underwriters propose to
reoffer the Shares to the public (the "Offering").
In consideration of the execution of the Underwriting Agreement by the
Underwriters, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that, without the prior written consent of Lehman
Brothers Inc., the undersigned will not, directly or indirectly, (1) offer for
sale, sell, pledge, or otherwise dispose of (or enter into any transaction or
device that is designed to, or could be expected to, result in the disposition
by any person at any time in the future of) any shares of Common Stock
(including, without limitation, shares of Common Stock that may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations of the Securities and Exchange Commission and shares of Common Stock
that may be issued upon exercise of any option or warrant) or securities
convertible into or exchangeable for Common Stock (other than the Shares) owned
by the undersigned on the date of execution of this Lock-Up Letter Agreement or
on the date of the completion of the Offering, or (2) enter into any swap or
other derivatives transaction that transfers to another, in whole or in part,
any of the economic benefits or risks of ownership of such shares of Common
Stock, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Common Stock or other securities, in cash or
otherwise, for a period of [90/60] days after the date of the final Prospectus
relating to the Offering.
In furtherance of the foregoing, the Company and its Transfer Agent are
hereby authorized to decline to make any transfer of securities if such transfer
would constitute a violation or breach of this Lock-Up Letter Agreement.
It is understood that, if the Company notifies you that it does not
intend to proceed with the Offering, if the Underwriting Agreement does not
become effective, or if the Underwriting
<PAGE> 32
Agreement (other than the provisions thereof which survive termination) shall
terminate or be terminated prior to payment for and delivery of the Shares, the
undersigned will be released from its obligations under this Lock-Up Letter
Agreement.
The undersigned understands that the Company and the Underwriter will
proceed with the Offering in reliance on this Lock-Up Letter Agreement.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this Lock-Up Letter Agreement and that,
upon request, the undersigned will execute any additional documents necessary in
connection with the enforcement hereof. Any obligations of the undersigned shall
be binding upon the heirs, personal representatives, successors and assigns of
the undersigned.
Very truly yours,
Dated: _______________
<PAGE> 1
EXHIBIT 5.1
Andrews & Kurth L.L.P.
4200 Chase Tower
600 Travis
Houston, Texas 77002
November 19, 1999
Rowan Companies, Inc.
2800 Post Oak Boulevard, Suite 5450
Houston, Texas 77056-6196
Re: Rowan Companies, Inc. Registration Statement on Form S-3 (Reg. No.
333-88855)
Ladies and Gentlemen:
As counsel to Rowan Companies, Inc., a Delaware corporation (the
"Company"), we have assisted in the preparation of the subject Registration
Statement on Form S-3, as amended (the "Registration Statement"), to be filed
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), relating to the issuance of up to 11,500,000 shares (the
"Shares") of the Company's Common Stock, par value $0.125 per share.
In rendering the opinion set forth below, we have reviewed (a) the
Registration Statement; (b) the Company's Restated Certificate of Incorporation
and Bylaws; (c) certain records of the Company's corporate proceedings as
reflected in its minute books; and (d) such records, documents, statutes and
decisions as we have deemed relevant. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity with the original of all documents submitted to
us as copies thereof.
Our opinion set forth below is limited to the Delaware General Corporation
Law.
Based upon the foregoing, we are of the opinion that the Shares are validly
issued fully paid and nonassessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Registration Statement. In giving such opinion, we do not
thereby admit that we are acting within the category of persons whose consent is
required under Section 7 of the Act or the rules or regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Andrews & Kurth L.L.P.
1173/1210/2637
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-88855 of Rowan Companies, Inc. on Form S-3 of our
report dated March 1, 1999, and incorporated by reference in the Annual Report
on Form 10-K of Rowan Companies, Inc. for the year ended December 31, 1998, and
to the reference to us under the heading "Experts" in the prospectus, which is a
part of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
November 19, 1999
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
ROWAN COMPANIES, INC.
Re: Public Offering of
11.5 Million Shares of
Common Stock
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rowan
Companies, Inc., a Delaware corporation (the "Company"), does hereby make,
constitute and appoint C. R. Palmer and E. E. Thiele, and each of them acting
individually, his true and lawful attorney with power to act without the other
with full power of substitution and resubstitution in each, to execute, deliver
and file, for and on behalf, and in his name and in his capacity or capacities
as aforesaid, any and all amendments and supplements (including post-effective
amendments) to the Company's Registration Statement on Form S-3 (including all
exhibits thereto, the "Registration Statement") relating to the offering and
sale of up to 11,500,000 shares of Common Stock (including up to 1,500,000
shares which may be sold to cover over-allotments) filed with the Securities and
Exchange Commission (the "Commission") on October 12, 1999 (File No. 333-88855),
and any related registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, hereby granting to
said attorneys and each of them, full power and authority to do and perform each
and every act and thing whatsoever as said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st
day of October, 1999.
/s/ Ralph E. Bailey
-----------------------------------------
<PAGE> 2
POWER OF ATTORNEY
ROWAN COMPANIES, INC.
Re: Public Offering of
11.5 Million Shares of
Common Stock
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rowan
Companies, Inc., a Delaware corporation (the "Company"), does hereby make,
constitute and appoint C. R. Palmer and E. E. Thiele, and each of them acting
individually, his true and lawful attorney with power to act without the other
with full power of substitution and resubstitution in each, to execute, deliver
and file, for and on behalf, and in his name and in his capacity or capacities
as aforesaid, any and all amendments and supplements (including post-effective
amendments) to the Company's Registration Statement on Form S-3 (including all
exhibits thereto, the "Registration Statement") relating to the offering and
sale of up to 11,500,000 shares of Common Stock (including up to 1,500,000
shares which may be sold to cover over-allotments) filed with the Securities and
Exchange Commission (the "Commission") on October 12, 1999 (File No. 333-88855),
and any related registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, hereby granting to
said attorneys and each of them, full power and authority to do and perform each
and every act and thing whatsoever as said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st
day of October, 1999.
/s/ Henry O. Boswell
----------------------------------------
<PAGE> 3
POWER OF ATTORNEY
ROWAN COMPANIES, INC.
Re: Public Offering of
11.5 Million Shares of
Common Stock
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rowan
Companies, Inc., a Delaware corporation (the "Company"), does hereby make,
constitute and appoint C. R. Palmer and E. E. Thiele, and each of them acting
individually, his true and lawful attorney with power to act without the other
with full power of substitution and resubstitution in each, to execute, deliver
and file, for and on behalf, and in his name and in his capacity or capacities
as aforesaid, any and all amendments and supplements (including post-effective
amendments) to the Company's Registration Statement on Form S-3 (including all
exhibits thereto, the "Registration Statement") relating to the offering and
sale of up to 11,500,000 shares of Common Stock (including up to 1,500,000
shares which may be sold to cover over-allotments) filed with the Securities and
Exchange Commission (the "Commission") on October 12, 1999 (File No. 333-88855),
and any related registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, hereby granting to
said attorneys and each of them, full power and authority to do and perform each
and every act and thing whatsoever as said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st
day of October, 1999.
/s/ Hans M. Brinkhorst
-----------------------------------------
<PAGE> 4
POWER OF ATTORNEY
ROWAN COMPANIES, INC.
Re: Public Offering of
11.5 Million Shares of
Common Stock
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rowan
Companies, Inc., a Delaware corporation (the "Company"), does hereby make,
constitute and appoint C. R. Palmer and E. E. Thiele, and each of them acting
individually, his true and lawful attorney with power to act without the other
with full power of substitution and resubstitution in each, to execute, deliver
and file, for and on behalf, and in his name and in his capacity or capacities
as aforesaid, any and all amendments and supplements (including post-effective
amendments) to the Company's Registration Statement on Form S-3 (including all
exhibits thereto, the "Registration Statement") relating to the offering and
sale of up to 11,500,000 shares of Common Stock (including up to 1,500,000
shares which may be sold to cover over-allotments) filed with the Securities and
Exchange Commission (the "Commission") on October 12, 1999 (File No. 333-88855),
and any related registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, hereby granting to
said attorneys and each of them, full power and authority to do and perform each
and every act and thing whatsoever as said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st
day of October, 1999.
/s/ R. G. Croyle
--------------------------------------
<PAGE> 5
POWER OF ATTORNEY
ROWAN COMPANIES, INC.
Re: Public Offering of
11.5 Million Shares of
Common Stock
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rowan
Companies, Inc., a Delaware corporation (the "Company"), does hereby make,
constitute and appoint C. R. Palmer and E. E. Thiele, and each of them acting
individually, his true and lawful attorney with power to act without the other
with full power of substitution and resubstitution in each, to execute, deliver
and file, for and on behalf, and in his name and in his capacity or capacities
as aforesaid, any and all amendments and supplements (including post-effective
amendments) to the Company's Registration Statement on Form S-3 (including all
exhibits thereto, the "Registration Statement") relating to the offering and
sale of up to 11,500,000 shares of Common Stock (including up to 1,500,000
shares which may be sold to cover over-allotments) filed with the Securities and
Exchange Commission (the "Commission") on October 12, 1999 (File No. 333-88855),
and any related registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, hereby granting to
said attorneys and each of them, full power and authority to do and perform each
and every act and thing whatsoever as said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st
day of October, 1999.
/s/ H. E. Lentz
--------------------------------------
<PAGE> 6
POWER OF ATTORNEY
ROWAN COMPANIES, INC.
Re: Public Offering of
11.5 Million Shares of
Common Stock
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rowan
Companies, Inc., a Delaware corporation (the "Company"), does hereby make,
constitute and appoint C. R. Palmer and E. E. Thiele, and each of them acting
individually, his true and lawful attorney with power to act without the other
with full power of substitution and resubstitution in each, to execute, deliver
and file, for and on behalf, and in his name and in his capacity or capacities
as aforesaid, any and all amendments and supplements (including post-effective
amendments) to the Company's Registration Statement on Form S-3 (including all
exhibits thereto, the "Registration Statement") relating to the offering and
sale of up to 11,500,000 shares of Common Stock (including up to 1,500,000
shares which may be sold to cover over-allotments) filed with the Securities and
Exchange Commission (the "Commission") on October 12, 1999 (File No. 333-88855),
and any related registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, hereby granting to
said attorneys and each of them, full power and authority to do and perform each
and every act and thing whatsoever as said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st
day of October, 1999.
/s/ D.F. McNease
-------------------------------------
<PAGE> 7
POWER OF ATTORNEY
ROWAN COMPANIES, INC.
Re: Public Offering of
11.5 Million Shares of
Common Stock
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rowan
Companies, Inc., a Delaware corporation (the "Company"), does hereby make,
constitute and appoint C. R. Palmer and E. E. Thiele, and each of them acting
individually, his true and lawful attorney with power to act without the other
with full power of substitution and resubstitution in each, to execute, deliver
and file, for and on behalf, and in his name and in his capacity or capacities
as aforesaid, any and all amendments and supplements (including post-effective
amendments) to the Company's Registration Statement on Form S-3 (including all
exhibits thereto, the "Registration Statement") relating to the offering and
sale of up to 11,500,000 shares of Common Stock (including up to 1,500,000
shares which may be sold to cover over-allotments) filed with the Securities and
Exchange Commission (the "Commission") on October 12, 1999 (File No. 333-88855),
and any related registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, hereby granting to
said attorneys and each of them, full power and authority to do and perform each
and every act and thing whatsoever as said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st
day of October, 1999.
/s/ Lord Moynihan
--------------------------------------
<PAGE> 8
POWER OF ATTORNEY
ROWAN COMPANIES, INC.
Re: Public Offering of
11.5 Million Shares of
Common Stock
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rowan
Companies, Inc., a Delaware corporation (the "Company"), does hereby make,
constitute and appoint C. R. Palmer and E. E. Thiele, and each of them acting
individually, his true and lawful attorney with power to act without the other
with full power of substitution and resubstitution in each, to execute, deliver
and file, for and on behalf, and in his name and in his capacity or capacities
as aforesaid, any and all amendments and supplements (including post-effective
amendments) to the Company's Registration Statement on Form S-3 (including all
exhibits thereto, the "Registration Statement") relating to the offering and
sale of up to 11,500,000 shares of Common Stock (including up to 1,500,000
shares which may be sold to cover over-allotments) filed with the Securities and
Exchange Commission (the "Commission") on October 12, 1999 (File No. 333-88855),
and any related registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, hereby granting to
said attorneys and each of them, full power and authority to do and perform each
and every act and thing whatsoever as said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st
day of October, 1999.
/s/ Wilfred P. Schmoe
--------------------------------------
<PAGE> 9
POWER OF ATTORNEY
ROWAN COMPANIES, INC.
Re: Public Offering of
11.5 Million Shares of
Common Stock
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rowan
Companies, Inc., a Delaware corporation (the "Company"), does hereby make,
constitute and appoint C. R. Palmer and E. E. Thiele, and each of them acting
individually, his true and lawful attorney with power to act without the other
with full power of substitution and resubstitution in each, to execute, deliver
and file, for and on behalf, and in his name and in his capacity or capacities
as aforesaid, any and all amendments and supplements (including post-effective
amendments) to the Company's Registration Statement on Form S-3 (including all
exhibits thereto, the "Registration Statement") relating to the offering and
sale of up to 11,500,000 shares of Common Stock (including up to 1,500,000
shares which may be sold to cover over-allotments) filed with the Securities and
Exchange Commission (the "Commission") on October 12, 1999 (File No. 333-88855),
and any related registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, hereby granting to
said attorneys and each of them, full power and authority to do and perform each
and every act and thing whatsoever as said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st
day of October, 1999.
/s/ Charles P. Siess, Jr.
-----------------------------------------
<PAGE> 10
POWER OF ATTORNEY
ROWAN COMPANIES, INC.
Re: Public Offering of
11.5 Million Shares of
Common Stock
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rowan
Companies, Inc., a Delaware corporation (the "Company"), does hereby make,
constitute and appoint C. R. Palmer and E. E. Thiele, and each of them acting
individually, his true and lawful attorney with power to act without the other
with full power of substitution and resubstitution in each, to execute, deliver
and file, for and on behalf, and in his name and in his capacity or capacities
as aforesaid, any and all amendments and supplements (including post-effective
amendments) to the Company's Registration Statement on Form S-3 (including all
exhibits thereto, the "Registration Statement") relating to the offering and
sale of up to 11,500,000 shares of Common Stock (including up to 1,500,000
shares which may be sold to cover over-allotments) filed with the Securities and
Exchange Commission (the "Commission") on October 12, 1999 (File No. 333-88855),
and any related registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, hereby granting to
said attorneys and each of them, full power and authority to do and perform each
and every act and thing whatsoever as said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st
day of October, 1999.
/s/ C. W. Yeargain
------------------------------------
