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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DIAMOND OFFSHORE DRILLING, INC.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 76-0321760
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
WILLIAM C. LONG, ESQ.
GENERAL COUNSEL AND SECRETARY
DIAMOND OFFSHORE DRILLING, INC.
15415 KATY FREEWAY 15415 KATY FREEWAY
HOUSTON, TEXAS 77094 HOUSTON, TEXAS 77094
(281) 492-5300 (281) 492-5300
(Address, Including Zip Code, and Telephone Number, Including (Name, Address, Including Zip Code, and
Area Code, of Registrant's Principal Executive Offices) Telephone Number, Including Area Code, of Agent for Service)
</TABLE>
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Copy to:
JAMES L. RICE III, ESQ.
WEIL, GOTSHAL & MANGES LLP
700 LOUISIANA, SUITE 1600
HOUSTON, TEXAS 77002
(713) 546-5000
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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. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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, 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. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT PRICE REGISTRATION FEE
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Zero Coupon Convertible Debentures Due June
6, 2020.................................. $402,178,000 100%(1) $402,178,000 $106,175(2)
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Common Stock, par value $.01 per share..... (3) (3) (3) (4)
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(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) This fee is calculated on the basis of the offering price of the debentures.
(3) Includes 6,929,038 shares of common stock issuable upon conversion of the
debentures at the rate of 8.6075 shares of common stock for each $1,000
principal amount at maturity of the debentures. Pursuant to Rule 416 under
the Securities Act, such number of shares of common stock registered hereby
shall include an indeterminate number of shares of common stock that may be
issued in connection with a stock split, stock dividend, recapitalization or
similar event.
(4) Pursuant to Rule 457(i), there is no additional filing fee with respect to
the shares of common stock issuable upon conversion of the debentures
because no additional consideration will be received in connection with the
exercise of the conversion privilege.
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. The
selling securityholders 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.
SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
[DIAMOND OFFSHORE LOGO]
DIAMOND OFFSHORE DRILLING, INC.
ZERO COUPON CONVERTIBLE DEBENTURES DUE JUNE 6, 2020
THE DEBENTURES
- Aggregate principal amount at maturity: $805,000,000.
- Common stock into which the debentures are convertible: initially 6,929,038
shares, subject to conversion rate adjustments.
- Issue price: $499.60 on June 6, 2000.
- Yield to maturity: 3.50% per year.
- Conversion rate: 8.6075 shares of our common stock per $1,000 principal amount
at maturity of debentures.
- Date of maturity: June 6, 2020.
CONVERSION
- Holders can convert the debentures into our common stock at any time prior to
maturity.
REDEMPTION
- We have the option to redeem the debentures after June 6, 2005.
REPURCHASE
- Holders have the option on June 6, 2005, June 6, 2010 or June 6, 2015, or when
there is a change of control of Diamond Offshore, to require us to repurchase
their debentures.
- We may choose to pay the repurchase price in cash or shares of our common
stock or a combination of cash and shares of our common stock.
THE DEBENTURES AND COMMON STOCK OFFERED IN THIS PROSPECTUS INVOLVE A HIGH
DEGREE OF RISK. CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 5.
Our common stock is listed on The New York Stock Exchange under the symbol
"DO."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY CONTRARY REPRESENTATION IS A CRIMINAL OFFENSE.
Prospectus dated , 2000
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TABLE OF CONTENTS
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PAGE
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Forward-Looking Statements.................................. 1
Where You Can Find More Information......................... 1
Summary..................................................... 3
Risk Factors................................................ 5
Use of Proceeds............................................. 10
Ratio of Earnings to Fixed Charges.......................... 10
Description of Common Stock................................. 10
Description of the Debentures............................... 11
Selling Securityholders..................................... 26
Certain United States Federal Income Tax Considerations..... 28
Plan of Distribution........................................ 32
Legal Matters............................................... 33
Independent Auditors........................................ 33
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FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this
prospectus contain both historical and forward-looking statements. All
statements other than statements of historical fact are, or may be deemed to be,
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, or the Securities Act, and Section 21E of the Securities Exchange
Act of 1934, or the Exchange Act. Forward-looking statements include the
information concerning possible or assumed future results of operations of our
company, including statements about the following subjects:
- business strategy
- growth opportunities
- competitive position
- market outlook
- expected financial position
- expected results of operations
- future cash flows
- future dividends
- financing plans
- budgets for capital and other expenditures
- timing and cost of completion of capital projects
- plans and objectives of management
- performance of contracts
- outcomes of legal proceedings
- compliance with applicable laws
- adequacy of insurance
- future uses of and requirements for financial resources
- expenditures, delivery dates and drilling contracts related to the Ocean
Confidence and other conversion or upgrade projects
Forward-looking statements in this prospectus or incorporated by reference
are identifiable by use of the following words and other similar expressions,
among others:
- "anticipate"
- "believe"
- "budget"
- "could"
- "estimate"
- "expect"
- "forecast"
- "intend"
- "may"
- "might"
- "plan"
- "predict"
- "project"
- "should"
The factors discussed below under "Risk Factors" and in the documents we
incorporate by reference into this prospectus could affect our future results of
operations and could cause those results to differ materially from those
expressed in the forward-looking statements included in this prospectus or
incorporated by reference. These factors include, among others, general economic
and business conditions, casualty losses, industry fleet capacity, changes in
foreign and domestic oil and gas exploration and production activity,
competition, changes in foreign, political, social and economic conditions,
regulatory initiatives and compliance with governmental regulations, customer
preferences and various other matters, many of which are beyond our control.
You should not place undue reliance on forward-looking statements. Each
forward-looking statement speaks only as of the date of the particular
statement, and we undertake no obligation to publicly update or revise any
forward-looking statements.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act, and,
in accordance with the Exchange Act, file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission, or the SEC. You can inspect and copy the registration statement on
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Form S-3 of which this prospectus is a part, as well as reports, proxy
statements and other information that we file with the SEC, and obtain copies of
these materials at the prescribed rates, at the SEC's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. You can call the SEC at
1-800-SEC-0330 for information regarding the operation of the Public Reference
Room. The SEC also maintains an Internet site at http://www.sec.gov that
contains reports, proxy and information statements, and other information
regarding registrants, like us, that file electronically.
This prospectus provides you with a general description of the debentures
and common stock being registered. This prospectus is part of a registration
statement that we have filed with the SEC. To see more detail, you should read
the exhibits and schedules filed with, or incorporated by reference into, our
registration statement.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with the SEC. This means that we can disclose important
information to you by referring you to those documents. The information we
incorporate by reference is considered a part of this prospectus, and later
information we file with the SEC will automatically update and supersede this
information. We incorporate by reference our documents listed below and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 and 15(d) of
the Exchange Act until this offering is completed:
- Annual Report on Form 10-K for the year ended December 31, 1999;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2000;
- Current Report on Form 8-K filed with the SEC on June 1, 2000;
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and
Amendment No. 1 thereto; and
- The description of our common stock contained in Amendment No. 1 to the
Registration Statement on Form 8-A filed with the SEC on October 10,
1995.
You may request these documents in writing or by telephone. We will provide
to you, at no cost, a copy of any or all information incorporated by reference
in the registration statement, of which this prospectus is a part. Requests
should be directed to our Investor Relations Department at our principal
offices, which are located at 15415 Katy Freeway, Houston, Texas 77094. You may
contact our Investor Relations Department by calling us at (281) 492-5300.
You should rely on the information incorporated by reference or provided in
this prospectus or any prospectus supplement. We have not authorized anyone else
to provide you with different information. The selling securityholders are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of the document.
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SUMMARY
You should read this summary together with the more detailed information
regarding us, the Zero Coupon Convertible Debentures Due June 6, 2020, or
Debentures, and the common stock issuable upon conversion of the Debentures
appearing elsewhere, and incorporated by reference, in this prospectus. All
selling securityholders must deliver a prospectus to purchasers at or prior to
the time of any sale of the Debentures or common stock issuable upon conversion
of the Debentures.
DIAMOND OFFSHORE DRILLING, INC.
We are a leading global offshore oil and gas drilling contractor. Our
fleet, which is comprised of 30 semisubmersible rigs, 14 jack-up rigs and one
drillship, is one of the world's largest.
We drill in the waters of North America, South America, Europe, Africa,
Asia and Australia. We offer comprehensive drilling services to the global
energy industry.
We were incorporated in 1989. Our principal executive offices are located
at 15415 Katy Freeway, Houston, Texas 77094, and our telephone number at that
location is (281) 492-5300. As used in this prospectus, "we" means Diamond
Offshore Drilling, Inc., a Delaware corporation, and its subsidiaries, unless
the context indicates otherwise.
THE OFFERING
Securities Offered......... $805,000,000 principal amount at maturity of Zero
Coupon Convertible Debentures Due June 6, 2020.
We will not pay interest on the Debentures prior to
maturity. Each Debenture was issued at a price of
$499.60 per Debenture. The principal amount at
maturity is $1,000 for each Debenture.
Maturity Date.............. June 6, 2020.
Yield to Maturity of
Debentures............... 3.50% per year calculated from June 6, 2000.
Conversion Rights.......... You have the option to convert the Debentures into
our common stock at any time prior to maturity,
unless the Debentures have been previously redeemed
or purchased.
You can convert the Debentures into common stock at
a conversion rate of 8.6075 shares for each $1,000
principal amount at maturity. The conversion rate
will be subject to adjustment if certain events
occur. Upon conversion, you will receive only
common stock. You will not receive any cash payment
for the accrued original issue discount to the
conversion date. See "Description of the
Debentures -- Conversion Rights."
The Debentures are initially convertible into
6,929,038 shares of our common stock.
Optional Redemption by
Diamond Offshore......... On or after June 6, 2005, we can redeem all or part
of the Debentures for cash at any time at the
redemption prices listed in this prospectus. See
"Description of the Debentures -- Redemption
Rights."
Original Issue Discount.... The securityholders will offer and sell the
Debentures at a discount from their value at
maturity. We initially issued the Debentures at a
price of $499.60 per Debenture. Over time, the
Debentures will
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increase in value until they reach their maturity
value of $1,000 on June 6, 2020. Original issue
discount is the difference between the initial sale
price and the value of the Debenture at maturity.
We will not pay interest on the Debentures.
However, you should be aware that accrued original
issue discount must be included periodically in
your gross income for federal income tax purposes.
See "Certain United States Federal Income Tax
Considerations."
Sinking Fund............... None.
Repurchase of Debentures at
the Option of the Holder... We will purchase the Debentures at your option on
June 6, 2005 at a price of $594.25, on June 6, 2010
at a price of $706.82, and on June 6, 2015 at a
price of $840.73 per $1,000 principal amount at
maturity. We may elect to pay the repurchase price
in cash, common stock or a combination of cash and
common stock. See "Description of the
Debentures -- Repurchase Right."
Change in Control.......... You may redeem the Debentures if we experience a
change in control.
The change in control redemption price is equal to
the issue price plus accrued original issue
discount to the date of redemption. See
"Description of the Debentures -- Change in
Control."
Optional Conversion by
Diamond Offshore upon a Tax
Event.................... If certain changes are made to the federal tax
laws, we have the option to begin paying interest
on the Debentures instead of accruing original
issue discount. We would pay 3.50% per year in
interest on the principal amount that had accrued
on the Debentures up until the date we exercised
this option. If this occurs, we would adjust your
redemption price, repurchase price and purchase
price upon a change in control. However, we would
not adjust your conversion rights. See "Description
of the Debentures -- Tax Event."
Use of Proceeds............ We will not receive any of the proceeds from the
sale of the Debentures or the underlying common
stock by any selling securityholders.
Trading.................... The common stock is listed on The New York Stock
Exchange under the symbol "DO."
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RISK FACTORS
Except for the historical information in this prospectus, the matters
contained in this prospectus include forward-looking statements that involve
risks and uncertainties. The following factors, among others, could cause actual
results to differ materially from those contained in forward-looking statements
made in this prospectus. The following risks and uncertainties are not the only
ones we face. If any of the following risks actually occur, our business,
financial condition and operating results could be adversely affected. As a
result, the trading price of our common stock could decline and you could lose
part or all of your investment.
OUR BUSINESS DEPENDS ON THE LEVEL OF ACTIVITY IN THE OIL AND GAS INDUSTRY, WHICH
IS SIGNIFICANTLY AFFECTED BY VOLATILE OIL AND GAS PRICES.
Our business depends on the level of activity in offshore oil and gas
exploration, development and production in markets worldwide. Oil and gas
prices, market expectations of potential changes in these prices and a variety
of political and economic factors significantly affect this level of activity.
Oil and gas prices are extremely volatile and are affected by numerous factors,
including:
- worldwide demand for oil and gas;
- the ability of the Organization of Petroleum Exporting Countries,
commonly called "OPEC," to set and maintain production levels and
pricing;
- the level of production in non-OPEC countries;
- the policies of the various governments regarding exploration and
development of their oil and gas reserves;
- advances in exploration and development technology; and
- the political environment of oil-producing regions.
THE LEVEL OF ACTIVITY IN THE OIL AND GAS INDUSTRY HAS BEEN SLOW TO RECOVER,
WHICH HAS ADVERSELY AFFECTED OUR DAYRATES AND RIG UTILIZATION.
In spite of recent signs of improvement, fleet activity in the first half
of 2000 continued to suffer from the global reduction in exploration and
development spending by our customers, resulting from the sustained period of
significantly lower oil prices from late 1997 through early 1999 and
consolidation activity among major oil producers over the same period. Despite a
recovery in crude oil prices during the latter part of 1999 and the first
quarter of 2000, spending levels have not increased significantly and there
remains surplus rig capacity, particularly in the lower specification
semisubmersible market. This excess capacity resulted from expiring contracts
and delivery of newly constructed or upgraded drilling rigs by a number of
offshore drilling contractors. The lower exploration and development activity
and increased rig availability has resulted in a continued highly competitive
market for contract drilling services. As of August 30, 2000, six of our
semisubmersibles were stacked, and depending on market conditions at the time
other units currently under contract become available, we may be required during
2000 to stack additional units or we may be required to enter into lower-rate
renewal contracts.
OUR INDUSTRY IS HIGHLY COMPETITIVE AND CYCLICAL, WITH INTENSE PRICE COMPETITION
AND RECENTLY DECREASED RIG DEMAND AND INCREASED RIG AVAILABILITY.
The offshore contract drilling industry is highly competitive with numerous
industry participants, none of which at the present time has a dominant market
share. Some of our competitors may have greater resources than we do.
Drilling contracts are traditionally awarded on a competitive bid basis.
Intense price competition is often the primary factor in determining which
qualified contractor is awarded a job, although rig availability and the quality
and technical capability of service and equipment may also be considered.
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Our industry has historically been cyclical. There have been periods of
high demand, short rig supply and high dayrates, followed by periods of lower
demand, excess rig supply and low dayrates. The industry experienced a period of
significantly lower demand during 1999 as a result of reduced spending for
exploration and development by our customers in response to dramatically lower
crude oil prices during 1998. In addition, rig availability has increased as a
result of contract expirations and construction by other drilling contractors of
new rigs that are competing with our rigs. Periods of excess rig supply
intensify the competition in the industry and often result in rigs being idled
for long periods of time.
OUR DRILLING CONTRACTS MAY BE TERMINATED DUE TO EVENTS BEYOND OUR CONTROL.
Our customers may terminate some of our term drilling contracts if the
drilling unit is destroyed or lost or if drilling operations are suspended for a
specified period of time as a result of a breakdown of major equipment or, in
some cases, due to other events beyond the control of either party. In reaction
to depressed market conditions, our customers may also seek renegotiation of
firm drilling contracts to reduce their obligations.
RIG CONVERSIONS, UPGRADES OR NEWBUILDS MAY BE SUBJECT TO DELAYS AND COST
OVERRUNS.
From time to time we may undertake to add new capacity through conversions
or upgrades to rigs or through new construction. These projects are subject to
risks of delay or cost overruns inherent in any large construction project
resulting from numerous factors, including the following:
- shortages of equipment, materials or skilled labor;
- unscheduled delays in the delivery of ordered materials and equipment;
- unanticipated cost increases;
- design problems; and
- shipyard failures.
In 1998, we began the conversion of the Ocean Confidence from an
accommodation vessel to a semisubmersible drilling unit. Upon completion of the
conversion and customer acceptance, the rig is scheduled to begin a five-year
drilling program in the Gulf of Mexico. A modification of the drilling contract
was made providing for an extension of the delivery date from July 1, 2000 to
December 1, 2000. This extension allows us additional time to complete and test
the rig for performance in waters up to 7,500 feet. We will accrue a penalty
based upon the delivery date of the rig and have agreed to accrue an additional
obligation to the customer for certain types of periods of inactivity that could
occur during drilling of the first two wells under the drilling contract. These
accruals would incrementally reduce revenue payments from the customer to us
during the five-year contract term. Based upon the expected delivery date of
September 30, 2000, future revenue is expected to be approximately $316.4
million. Should the delivery occur on December 1, 2000, the expected revenue
would be reduced to approximately $313.9 million.
OUR BUSINESS INVOLVES NUMEROUS OPERATING HAZARDS.
Our operations are subject to the usual hazards inherent in drilling for
oil and gas offshore, such as blowouts, reservoir damage, loss of production,
loss of well control, punchthroughs, craterings or fires. The occurrence of
these events could result in the suspension of drilling operations, damage to or
destruction of the equipment involved and injury or death to rig personnel.
Operations also may be suspended because of machinery breakdowns, abnormal
drilling conditions, failure of subcontractors to perform or supply goods or
services or personnel shortages. In addition, offshore drilling operators are
subject to perils peculiar to marine operations, including capsizing, grounding,
collision and loss or damage from severe weather. Damage to the environment
could also result from our operations, particularly through oil spillage or
extensive uncontrolled fires. We may also be subject to damage claims by oil and
gas companies.
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Although we maintain insurance in the areas in which we operate, pollution
and environmental risks generally are not fully insurable. Our insurance
policies and contractual rights to indemnity may not adequately cover our
losses, and we do not have insurance coverage or rights to indemnity for all
risks. If a significant accident or other event occurs and is not fully covered
by insurance or contractual indemnity, it could adversely affect our financial
position and results of operations.
OUR INTERNATIONAL OPERATIONS INVOLVE ADDITIONAL RISKS NOT ASSOCIATED WITH
DOMESTIC OPERATIONS.
We operate in various regions throughout the world that may expose us to
political and other uncertainties, including risks of:
- war and civil disturbances;
- expropriation of property or equipment;
- the inability to repatriate income or capital; and
- changing taxation policies.
International contract drilling operations are subject to various laws and
regulations in countries in which we operate, including laws and regulations
relating to:
- the equipping and operation of drilling units;
- currency conversions and repatriation;
- oil and gas exploration and development;
- taxation of offshore earnings and earnings of expatriate personnel; and
- use of local employees and suppliers by foreign contractors.
Governments in some foreign countries have become increasingly active in
regulating and controlling the ownership of concessions and companies holding
concessions, the exploration for oil and gas and other aspects of the oil and
gas industries in their countries. In addition, government action, including
initiatives by OPEC, may continue to cause oil price volatility. In some areas
of the world, this governmental activity has adversely affected the amount of
exploration and development work done by major oil companies and may continue to
do so. In addition, some foreign governments favor or effectively require the
awarding of drilling contracts to local contractors or require foreign
contractors to employ citizens of, or purchase supplies from, a particular
jurisdiction. These practices may adversely affect our ability to compete.
FLUCTUATIONS IN EXCHANGE RATES COULD RESULT IN LOSSES TO US.
Another risk inherent in our international operations is the possibility of
currency exchange losses where revenues are received and expenses are paid in
nonconvertible currencies. We may also incur losses as a result of an inability
to collect revenues because of a shortage of convertible currency available to
the country of operation.
FAILURE TO RETAIN HIGHLY SKILLED PERSONNEL COULD HURT OUR OPERATIONS.
We require highly skilled personnel to operate and provide technical
services and support for our drilling units. To the extent demand for drilling
services and the size of the worldwide industry fleet increase, shortages of
qualified personnel could arise, creating upward pressure on wages.
GOVERNMENTAL LAWS AND REGULATIONS MAY ADD TO OUR COSTS OR LIMIT OUR DRILLING
ACTIVITY.
Our operations are affected from time to time in varying degrees by
governmental laws and regulations. The drilling industry is dependent on demand
for services from the oil and gas exploration industry and, accordingly, is
affected by changing tax and other laws relating to the energy business
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generally. We may be required to make significant capital expenditures to comply
with governmental laws and regulations. It is also possible that these laws and
regulations may in the future add significantly to our operating costs or may
significantly limit drilling activity.
COMPLIANCE WITH OR BREACH OF ENVIRONMENTAL LAWS CAN BE COSTLY AND COULD LIMIT
OUR OPERATIONS.
In the United States, regulations controlling the discharge of materials
into the environment, requiring removal and cleanup of materials that may harm
the environment or otherwise relating to the protection of the environment apply
to some of our operations. For example, our company, as an operator of mobile
offshore drilling units in navigable United States waters and some offshore
areas, may be liable for damages and costs incurred in connection with oil
spills for which we are held responsible. Laws and regulations protecting the
environment have become more stringent in recent years, and may in some cases
impose "strict liability," rendering a person liable for environmental damage
without regard to negligence or fault on the part of that person. These laws and
regulations may expose us to liability for the conduct of or conditions caused
by others or for acts that were in compliance with all applicable laws at the
time they were performed. The application of these requirements or the adoption
of new requirements could have a material adverse effect on our financial
position and results of operations.
OUR HOLDING COMPANY STRUCTURE RESULTS IN SUBSTANTIAL STRUCTURAL SUBORDINATION
AND MAY AFFECT OUR ABILITY TO MAKE PAYMENTS ON THE DEBENTURES.
The Debentures are obligations exclusively of our company. We are a holding
company and, accordingly, substantially all operations are conducted by our
subsidiaries. As a result, our cash flow and our ability to service our debt,
including the Debentures, is dependent upon the earnings of our subsidiaries. In
addition, we are dependent on the distribution of earnings, loans or other
payments by our subsidiaries to us.
Our subsidiaries are separate and distinct legal entities. Our subsidiaries
have no obligation to pay any amounts due on the Debentures or to provide us
with funds for our payment obligations, whether by dividends, distributions,
loans or other payments. In addition, any payment of dividends, distributions,
loans or advances by our subsidiaries to us could be subject to statutory or
contractual restrictions. Payments to us by our subsidiaries will also be
contingent upon their earnings and business considerations.
Our right to receive any assets of any of our subsidiaries upon their
liquidation or reorganization, and therefore the right of the holders of the
Debentures to participate in those assets, will be effectively subordinated to
the claims of that subsidiary's creditors, including trade creditors. In
addition, even if we were a creditor of any of our subsidiaries, our rights as a
creditor would be subordinate to any security interest in the assets of our
subsidiaries and any indebtedness of our subsidiaries senior to that held by us.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
IN CONTROL OFFER OR THE REPURCHASE REQUIRED BY THE INDENTURE.
Upon the occurrence of certain specific kinds of change in control events
and on the June 6, 2005, June 6, 2010 or June 6, 2015 purchase dates, holders of
Debentures will have the right to require us to repurchase their Debentures.
However, it is possible that we will not have sufficient funds at such time to
make the required repurchase of Debentures or that restrictions in credit
agreements that we may enter into or instruments governing other issuances or
incurrences of indebtedness will not allow such repurchases. See "Description of
the Debentures -- Repurchase Right" and "-- Change in Control."
WE ARE CONTROLLED BY A SOLE STOCKHOLDER, WHICH COULD RESULT IN POTENTIAL
CONFLICTS OF INTEREST.
Loews Corporation, which we refer to as Loews, beneficially owns 51.75% of
our outstanding shares of common stock and is in a position to control actions
that require the consent of stockholders, including the election of directors,
amendment of our Restated Certificate of Incorporation and any merger or sale of
substantially all of our assets. In addition, three officers of Loews serve on
our Board of Directors. One of those, James S. Tisch, the Chief Executive
Officer and Chairman of the Board of our company, is also a
8
<PAGE> 12
director of Loews. We have also entered into a services agreement and a
registration rights agreement with Loews and we may in the future enter into
other agreements with Loews.
Loews and its subsidiaries (other than us) and we are generally engaged in
businesses sufficiently different from each other as to make conflicts as to
possible corporate opportunities unlikely. However, it is possible that Loews
may in some circumstances be in direct or indirect competition with us,
including competition with respect to certain business strategies and
transactions that we may propose to undertake. In addition, potential conflicts
of interest exist or could arise in the future for such directors with respect
to a number of areas relating to the past and ongoing relationships of Loews and
us, including tax and insurance matters, financial commitments and sales of
common stock pursuant to registration rights or otherwise. Although the affected
directors may abstain from voting on matters in which our interests and those of
Loews are in conflict so as to avoid potential violations of their fiduciary
duties to stockholders, the presence of potential or actual conflicts could
affect the process or outcome of Board deliberations, and we have not adopted
any policies, procedures or practices to reduce or avoid these conflicts. We
cannot assure you that these conflicts of interest will not materially adversely
affect us.
THE SALE OF SHARES AVAILABLE FOR FUTURE SALE COULD HURT OUR COMMON STOCK PRICE.
Subject to some restrictions and applicable laws, Loews is free to sell any
and all of the shares of our common stock that it owns. We cannot predict the
effect, if any, that future sales of common stock, or the availability of common
stock for future sale, may have on the market price of our common stock
prevailing from time to time. Sales of substantial amounts of common stock or
the perception that such sales might occur could adversely affect prevailing
market prices for our common stock. In connection with the initial public
offering of our common stock, we entered into a registration rights agreement
with Loews that provides Loews with rights to have the shares of common stock
owned by Loews registered by us under the Securities Act in order to permit the
unrestricted public sale of such shares.
THERE IS CURRENTLY NO PUBLIC TRADING MARKET FOR THE DEBENTURES.
The Debentures comprise a new issue of securities for which there is
currently no public market. If the Debentures are traded after their initial
issuance, they may trade at a discount from their initial offering price,
depending on prevailing interest rates, the market for similar securities, our
performance and other factors. To the extent that an active trading market for
the Debentures does not develop, the liquidity and trading prices for the
Debentures may be harmed. We do not currently intend to apply to list the
Debentures on any securities exchange or public market.
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<PAGE> 13
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling
securityholders of the Debentures or the shares of common stock issuable upon
conversion of the Debentures.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for each of the periods shown is as
follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED ------------------------------------
JUNE 30, 2000 1999 1998 1997 1996 1995
------------- ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges....... 6.04 15.64 37.57 28.94 31.56 --(a)
</TABLE>
---------------
(a) The deficiency in our earnings available for fixed charges for the year
ended December 31, 1995 was approximately $13.8 million. Fixed charges for
1995 consisted solely of interest expense on notes payable to Loews. We
repaid all of our indebtedness to Loews in connection with the initial
public offering of our common stock in October 1995.
We have computed the ratios of earnings to fixed charges shown above by
dividing earnings available for fixed charges by fixed charges. For this
purpose, "earnings available for fixed charges" consist of earnings before
income taxes plus fixed charges less capitalized interest and undistributed
equity in earnings (losses) of joint ventures. "Fixed charges" consist of
interest expense, capitalized interest and the portion of rental expense that
represents the interest factor.
DESCRIPTION OF COMMON STOCK
Diamond Offshore Drilling, Inc. is a Delaware corporation. The following
summary does not purport to be complete and is subject in all respects to the
applicable provisions of the Delaware General Corporation Law, or DGCL, and our
Restated Certificate of Incorporation. Our company is presently authorized to
issue 500,000,000 shares of common stock, par value $0.01 per share.
Subject to such preferential rights as may be granted by our Board of
Directors in connection with the future issuance of our preferred stock, holders
of common stock are entitled to one vote for each share held. Holders are not
entitled to cumulative voting for the purpose of electing directors and have no
preemptive or similar right to subscribe for, or to purchase, any shares of
common stock or other securities we may issue in the future. Accordingly, the
holders of more than 50% in voting power of the shares of common stock voting
generally for the election of directors will be able to elect all of our
directors. At August 30, 2000, Loews beneficially owned 51.75% of the
outstanding shares of common stock and was in a position to control actions that
require the consent of stockholders, including the election of directors,
amendment of our Restated Certificate of Incorporation and any mergers or any
sale of substantially all of our assets.
Holders of shares of common stock have no exchange, conversion or
preemptive rights and shares of common stock are not subject to redemption. All
outstanding shares of common stock are, and upon issuance and full payment of
the purchase price therefor the shares of common stock issuable upon conversion
of the Debentures offered hereby will be, duly authorized, validly issued, fully
paid and nonassessable. Subject to the prior rights, if any, of holders of any
outstanding class or series of preferred stock having a preference in relation
to the common stock as to distributions upon the dissolution, liquidation and
winding-up of our company and as to dividends, holders of shares of common stock
are entitled to share ratably in all assets of our company that remain after
payment in full of all of our debts and liabilities, and to receive ratably such
dividends, if any, as may be declared by our Board of Directors from time to
time out of funds and other property legally available therefor.
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<PAGE> 14
We are subject to Section 203 of the DGCL. In general, Section 203 will
prevent an "interested stockholder," which is defined generally as a person
owning 15% or more of a corporation's outstanding voting stock, of our company
from engaging in a "business combination" with us for three years following the
date that person became an interested stockholder, unless:
- before that person became an interested stockholder, our Board of
Directors approved the business combination in question, or the
transaction which resulted in such person becoming an interested
stockholder;
- upon consummation of the transaction that resulted in the interested
stockholder becoming such, the interested stockholder owns at least 85%
of our voting stock outstanding at the time the transaction commenced,
excluding stock held by directors who are also officers of our company
and by employee stock plans that do not provide employees with rights to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
- following the transaction in which that person became an interested
stockholder, the business combination is approved by our Board of
Directors and authorized at a meeting of stockholders by the affirmative
vote of the holders of not less than 66 2/3% of our outstanding voting
stock not owned by the interested stockholder.
Under Section 203, the restrictions described above do not apply to certain
business combinations proposed by an interested stockholder following the
announcement (or notification) of one of certain extraordinary transactions
involving our company and a person who had not been an interested stockholder
during the preceding three years or who became an interested stockholder with
the approval of our Board of Directors, and which transactions are approved or
not opposed by a majority of the members of our Board of Directors then in
office who were directors prior to any person becoming an interested stockholder
during the previous three years or were recommended for election or elected to
succeed such directors by a majority of such directors. Section 203 does not
apply to Loews because it has been more than three years since Loews became an
interested stockholder.
Our common stock is listed on the New York Stock Exchange and trades under
the symbol "DO."
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C., whose principal offices are located at 44 Wall
Street, New York, New York 10005.
DESCRIPTION OF THE DEBENTURES
GENERAL
The Debentures were issued under the Indenture between us and The Chase
Manhattan Bank, as trustee, which consists of a base indenture dated as of
February 4, 1997, which we refer to as the Base Indenture, as supplemented by a
second supplemental indenture dated as of June 6, 2000 governing the Debentures,
which we refer to as the Supplemental Indenture. We refer to the Base Indenture,
as supplemented by the Supplemental Indenture, as the Indenture.
The following summary of the material provisions of the Indenture and the
registration rights agreement referred to below does not purport to be complete.
We urge you to read the Indenture and the registration rights agreement, which
you may obtain from us upon request. As used under this caption "Description of
the Debentures," all references to our company or to us mean Diamond Offshore
Drilling, Inc., excluding, unless otherwise expressly stated or the context
otherwise requires, its subsidiaries.
The Debentures are general unsecured obligations of our company, will be
limited to an aggregate principal amount at maturity of $805,000,000 and will
mature on June 6, 2020. The Debentures will rank on a parity with all of our
other unsecured and unsubordinated indebtedness.
The Debentures are offered and sold at a discount from their value at
maturity. We initially issued the Debentures in a private placement at a price
to investors of $499.60 per Debenture. Over time, the
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<PAGE> 15
amount payable on each Debenture will increase in value until it reaches its
maturity value of $1,000 on June 6, 2020. The Debentures will be issued only in
denominations of $1,000 and integral multiples of $1,000.
You have the option to convert your Debentures into our common stock at any
time prior to maturity, unless the Debentures have been previously redeemed or
repurchased. The conversion rate is 8.6075 shares of common stock per Debenture.
This is equivalent to an initial conversion price of $58.0425 per share of
common stock based on the issue price of the Debentures. The conversion rate is
subject to adjustment if certain events occur. Upon conversion, you will receive
only shares of common stock. You will not receive any cash payment for the
accrued original issue discount to the conversion date.
INTEREST
We will not pay cash interest on the Debentures unless we elect to do so
following a tax event as described below. You should be aware that accrued
original issue discount must be included in your gross income for federal income
tax purposes. Original issue discount is the difference between the issue price
of $499.60 and the $1,000 redemption price of the Debenture at maturity.
REDEMPTION RIGHTS
On or after June 6, 2005, we can redeem all or part of the Debentures at
any time, upon not less than 15 nor more than 60 days' notice by mail to holders
of Debentures, for a price equal to $499.60 per Debenture plus accrued original
issue discount at a rate of 3.50% per annum compounded semi-annually to the date
of redemption, on the basis of a 360-day year consisting of twelve 30-day
months. We can also convert the Debentures to interest-bearing debentures upon
the occurrence of certain tax events described below. See "-- Tax Event."
The table below shows redemption prices of Debentures at June 6, 2005, at
each following June 6 prior to maturity and at maturity on June 6, 2020. The
prices reflect the accrued original issue discount calculated through each date.
The redemption price of a Debenture redeemed between these dates would include
an additional amount reflecting the additional original issue discount accrued
since the immediately preceding date in the table to the actual redemption date.
<TABLE>
<CAPTION>
(3)
(1) (2) REDEMPTION PRICES
DEBENTURE ACCRUED ORIGINAL ISSUE OF THE DEBENTURES
REDEMPTION DATE ISSUE PRICE DISCOUNT AT 3.50% (1) & (2)
--------------- ----------- ---------------------- -----------------
<S> <C> <C> <C>
June 6, 2005............................ $499.60 $ 94.65 $ 594.25
June 6, 2006............................ 499.60 115.63 615.23
June 6, 2007............................ 499.60 137.35 636.95
June 6, 2008............................ 499.60 159.84 659.44
June 6, 2009............................ 499.60 183.12 682.72
June 6, 2010............................ 499.60 207.22 706.82
June 6, 2011............................ 499.60 232.18 731.78
June 6, 2012............................ 499.60 258.02 757.62
June 6, 2013............................ 499.60 284.76 784.36
June 6, 2014............................ 499.60 312.46 812.06
June 6, 2015............................ 499.60 341.13 840.73
June 6, 2016............................ 499.60 370.81 870.41
June 6, 2017............................ 499.60 401.54 901.14
June 6, 2018............................ 499.60 433.36 932.96
June 6, 2019............................ 499.60 466.30 965.90
At stated maturity...................... 499.60 500.40 1,000.00
</TABLE>
From and after the date a tax event occurs and we elect to pay interest at
3.50% per year on the Debentures instead of accruing original issue discount,
the principal amount for redemption will be
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<PAGE> 16
restated, and will be calculated by adding the issue price and the original
issue discount that had accrued up until the date on which we exercise the
option to commence paying cash interest.
If we decide to redeem fewer than all of the outstanding Debentures, the
trustee will select the Debentures to be redeemed by the following methods:
- by lot;
- pro rata; or
- by another method the trustee considers fair and appropriate.
If the trustee selects a portion of your Debentures for partial redemption
and you convert a portion of the same Debentures, the converted portion will be
deemed to be from the portion selected for redemption. Each Debenture will be
redeemed in whole.
CONVERSION RIGHTS
You have the right to convert the Debentures into our common stock. You may
convert a Debenture into shares of common stock at any time until the close of
business on the last business day prior to June 6, 2020. If a Debenture has been
called for redemption, you will be entitled to convert the Debenture until the
close of business on the business day immediately preceding the date of
redemption. You may convert fewer than all of your Debentures.
The initial conversion rate is 8.6075 shares of common stock for each
Debenture. This is equivalent to an initial conversion price of $58.0425 per
share of common stock based on the issue price of the Debentures. You will not
receive any cash payment representing accrued original issue discount upon
conversion of a Debenture. Instead, upon conversion we will deliver to you a
fixed number of shares of common stock and any cash payment to account for
fractional shares. The cash payment for fractional shares will be based on the
closing price of the shares of common stock on the trading day immediately prior
to the conversion date. Delivery of shares of common stock will be deemed to
satisfy our obligation to pay the principal amount of the Debenture and accrued
original issue discount. Accrued original issue discount will be deemed paid in
full rather than canceled, extinguished or forfeited. We will not adjust the
conversion ratio to account for the accrued original issue discount.
The conversion rate will be subject to adjustment upon the following
events:
- issuance of shares of common stock as a dividend or distribution on the
shares of common stock;
- subdivision or combination of the outstanding shares of common stock;
- issuance to all stockholders of rights or warrants that allow the holders
to purchase shares of common stock at less than the current market price;
- distribution to all stockholders of debt or other assets but excluding
distributions of rights and warrants described above and all-cash
distributions;
- the distribution to all or substantially all stockholders of all-cash
distributions in an aggregate amount that together with (1) any cash and
the fair market value of any other consideration payable in respect of
any tender offer by us or any of our subsidiaries for shares of common
stock consummated within the preceding 12 months not triggering a
conversion price adjustment and (2) all other all-cash distributions to
all or substantially all stockholders made within the preceding 12 months
not triggering a conversion price adjustment, exceeds an amount equal to
12.5% of the market capitalization of our shares of common stock on the
business day immediately preceding the day on which we declare such
distribution; and
- the purchase of shares of common stock pursuant to a tender offer made by
us or any of our subsidiaries to the extent that the same involves
aggregate consideration that together with (1) any cash and the fair
market value of any other consideration payable in respect of any tender
offer by
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<PAGE> 17
us or any of our subsidiaries for shares of common stock consummated
within the preceding 12 months not triggering a conversion price
adjustment and (2) all-cash distributions to all or substantially all
stockholders made within the preceding 12 months not triggering a
conversion price adjustment, exceeds an amount equal to 12.5% of the
market capitalization of our shares of common stock on the expiration
date of such tender offer.
If we were to adopt a stockholders rights plan under which we issue rights
providing that each share of common stock issued upon conversion of the
Debentures at any time prior to the distribution of separate certificates
representing such rights will be entitled to receive such rights, there shall
not be any adjustment to the conversion rate as a result of:
- the issuance of the rights;
- the distribution of separate certificates representing the rights;
- the exercise or redemption of such rights in accordance with any rights
agreement; or
- the termination or invalidation of the rights.
We may increase the conversion rate as permitted by law for at least 20
days, so long as the increase is irrevocable during the period. We are not
required to adjust the conversion rate until adjustments greater than 1% have
occurred.
If you submit your Debentures for conversion after we have elected to
exercise our option to pay interest instead of accruing original issue discount
between a record date and the opening of business on the next interest payment
date (except for Debentures called for redemption on a redemption date occurring
during the period from the close of business on a record date and ending on the
opening of business on the first business day after the next interest payment
date, or if this interest payment date is not a business day, the second
business day after the interest payment date), you must pay funds equal to the
interest payable on the converted principal amount.
REPURCHASE RIGHT
You have the right to require us to repurchase the Debentures on June 6,
2005, June 6, 2010 and June 6, 2015. We will be required to repurchase any
outstanding Debenture for which you deliver a written repurchase notice to the
paying agent. This notice must be delivered during the period beginning at any
time from the opening of business on the date that is 20 business days prior to
the repurchase date until the close of business on the repurchase date. If the
repurchase notice is given and withdrawn during the period, we will not be
obligated to repurchase the related Debentures. Our repurchase obligation will
be subject to certain additional conditions. Also, our ability to satisfy our
repurchase obligations may be affected by the factors described in "Risk
Factors" under the caption "We may not have the ability to raise the funds
necessary to finance the change in control offer or the repurchase required by
the Indenture."
The repurchase price payable will be equal to the issue price plus accrued
original issue discount through the repurchase date. The table below shows the
repurchase prices of a Debenture as of each of the repurchase dates.
<TABLE>
<CAPTION>
REPURCHASE DATE REPURCHASE PRICE
--------------- ----------------
<S> <C>
June 6, 2005......................................... $594.25
June 6, 2010......................................... 706.82
June 6, 2015......................................... 840.73
</TABLE>
We may, at our option, elect to pay the repurchase price in cash or shares
of common stock, or any combination thereof. For a discussion of the tax
treatment of a holder receiving cash, shares of common
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<PAGE> 18
stock or any combination thereof, see "Certain United States Federal Income Tax
Considerations -- U.S. Holders -- Sale, Exchange or Retirement of the
Debentures."
If we have previously exercised our option to pay interest instead of
accruing original issue discount on the Debentures following a tax event, the
repurchase price will be equal to the restated principal amount plus the accrued
and unpaid interest that accrued from the date we exercise our option. See
"-- Tax Event."
We will be required to give notice on a date not less than 20 business days
prior to each repurchase date to all holders at their addresses shown in the
register of the registrar, and to beneficial owners as required by applicable
law, stating among other things:
- whether we will pay the repurchase price of the Debentures in cash or
shares of common stock or any combination thereof, and specifying the
percentages of each;
- if we elect to pay in shares of common stock the method of calculating
the market price of the common stock; and
- the procedures that holders must follow to require us to repurchase their
Debentures.
Your notice electing to require us to repurchase your Debentures must
state:
- if certificated Debentures have been issued, the Debenture certificate
numbers, or if not, must comply with appropriate procedures of The
Depository Trust Company, or DTC;
- the portion of the principal amount at maturity of your Debentures to be
repurchased, in multiples of $1,000;
- that the Debentures are to be repurchased by us pursuant to the
applicable provisions of the Indenture; and
- in the event we elect, pursuant to the notice that we are required to
give, to pay the repurchase price in shares of common stock, in whole or
in part, but the repurchase price is ultimately to be paid to the holder
entirely in cash because any of the conditions to payment of the
repurchase price or portion of the repurchase price in shares of common
stock is not satisfied prior to the close of business on the repurchase
date, as described below, whether the holder elects:
1. to withdraw the repurchase notice as to some or all of the Debentures
to which it relates; or
2. to receive cash in respect of the entire repurchase price for all
Debentures or portions of Debentures subject to such repurchase notice.
If the holder fails to indicate the holder's choice with respect to the
election described in the final bullet point above, the holder will be deemed to
have elected to receive cash in respect of the entire repurchase price for all
Debentures subject to the repurchase notice in these circumstances. For a
discussion of the tax treatment of a holder receiving cash instead of shares of
common stock, see "Certain United States Federal Income Tax
Considerations -- U.S. Holders -- Sale, Exchange or Retirement of the
Debentures."
You may withdraw any repurchase notice by a written notice of withdrawal
delivered to the paying agent prior to the close of business on the repurchase
date. The notice of withdrawal must state:
- the principal amount at maturity of the withdrawn Debentures;
- if certificated Debentures have been issued, the certificate numbers of
the withdrawn Debentures, or if not, must comply with appropriate DTC
procedures; and
- the principal amount at maturity, if any, of your Debentures that remain
subject to the repurchase notice.
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<PAGE> 19
If we elect to pay the repurchase price, in whole or in part, in shares of
common stock, the number of shares to be delivered by us will be equal to the
portion of the repurchase price to be paid in shares of common stock divided by
the market price of one share of common stock as determined by us in our
repurchase notice. We will pay cash based on the market price for all fractional
shares in the event we elect to deliver shares of common stock in payment, in
whole or in part, of the repurchase price.
The "market price" means the average of the sale prices of the shares of
common stock for the five trading day period ending on the third business day
prior to the applicable repurchase date (if the third business day prior to the
applicable repurchase date is a trading day, or if not, then on the last trading
day prior to), appropriately adjusted to take into account the occurrence,
during the period commencing on the first of such trading days during such five
trading day period and ending on such repurchase date, of certain events that
would result in an adjustment of the conversion rate with respect to the shares
of common stock.
The "sale price" of the common stock on any date means the closing sale
price per share of common stock (or if no closing sale price is reported, the
average of the bid and ask prices or, if more than one in either case, the
average of the average bid and the average ask prices) on such date as reported
in composite transactions for the principal United States securities exchange on
which the common stock is traded or, if the common stock is not listed on a
United States national or regional securities exchange, as reported by the
Nasdaq System.
Because the market price of the common stock is determined prior to the
applicable repurchase date, holders of Debentures bear the market risk with
respect to the value of the common stock to be received from the date such
market price is determined to such repurchase date. We may pay the repurchase
price or any portion of the repurchase price in shares of common stock only if
the information necessary to calculate the market price is published in a daily
newspaper of national circulation.
Upon determination of the actual number of shares of common stock in
accordance with the foregoing provisions, we will publish such information on
our Web site on the World Wide Web or through such other public medium as we may
use at that time.
Our right to repurchase Debentures, in whole or in part, with shares of
common stock is subject to our satisfying various conditions, including:
- the registration of the shares of common stock under the Securities Act
and the Exchange Act, if required; and
- any necessary qualification or registration under applicable state
securities law or the availability of an exemption from such
qualification and registration.
If such conditions are not satisfied with respect to a holder prior to the
close of business on the repurchase date, we will pay the repurchase price of
the Debentures of the holder entirely in cash. See "Certain United States
Federal Income Tax Considerations -- U.S. Holders -- Sale, Exchange or
Retirement of the Debentures." We may not change the form or components or
percentages of components of consideration to be paid for the Debentures once we
have given the notice that we are required to give to holders of Debentures,
except as described in the first sentence of this paragraph.
Our ability to repurchase Debentures with cash may be limited by the terms
of our then existing borrowing agreements. The Indenture will prohibit us from
repurchasing Debentures for cash in connection with the holders' repurchase
right if any event of default under the Indenture has occurred and is
continuing, except a default in the payment of the repurchase price with respect
to the Debentures.
A holder must either effect book-entry transfer or deliver the Debentures
to be repurchased, together with necessary endorsements, to the office of the
paying agent after delivery of the repurchase notice to receive payment of the
repurchase price. You will receive payment in cash on the repurchase date or the
time of book-entry transfer or the delivery of the Debenture. If the paying
agent holds money or securities
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<PAGE> 20
sufficient to pay the repurchase price of the Debenture on the business day
following the repurchase date, then:
- the Debenture will cease to be outstanding;
- original issue discount (or, if the Debentures have been converted to
interest-bearing debentures following a tax event, interest) will cease
to accrue; and
- all other rights of the holder will terminate.
This will be the case whether or not book-entry transfer of the Debenture
is made or whether or not the Debenture is delivered to the paying agent.
We will comply with the provisions of Rule 13e-4 and any other tender offer
rules under the Exchange Act that may be applicable at the time. We will file
Schedule TO or any other schedule required in connection with any offer by us to
repurchase the Debentures at your option.
TAX EVENT
We have the option to convert the Debentures to interest-bearing debentures
on a tax event. From and after the date a tax event occurs, we may elect to pay
interest at 3.50% per year on the Debentures instead of accruing original issue
discount. The principal amount, which will be restated, will be calculated by
adding the issue price and the original issue discount that had accrued up until
the date on which we exercise the option. This restated principal amount will be
the amount due at maturity. If we elect this option, interest will be based on a
360-day year comprised of twelve 30-day months. Interest will accrue from the
option exercise date and will be payable semi-annually on June 6 to holders of
record on the immediately preceding May 23 and on December 6 to holders of
record on the immediately preceding November 22.
A tax event occurs when we receive an opinion from an experienced
independent tax counsel stating that, as a result of:
- any amendment, change or announced prospective change in the laws or
regulations of the United States or any political subdivisions or taxing
authorities of the United States; or
- any amendment, change, interpretation or application of the laws or
regulations by any legislative body, court, government agency or
regulatory authority;
there is more than an insubstantial risk that interest, including original issue
discount, payable on the Debentures either:
- would not be deductible by us on a current accrual basis; or
- would not be deductible by us under any other method,
in whole or in part, for United States federal income tax purposes.
AMOUNT PAYABLE ON ACCELERATION
If there is an event of default under the Indenture, the trustee or the
holders of at least 25% in principal amount of the Debentures then outstanding
may declare the issue price plus accrued original issue discount on the
outstanding Debentures immediately due and payable. If we exercise our option to
pay interest instead of accruing original issue discount on the Debentures
following a tax event, the declaration of acceleration referred to above will
make the restated principal amount plus accrued and unpaid interest immediately
payable.
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<PAGE> 21
CHANGE IN CONTROL
If we undergo a change in control, you will have the option to require us
to purchase your Debentures 35 business days after the change in control. We
will pay a purchase price equal to the issue price plus accrued original issue
discount through the purchase date or, if applicable, the restated principal
amount plus accrued and unpaid interest to the date of purchase. You may require
us to purchase all or any part of the Debentures so long as the principal amount
at maturity of the Debentures being purchased is an integral multiple of $1,000.
A change in control occurs in the following situations:
- any person or group after the first issuance of Debentures becomes the
beneficial owner of our voting stock representing more than 50% of the
total voting power of all of our classes of voting stock entitled to vote
generally in the election of the members of our board of directors (but
specifically excluding Loews and its subsidiaries); or
- we consolidate with or merge with or into another person (other than a
Subsidiary), we sell, convey, transfer or lease our properties and assets
substantially as an entirety to any person (other than a Subsidiary), or
any person (other than a Subsidiary) consolidates with or merges with or
into our company, and our outstanding common stock is reclassified into,
exchanged for or converted into the right to receive any other property
or security, provided that none of these circumstances will be a change
in control if the persons that beneficially own our voting stock
immediately prior to a transaction beneficially own, in substantially the
same proportion, shares with a majority of the total voting power of all
outstanding voting securities of the surviving or transferee person that
are entitled to vote generally in the election of that person's board of
directors;
unless, in each case, at least 50% of the consideration, other than cash
payments for fractional shares, consists of shares of voting common stock of the
person that are, or upon issuance will be, traded on a national securities
exchange or approved for trading on an established automated over-the-counter
trading market in the United States.
You must deliver a written notice to the paying agent prior to the close of
business on the business day prior to the date on which the Debentures are to be
purchased to exercise the repurchase right upon a change in control. This notice
must specify the Debentures submitted for repurchase. You may withdraw the
notice by delivering a written notice of withdrawal to the paying agent before
the same date.
Within 15 business days after a change in control, we will publish and mail
to the trustee and to each holder of the Debentures a written notice of the
change in control that specifies the terms and conditions and the procedures
required for exercise of holders' rights to require us to purchase Debentures.
If we have previously exercised our option to pay interest instead of
accruing original issue discount on the Debentures following a tax event, we
will purchase the Debentures at a cash price equal to the restated principal
amount plus accrued and unpaid interest that has accrued from the date we
exercised our option. See "-- Tax Event."
For purposes of defining a change of control:
- the term "person" and the term "group" have the meanings given by
Sections 13(d) and 14(d) of the Exchange Act or any successor provisions;
- the term "group" includes any group acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule 13d-5(b)(1)
under the Exchange Act or any successor provision; and
- the term "beneficial owner" is determined in accordance with Rules 13d-3
and 13d-5 under the Exchange Act or any successor provision, except that
a person will be deemed to have beneficial ownership of all shares that
person has the right to acquire irrespective of whether that right is
exercisable immediately or only after the passage of time.
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BOOK-ENTRY SYSTEM
The Debentures are represented by one or more global securities, each of
which we refer to as a Global Security. Each Global Security is deposited with,
or on behalf of, DTC and registered in the name of a nominee of DTC. Except
under circumstances described below, the Debentures will not be issued in
definitive form.
DTC maintains records in its book-entry registration and transfer system of
the accounts of the beneficial owners of the Debentures represented by the
Global Security. Ownership of beneficial interests in a Global Security will be
limited to persons that have accounts with DTC or its nominee ("participants")
or persons that may hold interests through participants. Ownership of beneficial
interests in a Global Security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of persons other than participants). The laws
of some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Security.
So long as DTC or its nominee is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
holder of the Debentures represented by that Global Security for all purposes
under the Indenture. Except as provided below, owners of beneficial interests in
a Global Security will not be entitled to have Debentures represented by that
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of Debentures in definitive form and will not be
considered the owners or holders thereof under the Indenture. Principal and
interest payments, if any, on Debentures registered in the name of DTC or its
nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the relevant Global Security. Neither our company, the
trustee, any paying agent or the registrar for the Debentures will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in a Global Security or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest, if any, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the relevant Global Security as shown on the records of
DTC or its nominee. We also expect that payments by participants to owners of
beneficial interests in a Global Security held through such participants will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such participants.
If DTC is at any time unwilling or unable to continue as a depositary and a
successor depositary is not appointed by us within 90 days, we will issue
Debentures in definitive form in exchange for the entire Global Security for the
Debentures. In addition, we may at any time and in our sole discretion determine
not to have Debentures represented by a Global Security and, in such event, will
issue Debentures in definitive form in exchange for the entire Global Security
relating to such Debentures. In any such instance, an owner of a beneficial
interest in a Global Security will be entitled to physical delivery in
definitive form of Debentures represented by such Global Security equal in
principal amount to such beneficial interest and to have such Debentures
registered in its name. Debentures so issued in definitive form will be issued
as registered Debentures in denominations of $1,000 and integral multiples
thereof (or if the Debentures have been converted to interest-bearing debentures
following a tax event, the restated principal amount), unless otherwise
specified by us.
The principal of, any premium on and any interest on the Debentures will be
payable, and the Debentures will be transferable, at the corporate trust office
of the trustee specified in the Indenture, provided that payment of interest, if
any, may be made at our option by check mailed on or before the payment date,
first class mail, to the address of the person entitled thereto as it appears on
the registry books of our company or our agent. No service charge will be made
for any transfer or exchange of any Debentures, but we may, except in certain
specified cases not involving any transfer, require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
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CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Indenture provides that we may not consolidate with or merge into any
other entity or convey or transfer our properties and assets substantially as an
entirety to any entity, unless:
- the successor or transferee entity is a corporation or partnership
organized under the laws of the United States or any State or the
District of Columbia;
- the successor or transferee entity, if other than us, expressly assumes
by a supplemental indenture executed and delivered to the trustee, in
form satisfactory to the trustee, the due and punctual payment of the
principal of, any premium on and any interest on, all the outstanding
Debentures and the performance of every covenant in the Indenture to be
performed or observed by us and provides for conversion rights in
accordance with applicable provisions of the Indenture;
- immediately after giving effect to the transaction, no Event of Default,
as defined in the Indenture, and no event which, after notice or lapse of
time or both, would become an Event of Default, has happened and is
continuing; and
- we have delivered to the trustee an officers' certificate and an opinion
of counsel, each in the form required by the Indenture and stating that
such consolidation, merger, conveyance or transfer and such supplemental
indenture comply with the foregoing provisions relating to such
transaction.
In case of any such consolidation, merger, conveyance or transfer, the
successor entity will succeed to and be substituted for us as obligor on the
Debentures, with the same effect as if it had been named in the Indenture as our
company.
COVENANTS
The Indenture contains certain covenants that will be applicable (unless
waived or amended) so long as any of the Debentures are outstanding.
In the following discussion, when we refer to our "drilling rigs and
drillship," we mean any drilling rig or drillship (or the stock or indebtedness
of any Subsidiary owning such a drilling rig or drillship) that we or one of our
Subsidiaries leases as lessee, or owns greater than a 50% interest in, that our
Board of Directors deems of material importance to us and that has a net book
value greater than 2% of Consolidated Net Tangible Assets. When we refer to
"Consolidated Net Tangible Assets," we mean the total amount of our assets (less
reserves and other properly deductible items) after deducting current
liabilities (other than those that are extendable at our option to a date more
than 12 months after the date the amount is determined), goodwill and other
intangible assets shown in our most recent consolidated balance sheet prepared
in accordance with generally accepted accounting principles.
Limitation on Liens. In the Indenture, we have agreed that we will not
create, assume or allow to exist any debt secured by a lien upon any of our
drilling rigs or drillship, unless we secure the Debentures equally and ratably
with the debt secured by the lien. This covenant has exceptions that permit:
- liens already existing on the date the Debentures are issued;
- liens on property existing at the time we acquire the property or liens
on property of a corporation or other entity at the time it becomes a
Subsidiary;
- liens securing debt incurred to finance the acquisition, completion of
construction and commencement of commercial operation, alteration, repair
or improvement of any property, if the debt was incurred prior to, at the
time of or within 12 months after that event, and to the extent that debt
is in excess of the purchase price or cost, recourse on the debt is only
against that property;
- liens securing intercompany debt;
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- liens in favor of a governmental entity to secure either:
1. payments under any contract or statute; or
2. industrial development, pollution control or similar indebtedness;
- liens imposed by law such as mechanic's or workmen's liens;
- governmental liens under contracts for the sale of products or services;
- liens under workers compensation laws or similar legislation;
- liens in connection with legal proceedings or securing taxes or
assessments;
- good faith deposits in connection with bids, tenders, contracts or
leases;
- deposits made in connection with maintaining self-insurance, to obtain
the benefits of laws, regulations or arrangements relating to
unemployment insurance, old age pensions, social security or similar
matters or to secure surety, appeal or customs bonds; and
- any extensions, renewals or replacements of the above-described liens if
both:
1. the amount of debt secured by the new lien does not exceed the amount
of debt secured, plus any additional debt used to complete the
project, if applicable; and
2. the new lien is limited to all or a part of the property (plus any
improvements) secured by the original lien.
In addition, without securing the Debentures as described above, we may
create, assume or allow to exist secured debt that this covenant would otherwise
restrict in an aggregate amount that does not exceed a "basket" equal to 10% of
our Consolidated Net Tangible Assets. When determining whether secured debt is
permitted by this exception, we must include in the calculation of the "basket"
amount all of our other secured debt that this covenant would otherwise restrict
and the present value of lease payments in connection with sale and lease-back
transactions that would be prohibited by the "Limitation on Sale and Lease-Back
Transactions" covenant described below if this exception did not apply.
Limitation on Sale and Lease-Back Transactions. We have agreed that we will
not enter into a sale and lease-back transaction covering any drilling rig or
drillship, unless one of the following applies:
- we could incur debt secured by the leased property in an amount at least
equal to the present value of the lease payments in connection with that
sale and lease-back transaction without violating the "Limitation on
Liens" covenant described above; or
- within six months of the effective date of the sale and lease-back
transaction, we apply an amount equal to the present value of the lease
payments in connection with the sale and lease-back transaction to
either:
1. the acquisition of any drilling rig or drillship; or
2. the retirement (including by redemption, defeasement, repurchase or
otherwise) of long-term debt or other debt maturing more than one year
after its creation, in each case ranking equally with the Debentures.
When we use the term "sale and lease-back transaction," we mean any
arrangement by which we sell or transfer to any person any drilling rig or
drillship that we then lease back from them. This term excludes leases shorter
than five years, intercompany leases, leases executed within 12 months of the
acquisition, construction, improvement or commencement of commercial operation
of the drilling rig or drillship, and arrangements pursuant to any provision of
law with an effect similar to the former Section 168(f)(8) of the Internal
Revenue Code of 1954 (which permitted the lessor to recognize depreciation on
the property).
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LIMITATIONS OF CLAIMS IN BANKRUPTCY
If a bankruptcy proceeding is commenced in respect of our company, the
claim of the holder of a Debenture is, under Title 11 of the United States Code,
limited to the original issue price of the Debenture plus that portion of the
original issue discount that has accrued from the issue date to the commencement
of the proceeding. In addition, the holders of the Debentures will be
effectively subordinated to the indebtedness and other obligations of our
company's subsidiaries.
EVENTS OF DEFAULT; WAIVER AND NOTICE THEREOF
An Event of Default is defined in the Indenture as:
(a) default for 30 days in payment of any interest on the Debentures
(after conversion of the Debentures to interest-bearing debentures
following a tax event) or in payment of any Additional Interest under the
registration rights agreement;
(b) default in payment of principal of or any premium on the
Debentures at maturity (or, if the Debentures have been converted to
interest-bearing debentures following a tax event, the restated principal
amount), issue price, accrued original issue discount, redemption price,
repurchase price or change in control price, when the same becomes due and
payable;
(c) default in the payment (after any applicable grace period) of any
indebtedness for money borrowed by our company or a Subsidiary in excess of
$25.0 million principal amount (excluding such indebtedness of any
Subsidiary other than a Significant Subsidiary, all the indebtedness of
which Subsidiary is nonrecourse to our company or any other Subsidiary) or
default on such indebtedness that results in the acceleration of such
indebtedness prior to its express maturity, if such indebtedness is not
discharged, or such acceleration is not annulled, by the end of a period of
10 days after written notice to us by the trustee or to us and the trustee
by the holders of at least 25% in principal amount of the outstanding
Debentures;
(d) default by us in the performance of any other covenant contained
in the Indenture for the benefit of the Debentures that has not been
remedied by the end of a period of 60 days after notice is given as
specified in the Indenture; and
(e) certain events of bankruptcy, insolvency and reorganization of our
company or a Significant Subsidiary.
When we refer to a "Significant Subsidiary," we mean any Subsidiary, the
Net Worth of which represents more than 10% of the Consolidated Net Worth of our
company and our Subsidiaries. The terms "Subsidiary," "Net Worth" and
"Consolidated Net Worth" are defined in the Indenture.
The Indenture provides that:
- if an Event of Default described in clause (a), (b), (c) or (d) above (if
the Event of Default under clause (d) is with respect to less than all
series of debt securities issued under the Base Indenture and then
outstanding) has occurred and is continuing with respect to a series of
debt securities issued under the Base Indenture and then outstanding,
either the trustee or the holders of not less than 25% in aggregate
principal amount of the debt securities of such series then outstanding
(each such series acting as a separate class) may declare the principal
(or, in the case of the Debentures, the portion thereof that represents
the issue price plus the accrued original issue discount where we have
not previously elected to pay interest in cash or, if the Debentures have
been converted to interest-bearing debentures following a tax event, the
restated principal amount plus accrued and unpaid interest) of the debt
securities of the affected series and the interest accrued thereon, if
any, to be due and payable immediately; and
- if an Event of Default described in clause (d) above (if the Event of
Default under clause (d) is with respect to all series of debt securities
issued under the Base Indenture and then outstanding) has occurred and is
continuing, either the trustee or the holders of at least 25% in
aggregate
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principal amount of all debt securities issued under the Base Indenture
and then outstanding (treated as one class) may declare the principal
(or, in the case of the Debentures, the portion thereof that represents
the issue price plus the accrued original issue discount where we have
not previously elected to pay interest in cash or, if the Debentures have
been converted to interest-bearing debentures following a tax event, the
restated principal amount plus accrued and unpaid interest) of all debt
securities issued under the Base Indenture and then outstanding and the
interest accrued thereon, if any, to be due and payable immediately,
but upon certain conditions such declarations may be annulled and past defaults
(except for defaults in the payment of principal of, any premium on or any
interest on, such debt securities and in compliance with certain covenants) may
be waived by the holders of a majority in aggregate principal amount of the debt
securities of such series then outstanding. If an Event of Default described in
clause (e) occurs and is continuing, then the principal amount (or, in the case
of debt securities originally issued at a discount, including the Debentures,
such portion of the principal amount that represents the issue price plus the
accrued original issue discount where we have not previously elected to pay
interest in cash or, if the Debentures have been converted to interest-bearing
debentures following a tax event, the restated principal amount plus accrued and
unpaid interest) of all the debt securities issued under the Base Indenture and
then outstanding and all accrued interest thereon shall become and be due and
payable immediately, without any declaration or other act by the trustee or any
other holder.
Under the Indenture the trustee must give to the holders of Debentures
notice of all uncured defaults known to it with respect to the Debentures within
90 days after such a default occurs (the term default to include the events
specified above without notice or grace periods); provided that, except in the
case of default in the payment of principal of, any premium on or any interest
on any of the Debentures, or default in the payment of any sinking or purchase
fund installment or analogous obligations, the trustee will be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the interests of the holders of the Debentures.
No holder of any Debentures may institute any action under the Indenture
unless:
- such holder has given the trustee written notice of a continuing Event of
Default with respect to the Debentures;
- the holders of not less than 25% in aggregate principal amount of the
Debentures then outstanding have requested the trustee to institute
proceedings in respect of such Event of Default;
- such holder or holders have offered the trustee such reasonable indemnity
as the trustee may require;
- the trustee has failed to institute an action for 60 days thereafter; and
- no inconsistent direction has been given to the trustee during such
60-day period by the holders of a majority in aggregate principal amount
of Debentures.
The holders of a majority in aggregate principal amount of the Debentures
affected and then outstanding will have the right, subject to certain
limitations, to direct the time, method and place of conducting any proceeding
for any remedy available to the trustee or exercising any trust or power
conferred on the trustee with respect to the Debentures. The Indenture provides
that, if an Event of Default occurs and is continuing, the trustee, in
exercising its rights and powers under the Indenture, will be required to use
the degree of care of a prudent man in the conduct of his own affairs. The
Indenture further provides that the trustee shall not be required to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties under the Indenture unless it has reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is reasonably assured to it.
We must furnish to the trustee within 120 days after the end of each fiscal
year a statement signed by one of certain officers of our company to the effect
that a review of our activities during such year and of
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our performance under the Indenture and the terms of the Debentures has been
made, and, to the best of the knowledge of the signatories based on such review,
we have complied with all conditions and covenants of the Indenture or, if we
are in default, specifying such default.
For the purposes of determining whether the holders of the requisite
principal amount of Debentures have taken any action herein described, the
principal amount of Debentures will be deemed to be the portion of such
principal amount that would be due and payable at the time of the taking of such
action upon a declaration of acceleration of maturity thereof.
MODIFICATION OF THE INDENTURE
We and the trustee may, without the consent of the holders of the debt
securities issued under the Base Indenture, enter into supplemental indentures
for, among others, one or more of the following purposes:
- to evidence the succession of another corporation to our company, and the
assumption by such successor of our obligations under the Indenture and
the debt securities of any series;
- to add covenants of our company, or surrender any rights of our company,
for the benefit of the holders of debt securities of any or all series;
- to cure any ambiguity, omission, defect or inconsistency in such
Indenture;
- to establish the form or terms of any series of debt securities,
including any subordinated securities;
- to evidence and provide for the acceptance of any successor trustee with
respect to one or more series of debt securities or to facilitate the
administration of the trusts thereunder by one or more trustees in
accordance with such Indenture; and
- to provide any additional Events of Default.
With certain exceptions, the Indenture or the rights of the holders of the
Debentures may be modified by us and the trustee with the consent of the holders
of a majority in aggregate principal amount of the Debentures then outstanding,
but no such modification may be made without the consent of the holder of each
outstanding Debenture affected thereby that would:
- change the maturity of any payment of principal of, or any premium on, or
any installment of interest on any Debenture, or reduce the principal
amount thereof or the accrual amount for original issue discount, or if
applicable the rate of cash payment interest or any premium thereon, or
change the method of computing the amount of principal thereof or the
accrual amount for original issue discount, or if applicable the rate of
cash payment interest thereon on any date or change any place of payment
where, or the coin or currency in which, any Debenture or any premium or
interest thereon is payable, or impair the right to institute suit for
the enforcement of any such payment on or after the maturity thereof (or,
in the case of redemption or repayment, on or after the redemption date
or the repayment date, as the case may be) or adversely affect the
conversion or repurchase provisions in the Indenture;
- reduce the percentage in principal amount of the outstanding Debentures,
the consent of whose holders is required for any such modification, or
the consent of whose holders is required for any waiver of compliance
with certain provisions of the Indenture or certain defaults thereunder
and their consequences provided for in the Indenture; or
- modify any of the provisions of certain sections of the Indenture,
including the provisions summarized in this paragraph, except to increase
any such percentage or to provide that certain other provisions of the
Indenture cannot be modified or waived without the consent of the holder
of each outstanding Debenture affected thereby.
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DISCHARGE OF THE INDENTURE
We may satisfy and discharge our obligations under the Indenture by
delivering to the trustee for cancellation all outstanding Debentures or by
depositing with the trustee, the paying agent or the conversion agent, if
applicable, after the Debentures have become due and payable, whether at stated
maturity, or any redemption date, or any repurchase date, or a change in control
purchase date, or upon conversion or otherwise, cash or common stock (as
applicable under the terms of the Indenture) sufficient to pay all of the
outstanding Debentures and paying all other sums payable under the Indenture by
our company.
GOVERNING LAW
The Indenture and the Debentures will be governed by and construed in
accordance with the laws of the State of New York.
REGISTRATION RIGHTS
We have agreed pursuant to a registration rights agreement with the initial
purchaser, for the benefit of the holders of the Debentures and the common stock
issuable upon the conversion thereof, to, at our cost:
- use our reasonable best efforts to file, as promptly as practicable, a
registration statement on an appropriate form, which we refer to as the
Shelf Registration Statement, covering resales of the Debentures and the
common stock issuable upon their conversion, which we refer to as the
Registrable Securities, pursuant to Rule 415 under the Securities Act;
- use our reasonable best efforts to cause the Shelf Registration Statement
to be declared effective under the Securities Act as promptly as
practicable, but no later than 180 days after the first date of initial
issuance of the Debentures; and
- use our reasonable best efforts to keep the Shelf Registration Statement
effective after its effective date until the date which is the earlier
of:
1. the second anniversary of the effective date of the registration
statement; and
2. such time as all of the Registrable Securities have been sold pursuant
to the Shelf Registration Statement, transferred pursuant to Rule 144
under the Securities Act or are eligible for sale pursuant to Rule
144(k) under the Securities Act or any successor rule or regulation
thereto.
Notwithstanding the foregoing, we will be permitted to suspend the use of the
prospectus that is part of the Shelf Registration Statement for a period not to
exceed 30 days in any three-month period and 90 days in the aggregate for all
periods in any 12-month period, if we determine in good faith that it is in the
best interest of our company to suspend such use of the prospectus and we
provide the registered holders with written notice of such suspension. This
prospectus is a part of the Shelf Registration Statement.
We will, among other things, provide to each holder for whom the Shelf
Registration Statement was filed copies of the prospectus that is a part of the
Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit resales of the Debentures and the common stock issuable
upon the conversion thereof by such holders to third parties pursuant to the
Shelf Registration Statement. A beneficial holder selling such securities
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the registration rights agreement that are applicable
to such holder, including certain indemnification obligations.
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In the registration rights agreement, we agreed that if:
- on or prior to the 90th day after the first date of original issuance of
the Debentures, the Shelf Registration Statement has not been filed with
the SEC;
- on or prior to the 180th day after the first date of original issuance of
the Debentures, the Shelf Registration Statement has not been declared
effective by the SEC; or
- after the Shelf Registration Statement has been declared effective, the
Shelf Registration Statement ceases to be effective or usable (subject to
certain exceptions described in the registration rights agreement) in
connection with resales of Debentures and the common stock issuable upon
the conversion thereof in accordance with and during the periods
specified in the registration rights agreement
(we refer to each event referred to in the three bullets above as a Registration
Default), additional interest, which we refer to as Additional Interest, will
accrue on the Debentures and/or any shares of common stock into which any
Debentures had been converted previously, that are, in each case, transfer
restricted securities, from and including the date on which any such
Registration Default shall occur to, but excluding, the date on which all
Registration Defaults have been cured, at the rate of 0.25% per annum for
failure to timely file the Shelf Registration Statement and 0.50% per annum
otherwise. The applicable Additional Interest will be calculated on the
aggregate principal amount of the outstanding transfer restricted Debentures
and, if applicable, the aggregate applicable conversion price of any issued and
outstanding transfer restricted shares of common stock into which any debentures
have been converted previously, and we will pay Additional Interest as it
accrues in cash on each June 6 and December 6. The term "applicable conversion
price" refers to the original issue price of a Debenture plus accrued original
issue discount to the date of calculation divided by the conversion rate as then
in effect. Payment of Additional Interest constitutes liquidated damages and is
the sole remedy of investors in the case of Registration Defaults, and we will
have no other liabilities with respect to our registration obligations for which
Additional Interest is provided.
This summary of certain provisions of the registration rights agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the registration rights
agreement, a copy of which is available from us upon request.
SELLING SECURITYHOLDERS
We originally issued the Debentures in a private placement. The Debentures
were resold by the initial purchaser to qualified institutional buyers within
the meaning of Rule 144A under the Securities Act in transactions exempt from
registration under the Securities Act. The Debentures and the shares of common
stock issuable upon conversion thereof, or conversion shares, that may be
offered pursuant to this prospectus will be offered by the selling
securityholders, which includes their transferees, pledgees or donees or their
successors. The following table sets forth certain information concerning the
principal amount of Debentures beneficially owned by each selling securityholder
and the number of conversion shares that may be offered from time to time
pursuant to this prospectus.
The number of conversion shares shown in the table below assumes conversion
of the full amount of Debentures held by such holder at the initial conversion
rate of 8.6075 shares per $1,000 principal amount at maturity of Debentures.
This conversion rate is subject to certain adjustments. Accordingly, the number
of shares of common stock issuable upon conversion of the Debentures may
increase or decrease from time to time. Under the terms of the Indenture,
fractional shares will not be issued upon conversion of the
26
<PAGE> 30
Debentures. Cash will be paid instead of fractional shares, if any. As of August
30, 2000, we had 135,445,277 shares of common stock outstanding.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT AT NUMBER OF
MATURITY OF DEBENTURES PERCENTAGE OF CONVERSION
BENEFICIALLY OWNED DEBENTURES SHARES THAT
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD
---- ---------------------- ------------- -----------
<S> <C> <C> <C>
LibertyView Funds L.P............................ $ 5,000,000 0.62% 43,037
Kentfield Trading, Ltd........................... 10,450,000 1.30 89,948
St. Thomas Trading, Ltd.......................... 550,000 0.07 4,734
Bear, Stearns & Co. Inc. ........................ 5,000,000 0.62 43,037
White River Securities L.L.C..................... 5,000,000 0.62 43,037
SG Cowen Securities Corporation.................. 8,000,000 0.99 68,860
Spear, Leeds & Kellogg........................... 1,000,000 0.12 8,607
Deutsche Bank Securities Inc. ................... 9,000,000 1.12 77,467
Highbridge International LLC..................... 11,984,000 1.49 103,152
Argent Classic Convertible Arbitrage Fund
(Bermuda) L.P.................................. 37,000,000 4.60 318,477
Jersey (IMA) Ltd................................. 1,750,000 0.22 15,063
LibertyView Funds L.P............................ 5,250,000 0.65 45,189
Deephaven Domestic Convertible Trading Ltd....... 10,000,000 1.24 86,075
Argent Classic Convertible Arbitrage Fund L.P.... 15,000,000 1.86 129,112
Lydian Overseas Partners Master Fund............. 39,000,000 4.84 335,692
BBT Fund, L.P.................................... 25,000,000 3.11 215,187
Any other holder of Debentures or future
transferee from any such holder(1)............. 616,016,000 76.53 5,302,357
------------ ------ ---------
Total............................................ $805,000,000 100.00% 6,929,031(2)
============ ====== =========
</TABLE>
---------------
(1) Information concerning other selling holders of Debentures will be set forth
in prospectus supplements from time to time, if required.
(2) The conversion shares do not total 6,929,038 shares due to rounding
resulting from the elimination of fractional shares.
The preceding table has been prepared based upon the information furnished
to us by the selling securityholders named above.
None of the selling securityholders has had any position, office or other
material relationship with us or our affiliates within the past three years.
The selling securityholders identified above may have sold, transferred or
otherwise disposed of some or all of their Debentures since the date on which
the information in the preceding table is presented in transactions exempt from
the registration requirements of the Securities Act. Information concerning the
selling securityholders may change from time to time and, if necessary, we will
supplement this prospectus accordingly. We cannot give an estimate as to the
amount of the Debentures or conversion shares that will be held by the selling
securityholders upon the termination of this offering because the selling
securityholders may offer some or all of their Debentures or conversion shares
pursuant to the offering contemplated by this prospectus. See "Plan of
Distribution."
27
<PAGE> 31
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax
considerations relating to the purchase, ownership and disposition of the
Debentures or common stock to purchasers of the Debentures who are U.S. holders
(as described below), and the material U.S. federal income and estate tax
consequences relating to the purchase, ownership and disposition of the
Debentures or shares of common stock to purchasers who are non-U.S. holders (as
described below). It does not contain a complete analysis of all the potential
tax considerations relating thereto. In particular, this discussion does not
address all tax considerations that may be important to you in light of your
particular circumstances (such as the alternative minimum tax provisions) or if
you are subject to special treatment under the federal income tax laws. Special
rules may apply, for instance, to banks, thrifts, insurance companies, dealers
in securities, tax-exempt entities, persons who hold Debentures or shares of
common stock as part of a hedge, conversion or straddle, constructive sale or
other risk reduction transactions, persons who have ceased to be United States
citizens or to be taxed as resident aliens or persons who hold Debentures or
shares of common stock through a partnership or similar pass-through entity.
Except as specifically provided below, this discussion also does not address the
effect of federal estate and gift tax or the tax consequences arising under the
laws of any state, local or foreign jurisdiction.
This discussion is limited to holders of Debentures who hold the Debentures
or any shares of common stock into which the Debentures are converted as
"capital assets" (in, general, assets held for investment).
This discussion is based upon the Internal Revenue Code of 1986, as
amended, which we refer to as the Code, existing and proposed Treasury
Regulations, and judicial decisions and administrative interpretations
thereunder, as of the date hereof, all of which are subject to different
interpretations or to change, possibly with retroactive effect. We cannot assure
you that the Internal Revenue Service, or the IRS, will not challenge one or
more of the tax results described herein, and we have not obtained, nor do we
intend to obtain, a ruling from the IRS with respect to the U.S. federal tax
consequences of acquiring, holding or disposing of the Debentures or shares of
common stock.
PLEASE CONSULT YOUR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES
TO YOU OF ACQUIRING, HOLDING, CONVERTING OR OTHERWISE DISPOSING OF THE
DEBENTURES AND SHARES OF COMMON STOCK, INCLUDING THE EFFECT AND APPLICABILITY OF
STATE, LOCAL OR FOREIGN TAX LAWS.
U.S. HOLDERS
You are a U.S. holder for purposes of this discussion if, for U.S. federal
income tax law purposes, you are a holder of a Debenture or a share of common
stock who or that is:
- 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 of any political subdivision
thereof;
- an estate the income of which is subject to United States federal income
taxation regardless of its source; or
- a trust if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust.
Original Issue Discount on the Debentures. The Debentures were issued at a
substantial discount from their principal amount. For federal income tax
purposes, the excess of the principal amount of each Debenture over its "issue
price" (namely, the first price at which a substantial portion of the Debentures
were sold to investors (not including sales to underwriters or placement
agents)) constitutes original issue discount, or OID. You will be required to
include OID in income as it accrues, in accordance with a constant yield method,
before receipt of the cash or other payment attributable to such income,
regardless of your regular method of accounting for U.S. federal income tax
purposes. Under these rules, you will
28
<PAGE> 32
have to include in gross income increasingly greater amounts of OID in each
successive accrual period. Your original tax basis for determining gain or loss
on the sale or other disposition of a Debenture will be increased by any accrued
OID included in your gross income.
Acquisition Premium on the Debentures. If you acquired a Debenture for an
amount that exceeded the then adjusted issue price of the Debentures (namely,
the issue price plus the amount of OID that accrued on the Debentures prior to
the date of your purchase), then you will be considered to have paid an
"acquisition premium." In that event, you will be entitled to reduce the amount
of OID otherwise includible in your income with respect to the Debenture for any
taxable year by the portion of the acquisition premium properly allocable to
such year utilizing, absent a special election, the straight-line method.
Market Discount on the Debentures. If you acquired a Debenture for an
amount that was less than the adjusted issue price of the Debentures and if such
difference exceeds a statutory de minimis amount, then you will be considered to
have acquired the Debenture at a "market discount." In that event, any gain
recognized on a subsequent disposition of the Debenture (other than in
connection with certain non-recognition transactions), or upon the full or
partial payment of principal, will be treated as ordinary income to the extent
of the market discount that accrued to you up until that date utilizing the
straight-line method. In addition, you may be required to defer deductions for
any interest paid on indebtedness incurred (or continued) to purchase or carry
the Debenture in an amount not exceeding such accrued market discount.
Alternatively, you may elect to amortize the market discount into income,
through the use of either the straight-line or the constant yield methods. If
such election is made, your tax basis in the Debentures will be increased by the
market discount thereon as it is included in your income. In addition, you will
not be required to defer any deductions for interest accrued on indebtedness
with respect to the Debenture.
Original Issue Discount Following a Tax Event. If the Debentures are
converted to interest-bearing debentures following a tax event, you must
continue to accrue OID at the original yield to maturity. Such accrued OID will
be added to the tax basis of your Debentures and the cash payments you receive
will correspondingly reduce your tax basis.
Sale, Exchange or Retirement of the Debentures. Except as described in the
following two subsections, upon the sale, exchange or retirement of a Debenture
(including by reason of a repurchase by us), you will recognize gain or loss
equal to the difference between the sale, exchange or retirement proceeds and
your adjusted tax basis in the Debenture. Except for any accrued market
discount, gain or loss realized on the sale, exchange or retirement of a
Debenture will generally be capital gain or loss and will be long-term capital
gain or loss if the Debenture is held for more than one year. You should consult
your tax advisors regarding the treatment of capital gains (which may be taxed
at lower rates than ordinary income for taxpayers who are individuals) and
losses (the deductibility of which is subject to limitations).
Conversion of Debentures. The conversion of a Debenture into common stock
(or, following a tax event, into an interest-bearing debenture) will generally
not be a taxable event, except with respect to cash received in lieu of a
fractional share. Your basis in the common stock (or interest-bearing debenture)
received on conversion of a Debenture will be the same as your basis in the
Debenture at the time of conversion (exclusive of any tax basis allocable to a
fractional share), and your holding period for the common stock (or
interest-bearing debenture) received on conversion should include the holding
period of the Debenture converted, except that the holding period of common
stock attributable to OID may commence on the day following the date of
conversion. The receipt of cash in lieu of a fractional share should generally
result in capital gain or loss (measured by the difference between the cash
received for the fractional share interest and your tax basis in the fractional
share interest).
Exercise of Repurchase Right. If you require us to repurchase a Debenture
on a repurchase date and if we issue common stock in full satisfaction of the
purchase price, the exchange of a Debenture for common stock should be treated
the same as a conversion. If you require us to repurchase a Debenture on
29
<PAGE> 33
a repurchase date and if we deliver a combination of cash and common stock in
payment of the purchase price, then, in general, (1) you should recognize gain
(but not loss) to the extent that the cash and the value of the common stock
exceeds your adjusted tax basis in the Debenture, but in no event will the
amount of recognized gain exceed the amount of cash received, (2) your basis in
the common stock received should be the same as your basis in the Debenture
repurchased by us (exclusive of any basis allocable to a fractional share),
decreased by the amount of cash received (other than cash received in lieu of a
fractional share), and increased by the amount of gain, if any, recognized by
you (other than gain with respect to a fractional share) and (3) the holding
period of the common stock received in the exchange should include the holding
period for the Debenture that was repurchased, except that the holding period of
common stock attributable to OID may commence on the day following the date of
conversion.
Adjustment of Conversion Rate. If at any time we make a distribution of
property to stockholders that would be taxable to such stockholders as a
dividend for federal income tax purposes (for example, distributions of
evidences of indebtedness or assets of ours, but generally not share dividends
or rights to subscribe for common stock) and, pursuant to the anti-dilution
provisions of the Indenture, the conversion rate under the Debentures is
increased, such increase may be deemed to be the payment of a taxable dividend
to you. Likewise, if the conversion rate is increased at our discretion or in
certain other circumstances, such increase also may be deemed to be the payment
of a taxable dividend to you.
Ownership and Disposition of Common Stock. Dividends, if any, paid on the
common stock generally will be includable in your income as ordinary income to
the extent of your ratable share of our current or accumulated earnings and
profits. Upon the sale, exchange or other disposition of common stock, you
generally will recognize capital gain or capital loss equal to the difference
between the amount realized on such sale or exchange and your adjusted tax basis
in such common stock. You should consult your tax advisors regarding the
treatment of capital gains (which may be taxed at lower rates than ordinary
income for taxpayers who are individuals) and losses (the deductibility of which
is subject to limitations).
NON-U.S. HOLDERS
You are a non-U.S. holder for purposes of this discussion if you are a
holder of a Debenture or a share of common stock that is not a U.S. holder, as
described above.
Withholding Tax on Payments of Principal and Original Issue Discount on
Debentures. By reason of being "portfolio interest," the payment of principal
that includes OID on a Debenture by us or any paying agent of ours to you will
not be subject to the 30% United States federal withholding tax, provided that:
- you do not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock;
- you are not a controlled foreign corporation that is related to us within
the meaning of the Code; and
- either (A) the beneficial owner of the Debenture certifies to the
applicable payor or its agent, under penalties of perjury, that it is not
a U.S. holder and provides its name and address on United States Treasury
Form W-8BEN (or a suitable substitute form) or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the Debenture, certifies under penalties of
perjury that such a Form W-8BEN (or a suitable substitute form) has been
received from the beneficial owner by it or by a financial institution
between it and the beneficial owner and furnishes the payor with a copy
thereof.
Except to the extent otherwise provided under an applicable income tax
treaty, you generally will be taxed in the same manner as a U.S. holder with
respect to OID on a Debenture if such OID is effectively connected with a U.S.
trade or business of yours. Effectively connected OID received by a corporate
non-U.S. holder may also, under certain circumstances, be subject to an
additional "branch profits tax" at a
30
<PAGE> 34
30% rate (or, if applicable, a lower treaty rate), subject to certain
adjustments. Such effectively connected OID will not be subject to withholding
tax if the holder delivers the appropriate form (currently IRS Form 4224 and,
beginning January 1, 2001, a Form W-8ECI) to the payor.
Dividends. Except to the extent otherwise provided under an applicable tax
treaty, dividends on the common stock paid to you will generally be subject to
30% United States federal withholding tax or will be taxed in the same manner as
a U.S. holder if the dividends are effectively connected with your conduct of a
trade or business in the United States. If you are a foreign corporation, you
may also be subject to a United States branch profits tax on such effectively
connected income at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, subject to certain adjustments.
Gain on Disposition of the Debentures and Common Stock. Except as described
below and subject to the discussion of backup withholding, you generally will
not be subject to United States federal income tax on gain realized on the sale,
exchange or retirement of a Debenture, including the exchange of a Debenture for
common stock, or the sale or exchange of common stock unless:
- you are an individual present in the United States for 183 days or more
in the year of such sale, exchange or retirement and either (A) you have
a "tax home" in the United States and certain other requirements are met
or (B) the gain from the disposition is attributable to an office or
other fixed place of business in the United States;
- the gain is effectively connected with your conduct of a United States
trade or business;
- you are a former United States citizen or resident; or
- we have been or become a "U.S. real property holding company" and you
have ever beneficially owned more than 5% of our common stock.
However, in some instances you may be required to establish an exemption from
United States federal income and withholding tax. See "-- Withholding Tax on
Payments of Principal and Original Issue Discount on Debentures."
U.S. Federal Estate Tax. Debentures held or treated as held by an
individual who is not a citizen or resident of the United States (for federal
estate tax purposes) at the time of his or her death will not be subject to
federal estate tax, provided that the individual does not actually or
constructively own 10% or more of the total voting power of all of our voting
stock and income on the Debentures was not effectively connected with your
conduct of a trade or business in the United States. Common stock owned or
treated as owned by an individual who is not a citizen or resident of the United
States for federal estate tax purposes will be included in such individual's
estate for federal estate tax purposes unless an applicable tax treaty otherwise
applies.
BACKUP WITHHOLDING AND INFORMATION REPORTING
U.S. Holders. Payments of interest or dividends made by us on, or the
proceeds of the sale or other disposition of, the Debentures or common stock may
be subject to information reporting and United States federal backup withholding
tax at the rate of 31% if the recipient of such payment fails to supply an
accurate taxpayer identification number or otherwise fails to comply with
applicable United States information reporting or certification requirements.
Any amount withheld from a payment to a U.S. holder under the backup withholding
rules is allowable as a credit against the holder's federal income tax, provided
that the required information is furnished to the IRS.
Non-U.S. Holders. We must report annually to the IRS and to each non-U.S.
holder any interest or dividends that is subject to withholding, or that is
exempt from U.S. withholding tax pursuant to a tax treaty, or interest that is
exempt from U.S. tax under the portfolio interest exception. Copies of these
information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
non-U.S. holder resides.
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<PAGE> 35
U.S. Treasury regulations provide that backup withholding and information
reporting will not apply to payments of principal on the Debentures we will make
to a non-U.S. holder, if the holder certifies as to his non-U.S. status under
penalties of perjury or otherwise establishes an exemption, provided that
neither we nor the holder's paying agent has actual knowledge that the holder is
a U.S. person or that the conditions of any other exemption are not, in fact,
satisfied.
The payment of the proceeds from the disposition of Debentures or common
stock to or through the United States office of any broker, U.S. or foreign,
will be subject to information reporting and possible backup withholding unless
the owner certifies to its non-U.S. status under penalties of perjury or
otherwise establishes an exemption, provided that the broker does not have
actual knowledge that the holder is a U.S. person or that the conditions of any
other exemption are not, in fact, satisfied. The payment of the proceeds from
the disposition of Debentures or common stock to or through a non-U.S. office of
a non-U.S. broker that is not a U.S. related person will not be subject to
information reporting or back-up withholding. For this purpose, a "U.S. related
person" is a person who maintains one or more enumerated relationships with the
United States. In the case of the payment of proceeds from the disposition of
Debentures or common stock to or through a non-U.S. office of a broker that is
either a U.S. person or a U.S. related person, the Treasury Regulations require
information reporting on the payment unless the broker has documentary evidence
in its files that the owner is a non-U.S. holder and the broker has no knowledge
to the contrary. Backup withholding will not apply to payments made through
foreign offices of a broker that is not a U.S. person or a U.S. related person,
absent actual knowledge that the payee is a U.S. person.
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be allowed as a refund or as a credit against the holder's
federal income tax liability, provided that the requisite procedures are
followed.
PLAN OF DISTRIBUTION
The selling securityholders and their successors, which includes their
transferees, pledgees or donees or their successors, may sell the Debentures and
the underlying common stock directly to purchasers or through underwriters,
broker-dealers or agents. Underwriters, broker-dealers or agents may receive
compensation in the form of discounts, concessions or commissions from the
selling securityholders or the purchasers. These discounts, concessions or
commissions may be in excess of those customary in the types of transactions
involved.
The Debentures and the underlying common stock may be sold in one or more
transactions at fixed prices:
- at prevailing market prices at the time of sale;
- at prices related to such prevailing market prices;
- at varying prices determined at the time of sale; or
- at negotiated prices.
Such sales may be effected in transactions in the following manner:
- on any national securities exchange or quotation service on which the
Debentures or the common stock may be listed or quoted at the time of
sale;
- in the over-the-counter-market;
- in transactions otherwise than on such exchanges or services or in the
over-the-counter market;
- through the writing of options, whether such options are listed on an
options exchange or otherwise; or
- through the settlement of short sales.
32
<PAGE> 36
Selling securityholders may enter into hedging transactions with broker-dealers
or other financial institutions which may in turn engage in short sales of the
Debentures or the underlying common stock and deliver these securities to close
out such short positions, or loan or pledge the debentures or the common stock
into which the Debentures are convertible to broker-dealers that in turn may
sell these securities.
The aggregate proceeds to the selling securityholders from the sale of the
Debentures or underlying common stock will be the purchase price of the
Debentures or common stock less any discounts and commissions. A selling
securityholder reserves the right to accept and, together with their agents, to
reject, any proposed purchase of Debentures or common stock to be made directly
or through agents. We will not receive any of the proceeds from this offering.
Our outstanding common stock is listed for trading on The New York Stock
Exchange. We do not intend to list the Debentures for trading on any national
securities exchange or on Nasdaq. We cannot guarantee that any trading market
will develop for the Debentures.
The Debentures and underlying common stock may be sold in some states only
through registered or licensed brokers or dealers. In addition, in some states
the Debentures and underlying common stock may not be sold unless they have been
registered or qualified for sale or an exemption from registration.
The selling securityholders and any underwriters, broker-dealers or agents
that participate in the sale of the Debentures and common stock into which the
Debentures are convertible may be "underwriters" within the meaning of Section
2(11) of the Securities Act. Any discounts, commissions, concessions or profit
they earn on any resale of the shares may be underwriting discounts and
commissions under the Securities Act. Selling securityholders who are
"underwriters" within the meaning of Section 2(11) of the Securities Act will be
subject to the prospectus delivery requirements of the Securities Act. The
selling securityholders have acknowledged that they understand their obligations
to comply with the provisions of the Exchange Act and the rules thereunder
relating to stock manipulation, particularly Regulation M, and have agreed that
they will not engage in any transaction in violation of such provisions.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A under the Securities Act may be sold
under Rule 144 or Rule 144A rather than pursuant to this prospectus. A selling
securityholder may not sell any Debentures or common stock described in this
prospectus and may not transfer, devise or gift such securities by other means
not described in this prospectus.
If required, the specific Debentures or common stock to be sold, the names
of the selling securityholders, the respective purchase prices and public
offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement of which this prospectus
is a part.
LEGAL MATTERS
The validity of the Debentures and the shares of common stock issuable upon
conversion of the Debentures will be passed upon for us by Weil, Gotshal &
Manges LLP, Houston, Texas.
INDEPENDENT AUDITORS
The consolidated financial statements of Diamond Offshore Drilling, Inc.
incorporated by reference in this prospectus as of December 31, 1999 and 1998,
and for each of the three years in the period ended December 31, 1999, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report incorporated by reference in this prospectus.
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<PAGE> 37
[DIAMOND OFFSHORE LOGO]
$805,000,000
ZERO COUPON CONVERTIBLE
DEBENTURES DUE
JUNE 6, 2020
---------------------
PROSPECTUS
---------------------
, 2000
<PAGE> 38
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable in connection
with the issuance and distribution of the securities being registered. All
amounts are estimates except the SEC registration fee.
<TABLE>
<S> <C>
SEC registration fee..................................... $106,175
New York Stock Exchange listing fee...................... 1,500
Printing and engraving................................... 150,000
Legal fees and expenses.................................. 300,000
Accounting fees and expenses............................. 35,000
Blue Sky and other fees.................................. 119,000
Rating agency and trustee fees........................... 175,000
Miscellaneous expenses................................... 15,000
--------
Total.......................................... $901,675
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, or the DGCL, provides
that a corporation may 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 he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if 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.
Section 145 further provides that a corporation similarly may indemnify any such
person serving in any such capacity who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred in connection with the defense or settlement of such action
or suit if 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 except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
Our amended and restated certificate of incorporation contains a provision
that, in substance, provides for indemnification as set forth above.
As permitted by the DGCL, our amended and restated certificate of
incorporation contains a provision that, in substance, provides that directors
of our company shall have no personal liability to our company or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except (1) for any breach of the director's duty of loyalty to our company or
our stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, (3) under
II-1
<PAGE> 39
Section 174 of the DGCL or (4) for any transaction from which a director derived
an improper personal benefit.
The Purchase Agreement between us and Credit Suisse First Boston
Corporation, as initial purchaser, provides that the initial purchaser is
obligated, under certain circumstances, to indemnify our directors, officers and
controlling persons against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Purchase Agreement filed as
Exhibit 10.1 to our Quarterly Report on Form 10-Q/A (Amendment No. 1) for the
quarterly period ended June 30, 2000 filed August 14, 2000.
In addition, we have an existing directors and officers liability insurance
policy.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.1 -- Indenture, dated as of February 4, 1997, between Diamond
Offshore Drilling, Inc. and The Chase Manhattan Bank, as
Trustee (incorporated by reference to Exhibit 4.1 to
Diamond Offshore Drilling, Inc.'s Current Report on Form
8-K filed February 11, 1997)
4.2 -- Second Supplemental Indenture, dated as of June 6, 2000,
by and between Diamond Offshore Drilling, Inc. and The
Chase Manhattan Bank, as Trustee, including the form of
Debenture (incorporated by reference to Exhibit 4.2 to
Diamond Offshore Drilling, Inc.'s Quarterly Report of
Form 10-Q/A for the quarterly period ended June 30, 2000
filed August 14, 2000)
4.3 -- Form of Debenture (included in Exhibit 4.2)
4.4 -- Registration Rights Agreement, dated June 6, 2000,
between Diamond Offshore Drilling, Inc. and Credit Suisse
First Boston Corporation (incorporated by reference to
Exhibit 10.2 to Diamond Offshore Drilling, Inc.'s
Quarterly Report of Form 10-Q/A for the quarterly period
ended June 30, 2000 filed August 14, 2000)
5.1 -- Opinion of Weil, Gotshal & Manges LLP
12.1 -- Statement Re Computation of Ratios
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Weil, Gotshal & Manges LLP (included in
Exhibit 5.1)
24.1 -- Power of Attorney (included on page II-4)
25.1 -- Statement of Eligibility of Trustee
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by
II-2
<PAGE> 40
those paragraphs is contained in periodic reports filed with or furnished to the
SEC by the registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 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 offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof;
(5) 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 provisions described
in Item 14, or otherwise, the Registrant has been advised that in the
opinion of the SEC such indemnification is against public policy as
expressed in the Act 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 Act and will be governed by the final
adjudication of such issue; and
(6) To file an application for the purpose of determining the
eligibility of the trustee to act under subsection (a) of Section 310 of
the Trust Indenture Act in accordance with the rules and regulations
prescribed by the SEC under Section 305(b)(2) of the Act.
II-3
<PAGE> 41
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, 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 registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Houston, Texas, on August 31, 2000.
DIAMOND OFFSHORE DRILLING, INC.
By: /s/ LAWRENCE R. DICKERSON
----------------------------------
Lawrence R. Dickerson
President and Chief Operating
Officer
POWER OF ATTORNEY
The undersigned directors and officers of Diamond Offshore Drilling, Inc.
("Diamond Offshore") do hereby constitute and appoint Gary T. Krenek and William
C. Long and each of them, with full power of substitution, our true and lawful
attorneys-in-fact and agents to do any and all acts and things in our name and
behalf in our capacities as directors and officers, and to execute any and all
instruments for us and in our names in the capacities indicated below which such
person may deem necessary or advisable to enable Diamond Offshore to comply with
the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
registration statement, including specifically, but not limited to, power and
authority to sign for us, or any of us, in the capacities indicated below and
any and all amendments (including pre-effective and post-effective amendments or
any other registration statement filed pursuant to the provision of Rule 462(b)
under the Act) hereto; and we do hereby ratify and confirm all that such person
or persons shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ JAMES S. TISCH Chairman of the Board and Chief August 31, 2000
----------------------------------------------------- Executive Officer
James S. Tisch
/s/ LAWRENCE R. DICKERSON President, Chief Operating August 31, 2000
----------------------------------------------------- Officer and Director
Lawrence R. Dickerson
/s/ GARY T. KRENEK Vice President and Chief August 31, 2000
----------------------------------------------------- Financial Officer (Principal
Gary T. Krenek Financial Officer)
/s/ ALAN R. BATKIN Director August 31, 2000
-----------------------------------------------------
Alan R. Batkin
/s/ HERBERT C. HOFMANN Director August 31, 2000
-----------------------------------------------------
Herbert C. Hofmann
/s/ ARTHUR L. REBELL Director August 31, 2000
-----------------------------------------------------
Arthur L. Rebell
</TABLE>
II-4
<PAGE> 42
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ MICHAEL H. STEINHARDT Director August 31, 2000
-----------------------------------------------------
Michael H. Steinhardt
/s/ RAYMOND S. TROUBH Director August 31, 2000
-----------------------------------------------------
Raymond S. Troubh
</TABLE>
II-5
<PAGE> 43
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.1 -- Indenture, dated as of February 4, 1997, between Diamond
Offshore Drilling, Inc. and The Chase Manhattan Bank, as
Trustee (incorporated by reference to Exhibit 4.1 to
Diamond Offshore Drilling, Inc.'s Current Report on Form
8-K filed February 11, 1997)
4.2 -- Second Supplemental Indenture, dated as of June 6, 2000,
by and between Diamond Offshore Drilling, Inc. and The
Chase Manhattan Bank, as Trustee, including the form of
Debenture (incorporated by reference to Exhibit 4.2 to
Diamond Offshore Drilling, Inc.'s Quarterly Report of
Form 10-Q/A for the quarterly period ended June 30, 2000
filed August 14, 2000)
4.3 -- Form of Debenture (included in Exhibit 4.2)
4.4 -- Registration Rights Agreement, dated June 6, 2000,
between Diamond Offshore Drilling, Inc. and Credit Suisse
First Boston Corporation (incorporated by reference to
Exhibit 10.2 to Diamond Offshore Drilling, Inc.'s
Quarterly Report of Form 10-Q/A for the quarterly period
ended June 30, 2000 filed August 14, 2000)
5.1 -- Opinion of Weil, Gotshal & Manges LLP
12.1 -- Statement Re Computation of Ratios
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Weil, Gotshal & Manges LLP (included in
Exhibit 5.1)
24.1 -- Power of Attorney (included on page II-4)
25.1 -- Statement of Eligibility of Trustee
</TABLE>
