-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fsq5Fq/7EJrkHKpfIs3RFSAOW8yfTsahtdd9uXbppci2A3O3+MZJqxNeGsI+P0UR 2lz67pIbPdOucdIutpTYVA== 0001045361-99-000006.txt : 19990331 0001045361-99-000006.hdr.sgml : 19990331 ACCESSION NUMBER: 0001045361-99-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 42 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: R&B FALCON CORP CENTRAL INDEX KEY: 0001045361 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 760544217 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13729 FILM NUMBER: 99578438 BUSINESS ADDRESS: STREET 1: 901 THREADNEEDLE CITY: HOUSTON STATE: TX ZIP: 77079 BUSINESS PHONE: 2814965000 MAIL ADDRESS: STREET 1: 901 THREADNEEDLE CITY: HOUSTON STATE: TX ZIP: 77079 10-K 1 ============================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________ FORM 10-K (Mark One) _X_ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1998 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ___________ to ___________. Commission File No. 1-13729 R&B FALCON CORPORATION (Exact name of registrant as specified in its charter) Delaware 76-0544217 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 901 Threadneedle, Houston, TX 77079 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 281-496-5000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- Common Stock, $.01 par value New York Stock Exchange Series A Junior Participating Preferred Stock Purchase Rights New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES ON MARCH 15, 1999 - $1,281,215,842 NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ON MARCH 15, 1999 - 193,381,376 DOCUMENTS INCORPORATED BY REFERENCE 1) Proxy Statement for Annual Meeting of Stockholders to be held on May 19, 1999 - Part III ============================================================================ TABLE OF CONTENTS PART I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A.Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions PART IV Item 14. Exhibits, Financial Statements and Reports on Form 8-K Signatures ________________________________________ FORWARD LOOKING STATEMENTS AND ASSUMPTIONS This Annual Report on Form 10-K may contain or incorporate by reference certain forward-looking statements, including by way of illustration and not of limitation, statements relating to liquidity, revenues, expenses, margins and contract rates and terms. The Company strongly encourages readers to note that some or all of the assumptions, upon which such forward-looking statements are based, are beyond the Company's ability to control or estimate precisely, and may in some cases be subject to rapid and material changes. Such assumptions include the contract status of the Company's offshore units, general market conditions prevailing in the marine drilling industry (including daily rates and utilization) and various other trends affecting the marine drilling industry, including world oil prices, the exploration and development programs of the Company's customers, the actions of the Company's competitors and economic conditions generally. PART I Item 1. Business and Item 2. Properties The Company R&B Falcon Corporation ("R&B Falcon"), a Delaware corporation, was incorporated in July 1997. Prior to December 31, 1997, R&B Falcon did not own any material assets or conduct any business. Effective on December 31, 1997, pursuant to an Agreement and Plan of Merger dated July 10, 1997, Falcon Drilling Company, Inc. ("Falcon"), a Delaware corporation incorporated in 1991, and Reading & Bates Corporation ("R&B"), a Delaware corporation incorporated in 1955, became wholly owned subsidiaries of R&B Falcon (the "Merger"). On December 1, 1998, R&B Falcon acquired all of the outstanding stock of Cliffs Drilling Company ("Cliffs Drilling"), a Delaware corporation incorporated in 1988. Cliffs Drilling is a contract drilling company which provides daywork and turnkey drilling services, mobile offshore production units and well engineering and management services. Unless the context otherwise indicates, the term "Company" herein refers to the total business conducted by R&B Falcon and its subsidiaries. Business - General The Company's primary business is providing marine contract drilling and ancillary services on a worldwide basis. The Company provides the equipment and personnel for drilling wells and conducting workover operations on wells in marine environments and on land. Drilling operations essentially involve the boring of a hole in the earth's crust with the objective of locating hydrocarbon reservoirs. Workover operations involve efforts to repair damage to, or stimulate production from, an existing well. Drilling operations in general require heavier and more powerful equipment due to the weight of the drillpipe and downhole equipment involved and the potential pressures that may be encountered while drilling through rock formations. Most of the Company's rigs are capable of providing both drilling and workover services. The Company owns and operates towing vessels and barges used to transport and store equipment and material to support drilling operations. These assets are deployed in the jack-up and barge rig businesses. The Company also provides, to a minor extent, such equipment for ocean transportation of materials and in connection with marine construction projects. In February 1996, the Company and Intec Engineering, Inc., formed a joint venture named Total Offshore Production Systems (TOPS). TOPS provides complete field development engineering services on a turnkey basis. The Company, primarily through its subsidiary Reading & Bates Development Co. ("Devco"), engages in exploration for oil and gas. In March 1998, the Company decided to divest its oil and gas business, and in the Company's financial statements previously filed with the SEC for the three years ended December 31, 1997, 1996 and 1995 and the first three quarters of 1998, the business was accounted for as a discontinued operation. As of March 1999, the Company has not been able to divest this business on terms it found acceptable and in accordance with generally accepted accounting principles the Company has reclassified its financial statements as if this business had not been discontinued. The Company does not intend to engage in any material activities in this business and still intends to divest this business. See Note N of Notes to Consolidated Financial Statements. Strategy A major element of the Company's strategy since 1996 has been the expansion of its deepwater fleet. The Company believes that the major oil companies of the world will continue to increase their exploration efforts in deepwater areas for two reasons. First, improvements in technology have made production of hydrocarbons from these areas more economically viable. Second, the number of significant reservoirs remaining undiscovered in shallow waters continues to dwindle, leading operators to move into deeper waters in their efforts to find hydrocarbon reserves. The Company's deepwater fleet consists of 12 drillships, including five under construction or upgrade; 11 semisubmersibles, including three under construction or upgrade and one floating production vessel. The Company's focus on deepwater equipment also allows it to obtain long-term contracts that serve as a balance to the short-term contracts prevalent in the shallower water markets. Another element of the Company's strategy is to expand in markets that can benefit from consolidation and allow it to provide services related to its core drilling business. Pursuant to this strategy, the Company has become the largest competitor in the worldwide shallow water and barge rig markets and is also a leading competitor in the domestic offshore and inland marine transportation markets. Significant Developments During 1998 The two most significant developments for the Company during 1998 were the acquisition of Cliffs Drilling and the rapid and significant decline in demand for contract drilling services. 1. Effective on December 1, 1998, pursuant to an Agreement and Plan of Merger dated August 21, 1998, R&B Falcon acquired all of the outstanding stock of Cliffs Drilling in exchange for approximately 27.1 million shares of R&B Falcon common stock. Each share of Cliffs Drilling's common stock was converted into 1.7 shares of R&B Falcon common stock. Total consideration for Cliffs Drilling was approximately $405.1 million. The above transaction has been recorded using the purchase method of accounting, accordingly Cliffs Drilling's results of operations are included with the Company's results of operations since the acquisition date. 2. A significant decline in the demand for contract drilling services began in mid-1998 and has continued into 1999. The Company expects these adverse market conditions to continue through 1999 and perhaps into 2000. The decline has been particularly dramatic in the domestic barge rig and jack-up markets, where the Company is one of the largest contractors. In response to these conditions, the Company has implemented cost-cutting measures, primarily laying off employees and taking rigs off the market. In addition to cost- cutting measures, the Company will try to expand its turnkey drilling activities as a means of generating additional opportunities for its idle rigs to be put to work. The following are other significant developments that occurred in 1998: 1. The dynamically positioned drillship Deepwater Pathfinder was delivered in September 1998 at a cost of approximately $275.0 million. This drillship is owned by a limited liability company which is in turn owned 50% by the Company and 50% by an affiliate of Conoco, Inc. The Deepwater Pathfinder commenced its five year contract with an affiliate of Conoco, Inc. in the first quarter of 1999. 2. The dynamically positioned drillship Deepwater Frontier was delivered in March 1999 at a cost of approximately $270.0 million. This drillship is owned by a limited liability company, which is in turn owned 60% by the Company and 40% by an affiliate of Conoco, Inc. During the initial five years following delivery, the drillship will be contracted to an affiliate of Conoco, Inc. for an aggregate of 2.5 years and to the Company for operations for its own account for the remaining 2.5 years. 3. The construction of the dynamically positioned drillship Deepwater Millennium continued on schedule. The estimated cost of the drillship is approximately $270.0 million. Immediately following delivery of the drillship from the shipyard, which is expected to be in the second quarter of 1999, the drillship is contracted for 4 years to Statoil. 4. The Company commenced the construction of the dynamically positioned drillship Deepwater IV. The estimated cost of the drillship is approximately $305.0 million. Immediately following delivery of the drillship from the shipyard, which is expected to be in the third quarter of 2000, the drillship is contracted for 3 years to Texaco. This contract is a substitute for the previously contracted Peregrine VIII (see note 7 below). 5. Significant delays and cost overruns have been experienced in the construction of the dynamically positioned drillship Peregrine IV. The estimated cost of the drillship is approximately $210.0 million (original estimate: $160.0 million). Immediately following delivery of the drillship from the shipyard, which is expected to be in the second quarter of 1999 (original estimate: fourth quarter of 1998), the drillship is contracted for six years to Petrobras. Under the Petrobras contract, the Company is subject to late delivery penalties up to a maximum of approximately $38.6 million. 6. Significant delays and cost overruns have been experienced in the upgrade and refurbishment of the dynamically positioned drillship Peregrine VII. It is currently estimated that this vessel will cost approximately $270.0 million (original estimate: $145.0 million) and will be delivered from the shipyard in the third quarter of 1999 (original estimate: second quarter of 1998). The drillship is contracted for three years (with five one-year extensions) to Amoco. However, Amoco has indicated that they may cancel this contract as a result of delivery delays. The Company believes that it will be able to find work for the Peregrine VII at dayrates comparable to its previously contracted levels. However, the Company expects that any new contracts will likely be short-term or on a well-to-well basis. 7. In the third quarter of 1998, the Company cancelled the Peregrine VI and the Peregrine VIII drillship conversion projects due to continuing uncertainty as to final cost and expected delivery dates. As a result, the drilling contract on the Peregrine VIII was terminated on September 24, 1998, and the drilling contract on the Peregrine VI was terminated on January 1, 1999. Both terminations were without prejudice to the rights of the oil companies. The Company believes that based on provisions of the contracts that preclude recovery of indirect or consequential damages, and projected rig availability in the offshore drilling industry, the Company will not have any material liability under these drilling contracts as a result of the termination thereof. The contracts with the shipyard for conversion of the Peregrine VI and the Peregrine VIII have been cancelled. In addition, in the fourth quarter of 1998, the Company cancelled two additional drillship conversion projects that were in the preliminary phases. As a result of the termination of these four drillship conversion projects, the Company expensed $118.3 million in related costs in 1998. 8. The construction of the new generation ultra deepwater moored semisubmersible, the RBS8M, formerly the RBS6, continued on schedule but over budget. The estimated cost of the unit is approximately $315.0 million (original estimate: $275.0 million). Immediately following the delivery of the unit from the shipyard, which is expected to be in the first quarter of 2000, the unit is contracted for five years to Shell. 9. The Company commenced the construction of a new generation ultra deepwater moored semisubmersible, the RBS8D. The estimated cost of the unit is approximately $325.0 million. Immediately following delivery of the unit from the shipyard, which is expected to be in the fourth quarter of 2000, the unit is contracted for 3 years (with five one-year options) to Vastar. 10. Significant delays and cost overruns have been experienced in the upgrade and refurbishment of the semisubmersible rig Falcon 100. The upgrade and refurbishment is estimated to cost approximately $118.0 million (original estimate: $60.0 million). Immediately following the delivery of the unit from the shipyard, which is expected to be in the second quarter of 1999 (original estimate: fourth quarter of 1998), the unit is contracted for four years to Petrobras. Under the terms of the Petrobras contract, the Company is subject to late delivery penalties up to a maximum of approximately $14.7 million. 11. In September 1998, the Company and Navis ASA ("Navis"), a Norwegian public company which is constructing a dynamically positioned drillship (the Navis Explorer I), entered into an agreement pursuant to which the Company will make a capital contribution to Navis of $50.0 million in exchange for stock in Navis at the rate of 11 NOK per share. The Navis Explorer I is designed to drill in 10,000 feet of water and is being constructed at Samsung at an estimated cost of $280.0 million, with a scheduled delivery in the second quarter of 2000. The Company expects its capital contribution will be in the form of approximately $30.0 million of equipment and equipment purchase orders and approximately $20.0 million in cash. It is expected that the Company will own approximately 38% of the outstanding stock of Navis following such contributions and the completion of an equity offering currently underway by Navis. Most of the equipment and equipment purchase orders that will be contributed by the Company was acquired by the Company in connection with the Peregrine VI and Peregrine VIII projects and is no longer required for such projects in light of their cancellation. Navis and the Company have entered into agreements pursuant to which the Company will supervise construction of the drillship and manage it following its delivery. 12. In a series of transactions, the Company acquired 25 tugs, five ocean going barges and six workover rigs for an aggregate cost of $33.4 million in cash and the issuance of 763,680 shares of its common stock. The Company has reserved for issuance 282,192 shares of its common stock for contingent obligations relating to these transactions. 13. The Company paid $10.7 million in cash for the acquisition of the previously leased jackup Falrig 82. 14. The Company paid $5.8 million in cash for the acquisition of a two story, 86,000 square foot office building in Houston, Texas that serves as its corporate headquarters. 15. In December 1998, Mobil U.K. Ltd. ("Mobil") terminated its contract to use the Company's Jack Bates semisubmersible rig on the grounds that two of the rig's anchor cables broke. The contract provided for Mobil's use of the rig at a dayrate of approximately $115,000 for the primary term through January 1999 and approximately $200,000 for the extension term from February 1999 through December 2000. The Company does not believe that Mobil had the right to terminate this contract. The Company has received a proposal from Mobil to recontract the Jack Bates at a dayrate of approximately $156,000 for a one or two well drilling program. The Company believes this program may last approximately six months. This proposal is without prejudice to either party's rights in the dispute over the termination of the original contract. If the Company is not successful in settling its dispute over the termin- ation of the original contract, the Company intends to commence legal proceedings to enforce its rights under the contract. The Company believes that it will be able to find other work for the Jack Bates, but that any such work will be at lower dayrates than the $200,000 dayrate established for the extended term of the original contract. The Company's Fleet The following sets forth a brief description of the types and capabilities of the rigs operated by the Company. Rigs described as "operating" are under contract (including rigs being mobilized under contract). Rigs described as "available" are ready for service and are being actively marketed. Rigs described as "stacked" are not being actively marketed but are capable of being returned to service with little or no refurbishment. Rigs described as "cold stacked" are in need of substantial refurbishment to be activated. Semisubmersible Rigs. Semisubmersible rigs are floating platforms which, by means of a water ballasting system, can be submerged to a predetermined depth so that the lower hulls, or pontoons, are below the water surface during drilling operations. The rig is "semi-submerged", remaining afloat, in a position in which the lower hull is about 60 to 80 feet below the water line and the upper deck protrudes well above the surface. The upper deck is attached to the pontoons by columns. These rigs maintain their position over the well through the use of an anchoring system or computer controlled thruster system. Some semisubmersible rigs are self-propelled and move between locations under their own power when afloat on the pontoons; however, most are relocated with the assistance of tugs. Semisubmersibles are frequently classified into four generations, based primarily on rig capabilities. The fourth-generation classification generally refers to semisubmersibles that have been built since 1984, and have large physical size, harsh environment capability, high variable loads, top drive units, 15,000 psi blowout preventers and superior motion characteristics. These drilling units are the best choice for operators in deepwater and/or harsh environments or for drilling that requires larger variable loads and the ability to handle large pieces of subsea equipment. There are limited markets for this type of drilling unit and a relatively small group of users. The principal markets are the North Sea/Norway, the Gulf of Mexico, the Far East and offshore Brazil. The following table provides certain information regarding the Company's semisubmersible fleet as of March 15, 1999: Year Water Drilling Built/ Depth Depth Rig Name Upgraded Capability Capability Location Status - -------- -------- ---------- ---------- -------- ------ (expressed in feet) Fourth-Generation Semisubmersibles JACK BATES 1986/97 6,000 30,000 United Kingdom Under Repair HENRY GOODRICH(1) 1985 2,000 30,000 United Kingdom Operating PAUL B. LOYD,JR.(1) 1987 2,000 25,000 United Kingdom Operating RBS8M (formerly RBS6) - 8,000 30,000 Korea Under Construction RBS8D - 10,000 30,000 Korea Under Construction Third-Generation Semisubmersibles JIM CUNNINGHAM 1982/95 5,000 25,000 Angola Operating M.G.HULME,JR.(2) 1983/96 5,000 25,000 Singapore Under Upgrade IOLAIR (3) 1982 2,000 - United Kingdom Operating Second-Generation Semisubmersibles C.KIRK RHEIN,JR. 1976/97 3,300 25,000 U. S. Gulf Operating J.W. McLEAN 1974/96 1,500 25,000 United Kingdom Operating FALCON 100(4) 1974/99 2,450 25,000 U. S. Gulf Under Upgrade RIG 82(5) 1975 1,500 - Norway Cold Stacked ________________________ (1) Unit is owned by Arcade Drilling AS ("Arcade"), a majority owned subsidiary of the Company. The Company was a party to an agreement with Transocean Offshore, Inc., the largest minority shareholder of Arcade, which subjected the Company to certain restrictions on engaging in transactions with Arcade. Such agreement expired September 1, 1998. (2) The M. G. Hulme, Jr. is accounted for as an operating lease as a result of the sale/lease-back in November 1995. See Note E of Notes to Consolidated Financial Statements. (3) The Iolair is designed for field support and living accommodations. (4) The Falcon 100 is scheduled to be delivered in the second quarter of 1999. (5) Rig 82 was originally built as a drilling unit, but was converted to an accommodation vessel in 1978. Drillships. A drillship is a self-propelled ship specifically outfitted for drilling operations. Many of the drillships built after 1975 feature a dynamic positioning system which allows the ship to position itself over the well site through the use of thrusters controlled by a satellite navigation system. The prior generation of drillships, often called conventionally moored drillships, are anchored over the well site and thus are generally more limited in terms of water depth than dynamically positioned drillships. Drillships typically have greater load capacity than semisubmersible drilling rigs. This enables them to carry more supplies on board, which makes them better suited for drilling in remote locations where resupply is more difficult. However, drillships are limited to calmer water conditions than those in which semisubmersibles can operate, and thus cannot compete with semisubmersibles in areas with harsh environments, such as the North Sea. The following table provides certain information regarding the Company's drillship fleet as of March 15, 1999: Year Water Drilling Built or Depth Depth Rig Name Converted Capability Capability Location Status - -------- --------- ---------- ---------- -------- ------ (expressed in feet) PEREGRINE I 1996 (1) 7,200 25,000 Brazil Under Repair PEREGRINE II 1979 3,300 25,000 Malaysia Stacked PEREGRINE III 1976 4,200 25,000 Angola Operating FALCON DUCHESS 1975 1,500 20,000 Malaysia Stacked FALCON ICE (2) 1975 1,500 20,000 Indonesia Cold Stacked DEEPWATER PATHFINDER (3) 1998 10,000 30,000 U.S. Gulf Operating DEEPWATER FRONTIER (4) 1999 10,000 30,000 Korea Delivered DEEPWATER MILLENNIUM - 10,000 30,000 Korea Under Construction DEEPWATER IV (unnamed) - 10,000 30,000 Korea Under Construction PEREGRINE IV - 9,200 30,000 Singapore Under Construction PEREGRINE VII - 7,800 25,000 United Kingdom Under Construction NAVIS EXPLORER I (5) - 10,000 30,000 Korea Under Construction __________________________ (1) Although originally constructed in 1982, this unit was substantially upgraded in 1996. (2) Unit is being operated by the Company under an operating lease. (3) Unit is owned by a limited liability company in which the Company owns a 50% interest. (4) Unit is owned by a limited liability company in which the Company owns a 60% interest. (5) Unit is being constructed for a company in which the Company will own a 38% interest. Floating Production Vessels. Floating production vessels are equipped for oil production, processing and storage. The Company currently owns and operates one floating production storage and offloading vessel, the Seillean. The Seillean is currently operating in Brazil pursuant to a long-term contract. During 1998, the Seillean was upgraded to work in 6,000 feet of water. Drilling Tenders. Drilling tenders are usually non-self-propelled barges or semisubmersibles which are moored alongside a platform and contain the quarters, mud pits, mud pumps, power generation, etc. Drilling tenders allow smaller, less costly platforms to be used for development projects. Self-erecting tenders carry their own derrick equipment set and have a crane capable of erecting it on the platform, thereby eliminating the cost associated with a separate derrick barge and related equipment. The following table provides certain information regarding the Company's drilling tenders as of March 15, 1999: Water Drilling Year Depth Depth Rig Name Built Capability Capability Location Status - -------- ----- ---------- ---------- -------- ------ (expressed in feet) Self-Erecting Drilling Tenders CHARLEY GRAVES 1975 400 20,000 Ivory Coast Stacked W. D. KENT 1977 400 20,000 Malaysia Operating Jack-Up Rigs. Jack-up rigs are mobile self-elevating drilling platforms equipped with legs which can be lowered to the ocean floor until a foundation is established to support the drilling platform which is then jacked further up the legs so it is above the highest expected waves. The rig hull includes the drilling rig, jacking system, crew quarters, loading and unloading facilities, storage areas for bulk and liquid materials, helicopter landing deck and other related equipment. The rig legs may be independent or may have a lower hull ("mat") attached to the bottom of them in order to provide a more stable foundation in soft bottom areas. Independent leg rigs are better suited for harder or uneven seabed conditions while mat rigs are better suited for soft bottom conditions. Jack-up rigs may be designed to operate in a maximum water depth of approximately 400 feet (however, most jack-up rigs have a lesser water depth capability). Some jack-up rigs may drill in water depths as shallow as ten feet. A cantilever jack-up has a feature which allows the drill floor to be extended out from the hull, allowing it to perform drilling or workover operations over pre-existing platforms or structures. Certain cantilever jack-up rigs have "skid-off" capability, which allows the derrick equipment set to be skidded onto an adjacent platform, thereby increasing the operational capability of the rig. Slot type jack-up rigs are configured for the drilling operations to take place through a slot in the hull. Slot type rigs are usually used for exploratory drilling, in that their configuration makes them difficult to position over existing platforms or structures. The following table provides certain information regarding the Company's jack-up fleet as of March 15, 1999: Water Drilling Rig Year Depth Depth Rig Name Description Built Capability Capability Location Status - -------- ----------- ----- ---------- ---------- -------- ------ (expressed in feet) Cantilevered Independent Leg Jack-up Rigs F. G. McCLINTOCK MLT 53-C 1975 300 25,000 United Kingdom Operating RON TAPPMEYER MLT 116-C 1978 300 25,000 Australia Stacked C. E. THORNTON MLT 53-C 1974 300 25,000 Greece Stacked RANDOLPH YOST MLT 116-C 1979 300 25,000 Angola Stacked D. R. STEWART MLT 116-C 1980 300 25,000 Italy Operating HARVEY H. WARD F&G L780 1981 300 25,000 Singapore Stacked ROGER W. MOWELL F&G L780 1982 300 25,000 Indonesia Operating GEORGE H.GALLOWAY F&G L780 1985 300 25,000 U.S. Gulf Stacked J. T. ANGEL F&G L780 1982 300 25,000 India Operating LaSALLE DMI 200-IC 1982 190 25,000 Qatar Operating CLIFFS DRILLING 150 MLT 150-44-C 1979 150 20,000 U.S. Gulf Operating CLIFFS DRILLING 151 BMC 150-H 1981 150 25,000 U.S. Gulf Stacked CLIFFS DRILLING 154 MLT 150-44-C 1979 150 20,000 U.S. Gulf Cold Stacked CLIFFS DRILLING 155 Levingston011-C 1980 150 20,000 U.S. Gulf Stacked CLIFFS DRILLING 156 BMC 150-H 1983 150 25,000 U.S. Gulf Stacked CLIFFS DRILLING 160 BMC 150-IC 1980 160 20,000 Qatar Operating Slot type Mat-Supported Jack-up Rigs FALRIG 17 Bethlehem 1974 250 25,000 U.S. Gulf Stacked JU-250MS FALRIG 18 Bethlehem 1978 250 25,000 U.S. Gulf Operating JU-250MS FALRIG 19 Bethlehem 1978 250 25,000 U.S. Gulf Stacked JU-250MS FALRIG 20 Bethlehem 1982 250 25,000 U.S. Gulf Stacked JU-250MS FALRIG 82 (1) Baker Marine 1978 200 25,000 U.S. Gulf Operating BMC 250 FALRIG 83 Bethlehem 1978 250 25,000 Nigeria Stacked JU-250MS FALRIG 84 Bethlehem 1975 250 25,000 U.S. Gulf Operating JU-250MS ACHILLES BMC 250-MS 1981 250 25,000 U.S. Gulf Stacked SEA HAWK Bethlehem 1976 250 25,000 U.S. Gulf Stacked JU-250MS TAURUS Bethlehem 1976 250 25,000 U.S. Gulf Stacked JU-250MS CLIFFS DRILLING 180 BMC 250-MS 1978 184 25,000 U.S. Gulf Stacked Cantilevered Mat-Supported Jack-up Rigs PHOENIX I Bethlehem 1981 200 25,000 U.S. Gulf Stacked JU-200MC PHOENIX II Bethlehem 1982 200 25,000 U.S. Gulf Stacked JU-200MC PHOENIX III Bethlehem 1981 200 25,000 U.S. Gulf Stacked JU-200MC PHOENIX IV Bethlehem 1981 200 25,000 U.S. Gulf Operating JU-200MC FALRIG 85 Bethlehem 1979 200 25,000 U.S. Gulf Stacked JU-200MC FALRIG 86 Bethlehem 1980 200 25,000 U.S. Gulf Stacked JU-200MC PHOENIX Bethlehem 1981 200 25,000 Mexico Operating VI (2) JU-200MC CLIFFS Bethlehem 1982 100 25,000 U.S. Gulf Stacked DRILLING 100 JU-100MC CLIFFS McDermott 1973 100 - Trinidad Operating DRILLING 101 87-C CLIFFS Bethlehem 1982 110 25,000 Trinidad Operating DRILLING 110 JU-100MC CLIFFS Bethlehem 1980 150 25,000 U.S. Gulf Stacked DRILLING 152 JU-150MC CLIFFS Bethlehem 1980 150 25,000 U.S. Gulf Operating DRILLING 153 JU-150MC CLIFFS Bethlehem 1979 200 25,000 U.S. Gulf Operating DRILLING 200 JU-200MC CLIFFS Bethlehem 1980 200 20,000 Mexico Stacked DRILLING 201 JU-200MC CLIFFS Bethlehem 1980 200 25,000 Venezuela Operating DRILLING 202 JU-200MC _____________________ (1) Operated by the Company under a lease with an option to purchase. (2) The Company has bareboat chartered this rig to another contractor for one well. As of March 15, 1999 such charter was on a month- to-month basis. Submersible Rigs. Submersible rigs are somewhat similar in configuration to semisubmersible rigs but the lower hull of the rig rests on the sea floor during drilling operations. A submersible rig is towed to the well site where it is submerged by flooding its lower hull until it rests on the sea floor, with the upper hull above the water surface. Submersible rigs typically operate in water depths of 12 to 85 feet. The following table provides certain information regarding the Company's submersible rig fleet as of March 15, 1999: Water Drilling Rig Year Depth Rig Name Description Built Capability Capability Location Status - -------- ----------- ----- ---------- ---------- -------- ------ (expressed in feet) Rig 203 Pace 85G 1983 85 30,000 U.S. Gulf Stacked FALRIG 77 Donhaiser Marine DMI85 1983 85 30,000 U.S. Gulf Stacked FALRIG 78 Donhaiser Marine DMI85 1983 85 30,000 U.S. Gulf Stacked Mobile Offshore Production Units. MOPUs are mobile offshore drilling units which have been converted from drilling operations to a production application. Conversion from drilling to production mode normally requires removal of the drilling package, leaving an open deck for placement of production equipment. The following table provides certain information regarding the Company's mobile offshore production units as of March 15, 1999: Water Year Depth Rig Name Built Capability Location Status -------- ----- ---------- -------- ------ (expressed in feet) CLIFFS DRILLING 4 1967 150 U. S. Gulf Operating LANGLEY 1965 150 Nigeria Operating CLIFFS DRILLING 8 1977 250 U. S. Gulf Operating CLIFFS DRILLING 10 1979 250 Qatar Stacked Platform Drilling Rigs. Platform drilling rigs are designed to be placed on existing or newly built production platforms. The production platform's crane is generally capable of lifting the modules that make up the rig or lift the modularized rig crane that would set the rig modules. The assembled rig has all the drilling, housing and support facilities necessary for drilling multiple production wells but does not have many of the marine systems that would be provided on a jack-up or semisubmersible rig. The platform drilling rig requires a significantly larger platform than a tender rig but is not as weather sensitive. Most platform drilling rig contracts are for multiple wells and extended periods of time on the same platform. The following table provides certain information regarding the Company's platform drilling rigs as of March 15, 1999: Drilling Year Year Depth Rig Name Built Rebuilt Capability Location Status -------- ----- ------- ---------- -------- ------ (expressed in feet) CLIFFS DRILLING 1 1988 1998 18,000 Trinidad Stacked CLIFFS DRILLING 3 1993 1998 25,000 Trinidad Operating CLIFFS DRILLING 17 1996 - 12,000 Brazil Operating Domestic Barge Drilling Rigs. Barge drillings rigs are mobile drilling platforms that are submersible and are built to work in eight to 20 feet of water. They are towed by tugboats to the drill site with the derrick lying down. The lower hull is then submerged by flooding until it rests on the sea floor. The derrick is then raised and drilling operations are conducted with the barge in this position. There are two basic types of barge rigs, "conventional" and "posted". A posted barge is identical to a conventional barge except that the hull and superstructure are separated by ten to 14 foot columns, which increases the water depth capabilities of the rig. The Company's barge rigs are generally rated for drilling to depths in excess of 20,000 feet. The following table provides certain information regarding the Company's domestic barge drilling fleet as of March 15, 1999: Horse- Drilling Drilling Equipment/ power Year Depth Rig Main Power Rating Built Capability Status - --- ------------------- ------ ----- ---------- ------ (expressed in feet) Conventional Barges 1 Skytop Brewster/ Caterpillar 2,000 1980 20,000 Operating 3 Mid-Continent/ Caterpillar (1) 3,000 1981 25,000 Stacked 4 Oilwell/Caterpillar 3,000 1981 25,000 Cold Stacked 6 Mid-Continent/Caterpillar 3,000 1981 25,000 Cold Stacked 11 Gardner Denver/ Caterpillar 3,000 1982 30,000 Operating 15 National/EMD 2,000 1981 25,000 Stacked 18 Skytop Brewster/ Caterpillar (2) 1,000 1980 12,000 Stacked 19 National/Caterpillar (2) 1,000 1996(3) 14,000 Stacked 20 National/Caterpillar (2) 1,000 1998(3) 14,000 Operating 21 Oilwell/Caterpillar 1,500 1982 15,000 Stacked 23 Mid-Continent/ Caterpillar (1)(2) 1,000 1995(3) 14,000 Stacked 24 National/ Caterpillar (1)(2) 1,500 1978 16,000 Stacked 25 Continental Emsco/ Caterpillar 3,000 1976 25,000 Cold Stacked 28 Continental Emsco/ Caterpillar 3,000 1979 30,000 Stacked 29 Continental Emsco/ Caterpillar 3,000 1980 30,000 Stacked 30 Continental Emsco/ Caterpillar 3,000 1981 30,000 Stacked 31 Continental Emsco/ Caterpillar 3,000 1981 30,000 Stacked 32 Continental Emsco/ Caterpillar 3,000 1982 30,000 Stacked 37 National/EMD 3,000 1965 20,000 Cold Stacked 38 National/EMD 3,000 1965 20,000 Cold Stacked 74 National/EMD (1) 2,000 1981 25,000 Cold Stacked 75 National/EMD (1) 3,000 1979 30,000 Cold Stacked Posted Barges 2 Skytop Brewster/ Caterpillar 2,000 1980 20,000 Cold Stacked 5 National/Caterpillar 3,000 1981 25,000 Cold Stacked 7 Oilwell/Caterpillar 2,000 1978 25,000 Stacked 8 Oilwell/Caterpillar 2,000 1978 25,000 Cold Stacked 9 Oilwell/Caterpillar 2,000 1981 25,000 Stacked 10 Oilwell/Caterpillar 2,000 1981 25,000 Stacked 16 National/EMD 3,000 1981 30,000 Operating 17 National/EMD 3,000 1981 30,000 Operating 22 Skytop Brewster/ Caterpillar (2) 1,500 1978 16,000 Stacked 27 Continental Emsco/ Caterpillar 3,000 1978 30,000 Operating 39 National/EMD 3,000 1970 30,000 Cold Stacked 41 National/EMD 3,000 1981 30,000 Stacked 44 Oilwell/Superior 3,000 1979 30,000 Cold Stacked 45 Oilwell/Superior 3,000 1979 30,000 Cold Stacked 46 Oilwell/EMD 3,000 1981 30,000 Stacked 47 Oilwell/EMD 3,000 1982 30,000 Stacked 48 Gardner Denver/Caterpillar 3,000 1982 30,000 Stacked 49 Oilwell/Caterpillar 3,000 1980 30,000 Stacked 52 Oilwell/Caterpillar 2,000 1981 25,000 Stacked 54 National/EMD 3,000 1970 30,000 Stacked 55 Ideco/EMD 3,000 1981 30,000 Operating 56 National/Caterpillar 2,000 1973 25,000 Stacked 57 National/Caterpillar 2,000 1975 25,000 Stacked 61 Mid-Continent/EMD 3,000 1978 30,000 Stacked 62 Mid-Continent/EMD 3,000 1978 30,000 Operating 63 Mid-Continent/EMD 3,000 1978 30,000 Stacked 64 Mid-Continent/EMD 3,000 1979 30,000 Stacked ____________________ (1) These rigs are leased to the Company. (2) These rigs are also capable of performing workover operations. (3) These rigs were reconstructed on the date indicated using an existing hull. Lake Maracaibo Barge Rigs. Rigs designed to work in Lake Maracaibo, Venezuela, require modification to work in a floating mode in up to 150 feet of water. The typical domestic barge is modified by widening the hull to 100 feet, installing a mooring system and cantilevering the drill floor. Three of the Company's barge rigs have been so modified and are currently operating in Lake Maracaibo, pursuant to contracts with Maraven. After such modifications, these rigs generally are not suitable for deployment to other locations. The following table provides certain information regarding the Company's Lake Maracaibo barge rigs as of March 15, 1999: Drilling Horse- Equipment/ power Year Year Depth Rig Main Power Rating Built Rebuilt Capability Status --- --------- ------ ----- ------- ---------- ------ (expressed in feet) 40 Oilwell/EMD 3,000 1980 1994 25,000 Operating 42 National/EMD 3,000 1982 1994 25,000 Stacked 43 National/EMD 3,000 1982 1994 25,000 Operating Barge Workover Rigs. Barge workover rigs typically differ from barge drilling rigs both in the size of the hull and the capability of the drilling equipment. Because workover operations require less pulling power and mud system capacity, a smaller, lower capacity unit can be used. In addition, workover rigs, which are equipped with specialized pumps and handling tools, do not require heavy duty drill pipe. Operating costs for workover rigs are lower because the rigs require smaller crews, use less fuel and require less repair and maintenance. The following table provides certain information regarding the Company's workover fleet as of March 15, 1999: Mast Workover Capacity Year Depth Rig Drawworks (Pounds) Built Capability Status --- --------- -------- ----- ---------- ------ (expressed in feet) R&B Falcon Rig 90 Ideco H-30 250,000 1990(1) 15,000 Stacked R&B Falcon Rig 91 IRI 1287 250,000 1981 15,000 Stacked R&B Falcon Rig 92 IRI 2042 300,000 1981 15,000 Stacked R&B Falcon Rig 93 Ideco H-35 450,000 1978 20,000 Stacked R&B Falcon Rig 94 IRI 1287 250,000 1996(1) 15,000 Stacked R&B Falcon Rig 95 Wilson 75 369,000 1991(1) 20,000 Stacked R&B Falcon Rig 96 Wilson 75 400,000 1996(1) 20,000 Stacked R&B Falcon Rig 97 Wilson 75 400,000 1997(1) 20,000 Stacked R&B Falcon Rig 98 Mid-Continent U36A 550,000 1979 25,000 Stacked R&B Falcon Rig 99 Gardner Denver 800 800,000 1972 25,000 Stacked ____________ (1) These rigs were reconstructed on the date indicated using an existing hull. Inland Marine Vessels. In connection with barge drilling and workover operations, it is necessary to utilize other types of vessels: - Utility barges are barges generally 100 to 120 feet in length, which are positioned alongside the barge rig and are used (i) to store materials or (ii) as a container in which to dump cuttings from the well bore, which cuttings then are transported elsewhere for disposal. - Service tugs are ships approximately 50 to 60 feet in length, having 400 to 900 horsepower, which are used to move and position utility barges and transport materials and personnel to and from the barge rig. - Rig moving tugs are ships approximately 60 to 70 feet in length, having 900 horsepower or greater, which are used to move barge rigs to and from the drilling location. They can also be used to move and position utility barges and move materials and personnel to and from the barge rig. A rig moving tug is typically used to move barge rigs and utility barges to and from location, and is normally contracted by the hour. If water conditions require a more powerful vessel or if no smaller vessels are available, it may sometimes be used in a service tug capacity, in which event it is normally contracted on a dayrate basis. Once a barge rig is on location, the movement of utility barges, supplies and personnel can normally be more economically handled with service tugs, which are on contract throughout the operation, usually on a dayrate basis. During drilling operations, anywhere from two to six utility barges may be in use throughout the operation, as well as one to three service tugs. In a barge rig operation, the Company's customer may contract directly for the utility barges and tugs, or may ask the Company to provide them. As of March 15, 1999, the Company owned 102 tugs and 60 utility barges. Although the Company expects that these assets will be used primarily in conjunction with the Company's barge rig business, they will also be used in other applications. Land Drilling Rigs. Land drilling rigs are completely equipped to drill oil and gas wells on land. These rigs are designed to be transported by truck and assembled by crane. They require a firm, level area to be erected and sometimes require foundation work to be performed to support the drill floor and derrick. These rigs are equipped with living quarters. The following table provides certain information regarding the Company's land drilling rigs as of March 15, 1999: Drilling Rig Year Depth Rig Name Description Built Capability Location Status - -------- ----------- ----- ---------- -------- ------ (express in feet) CLIFFS DRILLING 28 National 1320 1977 25,000 Venezuela Operating CLIFFS DRILLING 34 Oilwell E-2000 1980 18,000 Venezuela Operating CLIFFS DRILLING 35 Oilwell E-2000 1980 18,000 Venezuela Operating CLIFFS DRILLING 36 Oilwell E-2000 1982 18,000 Venezuela Operating CLIFFS DRILLING 37 Oilwell E-2000 1982 18,000 Venezuela Operating CLIFFS DRILLING 40 National 1320-UE 1980 25,000 Venezuela Operating CLIFFS DRILLING 41 National 1320 1981 25,000 Venezuela Operating CLIFFS DRILLING 42 National 1320-UE 1981 25,000 Venezuela Operating CLIFFS DRILLING 43 National 1320-UE 1981 25,000 Venezuela Operating CLIFFS DRILLING 54 National 1320-UE 1981 30,000 Venezuela Operating CLIFFS DRILLING 55 National 1320-UE 1983 35,000 Venezuela Stacked Land Workover Rig. The Company has one land workover rig, Rig 89, which is a Cabot 300 with a workover depth capability of 15,000 feet and it is currently stacked in Louisiana. Fleet Maintenance. The Company follows a policy of keeping its equipment well maintained and technologically competitive. However, its equipment could be made obsolete by the development of new techniques and equipment. In addition, industry-wide shortages of supplies, services, skilled personnel and equipment necessary to conduct the Company's business have occurred in the past, and such shortages could occur again. Almost all of the Company's rigs, like most of the rigs with which they compete, were constructed during the last drilling boom, which ended about 1982. With increasing age, the likelihood that a rig will require major repairs in order to remain operational increases. The Company expects that repair and maintenance of its rigs will require increasing amounts of capital, and will result in such rigs being unavailable for service from time to time. During any such period of repair to a rig, the Company will not earn revenues from such rig, but will continue to incur a substantial portion of the costs that would be incurred while the rig is operating. Oil & Gas Properties The Company's oil and gas business is operated primarily through its wholly owned subsidiary Devco and, to an insignificant extent, through its wholly owned subsidiary Raptor Exploration Company, Inc. In March 1998, the Company decided to divest its oil and gas business, and in the financial statements for the three years ended December 31, 1997, 1996 and 1995, the business was accounted for as a discontinued operation. As of March 1999, the Company has not been able to divest this business on terms it found acceptable and in accordance with generally accepted accounting principles the Company has reclassified its financial statements as if this business had not been discontinued. The Company does not intend to engage in any material activities in this business and still intends to divest this business. See Note N of Notes to Consolidated Financial Statements. Domestic Operations. In October 1995, Devco purchased a 20% working interest in the Green Canyon 254 Allegheny oil and gas development project in the U.S. Gulf of Mexico from Enserch Exploration, Inc., now EEX Corporation, ("EEX") which was the operator at that time. In 1997, Devco acquired an additional 20% working interest in the Allegheny field and British-Borneo Petroleum, Inc., ("British-Borneo") acquired the remaining 60% working interest in the field. In August 1998, Devco sold its 40% interest in the field to British-Borneo for approximately $25.0 million. In July 1996, Devco entered into an agreement with Shell Offshore Inc. ("Shell") to drill an appraisal well at Devco's expense to earn a working interest in Shell's East Boomvang, North Boomvang and East Bequia prospects (collectively "Boomvang Area") in the U.S. Gulf of Mexico. The appraisal well was drilled in the first quarter of 1997 and was suspended pending completion at a later date after further delineation of the reservoir. In February 1997, Shell waived its election to remain a working interest owner in the Boomvang Area and assigned its 100% interest in eight offshore blocks to Devco. Shell retained an overriding royalty interest in the three prospects and has the option to either increase its overriding royalty interest or convert to a working interest if specified cumulative production levels are achieved. In July 1997, Devco entered into an Equity Participation Agreement with Norcen Explorer, Inc. ("Norcen") pursuant to which the North Boomvang and East Boomvang prospects were drilled. Norcen thereby earned the right to an assignment of a 37.5% working interest in the two prospects. In lieu of accepting the assignments, Norcen's successor by merger, Union Pacific Resources Company, elected to accept an assignment of an overriding royalty in the Boomvang development. Devco currently owns a 100% working interest. Devco anticipates bringing in a partner on a promoted basis to pay for drilling a confirmation well on North Boomvang in May 1999. If successful, Devco anticipates the Boomvang development will be project financed. Devco has acquired the right to re-enter and complete a gas well previously drilled by Shell to earn a 100% working interest in Green Canyon Block 20, in the U.S. Gulf of Mexico. Shell has retained a net profits interest with the option to convert to a 40% working interest in the project upon achieving threshold production levels. The gas well will be completed subsea and tied back at a distance of 2.8 miles to Shell's Boxer Platform for processing. TOPS Gyrfalcon LLC, a limited liability company owned by Devco and INTEC Engineering Inc., is managing all subsea engineering design and contracting. Completion of the Gyrfalcon gas well is anticipated to commence in August 1999. International Operations. In the first quarter of 1998, Devco completed a transaction with Vanco Energy Company ("Vanco") and its subsidiary companies to acquire a 22% working interest in the Anton Marin and Astrid Marin Exploration and Production Sharing Contracts covering 2,831,392 acres in deepwater offshore Gabon, West Africa. As consideration for the acquisitions, Devco agreed to loan Vanco $11.5 million for signing bonuses and operating costs ("Vanco Loan"). Processing of new seismic data covering the Gabon prospect area commenced at the end of 1997 and continued through 1998. During the second quarter of 1998, Vanco and Devco jointly presented the Gabon Project to selected major oil companies in an effort to sell down their interests. Bids were taken and evaluated. The negotiation process, which began in July 1998, culminated in the signing of a Participation Agreement on November 2, 1998. Subsidiaries of Total S.A. (28%), as Operator, Unocal Corporation (25%), Kerr-McGee Corporation (14%), as farminees, joined Vanco Energy Company (22%) and Devco (11%), as farminors, to form the Vanco Gabon Group. A 3-D seismic program is scheduled to begin in 1999 followed by exploratory drilling in 2000. The farminees will initially bear Devco's share of the cost of the 3-D seismic and the cost of drilling the exploration wells. As part of the transaction, Vanco repaid the Vanco Loan to Devco in full with interest and Devco recorded a gain of $5.7 million on the partial sale of its interest in the property. In June 1997, Devco acquired a farmout from Avner Oil Exploration Limited Partnership of a 10% working interest in nine petroleum licenses covering 854,200 acres in deepwater offshore Israel. The assignment of the 10% working interest was made at no cost to Devco. Devco has a contingent option to acquire an additional 5% working interest at cost. In 1997 and 1998, Devco participated in shooting and processing new seismic data across the prospect. A subsidiary of Samedan Oil Corporation has joined the project as operator and an initial test well is anticipated to be spud in July 1999. Devco's subsidiary, RB Mediterranean Ltd., will participate for its 10% working interest. Other Properties Real Property. The Company owns and leases real property in connection with the conduct of its business. The Company owns (i) an office and yard facility in Broussard, Louisiana; (ii) an office and yard facility in Houma, Louisiana; (iii) an office building in New Iberia, Louisiana; (iv) an office and yard facility in Macae, Brazil; and (v) an office and yard facility and a two story, 86,000 square foot office building that serves as its corporate headquarters in Houston, Texas. In addition, the Company leases other office space in Houston, Texas, an office and yard facility in Belle Chase, Louisiana and facilities in most of the countries where it conducts operations. Industry Conditions and Competition The financial performance of the marine contract drilling industry, domestically and abroad, is dependent upon the exploration and production programs of oil and gas companies. These programs are substantially influenced by costs to find, develop and produce oil and gas; demand for and price of oil and natural gas (which can fluctuate widely); technological advancements, exploration success, restrictions and incentives relative to exploration and production imposed by governmental authorities and economic conditions in general. A dramatic decline in demand for marine drilling services began in 1982 as a result of a precipitous decline in oil prices. This decline reflected the effects of lower earnings of oil and gas producers and the unstable oil and gas price environment. As a result, the entire marine drilling industry experienced lower dayrates and associated earnings. Although there were periods of improvements, the marine drilling industry remained generally depressed from 1985 until 1995 when the industry began to see improved dayrates and utilization. However in 1997, oil prices began to decline and in 1998 natural gas prices began to decline. Since May 1998, demand for marine drilling rigs has decreased significantly. As a result, rig utilization and dayrates have also declined significantly, particularly in the domestic jack-up and barge rig markets. A prolonged depression in the price of oil and gas would have a material adverse effect on the Company. Political and military events in the Middle East and in the former Soviet Union are an example of the factors which can contribute to the volatility of world oil and gas prices. Other factors which influence demand for the Company's services include the ability of the Organization of Petroleum Exporting Countries ("OPEC") to set and maintain production targets, the level of production by non-OPEC countries, worldwide demand for oil and gas, domestic production of natural gas, general economic and political conditions, availability of new offshore oil and gas leases and concessions to explore and develop, and governmental regulations. Accordingly, there is and probably will continue to be uncertainty as to the future level of demand for the Company's services and the timing and duration of any increases or decreases in demand. Drilling in these international markets is typically driven by exploration for oil as opposed to gas. International markets frequently offer a drilling contractor the opportunity to enter into longer term contracts at higher operating margins than can be obtained domestically. Offsetting these benefits can be the risk of political uncertainty, currency fluctuations, and the increased overhead in establishing a foreign base of operation. The marine contract drilling industry is highly competitive and no one competitor is dominant. Since 1982, the supply of rigs has generally exceeded demand. The result has been a prolonged period of intense price competition during which many drilling units have been idle for long periods of time. Consequently, some drilling contractors have previously gone out of business or consolidated with other contractors. Notwithstanding these events, the industry remains fragmented and competitive. The Company believes that strong competition for drilling contracts will continue for the foreseeable future. While the quality of a company's fleet, the experience, quality and reputation of its management and employees, and customer relationships are factors in obtaining drilling contracts, the over-whelming consideration is normally the price at which a contractor is willing to provide drilling services. Markets General. Rigs can be moved from one region to another, and in this sense the marine contract drilling market is one international market. Because the cost of a rig move is significant and there is limited availability of rig moving vessels, the demand/supply balance for rigs may vary somewhat from region to region. However, significant variations between regions tend not to exist on a long-term basis due to the ability to move rigs. For this reason, in marketing its rigs, the Company tends to divide the drilling market by general equipment types based on water depth capability, rather than by region. Deepwater. The deepwater market is serviced by the Company's semisubmersibles and drillships. It begins in water depths of about 400 feet and extends to the maximum water depths in which rigs are currently capable of drilling, being approximately 10,000 feet. In recent years, there has been increased emphasis by oil companies on exploring for hydrocarbons in deeper waters. This is, in part, due to technological developments that have made it both more feasible and less expensive to explore for and produce hydrocarbons in deeper waters. Deepwater drilling is currently being conducted primarily in the North Sea, Gulf of Mexico, Brazil and West Africa. Shallow Water. The shallow water market is serviced by the Company's jack-ups, submersibles and drilling tenders. It begins at the outer limit of the transition zone and extends to water depths of about 400 feet. It has been developed to a significantly greater degree than the deepwater market, as technology required to explore for and produce hydrocarbons in these water depths is not as demanding as in the deepwater markets, and accordingly the costs are lower. Shallow water drilling is currently being conducted primarily in the Gulf of Mexico, West Africa, the North Sea, the Mediterranean, and Southeast Asia. Transition Zone. The Company's barge rig fleet operates in marshes, rivers, lakes and shallow bay and coastal water areas that are referred to as the "transition zone". The Company's principal barge market is the shallow-water areas of the U.S. Gulf Coast. This area historically has been the world's largest market for barge rigs. International markets for barge rigs include Venezuela, West Africa, Southeast Asia, and Tunisia. Marine Transportation. The Company's marine transportation assets are primarily deployed in the same market as its domestic barge rig fleet. These assets are used mostly in conjunction with barge drilling operations, but also are used in connection with other types of work, mostly energy related (such as pipeline and well platform construction). Although such assets can be deployed to other uses, any significant downturn in oil and gas activity in the transition zone would have a negative impact on the Company's marine transportation business that could not be fully offset by deployment of such assets to other markets. Engineering Services and Land Operations. Through its Cliffs Drilling subsidiary, the Company conducts land rig operations in Venezuela. Although the majority of the Company's contracts are daywork contracts, the Company has conducted "turnkey" operations. Under turnkey drilling contracts, the Company contracts to drill a well to a contract depth under specified conditions for a fixed price. The cumulative net results of the Company's turnkey contracts have been immaterial in total and insignificant as compared to the Company's operating income from the traditional daywork contracts. However, as a result of the acquisition of Cliffs Drilling, the Company now provides a larger portion of its services under turnkey drilling contracts and in particular is operating seven of its land rigs under a large turnkey contract in Venezuela. In addition, because of the significant decline in the demand for contract drilling services that began in mid 1998 which the Company expects to continue through 1999, the Company expects to pursue more turnkey work as a way of increasing utilization of its rigs. Contracts, Marketing and Customers There are several factors that determine the type of rig most suitable for a particular job, the most significant of which are the marine environment, water depth and seabed conditions at the proposed drilling location, whether the drilling or workover is being done over a platform or other structure, and the intended well depth. Thus, there may be considerable variation in utilization and dayrates for various drilling units as a function of demand for their capabilities. The Company's rigs all provide the same basic function, namely, drilling wells. However, because of the varying marine conditions in which wells are drilled, there is a wide variety of rig designs. Drilling in the areas served by the Company ranges from shallow wells (up to 12,000 feet) to deep wells (up to 25,000 feet). Deeper wells generally take disproportionately longer to drill than shallower wells, due primarily to more varied and difficult subsurface conditions and the frequent need to run protective casing. The Company's drilling rigs are competitive for all types of drilling, but are particularly designed to drill to depths in excess of 12,000 feet. Rigs are generally employed under individual contracts which extend over a period of time covering either the drilling of a well or wells (a "well-to-well contract") or a stated term (a "term contract"). Contracts for the employment of rigs are most often awarded based on competitive bidding; however, some contracts are the result of negotiations between the drilling contractor and the customer. Contracts may provide for early termination by the customer, either with or without penalty, and may provide for extension options exercisable by the customer. The Company's contracts generally provide for payment in U.S. dollars. The Company's contracts typically provide for compensation on a "daywork" basis, under which the Company receives a fixed amount per day that the rig is operating under contract and the Company generally pays operating expenses of the rig, including wages and the cost of incidental supplies. A contract may allow the Company to recover some or all of its mobilization and demobilization costs associated with moving a unit, depending on market conditions then prevailing. The dayrate under such daywork contracts may be lower or not payable when the drilling unit is under tow to or from the drill site (other than field moves) or when operations are suspended because of weather or mechanical problems. Although the majority of the Company's contracts are daywork contracts, the Company has participated via a joint venture in "turnkey" contracts. Under turnkey drilling contracts, the Company contracts to drill a well to a contract depth under specified conditions for a fixed price. The risks to the Company on a turnkey drilling contract are substantially greater than on a well drilled on a daywork basis because the Company assumes most of the risks associated with drilling operations generally assumed by the operator in a daywork contract, including risk of blowout, loss of hole, stuck drill stem, lost production or damage to the reservoir, machinery breakdowns, abnormal drilling conditions and risks associated with subcontractors' services, supplies and personnel. The cumulative net results of the Company's turnkey contracts have been immaterial in total and insignificant as compared to the Company's operating income from the traditional daywork contracting method. However, as a result of the acquisition of Cliffs Drillings, the Company now provides a larger portion of its services under turnkey drilling contracts. In addition, because of the significant decline in the demand for contract drilling services that began in mid 1998 which the Company expects to continue through 1999, the Company expects to pursue more turnkey work as a way of increasing utilization of its rigs. The Company maintains a decentralized organization, with regional offices throughout the world. The Company's primary marketing efforts are carried out through these regional offices and its Houston office. When the Company's offshore units operate in foreign locations, operations are often conducted in conjunction with local companies. Representative of the offshore areas where the Company has arrangements with local companies are Abu Dhabi, Brazil, Brunei, China, Egypt, India, Indonesia, Italy, Korea, Malaysia and Nigeria. The purpose of these arrangements is to draw on the marketing, technical, supply and government relations assistance of local third parties and in some cases to comply with local legal requirements. Typically, the financial terms of these arrangements are such that the third party receives a stated percentage of drilling revenues. Many of the Company's existing arrangements are with third parties with which the Company has had a relationship for ten or more years. The Company has a base of customers which includes major and independent foreign and domestic oil and gas companies, as well as foreign state-owned oil companies. During 1998, the Company performed services for approximately 171 different customers. For the year ended December 31, 1998, revenues of approximately $116.0 million from British Petroleum and affiliates accounted for 11.2% of the Company's total operating revenues. For the year ended December 31, 1997, there were no customers that individually accounted for 10.0% or more of the Company's total operating revenues. For the year ended December 31, 1996, revenues of approximately $70.6 million from British Petroleum and affiliates accounted for 11.6% of the Company's total operating revenues. The loss of one of the Company's major customers could, at least on a short-term basis, have a material adverse impact on the Company's business or results of operations. However, the Company would have alternative customers for its services in the event of the loss of any single customer. The Company believes that the loss of any one customer would not have a material adverse effect on the Company on a long-term basis. Financial information by geographic area is furnished in Note L of Notes to Consolidated Financial Statements. Governmental Regulation and Environmental Matters Many aspects of the Company's operations are affected by domestic and foreign political developments and are subject to numerous domestic and foreign governmental laws and regulations that may relate directly or indirectly to the Company's business and operations, including, without limitation, laws and regulations controlling the discharge of materials into the environment, requiring removal and cleanup under certain circumstances or otherwise relating to the protection of the environment, and certification, licensing, safety and training and other requirements imposed by treaties, laws, regulations and conventions in the jurisdictions in which the Company operates. The contract drilling industry is dependent on demand for services from the oil and gas exploration industry and, accordingly, is affected by changing taxes, regulations and other laws relating to the energy business generally. The Company does not believe that governmental regulations have had any material adverse effect on its capital expenditures, results of operations or competitive position, and does not anticipate that any material expenditure will be required to enable it to comply with existing laws and regulations. However, the modification of existing laws and regulations or the adoption of new laws and regulations curtailing or increasing the effective cost of exploratory or developmental drilling for oil and gas for economic, environmental or other reasons could have a material adverse effect on the Company's operations. The Company cannot currently determine the extent to which future earnings may be affected by new legislation or regulations or compliance with new or existing regulations which may become applicable as a result of rig relocation. There is great concern, particularly in developed countries such as the United States, over protection of the environment. Offshore drilling in certain areas has been opposed by environmental groups and, in certain areas, has been restricted. To the extent laws are enacted or other governmental actions are taken that prohibit or restrict offshore drilling or impose environmental protection requirements that result in increased costs to the oil and gas industry in general and the offshore contract drilling industry in particular, the business and prospects of the Company could be adversely affected. The Company's operations may involve the use or handling of materials that may be classified as environmentally hazardous substances. Environmental laws and regulations applicable in the United States and other countries in which the Company conducts operations have generally become more stringent, and may in certain circumstances impose "strict liability", rendering a person liable for environmental damage without regard to negligence or fault on the part of such person. Such laws and regulations may expose the Company to liability for the conduct of or conditions caused by others, or for acts of the Company which were in compliance with all applicable laws at the time such acts were taken. The Company does not believe that environmental regulations have had any material adverse effect on its capital expenditures, results of operations or competitive position, and does not anticipate that any material expenditures will be required to enable it to comply with existing laws and regulations. However, the modification of existing laws or regulations or the adoption of new laws or regulations curtailing exploratory or developmental drilling for oil and gas for economic, environmental or other reasons could have a material adverse effect on the Company's operations. The transition zone and shallow-water areas of the U.S. Gulf Coast are ecologically sensitive. Environmental issues have led to higher drilling costs, a more difficult and lengthy well permitting process and, in general, have adversely affected decisions of the oil companies to drill in these areas. U.S. laws and regulations applicable to the Company's operations include those 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. For example, as an operator of drilling rigs in navigable U.S. waters and certain offshore areas, the Company may be liable for damages and costs incurred in connection with spills or discharges of oil or other substances for which it is held responsible. The discharge of oil or other substances in a wetland or inland waterway could produce substantial damage to the environment, including wildlife and groundwater. Laws and regulations protecting the environment have become more stringent in recent years, and may, in certain circumstances, impose "strict liability," rendering a person liable for environmental damage without regard to negligence or fault on the part of such person. Such laws and regulations may expose the Company to liability for the conduct of or conditions caused by others, or for acts of the Company that were in compliance with all applicable laws at the time such acts were performed. The application of these requirements or the adoption of new requirements could have a material adverse effect on the Company. The Federal Water Pollution Control Act of 1972, commonly referred to as the Clean Water Act ("CWA") prohibits the discharge of certain substances into the navigable waters of the United Stated without a permit. The regulations implementing the CWA require permits to be obtained by an operator before certain exploration activities occur. Violations of monitoring, reporting and permitting requirements can result in the imposition of civil and criminal penalties. The provisions of the CWA can also be enforced by citizen's groups. The Oil Pollution Act of 1990 ("OPA '90") and regulations promulgated pursuant thereto impose a variety of regulations on "responsible parties" related to the prevention of oil spills and liability for damages resulting from such spills. A "responsible party" includes the owner or operator of a facility or vessel, or the lessee or permittee of the area in which an offshore facility is located. OPA '90 assigns liability to each responsible party for oil removal costs and a variety of public and private damages. While liability limits apply in some circumstances, a party cannot take advantage of liability limits if the spill was caused by gross negligence or willful misconduct or resulted from violation of a federal safety, construction or operating regulation. If the party fails to report a spill or to cooperate fully in the cleanup, liability limits likewise do not apply. Few defenses exist to the liability imposed by OPA '90. OPA '90 also imposes ongoing requirements on a responsible party. These include proof of financial responsibility (to cover at least some costs in a potential spill) and preparation of an oil spill contingency plan. A failure to comply with ongoing requirements or inadequate cooperation in a spill event may subject a responsible party to civil or criminal enforcement action. In short, OPA '90 places a burden on drilling rig owners or operators to conduct safe operations and take other measures to prevent oil spills. If a spill occurs, OPA '90 then imposes liability for resulting damages. The Company generally seeks to obtain indemnity agreements whenever possible from the Company's customers requiring such customers to hold the Company harmless in the event of liability for pollution that originates below the water surface, including, where applicable, liability under OPA '90, and maintains marine liability insurance and contingent energy exploration and development coverage (normal energy, exploration and development coverage is maintained, to the extent of the Company's interest in oil and gas properties, for operations of such properties) which affords limited protection to the Company. There is no assurance that such insurance or contractual indemnification will be sufficient or effective to protect the Company from liability under OPA '90. In addition, the Outer Continental Shelf Lands Act and regulations promulgated pursuant thereto impose a variety of regulations relating to safety and environmental protection applicable to lessees, permits and other parties operating on the Outer Continental Shelf. Specific design and operational standards may apply to Outer Continental Shelf vessels, rigs, platforms, vehicles and structures. Violations of lease conditions or regulations issued pursuant to the Outer Continental Shelf Lands Act can result in substantial civil and criminal penalties as well as potential court injunctions curtailing operations and the cancellation of leases. Such enforcement liabilities can result from either governmental or citizen prosecution. The Company believes it is in material compliance with applicable federal, state, local and foreign legislation and regulations relating to environmental controls. However, the existence of such laws and regulations has had and will continue to have a restrictive effect on the Company and its customers. Operating Risks and Insurance The Company's operations are subject to the many hazards. In the drilling of oil and gas wells, especially exploratory wells where little is known of the subsurface formations, there always exists a possibility of encountering unexpected conditions of extreme pressure and temperature and the risk of a blowout, cratering and fires that could cause injury or death, damage to property, pollution, and suspension of drilling operations. The Company's fleet is also subject to hazards inherent in marine operations, either while on site or under tow, such as capsizing, grounding, collision, damage from heavy weather or sea conditions and unsound location. The Company may also be subject to liability for oil spills, reservoir damage and other accidents that could cause substantial damage. The Company maintains such insurance protection as it deems prudent, including liability insurance and insurance against damage to or loss of equipment. In addition, the Company generally seeks to obtain indemnity agreements whenever possible from the Company's customers, requiring such customers to hold the Company harmless in the event of loss of production, reservoir damage or liability for pollution that originates below the water surface. When obtained, such contractual indemnification protection may not in all cases be supported by adequate insurance maintained by the customer. There is no assurance that such insurance or contractual indemnity protection will be sufficient or effective under all circumstances or against all hazards to which the Company may be subject. The principal hazards against which the Company may not be fully insured or indemnified are environmental liabilities which may result from a blowout or similar accident or a liability resulting from reservoir damage alleged to be caused by the negligence or other legal fault of the Company. Further, there is no assurance that the Company will be able to obtain adequate insurance coverage at the rates it deems reasonable in the future. Recognizing these risks, the Company has various programs that are designed to promote a safe environment for its personnel and equipment. At present, the Company intends generally to maintain business interruption insurance with respect to its semisubmersibles and drillships, but not the other rigs or vessels in its fleet. The Company's foreign operations are also subject to certain political, economic and other uncertainties, including, among others, risks of war, expropriation, nationalization, renegotiation or nullification of existing contracts, taxation policies, foreign exchange restrictions, changing political conditions, international monetary fluctuations and other hazards arising out of foreign governmental sovereignty over certain areas in which the Company conducts operations. Currently, when conducting foreign drilling operations in areas the Company perceives as politically unstable, the Company may (i) negotiate contracts providing for indemnification against expropriation and certain other political risks or (ii) purchase insurance covering such risks, to the extent available at reasonable cost. The Company believes it is adequately covered by insurance, but no assurance can be given with respect to the availability of such insurance at acceptable rates in the future. Since 1979, the Company has not experienced any material losses associated with the above-described political risks. Employees The Company emphasizes employee safety, training and retention. The number of employees varies depending on the level of drilling activity. As of March 1, 1999, the Company employed approximately 6,200 persons. There are no collective bargaining contracts covering the Company's domestic employees. As of March 1, 1999, the Company employed 653 local personnel in Venezuela, all of whom are covered by the Collective Labor Contract of the Venezuelan Petroleum Industry. The Company believes its relations with its employees are good. Item 3. Legal Proceedings In November 1988, a lawsuit was filed in the U.S. District Court for the Southern District of West Virginia against Reading & Bates Coal Co., a wholly owned subsidiary of the Company, by SCW Associates, Inc. claiming breach of an alleged agreement to purchase the stock of Belva Coal Company, a wholly owned subsidiary of Reading & Bates Coal Co. with coal properties in West Virginia. When those coal properties were sold in July 1989 as part of the disposition of the Company's coal operations, the purchasing joint venture indemnified Reading & Bates Coal Co. and the Company against any liability Reading & Bates Coal Co. might incur as the result of this litigation. A judgment for the plaintiff of $32,000 entered in February 1991 was satisfied and Reading & Bates Coal Co. was indemnified by the purchasing joint venture. On October 31, 1990, SCW Associates, Inc., the plaintiff in the above-referenced action, filed a separate ancillary action in the Circuit Court, Kanawha County, West Virginia against the Company, Caymen Coal, Inc. (former owner of the Company's West Virginia coal properties), as well as the joint venture, Mr. William B. Sturgill personally (former President of Reading & Bates Coal Co.), three other companies in which the Company believes Mr. Sturgill holds an equity interest, two employees of the joint venture, First National Bank of Chicago and First Capital Corporation. The lawsuit seeks to recover compensatory damages of $50.0 million and punitive damages of $50.0 million for alleged tortious interference with the contractual rights of the plaintiff and to impose a constructive trust on the proceeds of the use and/or sale of the assets of Caymen Coal, Inc. as they existed on October 15, 1988. The Company intends to defend its interests vigorously and believes the damages alleged by the plaintiff in this action are highly exaggerated. In any event, the Company believes that it has valid defenses and that it will prevail in this litigation. The Company is involved in various other legal actions arising in the normal course of business. A substantial number of these actions involve claims arising out of injuries to employees of the Company who work on the Company's rigs and other vessels. After taking into consideration the evaluation of such actions by counsel for the Company and the Company's insurance coverage, management is of the opinion that outcome of all known and potential claims and litigation will not have a material adverse effect on the Company's business or consolidated financial position or results of operations. See Note E of Notes to Consolidated Financial Statements. Item 4. Submission of Matters to a Vote of Security Holders None. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters The combination of Falcon and R&B became effective at 11:59 p.m. E.S.T. on December 31, 1997. The common stock of R&B Falcon began trading on the New York Stock Exchange ("NYSE") on January 2, 1998 under the symbol "FLC." During 1997, the Falcon common stock was traded on the NYSE under the symbol "FLC" and the R&B common stock was traded on the NYSE and the Pacific Stock Exchange under the symbol "RB." The following table sets forth, for the calendar periods indicated, the high and low sales prices per share of Falcon common stock and R&B common stock as reported by the NYSE Composite Tape for the periods indicated. All share price information for Falcon common stock has been adjusted to reflect the two-for-one stock split effected on July 15, 1997. No adjustment to these prices has been made in respect of the share exchange ratio in the Merger (one share of Company common stock for each share of Falcon common stock; 1.18 shares of Company common stock for each share of R&B common stock). Falcon, R&B and R&B Falcon did not declare any dividends on its common stock for the periods indicated. Falcon R&B Common Stock Common Stock --------------- --------------- High Low High Low ------ ------ ------ ------ 1997 First Quarter $21.50 $15.13 $32.25 $22.50 Second Quarter 28.81 15.56 28.25 20.13 Third Quarter 38.13 25.44 44.63 26.75 Fourth Quarter 42.81 28.19 49.81 33.38 R&B Falcon Common Stock ---------------- High Low ------- ------- 1998 First Quarter $35.375 $23.125 Second Quarter 34.188 20.500 Third Quarter 23.188 8.750 Fourth Quarter 16.500 6.750 There were approximately 4,800 holders of record of the Company's common stock as of March 1, 1999. In December 1997, the Company adopted a preferred share Rights Agreement. See Note I of Notes to Consolidated Financial Statements. Item 6. Selected Financial Data R&B FALCON CORPORATION AND SUBSIDIARIES (in millions except per share amounts) The following table includes the accounts of R&B and Falcon as a result of the Merger and Cliffs Drilling effective December 1, 1998. See Note B of Notes to Consolidated Financial Statements. Years Ended December 31, ------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- ------- ------- Operating revenues $ 1,032.6 $ 933.0 $ 609.6 $ 390.3 $ 307.6 ========= ========= ========= ======= ======= Income (loss) from continuing operations before extraordinary gain (loss) $ 91.0 $ 29.8 $ 106.7 $ 23.5 $ (12.7) Income (loss) from discontinued operations 36.0 (36.0) - - - Extraordinary gain (loss) (1) (24.2) - - 3.4 - --------- --------- --------- ------- ------- Net income (loss) 102.8 (6.2) 106.7 26.9 (12.7) Dividends and accretion on preferred stock (2) - - 3.6 5.2 5.4 --------- --------- --------- ------- ------- Net income (loss) applicable to common stockholders $ 102.8 $ (6.2) $ 103.1 $ 21.7 $ (18.1) ========= ========= ========= ======= ======= Net income (loss) per common share: Basic: Continuing operations $ .54 $ .18 $ .70 $ .16 $ (.18) Discontinued operations .21 (.22) - - - Extraordinary gain (loss) (.14) - - .03 - --------- --------- --------- ------- ------- Net income (loss) $ .61 $ (.04) $ .70 $ .19 $ (.18) ========= ========= ========= ======= ======= Diluted: Continuing operations $ .54 $ .18 $ .67 $ .15 $ (.18) Discontinued operations .21 (.22) - - - Extraordinary gain (loss) (.14) - - .03 - --------- --------- --------- ------- ------- Net income (loss) $ .61 $ (.04) $ .67 $ .18 $ (.18) ========= ========= ========= ======= ======= Total assets $ 3,709.3 $ 1,933.0 $ 1,455.8 $ 946.8 $ 810.9 ========= ========= ========= ======= ======= Long-term obligations (including current portion) and redeemable stocks $ 1,872.5 $ 827.4 $ 514.2 $ 296.7 $ 288.6 ========= ========= ========= ======= ======= Dividends on Common Stock $ - $ - $ - $ - $ - ========= ========= ========= ======= ======= ____________________ (1) The extraordinary gain for 1995 and the extraordinary loss for 1998 are both due to the extinguishment of debt obligations. The extraordinary loss for 1998 is net of a tax benefit of $13.0 million. (2) In 1995, Falcon's Series A Convertible Preferred Stock was converted into approximately 15.6 million shares of common stock and in 1996, R&B's $1.625 Convertible Preferred Stock was converted into approximately 10.2 million shares of common stock. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Business Combinations On July 10, 1997, Falcon Drilling Company, Inc. ("Falcon") and Reading & Bates Corporation ("R&B") announced that they had agreed to combine their companies under a new company -- R&B Falcon Corporation ("R&B Falcon") (the "Merger"). On December 23, 1997, the Merger was approved by both companies' shareholders and on December 31, 1997, the Merger was consummated. Each outstanding share of common stock of Falcon was converted into one share of common stock of R&B Falcon and each outstanding share of common stock of R&B was converted into 1.18 shares of common stock of R&B Falcon. The Merger has been accounted for as a pooling of interests and, accordingly, the consolidated financial statements for the years ending 1997 and 1996 have been restated to include the accounts of R&B and Falcon. On December 1, 1998, the Company acquired all of the outstanding stock of Cliffs Drilling Company ("Cliffs Drilling"). Cliffs Drilling is a provider of daywork and turnkey drilling services, mobile offshore production units and well engineering and management services. Cliffs Drilling's fleet consists of 16 jack-up rigs, three self-contained platform rigs, four mobile offshore production units and 11 land rigs. The acquisition was effected pursuant to an Agreement and Plan of Merger dated August 21, 1998, whereby each share of Cliffs Drilling's common stock was converted into 1.7 shares of the Company's common stock and cash in lieu of fractional shares. Total consideration for Cliffs Drilling was approximately $405.1 million. The Company issued approximately 27.1 million shares of its common stock valued at approximately $385.3 million. This valuation was based upon a price of $14.2125 per share of the Company's common stock, which was the average closing price per share of the Company's common stock during the period in which the principal terms of the merger were agreed upon and the merger was announced. In addition, the Company assumed Cliffs Drilling's outstanding stock options valued at approximately $6.2 million and the Company paid approximately $13.6 million in acquisition costs. The acquisition of Cliffs Drilling was recorded using the purchase method of accounting. The excess of the purchase price over the estimated fair value of net assets acquired amounted to approximately $70.7 million, which has been accounted for as goodwill and is being amortized over 40 years using the straight-line method. The consolidated financial statements include Cliffs Drilling since December 1, 1998. Recontinuance of Oil and Gas Operations In March 1998, the Company decided to divest its oil and gas business, and in the Company's financial statements previously filed with the SEC for the three years ended December 31, 1997, 1996 and 1995 and the first three quarters of 1998, the business was accounted for as a discontinued operation. As of March 1999, the Company has not been able to divest this business on terms it found acceptable and in accordance with generally accepted accounting principles the Company has reclassified its financial statements as if this business had not been discontinued. The Company does not intend to engage in any material activities in this business and still intends to divest this business. See "Oil & Gas Activities" and Note N of Notes to Consolidated Financial Statements. Results of Operations The Company reported net income for 1998 of $102.8 million ($.61 per diluted share) compared to a net loss of $6.2 million ($.04 per diluted share) for 1997 and net income of $106.7 million ($.67 per diluted share after preferred stock dividends of $3.6 million) for 1996. Included in the 1998 results was a $118.3 million expense due to the cancellation of four drillship conversion projects, an extraordinary loss of $24.2 million due to the extinguishment of debt obligations, the reversal of $8.0 million of merger expenses due to an Internal Revenue Service ruling and the reversal of discontinued operations expense of $36.0 million of accrued estimated losses from operations until disposal resulting from the accounting requirements for recontinuance. Included in the 1997 results are merger expenses of $66.4 million and accrued losses related to discontinued operations of $36.0 million. Operating Revenues Years Ended December 31, ------------------------------- Operating revenues (in millions) 1998 1997 1996 --------- -------- -------- Deepwater $ 392.5 $ 349.3 $ 211.2 Shallow water 382.9 333.2 224.9 Inland water 244.3 249.9 172.9 Engineering services and land operations 12.5 - - Development .4 .6 .6 --------- -------- -------- Total $ 1,032.6 $ 933.0 $ 609.6 ========= ======== ======== Operating revenues are primarily a function of dayrates and utilization. Operating revenues increased $99.6 million from 1997 to 1998 due to the following: The deepwater fleet revenues increased $43.2 million primarily due to an increase in dayrates and due to the activation of the C. Kirk Rhein, Jr. The shallow water fleet revenues increased $49.7 million primarily due to an increase in dayrates for the jack-up fleet, specifically the international jack-up fleet. Although the inland water fleet's revenues remained constant from 1997 to 1998, there was an increase in the marine transportation fleet revenues primarily due to fleet additions offset by a decrease in the barge fleet due to decreased utilization. The engineering services and land operations revenues were attributable to the purchase of Cliffs Drilling on December 1, 1998. Operating revenues increased $323.4 million from 1996 to 1997 due to the following: The deepwater fleet revenues increased $138.1 million primarily due to an increase in dayrates for the semisubmersibles and due to the addition of two drillships. The shallow water fleet revenues increased $108.3 million primarily due to an increase in dayrates for the jack-up fleet. The inland water fleet revenues increased $77.0 million primarily due to an increase in dayrates and utilization for the domestic and workover barges, and due to the purchase of 68 tugs and 44 utility barges during 1997. Operating Expenses Years Ended December 31, --------------------------- Operating expenses (in millions) 1998 1997 1996 ------- ------- ------- Deepwater $ 184.4 $ 140.2 $ 90.1 Shallow water 161.5 158.7 128.3 Inland water 169.1 136.7 110.2 Engineering services and land operations 10.5 - - Development 22.0 130.2 2.9 ------- ------- ------- Total $ 547.5 $ 565.8 $ 331.5 ======= ======= ======= Operating expenses do not necessarily fluctuate in proportion to changes in operating revenues due to the continuation of personnel on board and equipment maintenance when the Company's units are stacked. It is only during prolonged stacked periods that the Company is able to significantly reduce labor costs and equipment maintenance expense. Additionally, labor costs fluctuate due to the geographic diversification of the Company's units and the mix of labor between expatriates and nationals as stipulated in the contracts. In general, labor costs increase primarily due to higher salary levels and inflation. Equipment maintenance expenses fluctuate depending upon the type of activity the unit is performing and the age and condition of the equipment. Scheduled maintenance of equipment and overhauls are performed on a basis of number of hours operated in accordance with the Company's preventive maintenance program. Operating expenses for an offshore unit are typically deferred or capitalized as appropriate during periods of mobilization, contract preparation, major upgrades or conversions unless corresponding mobilization revenue is recognized, in which case such operating expenses are expensed as incurred. Operating expenses decreased $18.3 million from 1997 to 1998 due to the following: The development division expenses decreased $108.2 million due to dryhole costs and impairment charges relating to oil and gas properties in 1997. Offsetting this decrease was a $44.2 million increase in the deepwater fleet expenses primarily due to the activation of the C. Kirk Rhein, Jr. and increased wage rates, a $32.4 million increase in the inland water fleet expenses primarily due to the additions to the marine transportation fleet and a $10.5 million increase in engineering services and land operations due to the purchase of Cliffs Drilling. Operating expenses increased $234.3 million from 1996 to 1997 due to the following: The development division expenses increased $127.3 million due to dryhole costs and impairment charges relating to oil and gas properties. The deepwater fleet expenses increased $50.1 million primarily due to the addition of two drillships and the purchase of an FPSS vessel. The shallow water fleet expenses increased $30.4 million primarily due to the change in the geographic location of the jack-up fleet from one year to the next. The inland water fleet expenses increased $26.5 million primarily due to the increased utilization of the domestic barges, and due to the purchase of 68 tugs and 44 utility barges during 1997. Cancellation of Conversion Projects Cancellation of conversion projects expense of $118.3 million in 1998 was the result of the termination of the Peregrine VI, Peregrine VIII and two other drillship conversion projects that were in the preliminary phases. Such expense includes shipyard costs (for services performed and in settlement of contract cancellation), Company personnel and contractor costs, engineering costs, capitalized interest, and write down of the vessels that were purchased for conversion. Such projects were cancelled due to continuing uncertainty as to the final cost and expected delivery dates. Depreciation and Amortization Years Ended December 31, ------------------------ 1998 1997 1996 ------ ------ ------ Depreciation and amortization (in millions) $ 97.6 $ 84.7 $ 62.3 ====== ====== ====== Despite the reduction in depreciation expense for the year ended December 31, 1998 of approximately $20.7 million due to the extension of the expected useful lives of the Company's marine units effective January 1, 1998, depreciation expense increased $12.9 million in 1998 from 1997 due to the purchase and/or significant upgrades of offshore and inland marine vessels during 1998 and late 1997. The $22.4 million increase in depreciation and amortization expense in 1997 from 1996 is primarily due to the purchase and/or significant upgrades of offshore and inland marine vessels. General and Administrative Expenses Years Ended December 31, ------------------------ 1998 1997 1996 ------ ------ ------ General and administrative expenses (in millions) $ 61.4 $ 55.7 $ 37.0 ====== ====== ====== General and administrative expenses increased $5.7 million in 1998 compared to 1997 primarily due to increases in payroll and related expenses. General and administrative expenses increased $18.7 million in 1997 compared to 1996 primarily due to increases in payroll and related expenses associated with employee incentive plans. Merger Expenses In connection with the Merger between R&B and Falcon, the Company recorded $66.4 million of merger expenses in the fourth quarter of 1997. Merger expenses consisted primarily of employment contract termination payments associated with executives of R&B, the acceleration of unearned compensation of certain stock grants previously awarded to certain R&B employees, fees for investment bankers, attorneys, and accountants, and printing and other related costs. In 1998, the Company recorded an $8.0 million reduction of merger expenses primarily due to an Internal Revenue Service ruling received relating to taxes on executive termination payments. Interest Expense Years Ended December 31, ------------------------ 1998 1997 1996 ------ ------ ------ Interest expense, net of interest capitalized (in millions) $ 63.9 $ 41.6 $ 40.8 ====== ====== ====== The $22.3 million increase in interest expense in 1998 as compared to 1997 was primarily attributable to the issuance of $1.1 billion in senior notes in April 1998. This increase was partially offset by increased capitalized interest related to significant upgrade and new build projects. Noncash interest expense attributable to amortization of discounts associated with the Company's debt obligations for the year ended December 31, 1998 was $3.4 million. Despite an increase in capitalized interest during 1997 as compared to 1996 primarily due to the capitalization of interest related to significant upgrade and new build projects, interest expense increased by $.8 million. This increase was primarily attributable to increased borrowings under the Company's credit facilities. Noncash interest expense attributable to amortization of discount and deferrals associated with the 8% Senior Subordinated Convertible Debentures due 1998 for the year ended December 31, 1997 was $2.6 million. Income Tax Expense Years Ended December 31, ------------------------ 1998 1997 1996 ------ ------ ------ Income tax expense (in millions) $ 58.9 $ 84.7 $ 27.0 ====== ====== ====== The $25.8 million decrease in income tax expense in 1998 as compared to 1997 was due to the non-deductible merger expenses, which were incurred in 1997, and the tax benefits related to the recontinued operations being fully reserved in 1997. Despite a decrease in taxable income in 1997 as compared to 1996, income tax expense increased $57.7 million in 1997 due to the permanent differences in 1997 discussed in the previous sentence and the use of previously reserved tax benefits in 1996. In 1998, the Company began recording income taxes at the full statutory rates as future tax benefit carryforwards will no longer be reserved. Minority Interest Years Ended December 31, ------------------------ 1998 1997 1996 ------ ------ ------ Minority interest (in millions) $ 11.3 $ 9.4 $ 6.7 ====== ====== ====== Minority interest relates primarily to the results of Arcade Drilling and the 25.6% attributable to stockholders other than the Company. Arcade Drilling reported income in 1998, 1997 and 1996 of $44.2 million, $36.9 million and $26.3 million, respectively. Extraordinary Loss Extraordinary loss, net of tax, for 1998 is due to the extinguishment of debt obligations in connection with the issuance of new debt obligations (see Notes A and D of Notes to Consolidated Financial Statements). Oil & Gas Activities The Company's oil and gas business is operated primarily through its wholly owned subsidiary Reading & Bates Development Co. ("Devco"), and to an insignificant extent, through its wholly owned subsidiary Raptor Exploration Company, Inc. In 1998, Devco incurred dryhole costs of $11.7 million and asset impairment charges of $11.3 million. In 1997, Devco incurred dryhole costs of $65.1 million and asset impairment charges of $42.8 million. At December 31, 1998, none of the Company's oil and gas properties contained proved reserves and all such properties had been written off. It is the Company's intention to dispose of this operation. Year 2000 The Company has focused its Year 2000 ("Y2K") compliance efforts in three areas: information technology systems, embedded technology systems and systems used by third parties with which the Company has a substantial relationship. The Company has substantially completed its investigation and evaluation of these systems and is currently in the process of correcting the identified problems. Information Technology Systems. The testing and validation phase for information technology systems includes testing of each individual information technology system that could be affected. Through the information technology systems investigation, the Company determined that the accounting software utilized by Cliffs Drilling required substantial modification or replacement. The domestic accounting software was replaced with Y2K compliant software during the fourth quarter of 1998 at a total cost of approximately $2.0 million, the majority of which was capitalized. Software replacements in Cliffs Drilling's foreign offices will be completed during 1999 at a total cost of approximately $.3 million. The Company additionally determined that certain of its remaining accounting software and systems were not Y2K compliant. Company personnel have completed the majority of these modifications and the remaining non-compliant software will be undergoing a previously planned upgrade in the second quarter of 1999. Additionally, the Company is undergoing a third party review of its information technology systems in the second quarter of 1999. Embedded Technology Systems. Embedded technology systems primarily relate to the technology on board the Company's drilling units. The testing and validation phase for the embedded technology systems includes testing each high and medium priority system, which consists primarily of all systems located on drilling units included in the Deepwater and Shallow Water Divisions. For systems on board the Inland Water units, confirmation of Y2K compliance has been received from the manufacturers of these systems. To facilitate the embedded technology systems investigation, the Company hired an additional employee whose primary responsibility is the evaluation of these technology systems. This evaluation should be completed by the second quarter of 1999. The equipment evaluated thus far, which includes all drilling units located in the United Kingdom, Africa, Greece, Singapore and the Gulf of Mexico, has not demonstrated any equipment failures or other Y2K compliance issues. Based on the number and type of drilling units tested thus far, the Company estimates that the total cost to replace or upgrade non-compliant embedded technology systems will be less than $.5 million. Third Party Systems. The Company is contacting third parties with which it has substantial relationships to determine what actions may be needed to mitigate its risks relating to the effects third party technology failures may have on the Company. The Company sent out requests for information to all of our electrical and electronic contractors in August 1998 and has received information from 80% of them regarding their Y2K efforts. Questionnaires were sent in the first quarter of 1999 to all of the Company's suppliers and third party vendors. Based on the responses received thus far, it is evident that our contractors and suppliers are placing a priority on achieving Y2K compliance. In the event the Company's major suppliers or customers do not successfully and timely achieve Y2K compliance, the Company's operations could be adversely affected. Contingency Plans. The Company is continuing to monitor, on an ongoing basis, the problems and uncertainties associated with its Y2K issues and their potential consequences. The Company has accepted the position that there will be some finite levels of risk that some systems will not fully function after Y2K. A risk-based approach has identified those items where absolute compliance is not guaranteed by the vendor or supplier, and contingency plans are being developed to deal with any safety related possibilities. These contingency plans will be completed in the second quarter of 1999. In addition to the safety related contingency plans directly related to uncertainties with equipment, the Company maintains plans for all critical safety equipment as part of its normal business. These critical safety plans are currently being modified to fit the Y2K criteria. These modifications primarily include: having personnel standing by at critical equipment stations before the specified time changes, having no crane lifts in operation and have all drilling units in a non-drilling mode. Failure of this type of equipment, whether related to normal operational risk or Y2K problems, must be managed with contingency planning. For this reason, additional risk due to the Y2K issue does not measurably affect the risk to personnel or equipment beyond the normal failure due to other causes. Liquidity and Capital Resources Cash Flows Net cash provided by operating activities was $226.0 million for 1998, compared to $331.4 million and $167.6 million for 1997 and 1996, respectively. Fluctuations between the years is primarily due to the result of improved dayrates and fleet additions, net of changes in the components of working capital. Net cash used in investing activities was $1,052.2 million for 1998, compared to $610.9 million for 1997 and $365.1 million for 1996. The increases in each year were due to increasing levels of capital expenditures, primarily related to the significant capital projects involving the construction or upgrade of drilling units and rig and vessel acquisitions. Net cash provided by financing activities was $935.6 million for 1998, compared to $301.2 million for 1997 and $319.6 million for 1996. The increase in net cash provided by financing activities in 1998 over 1997 was primarily due to proceeds from two senior note offerings during 1998. The decrease in net cash provided by financing activities in 1997 over 1996 was primarily the result of a decline in proceeds from the issuance of common stock more than offsetting increased borrowings under two credit facilities with two syndicates of commercial banks. Net cash provided by business held for sale was $12.5 million for 1998 compared to net cash used in business held for sale of $94.0 million for 1997 and $39.5 million for 1996. The cash provided in 1998 was primarily due to the sale of oil and gas properties and the collection of accounts receivable. The increase in use of cash from 1996 to 1997 was primarily due to the increased level of purchases of oil and gas properties. Capital Expenditure Commitments The Company has numerous significant capital expenditure projects under way involving the construction or upgrade of drilling units. The following is a list of such projects: Water Expenditures Depth Estimated Contract Made thru Capability Delivery Term Estimated December 31, (feet) Date (years) Cost 1998 ------ ---- ------- ---- ---- Drillships: (in millions) DEEPWATER PATHFINDER(1) 10,000 Delivered 5 $ 275.0 $ 257.7 DEEPWATER FRONTIER(2) 10,000 Delivered 2.5 $ 270.0 $ 191.9 DEEPWATER MILLENNIUM 10,000 2nd quarter 1999 4(3) $ 270.0 $ 151.8 DEEPWATER IV (unnamed) 10,000 3rd quarter 2000 3 $ 305.0 $ 84.0 PEREGRINE IV 9,200 2nd quarter 1999 6 $ 210.0 $ 152.8 PEREGRINE VII (4) 8,200 3rd quarter 1999 3 $ 270.0 $ 181.1 Semisubmersibles: FALCON 100 2,450 2nd quarter 1999 4 $ 118.0 $ 91.4 RBS8M (formerly RBS6) 8,000 1st quarter 2000 5 $ 315.0 $ 130.9 RBS8D 8,000 4th quarter 2000 3 $ 325.0 $ .2 -------- -------- $2,358.0 $1,241.8 ======== ======== __________________ (1) The Company owns a 50% interest in the limited liability company that operates this drillship. (2) The Company owns a 60% interest in the limited liability company that operates this drillship. Under the drilling contract for this drillship, the Company and Conoco have each committed to use this rig for two and one half of the first five years after delivery. Conoco will use the rig to drill a well after the rig's delivery, and the Company will use it for the next 12 months. After this period, Conoco and the Company will alternate the use of this rig. The Company is currently marketing the rig for the periods during which it is obligated to use the rig. (3) Statoil will use this drillship for the first three years after delivery, then the Company will alternate use of the rig with Statoil every six months for the next two years. (4) BP Amoco has indicated that it may cancel this contract because the rig has not been delivered on time. The Company is currently marketing this rig for work if BP Amoco cancels this contract. In the third quarter of 1998, the Company cancelled the Peregrine VI and the Peregrine VIII drillship conversion projects due to continuing uncertainty as to final cost and expected delivery dates. As a result, the drilling contract on the Peregrine VIII was terminated on September 24, 1998, and the drilling contract on the Peregrine VI was terminated on January 1, 1999. Both terminations were without prejudice to any rights of the oil companies. The Company believes that based on provisions of the contracts that preclude recovery of indirect or consequential damages and projected rig availability in the offshore drilling industry, the Company will not have any material liability under these drilling contracts as a result of the termination thereof. The contracts with the shipyard for conversion of the Peregrine VI and the Peregrine VIII have been cancelled. In addition, in the fourth quarter of 1998, the Company cancelled two additional drillship conversion projects that were in the preliminary phases. As a result of the termination of these four drillship conversion projects, the Company expensed $118.3 million in related costs in 1998 (see "Results of Operations"). In October 1998, the Company entered into a contract with Samsung Heavy Industries Co. Ltd. ("Samsung") to construct a drillship (the Deepwater IV), which will be similar to the Deepwater Pathfinder (which was delivered by Samsung to the Company in September 1998) and the Deepwater Frontier (which was delivered by Samsung to the Company in March 1999) and the Deepwater Millennium (which is currently under construction by Samsung for the Company). Immediately following delivery of the Deepwater IV from the shipyard, the drillship is contracted for three years to Texaco. This contract is a substitute for the previously contracted Peregrine VIII. In December 1998, the Company and Vastar Resources, Inc. ("Vastar") entered into a contract pursuant to which the Company will construct and provide a semisubmersible drilling rig (the RBS8D) for a term of three years (with five one-year options), at an operating dayrate of $199,950. In addition, Vastar may elect to extend the primary term to five years, with three one-year options, in which case the dayrate would be between $189,200 and $199,200, depending upon when the primary term is extended. In September 1998, the Company and Navis ASA ("Navis"), a Norwegian public company which is constructing a dynamically positioned drillship (the Navis Explorer I), entered into an agreement pursuant to which the Company agreed to make a capital contribution to Navis of $50.0 million in exchange for stock in Navis. The Navis Explorer I is designed to drill in 10,000 feet of water and is being constructed at Samsung at an estimated cost of $280.0 million, with a scheduled delivery in the second quarter of 2000. The Company has contributed $20.0 million in cash and will contribute an additional $30.0 million of equipment and equipment purchase orders. It is expected that the Company will own approximately 38% of the outstanding stock of Navis following such contributions. Most of the equipment and equipment purchase orders that will be contributed by the Company were acquired by the Company in connection with the Peregrine VI and Peregrine VIII projects and are no longer required for such projects in light of their cancellation. Navis and the Company have entered into an agreement pursuant to which the Company will supervise construction of the drillship and manage it following its delivery. In connection with the Peregrine VI and Peregrine VIII projects and a third drillship project, the Company purchased or committed to purchase drilling equipment with an aggregate cost of approximately $285.0 million. This equipment constitutes all of the material drilling equipment necessary to outfit two deepwater drillships (although a substantial portion of such equipment can be used on semisubmersible rigs). The Company expects to use approximately half of this equipment to outfit the Deepwater IV, and approximately $30.0 million as a portion of its contribution to Navis. The balance of the equipment is expected to be maintained by the Company as inventory. The Peregrine IV, Peregrine VII, and Falcon 100 will be completed later than the required commencement dates under the drilling contracts for such rigs and at costs significantly in excess of original estimates. The customer for the Peregrine VII has indicated that it may cancel the drilling contract due to construction delays. The Company believes that it will be able to find work for the Peregrine VII at dayrates similar to its previously contracted levels. However, the Company expects that any new contracts will likely be short-term or on a well-to-well basis. Also, the Company will be subject to late delivery penalties under the applicable drilling contracts for the Peregrine IV and Falcon 100, (approximately $41,500 per day, up to a maximum of approximately $38.6 million, for the Peregrine IV, and approximately $26,500 per day, up to a maximum of approximately $14.7 million, for the Falcon 100). If the Peregrine IV and Falcon 100 are not delivered within 240 and 180 days, respectively, of the commencement date of the applicable drilling contract, the customer may cancel its contract. In December 1998, Mobil U.K. Ltd. ("Mobil") terminated its contract to use the Company's Jack Bates semisubmersible rig on the grounds that two of the rig's anchor cables broke. The contract provided for Mobil's use of the rig at a dayrate of approximately $115,000 for the primary term through January 1999 and approximately $200,000 for the extension term from February 1999 through December 2000. The Company does not believe that Mobil had the right to terminate this contract. The Company has received a proposal from Mobil to recontract the Jack Bates at a dayrate of approximately $156,000 for a one or two well drilling program. The Company believes this program may last approximately six months. This proposal is without prejudice to either party's rights in the dispute over the termination of the original contract. If the Company is not successful in settling its dispute over the termination of the original contract, the Company intends to commence legal proceedings to enforce its rights under the contract. The Company believes that it will be able to find other work for the Jack Bates, but that any such work will be at lower dayrates than the $200,000 dayrate established for the extended term of the original contract. Liquidity At December 31, 1998, the Company had approximately $413.6 million in the aggregate of cash, cash equivalents and borrowing capacity under its revolving credit facilities. At December 31, 1998, approximately $99.4 million of total consolidated cash and cash equivalents of $177.4 million were restricted from the Company's use outside of Arcade Drilling's activities. See Note A of Notes to Consolidated Financial Statements. The Company is currently constructing or significantly upgrading seven wholly owned deepwater drilling rigs. The Company estimates the gross capital expenditures on these projects will be approximately $1.8 billion, of which approximately $1.0 billion remains to be funded by the Company. Since May 1998, there has been a downturn in demand for marine drilling rigs resulting in a decline in rig utilization and dayrates. The decline has been particularly dramatic in the domestic barge and jack- up rig markets where the Company is one of the largest contractors. As a result, although the Company's operating revenues increased by $99.6 million from 1997 to 1998, on a quarterly basis during 1998 the Company experienced a decline in operating revenues from $279.4 million for the first quarter of 1998 to $228.7 million for the fourth quarter of 1998. As a result, the Company's cash flow from operations, cash on hand, and funds available under its existing credit facilities will not be sufficient to satisfy the Company's short-term and long-term working capital needs, planned investments, capital expenditures, debt, lease and other payment obligations, without selling certain assets or terminating construction contracts. On March 26, 1999, the Company issued three series of senior notes with an aggregate principal amount of $1.0 billion. The senior notes consisted of $400.0 million of 11% senior secured notes due 2006, $400.0 million of 11.375% senior secured notes due 2009 and $200.0 million of 12.25% senior notes due 2006 (collectively, the "Senior Notes"). The $800.0 million senior secured notes are collateralized by ten of the Company's drilling rigs. As a result, the Company received net proceeds of approximately $971.5 million after deducting estimated offering related expenses. The Company used the proceeds to repay existing indebtedness of approximately $556.0 million and the remainder will be used to acquire, construct, repair and improve drilling rigs and for general corporate purposes. Proceeds from the Senior Notes met a portion of the Company's capital requirements. However, it will also be necessary for the Company to obtain additional capital through debt and/or equity financings to meet its currently projected obligations. The Company is currently evaluating two project financings to meet a portion of its additional capital requirements. The first is an approximately $270.0 million financing in the form of a synthetic lease that would be collateralized by the drillship Deepwater Frontier and drilling contract revenues from such drillship. Proceeds of such financing, if obtained, would be used in part to refinance the interim financing facility, under which $135.0 million ($81.0 million represents the Company's portion) had been borrowed at March 15, 1999 and was repaid with a portion of the proceeds from the Senior Notes. The foregoing interim loan has been made to a limited liability company which will operate the Deepwater Frontier and which is owned 60% by the Company and 40% by Conoco. The Company has guaranteed repayment of 60% of this interim loan. The second financing being contemplated is an approximately $250.0 million project financing that would be collateralized by the semisubmersible RBS8M (formerly the RBS6), as well as the drilling contract revenues from such rig. The Company currently believes it will be able to consummate the proposed project financings. However, there can be no assurance that these or any other additional financings can be obtained, or if obtained, that they will be on terms favorable to the Company or for the amounts needed. Further, the Company has limited ability under its indenture covenants to incur additional recourse indebtedness and to secure that debt. In the event that the Company is unable to obtain its requisite financing, the Company may have to sell assets or terminate or suspend one or more construction projects. Termination or suspension of a project may subject the Company to claims for penalties or damages under the construction contracts or drilling contracts for rigs that are being constructed. In addition, asset sales made under duress in today's drilling market may not yield attractive sales prices. Accordingly, the inability of the Company to complete such financings would have a material adverse effect on the Company's financial condition and its ability to repay its outstanding indebtedness. Three of the Company's outstanding credit facilities were repaid and terminated in March 1999 from proceeds from the Senior Notes. To assist the Company's liquidity position, the Company may seek to establish a new revolving bank credit facility of up to $180.0 million, and may sell certain assets. There can be no assurance, however, that such facility will be obtained or sales completed. The liquidity of the Company should also be considered in light of the significant fluctuations in demand that may be experienced by drilling contractors as changes in oil and gas producers' expectations and budgets occur, primarily in response to declines in prices for oil and gas. These fluctuations can rapidly impact the Company's liquidity as supply and demand factors directly affect utilization and dayrates, which are the primary determinants of cash flow from the Company's operations. The decline in oil and gas prices since 1997 has negatively impacted the Company's performance, particularly in the shallow water U.S. Gulf market, by adversely affecting the Company's rig utilization and dayrates. Utilization of the Company's domestic jack-up fleet has declined from approximately 100% in January 1998 to approximately 57% in January 1999, and dayrates on new contracts have declined from a range of $35,000 to $40,000 in January 1998 to a range of $10,000 to $13,000 at present. Dayrates for the Company's domestic barge drilling rig fleet have not declined materially, but utilization of the fleet declined from approximately 96% in January 1998 to approximately 30% in January 1999. The Company's international jack-up fleet has experienced declines in utilization and dayrates since January 1998, but such declines have not been as dramatic as those experienced in the domestic jack-up fleet. The Company believes a continued depression in oil and gas prices will have a material adverse effect on the Company's financial position and results from operations. The Company's construction and upgrade projects are subject to the risks of delay and cost overruns inherent in any large construction project, including shortages of equipment, unforeseen engineering problems, work stoppages, weather interference, unanticipated cost increases and shortages of materials or skilled labor. Significant cost overruns or delays would adversely affect the Company's liquidity, financial condition and results of operations. Delays could also result in penalties under, or the termination of, the long-term contracts under which the Company plans to operate these rigs. The Company has based its estimates regarding its financing needs on the assumption that conditions in the marine contract drilling industry will remain approximately the same as currently exist through 1999 and will improve in 2000. If conditions during these periods are less favorable than the Company has assumed, the Company may be required to seek additional financing. Any additional financing, if obtained, would be subject to the risks and contingencies described above. The impact of general economic inflation on the Company's operations for the three years ended December 31, 1998 has not been material. Debt Offerings Pursuant to an offering in April 1998, the Company issued $1.1 billion principal amount of senior notes resulting in net proceeds of approximately $1,082.9 million. The senior notes bear interest at varying rates from 6.5% to 7.375%. See Note D of Notes to Consolidated Financial Statements. Pursuant to an offering in December 1998, the Company issued $400.0 million principal amount of senior notes resulting in net proceeds of approximately $392.3 million. The senior notes bear interest at 9.125% and 9.5%. See Note D of Notes to Consolidated Financial Statements. Pursuant to an offering in March 1999, the Company issued $1.0 billion principal amount of senior notes resulting in net proceeds of approximately $971.5 million. The senior notes bear interest at varying rates form 11% to 12.25% (see Liquidity). Credit Facilities At December 31, 1998, the Company had four bank facilities, three of which were repaid in March 1999 from proceeds from the Senior Notes. The first was a $350.0 million revolving credit facility with a syndicate of banks. The first $100.0 million of borrowing under this credit facility was secured by a pledge of the stock one of the Company's three major operating subsidiaries. At December 31, 1998, interest was accruing under this credit facility at LIBOR plus .75% for borrowings up to $100.0 million and at LIBOR plus 1.375% for borrowings in excess of $100.0 million. This credit facility would have matured on January 24, 2002. At December 31, 1998, $200.0 million was available under this facility. See Note D of Notes to Consolidated Financial Statements. In March 1999, this credit facility which had been fully drawn was terminated and repaid from proceeds from the Senior Notes (see Liquidity). The second bank facility was a $125.0 million interim construction facility with a syndicate of banks for the construction of the Deepwater Millennium. This facility would have matured on June 30, 1999, and bore interest at LIBOR plus 1.25%. At December 31, 1998, $1.6 million was available under this facility. See Note C of Notes to Consolidated Financial Statements. In March 1999, this credit facility which had been fully drawn was terminated and repaid from proceeds from the Senior Notes (see Liquidity). The third bank facility was an interim construction facility with a syndicate of banks for the construction of the Deepwater Frontier. This interim loan was made to a limited liability company which will operate the Deepwater Frontier and which is owned 60% by the Company and 40% by Conoco. The Company had guaranteed repayment of 60% of this interim loan. This facility would have matured March 31, 1999, and bore interest at LIBOR plus .5%. In March 1999, this credit facility had been drawn to $135.0 million and $81.0 million, which represents the Company's portion, was repaid from proceeds from the Senior Notes (see Liquidity). The fourth bank facility is a $35.0 million revolving credit facility maintained by Cliffs Drilling. This facility matures May 31, 2000 and bears interest at .25% plus the greater of the prevailing Federal Funds Rate plus .5% or a referenced average prime; or at the adjusted LIBOR rate plus 2%. At December 31, 1998, Cliffs Drilling had $.4 million in letters of credit outstanding, thereby leaving $34.6 million available under this credit facility. See Note D of Notes to Consolidated Financial Statements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company's earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. The Company may enter into forward exchange contracts to hedge specific commitments and anticipated transactions but not for speculative or trading purposes. However, the Company's contracts generally provide for payment in U.S. dollars and the Company does not maintain significant foreign currency cash balances. See Note A of Notes to Consolidated Financial Statements. The Company is exposed to changes in interest rates with respect to its long-term debt obligations. The following table sets forth the average interest rate for the scheduled maturity of the Company's long- term debt obligations as of December 31, 1998 (dollars in millions): Estimated Fair Value at December 31, 1999 2000 2001 2002 2003 Thereafter Total 1998 ------ ------ ------ ------ ------ -------- -------- -------- Fixed Rate Debt: Amount $ .2 $ .5 $ 5.2 $ - $553.3 $1,150.0 $1,709.2 $1,554.5 Average interest rate 7.000% 8.000% 9.750% - 8.351% 7.647% 7.881% Variable Rate Debt: Amount $ 6.1 $ 6.1 $ 6.1 $150.5 $ - $ - $ 168.8 $ 168.8 Average interest rate 7.375% 7.375% 7.375% 6.046% - - 6.190% The Company is exposed to changes in the price of oil and natural gas. The marine contract drilling industry is dependent upon the exploration and production programs of oil and gas companies, which in turn are influenced by the price of oil and natural gas. Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders R&B Falcon Corporation We have audited the accompanying consolidated balance sheets of R&B Falcon Corporation (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, cash flows and stockholders' equity for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of R&B Falcon Corporation and subsidiaries as of December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/Arthur Andersen LLP Houston, Texas March 26, 1999 R&B FALCON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 1998 and 1997 (in millions except share amounts) 1998 1997 --------- --------- ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 177.4 $ 55.5 Short-term investments - 45.4 Accounts receivable: Trade, net 197.0 168.0 Other 62.1 22.4 Materials and supplies inventory 36.1 15.2 Drilling contracts in progress 29.5 - Other current assets 25.0 14.3 --------- --------- Total current assets 527.1 320.8 --------- --------- PROPERTY AND EQUIPMENT: Drilling 3,369.2 1,926.5 Other 180.8 82.8 --------- --------- Total property and equipment 3,550.0 2,009.3 Accumulated depreciation (519.4) (426.3) --------- --------- Net property and equipment 3,030.6 1,583.0 --------- --------- GOODWILL, NET OF ACCUMULATED AMORTIZATION 70.6 - --------- --------- DEFERRED CHARGES AND OTHER ASSETS 74.0 29.2 --------- --------- NET ASSETS OF BUSINESS HELD FOR SALE 7.0 - --------- --------- TOTAL ASSETS $ 3,709.3 $ 1,933.0 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Short-term obligations $ 123.4 $ - Long-term obligations due within one year 6.3 135.2 Accounts payable - trade 83.1 54.4 Accrued liabilities 139.0 146.4 --------- --------- Total current liabilities 351.8 336.0 LONG-TERM OBLIGATIONS 1,866.2 692.2 OTHER NONCURRENT LIABILITIES 35.9 38.6 DEFERRED INCOME TAXES 142.4 76.8 NET LIABILITIES OF BUSINESS HELD FOR SALE - 5.8 --------- --------- Total liabilities 2,396.3 1,149.4 --------- --------- COMMITMENTS AND CONTINGENCIES MINORITY INTEREST 62.8 55.6 --------- --------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value, 550,000,000 shares authorized, 193,399,910 shares and 164,312,224 shares issued and outstanding at December 31, 1998 and 1997, respectively 1.9 1.6 Capital in excess of par value 1,061.5 631.4 Retained earnings 199.1 96.3 Other (12.3) (1.3) --------- --------- Total stockholders' equity 1,250.2 728.0 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,709.3 $ 1,933.0 ========= ========= The accompanying notes are an integral part of the consolidated financial statements. R&B FALCON CORPORAITON AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (in millions except per share amounts) Years Ended December 31, ------------------------------- 1998 1997 1996 --------- ------- ------- OPERATING REVENUES: Deepwater $ 392.5 $ 349.3 $ 211.2 Shallow water 382.9 333.2 224.9 Inland water 244.3 249.9 172.9 Engineering services and land operations 12.5 - - Development .4 .6 .6 --------- ------- ------- Total operating revenues 1,032.6 933.0 609.6 --------- ------- ------- COSTS AND EXPENSES: Deepwater 184.4 140.2 90.1 Shallow water 161.5 158.7 128.3 Inland water 169.1 136.7 110.2 Engineering services and land operations 10.5 - - Development 22.0 130.2 2.9 Cancellation of conversion projects 118.3 - - Depreciation and amortization 97.6 84.7 62.3 General and administrative 61.4 55.7 37.0 Merger expenses (8.0) 66.4 - --------- ------- ------- Total costs and expenses 816.8 772.6 430.8 --------- ------- ------- OPERATING INCOME 215.8 160.4 178.8 --------- ------- ------- OTHER INCOME (EXPENSE): Interest expense, net of interest capitalized (63.9) (41.6) (40.8) Interest income 9.6 6.1 3.4 Other, net (.3) (1.0) (1.0) --------- ------- ------- Total other income (expense) (54.6) (36.5) (38.4) --------- ------- ------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE, MINORITY INTEREST AND EXTRAORDINARY LOSS 161.2 123.9 140.4 --------- ------- ------- INCOME TAX EXPENSE: Current 38.5 39.3 6.3 Deferred 20.4 45.4 20.7 --------- ------- ------- Total income tax expense 58.9 84.7 27.0 --------- ------- ------- MINORITY INTEREST (11.3) (9.4) (6.7) --------- ------- ------- INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY LOSS 91.0 29.8 106.7 INCOME (LOSS) FROM DISCONTINUED OPERATIONS 36.0 (36.0) - EXTRAORDINARY LOSS, NET OF TAX BENEFIT (24.2) - - --------- ------- ------- NET INCOME (LOSS) 102.8 (6.2) 106.7 DIVIDENDS ON PREFERRED STOCK - - 3.6 --------- ------- ------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ 102.8 $ (6.2) $ 103.1 ========= ======= ======= NET INCOME (LOSS) PER COMMON SHARE: Basic: Continuing operations $ .54 $ .18 $ .70 Discontinued operations .21 (.22) - Extraordinary loss (.14) - - --------- ------- ------- Net income (loss) $ .61 $ (.04) $ .70 ========= ======= ======= Diluted: Continuing operations $ .54 $ .18 $ .67 Discontinued operations .21 (.22) - Extraordinary loss (.14) - - --------- ------- ------- Net income (loss) $ .61 $ (.04) $ .67 ========= ======= ======= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 167.5 164.1 147.4 ========= ======= ======= Diluted 168.8 166.2 157.7 ========= ======= ======= The accompanying notes are an integral part of the consolidated financial statements. R&B FALCON CORPORAITON AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) Years Ended December 31, ------------------------------- 1998 1997 1996 --------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 102.8 $ (6.2) $ 106.7 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 97.6 84.7 62.3 Gain on dispositions of property and equipment (3.3) (6.9) (3.7) Cancellation of conversion projects 118.3 - - Deferred income taxes 20.4 47.4 15.9 Recognition of deferred expenses 12.2 7.1 8.0 Deferred compensation 1.1 17.8 3.2 Minority interest in income of consolidated subsidiaries 11.3 9.4 6.7 Dryhole and exploration expenses relating to oil and gas properties 11.9 114.9 - Loss (income) from discontinued operations (36.0) 36.0 - Extraordinary loss from extinguishment of debt 24.2 - - Changes in assets and liabilities: Accounts receivable, net (21.1) (42.6) (56.1) Materials and supplies inventory (9.9) (.8) (2.3) Drilling contracts in progress (6.2) - - Deferred charges and other assets (47.2) (19.9) (8.2) Accounts payable - trade (18.0) 8.4 9.2 Accrued interest (5.9) 7.1 6.2 Accrued liabilities (24.2) 77.4 13.5 Other, net (2.0) (2.4) 6.2 --------- ------- ------- Net cash provided by operating activities 226.0 331.4 167.6 --------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Dispositions of property and equipment 5.4 10.4 3.9 Purchases of property and equipment, exclusive of noncash items (1,131.0) (592.2) (352.3) Purchase of Cliffs Drilling Company, net of cash acquired 28.0 - - Sale (purchase) of short-term investments 45.4 (29.1) (15.5) Other - - (1.2) --------- ------- ------- Net cash used in investing activities (1,052.2) (610.9) (365.1) --------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from short-term obligations 123.4 - - Net proceeds from (payments on) revolving credit facilities (332.0) 316.0 141.0 Proceeds from long-term obligations 1,494.0 38.0 120.0 Principal payments on long-term obligations (323.2) (49.6) (45.8) Premium paid on debt extinguishment (23.9) - - Dividends paid on preferred stock - - (3.6) Distribution to minority shareholders of consolidated subsidiaries (4.0) - (5.1) Issuance of common stock, net 1.3 2.7 110.7 Other - (5.9) 2.4 --------- ------- ------- Net cash provided by financing activities 935.6 301.2 319.6 --------- ------- ------- CASH PROVIDED BY (USED IN) BUSINESS HELD FOR SALE 12.5 (94.0) (39.5) --------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 121.9 (72.3) 82.6 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 55.5 127.8 45.2 --------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 177.4 $ 55.5 $ 127.8 ========= ======= ======= Supplemental Cash Flow Disclosures: Interest paid, net of capitalized interest $ 105.6 $ 36.5 $ 35.2 Income taxes paid $ 36.5 $ 13.9 $ 5.7 Noncash investing activities: Purchase of Cliffs Drilling Company in exchange for equity $ 391.5 $ - $ - Other purchases of property and equipment in exchange for equity or debt $ 35.5 $ 8.0 $ 30.9 The accompanying notes are an integral part of the consolidated financial statements. R&B FALCON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Three Years Ended December 31, 1998 (in millions) Common Stock Capital in Retained ---------------- Excess of Earnings Shares Amount(1) Par Value (Deficit) Other ------ -------- --------- ------- ----- Balances at December 31, 1995 143.5 $ 1.4 $ 477.8 $ (.6) $ (9.0) Net income 106.7 Dividends paid on preferred stock (3.6) Conversion of preferred stock 10.2 .1 2.9 Purchase of assets .8 15.0 Activity in Company stock plans 1.9 13.0 .1 Restricted stock grant .6 13.8 (10.6) Issuance of common stock 6.4 .1 108.4 Additional minimum liability 1.2 Other (.1) .1 ----- ----- -------- ------ ----- Balances at December 31, 1996 163.4 1.6 630.8 102.5 (18.2) Net loss (6.2) Activity in Company stock plans 1.2 8.9 Restricted stock grant .9 6.8 Acceleration of stock grants (.3) (9.3) 10.1 Other .1 ----- ----- -------- ------ ----- Balances at December 31, 1997 164.3 1.6 631.4 96.3 (1.3) Net income 102.8 Purchase of assets 27.9 .3 416.4 Activity in Company stock plans .2 1.3 Restricted stock grant .9 12.3 (11.0) Other .1 .1 ----- ----- -------- ------ ----- Balances at December 31, 1998 193.4 $ 1.9 $1,061.5 $199.1 $(12.3) ===== ===== ======== ====== ====== ____________________ (1) Amounts less than one-tenth of a million are not shown. The accompanying notes are an integral part of the consolidated financial statements. R&B FALCON CORPORAITON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (A) INDUSTRY CONDITIONS, LIQUIDITY AND SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION - The consolidated financial statements include the accounts of R&B Falcon Corporation ("R&B Falcon") and its subsidiaries (collectively, the "Company"), including R&B Falcon (International & Deepwater) Inc., formerly Reading & Bates Corporation ("R&B"); R&B Falcon Holdings, Inc., formerly Falcon Drilling Company, Inc. ("Falcon"); Cliffs Drilling Company ("Cliffs Drilling") effective December 1, 1998 and its majority-owned (approximately 74.4%) subsidiary Arcade Drilling AS ("Arcade"). Investments in unconsolidated investees are accounted for using the equity method. All significant intercompany accounts and transactions have been eliminated. INDUSTRY CONDITIONS/LIQUIDITY - The Company is currently constructing or significantly upgrading seven wholly owned deepwater drilling rigs. The Company estimates the gross capital expenditures on these projects will be approximately $1.8 billion, of which approximately $1.0 billion remains to be funded by the Company. Since May 1998, there has been a downturn in demand for marine drilling rigs resulting in a decline in rig utilization and dayrates. The decline has been particularly dramatic in the domestic barge and jack-up rig markets where the Company is one of the largest contractors. As a result, although the Company's operating revenues increased by $99.6 million from 1997 to 1998, on a quarterly basis during 1998 the Company experienced a decline in operating revenues from $279.4 million for the first quarter of 1998 to $228.7 million for the fourth quarter of 1998. As a result, the Company's cash flow from operations, cash on hand, and funds available under its existing credit facilities will not be sufficient to satisfy the Company's short-term and long-term working capital needs, planned investments, capital expenditures, debt, lease and other payment obligations, without selling certain assets or terminating construction contracts. On March 26, 1999, the Company issued three series of senior notes with an aggregate principal amount of $1.0 billion. The senior notes consisted of $400.0 million of 11% senior secured notes due 2006, $400.0 million of 11.375% senior secured notes due 2009 and $200.0 million of 12.25% senior notes due 2006 (collectively, the "Senior Notes"). The $800.0 million senior secured notes are collateralized by ten of the Company's drilling rigs. As a result, the Company received net proceeds of approximately $971.5 million after deducting estimated offering related expenses. The Company used the proceeds to repay existing indebtedness of approximately $556.0 million and the remainder will be used to acquire, construct, repair and improve drilling rigs and for general corporate purposes. Proceeds from the Senior Notes met a portion of the Company's capital requirements. However, it will also be necessary for the Company to obtain additional capital through debt and/or equity financings to meet its currently projected obligations. The Company is currently evaluating two project financings to meet a portion of its additional capital requirements. The first is an approximately $270.0 million financing in the form of a synthetic lease that would be collateralized by the drillship Deepwater Frontier and drilling contract revenues from such drillship. Proceeds of such financing, if obtained, would be used in part to refinance the interim financing facility, under which $135.0 million ($81.0 million represents the Company's portion) had been borrowed at March 15, 1999 and was repaid with a portion of the proceeds from the Senior Notes. The foregoing interim loan has been made to a limited liability company which will operate the Deepwater Frontier and which is owned 60% by the Company and 40% by Conoco. The Company has guaranteed repayment of 60% of this interim loan. The second financing being contemplated is an approximately $250.0 million project financing that would be collateralized by the semisubmersible RBS8M (formerly the RBS6), as well as the drilling contract revenues from such rig. The Company currently believes it will be able to consummate the proposed project financings. However, there can be no assurance that these or any other additional financings can be obtained, or if obtained, that they will be on terms favorable to the Company or for the amounts needed. Further, the Company has limited ability under its indenture covenants to incur additional recourse indebtedness and to secure that debt. In the event that the Company is unable to obtain its requisite financing, the Company may have to sell assets or terminate or suspend one or more construction projects. Termination or suspension of a project may subject the Company to claims for penalties or damages under the construction contracts or drilling contracts for rigs that are being constructed. In addition, asset sales made under duress in today's drilling market may not yield attractive sales prices. Accordingly, the inability of the Company to complete such financings would have a material adverse effect on the Company's financial condition and its ability to repay its outstanding indebtedness. Three of the Company's outstanding credit facilities were repaid and terminated in March 1999 from proceeds from the Senior Notes. To assist the Company's liquidity position, the Company may seek to establish a new revolving bank credit facility of up to $180.0 million, and may sell certain assets. There can be no assurance, however, that such facility will be obtained or sales completed. The liquidity of the Company should also be considered in light of the significant fluctuations in demand that may be experienced by drilling contractors as changes in oil and gas producers' expectations and budgets occur, primarily in response to declines in prices for oil and gas. These fluctuations can rapidly impact the Company's liquidity as supply and demand factors directly affect utilization and dayrates, which are the primary determinants of cash flow from the Company's operations. The decline in oil and gas prices since 1997 has negatively impacted the Company's performance, particularly in the shallow water U.S. Gulf market, by adversely affecting the Company's rig utilization and dayrates. Utilization of the Company's domestic jack-up fleet has declined from approximately 100% in January 1998 to approximately 57% in January 1999, and dayrates on new contracts have declined from a range of $35,000 to $40,000 in January 1998 to a range of $10,000 to $13,000 at present. Dayrates for the Company's domestic barge drilling rig fleet have not declined materially, but utilization of the fleet declined from approximately 96% in January 1998 to approximately 30% in January 1999. The Company's international jack-up fleet has experienced declines in utilization and dayrates since January 1998, but such declines have not been as dramatic as those experienced in the domestic jack-up fleet. The Company believes a continued depression in oil and gas prices will have a material adverse effect on the Company's financial position and results from operations. The Company's construction and upgrade projects are subject to the risks of delay and cost overruns inherent in any large construction project, including shortages of equipment, unforeseen engineering problems, work stoppages, weather interference, unanticipated cost increases and shortages of materials or skilled labor. Significant cost overruns or delays would adversely affect the Company's liquidity, financial condition and results of operations. Delays could also result in penalties under, or the termination of, the long-term contracts under which the Company plans to operate these rigs. The Company has based its estimates regarding its financing needs on the assumption that conditions in the marine contract drilling industry will remain approximately the same as currently exist through 1999 and will improve in 2000. If conditions during these periods are less favorable than the Company has assumed, the Company may be required to seek additional financing. Any additional financing, if obtained, would be subject to the risks and contingencies described above. CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Arcade's cash and cash equivalents balance as well as the short-term investments discussed below, are available to Arcade for all purposes subject to restrictions under the Standstill Agreement dated as of August 31, 1991 among Arcade, Transocean Offshore Inc. and R&B which restrictions preclude R&B from borrowing any cash from Arcade unless (i) Transocean is offered a pro-rata loan (based on stock ownership in Arcade) on similar terms and (ii) any such loan(s) otherwise comply with applicable laws. At December 31, 1998, $99.4 million of the cash and cash equivalents balance related to Arcade. Arcade declared distributions of approximately $82.2 million in the first quarter of 1999, of which the Company received approximately $61.2 million, approximately $15.8 million in the first quarter of 1998, of which the Company received approximately $11.8 million and approximately $14.3 million in the first quarter of 1996, of which the Company received approximately $10.6 million. SHORT-TERM INVESTMENTS - Short-term investments consist of interest- bearing deposits with a commercial bank with an original maturity greater than three months but less than one year from the date of the investment. At December 31, 1997, all of the short-term investments balance was related to Arcade and was subject to restrictions (see CASH AND CASH EQUIVALENTS above). MATERIALS AND SUPPLIES INVENTORY - Materials and supplies are stated at the lower of average cost or market. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Drilling units and marine equipment are depreciated under the straight- line method. Gain (loss) on disposal of properties is credited (charged) to income. Estimated useful lives range from three to twenty-five years. In the first quarter of 1998, the Company had an independent appraiser evaluate the expected useful lives of its marine units and, based on such appraisal, the Company extended the useful lives of its marine units effective January 1, 1998. Such change in estimate resulted in an approximate $20.7 million reduction in depreciation expense for the year ended December 31, 1998. Costs incurred for construction and significant upgrades of marine equipment are accumulated in construction in progress with no depreciation being recorded on such amounts until the construction or upgrade is completed and the equipment is placed into service. The amount of construction in progress included in drilling equipment at December 31, 1998 and 1997 was $921.4 million and $255.0 million, respectively. Certain marine equipment is being held in non-operating status pending modification and decisions regarding its deployment. Management believes its market value exceeds its net book value of $65.7 million at December 31, 1998. GOODWILL - Goodwill from the purchase of Cliffs Drilling (see Note B) is amortized on a straight-line basis over 40 years. Amortization charged to expense during the year ended December 31, 1998 was $.1 million. The Company's management periodically evaluates recorded goodwill balances, net of accumulated amortization, for impairment based on the undiscounted cash flows associated with the asset compared to the carrying amount of that asset. Management believes that there have been no events or circumstances which warrant revision to the remaining useful life or affect the recoverability of its recorded goodwill. DEFERRED CHARGES AND OTHER ASSETS - Deferred charges and other assets includes investments in unconsolidated subsidiaries, deferred financing costs and deferred rig mobilization and preparation costs. These amounts are stated net of accumulated amortization costs and at net realizable value. INCOME TAXES - Deferred income taxes are recognized for revenues and expenses reported in different years for financial statement purposes and income tax purposes. REVENUE RECOGNITION - Revenues are recognized as they are earned. Proceeds associated with the early termination of a contract are recorded as deferred income and recognized as contract revenues over the remaining term of the contract or until such time as the mobile offshore unit begins a new contract. There were no such amounts deferred at December 31, 1998 or 1997. In addition, when a unit's mobilization revenue exceeds the cost of the mobilization by a significant amount, the Company recognizes the excess as contract revenue during the contract preparation and mobilization period on a dayrate basis. If there is revenue that has not been recognized by the time the unit has arrived on location, the remaining amount is recognized over the primary term of the contract. Revenues and expenses related to turnkey drilling contracts are recognized when all terms and conditions of the contract have been fulfilled. Consequently, the costs related to in-progress turnkey drilling contracts are deferred as drilling contracts in progress until the contract is completed and revenue is realized. The amount of drilling contracts in progress is dependent on the volume of contracts, the duration of the contract at the end of the reporting period and the contract amount. Provision for losses on incomplete contracts is made when such losses are probable and estimable. CAPITALIZED INTEREST - The Company capitalizes interest applicable to the construction and significant upgrades of its marine equipment as a cost of such assets. Interest capitalized for the years ended December 31, 1998, 1997 and 1996 was $39.1 million, $13.7 million and $7.6 million, respectively and is shown net of interest expense in the Consolidated Statement of Operations. FOREIGN CURRENCY TRANSACTIONS - The net gains and losses resulting from foreign currency transactions included in determining net income amounted to a net gain of $.2 million in 1998, a net loss of $.4 million in 1997 and a net gain of $.8 million in 1996. The Company may enter into forward exchange contracts to hedge specific commitments and anticipated transactions but not for speculative or trading purposes. In the third quarter of 1996, the Company entered into a short-term foreign exchange forward contract to hedge a firm commitment relating to the purchase of equipment. This contract was intended to reduce currency risk from exchange rate movements. Insignificant gains and losses were deferred and accounted for as part of the underlying transaction. During 1998 and 1997 the Company did not enter into any forward exchange contracts. At December 31, 1998, the Company did not have any outstanding forward exchange contracts. MINORITY INTEREST - Minority interest relates primarily to the results of Arcade, which owns the drilling units Henry Goodrich and Paul B. Loyd, Jr. The ownership percentage of Arcade attributable to stockholders other than the Company was 25.6% for each of the years ending December 31, 1998, 1997 and 1996. Arcade reported income in 1998, 1997 and 1996 of $44.2 million, $36.9 million and $26.3 million, respectively. EXTRAORDINARY LOSS - In the second quarter of 1998, the Company incurred an extraordinary loss of $22.0 million, after a tax benefit of $11.9 million, due to the early extinguishment of debt obligations. Such loss consisted of premium payments and the expense of related deferred debt issuance costs. In the fourth quarter of 1998, the Company incurred an extraordinary loss of $2.2 million, after a tax benefit of $1.1 million, due to the early extinguishment of debt obligations. Such loss consisted of the expense of related deferred debt issuance costs. See Note D. COMPREHENSIVE INCOME - In 1998 and 1997, the Company did not have any non-owner changes in equity. In 1996, the Company recorded, in stockholders' equity, $1.2 million of additional minimum liability related to its pension plans. Therefore, comprehensive income for 1996 was $105.7 million as a result of adjusting net income for 1996 by $1.0 million of additional minimum liability, net of income taxes. CONCENTRATION OF CREDIT RISK - The Company maintains cash balances and short-term investments with commercial banks throughout the world. The Company's cash equivalents and short-term investments generally consist of commercial paper, money-market mutual funds and interest- bearing deposits with strong credit rated financial institutions, therefore, bearing minimal risk. No losses were incurred during 1998, 1997 and 1996. The Company's revenues were generated primarily from its drilling rigs. Revenues can be generated from a relatively small number of customers, which are primarily major and independent foreign and domestic oil and gas companies, as well as foreign state-owned oil and gas companies. The Company performs ongoing credit evaluations of its customers' financial conditions and generally requires no collateral from its customers. The Company's allowance for doubtful accounts at December 31, 1998 and 1997 was $11.9 million and $7.4 million, respectively. NEWLY ISSUED ACCOUNTING STANDARDS - In February 1997, Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128") was issued. SFAS 128 establishes revised standards for computing and presenting earnings per share. The Company adopted SFAS 128 in the fourth quarter of 1997 and restated all prior period earnings per share data presented. In June 1997, Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130") was issued. SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is the total of net income and all other nonowner changes in equity. The Company adopted SFAS 130 in the first quarter of fiscal 1998. See COMPREHENSIVE INCOME above. In June 1997, Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131") was issued. SFAS 131 requires that companies report financial and descriptive information about their reportable operating segments. Segment information to be reported is to be based upon the way management organizes the segments for making operating decisions and assessing performance. The Company adopted SFAS 131 in the fourth quarter of 1998 and has made the appropriate disclosures. See Note L. In February 1998, Statement of Financial Accounting Standards No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits ("SFAS 132") was issued. SFAS 132 revises and standardizes employers' disclosures about pension and other postretirement benefit plans. The Company adopted SFAS 132 in the fourth quarter of 1998 and has made the appropriate disclosures. See Note J. In June 1998, Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") was issued. SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument be measured at its fair value, recorded in the balance sheet as either an asset or liability and that changes in the derivative's fair value be recognized currently in earnings. SFAS 133 is effective for fiscal years beginning after June 15, 1999. The Company has not yet quantified the impacts of adopting SFAS 133 on its financial statements nor has it determined the timing of its adoption. ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATION - Certain prior period amounts in the consolidated financial statements have been reclassified for comparative purposes. Such reclassifications had no effect on the net income (loss) or the overall financial condition of the Company. (B) BUSINESS COMBINATIONS On December 31, 1997, R&B and Falcon completed a business combination (merger) whereby each outstanding share of common stock of Falcon was converted into one share of R&B Falcon common stock and each outstanding share of common stock of R&B was converted into 1.18 shares of R&B Falcon common stock. The merger qualified as a tax-free exchange and has been accounted for as a pooling of interests and, accordingly, the consolidated financial statements for the periods presented have been restated to include the accounts of R&B and Falcon. There was one transaction between R&B and Falcon prior to the merger which resulted in an adjustment to the consolidated restated financial statements of R&B Falcon. In 1996, R&B sold the drilling unit, Falrig 83, (formerly the D. K. McIntosh) to Falcon. The resulting gain of $3.8 million recorded by R&B has been eliminated from the accompanying financial statements. The results of operations for the separate companies and the combined amounts presented in the consolidated financial statements for the years ended December 31, 1997 and 1996 are as follows (in millions): 1997 1996 ------ ------ Operating revenues R&B $424.2 $290.3 Falcon 508.8 319.3 ------ ------ Combined $933.0 $609.6 ====== ====== Net income (loss) R&B $(73.5) $ 74.1 Falcon 67.3 32.6 ------ ------ Combined $ (6.2) $106.7 ====== ====== In connection with the merger, the Company recorded $66.4 million of expenses in the fourth quarter of 1997. Such expenses consist primarily of employment contract termination fees associated with executives of R&B, the acceleration of unearned compensation of certain stock grants previously awarded to certain R&B employees, fees for investment bankers, attorneys, and accountants, and printing and other related costs. In 1998, the Company reversed $8.0 million of merger expenses primarily due to an Internal Revenue Service ruling received relating to taxes on executive termination fees. On December 1, 1998, R&B Falcon acquired all of the outstanding stock of Cliffs Drilling. Cliffs Drilling is a provider of daywork and turnkey drilling services, mobile offshore production units and well engineering and management services. Cliffs Drilling's fleet consists of 16 jack-up rigs, three self-contained platform rigs, four mobile offshore production units and 11 land rigs. The acquisition was effected pursuant to an Agreement and Plan of Merger dated August 21, 1998, whereby each share of Cliffs Drilling's common stock was converted into 1.7 shares of R&B Falcon common stock and cash in lieu of fractional shares. Total consideration for Cliffs Drilling was approximately $405.1 million. The Company issued approximately 27.1 million shares of its common stock valued at approximately $385.3 million. This valuation was based upon a price of $14.2125 per share of R&B Falcon common stock, which was the average closing price per share of R&B Falcon's common stock during the period in which the principal terms of the merger were agreed upon and the merger was announced. In addition, the Company assumed Cliffs Drilling's outstanding stock options valued at approximately $6.2 million and the Company paid approximately $13.6 million in acquisition costs. The acquisition of Cliffs Drilling was recorded using the purchase method of accounting, accordingly Cliffs Drilling's results of operations are included with the Company's results of operations since the acquisition date. The excess of the purchase price over the estimated fair value of net assets acquired amounted to approximately $70.7 million, which has been accounted for as goodwill and is being amortized over 40 years using the straight-line method. Pro forma consolidated operating results of the Company and Cliffs Drilling for the year ended December 31, 1998 and 1997, assuming the Cliffs Drilling transaction occurred at the beginning of the respective periods, are as follows: Years Ended December 31, ------------------------ 1998 1997 --------- --------- (unaudited) (in millions except per share amounts) Operating revenues $ 1,349.0 $ 1,218.2 Income from continuing operations before extraordinary loss 138.9 71.4 Net income 150.7 35.4 Net income per common share: Basic .78 .19 Diluted .78 .18 (C) SHORT-TERM OBLIGATIONS In 1998, the Company entered into a short-term credit facility for the construction of the Deepwater Millennium. The facility bears interest at the London Interbank Offered Rate ("LIBOR") plus 1.25% and is due on June 30, 1999. At December 31, 1998, $1.6 million was available under this facility. In March 1999, this credit facility which had been fully drawn was terminated and repaid from proceeds from the Senior Notes (see Note A). (D) LONG-TERM OBLIGATIONS Long-term obligations at December 31, 1998 and 1997 consisted of the following (in millions): 1998 1997 -------- -------- Revolving credit facilities (1) $ 150.0 $ 482.0 6.5% Senior Notes, due April 2003 (2) 249.2 - 6.75% Senior Notes, due April 2005 (2) 348.1 - 6.95% Senior Notes, due April 2008 (2) 249.2 - 7.375% Senior Notes, due April 2018 (2) 248.0 - 9.125% Senior Notes, due December 2003 ("9.125% Notes") (3) 100.0 - 9.5% Senior Notes, due December 2008("9.5% Notes")(3) 300.0 - 8% Senior Subordinated Convertible Debentures, due December 1998 ("8% Debentures") (4) - 15.6 8.875% Senior Notes, due March 2003 ("8.875% Notes") (5)(13) .4 120.0 9.75% Senior Notes, due January 2001 ("9.75% Notes") (6)(13) 5.2 110.0 10.25% Senior Notes, due May 2003("10.25% Notes")(7) 202.9 - 12.5% Subordinated Notes, due March 2005 ("12.5% Notes") (8)(13) - 50.0 Floating Rate Notes (9) (13) - 10.0 NIC (10) 18.7 25.3 Deferred payment obligation (11) .5 7.5 Secured promissory note (12) - 6.4 Other debt obligations .3 .6 -------- -------- Total 1,872.5 827.4 Less long-term obligations due within one year (6.3) (135.2) -------- -------- Long-term obligations $1,866.2 $ 692.2 ======== ======== __________________________ (1) At December 31, 1998, the Company had two revolving credit facilities outstanding. The first is a $350.0 million revolving credit facility expiring on January 24, 2002. This facility was previously at $500.0 million however, as a result of issuing the 9.125% Notes and the 9.5% Notes it was amended and reduced to $350.0 million. Commencing March 31, 2001, the facility will be reduced by $15.0 million each calendar quarter. At December 31, 1998, interest was accruing under this revolving credit facility at LIBOR plus .75% for borrowings up to $100.0 million and at LIBOR plus 1.375% for borrowings in excess of $100.0 million. In addition, a commitment fee of .35% per annum is paid on the total amount of the facility. The first $100.0 million of borrowing under this revolving credit facility is secured by a pledge of the stock of one of the Company's three major operating subsidiaries. The facility contains covenants (with which the Company was in compliance at December 31, 1998) which require the Company to meet certain ratios and in many respects limit or prohibit, among other things, the ability of the Company to incur additional indebtedness, create liens and sell assets. At December 31, 1998, $200.0 million was available under this facility. In March 1999, this credit facility which had been fully drawn was terminated and repaid from proceeds from the Senior Notes (see Note A). The second is a $35.0 million revolving credit facility expiring on May 31, 2000. Interest accrues under this facility at .25% plus the greater of the prevailing Federal Funds Rate plus .5% or a referenced average prime; or at the adjusted LIBOR rate plus 2%. In addition, a fee of 2% per annum is paid on outstanding letters of credit and a commitment fee of .5% per annum is paid on the unused portion of the facility. This facility is secured by accounts receivable, certain rig inventory and equipment, certain oil and gas properties and the stock of certain subsidiaries of Cliffs Drilling. At December 31, 1998, $.4 million in letters of credit were outstanding, thereby leaving $34.6 million available under this facility. At December 31, 1997, the Company had two revolving credit facilities outstanding which during 1998 were both terminated and repaid in full from proceeds from a senior note offering (see Note (2) below). The first was a $400.0 million revolving credit facility with a syndicate of banks. This facility would have been reduced/repaid by five semi-annual installments of $37.0 million commencing in May 1999 and one final reduction/repayment of $215.0 million in November 2001 and bore interest at LIBOR plus .85%. In addition, a commitment fee of .35% per annum was paid on the unused portion of the facility. The facility contained covenants which required R&B to meet certain ratios and working capital conditions, and was collateralized by vessel mortgages on fourteen of the drilling units owned by the Company, related assignments of insurance and earnings, and a pledge of the Company's shares of stock of Arcade. The second was a $215.0 million revolving credit facility with a syndicate of banks. This facility consisted of (i) a $25.0 million tranche secured by accounts receivable, maturing in November 1999, (ii) a $60.0 million tranche secured by certain drilling rigs and receivables, maturing in November 1998 and (iii) a $130.0 million tranche that was unsecured, maturing in October 1998. The facility required Falcon to meet certain tests related to its net worth, interest coverage ratio, and current ratio, and placed restrictions on dividends and investments by Falcon. The facility provided generally for interest at LIBOR plus 1% on the $25.0 million tranche, at LIBOR plus 1.5% on the $60.0 million tranche, and at LIBOR plus 1.75% on the $130.0 million tranche. The interest rate on the $130.0 million tranche increased by .50% during each calendar quarter commencing in the second quarter of 1998. The Company paid a commitment fee equal to (i) .375% per annum of the unused portion of the $25.0 million and $60.0 million tranches, and .20% per annum on the unused portion of the $130.0 million tranche. (2) In April 1998, the Company issued four series of senior notes with an aggregate principal amount of $1.1 billion. As a result, the Company received net proceeds of approximately $1,082.9 million after deducting estimated offering related expenses. Interest on these notes is payable semiannually on April 15 and October 15. These notes are unsecured obligations of the Company, ranking pari passu in right of payment with all other existing and future senior unsecured indebtedness of the Company. The Company used the proceeds to repay existing indebtedness of $874.4 million and the remainder was used for planned capital expenditures, working capital and other general corporate purposes. As a result of the repayment of existing indebtedness, the Company incurred an extraordinary loss of $22.0 million, net of tax, in the second quarter of 1998. These notes were issued at a discount of approximately $6.0 million which is being amortized as interest expense over the term of the notes. The amount of unamortized discount at December 31, 1998 was approximately $5.5 million and the amount of amortized discount for the year ended December 31, 1998 was approximately $.5 million. (3) In December 1998, the Company issued two series of senior notes with an aggregate principal amount of $400.0 million. As a result, the Company received net proceeds of approximately $392.3 million after deducting estimated offering related expenses. Interest on these notes is payable semiannually on June 15 and December 15. These notes are unsecured obligations of the Company, ranking pari passu in right of payment with all other existing and future senior indebtedness of the Company. The Company used the proceeds to reduce borrowings under an existing revolving credit facility. As a result of such reduction, the Company incurred an extraordinary loss of $2.2 million, net of tax, in the fourth quarter of 1998. (4) In December 1998, the 8% Debentures were repaid in full. The 8% Debentures were convertible into the Company's common stock at $31.386 per share. Accrued interest associated with the 8% Debentures at December 31, 1997 was $11.9 million. The face amount of the 8% Debentures and the related unamortized discount at December 31, 1997 totaled $18.6 million and $3.0 million, respectively. (5) The 8.875% Notes were issued by Falcon pursuant to an offering in March 1996, resulting in net proceeds of approximately $116.0 million to the Company after deducting offering related expenses. The 8.875% Notes consisted of $120.0 million principal amount and interest is payable semiannually on March 15 and September 15. The 8.875% Notes are unsecured obligations of Falcon, ranking pari passu in right of payment with all other senior indebtedness of Falcon. The 8.875% Notes are not guaranteed by any of Falcon's subsidiaries, and thus are structurally subordinated to the 9.75% Notes (described below) and other indebtedness of the subsidiaries. Further, they are effectively subordinated to any secured indebted- ness of Falcon to the extent of the collateral securing such secured indebtedness. See Note (13) below. (6) The 9.75% Notes were issued by Falcon pursuant to an offering in January 1994. The 9.75% Notes consisted of $110.0 million principal amount and interest is payable semiannually on January 15 and July 15. The 9.75% Notes are guaranteed by certain of the Company's subsidiaries. The 9.75% Notes are unsecured obligations of Falcon, ranking pari passu in right of payment with all other senior indebtedness of Falcon, but are effectively subordinated to any secured indebtedness of Falcon to the extent of the collateral securing such secured indebtedness. See Note (13) below. (7) The 10.25% Notes were issued by Cliffs Drilling pursuant to offerings in 1996 and 1997. The 10.25% Notes consist of $200.0 million principal amount and interest is payable semiannually on May 15 and November 15. These notes are senior unsecured obligations of Cliffs Drilling, ranking pari passu in right of payment with all other senior indebtedness and senior to all subordinated indebtedness. These notes are unconditionally guaranteed on a senior unsecured basis by certain subsidiaries of Cliffs Drilling (the "Cliffs Drilling Subsidiary Guarantors"), which guarantees rank pari passu in right of payment with all senior indebtedness of the Cliffs Drilling Subsidiary Guarantors and senior to all subordinated indebtedness of the Cliffs Drilling Subsidiary Guarantors. The 10.25% Notes are publicly traded and are not guaranteed by R&B Falcon or any other subsidiary of the parent, accordingly, separate financial statements of Cliffs Drilling Subsidiary Guarantors are not required to be included in these financial statements. On or after May 15, 2000, the 10.25% Notes are redeemable at the option of Cliffs Drilling, in whole or in part, at a price of 105% of principal if redeemed during the twelve months beginning May 15, 2000, at a price of 102.5% of principal if redeemed during the twelve months beginning May 15, 2001, or at a price of 100% of principal if redeemed after May 15, 2002, in each case together with interest accrued to the redemption date. The indenture under which the 10.25% Notes are issued imposes significant operating and financial restrictions on Cliffs Drilling. Such restrictions affect, and in many respects limit or prohibit, among other things, the ability of Cliffs Drilling to incur additional indebtedness, make capital expenditures, create liens and sell assets. As a result of the Company acquiring Cliffs Drilling, Cliffs Drilling was required to offer to purchase for cash all of the outstanding 10.25% Notes at a purchase price equal to 101% of the principal amount of each senior note, plus accrued and unpaid interest, to the change of control payment date. On January 28, 1999, Cliffs Drilling repurchased approximately $.3 million principal amount of the 10.25% Notes that were tendered pursuant to this offer. (8) The 12.5% Notes were issued by Falcon pursuant to an offering in March 1995. The 12.5% Notes consisted of $50.0 million principal amount and interest was payable semiannually on March 15 and September 15. The 12.5% Notes were subordinated to all other indebtedness of the Company except indebtedness that expressly provides it shall not be senior in right of payment to the 12.5% Notes. See Note (13) below. (9) On February 23, 1994, Falcon issued $10.0 million of Floating Rate Notes which bore interest at LIBOR plus 3.5%. In 1998,the Floating Rate Notes were repaid in full. The principal amounts of the Floating Rate Notes were due in payments of $1.0 million, $2.0 million and $2.0 million on January 24 of 1998, 1999 and 2000, respectively, with the balance due January 24, 2001. The Floating Rate Notes were guaranteed by certain of the Company's subsidiaries. The Floating Rate Notes were unsecured obligations of Falcon, ranking pari passu in right of payment with all other senior indebtedness of Falcon, but were effectively subordinated to any secured indebtedness of Falcon to the extent of the collateral securing such secured indebtedness. (10) In April 1997, a wholly owned subsidiary of the Company entered into a five year $38.0 million loan agreement with Nissho Iwai Europe PLC ("NIC"). The loan is collateralized by a vessel mortgage on the Seillean without recourse to the Company and bears interest at LIBOR plus 2%. Principal repayments are monthly based on the greater of the excess cash flow of the Seillean or the outstanding principal balance divided by the remaining monthly periods of the loan. In addition, NIC has the option to purchase up to 10% of the ownership in the Seillean, any time prior to April 25, 2000, at a minimum price of $4.2 million. (11) In September 1995, the Company entered into a $10.0 million deferred payment obligation in connection with the purchase of the support vessel Iolair. The deferred payment obligation bears interest at a fixed rate of 8%. Principal repayments of $2.5 million and $7.0 million were paid in September 1996 and September 1998, respectively, and a final payment of $.5 million is due in September 2000. The obligation is collateralized by a vessel mortgage on the support vessel Iolair. (12) In January 1997, the Company issued a $6.4 million secured promissory note, payable to Coastal Capital Corporation, in connection with the purchase of the Peregrine VI. In June 1998, the note was repaid in full. The note bore interest at 7.5%, payable monthly, and matured in January 1999. The note was collateralized by a vessel mortgage on the Peregrine VI. (13) The indentures pursuant to which the 8.875% Notes, 9.75% Notes, and the 12.5% Notes were issued (i) provide that Falcon may redeem such obligations at a premium at certain times prior to maturity, (ii) require Falcon to offer to redeem such obligations at a premium if there is a change of control of Falcon (see below), and (iii) impose restrictions on certain actions by Falcon, including payment of dividends, incurrence of debt, pledging of assets, sale of assets, and making investments. As a result of the merger between R&B and Falcon, Falcon was required to offer to purchase for cash all of the 8.875% Notes, 9.75% Notes and 12.5% Notes (collectively the "Old Notes") and the Floating Rate Notes representing outstanding principal indebtedness of $290.0 million at December 31, 1997. On January 28, 1998, Falcon made a purchase offer to each note holder at a price equal to 101% of the aggregate principal amount outstanding or approximately $293.0 million, plus accrued interest. As a result, none of the notes were tendered for redemption. On March 23, 1998, the Company offered to redeem the Old Notes. The aggregate principal amount of the outstanding Old Notes was $280.0 million and on April 20, 1998, $274.4 million in principal amount of Old Notes was repaid from proceeds from the sale of the $1.1 billion senior notes (see Note (2) above). As of December 31, 1998, the Company estimates the fair value of its debt obligations to be $1.7 billion compared to a book value of $1.9 billion. Aggregate annual maturities of long-term obligations, (including the current portion) for the next five years and thereafter are as follows (in millions): 1999 $ 6.3 2000 6.6 2001 11.3 2002 150.5 2003 553.3 Thereafter 1,150.0 -------- 1,878.0 Less the unamortized discount on the senior notes (5.5) -------- Total long-term obligations and long- term obligations due within one year at December 31, 1998 $1,872.5 ======== (E) COMMITMENTS AND CONTINGENCIES GENERAL - In 1992, in connection with the acquisition of certain barge drilling rig operations, the Company entered into contingent profits interest agreements with the former rig owners and former mortgage holder. The periods for determination of these payments began in 1993 and continued through 1998. Pursuant to certain of the Company's long-term drilling contracts, the operator may purchase three of the Company's barge drilling rigs for specified prices which decrease each year through 1999. Management of the Company estimates that the aggregate option price for the three rigs will be below the aggregate carrying value for such rigs by approximately $4.0 million in 1999. Management does not expect the purchase option to be exercised and will continue to evaluate the net book value of these rigs for possible future impairment. CAPITAL EXPENDITURES - In 1999 and 2000, the Company expects to spend approximately $1.1 billion to expand and upgrade its operating rig fleet, primarily its deepwater rig fleet. The Peregrine IV, Peregrine VII, and Falcon 100 will be completed later than the required commencement dates under the drilling contracts for such rigs and at costs significantly in excess of original estimates. The customer for the Peregrine VII has indicated that they will cancel the drilling contract due to construction delays. The Company believes that it will be able to find work for the Peregrine VII at dayrates similar to its previously contracted levels. However, the Company expects that any new contracts will likely be short-term or on a well-to-well basis. Also, the Company will be subject to late delivery penalties under the applicable drilling contracts for the Peregrine IV and Falcon 100, (approximately $41,500 per day, up to a maximum of approximately $38.6 million, for the Peregrine IV, and approximately $26,500 per day, up to a maximum of approximately $14.7 million, for the Falcon 100). If the Peregrine IV and Falcon 100 are not delivered within 240 and 180 days, respectively, of the commencement date of the applicable drilling contract, the customer may cancel its contract. EMPLOYMENT CONTRACTS - The Company has entered into employment contracts with 16 employees. Such employment contracts include certain provisions which call for termination payments to the employee upon the occurrence of certain events including change of control, which if incurred at December 31, 1998 would have been approximately $40.0 million. OPERATING LEASES - The Company has operating leases covering premises and equipment. Certain operating leases contain renewal options and have options to purchase the asset at fair market value at the end of the lease term. Lease expense amounted to $47.8 million (1998), $40.2 million (1997) and $22.7 million (1996). As of December 31, 1998, future minimum rental payments relating to operating leases were as follows (in millions): 1999 2000 2001 2002 2003 Thereafter ------ ------ ------ ------ ------ ---------- Drilling units $ 20.9 $ 13.8 $ 13.0 $ 13.0 $ 13.0 $ 24.9 Other 4.3 2.4 1.3 1.0 .3 .2 ------ ------ ------ ------ ------ ------ Total $ 25.2 $ 16.2 $ 14.3 $ 14.0 $ 13.3 $ 25.1 ====== ====== ====== ====== ====== ====== In November 1995, the Company entered into a sale/lease-back of the M. G. Hulme, Jr. and agreed to lease the drilling unit for ten years. The lease-back is accounted for as an operating lease and a deferred gain of $7.4 million was recorded and is being amortized over the life of the lease (see Note F). LITIGATION - In November 1988, a lawsuit was filed in the U.S. District Court for the Southern District of West Virginia against Reading & Bates Coal Co., a wholly owned subsidiary of the Company, by SCW Associates, Inc. claiming breach of an alleged agreement to purchase the stock of Belva Coal Company, a wholly owned subsidiary of Reading & Bates Coal Co. with coal properties in West Virginia. When those coal properties were sold in July 1989 as part of the disposition of the Company's coal operations, the purchasing joint venture indemnified Reading & Bates Coal Co. and the Company against any liability Reading & Bates Coal Co. might incur as the result of this litigation. A judgment for the plaintiff of $32,000 entered in February 1991 was satisfied and Reading & Bates Coal Co. was indemnified by the purchasing joint venture. On October 31, 1990, SCW Associates, Inc., the plaintiff in the above- referenced action, filed a separate ancillary action in the Circuit Court, Kanawha County, West Virginia against the Company, Caymen Coal, Inc. (former owner of the Company's West Virginia coal properties), as well as the joint venture, Mr. William B. Sturgill personally (former President of Reading & Bates Coal Co.), three other companies in which the Company believes Mr. Sturgill holds an equity interest, two employees of the joint venture, First National Bank of Chicago and First Capital Corporation. The lawsuit seeks to recover compensatory damages of $50.0 million and punitive damages of $50.0 million for alleged tortious interference with the contractual rights of the plaintiff and to impose a constructive trust on the proceeds of the use and/or sale of the assets of Caymen Coal, Inc. as they existed on October 15, 1988. The Company intends to defend its interests vigorously and believes the damages alleged by the plaintiff in this action are highly exaggerated. In any event, the Company believes that it has valid defenses and that it will prevail in this litigation. The Company is involved in various other legal actions arising in the normal course of business. A substantial number of these actions involve claims arising out of injuries to employees of the Company who work on the Company's rigs and power vessels. After taking into consideration the evaluation of such actions by counsel for the Company and the Company's insurance coverage, management is of the opinion that the outcome of all known and potential claims and litigation will not have a material adverse effect on the Company's business or consolidated financial position or results of operations. SELF INSURANCE - The Company is self-insured for the deductible portion of its insurance coverage. In the opinion of management, adequate accruals have been made based on known and estimated exposures up to the deductible portion of the Company's insurance coverages. Management believes that future claims and liabilities in excess of the amounts accrued are fully insured. LETTERS OF CREDIT - At December 31, 1998, the Company had letters of credit outstanding and unused totalling $6.6 million and $38.4 million, respectively (see Note D). (F) ACCRUED LIABILITIES AND OTHER NONCURRENT LIABILITIES The components of "Accrued liabilities" at December 31, 1998 and 1997 were as follows (in millions): 1998 1997 ------- ------- Accrued expenses - general $ 64.7 $ 72.1 Accrued income and sales tax 23.9 28.7 Accrued interest expense 20.3 28.6 Accrued worker compensation claims 16.2 7.9 Accrued payroll 9.5 4.2 Accrued employee benefits 2.7 2.8 Other 1.7 2.1 ------- ------- Total $ 139.0 $ 146.4 ======= ======= The components of "OTHER NONCURRENT LIABILITIES" at December 31, 1998 and 1997 were as follows (in millions): 1998 1997 ------ ------ Postretirement benefit obligations $ 14.9 $ 14.9 Foreign income taxes 6.1 6.1 Pension obligations 3.5 3.5 Deferred gain on sale of drilling unit (see Note E) 2.0 5.6 Other 9.4 8.5 ------ ------ Total $ 35.9 $ 38.6 ====== ====== (G) CANCELLATION OF CONVERSION PROJECTS In the third quarter of 1998, the Company cancelled the Peregrine VI and the Peregrine VIII drillship conversion projects due to continuing uncertainty as to final cost and expected delivery dates. As a result, the drilling contract on the Peregrine VIII was terminated on September 24, 1998, and the drilling contract on the Peregrine VI was terminated on January 1, 1999. Both terminations were without prejudice to the rights of the oil companies. The Company believes that, based on provisions of the contracts that preclude recovery of indirect or consequential damages and projected rig availability in the offshore drilling industry, the Company will not have any material liability under these drilling contracts as a result of the termination thereof. The contracts with the shipyard for conversion of the Peregrine VI and the Peregrine VIII have been cancelled. In addition, in the fourth quarter of 1998, the Company cancelled two additional drillship conversion projects that were in the preliminary phases. As a result of the termination of these four drillship conversion projects, the Company expensed $118.3 million in related costs in 1998. In connection with the Peregrine VI and Peregrine VIII projects and a third drillship project, the Company purchased or committed to purchase drilling equipment with an aggregate cost of approximately $285.0 million. This equipment constitutes all of the material drilling equipment necessary to outfit two deepwater drillships (although a substantial portion of such equipment can be used on semisubmersible rigs). The Company expects to use this equipment to outfit other deepwater projects and as inventory. (H) INCOME TAXES Income tax expense for the years ended December 31, 1998, 1997 and 1996 consisted of the following (in millions): 1998 1997 1996 ------ ------ ------ Current: Foreign $ 28.1 $ 9.4 $ 5.8 Federal 3.3 26.9 .4 State 7.1 3.0 .1 ------ ------ ------ Total current 38.5 39.3 6.3 ------ ------ ------ Deferred: Foreign 4.9 17.9 4.0 Federal 13.7 26.6 15.0 State 1.8 .9 1.7 ------ ------ ------ Total deferred 20.4 45.4 20.7 ------ ------ ------ Total $ 58.9 $ 84.7 $ 27.0 ====== ====== ====== The domestic and foreign components of income from continuing operations before income tax expense, minority interest and extraordinary loss for the years ended December 31, 1998, 1997 and 1996 were as follows (in millions): 1998 1997 1996 ------- ------- ------- Domestic $ (26.2) $ (95.0) $ 4.9 Foreign 187.4 218.9 135.5 ------- ------- ------- Total $ 161.2 $ 123.9 $ 140.4 ======= ======= ======= The effective tax rate, as computed on income from continuing operations before income tax expense, minority interest and extraordinary loss differs from the statutory U.S. income tax rate for the years ended December 31, 1998, 1997 and 1996 due to the following: 1998 1997 1996 ---- ---- ---- Statutory tax rate 35% 35% 35% Use of previously reserved tax benefits - - (11) Limitation on recognition of tax benefits 2 10 - Foreign tax expense (net of federal benefit) (3) 2 (6) State tax expense (net of federal benefit) 3 2 1 Non-deductible merger expenses (2) 17 - Other 2 2 - ---- ---- ---- Effective tax rate 37% 68% 19% ==== ==== ==== Deferred income taxes result from those transactions which affect financial and taxable income in different years. The nature of these transactions (all of which were long-term) and the income tax effect of each as of December 31, 1998 and 1997 were as follows (in millions): 1998 1997 ------- ------- Deferred tax liabilities: Depreciation $ 214.4 $ 208.0 Undistributed earnings 7.4 8.3 ------- ------- Total deferred tax liabilities 221.8 216.3 ------- ------- Deferred tax assets: Postretirement benefits (5.4) (5.4) Tax benefit carryforwards (139.4) (169.8) Discontinued operations, net (2.2) (22.3) Accrued expenses (5.7) (3.5) Valuation allowance 75.7 63.5 Other (2.4) (2.0) ------- ------- Total deferred tax assets (79.4) (139.5) ------- ------- Net deferred tax liability $ 142.4 $ 76.8 ======= ======= Valuation allowance reflects the possible expiration of tax benefits (primarily net operating loss carryforwards) prior to their utilization. Recapitalizations of R&B in 1989 and 1991 resulted in ownership changes for federal income tax purposes. As a result of these ownership changes, the amount of tax benefit carryforwards generated prior to the ownership changes which may be utilized to offset federal taxable income is limited by the Internal Revenue Code to approximately $3.8 million annually plus certain built-in gains that existed as of the date of such changes. Net tax operating losses of approximately $25.4 million arising since the 1991 ownership change are not subject to this limitation. (I) CAPITAL SHARES RIGHTS - On December 31, 1997, the effective date of the merger between R&B and Falcon (see Note B), each share of the Company's common stock received one preferred share purchase right (a "Right"). Each Right entitles the registered holder to purchase from the Company one one- hundredth of a share of Series A Junior Participating Preferred Stock, (the "Preferred Shares") of the Company at a price of $150, subject to adjustment. The Rights will not become exercisable until 10 days after a public announcement that a person or group has acquired 15% or more of the Company's common stock (thereby becoming an "Acquiring Person") or the commencement of a tender or exchange offer upon consummation of which such person or group would own 15% or more of the Company's common stock (the earlier of such dates being called the "Distribution Date"). Until the Distribution Date, the Rights will be evidenced by the certificates representing the Company's common stock and will be transferable only with the Company's common stock. In the event that any person or group becomes an Acquiring Person, each Right, other than Rights beneficially owned by the Acquiring Person (which will thereafter be void), will thereafter entitle its holder to purchase shares of the Company's common stock having a market value of two times the exercise price of the Right. If after a person or group has become an Acquiring Person, the Company is acquired in a merger or other business combination transaction or 50% or more of its assets or earning power are sold, each Right will entitle its holder to purchase, at the Right's then current exercise price, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. The board of directors of the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right at any time prior to ten business days following a public announcement that a person or group becomes an Acquiring Person. The Rights expire on November 1, 2007. Preferred Shares purchasable upon exercise of the Rights will not be redeemable. Each Preferred Share will be entitled to a preferential quarterly dividend payment equal to the greater of $1 per share or 100 times the dividend declared per common share. Liquidation preference will be equal to 100 times the par value per share plus an amount equal to accrued and unpaid dividends and distributions to the date of such payment. Each Preferred Share will have 100 votes, voting together with the common stock, and certain rights to elect two directors during certain periods of default in the payment of dividends on the Preferred Shares. PREFERRED STOCK - In July 1993, R&B effected a public offering of approximately 3.0 million shares of $1.625 Convertible Preferred Stock, par value $1.00 per share. On August 5, 1996, R&B announced it would redeem all of the outstanding shares of such preferred stock on September 30, 1996. However, the majority of such preferred stock outstanding was converted into approximately 10.2 million shares of R&B's common stock on or before September 30, 1996. COMMON STOCK - On December 9, 1996, Falcon, participating stockholders and a group of underwriters entered into an agreement resulting in the public sale of 6.4 million shares of common stock by Falcon and the sale of 9.4 million shares of common stock by selling shareholders. The public offering closed on December 13, 1996 and resulted in net proceeds to Falcon of $108.5 million after deducting offering related expenses of $5.5 million. In June 1997, Falcon declared a two-for-one stock split effective on July 15, 1997. Accordingly, all share amounts for all periods presented have been restated to reflect this stock split. During 1998 in a series of transactions, the Company issued approximately 763,680 shares of its common stock in partial consideration for the acquisition of 25 tugs, five ocean going barges and six workover rigs. On December 1, 1998, the Company issued approximately 27.1 million shares of its common stock for the acquisition of Cliffs Drilling (see Note B). As of December 31, 1998, 11,066,958 shares of authorized, unissued shares of common stock were reserved for issuance under the Company's stock plans (net of forfeitures) and 282,192 shares of authorized, unissued shares of common stock were reserved for issuance for contingent obligations relating to asset purchases. (J) EMPLOYEE BENEFIT PLANS PENSION AND POSTRETIREMENT BENEFITS - The Company has three noncontributory pension plans. Substantially all of the R&B employees paid from a U.S. payroll are covered by one or more of these plans. Effective January 1, 1998, substantially all of the Falcon employees paid from a U.S. payroll began accruing benefit service although they were not eligible to participate in the plans until January 1, 1999. Plan benefits are primarily based on years of service and average high thirty- six month compensation. The Reading & Bates Pension Plan (the "Domestic Plan") is qualified under the Employee Retirement Income Security Act (ERISA). It is the Company's policy to fund this plan not less than the minimum required by ERISA. It is the Company's policy to contribute to the Reading & Bates Offshore Pension Plan (the "Offshore Plan") an amount equal to the normal cost plus amounts sufficient to amortize the initial unfunded actuarial liability and subsequent unfunded liability caused by plan or assumption changes over thirty years. The unfunded liability arising from actuarial gains and losses is funded over fifteen years. The Offshore Plan is a nonqualified plan and is not subject to ERISA funding requirements. The Domestic and Offshore Plans invest in cash equivalents, fixed income and equity securities. The Reading & Bates Retirement Benefit Replacement Plan (the "Replacement Plan") is a self-administered unfunded excess benefit plan. All members of the Domestic Plan or the Reading & Bates Savings Plan are potential participants in the Replacement Plan. In addition to providing pension benefits, R&B provides certain health care and life insurance benefits for its retired employees. Employees may become eligible for these benefits if they reach normal or early retirement age while working for R&B and if they have accumulated 25 years of service (15 years prior to January 1, 1996). Health care costs are paid as they are incurred. Life insurance benefits are provided through an insurance company whose premiums are based on benefits paid during the year. The following table includes the aggregate of the Company's three pension plans and the Company's postretirement benefits plan. All three pension plans have projected benefit obligations in excess of plan assets. Only the Replacement Plan has an accumulated benefit obligation in excess of plan assets, and such accumulated benefit obligation was $3.8 million and $3.3 million as of December 31, 1998 and 1997, respectively. There are no assets held in the Replacement Plan. Pension Postretirement -------------- -------------- 1998 1997 1998 1997 ------ ------ ------ ------ (dollars in millions) Change in projected benefit obligation: Projected benefit obligation at beginning of year $ 77.5 $ 67.9 $ 10.5 $ 10.3 Service cost 2.0 1.8 .1 .1 Interest cost 5.5 4.9 .8 .7 Participant contributions - - .1 .1 Plan amendments (2.1) - - - Actuarial (gain) loss 13.3 7.4 1.8 (.1) Benefits paid (4.7) (4.5) (.8) (.6) ------ ------ ------ ------ Projected benefit obligation at end of year 91.5 77.5 12.5 10.5 ------ ------ ------ ------ Change in plan assets: Plan assets at fair value at beginning of year 69.8 59.1 - - Actual return on plan assets 8.6 10.2 - - Employer contributions 6.1 5.0 .7 .5 Participant contributions - - .1 .1 Benefits paid (4.7) (4.5) (.8) (.6) ------ ------ ------ ------ Plan assets at fair value at end of year 79.8 69.8 - - ------ ------ ------ ------ Funded status of plan (11.7) (7.7) (12.5) (10.5) Unrecognized net (gain) loss 22.2 10.9 (1.6) (3.5) Unrecognized prior service cost (3.8) (2.0) (1.3) (1.7) Unrecognized net transition obligation .9 .7 - .2 ------ ------ ------ ------ Prepaid (accrued) pension cost $ 7.6 $ 1.9 $(15.4) $(15.5) ====== ====== ====== ====== Weighted-average assumptions: Discount rate 6.75% 7.40% 6.75% 7.40% Long-term rate of return 10.00% 10.00% - - Salary scale 6.90% 6.90% 4.50% 4.50% Net benefit costs for the years ended December 31, 1998, 1997 and 1996 included the following (in millions): Pension Postretirement ------------------- ------------------- 1998 1997 1996 1998 1997 1996 ----- ----- ----- ----- ----- ----- Service cost $ 1.9 $ 1.6 $ 1.8 $ .2 $ .1 $ .1 Interest cost 5.5 4.9 4.6 .8 .7 .8 Expected return on plan assets (6.9) (10.2) (5.2) - - - Amortization of: Unrecognized transition obligation (.1) (.1) (.1) - - - Unrecognized prior service cost (.3) (.3) (.3) (.4) (1.0) (1.0) Unrecognized actuarial (gain)/loss .4 .1 .2 (.1) (.1) (.1) Loss due to change in attribution period - - - .2 .2 .2 Deferral of asset gain - 4.4 - - - - ----- ----- ----- ----- ----- ----- Net benefit costs $ .5 $ .4 $ 1.0 $ .7 $ (.1) $ - ===== ===== ===== ===== ===== ===== The health care cost trend rates used to measure the expected cost in 1999 for medical, dental and vision benefits were 8%, 5.5% and 5.5%, respectively, each graded down to an ultimate trend rate of 5%, 4.5% and 4.5%, respectively, to be achieved in the year 2021. A one-percentage-point change in assumed health care cost trend rates would have the following effects (in millions): 1-Percentage- 1-Percentage- Point Increase Point Decrease -------------- -------------- Effect on total of service and interest cost components $ .1 $ (.1) Effect on postretirement benefit obligation $1.4 $(1.1) SAVINGS PLANS - The Company has three savings plans which allow an employee to contribute up to 16% of their base salary (subject to certain limitations) and the Company may make matching contributions at its discretion. Employees may direct the investment of their contributions and the contributions of the Company in various plan investment options. The Company's matching contributions vest within five years of an employee's service with the Company. Compensation costs under the plans amounted to $4.6 million in 1998, $2.7 million in 1997 and $1.6 million in 1996. STOCK PLANS - The Company has 14 stock plans which are intended to provide an incentive that will allow the Company to retain persons of the training, experience and ability necessary for the development and financial success of the Company. Such plans provide for grants of stock options, stock appreciation rights, stock awards and cash awards, which may be granted singly, in combination or in tandem. All stock options awarded under these plans expire ten years from the date of their grant. Four of these plans were originally adopted by Falcon, five by R&B, two by Cliffs Drilling and three by the Company. As a result of the business combination between R&B and Falcon, and R&B Falcon and Cliffs Drilling, all of the R&B, Falcon and Cliffs Drilling plans were assumed by the Company, and the options outstanding thereunder were converted to options to acquire common stock of R&B Falcon (with appropriate adjustments to reflect the exchange ratios). The Company's Reading & Bates Corporation 1990 Stock Option Plan authorized options with respect to approximately 2.3 million shares of common stock to be granted to certain employees of R&B at an adjusted option price of $6.25 per share. In 1991, options with respect to all 2.3 million shares were granted and vested over a four-year period. Such grant's option price was less than the market price on the date of grant and the difference was recorded as compensation expense during the vesting period. The Company's Reading & Bates Corporation 1992 Long-Term Incentive Plan (the "1992 Incentive Plan") authorized 1,180,000 shares of common stock to be available for awards. In 1992, restricted stock awards with respect to 354,000 shares were granted to certain officers of R&B. Such shares awarded were restricted as to transfer until vested pursuant to a schedule whereby 1/24th of the total number of shares vested per calendar quarter from June 30, 1992 through March 31, 1998 (subject to certain conditions). The market value at the date of grant of the common stock granted was recorded as unearned compensation and was amortized to expense over the periods during which the restrictions lapse or shares vest. In 1995, stock options with respect to the remaining 826,000 shares were granted to certain officers and employees of R&B at adjusted option prices ranging from $7.627 to $11.759 per share (the market price on the date of grants). Such options become exercisable either over a one or four year period from the date of grant. All stock awards under the 1992 Incentive Plan vested on December 31, 1997 as a result of the merger of R&B and Falcon (see Note B). The Company's Reading & Bates Corporation 1995 Director Stock Option Plan authorized 236,000 shares of common stock to be available for awards of stock options to non-employee members of the board of directors at an adjusted option price of $6.25 per share. In 1995, R&B granted 141,600 options. The market value of R&B's common stock at the date of grant was less than the option price, and no compensation expense was recorded. The Company's Reading & Bates Corporation 1995 Long-Term Incentive Plan ("1995 Incentive Plan") authorized 2,950,000 shares of common stock to be available for awards. In 1995, stock options with respect to 708,000 shares were granted to an officer of R&B at an adjusted option price of $11.759 per share (the market price on the date of grant). Such options became exercisable one year from the date of grant. Also in 1995, restricted stock awards with respect to 642,156 shares were granted to certain employees of R&B. Such shares awarded were restricted as to transfer until fully vested three years from the date of grant. The market value at the date of grant of the common stock granted was recorded as unearned compensation and was amortized to expense over the period during which the shares vest. In 1996, stock options with respect to 177,000 shares were granted to an officer of R&B at an adjusted option price of $23.729 per share (the market price on the date of the grant). Such options became exercisable over a three-year period from the date of grant. Also in 1996, restricted stock awards with respect to 489,228 shares were granted to certain employees of R&B. Such shares awarded were restricted as to transfer until fully vested three years from the date of grant. The market value at the date of grant of the common stock granted was recorded as unearned compensation and was amortized to expense over the period during which the shares vest. In 1997, stock options with respect to 902,582 shares were granted to officers of R&B at an adjusted option price of $20.127 per share and in August 1997 R&B rescinded such option grants. Under the 1995 Incentive Plan, stock options and restricted stock awards with respect to 868,700 shares vested on December 31, 1997 as a result of the merger of R&B and Falcon (See Note B). The Company's Reading & Bates Corporation 1997 Long-Term Incentive Plan (the "1997 Incentive Plan") authorized 2,950,000 shares of common stock to be available for awards. In 1997, restricted stock awards with respect to 33,866 shares were granted to certain employees of R&B. Such shares awarded were restricted as to transfer until fully vested three years from the date of grant. The market value at the date of grant of the common stock granted was recorded as unearned compensation and was amortized to expense over the period during which the shares vest. Also in 1997, stock options with respect to 6,018 shares were granted to an officer of R&B at an adjusted option price of $20.127 per share and in August 1997 R&B rescinded such option grants. Under the 1997 Incentive Plan, restricted stock awards with respect to 33,866 shares vested on December 31, 1997 as a result of the merger of R&B and Falcon (see Note B). The Company's Falcon Drilling Company, Inc. 1992 Stock Option Plan authorized options with respect to 1.0 million shares of common stock to be granted to certain employees and directors of Falcon. In 1992, options with respect to all 1.0 million shares were granted at adjusted option prices ranging from $1.665 to $1.85 per share and vested immediately. No compensation expense was recorded as a result of the option price being the estimated market price of Falcon's common stock on the date of grant. The Company's Falcon Drilling Company, Inc. 1994 Stock Option Plan authorized options with respect to 570,000 shares of common stock to be granted to certain employees and directors of Falcon. In 1994, options with respect to all 570,000 shares were granted at an adjusted option price of $5.00 per share, vesting ratably over three years. No compensation expense was recorded as a result of the option price being the estimated market price of Falcon's common stock on the date of grant. The Company's Falcon Drilling Company, Inc. 1995 Stock Option Plan authorized options with respect to 1.0 million shares of common stock to be granted to certain employees and directors of Falcon. In 1995, options with respect to 250,000 shares were granted at an adjusted option price of $5.00 per share, vesting ratably over three years. In 1996, options with respect to 280,000 shares were granted at an adjusted option price of $6.065 per share, vesting over two years and options with respect to 150,000 shares were granted at an adjusted option price of $9.72 per share, vesting ratably over five years. In February 1997, options with respect to 258,000 shares were granted at an adjusted option price of $12.50 per share and in November 1997 Falcon rescinded such option grants. No compensation expense was recorded as a result of the option price being the estimated market price of Falcon's common stock on the date of grant. The Company's Falcon Drilling Company, Inc. 1997 Stock Option Plan authorized options with respect to 1.2 million shares of common stock to be granted to certain employees and directors of Falcon. In July 1997, options with respect to 3,000 shares were granted at an option price of $12.50 per share and in November 1997 Falcon rescinded such option grants. In July 1997, options for 40,000 shares were granted at an option price of $29.00 per share, vesting ratably over three years. No compensation expense was recorded as a result of the option price being the estimated market price of Falcon's common stock on the date of grant. The Company's Cliffs Drilling Company 1988 Incentive Equity Plan and Cliffs Drilling Company 1998 Incentive Equity Plan were both assumed by the Company on December 1, 1998 as a result of the purchase of Cliffs Drilling (see Note B). Under these plans, the Company assumed outstanding options to purchase 1,052,300 shares of common stock at adjusted option prices ranging from $3.79 to $40.89 per share and expiring at dates ranging from 2000 to 2008. All such options vested on December 1, 1998 as a result of the Company's purchase of Cliffs Drilling. The Company's 1998 Employee Long-Term Incentive Plan authorized 3.2 million shares of common stock to be available for awards. In 1998, stock options with respect to 100,000 shares were granted to an employee of the Company at an option price of $22.375 per share (the market price on the date of grant) and stock options with respect to 1,832,500 shares were granted to certain employees of the Company at an option price of $12.9375 per share (the market price on the date of grant). Such options become exercisable over a three year period. Also in 1998, restricted stock awards with respect to 941,500 shares were granted to certain employees of the Company. Such shares awarded are restricted as to transfer until fully vested three years from the date of grant. The market value at the date of grant of the common stock granted was recorded as unearned compensation and will be amortized to expense over the period during which the shares vest. The Company's 1998 Director Long-Term Incentive Plan authorized 250,000 shares of common stock to be available for awards to non-employee members of the board of directors. As of December 31, 1998, no awards have been made under this plan. The Company's 1998 Acquisition Option Plan authorized options with respect to 1.0 million shares of common stock to be granted to certain employees of Cliffs Drilling. On December 1, 1998, options with respect to all 1.0 million shares were granted at an option price of $9.125 per share (the market price on the date of grant) and vest over a three year period. Unearned compensation relating to the Company's restricted stock awards is shown as a reduction of stockholders' equity. Compensation recognized for the years ending December 31, 1998, 1997 and 1996 totaled approximately $1.1 million, $17.8 million and $3.2 million, respectively. Stock option transactions under the plans were as follows: 1998 1997 1996 ------------------ ----------------- ------------------- Weighted Weighted Weighted Number Average Number Average Number Average of Options Price of Options Price of Options Price ---------- ----- ---------- ----- ---------- ----- Outstanding at beginning of year 2,794,101 $ 9.83 3,836,159 $ 8.20 5,009,071 $ 6.52 Granted 2,930,500 11.96 40,000 29.00 607,000 12.12 Assumed from Cliffs Drilling 1,052,300 20.41 - - - - Exercised (226,547) 6.03 (1,073,562) 4.75 (1,771,888) 4.79 Forfeited - - (8,496) 7.63 (8,024) 7.22 --------- ------ --------- ------ --------- ------ Outstanding at end of year 6,550,354 12.61 2,794,101 9.83 3,836,159 8.20 ========= ========= ========= Exercisable at end of year 3,503,187 12.69 2,377,433 9.98 2,776,413 7.84 Available for grant at end of year 4,516,604 - 5,415,772 - 1,338,694 - The fair value of each grant since January 1, 1995 was estimated as of the date of the grant using the Black-Scholes option pricing model. The following weighted-average assumptions were used for the options granted pursuant to the 1998 Employee Long-Term Incentive Plan and the 1998 Acquisition Option Plan: risk-free interest rate of 4.9%, an expected life of 10 years and expected volatility of 68.2%. The resulting fair value of such options granted was $9.32. The Company accounts for these plans under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with SFAS 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts (in millions except per share amounts): 1998 1997 1996 ------- ------- ------- Net income (loss) applicable to common stockholders: As reported $ 102.8 $ (6.2) $ 103.1 Pro forma $ 101.3 $ (10.0) $ 98.4 Basic EPS: As reported $ .61 $ (.04) $ .70 Pro forma $ .60 $ (.06) $ .67 Diluted EPS: As reported $ .61 $ (.04) $ .67 Pro forma $ .60 $ (.06) $ .64 Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. (K) RELATED PARTY TRANSACTIONS Arcade had rig management agreements with Transocean Offshore Inc. (as successor to Sonat Offshore Drilling Inc.), a major shareholder of Arcade, for the operation and marketing of both of its drilling units. The management agreement for one of Arcade's drilling units expired in December 1995 and the other expired in October 1996, and a subsidiary of the Company now manages both drilling units. For the year ending December 31, 1996, Arcade paid to Transocean Offshore Inc. approximately $1.2 million for such management services. Additionally, for the year ended December 31, 1996, Arcade received from Transocean Offshore Inc. approximately $15.1 million pursuant to a bareboat charter agreement on one of the rigs. The former owners of a company acquired by the Company in 1992, who are also officers of Falcon, lease crewboats, tugboats and supply barges and other vessels to Falcon at a contracted bareboat rate of $100 per day for crewboats and tugboats and $60 per day for other vessels, with Falcon responsible for drydocking, painting and repairs. The former owners received revenues of $.9 million for each of the years ended December 31, 1998, 1997 and 1996. A director and stockholder of the Company is a partner in a law firm which provided legal services to the Company and certain of its affiliated entities. Fees paid by the Company to this law firm were $.1 million, $.2 million and $.6 million for the years ended December 31, 1998, 1997, and 1996, respectively. A director of the Company who provided consulting services to the Company received $.4 million in the year ended December 31, 1998. In June 1994, the Company entered into an agreement with Eilert-Olsen Investments, Inc. (Eilert-Olsen), to buy the equity interest of Eilert- Olsen for a nominal purchase price. In June 1994, Eilert-Olsen acquired three barge drilling rigs for a cost of approximately $2.8 million consisting of cash of approximately $.9 million and the assumption of debt of approximately $1.9 million secured by the three barge drilling rigs. The Company advanced $.9 million to Eilert-Olsen in June 1994 and has subsequently advanced approximately $.5 million to pay principal and interest due on this debt for each of the years ended December 31, 1998, 1997 and 1996. Due to the Company's affiliation with Eilert-Olsen, the financial statements of Eilert-Olsen and the option to purchase Eilert- Olsen from inception have been consolidated with the financial statements of the Company and, accordingly, the accounts and transactions between the Company and Eilert-Olsen have been eliminated in consolidation. In 1997 and 1996, the Company paid $.4 million and $.9 million respectively, to Bantam Services, Inc. under a contract pursuant to which Bantam is to supply, at cost, groceries and supplies to be used on certain of the Company's rigs. Bantam is entitled under the contract to bill third parties for meals and lodging supplied to their personnel on such rigs. In the absence of such contract, the Company would be entitled to bill the third parties for the food and lodging provided. Bantam is owned by an officer of Falcon Workover Company, Inc., a wholly- owned subsidiary of the Company. (L) SEGMENT INFORMATION The Company's revenues are generated primarily from its marine drilling rigs. The Company's management has organized these rigs by general equipment types based on water depth capability. Any rig capable of drilling in water depths greater than 400 feet is considered deepwater. In addition, as a result of the purchase of Cliffs Drilling, the Company provides turnkey drilling services and land drilling operations both of which are included in the engineering services and land operations segment. The Company's development segment primarily consists of the Company's oil and gas activities that are currently being held for sale (see Note N). Operating income by segment for the years ended December 31, 1998, 1997 and 1996 is as follows (in millions): 1998 1997 1996 ------- ------- ------- Deepwater: Revenues $ 392.5 $ 349.3 $ 211.2 Operating expenses (184.4) (140.2) (90.1) Cancellation of conversion projects (118.3) - - Depreciation (45.7) (38.6) (22.4) ------- ------- ------- Operating income 44.1 170.5 98.7 ------- ------- ------- Shallow water: Revenues 382.9 333.2 224.9 Operating expenses (161.5) (158.7) (128.3) Depreciation (27.0) (29.0) (26.8) ------- ------- ------- Operating income 194.4 145.5 69.8 ------- ------- ------- Inland water: Revenues 244.3 249.9 172.9 Operating expenses (169.1) (136.7) (110.2) Depreciation (23.5) (16.7) (12.7) ------- ------- ------- Operating income 51.7 96.5 50.0 ------- ------- ------- Engineering services and land operations: Revenues 12.5 - - Operating expenses (10.5) - - Depreciation (.5) - - ------- ------- ------- Operating income 1.5 - - ------- ------- ------- Development: Revenues .4 .6 .6 Operating expenses (22.0) (130.2) (2.9) Depreciation (.1) (.1) - ------- ------- ------- Operating income (21.7) (129.7) (2.3) ------- ------- ------- Unallocated depreciation and amortization (.8) (.3) (.4) Unallocated general and administrative (61.4) (55.7) (37.0) Unallocated merger expenses 8.0 (66.4) - ------- ------- ------- Operating income $ 215.8 $ 160.4 $ 178.8 ======= ======= ======= Total assets by segment at December 31, 1998, 1997 and 1996 were as follows (in millions): 1998 1997 1996 --------- --------- --------- Deepwater $ 2,078.6 $ 1,222.1 $ 574.6 Shallow water 1,038.5 445.2 681.3 Inland water 251.2 228.0 106.9 Engineering services and land operations 156.9 - - Development 10.5 .5 51.0 Corporate 173.6 37.2 42.0 --------- --------- --------- Total $ 3,709.3 $ 1,933.0 $ 1,455.8 ========= ========= ========= Geographic information about the Company's operations for the three years ended December 31, 1998 is as follows (in millions): 1998 1997 1996 --------- --------- --------- Operating revenues: (1) United States $ 453.0 $ 451.2 $ 276.7 Europe 251.9 247.3 146.9 West Africa 126.5 69.9 25.5 Southeast Asia 83.4 82.4 59.0 South America 75.2 50.9 52.2 Australia 26.2 23.4 39.6 Mediterranean- Middle East 16.4 7.9 8.7 Other Foreign - - 1.0 Corporate - - - --------- --------- --------- Total $ 1,032.6 $ 933.0 $ 609.6 ========= ========= ========= Identifiable assets: United States $ 1,112.4 $ 828.4 $ 458.5 Europe 922.4 535.2 402.2 Southeast Asia 659.3 92.7 133.4 South America 499.1 175.1 234.6 West Africa 242.2 190.3 47.0 Mediterranean- Middle East 76.3 52.2 14.0 Australia 24.0 21.9 47.9 Other Foreign - - 76.2 Corporate 173.6 37.2 42.0 --------- --------- --------- Total $ 3,709.3 $ 1,933.0 $ 1,455.8 ========= ========= ========= (1) Revenues are shown by countries in which the Company's marine and drilling units operated. For the year ended December 31, 1998, revenues from one customer of $116.1 million, reported in the deepwater segment, accounted for 11.2% of the Company's total operating revenues. For the year ended December 31, 1997, there were no customers that individually accounted for 10.0% or more of the Company's total operating revenues. For the year ended December 31, 1996, revenues from one customer of $70.6 million, $52.4 million reported in the deepwater segment, $15.0 million reported in the shallow water segment and $3.2 million reported in the inland water segment, accounted for 11.6% of the Company's total operating revenues. (M) EARNINGS PER SHARE Basic net income per common share is computed by dividing net income, after deducting the preferred stock dividend, by the weighted average number of common shares outstanding during the period. Diluted net income per common share is the same as basic and assumes the exercise of outstanding stock options and the issuance of restricted stock both computed using the treasury stock method and the conversion of preferred stock if dilutive. The following table reconciles the numerators and denominators of the basic and diluted per common share computations for income from continuing operations before extraordinary loss for the three years ended December 31, 1998, 1997 and 1996 as follows (in millions except per share amounts): 1998 1997 1996 ------- ------- ------- Numerator: Income from continuing operations before extraordinary loss $ 91.0 $ 29.8 $ 106.7 Dividends on preferred stock - - (3.6) ------- ------- ------- Income from continuing operations before extraordinary loss - basic 91.0 29.8 103.1 Effect of dilutive securities: Dividends on preferred stock - - 3.6 ------- ------- ------- Income from continuing operations before extraordinary loss - diluted $ 91.0 $ 29.8 $ 106.7 ======= ======= ======= Denominator: Weighted average common shares outstanding - basic 167.5 164.1 147.4 Outstanding stock options and restricted stock 1.3 2.1 2.7 Convertible preferred stock - - 7.6 ------- ------- ------- Weighted average common shares outstanding - diluted 168.8 166.2 157.7 ======= ======= ======= Earnings per share: Income from continuing operations before extraordinary loss: Basic $ .54 $ .18 $ .70 Diluted $ .54 $ .18 $ .67 (N) DISCONTINUED OPERATIONS The Company, primarily through its wholly owned subsidiary Reading & Bates Development Co. ("Devco") and, to an insignificant extent through its wholly owned subsidiary Raptor Exploration Company, Inc., engages in oil and gas exploration activities. Devco engages primarily in the acquisition of working interests in offshore oil and gas properties pursuant to which it shares in reservoir and oil and gas price risks and thus profits and losses from such properties. In March 1998, the Company decided to divest its oil and gas segment, and in the financial statements for the three years ended December 31, 1997, 1996 and 1995, the segment was accounted for as a discontinued operation. As of March 1999, the Company has not been able to divest this segment on terms it found acceptable and in accordance with generally accepted accounting principles the Company has reclassified its financial statements as if this segment had not been discontinued. The Company does not intend to engage in any material activities in this segment and still intends to divest this segment. In 1998, Devco incurred dryhole costs of $11.7 million and asset impairment charges of $11.3 million. In 1997, Devco incurred dryhole costs of $65.1 million and asset impairment charges of $42.8 million. At December 31, 1998, none of the Company's oil and gas properties contained proved reserves and all such properties had been written off. Oil and gas assets held for sale at December 31, 1998 which consisted primarily of a receivable for the sale of an interest in an oil and gas property were $11.7 million and related liabilities totaled $4.7 million which consisted primarily of a payable for an interest in an oil and gas property. Oil and gas assets held for sale at December 31, 1997 which consisted primarily of oil and gas properties and receivables were $38.4 million and related liabilities totaled $44.2 million, including a $36.0 million reserve for estimated losses from operations until disposal. Such $36.0 million reserve was reversed in 1998 in accordance with the Company reclassifying the oil and gas segment as if it had not been discontinued. There were no revenues from the business held for sale during the years ended December 31, 1998, 1997, and 1996. The successful efforts method of accounting was used for oil and gas exploration and production activities. Under this method, acquisition costs for proved and unproved properties were capitalized when incurred. Exploration costs, including geological and geophysical costs and costs of carrying and retaining unproved properties, were charged to expense as incurred. The costs of drilling exploratory wells were capitalized pending determination of whether each well had discovered proved reserves. If proved reserves were not discovered, such drilling costs were charged to expense. Costs incurred to drill and equip development wells, including unsuccessful development wells, were capitalized. (O) QUARTER FINANCIAL DATA (unaudited) The following summarized quarterly financial data has been adjusted to reflect the recontinuance of the Company's oil and gas operations (see Note N). Summarized quarterly financial data for the two years ended December 31, 1998, are as follows (in millions except for per share amounts): Quarter -------------------------------------------- First Second Third Fourth Total ------- ------- ------- ------- -------- 1998: - ---- Operating revenues $ 279.4 $ 281.0 $ 243.5 $ 228.7 $ 1,032.6 Gross income (1) $ 130.1 $ 126.3 $ 77.3 $ 53.7 $ 387.4 Income (loss) from continuing operations before extraordinary loss (2) $ 61.5 $ 59.9 $ (28.2) $ (2.2) $ 91.0 Income from discontinued operations $ 8.3 $ .5 $ 7.7 $ 19.5 $ 36.0 Extraordinary loss (3) $ - $ (22.0) $ - $ (2.2) $ (24.2) Net income (loss) $ 69.8 $ 38.4 $ (20.5) $ 15.1 $ 102.8 Net income (loss) per common share: Basic: Continuing operations $ .37 $ .37 $ (.17) $ (.01) $ .54 Discontinued operations .05 - .05 .11 .21 Extraordinary loss - (.13) - (.01) (.14) ------- ------- ------- ------- --------- Net income (loss) $ .42 $ .24 $ (.12) $ .09 $ .61 ======= ======= ======= ======= ========= Diluted: Continuing operations $ .37 $ .37 $ (.17) $ (.01) $ .54 Discontinued operations .05 - .05 .11 .21 Extraordinary loss - (.13) - (.01) (.14) ------- ------- ------- ------- --------- Net income (loss) $ .42 $ .24 $ (.12) $ .09 $ .61 ======= ======= ======= ======= ========= 1997: - ---- Operating revenues $ 203.2 $ 218.4 $ 244.7 $ 266.7 $ 933.0 Gross income (1) $ 76.9 $ 82.3 $ 73.5 $ 48.8 $ 281.5 Income (loss) from continuing operations (4) $ 38.9 $ 44.0 $ 35.0 $ (88.1) $ 29.8 Loss from discontinued operations $ - $ - $ - $ (36.0) $ (36.0) Net income (loss) $ 38.9 $ 44.0 $ 35.0 $(124.1) $ (6.2) Net income (loss) per common share: Basic: Continuing operations $ .24 $ .27 $ .21 $ (.54) $ .18 Discontinued operations - - - (.21) (.22) ------- ------- ------- ------- --------- Net income (loss) $ .24 $ .27 $ .21 $ (.75) $ (.04) ======= ======= ======= ======= ========= Diluted: Continuing operations $ .24 $ .27 $ .21 $ (.54) $ .18 Discontinued operations - - - (.21) (.22) ------- ------- ------- ------- --------- Net income (loss) $ .24 $ .27 $ .21 $ (.75) $ (.04) ======= ======= ======= ======= ========= ___________________ (1) Gross income represents operating revenues less operating expenses, depreciation and amortization, and other, net. (2) The third quarter of 1998 and the fourth quarter of 1998 include cancellation of conversion project expense of $85.8 million and $32.5 million, respectively. (3) The extraordinary losses incurred in the second and fourth quarters of 1998 are shown net of a tax benefit of $11.9 million and $1.1 million, respectively. (4) The fourth quarter of 1997 includes merger expenses of $66.4 million. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III The information called for by Part III of Form 10-K is incorporated by reference from the Registrant's Proxy Statement relating to its annual meeting of Stockholders to be held May 19, 1999, which will be filed by the Registrant with the Securities and Exchange Commission no later than 120 days after the close of the fiscal year. PART IV Item 14. Exhibits, Financial Statements and Reports on Form 8-K (a)Financial Statements and Exhibits 1.Financial Statements: Report of Independent Public Accountants Consolidated Balance Sheet as of December 31, 1998 and 1997 Consolidated Statement of Operations for the years ended December 31, 1998, 1997 and 1996 Consolidated Statement of Cash Flows for the years ended December 31, 1998, 1997 and 1996 Consolidated Statement of Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements 2. Exhibits: 2.1 - Agreement and Plan of Merger, dated July 10, 1997, among R&B Falcon, FDC Acquisition Corp., Reading & Bates Acquisition Corp., Falcon and R&B. (Filed as Exhibit 2.1 to R&B Falcon's Registration Statement on Form S-4 dated November 20, 1997 and incorporated herein by reference.) 2.2 - Agreement and Plan of Merger, dated August 21, 1998 by and among Cliffs Drilling Company, R&B Falcon Corporation and RBF Cliffs Drilling Acquisition Corp. (Filed as Exhibit 2 to R&B Falcon's Registration Statement No. 333-63471 on Form S-4 dated September 15, 1998 and incorporated herein by reference.) 3.1 - Amended and Restated Certificate of Incorporation of R&B Falcon. (Filed as Exhibit 3.1 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 3.2 - Amended and Restated Bylaws of R&B Falcon. (Filed as Exhibit 3.2 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 4.1 - Form of R&B Falcon's Common Stock Certificate. (Filed as Exhibit 4.1 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 4.2 - Rights Agreement dated as of December 23, 1997 between R&B Falcon and American Stock Transfer and Trust Company. (Filed as Exhibit 4.2 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 4.3 - Registration Rights Agreement dated January 1, 1998 among the Company and the Stockholders of BSI Workover and Drilling, Inc. (Filed as Exhibit 4.1 to R&B Falcon's Quarterly Report on Form 10-Q for the First Quarter of 1998 and incorporated herein by reference.) 4.4 - Registration Rights Agreement dated as of April 8, 1998 among R&B Falcon Corporation and Credit Suisse First Boston, Chase Securities, Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Morgan Stanley Dean Witter. (Filed as Exhibit 4.2 to R&B Falcon's Registration Statement No. 333-56821 on Form S-4 dated June 15, 1998 and incorporated herein by reference.) 4.5 - Registration Rights Agreement dated July 1, 1998 by and between R&B Falcon Corporation, Kenneth Stage, T. George Delsa, Vial J. LeBlanc and Dr. William T. Barfield. (Filed as Exhibit 4 to R&B Falcon's Quarterly Report on Form 10-Q for the Third Quarter of 1998 and incorporated herein by reference.) 4.6 - Registration Rights Agreement dated December 17, 1998 among R&B Falcon Corporation, Credit Suisse First Boston Corporation, Nations Banc Montgomery Securities LLC, and Paribas Corporation. 4.7 - Indenture relating to R&B's 8% Senior Subordinated Convertible Debentures due 1998 dated as of August 29, 1989, between R&B and IBJ Schroder Bank & Trust Company, as Trustee. (Filed as Exhibit 4.1 to R&B's Annual Report on Form 10-K for 1989 and incorporated herein by reference.) 4.8 - Form of R&B's registered 8% Senior Subordinated Convertible Debentures due 1998. (Filed as Exhibit 4.2 to R&B's Registration No. 33-28580 and incorporated herein by reference.) 4.9 - Form of R&B's bearer 8% Senior Subordinated Convertible Debentures due 1998. (Filed as Exhibit 4.3 to R&B's Registration No. 33-28580 and incorporated herein by reference.) 4.10 - First Supplemental Indenture dated as of December 23, 1997 among the Company, R&B and IBJ Schroder Bank & Trust Company. (Filed as Exhibit 4.6 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 4.11 - Indenture dated as of January 15, 1994, between Falcon and Texas Commerce Bank National Association, including a form of Note. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, filed on April 29, 1994, Registration No. 33-78369 and incorporated herein by reference.) 4.12 - Supplemental Indenture dated as of June 3, 1994, pursuant to which Falcon Workover Company, Inc., became a Guarantor. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, Amendment No.1, filed on June 30, 1994, Registration No. 33-78360 and incorporated herein by reference.) 4.13 - Supplemental Indenture dated as of June 28, 1994, pursuant to which Raptor Exploration Company, Inc. and FALRIG Offshore (USA), L.P., and FALRIG Offshore Partners became Guarantors. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, Amendment No.1, filed on June 30, 1994, Registration No. 33-78360 and incorporated herein by reference.) 4.14 - Supplemental Indenture dated as of December 30, 1994, pursuant to which Falcon Inland, Inc., Falcon Services Company, Inc. and FALRIG de Venezuela, Inc. became Guarantors. (Filed as an exhibit to Falcon's Annual Report on form 10-K for the year ended December 31, 1994 and incorporated herein by reference.) 4.15 - Joinder Agreement dated as of June 3, 1994, pursuant to which Falcon Workover Company, Inc. became a Guarantor. (Filed as an exhibit to Falcon's Registration Statement of Form S-1, Amendment No. 3, filed on July 19, 1995, Registration No. 33-84582 and incorporated herein by reference.) 4.16 - Joinder Agreement dated as of June 28, 1994, pursuant to which Raptor Exploration Company, Inc., FALRIG Offshore (USA), L.P., and FALRIG Offshore partners became Guarantors. (Filed as an exhibit to Falcon's Registration Statement of Form S-1, Amendment No. 3, filed on July 19, 1995, Registration No. 33-84582 and incorporated herein by reference.) 4.17 - Joinder Agreement dated as of December 30, 1994, pursuant to which Falcon Inland, Inc., Falcon Services Company, Inc. and FALRIG de Venezuela, Inc. became Guarantors. (Filed as an exhibit to Falcon's Registration Statement of Form S-1, Amendment No. 3, filed on July 19, 1995, Registration No. 33- 84582 and incorporated herein by reference.) 4.18 - Joinder Agreement dated as of March 1, 1996, pursuant to which Falcon Atlantic, Ltd., Falcon Drilling do Brasil, Ltda., Falcon Drilling de Venezuela, Inc. and perforaciones FALRIG de Venezuela, C.A. became Guarantors. (Filed as an exhibit to Falcon's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.) 4.19 - Indenture dated as of March 1, 1996, between Falcon and Bank One, Texas, N. A., including a form of Note. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, filed on March 8, 1996, Registration No. 333-2114 and incorporated herein by reference.) 4.20 - Indenture dated as of April 14, 1998, between R&B Falcon Corporation, as Issuer, and Chase Bank of Texas, National Association, as Trustee, with respect to Series A and Series B of each of $250,000,000 6.5% Senior Notes due 2003, $350,000,000 6.75% Senior Notes due 2005, $250,000,000 6.95% Senior Notes due 2008, and $250,000,000 7 3/8% Senior Notes due 2018. (Filed as Exhibit 4.1 to R&B Falcon's Registration Statement No. 333-56821 on Form S-4 dated June 15, 1998 and incorporated herein by reference.) 4.21 - Indenture dated as of December 22, 1998, between R&B Falcon Corporation, as Issuer and Chase Bank of Texas, National Association, as Trustee, with respect to $400,000,000 Series A and Series B 9 1/8% Senior notes due 2003, and 9 1/2% Senior Notes due 2008. Falcon hereby agrees to furnish to the Commission upon its request any instrument defining the rights of holders of long-term debt of Falcon and its consolidated subsidiaries and for any of its unconsolidated subsidiaries for which financial statements are required to be filed with respect to long-term debt not being registered which does not exceed 10% of the total assets of Falcon and its subsidiaries on a consolidated basis. 9.1 - Voting Trust Agreement dated as of November 12, 1991, between Lydia Richardson and Linda Webster as common stockholders and Steven A. Webster as voting trustee. (Filed as an exhibit to Falcon's Registration Statement on Form S- 4, filed on April 29, 1994, Registration No. 33-78369 and incorporated herein by reference.) 9.2 - Amendment to Voting Trust Agreement dated as of November 1, 1995. (Filed as an exhibit to Falcon's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.) 9.3 - Voting Trust Agreement dated as of November 21, 1989, between Lydia Richardson and Linda Webster as common stockholders and Steven A. Webster as voting trustee. (Filed as an exhibit to Falcon's Registration Statement on Form S- 1, Amendment No.2, filed on July 6, 1995, Registration No. 33-84582 and incorporated herein by reference.) 9.4 - Voting Trust Agreement dated as of May 30, 1990, between Lydia Richardson and Linda Webster as common stockholders and Steven A. Webster as voting trustee. (Filed as an exhibit to Falcon's Registration Statement on Form S-1, Amendment No.2, filed on July 6, 1995, Registration No. 33- 84582 and incorporated herein by reference.) 10.1* - Reading & Bates 1990 Stock Option Plan. (Filed as Appendix A to R&B's Proxy Statement dated April 26, 1993 and incorporated herein by reference.) 10.2* - 1992 Long-Term Incentive Plan of Reading & Bates Corporation. (Filed as Exhibit B to R&B's Proxy Statement dated April 27, 1992 and incorporated herein by reference.) 10.3* - 1995 Long-Term Incentive Plan of Reading & Bates Corporation. (Filed as Exhibit 99.A to R&B's Proxy Statement dated March 29, 1995 and incorporated herein by reference.) 10.4* - 1995 Director Stock Option Plan of Reading & Bates Corporation. (Filed as Exhibit 99.B to R&B's Proxy Statement dated March 29, 1995 and incorporated herein by reference.) 10.5* - 1996 Director Restricted Stock Award Plan of Reading & Bates Corporation. (Filed as Exhibit 99.B to R&B's Proxy Statement dated March 28, 1997 and incorporated herein by reference.) 10.6* - 1997 Long-Term Incentive Plan of Reading & Bates Corporation. (Filed as Exhibit 99.A to R & B's Proxy Statement dated March 18, 1997 and incorporated herein by reference.) 10.7* - 1992 Stock Option Plan of Falcon. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, filed on April 29, 1994, Registration No. 33-78369 and incorporated herein by reference.) 10.8* - 1994 Stock Option Plan of Falcon. (Filed as an exhibit to Falcon's Annual Report on form 10-K for the year ended December 31, 1994 and incorporated herein by reference.) 10.9* - 1995 Stock Option Plan of Falcon. (Filed as an exhibit to Falcon's Annual Report on form 10-K for the year ended December 31, 1994 and incorporated herein by reference.) 10.10* - 1998 Employee Long-Term Incentive Plan of R&B Falcon Corporation. (Filed as Exhibit 99.A to the Company's Proxy Statement dated April 23,1998 and incorporated by reference.) 10.11* - 1998 Director Long-Term Incentive Plan of R&B Falcon Corporation. (Filed as Exhibit 99.B to the Company's Proxy Statement dated April 23,1998 and incorporated by reference.) 10.12* - Cliffs Drilling Company 1988 Incentive Equity Plan. (Filed as Exhibit 10.8 to Cliffs Drilling Registration Statement on Form S-1, Registration No. 33-23508 and incorporated herein by reference.) 10.13* - Amendment No. 1 dated May 17, 1990 to the Cliffs Drilling Company 1988 Incentive Equity Plan (Filed as Exhibit 10.7.1 to Cliffs Drilling Annual Report on Form 10-K for 1993 and incorporated herein by reference.) 10.14* - Amendment No. 2 dated May 20, 1993 to the Cliffs Drilling Company 1988 Incentive Equity Plan (Filed as Exhibit 10.7.2 to Cliffs Drilling Annual Report on Form 10-K for 1993 and incorporated herein by reference.) 10.15* - Amendment No. 3 dated May 22, 1996 to the Cliffs Drilling Company 1988 Incentive Equity Plan (Filed as Exhibit 10.7.3 to Cliffs Drilling Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.16* - Cliffs Drilling Company 1998 Incentive Equity Plan. (Filed under Cliffs Drilling Proxy Statement dated April 8, 1998 and incorporated herein by reference.) 10.17* - Stock Option Agreement dated as of February 7, 1995 between A.L. Chavkin and R&B. (Filed as Exhibit 10.40 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.) 10.18* - Stock Option Agreement dated as of February 7, 1995 between Willem Cordia and R&B. (Filed as Exhibit 10.41 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.) 10.19* - Stock Option Agreement dated as of February 7, 1995 between C.A. Donabedian and R&B. (Filed as Exhibit 10.42 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.) 10.20* - Stock Option Agreement dated as of February 7, 1995 between Ted Kalborg and R&B. (Filed as Exhibit 10.43 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.) 10.21* - Stock Option Agreement dated as of February 7, 1995 between J.W. McLean and R&B. (Filed as Exhibit 10.44 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.) 10.22* - Stock Option Agreement dated as of February 7, 1995 between R.L. Sandmeyer and R&B. (Filed as Exhibit 10.45 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.) 10.23* - Stock Option Agreement dated as of February 7, 1995 between S.A. Webster and R&B. (Filed as Exhibit 10.46 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.) 10.24* - Stock Option Agreement dated as of April 19, 1995 between M.A.E. Lacqueur and R&B. (Filed as Exhibit 10.47 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.) 10.25* - Stock Option Agreement with respect to the 1995 Long-Term Incentive Plan dated February 6, 1996 between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.48 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.) 10.26* - Amendment No. 1, dated as of December 3, 1996 to Stock Option Agreement with respect to the 1995 Long-Term Incentive Plan between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.22 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.27* - Stock Option Agreement with respect to the 1992 Long-Term Incentive Plan dated February 6, 1996 between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.49 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.) 10.28* - Amendment No. 1, dated as of December 3, 1996 to Stock Option Agreement with respect to the 1992 Long-Term Incentive Plan between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.24 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.29* - Employment Agreement dated as of November 1, 1991 between R&B and T. W. Nagle. (Filed as Exhibit 10.35 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.) 10.30* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of November 1, 1991 between R&B and T.W. Nagle. (Filed as Exhibit 10.24 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.) 10.31* - Employment Agreement dated March 25, 1998 between the Company and Tim W. Nagle. (Filed as Exhibit 10.9 to R&B Falcon's Quarterly Report on Form 10-Q for the First Quarter of 1998 and incorporated herein by reference.) 10.32* - Employment Agreement dated as of November 1, 1991 between R&B and C. R. Ofner. (Filed as Exhibit 10.36 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.) 10.33* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of November 1, 1991 between R&B and C. R. Ofner. (Filed as Exhibit 10.24 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.) 10.34* - Employment Agreement dated March 25, 1998 between the Company and Charles R. Ofner. (Filed as Exhibit 10.12 to R&B Falcon's Quarterly Report on Form 10-Q for the First Quarter of 1998 and incorporated herein by reference.) 10.35* - Employment Agreement dated as of November 1, 1991 between R&B and D. L. McIntire. (Filed as Exhibit 10.37 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.) 10.36* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of November 1, 1991 between R&B and D. L. McIntire. (Filed as Exhibit 10.28 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.) 10.37* - Employment Agreement dated as of November 1, 1991 between R&B and W. K. Hillin. (Filed as Exhibit 10.38 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.) 10.38* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of November 1, 1991 between R&B and W. K. Hillin. (Filed as Exhibit 10.30 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.) 10.39* - Employment Agreement dated March 25, 1998 between the Company and Wayne K. Hillin. (Filed as Exhibit 10.10 to R&B Falcon's Quarterly Report on Form 10-Q for the First Quarter of 1998 and incorporated herein by reference.) 10.40* - Employment Agreement dated as of January 1, 1992 between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.42 to Registration No. 33-51120 and incorporated herein by reference.) 10.41* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of January 1, 1992 between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.32 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.) 10.42* - Employment Agreement dated March 25, 1998 between the Company and Paul B. Loyd, Jr. (Filed as Exhibit 10.4 to R&B Falcon's Quarterly Report on Form 10-Q for the First Quarter of 1998 and incorporated herein by reference.) 10.43* - Employment Agreement dated March 25, 1998 between the Company and Steve A. Webster. (Filed as Exhibit 10.5 to R&B Falcon's Quarterly Report on Form 10-Q for the First Quarter of 1998 and incorporated herein by reference.) 10.44* - Employment Agreement dated March 25, 1998 between the Company and Andrew Bakonyi. (Filed as Exhibit 10.6 to R&B Falcon's Quarterly Report on Form 10-Q for the First Quarter of 1998 and incorporated herein by reference.) 10.45* - Employment Agreement dated March 25, 1998 between the Company and Bernie Stewart. (Filed as Exhibit 10.7 to R&B Falcon's Quarterly Report on Form 10-Q for the First Quarter of 1998 and incorporated herein by reference.) 10.46* - Employment Agreement dated March 25, 1998 between the Company and Robert F. Fulton. (Filed as Exhibit 10.8 to R&B Falcon's Quarterly Report on Form 10-Q for the First Quarter of 1998 and incorporated herein by reference.) 10.47* - Employment Agreement dated March 25, 1998 between the Company and Leighton E. Moss. (Filed as Exhibit 10.11 to R&B Falcon's Quarterly Report on Form 10-Q for the First Quarter of 1998 and incorporated herein by reference.) 10.48* - Restricted Stock Award Agreement dated December 5, 1995 under the 1995 Long-Term Incentive Plan between T. W. Nagle and R&B. (Filed as Exhibit 10.42 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.49* - Restricted Stock Award Agreement dated December 5, 1995 under the 1995 Long-Term Incentive Plan between C. R. Ofner and R&B. (Filed as Exhibit 10.43 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.50* - Restricted Stock Award Agreement dated December 5, 1995 under the 1995 Long-Term Incentive Plan between D. L. McIntire and R&B. (Filed as Exhibit 10.44 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.51* - Restricted Stock Award Agreement dated December 5, 1995 under the 1995 Long-Term Incentive Plan between W. K. Hillin and R&B. (Filed as Exhibit 10.45 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.52* - Restricted Stock Award Agreement dated December 3, 1996 under the 1996 Director Restricted Stock Award Plan between A. L. Chavkin and R&B. (Filed as Exhibit 10.46 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.53* - Restricted Stock Award Agreement dated December 3, 1996 under the 1996 Director Restricted Stock Award Plan between C. A. Donabedian and R&B. (Filed as Exhibit 10.47 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.54* - Restricted Stock Award Agreement dated December 3, 1996 under the 1996 Director Restricted Stock Award Plan between M. A. E. Laqueur and R&B. (Filed as Exhibit 10.49 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.55* - Restricted Stock Award Agreement dated December 3, 1996 under the 1996 Director Restricted Stock Award Plan between R. L. Sandmeyer and R&B. (Filed as Exhibit 10.51 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.56* - Restricted Stock Award Agreement dated December 3, 1996 under the 1995 Long-Term Incentive Plan between Paul B. Loyd, Jr. and R&B. (Filed as Exhibit 10.52 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.57* - Stock Option Agreement dated December 3, 1996 under the 1995 Long-Term Incentive Plan between T. W. Nagle and R&B. (Filed as Exhibit 10.53 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.58* - Restricted Stock Award Agreement dated December 3, 1996 under the 1995 Long-Term Incentive Plan between C. R. Ofner and R&B. (Filed as Exhibit 10.54 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.59* - Restricted Stock Award Agreement dated December 3, 1996 under the 1995 Long-Term Incentive Plan between D. L. McIntire and R&B. (Filed as Exhibit 10.55 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.60* - Restricted Stock Award Agreement dated December 3, 1996 under the 1995 Long-Term Incentive Plan between W. K. Hillin and R&B. (Filed as Exhibit 10.56 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.61* - Stock Option Agreement dated as of April 24, 1997 between R&B and P.B. Loyd, Jr. under R&B's 1995 Long-Term Incentive Plan. (Filed as Exhibit 10.53 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.62* - Stock Option Agreement dated as of April 24, 1997 between R&B and T. W. Nagle under R&B's 1995 Long-Term Incentive Plan. (Filed as Exhibit 10.54 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.63* - Stock Option Agreement dated as of April 24, 1997 between R&B and C. R. Ofner under R&B's 1995 Long-Term Incentive Plan. (Filed as Exhibit 10.55 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.64* - Stock Option Agreement dated as of April 24, 1997 between R&B and D.L. McIntire under R&B's 1995 Long-Term Incentive Plan. (Filed as Exhibit 10.56 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.65* - Stock Option Agreement dated as of April 24, 1997 between R&B and W. K. Hillin under R&B's 1995 Long-Term Incentive Plan. (Filed as Exhibit 10.57 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.66* - Stock Option Agreement dated as of April 24, 1997 between R&B and W.K. Hillin under R&B's 1997 Long-Term Incentive Plan. (Filed as Exhibit 10.58 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.67* - Amended and Restated Stock Option Agreement dated as of February 16, 1995 between Falcon and Robert F. Fulton. (Filed as Exhibit 10.59 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.68* - Amended and Restated Stock Option Agreement dated as of January 23, 1996 between Falcon and Steven A. Webster. (Filed as Exhibit 10.60 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.69* - Stock Option Agreement dated as of April 15, 1996 between Falcon and Bernie W. Stewart. (Filed as Exhibit 10.61 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.70* - Rescission Agreement dated August 5, 1997 between R&B and P.B. Loyd, Jr. (Filed as Exhibit 10.62 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.71* - Rescission Agreement dated August 5, 1997 between R&B and T. W. Nagle. (Filed as Exhibit 10.63 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.72* - Rescission Agreement dated August 5, 1997 between R&B and C. R. Ofner. (Filed as Exhibit 10.64 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.73* - Rescission Agreement dated August 5, 1997 between R&B and D. L. McIntire. (Filed as Exhibit 10.65 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.74* - Rescission Agreement dated August 5, 1997 between R&B and W. K. Hillin. (Filed as Exhibit 10.66 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.75* - Stock Option Agreement dated February 11, 1999 between R&B Falcon Corporation and Paul B. Loyd, Jr. under R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan. 10.76* - Stock Option Agreement dated February 11, 1999 between R&B Falcon Corporation and Steven A. Webster under R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan. 10.77* - Stock Option Agreement dated February 11, 1999 between R&B Falcon Corporation and T. W. Nagle under R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan. 10.78* - Stock Option Agreement dated February 11, 1999 between R&B Falcon Corporation and Robert F. Fulton under R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan. 10.79* - Stock Option Agreement dated February 11, 1999 between R&B Falcon Corporation and Andrew Bakonyi under R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan. 10.80* - Stock Option Agreement dated February 11, 1999 between R&B Falcon Corporation and Bernie Stewart under R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan. 10.81* - Stock Option Agreement dated February 11, 1999 between R&B Falcon Corporation and W. K. Hillin under R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan. 10.82* - Stock Option Agreement dated February 11, 1999 between R&B Falcon Corporation and L. E. Moss under R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan. 10.83* - Stock Option Agreement dated February 11, 1999 between R&B Falcon Corporation and C. R. Ofner under R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan. 10.84* - Affiliate Agreement effective December 31, 1997 between R&B and P. B. Loyd, Jr. (Filed as Exhibit 10.67 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.85* - Affiliate Agreement effective December 31, 1997 between R&B and A. L. Chavkin. (Filed as Exhibit 10.68 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.86* - Affiliate Agreement effective December 31, 1997 between R&B and C. A. Donabedian. (Filed as Exhibit 10.69 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.87* - Affiliate Agreement effective December 31, 1997 between R&B and M. A. E. Laqueur. (Filed as Exhibit 10.70 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.88* - Affiliate Agreement effective December 31, 1997 between R&B and R. L. Sandmeyer. (Filed as Exhibit 10.71 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.89* - Affiliate Agreement effective December 31, 1997 between R&B and T. W. Nagle. (Filed as Exhibit 10.72 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.90* - Affiliate Agreement effective December 31, 1997 between R&B and C. R. Ofner. (Filed as Exhibit 10.73 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.91* - Affiliate Agreement effective December 31, 1997 between R&B and D. L. McIntire. (Filed as Exhibit 10.74 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.92* - Affiliate Agreement effective December 31, 1997 between R&B and W. K. Hillin. (Filed as Exhibit 10.75 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.93* - Affiliate Agreement effective December 31, 1997 between Falcon and Steven A. Webster. (Filed as Exhibit 10.76 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.94* - Affiliate Agreement effective December 31, 1997 between Falcon and Bernie W. Stewart. (Filed as Exhibit 10.77 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.95* - Affiliate Agreement effective December 31, 1997 between Falcon and Robert F. Fulton. (Filed as Exhibit 10.78 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.96* - Affiliate Agreement effective December 31, 1997 between Falcon and Leighton E. Moss. (Filed as Exhibit 10.79 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.97* - Affiliate Agreement effective December 31, 1997 between Falcon and Rodney W. Meisetschlaeger. (Filed as Exhibit 10.80 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.98* - Affiliate Agreement effective December 31, 1997 between Falcon and Steven R. Meheen. (Filed as Exhibit 10.81 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.99* - Affiliate Agreement effective December 31, 1997 between Falcon and Douglas A.P. Hamilton. (Filed as Exhibit 10.82 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.100*- Affiliate Agreement effective December 31, 1997 between Falcon and Michael Porter. (Filed as Exhibit 10.83 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.101*- Affiliate Agreement effective December 31, 1997 between Falcon and William R. Ziegler. (Filed as Exhibit 10.84 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.102*- Affiliate Agreement effective December 31, 1997 between Falcon and Don P. Rodney. (Filed as Exhibit 10.85 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.103 - Reading & Bates Stock Option Agreement dated as of July 10, 1997 between R&B and Falcon. (Filed as Annex E to R&B Falcon's Registration Statement on Form S-4 dated November 20, 1997 and incorporated herein by reference.) 10.104 - Falcon Stock Option Agreement dated as of July 10, 1997 between Falcon and R&B. (Filed as Annex D to R&B Falcon's Registration Statement on Form S-4 dated November 20, 1997 and incorporate herein by reference.) 10.105 - Agreement dated as of August 31, 1991 among R&B, Arcade Shipping AS and Sonat Offshore Drilling Inc. (Filed as Exhibit 10.40 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.) 10.106 - Facility Agreement dated February 21, 1991 between Arcade Drilling AS, Chase Investment Bank Limited, The Chase Manhattan Bank, N.A. and others. (Filed as Exhibit 10.51 to Registration No. 33-51120 and incorporated herein by reference.) 10.107 - Amendment Agreement dated November 30, 1995 to Facility Agreement dated February 21, 1991 between Arcade Drilling AS, Chase Investment Bank Limited, The Chase Manhattan Bank, N.A. and others. (Filed as Exhibit 10.71 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.) 10.108 - Second Amendment Agreement dated October, 1996 between Arcade Drilling AS, Chase Investment Bank Limited, The Chase Manhattan Bank, N.A. and others. (Filed as Exhibit 10.60 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.109 - Agreement for the sale and purchase of Semi-Submersible Emergency Support Vessel Iolair dated September 8, 1995 between BP Exploration Operating Company Limited and Reading & Bates (Caledonia) Limited, a subsidiary of R&B. (Filed as Exhibit 10.3 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.) 10.110 - Mortgage of a Ship dated September 8, 1995 between Reading & Bates (Caledonia) Limited, a subsidiary of R&B, and BP Exploration Operating Company Limited. (Filed as Exhibit 10.4 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.) 10.111 - Mortgage of a Ship dated September 8, 1995 between Reading & Bates (Caledonia) Limited, a subsidiary of R&B, and Britoil plc. (Filed as Exhibit 10.5 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.) 10.112 - Deed of Covenant dated September 8, 1995 between Reading & Bates (Caledonia) Limited, a subsidiary of R&B, and BP Exploration Operating Company Limited. (Filed as Exhibit 10.6 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.) 10.113 - Deed of Covenant dated September 8, 1995 between Reading & Bates (Caledonia) Limited, a subsidiary of R&B, and Britoil Public Limited Company. (Filed as Exhibit 10.7 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.) 10.114 - Performance Guarantee dated September 8, 1995 by R&B in favour of BP Exploration Operating Company Limited. (Filed as Exhibit 10.8 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.) 10.115 - Performance Guarantee dated September 8, 1995 by R&B in favour of Britoil plc. (Filed as Exhibit 10.9 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.) 10.116 - Initial Services Agreement dated September 8, 1995 between Britoil Public Limited Company and Reading & Bates (Caledonia) Limited, a subsidiary of R&B. (Filed as Exhibit 10.10 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.) 10.117 - Heads of Agreement for the provision of Vessel Services dated September 8, 1995 between Britoil Public Limited Company, Reading & Bates (Caledonia) Limited, a subsidiary of R&B, and R&B. (Filed as Exhibit 10.11 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.) 10.118 - Credit Agreement dated as of April 30, 1996 among R&B, Reading & Bates Drilling Co., certain lending institutions named therein, Credit Lyonnais New York Branch, as co-agent, and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.85 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.119 - Security Agreement dated as of April 30, 1996 among Reading & Bates Drilling Co., Reading & Bates Exploration Co., Reading & Bates (A) Pty. Ltd., Reading and Bates Borneo Drilling Co., Ltd, and Christiana Bank og Kreditkasse, New York Branch, as collateral agent. (Filed as Exhibit 10.86 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.120 - Subsidiary Guaranty dated as of April 30, 1996 by Reading & Bates Exploration Co., Reading & Bates (A) Pty. Ltd., and Reading and Bates Borneo Drilling Co., Ltd. (Filed as Exhibit 10.87 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.121 - First Preferred Mortgage on the D. R. Stewart dated April 30, 1996 between Reading & Bates Exploration Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.88 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.122 - First Preferred Mortgage on the Jack Bates dated April 30, 1996 between Reading & Bates Drilling Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.89 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.123 - First Preferred Mortgage on the W. D. Kent dated April 30, 1996 between Reading & Bates Exploration Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.90 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.124 - Indenture of First Naval Mortgage on the Charley Graves dated April 30, 1996 between Reading and Bates Borneo Drilling Co. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.91 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.125 - First Priority Mortgage on the Ron Tappmeyer dated April 30, 1996 between Reading & Bates (A) Pty. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.92 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.126 - Deed of Covenant on the J. W. McLean dated April 30, 1996 between Reading & Bates Drilling Co. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.93 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.127 - Indenture of Trust dated as of April 30, 1996 among Reading & Bates Drilling Co., Reading & Bates Exploration Co., and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.94 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.128 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the Jack Bates between Reading & Bates Drilling Co. and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.95 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.129 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the D. R. Stewart between Reading & Bates Exploration Co. and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.96 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.130 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the W. D. Kent between Reading & Bates Exploration Co. and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.97 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.131 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the Charley Graves between Reading and Bates Borneo Drilling Co., Ltd. and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.98 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.132 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the Ron Tappmeyer between Reading and Bates (A) Pty. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.99 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.133 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the J. W. McLean between Reading and Bates Borneo Drilling Co., Ltd. and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.100 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.134 - First Amendment dated as of July 9, 1996 to Credit Agreement dated as of April 30, 1996 among R&B, Reading & Bates Drilling Co., certain lending institutions named therein, Credit Lyonnais New York Branch, as co-agent, and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.101 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.135 - Subsidiary Assumption Agreement dated as of July 9, 1996 by RB Drilling Co. and HRB Rig Corporation. (Filed as Exhibit 10.102 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.136 - Indenture of First Naval Mortgage on the J. W. McLean dated July 9, 1996 by Reading & Bates Drilling Co. in favor of Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.103 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.137 - First Preferred Mortgage on the Harvey H. Ward dated July 9, 1996 by HRB Rig Corporation in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.104 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.138 - Amendment No. 1 to Indenture of First Naval Mortgage on the Charley Graves dated July 9, 1996 by Reading and Bates Borneo Drilling Co., Ltd. in favor of Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.105 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.139 - Amendment to First Preferred Mortgage on the Jack Bates dated July 9, 1996 by Reading & Bates Drilling Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.106 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.140 - Amendment to First Preferred Mortgage on the D. R. Stewart dated July 9, 1996 by Reading & Bates Exploration Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.107 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.141 - Amendment to First Preferred Mortgage on the W. D. Kent dated July 9, 1996 by Reading & Bates Exploration Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.108 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.142 - Collateral Assignment of Insurance dated July 9, 1996 with respect to the Harvey H. Ward between HRB Rig Corporation and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.109 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.143 - Collateral Assignment of Insurance dated July 9, 1996 with respect to the Rig 41 between RB Drilling Co. and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.110 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.144 - Amended and Restated Indenture of Trust dated as of July 9, 1996 among Reading & Bates Drilling Co., Reading & Bates Exploration Co., HRB Rig Corporation and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.111 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.145 - Second Amendment dated as of August 30, 1996 to Credit Agreement dated as of April 30, 1996 among R&B, Reading & Bates Drilling Co., certain lending institutions named therein, Credit Lyonnais New York Branch, as co-agent, and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.112 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.146 - Subsidiary Assumption Agreement dated as of August 30, 1996 by Reading & Bates Development Co. (Filed as Exhibit 10.113 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.147 - Subsidiary Guaranty dated as of August 30, 1996 by Reading & Bates Development Co. (Filed as Exhibit 10.114 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.148 - Indenture of First Naval Mortgage on Seillean dated August 30, 1996 by Reading & Bates Development Co. in favor of Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.115 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.149 - Collateral Assignment of Insurance dated August 30, 1996 with respect to the Seillean between Reading & Bates Development Co. and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.116 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.150 - Credit Agreement dated as of November 13, 1996 among R&B, Reading & Bates Drilling Co., certain lending institutions named therein, Banque Indosuez, as documentation agent, Credit Lyonnais New York Branch, as documentation agent, and Christiana Bank og Kreditkasse, New York Branch, as administrative agent, arranger and security trustee. (Filed as Exhibit 10.117 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.151 - Security Agreement dated as of November 13, 1996 among Reading & Bates Drilling Co., Reading & Bates Exploration Co., Reading & Bates Offshore, Limited, HRB Rig Corporation, Reading & Bates (A) Pty. Ltd., Reading and Bates Borneo Drilling Co., Ltd, and Christiana Bank og Kreditkasse, New York Branch, as collateral agent. (Filed as Exhibit 10.118 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.152 - Subsidiary Guaranty dated as of November 13, 1996 by Reading & Bates Exploration Co., Reading & Bates (A) Pty. Ltd., Reading and Bates Borneo Drilling Co., Ltd., Reading & Bates Offshore, Limited and HRB Rig Corporation. (Filed as Exhibit 10.119 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.153 - First Preferred Mortgage on the D. R. Stewart dated November 13, 1996 between Reading & Bates Exploration Co. in favor of Christiana Bank og Kreditkasse, New York Branch, as security trustee. (Filed as Exhibit 10.120 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.154 - First Preferred Mortgage on the Jack Bates dated November 13, 1996 between Reading & Bates Drilling Co. in favor of Christiana Bank og Kreditkasse, New York Branch, as security trustee. (Filed as Exhibit 10.121 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.155 - First Preferred Mortgage on the W. D. Kent dated November 13, 1996 between Reading & Bates Exploration Co. in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.122 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.156 - First Preferred Mortgage on the Randolph Yost dated November 13, 1996 between Reading & Bates Drilling Co. in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.123 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.157 - First Preferred Mortgage on the George H. Galloway dated November 13, 1996 between Reading & Bates Offshore, Limited in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.124 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.158 - First Preferred Mortgage on the F. G. McClintock dated November 13, 1996 between Reading & Bates Offshore, Limited in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.125 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.159 - First Preferred Mortgage on the J. T. Angel dated November 13, 1996 between Reading & Bates Drilling Co. in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.126 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.160 - First Preferred Mortgage on the Roger W. Mowell dated November 13, 1996 between Reading & Bates Drilling Co. in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.127 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.161 - First Preferred Mortgage on the Harvey H. Ward dated November 13, 1996 between HRB Rig Corporation in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.128 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.162 - Indenture of First Naval Mortgage on the Charley Graves dated November 13, 1996 between Reading and Bates Borneo Drilling Co. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.129 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.163 - Indenture of First Naval Mortgage on the J. W. McLean dated November 13, 1996 between Reading & Bates Drilling Co. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.130 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.164 - Indenture of First Naval Mortgage on the Rig 41 dated November 13, 1996 between Reading and Bates Borneo Drilling Co. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.131 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.165 - First Priority Mortgage on the Ron Tappmeyer dated November 13, 1996 between Reading & Bates (A) Pty. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.132 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.166 - Pledge Agreement dated as of November 13, 1996 between R&B and Christiana Bank og Kreditkasse, New York Branch, as collateral agent. (Filed as Exhibit 10.133 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.167 - Amended and Restated Credit Agreement dated as of November 13, 1996 and amended and restated as of July 3, 1997 among R&B, Reading & Bates Drilling Co., certain lending institutions named therein, Credit Agricole Indosuez, as documentation agent, Credit Lyonnais New York Branch, as documentation agent, and Christiana Bank og Kreditkasse, New York Branch, as administrative agent, arranger and security trustee. (Filed as Exhibit 10.150 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.168 - Letter of Credit Agreement dated as of December 30, 1996 between R&B, Reading & Bates Drilling Co., and Christiana Bank og Kreditkasse, New York Branch. (Filed as Exhibit 10.134 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.169 - First Amendment to Letter of Credit Agreement, dated April 24, 1998, among R&B Falcon Corporation, R&B Falcon Drilling (International & Deepwater) Inc., Reading & Bates Drilling Co. and Christiania Bank OG Kreditkasse, New York Branch, amending Letter of Credit Agreement dated December 30, 1996. (Filed as Exhibit 10.3 to R&B Falcon's Quarterly Report on Form 10-Q for the Second Quarter of 1998 and incorporated herein by reference.) 10.170 - Second Amendment to Letter of Credit Agreement, dated October 22, 1998, among R&B Falcon Corporation, R&B Falcon Drilling (International & Deepwater) Inc., Reading & Bates Drilling Co. and Christiania Bank OG Kreditkasse, New York Branch, amending Letter of Credit Agreement dated December 30, 1996. 10.171 - Third Amendment to Letter of Credit Agreement, dated October 22, 1998, among R&B Falcon Corporation, R&B Falcon Drilling (International & Deepwater) Inc., Reading & Bates Drilling Co. and Christiania Bank OG Kreditkasse, New York Branch, amending Letter of Credit Agreement dated December 30, 1996. 10.172 - Fourth Amendment to Letter of Credit Agreement, dated January 21, 1999, among R&B Falcon Corporation, R&B Falcon Drilling (International & Deepwater) Inc., Reading & Bates Drilling Co. and Christiania Bank OG Kreditkasse, New York Branch, amending Letter of Credit Agreement dated December 30, 1996. 10.173 - Fifth Amendment to Letter of Credit Agreement, dated February 22, 1999, among R&B Falcon Corporation, R&B Falcon Drilling (International & Deepwater) Inc., Reading & Bates Drilling Co. and Christiania Bank OG Kreditkasse, New York Branch, amending Letter of Credit Agreement dated December 30, 1996. 10.174 - Memorandum of Agreement dated November 28, 1995 between Reading and Bates, Inc., a subsidiary of R&B, and Deep Sea Investors, L.L.C. (Filed as Exhibit 10.110 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.) 10.175 - Bareboat Charter M. G. Hulme, Jr. dated November 28, 1995 between Deep Sea Investors, L.L.C. and Reading & Bates Drilling Co., a subsidiary of R&B. (Filed as Exhibit 10.111 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.) 10.176 - Amended and Restated Bareboat Charter dated July 23, 1997 to Bareboat Charter M. G. Hulme, Jr. dated November 28, 1995 between Deep Sea Investors, L.L.C. and Reading & Bates Drilling Co., a subsidiary of R&B. 10.177 - Amended and Restated Bareboat Charter dated July 1, 1998 to Bareboat Charter M. G. Hulme, Jr. dated November 28, 1995 between Deep Sea Investors, L.L.C. and Reading & Bates Drilling Co., a subsidiary of R&B. 10.178 - Purchase and Sale Agreement dated October 18, 1995 between Enserch Exploration, Inc. and Reading & Bates Development Co., a subsidiary of R&B. (Filed as Exhibit 10.112 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.) 10.179 - Operating Agreement made effective as of May 1, 1995 among Enserch Exploration, Inc., Mobil Oil Corporation, Mobil Oil exploration & Producing Southeast Inc. and Reading & Bates Development Co., a subsidiary of R&B. (Filed as Exhibit 10.125 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.) 10.180 - Participation Agreement dated December 4, 1996 between Santa Fe Energy Resources, Inc. and Reading & Bates Development Co. (Filed as Exhibit 10.152 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.181 - Joint Venture Agreement dated December 16, 1996 among Shell Deepwater Development Inc., SOI Finance Inc. and Reading & Bates Development Co. (Filed as Exhibit 10.161 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.182 - Limited Liability Company Agreement dated October 28, 1996 between Conoco Development Company and RB Deepwater Exploration Inc. (Filed as Exhibit 10.162 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.183 - Amendment No. 1 dated February 7, 1997 to Limited Liability Company Agreement dated October 28, 1996 between Conoco Development Company and RB Deepwater Exploration Inc. 10.184 - Amendment No. 2 dated April 30, 1997 to Limited Liability Company Agreement dated October 28, 1996 between Conoco Development Company and RB Deepwater Exploration Inc. 10.185 - Amendment No. 3 dated April 24, 1998 to Limited Liability Company Agreement dated October 28, 1996 between Conoco Development Company and RB Deepwater Exploration Inc. 10.186 - Amendment No. 4 dated August 7, 1998 to Limited Liability Company Agreement dated October 28, 1996 between Conoco Development Company and RB Deepwater Exploration Inc. 10.187 - Limited Liability Company Agreement dated April 30, 1997 between Conoco Development II Inc. and RB Deepwater Exploration II Inc. (Filed as Exhibit 10.159 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.188 - Amendment No. 1 dated April 24, 1998 to Limited Liability Company Agreement dated April 30, 1997 between Conoco Development II Inc. and RB Deepwater Exploration II Inc. 10.189 - Joint Venture Agreement dated February 22, 1996 between INTEC Engineering, Inc. and Reading & Bates Development Co. (Filed as Exhibit 10.163 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.190 - Loan Agreement dated as of December 14, 1996 among TRB Holding Corporation, Reading & Bates (U.K.) Limited and Nissho Iwai Europe PLC. (Filed as Exhibit 10.164 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.191 - First Amendment dated April 21, 1997 to Loan Agreement dated as of December 14, 1996 among TRB Holding Corporation, Reading & Bates (U.K.) Limited and Nissho Iwai Europe PLC. 10.192 - First Naval Mortgage on the Seillean dated December 14, 1996 between TRB Holding Corporation in favor of Nissho Iwai Europe PLC. (Filed as Exhibit 10.165 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.193 - First Amendment dated April 21, 1997 to First Naval Mortgage on the Seillean dated December 14, 1996 between TRB Holding Corporation in favor of Nissho Iwai Europe PLC. 10.194 - Second Amendment dated April 25, 1997 to First Naval Mortgage on the Seillean dated December 14, 1996 between TRB Holding Corporation in favor of Nissho Iwai Europe PLC. 10.195 - Collateral Assignment of Deposit Account, Pledge and Security Agreement dated December 14, 1996 with respect to the Seillean between TRB Holding Corporation and Nissho Iwai Europe PLC. (Filed as Exhibit 10.166 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.196 - Assignment of Insurances dated December 14, 1996 with respect to the Seillean between TRB Holding Corporation and Reading & Bates (U.K.) Limited and Nissho Iwai Europe PLC. (Filed as Exhibit 10.167 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.) 10.197 - Contract dated November 14, 1997 for Construction and Sale of Vessel (Hull No. HRBS6) between Hyundai Heavy Industries Co., Ltd., Hyundai Corporation and RB Exploration Co. (Filed as Exhibit 10.165 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.198 - Contract dated December 16, 1998 for Construction and Sale of Vessel (Hull No. HRB8-D) between Hyundai Heavy Industries Co., Ltd., Hyundai Corporation and R&B Falcon Drilling Co. 10.199 - Contract dated September 5, 1997 for Construction and Sale of a 103,000 Metric Tons Displacement Drillship (Hull No. 1255) between Samsung Heavy Industries Co., Ltd., Samsung Corporation and Reading & Bates Drilling Co. (Filed as Exhibit 10.166 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.200 - Contract dated October 14, 1998 for Construction and Sale of a 98,000 Metric Tons Displacement Drillship (Hull No. 1300) between Samsung Heavy Industries Co., Ltd. and R&B Falcon Drilling Co. 10.201 - Registration Rights Agreement dated August 15, 1995, between Falcon and Blake Holding Co., Inc. (Filed as an exhibit to Falcon's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.) 10.202 - First Amendment to Credit Agreement, dated October 3, 1997, among Falcon, Bank Paribas, Arab Banking Corporation (B.S.C.), and ING (U.S.) Capital Corporation, amending Credit Agreement dated November 12, 1996 relating to a $40 million facility, increasing such facility to $60 million. (Filed as Exhibit 10.178 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.203 - Credit Agreement dated as of October 3, 1997, among Falcon, Banque Paribas, Arab Banking Corporation (B.S.C.), and ING (U.S.) Capital Corporation relating to an $80 million facility. (Filed as Exhibit 10.179 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.204 - First Amendment to Credit Agreement, dated December 22, 1997, among Falcon, Bank Paribas, Arab Banking Corporation (B.S.C.), and ING (U.S.) Capital Corporation, amending Credit Agreement dated October 3, 1997 relating to an $80 million facility, increasing such facility to $130 million. (Filed as Exhibit 10.180 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.205 - Participation Agreement made effective August 28, 1997, between Reading & Bates Development Co., a subsidiary of R&B, British-Borneo Petroleum, Inc. and British-Borneo Exploration, Inc. (Filed as Exhibit 10.182 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.206 - Purchase and Sale and Acreage Exchange Agreement made effective August 28, 1997 between Enserch Exploration, Inc., and Reading & Bates Development Co., a subsidiary of R&B. (Filed as Exhibit 10.183 to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated herein by reference.) 10.207 - Dealer Manager and Solicitation Agent Agreement dated March 23, 1998 between the Company and Credit Suisse First Boston Corporation. (Filed as Exhibit 10.1 to R&B Falcon's Quarterly Report on Form 10-Q for the First Quarter of 1998 and incorporated herein by reference.) 10.208 - Credit Agreement dated as of November 10, 1997 among Deepwater Drilling II L.L.C., Bank of America National Trust and Savings Association, as Administrative Agent, National Westminster Bank Plc, New York Branch, as Documentation Agent and other financial institutions. (Filed as Exhibit 10.13 to R&B Falcon's Quarterly Report on Form 10-Q for the First Quarter of 1998 and incorporated herein by reference.) 10.209 - Guaranty Agreement dated November 10,1997 by Reading & Bates Corporation, Reading & Bates Drilling Co., Reading & Bates Exploration Co., Reading & Bates (A) Pty. Ltd., Reading & Bates Borneo Drilling Co., Ltd., Reading & Bates Offshore, Limited and RB Rig Corporation in favor of Bank of America National Trust and Savings Association. (Filed as Exhibit 10.14 to R&B Falcon's Quarterly Report on Form 10-Q for the First Quarter of 1998 and incorporated herein by reference.) 10.210 - First Amendment and Release of Guaranty dated April 24, 1998 to Credit Agreement dated as of November 10, 1997 among Deepwater Drilling II L.L.C., Bank of America National Trust and Savings Association, National Westminster Bank Plc, and other financial institutions. (Filed as Exhibit 10.15 to R&B Falcon's Quarterly Report on Form 10-Q for the First Quarter of 1998 and incorporated herein by reference.) 10.211 - Guaranty Agreement dated April 24, 1998 by R&B Falcon Corporation in favor of Bank of America National Trust and Savings Association. (Filed as Exhibit 10.16 to R&B Falcon's Quarterly Report on Form 10-Q for the First Quarter of 1998 and incorporated herein by reference.) 10.212 - Second Amendment to Credit Agreement and Release of Guaranty dated November 9, 1998 to Credit Agreement dated as of November 10, 1997 among Deepwater Drilling II L.L.C., Bank of America National Trust and Savings Association, National Westminster Bank Plc, and other financial institutions. 10.213 - Assignment and Acceptance Agreement dated as of November 9, 1998 between Great-West & Annuity Life Insurance Company and Bank of America National Trust and Savings Association. 10.214 - Third Amendment dated January 29, 1999 to Credit Agreement dated as of November 10, 1997 among Deepwater Drilling II L.L.C., Bank of America National Trust and Savings Association, National Westminster Bank Plc, and other financial institutions. 10.215 - Credit Agreement, dated February 24, 1998, among Reading & Bates Corporation, Reading & Bates Drilling Co., various subsidiaries of Reading & Bates Drilling Co., RB Deepwater Exploration III, Inc., various lending institutions, Credit Lyonnais New York Branch and Christiania Bank OG Kreditkasse, New York Branch. (Filed as Exhibit 10.1 to R&B Falcon's Quarterly Report on Form 10-Q for the Second Quarter of 1998 and incorporated herein by reference.) 10.216 - First Amendment to Credit Agreement, dated April 24, 1998, among R&B Falcon Corporation, R&B Falcon Drilling (International & Deepwater) Inc., Reading & Bates Drilling Co., RB Deepwater Exploration III, Credit Lyonnais New York Branch and Christiania Bank OG Kreditkasse, New York Branch, amending Credit Agreement dated February 24, 1998 relating to a $150 million facility. (Filed as Exhibit 10.2 to R&B Falcon's Quarterly Report on Form 10-Q for the Second Quarter of 1998 and incorporated herein by reference.) 10.217 - Second Amendment to Credit Agreement dated October 22, 1998 to Credit Agreement dated February 24, 1998 among R&B Falcon Corporation, RBF Deepwater Exploration III Inc., Credit Lyonnais New York Branch, Christiania Bank OG Kreditkasse, New York Branch and various other lending institutions. 10.218 - Third Amendment to Credit Agreement dated December 9, 1998 to Credit Agreement dated February 24, 1998 among R&B Falcon Corporation, RBF Deepwater Exploration III Inc., Credit Lyonnais New York Branch, Christiania Bank OG Kreditkasse, New York Branch and various other lending institutions. 10.219 - Fourth Consent and Amendment to Credit Agreement dated December 18, 1998 to Credit Agreement dated February 24, 1998 among R&B Falcon Corporation, RBF Deepwater Exploration III Inc., Credit Lyonnais New York Branch, Christiania Bank OG Kreditkasse, New York Branch and various other lending institutions. 10.220 - Fifth Amendment to Credit Agreement dated January 21, 1999 to Credit Agreement dated February 24, 1998 among R&B Falcon Corporation, RBF Deepwater Exploration III Inc., Credit Lyonnais New York Branch, Christiania Bank OG Kreditkasse, New York Branch and various other lending institutions. 10.221 - Sixth Amendment to Credit Agreement dated February 22, 1999 to Credit Agreement dated February 24, 1998 among R&B Falcon Corporation, RBF Deepwater Exploration III Inc., Credit Lyonnais New York Branch, Christiania Bank OG Kreditkasse, New York Branch and various other lending institutions. 10.222 - Guaranty, dated as of July 30, 1998, made by Registrant in favor of the Deepwater Investment Trust 1998-A, Wilmington Trust FSB, not in its individual capacity, but solely as Investment Trustee, Wilmington Trust Company, not in its individual capacity, except as specified herein, but solely as Charter Trustee, BA Leasing & Capital Corporation, as Documentation Agent, ABN Amro Bank N.V., as Administrative Agent, The Bank of Nova Scotia, as Syndication Agent, BA Leasing & Capital Corporation, ABN Amro Bank N.V., Bank Austria Aktiengesellschaft New York Branch, The Bank of Nova Scotia, Bayerische Vereinsbank AG New York Branch, Commerzbank Aktiengesellschaft, Atlanta Agency, Credit Lyonnais New York Branch, Great-West Life and Annuity Insurance Company, Mees Pierson Capital Corporation, Westdeutsche Landesbank Girozentrale, New York Branch, as Certificate Purchasers, and ABN Amro Bank, N.V., Bank of America National Trust and Savings Association and The Bank of Nova Scotia, New York Branch, as Swap Counterparties, and the other parties named therein. (Filed as Exhibit 10.1 to R&B Falcon's Quarterly Report on Form 10-Q for the Third Quarter of 1998 and incorporated herein by reference.) 10.223 - Letter agreement dated as of August 7, 1998 between RBF Deepwater Exploration Inc., an indirect subsidiary of the Registrant, and Conoco Development Company and Acknowledgment by Conoco Inc. and the Registrant. (Filed as Exhibit 10.2 to R&B Falcon's Quarterly Report on Form 10-Q for the Third Quarter of 1998 and incorporated herein by reference.) 10.224 - Letter agreement dated as of August 7, 1998 between RBF Deepwater Exploration Inc., an indirect subsidiary of the Registrant, and Conoco Development Company and Acknowledgment by Conoco Inc. and the Registrant. (Filed as Exhibit 10.3 to R&B Falcon's Quarterly Report on Form 10-Q for the Third Quarter of 1998 and incorporated herein by reference.) 10.225 - Purchase Agreement dated April 8, 1998 among R&B Falcon Corporation, Credit Suisse First Boston Corporation, Chase Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation, and Morgan Stanley & Co., Incorporated. (Filed as Exhibit 10.1 to R&B Falcon's Registration Statement No. 333-56821 on Form S-4 dated June 15, 1998 and incorporated herein by reference.) 10.226 - $500,000,000 Credit Agreement dated as of April 24, 1998 among R&B Falcon Corporation, the lender parties thereto, and The Chase Manhattan Bank, as Administrative Agent. (Filed as Exhibit 10.2 to R&B Falcon's Registration Statement No. 333-56821 on Form S-4 dated June 15, 1998 and incorporated herein by reference.) 10.227 - First Amendment to $500,000,000 Credit Agreement, dated November 13, 1998. 10.228 - Second Amendment to $500,000,000 Credit Agreement, dated as of the Second Amendment Effective Date. 10.229 - Third Amendment to $500,000,000 Credit Agreement, dated January 19, 1999. 21 - Schedule of Subsidiaries of the Company 23 - Consent of Arthur Andersen LLP 27 - Financial Data Schedule. (Exhibit 27 is being submitted as an exhibit only in the electronic format of this Annual Report on Form 10-K being submitted to the Securities and Exchange Commission.) 99 - Annual Report on Form 11-K with respect to R&B Falcon U.S. Savings Plan. (To be filed by amendment to the Annual Report on Form 10-K.) Instruments with respect to certain long-term obligations of the Company are not being filed as exhibits hereto as the securities authorized thereunder do not exceed 10% of the Company's total assets. The Company agrees to furnish a copy of each such instrument to the Securities and Exchange Commission upon its request. * Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to the requirements of Item 14(c) of Form 10-K. (b)Reports on Form 8-K R&B Falcon filed five Current Reports on Form 8-K during the three months ended December 31, 1998: (1) Report filed October 16, 1998 announcing the cancellation of the conversion projects Peregrine VI and Peregrine VIII, the construction of a new drillship Deepwater IV, the receipt of a letter of intent from Vastar Resources, Inc. for a three year drilling contract and the Company entering into an agreement to purchase an approximate 38% of Navis ASA which is constructing the drillship Navis Explorer I; (2) Report filed October 16, 1998 announcing the Company's intent to issue up to $300 million of trust preferred securities; (3) Report filed December 10, 1998 announcing that the customer which has contracted the Jack Bates through December 2000 has alleged that the Company is in breach of certain performance related provisions of its contract; (4) Report filed December 15, 1998 announcing the purchase of Cliffs Drilling Company; (5) Report filed December 21, 1998 announcing that the Company had received notice from Mobil North Sea Limited that they were terminating the drilling contract on the Jack Bates due to certain performance breaches relating to equipment and personnel deficiencies. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 30, 1999. R&B FALCON CORPORATION By /s/ Steven A. Webster ------------------------- Steven A. Webster President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated on March 30, 1999. By /s/Paul B. Loyd, Jr. By /s/Steven A. Webster ------------------------- ------------------------- Paul B. Loyd, Jr. Steven A. Webster Chairman and Director President, Chief Executive Officer and Director By /s/Tim W. Nagle By /s/Robert F. Fulton ------------------------- ------------------------- Tim W. Nagle Robert F. Fulton Executive Vice President Executive Vice President (Principal Accounting Officer) (Principal Financial Officer) By By ------------------------- ------------------------- Purnendu Chatterjee Macko A. E. Laqueur Director Director By /s/Arnold L. Chavkin By /s/ Michael E. Porter ------------------------- ------------------------- Arnold L. Chavkin Michael E. Porter Director Director By /s/Charles A. Donabedian By /s/Robert L. Sandmeyer ------------------------- ------------------------- Charles A. Donabedian Robert L. Sandmeyer Director Director By /s/Douglas A. P. Hamilton By /s/Douglas E. Swanson -------------------------- ------------------------- Douglas A. P. Hamilton Douglas E. Swanson Director Director By /s/William R. Ziegler ------------------------- William R. Ziegler Director EX-4.6 2 Exhibit 4.6 $400,000,000 R&B FALCON CORPORATION $100 Million 9-1/8% Senior Notes due 2003 $300 Million 9-1/2% Senior Notes due 2008 REGISTRATION RIGHTS AGREEMENT December 17, 1998 Credit Suisse First Boston Corporation NationsBanc Montgomery Securities LLC Paribas Corporation c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629 Dear Sirs: R&B Falcon Corporation, a Delaware corporation (the "Company"), proposes to issue and sell to Credit Suisse First Boston Corporation, NationsBanc Montgomery Securities LLC and Paribas Corporation (collectively, the "Initial Purchasers"), upon the terms set forth in a purchase agreement of even date herewith (the "Purchase Agreement"), $100 million aggregate principal amount of its 9-1/8 % Senior Notes due 2003 and $300 million aggregate principal amount of its 9-1/2% Senior Notes due 2008 (collectively, the "Initial Securities"). The Initial Securities will be issued pursuant to an Indenture to be dated as of December 22, 1998 (the "Indenture")) among the Company and Chase Bank of Texas, National Association, as trustee (the "Trustee"). As an inducement to the Initial Purchasers to enter into the Purchase Agreement, the Company agrees with the Initial Purchasers, for the benefit of the holders of the Initial Securities (including, without limitation, the Initial Purchasers), the Exchange Securities (as defined below) and the Private Exchange Securities (as defined below) (collectively the "Holders"), as follows: 1. Registered Exchange Offer. The Company shall, at its own cost, prepare and, not later than 60 days after (or if the 60th day is not a business day, the first business day thereafter) the date of original issue of the Initial Securities (the "Issue Date"), file with the Securities and Exchange Commission (the "Commission") a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act of 1933, as amended (the "Securities Act"), with respect to a proposed offer (the "Registered Exchange Offer") to the Holders of Transfer Restricted Securities (as defined in Section 6 hereof), who are not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of debt securities (the "Exchange Securities") of the Company issued under the Indenture and identical in all material respects to the Initial Securities (except for the transfer restrictions relating to the Initial Securities and the provisions relating to the matters described in Section 6 hereof) that would be registered under the Securities Act. The Company shall use its best efforts to cause such Exchange Offer Registration Statement to become effective under the Securities Act within 180 days (or if the 180th day is not a business day, the first business day thereafter) after the Issue Date of the Initial Securities and shall keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer, if required by applicable law) after the date notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "Exchange Offer Registration Period"). If the Company effects the Registered Exchange Offer, the Company will be entitled to close the Registered Exchange Offer 30 days after the commencement thereof provided that the Company has accepted all the Initial Securities theretofore validly tendered in accordance with the terms of the Registered Exchange Offer. Following the declaration of the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder of Transfer Restricted Securities (as defined in Section 6 hereof) electing to exchange the Initial Securities for Exchange Securities (assuming that such Holder is not an affiliate of the Company within the meaning of the Securities Act, acquires the Exchange Securities in the ordinary course of such Holder's business and has no arrangements with any person to participate in the distribution of the Exchange Securities and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company acknowledges that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, in the absence of an applicable exemption therefrom, (i) each Holder which is a broker-dealer electing to exchange Securities, acquired for its own account as a result of market making activities or other trading activities, for Exchange Securities (an "Exchanging Dealer"), is required to deliver a prospectus containing the information set forth in (a) Annex A hereto on the cover, (b) Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section, and (c) Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) an Initial Purchaser that elects to sell Exchange Securities acquired in exchange for Securities constituting any portion of an unsold allotment is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in connection with such sale. The Company shall use its best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein, in order to permit such prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided, however, that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers and the Initial Purchasers have sold all Exchange Securities held by them (unless such period is extended pursuant to Section 3(j) below) and (ii) the Company shall make such prospectus and any amendment or supplement thereto, available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 180 days after the consummation of the Registered Exchange Offer. If, upon consummation of the Registered Exchange Offer, any Initial Purchaser holds Initial Securities acquired by it as part of its initial distribution, the Company, simultaneously with the delivery of the Exchange Securities pursuant to the Registered Exchange Offer, shall issue and deliver to such Initial Purchaser upon the written request of such Initial Purchaser, in exchange (the "Private Exchange") for the Initial Securities held by such Initial Purchaser, a like principal amount of debt securities of the Company issued under the Indenture and identical in all material respects (including the existence of restrictions on transfer under the Securities Act and the securities laws of the several states of the United States, but excluding provisions relating to the matters described in Section 6 hereof) to the Initial Securities (the "Private Exchange Securities"). The Initial Securities, the Exchange Securities and the Private Exchange Securities are herein collectively called the "Securities". In connection with the Registered Exchange Offer, the Company shall: (1) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (2) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date notice thereof is mailed to the Holders; (3) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate of the Trustee; (4) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last business day on which the Registered Exchange Offer shall remain open; and (5) otherwise comply with all applicable laws. As soon as practicable after the close of the Registered Exchange Offer or the Private Exchange, as the case may be, the Company shall: (x) accept for exchange all the Securities validly tendered and not withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (y) deliver to the Trustee for cancellation all the Initial Securities so accepted for exchange; and (z) cause the Trustee to authenticate and deliver promptly to each Holder of the Initial Securities, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Initial Securities of such Holder so accepted for exchange. The Indenture will provide that the Exchange Securities will not be subject to the transfer restrictions set forth in the Indenture and that all the Securities of each series will vote and consent together on all matters as a class separate from each other series on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Initial Securities surrendered in exchange therefor or, if no interest has been paid on the Initial Securities, from the date of original issue of the Initial Securities. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or if it is an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if such Holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities and (v) if such Holder is a broker-dealer, that it will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities and that it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. Shelf Registration. If, (i) because of any change in law or in applicable interpretations thereof by the staff of the Commission, the Company is not permitted to effect a Registered Exchange Offer, as contemplated by Section 1 hereof, (ii) the Registered Exchange Offer is not consummated within 180 days of the Issue Date, (iii) any Initial Purchaser so requests with respect to the Initial Securities (or the Private Exchange Securities) not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by it following consummation of the Registered Exchange Offer or (iv) any Holder (other than an Exchanging Dealer) is not eligible to participate in the Registered Exchange Offer or, in the case of any Holder (other than an Exchanging Dealer) that participates in the Registered Exchange Offer, such Holder does not receive freely tradeable Exchange Securities on the date of the exchange, the Company shall take the following actions: (1) The Company shall, at its cost, as promptly as practicable (but in no event more than 30 days after so required or requested pursuant to this Section 2) file with the Commission and thereafter shall use its best efforts to cause to be declared effective a registration statement (the "Shelf Registration Statement" and, together with the Exchange Offer Registration Statement, a "Registration Statement") on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities (as defined in Section 6 hereof) by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the "Shelf Registration"); provided, however, that no Holder (other than an Initial Purchaser) shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (2) The Company shall use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities, for a period of two years (or for such longer period if extended pursuant to Section 3(j) below) from the date of the issuance of the Initial Securities or such shorter period that will terminate when all the Securities covered by the Shelf Registration Statement (i) have been sold pursuant thereto or (ii) can be sold pursuant to Rule 144 under the Securities Act without any limitations under clauses (c), (e), (f) and (h) of Rule 144, or any successor rule thereof. The Company shall be deemed not to have used its best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Securities covered thereby not being able to offer and sell such Securities during that period, unless such action is required by applicable law. (3) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3. Registration Procedures. In connection with any Shelf Registration contemplated by Section 2 hereof and, to the extent applicable, any Registered Exchange Offer contemplated by Section 1 hereof, the following provisions shall apply: (1) The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and, in the event that an Initial Purchaser (with respect to any portion of an unsold allotment from the original offering) is participating in the Registered Exchange Offer or the Shelf Registration Statement, the Company shall use its best efforts to reflect in each such document, when so filed with the Commission, such comments as such Initial Purchaser reasonably may propose; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; (iii) if requested by an Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement; (iv) include within the prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the Commission with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of Exchange Securities received by such broker-dealer in the Registered Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the staff of the Commission or such positions or policies, in the reasonable judgment of the Initial Purchasers based upon advice of counsel (which may be in-house counsel), represent the prevailing views of the staff of the Commission; and (v) in the case of a Shelf Registration Statement, include the names of the Holders, who propose to sell Securities pursuant to the Shelf Registration Statement, as selling securityholders. (2) The Company shall give written notice to the Initial Purchasers, the Holders of the Securities and any Participating Broker-Dealer from whom the Company has received prior written notice that it will be a Participating Broker-Dealer in the Registered Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (1) when the Registration Statement or any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (2) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus included therein or for additional information; (3) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (4) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (5) of the happening of any event that requires the Company to make changes in the Registration Statement or the prospectus in order that the Registration Statement or the prospectus do not contain an untrue statement of a material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading. (3) The Company shall make every reasonable effort to obtain the withdrawal at the earliest possible time, of any order suspending the effectiveness of the Registration Statement. (4) The Company shall furnish to each Holder of Securities included within the coverage of the Shelf Registration, without charge, at least one copy of the Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (5) The Company shall deliver to each Exchanging Dealer and each Initial Purchaser, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if any Initial Purchaser or any such Holder requests, all exhibits thereto (including those incorporated by reference). (6) The Company shall, during the Shelf Registration Period, deliver to each Holder of Securities included within the coverage of the Shelf Registration, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by each of the selling Holders of the Securities in connection with the offering and sale of the Securities covered by the prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement. (7) The Company shall deliver to each Initial Purchaser, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement and any amendment or supplement thereto as such persons may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by any Initial Purchaser, if necessary, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer in connection with the offering and sale of the Exchange Securities covered by the prospectus, or any amendment or supplement thereto, included in such Exchange Offer Registration Statement. (8) Prior to any public offering of the Securities, pursuant to any Registration Statement, the Company shall register or qualify or cooperate with the Holders of the Securities included therein and their respective counsel in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder of the Securities reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. (9) The Company shall cooperate with the Holders of the Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement. (10) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file a post-effective amendment to the Registration Statement or a supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Securities or purchasers of Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Initial Purchasers, the Holders of the Securities and any such Participating Broker-Dealers shall suspend use of such prospectus, and the period of effectiveness of the Shelf Registration Statement provided for in Section 2(b) above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended by the number of days from and including the date of the giving of such notice to and including the date when the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j). (11) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (12) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Registered Exchange Offer or the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 12-month period. (13) The Company shall cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, in a timely manner and containing such changes, if any, as shall be necessary for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (14) The Company may require each Holder of Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such registration the Securities of any Holder that unreasonably fails to furnish such information within a reasonable time after receiving such request. (15) The Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as any Holder of the Securities shall reasonably request in order to facilitate the disposition of the Securities pursuant to any Shelf Registration. (16) In the case of any Shelf Registration, the Company shall (i) make reasonably available for inspection by the Holders of the Securities, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders of the Securities or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders of the Securities or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case, as shall be reasonably necessary to enable such persons, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by you and on behalf of the other parties, by one counsel designated by and on behalf of such other parties as described in Section 4 hereof. (17) In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby, shall cause (i) its counsel to deliver an opinion and updates thereof relating to the Securities in customary form addressed to such Holders and the managing underwriters, if any, thereof and dated, in the case of the initial opinion, the effective date of such Shelf Registration Statement (it being agreed that such opinion shall be in the form and substance reasonably satisfactory to the managing underwriters, if any, and the Holders of a majority in aggregate principal amount of the securities being registered by such Shelf Registration Statement); (ii) its officers to execute and deliver all customary documents and certificates and updates thereof requested by any underwriters of the applicable Securities and (iii) its independent public accountants and the independent public accountants with respect to any other entity for which financial information is provided in the Shelf Registration Statement to provide to the selling Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with primary underwritten offerings, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. (18) In the case of the Registered Exchange Offer, if requested by any Initial Purchaser or any known Participating Broker- Dealer, the Company shall cause (i) its counsel to deliver to such Initial Purchaser or such Participating Broker-Dealer a signed opinion in the form set forth in Section 6(c) of the Purchase Agreement with such changes as are customary in connection with the preparation of a Registration Statement and (ii) its independent public accountants and the independent public accountants with respect to any other entity for which financial information is provided in the Registration Statement to deliver to such Initial Purchaser or such Participating Broker-Dealer a comfort letter, in customary form, meeting the requirements as to the substance thereof as set forth in Section 6(a) of the Purchase Agreement, with appropriate date changes. (19) If a Registered Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Initial Securities by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company shall mark, or caused to be marked, on the Initial Securities so exchanged that such Initial Securities are being canceled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be; in no event shall the Initial Securities be marked as paid or otherwise satisfied. (20) The Company will use its best efforts to (i) if the Initial Securities have been rated prior to the initial sale of such Initial Securities, confirm such ratings will apply to the Securities covered by a Registration Statement, or (ii) if the Initial Securities were not previously rated, cause the Securities covered by a Registration Statement to be rated with the appropriate rating agencies, if so requested by Holders of a majority in aggregate principal amount of Securities covered by such Registration Statement, or by the managing underwriters, if any. (21) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Conduct Rules (the "Rules") of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company will assist such broker- dealer in complying with the requirements of such Rules, including, without limitation, by (i) if such Rules, including Rule 2720, shall so require, engaging a "qualified independent underwriter" (as defined in Rule 2720) to participate in the preparation of the Registration Statement relating to such Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities, (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (iii) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules. (22) The Company shall use its best efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby. 4. Registration Expenses. The Company shall bear all fees and expenses incurred in connection with the performance of its obligations under Sections 1 through 3 hereof (including the reasonable fees and expenses, if any, of Andrews & Kurth L.L.P., counsel for the Initial Purchasers, incurred in connection with the Registered Exchange Offer), whether or not the Registered Exchange Offer or a Shelf Registration is filed or becomes effective, and, in the event of a Shelf Registration, shall bear or reimburse the Holders of the Securities covered thereby for the reasonable fees and disbursements of one firm of counsel designated by the Holders of a majority in principal amount of the Initial Securities covered thereby to act as counsel for the Holders of the Initial Securities in connection therewith. 5. Indemnification. (a) The Company agrees to indemnify and hold harmless each Holder of the Securities, any Participating Broker-Dealer and each person, if any, who controls such Holder or such Participating Broker-Dealer within the meaning of the Securities Act or the Exchange Act (each Holder, any Participating Broker-Dealer and such controlling persons are referred to collectively as the "Indemnified Parties") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of, or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse, as incurred, the Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; provided further, however, that this indemnity agreement will be in addition to any liability which the Company may otherwise have to such Indemnified Party. The Company shall also indemnify underwriters participating in the distribution, their officers and directors and each person who controls such underwriters within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested by such Holders. (1) Each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof, to which the Company or any such controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. (2) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. No indemnifying party shall, without the prior written consent of the indemnified party (which consent will not be unreasonably withheld), effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. (3) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the exchange of the Securities, pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Holder or such other indemnified party, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 5(d), the Holders of the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to a Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (4) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. 6. Additional Interest Under Certain Circumstances. (a) Additional interest (the "Additional Interest") with respect to the Initial Securities shall be assessed as follows if any of the following events occur (each such event in clauses (i) through (iii) below a "Registration Default" and each period during which a Registration Default has occurred and is continuing, a "Registration Default Period"): (1) If by February 20, 1999, neither the Exchange Offer Registration Statement nor a Shelf Registration Statement has been filed with the Commission; (2) If by June 20, 1999, neither the Registered Exchange Offer is consummated nor, if required in lieu thereof, the Shelf Registration Statement is declared effective by the Commission; or (3) If after either the Exchange Offer Registration Statement or the Shelf Registration Statement is declared effective (A) such Registration Statement thereafter ceases to be effective; or (B) such Registration Statement or the related prospectus ceases to be usable (except as permitted in paragraph (b)) in connection with resales of Transfer Restricted Securities during the periods specified herein because either (1) any event occurs as a result of which the related prospectus forming part of such Registration Statement would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or (2) it shall be necessary to amend such Registration Statement or supplement the related prospectus, to comply with the Securities Act or the Exchange Act or the respective rules thereunder. Additional Interest shall accrue on the Initial Securities over and above the interest set forth in the title of the Securities from and including the date on which any such Registration Default shall occur to but excluding the date on which all such Registration Defaults have been cured, at the rate of 0.25% per annum for the first 90 days of each Registration Default Period and at the rate of 0.50% per annum thereafter for the remaining portion of such Registration Default Period. (2) A Registration Default referred to in Section 6(a) (iii)(B) hereof shall be deemed not to have occurred and be continuing in relation to a Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited financial information with respect to the Company where such post- effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events, with respect to the Company that would need to be described in such Shelf Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Shelf Registration Statement and related prospectus to describe such events; provided, however, that in any case if such Registration Default occurs for a continuous period in excess of 30 days, Additional Interest shall be payable in accordance with the above paragraph from the day such Registration Default occurs until such Registration Default is cured. (3) Any amounts of Additional Interest due pursuant to clause (i), (ii) or (iii) of Section 6(a) above will be payable in cash on the regular interest payment dates with respect to the Initial Securities. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the Initial Securities, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30- day months), and the denominator of which is 360. (4) "Transfer Restricted Securities" means each Security until (i) thedate on which such Transfer Restricted Security has been exchanged by a person other than a broker-dealer for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange Offer of a Initial Security for an Exchange Security, the date on which such Exchange Security is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Initial Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Initial Securities is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. 7. Rules 144 and 144A. The Company shall use its best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Initial Securities, make publicly available other information so long as necessary to permit sales of their securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Initial Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Initial Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). The Company will provide a copy of this Agreement to prospective purchasers of Initial Securities identified to the Company by the Initial Purchasers upon request. Upon the request of any Holder of Initial Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Underwritten Registrations. If any of the Transfer Restricted Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering ("Managing Underwriters") will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities to be included in such offering. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. Miscellaneous. (1) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the Company and the written consent of the Holders of a majority in principal amount of the Securities affected by such amendment, modification, supplement, waiver or consents. (2) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail, facsimile transmission, or air courier which guarantees overnight delivery: (1) if to a Holder of the Securities, at the most current address given by such Holder to the Company. (2) if to the Initial Purchasers; Credit Suisse First Boston Corporation Eleven Madison Avenue New York, NY 10010-3629 Fax No.: (212) 325-8278 Attention: Transactions Advisory Group with a copy to: Andrews & Kurth L.L.P. 805 Third Avenue New York, New York 10022 Attention: Allan D. Reiss (3) if to the Company, at its address as follows: R&B Falcon Corporation 901 Threadneedle, Suite 200 Houston, Texas 77079 Attention: Leighton E. Moss with a copy to: Gardere & Wynne, L.L.P. 3000 Thanksgiving Tower 1601 Elm Street Dallas, Texas 75201-4761 Attention: C. Robert Butterfield All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient's facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight air courier guaranteeing next day delivery. (3) No Inconsistent Agreements. The Company has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof. (4) Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns. (5) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (6) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (7) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. (8) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (9) Securities Held by the Company. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (10) Submission to Jurisdiction. The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the several Initial Purchasers and the Company in accordance with its terms. Very truly yours, R&B FALCON CORPORATION By: /S/ LEIGHTON MOSS ------------------------ Name: Leighton Moss Title: VP The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION NATIONSBANC MONTGOMERY SECURITIES LLC PARIBAS CORPORATION by: Credit Suisse First Boston Corporation By: /S/ ROBERT A. HANSEN ------------------------- Name: Robert A. Hansen Title: Director ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker- dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Initial Securities, where such Initial Securities were acquired by such broker-dealer as a result of market- making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. ANNEX D [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name:____________________________ Address:___________________________ ___________________________ If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. EX-4.21 3 Exhibit 4.21 ==================================================================== R&B FALCON CORPORATION , as Issuer and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION , as Trustee INDENTURE Dated as of December 22, 1998 $400,000,000 SERIES A AND SERIES B 9-1/8% SENIOR NOTES DUE 2003 9-1/2% SENIOR NOTES DUE 2008 ====================================================================== CROSS-REFERENCE TABLE* TIA Section Indenture Section 310 (a)(1) 6.10 (a)(2) 6.10 (a)(3) N.A. (a)(4) N.A. (a)(5) 6.10 (b) 6.10; 7.01(b) (c) N.A. 311 (a) 6.11 (b) 6.11 (c) N.A. 312 (a) 2.05 (b) 11.03 (c) 11.03 313 (a) 6.06 (b) 6.06 (c) 6.06 (d) 6.06 314 (a) 3.03 (b) N.A. (c)(1) 11.04 (c)(2) 11.04 (c)(3) N.A. (d) N.A. (e) 11.05 (f) N.A. 315 (a) 6.01(b) (b) 6.05 (c) 6.01(a) (d) 6.01(c) (e) 5.11 316 (a)(last sentence) 2.09 (a)(1)(A) 5.05 (a)(1)(B) 5.04 (a)(2) N.A. (b) 5.07 (c) 8.04 317 (a)(1) 5.08 (a)(2) 5.09 (b) 2.04 318 (a) 10.01 318 (c) 10.01 N.A. means not applicable * This Cross-Reference Table is not part of this Indenture TABLE OF CONTENTS ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions 1 Section 1.02 Other Definitions 16 Section 1.03 Incorporation by Reference of Trust Indenture Act 16 Section 1.04 Rules of Construction 17 ARTICLE II THE SECURITIES Section 2.01 Form and Dating 17 Section 2.02 Execution and Authentication 18 Section 2.03 Registrar and Paying Agent 19 Section 2.04 Paying Agent to Hold Money in Trust 20 Section 2.05 Holder Lists 20 Section 2.06 Transfer and Exchange 20 Section 2.07 Certificated Securities 24 Section 2.08 Replacement Securities 25 Section 2.09 Outstanding Securities 26 Section 2.10 Treasury Securities 26 Section 2.11 Temporary Securities 26 Section 2.12 Cancellation 27 Section 2.13 Defaulted Interest 27 Section 2.14 Persons Deemed Owners 27 ARTICLE III COVENANTS Section 3.01 Payment of Securities 27 Section 3.02 Maintenance of Office or Agency 28 Section 3.03 SEC Reports; Financial Statements 28 Section 3.04 Compliance Certificate 29 Section 3.05 Corporate Existence 29 Section 3.06 Maintenance of Properties 30 Section 3.07 Payment of Taxes and Other Claims 30 Section 3.08 Waiver of Stay, Extension or Usury Laws 30 Section 3.09 Limitation on Indebtedness 31 Section 3.10 Limitation on Sale/Leaseback Transactions 33 Section 3.11 Limitation on Liens 33 Section 3.12 Limitation on Restricted Payments 35 Section 3.13 Covenant Termination 37 Section 3.14 Registration Rights Agreement 37 ARTICLE IV SUCCESSORS Section 4.01 Limitations on Mergers and Consolidations 38 Section 4.02 Successor Corporation Substituted 38 ARTICLE V DEFAULTS AND REMEDIES Section 5.01 Events of Default 39 Section 5.02 Acceleration 41 Section 5.03 Other Remedies 41 Section 5.04 Waiver of Existing Defaults 42 Section 5.05 Control by Majority 42 Section 5.06 Limitations on Suits 42 Section 5.07 Rights of Holders to Receive Payment 43 Section 5.08 Collection Suit by Trustee 43 Section 5.09 Trustee May File Proofs of Claim 43 Section 5.10 Priorities 44 Section 5.11 Undertaking for Costs 44 ARTICLE VI TRUSTEE Section 6.01 Duties of Trustee 44 Section 6.02 Rights of Trustee 46 Section 6.03 Individual Rights of Trustee 47 Section 6.04 Trustee's Disclaimer 47 Section 6.05 Notice of Defaults 47 Section 6.06 Reports by Trustee to Holders 47 Section 6.07 Compensation and Indemnity 48 Section 6.08 Replacement of Trustee 48 Section 6.09 Successor Trustee by Merger, etc 49 Section 6.10 Eligibility; Disqualification 50 Section 6.11 Preferential Collection of Claims Against Company 50 ARTICLE VII DISCHARGE OF INDENTURE Section 7.01 Termination of Company's Obligations 50 Section 7.02 Application of Trust Money 53 Section 7.03 Repayment to Company 53 Section 7.04 Reinstatement 53 ARTICLE VIII AMENDMENTS Section 8.01 Without Consent of Holders 54 Section 8.02 With Consent of Holders 55 Section 8.03 Compliance with Trust Indenture Act 56 Section 8.04 Revocation and Effect of Consents 56 Section 8.05 Notation on or Exchange of Securities 57 Section 8.06 Trustee to Sign Amendments, etc 57 ARTICLE IX GUARANTEES OF SECURITIES Section 9.01 Unconditional Guarantees 58 Section 9.02 Limitation of Guarantor's Liability 60 Section 9.03 Contribution 60 Section 9.04 Execution and Delivery of Guarantees 60 Section 9.05 Addition of Guarantors 61 Section 9.06 Release of Guarantee 61 Section 9.07 Consent to Jurisdiction and Service of Process 62 Section 9.08 Waiver of Immunity 62 Section 9.09 Judgment Currency 63 ARTICLE X REDEMPTION Section 10.01 Notices to Trustee 63 Section 10.02 Selection of Securities to be Redeemed 63 Section 10.03 Notices to Holders 64 Section 10.04 Effect of Notices of Redemption 65 Section 10.05 Deposit of Redemption Price 65 Section 10.06 Securities Redeemed in Part 65 Section 10.07 Optional Redemption 65 ARTICLE XI MISCELLANEOUS Section 11.01 Trust Indenture Act Controls 66 Section 11.02 Notices 66 Section 11.03 Communication by Holders with Other Holders 68 Section 11.04 Certificate and Opinion as to Conditions Precedent 68 Section 11.05 Statements Required in Certificate or Opinion 69 Section 11.06 Rules by Trustee and Agents 69 Section 11.07 Legal Holidays 69 Section 11.08 No Recourse Against Others 69 Section 11.09 Governing Law 70 Section 11.10 No Adverse Interpretation of Other Agreements 70 Section 11.11 Successors 70 Section 11.12 Severability 70 Section 11.13 Counterpart Originals 70 Section 11.14 Table of Contents, Headings, etc 70 EXHIBITS EXHIBIT A Form of 5-Year Security A-1 EXHIBIT B Form of 10-Year Security B-1 EXHIBIT C Form of Supplemental Indenture C-1 Indenture dated as of December 22, 1998 between R&B Falcon Corporation, a Delaware corporation (the "Company"), and Chase Bank of Texas, National Association, a national banking association (the "Trustee"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Company's (i) 9-1/8% Series A Senior Notes due 2003 (the "Series A 5-Year Securities") and 9- 1/8% Series B Senior Notes due 2003 (the "Series B 5-Year Securities" and with the Series A 5-Year Securities, the "5-Year Securities") and (ii) 9- 1/2% Series A Senior Notes due 2008 (the "Series A 10-Year Securities") and 9-1/2% Series B Senior Notes due 2008 (the "Series B 10-Year Securities" and with the Series A 10-Year Securities, the "10-Year Securities"). The Series A 5-Year Securities and the Series A 10-Year Securities are collectively referred to herein as the "Series A Securities", and the Series B 5-Year Securities and the Series B 10-Year Securities are collectively referred to herein as the "Series B Securities." In addition, each of the 5-Year Securities and the 10-Year Securities shall constitute a "series" of Securities: ARTICLE II DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 DefinitionsSection "Acquired Indebtedness" means, with respect to any specified Person (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Adjusted Net Assets" of a Guarantor at any date means the lesser of (x) the amount by which the fair value of the property of such Guarantor at such date exceeds the total amount of liabilities, including, without limitation, the probable amount of contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date) of such Guarantor at such date, but excluding liabilities under the Guarantee of such Guarantor, and (y) the amount by which the present fair saleable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any Subsidiary of such Guarantor in respect of any obligations of such Subsidiary under the Guarantee of such Guarantor), excluding debt in respect of the Guarantee of such Guarantor, as they become absolute and matured. "Affiliate" of any specified Person means any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified Person. For purposes of this definition, "control" of a Person shall mean the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" shall have meanings correlative to the foregoing. The Trustee may request and may conclusively rely upon an Officers" Certificate to determine whether any Person is an Affiliate of any specified Person. "Agent" means any Registrar or Paying Agent. "Attributable Indebtedness," when used with respect to any Sale/Leaseback Transaction, means, as at the time of determination, the present value (discounted at the rate set forth or implicit in the terms of the lease included in such transaction) of the total obligations of the lessee for rental payments (other than amounts required to be paid on account of property taxes, maintenance, repairs, insurance, assessments, utilities, operating and labor costs and other items which do not constitute payments for property rights) during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state or foreign law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized, with respect to any particular matter, to act by or on behalf of the Board of Directors of the Company. "Business Day" means any day that is not a Legal Holiday. "Capital Stock" means, with respect to any Person, any and all shares, interests, rights to purchase, warrants or options (whether or not currently exercisable), participations or other equivalents of or interests in (however designated) the equity (which includes, but is not limited to, common stock, preferred stock and partnership and joint venture interests) of such Person (excluding any debt securities that are convertible into, or exchangeable for, such equity). "Capitalized Lease Obligation" of any Person means any obligation of such Person to pay rent or other amounts under a lease of property, real or personal, that is required to be capitalized for financial reporting purposes in accordance with GAAP; and the amount of such obligation shall be the capitalized amount thereof determined in accordance with GAAP. "Cliffs Drilling Company" means Cliffs Drilling Company, a Delaware corporation and a wholly-owned subsidiary of the Company. "Cliffs Senior Notes" means $200 million aggregate principal amount of 10"% Senior Notes due 2003 of Cliffs Drilling Company. "Common Equity" of any Person means and includes all Capital Stock of such Person that is generally entitled (without regard to the occurrence of any contingency) to (i) vote in the election of directors of such Person, or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management and policies of such Person. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation; provided, however, that for purposes of any provision contained herein which is required by the TIA, "Company" shall also mean each Guarantor, if any. "Consolidated EBITDA Coverage Ratio" as of any date of determination means the ratio of (a) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters ending at least 45 days prior to the date of such determination to (b) Consolidated Interest Expense for such four fiscal quarters; provided, however, that (i) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated EBITDA Coverage Ratio is an issuance of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been issued on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (ii) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any asset disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such asset disposition for such period, or increased by an amount equal to the EBITDA (if negative), directly attributable thereto for such period, and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such asset dispositions for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Subsidiaries are no longer liable for such Indebtedness after such sale), (iii) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the issuance of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period, and (iv) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any asset disposition or any Investment that would have required an adjustment pursuant to clause (ii) or (iii) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such asset disposition or Investment occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto, and the amount of Consolidated Interest Expense associated with any Indebtedness issued in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest of such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Protection Agreement applicable to such Indebtedness if such Interest Rate Protection Agreement has a remaining term in excess of 12 months). For purposes of this definition, in the case of the acquisition since the beginning of such period of a drilling rig, drillship or similar vessel (or of a Restricted Subsidiary owning same) by the Company or by a Restricted Subsidiary pursuant to a binding purchase agreement or the delivery since the beginning of such period of a drilling rig, drillship or similar vessel to the Company or a Restricted Subsidiary pursuant to a binding construction contract, if such drilling rig, drillship or similar vessel has been earning a day rate for at least one full fiscal quarter under a binding drilling contract constituting a Qualifying Contract, pro forma effect shall be given to the earnings (losses) of such drilling rig, drillship or similar vessel as if such drilling rig, drillship or similar vessel were acquired on the first day of such period, by basing such earnings (losses) on the annualized (x) historical revenues actually earned from such Qualifying Contract and (y) actual expenses related thereto, in each case for each full quarter during such period in which such drilling rig, drillship or similar vessel was earning a day rate under such Qualifying Contract. "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Restricted Subsidiaries, plus, to the extent not included in such interest expense: (i) interest expense attributable to Capitalized Lease Obligations; (ii) amortization of debt discount and debt issuance cost; (iii) capitalized interest; (iv) non-cash interest payments; (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; (vi) net costs under Interest Rate Protection Agreements (including amortization of fees); (vii) dividends in respect of any Redeemable Stock held by Persons other than the Company or a Restricted Subsidiary; (viii) interest expense attributable to deferred payment obligations, and (ix) interest expense on Indebtedness of another Person to the extent that such Indebtedness is guaranteed by the Company or a Restricted Subsidiary. "Consolidated Net Income" means, for any period, the net income of the Company and its consolidated subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income (i) any net income of any Person if such Person is not a Restricted Subsidiary, except that (A) the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income, (ii) any net income of any Person acquired by the Company or a Restricted Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition, (iii) any net income of any Restricted Subsidiary to the extent such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) the net income of Cliffs Drilling Company shall be included notwithstanding the foregoing, (B) the net income of a Restricted Subsidiary shall be included to the extent such net income could be paid to the Company or a Restricted Subsidiary by loans, advances, intercompany transfers, principal repayments or otherwise, (C) the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to another Restricted Subsidiary, to the limitation contained in this clause) and (D) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income, (iv) any gain (but not loss) realized upon the sale or other disposition of any property, plant or equipment of the Company or its consolidated subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any Capital Stock of any Person, (v) extraordinary, unusual or nonrecurring charges, (vi) charges relating to the extinguishment of debt obligations of Falcon Drilling Company and (vii) the cumulative effect of a change in accounting principles. "Consolidated Net Worth" of the Company means the consolidated stockholders' equity of the Company and its Subsidiaries, as determined in accordance with GAAP. "Corporate Trust Office of the Trustee" means the office of the Trustee at which the corporate trust business of the Trustee shall be principally administered, which office shall initially be located at the address of the Trustee specified in Section 11.02 hereof and may be located at such other address as the Trustee may give notice to the Company. "Credit Facilities" means, with respect to the Company or any Restricted Subsidiary, one or more debt facilities or commercial paper facilities, in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Default" means any event, act or condition that is, or after notice or the passage of time or both would be, an Event of Default. "Depositary" means The Depository Trust Company, its nominees and their respective successors. "EBITDA" for any period means the Consolidated Net Income for such period, plus the following (but without duplication) to the extent deducted in calculating such Consolidated Net Income for such period: (i) income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation expense and (iv) amortization expense. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and any successor statute. "Exchange Offer" means the offer that may be made by the Company pursuant to a Registration Rights Agreement to exchange each series of the Series B Securities for the corresponding series of Series A Securities. "Exchange Offer Registration Statement" means a registration statement under the Securities Act relating to an Exchange Offer, including the related prospectus. "Exchangeable Stock" means any Capital Stock which is exchangeable or convertible into another security (other than Capital Stock of the Company which is neither Exchangeable Stock nor Redeemable Stock). "Funded Indebtedness" means all Indebtedness (including Indebtedness incurred under any revolving credit, letter of credit or working capital facility) that matures by its terms, or that is renewable at the option of any obligor thereon to a date, more than one year after the date on which such Indebtedness is originally incurred. "GAAP" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, as in effect from time to time. "Guarantor" means (i) each Subsidiary of the Company that becomes a guarantor of the Securities pursuant to Section 9.05 hereof, (ii) each Subsidiary of the Company that executes a supplemental indenture in which such Subsidiary agrees to be bound by Article IX hereof and (iii) any Subsidiary of the Company that is a successor corporation of any Subsidiary of the Company referred to in clauses (i) or (ii). The term "Guarantor" shall not include any Subsidiary of the Company referred to in clauses (i) through (iii) that shall have been released from its obligations under Article IX pursuant to Section 9.06 hereof. "Hedging Obligations" of any Person means the net obligations (not the notional amount) of such Person pursuant to any interest rate swap agreement, foreign currency exchange agreement, interest rate collar agreement, option or futures contract or other similar agreement or arrangement relating to interest rates or foreign exchange rates. "Holder" means a Person in whose name a Security is registered. "Incur" means issue, assume, guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. "Indebtedness" of any Person at any date means, without duplication, (i) all indebtedness of such Person for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (or reimbursement obligations with respect thereto), other than standby letters of credit and performance bonds issued by such Person in the ordinary course of business, to the extent not drawn or, to the extent drawn, if such drawing is reimbursed not later than the third Business Day following demand for reimbursement, (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, except trade payables and accrued expenses incurred in the ordinary course of business, (v) all Capitalized Lease Obligations of such Person, (vi) all Indebtedness of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, to the extent of the fair market value of all the assets of such Person subject to such Lien, (vii) all Indebtedness of others guaranteed by such Person to the extent of such guarantee, (viii) Redeemable Stock, valued at its maximum fixed repurchase price, and (ix) all Hedging Obligations of such Person. "Indenture" means this Indenture as amended or supplemented from time to time. "Independent Investment Banker" means an independent investment banking institution of national standing appointed by the Company for purposes of calculating any Make-Whole Premium, provided, that if the Company fails to make such appointment at least 45 Business Days prior to the Redemption Date for any Security to be redeemed, or if the institution so appointed is unwilling or unable to make such calculation, such calculation will be made by Credit Suisse First Boston Corporation or, if such firm is unwilling or unable to make such calculation, by an independent investment banking institution of national standing appointed by the Trustee. "Initial Purchasers" means Credit Suisse First Boston Corporation, NationsBanc Montgomery Securities LLC and Paribas Corporation, as initial purchasers in the Offering. "Interest Payment Date" shall have the meaning assigned to such term in the Securities. "Interest Rate Protection Agreement" means any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in interest rates. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender) or other extensions of credit (including by way of guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary," the definition of "Restricted Payment" and Section 3.12, (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation, and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Investment Grade" means BBB- or above, in the case of S&P (or its equivalent under any successor Rating Categories of S&P), Baa3 or above, in the case of Moody's (or its equivalent under any successor Rating Categories of Moody's), and the equivalent in respect of the Rating Categories of any Rating Agencies substituted for S&P or Moody's. "Issue Date" means the first date on which the Series A Securities are issued under this Indenture. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in any of New York, New York, Houston, Texas or a place of payment are authorized or obligated by law, regulation or executive order to remain closed. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law. For the purposes of this Indenture, the Company or any Subsidiary of the Company shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capitalized Lease Obligation or other title retention agreement relating to such asset. "Make-Whole Premium" means, with respect to any 5-Year Security or 10- Year Security (or portion thereof) to be redeemed, an amount equal to the excess, if any, of: (i) the sum of the present values, calculated as of the Redemption Date, of: (A) each interest payment that, but for such redemption, would have been payable on the Security (or portion thereof) being redeemed on each Interest Payment Date occurring after the Redemption Date (excluding any accrued and unpaid interest for the period prior to the Redemption Date); and (B) the principal amount that, but for such redemption, would have been payable at the final maturity of the Security (or portion thereof) being redeemed; over (ii) the principal amount of the Security (or portion thereof) being redeemed. The present values of interest and principal payments referred to in clause (i) above will be determined in accordance with generally accepted principles of financial analysis. Such present values will be calculated by discounting the amount of each payment of interest or principal from the date that each such payment would have been payable, but for the redemption, to the Redemption Date at a discount rate equal to the Treasury Yield plus (i) 50 basis points in the case of the 5-Year Securities and (ii) 50 basis points in the case of the 10-Year Securities The Make-Whole Premium will be calculated by an Independent Investment Banker. For purposes of determining the Make-Whole Premium, "Treasury Yield" means a rate of interest per annum equal to the weekly average yield to maturity of United States Treasury Notes that have a constant maturity that corresponds to the remaining term to maturity of the Securities, calculated to the nearest 1/12 of a year (the "Remaining Term"). The Treasury Yield will be determined as of the third Business Day immediately preceding the applicable Redemption Date. The weekly average yields of United States Treasury Notes will be determined by reference to the most recent statistical release published by the Federal Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or any successor release (the "H.15 Statistical Release"). If the H.15 Statistical Release sets forth a weekly average yield for United States Treasury Notes having a constant maturity that is the same as the Remaining Term, then the Treasury Yield will be equal to such weekly average yield. In all other cases, the Treasury Yield will be calculated by interpolation, on a straight-line basis, between the weekly average yields on the United States Treasury Notes that have a constant maturity closest to and greater than the Remaining Term and the United States Treasury Notes that have a constant maturity closest to and less than the Remaining Term (in each case as set forth in the H.15 Statistical Release). Any weekly average yields so calculated by interpolation will be rounded to the nearest 1/100 of 1%, with any figure of 1/200% or above being rounded upward. If weekly average yields for United States Treasury Notes are not available in the H.15 Statistical Release or otherwise, then the Treasury Yield will be calculated by interpolation of comparable rates selected by the Independent Investment Banker. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Net Proceeds" means, with respect to any Sale/Leaseback Transaction entered into by the Company or any Subsidiary of the Company, the aggregate net proceeds received by the Company or such Subsidiary from such Sale/Leaseback Transaction after payment of expenses, taxes, commissions and similar amounts incurred in connection therewith, whether such proceeds are in cash or in property (valued at the fair market value thereof at the time of receipt, as determined by the Board of Directors). "Non-Convertible Capital Stock" means, with respect to any corporation, any non-convertible Capital Stock of such corporation and any Capital Stock of such corporation convertible solely into non-convertible common stock of such corporation; provided, however, that Non-Convertible Capital Stock shall not include any Redeemable Stock or Exchangeable Stock. "Non-Recourse Indebtedness" means Indebtedness or that portion of Indebtedness of an Unrestricted Subsidiary as to which neither the Company nor any Restricted Subsidiary (i) provides credit support including any undertaking, agreement or instrument which would constitute Indebtedness; or (ii) is directly or indirectly liable for such Indebtedness. "Offering" means the offering of the Original Securities pursuant to the Offering Circular. "Offering Circular" means the Offering Circular of the Company, dated December 17, 1998, relating to the Offering. "Officer" means the Chairman of the Board, the President, any Vice Chairman of the Board, any Vice President, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Assistant Secretary of a Person. "Officers' Certificate" means a certificate signed by two Officers of a Person, one of whom must be the Person's Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. Such counsel may be an employee of or counsel to the Company, a Guarantor or the Trustee. "Pari Passu Indebtedness" means any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall be subordinated in right of payment to the Securities. "Permitted Investments" means (i) certificates of deposit, bankers acceptances, time deposits, Eurocurrency deposits and similar types of Investments routinely offered by commercial banks with final maturities of one year or less issued by commercial banks having capital and surplus in excess of $100 million, (ii) commercial paper issued by any corporation, if such commercial paper has credit ratings of at least "A- 1" by S&P and at least "P-1" by Moody's, (iii) U.S. Government Obligations with a maturity of four years or less, (iv) repurchase obligations for instruments of the type described in clause (iii), (v) shares of money market mutual or similar funds having assets in excess of $100 million, (vi) payroll advances in the ordinary course of business, (vii) other advances and loans to officers and employees of the Company or any Restricted Subsidiary, so long as the aggregate principal amount of such advances and loans does not exceed $500,000 at any one time outstanding, (viii) Investments in any Person in the form of a capital contribution of the Company's common stock, (ix) Investments made by the Company in its Restricted Subsidiaries (or any Person that will be a Restricted Subsidiary as a result of such Investment) or by a Restricted Subsidiary in the Company or in one or more Restricted Subsidiaries (or any Person that will be a Restricted Subsidiary as a result of such Investment), (x) Investments in stock, obligations or securities received in settlement of debts owing to the Company or any Restricted Subsidiary as a result of bankruptcy or insolvency proceedings or upon the foreclosure, perfection or enforcement of any Lien in favor of the Company or any Restricted Subsidiary, in each case as to debt owing to the Company or any Restricted Subsidiary that arose in the ordinary course of business of the Company or any such Restricted Subsidiary, (xi) Investments made in exchange for Indebtedness permitted by clauses (b)(4) and (b)(5) of Section 3.09, (xii) Investments in the capital stock of Navis ASA, a Norwegian corporation, in exchange for cash and non-cash assets (the fair market value of which shall be determined in good faith by the Board of Directors of the Company), in an aggregate amount not to exceed $50 million at any time outstanding, (xiii) Investments consisting of the redesignation of the Subsidiary owning or operating the drillships Deepwater Millennium or Deepwater Frontier as an Unrestricted Subsidiary, or the contribution, transfer or other disposition of the drillships Deepwater Millennium and Deepwater Frontier and related equipment and assets (including any drilling contract) by the Company or any Restricted Subsidiary to a Person other than a Restricted Subsidiary, in connection with the refinancing of the Indebtedness Incurred to finance the construction of such drillships, (xiv) Investments in a Person other than a Restricted Subsidiary for the purpose of financing the construction or upgrade prior to delivery of the drillship Deepwater Frontier, the drillship Deepwater Millennium or the semisubmersible RBS8M pursuant to the terms of applicable construction and equipment installation agreements and (xv) Investments in a Person other than a Restricted Subsidiary for the purpose of financing the construction or upgrade of new drilling rigs, drillships or similar vessels and related equipment, in an aggregate amount not to exceed at any time outstanding (A) $100 million less (B) the aggregate amount of all payments actually made pursuant to paragraph (xiv) of this definition that represent payments for amounts in excess of the Company's estimated costs for the vessels referred to therein, as in effect on the Issue Date; provided, however, that at the time of such Investment, the Company or such Person has entered into a Qualifying Contract with respect thereto. "Person" means any individual, corporation, partnership, limited liability company, limited or general partnership, joint venture, incorporated or unincorporated association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof or other entity of any kind. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Private Exchange" means the offer by the Company, pursuant to the Registration Rights Agreement, to the Initial Purchasers to issue and deliver to each Initial Purchaser, in exchange for the Original Securities held by the Initial Purchaser as part of its initial distribution, a like aggregate principal amount of Private Exchange Securities. "Private Exchange Securities" means the Securities to be issued pursuant to this Indenture to the Initial Purchasers in a Private Exchange. "Purchase Agreement" means the Purchase Agreement, dated as of December 17, 1998, among the Company and the Initial Purchasers. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Qualifying Contract" with respect to a drilling rig, drillship or similar vessel means a contract for the use thereof (i) between the Company or a Restricted Subsidiary or, for the purpose of clause (xv) of the definition of "Permitted Investments," a Person other than a Restricted subsidiary, and a counterparty that, as certified in an Officers' Certificate delivered to the Trustee in connection therewith, is either generally recognized in the offshore drilling industry as a major oil company or has an Investment Grade rating on its long-term debt from Moody's or S&P's, (ii) having a minimum term of two years and (iii) containing a minimum day rate for such drilling rig, drillship or similar vessel. "Rating Agencies" means (a) S&P and Moody's or (b) if S&P or Moody's or both of them are not making ratings of the Securities publicly available, a nationally recognized U.S. rating agency or agencies, as the cases may be, selected by the Company, which will be substituted for S&P or Moody's or both, as the case may be. "Rating Categories" means (i) with respect to S&P, any of the following categories (any of which may include a "+" or "`"): AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories), (ii) with respect to Moody's, any of the following categories (any of which may include a "1," "2" or "3"): Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories) and (iii) the equivalent of any such categories of S&P or Moody's used by another Rating Agency, if applicable. "Redeemable Stock" means, with respect to any series of Securities, any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date on which the Securities of such series mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Redeemable Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Redeemable Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the provisions of Section 3.12. "Redemption Date," when used with respect to any security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price" shall have the meaning assigned to such term in the Securities. "Registration Rights Agreement" means that certain Registration Rights Agreement, dated as of December 17, 1998, among the Company and the Initial Purchasers relating to the Original Securities. "Restricted Subsidiary" means any Subsidiary other than an Unrestricted Subsidiary. "Sale/Leaseback Transaction" means any arrangement with any Person providing for the leasing by the Company or any Subsidiary of the Company, for a period of more than three years, of any real or tangible personal property, which property has been or is to be sold or transferred by the Company or such Subsidiary to such Person in contemplation of such leasing. "SEC" means the Securities and Exchange Commission. "Securities" means the Series A Securities and the Series B Securities. For purposes of this Indenture, the term "Securities" shall, except where the context otherwise requires, include any future Guarantees. "Securities Act" means the Securities Act of 1933, as amended, and any successor statute. "Security Custodian" means the Trustee, as custodian with respect to the Securities in global form, or any successor entity thereto. "Series A Securities" means, collectively, the Company's (i) 9-1/8% Series A Senior Notes due 2003 and (ii) 9-1/2% Series A Senior Notes due 2008 to be issued pursuant to this Indenture. "Series B Securities" means, collectively, the Company's (i) 9-1/8% Series B Senior Notes due 2003 and (ii) 9-1/2% Series B Senior Notes due 2008 to be issued pursuant to this Indenture in the Exchange Offer. "Shelf Registration Statement" means the registration statement issued by the Company, in connection with the offer and sale of Original Securities or Private Exchange Securities, pursuant to the Registration Rights Agreement. "Significant Subsidiary" has the meaning set forth in Regulation S-X under the Exchange Act. "S&P" means Standard & Poor's Rating Service, a division of the McGraw- Hill Companies, Inc., and its successors. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Subordinated Obligation" means any Indebtedness of the Company (whether outstanding on the date hereof or hereafter incurred) which is subordinate or junior in right of payment to the Securities. "Subsidiary" means, with respect to any Person (i) any corporation of which more than 50% of the total voting power of all classes of the Common Equity is owned by such Person directly or through one or more other Subsidiaries of such Person, and (ii) any entity other than a corporation at least a majority of the Common Equity of which is owned by such Person directly or through one or more other Subsidiaries of such Person. "Tangible Property" means all land, buildings, machinery and equipment and leasehold interests and improvements which would be reflected on a balance sheet of the Company prepared in accordance with GAAP, excluding (a) all rights, contracts and other intangible assets of any nature whatsoever and (b) all inventories and other current assets. "TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C. Sections 77aaa-77bbbb), as in effect on the Issue Date. "Transfer Restricted Securities" shall have the meaning assigned to such term in the Registration Rights Agreement. "Trust Officer" means any officer or assistant officer of the Trustee assigned by the Trustee to administer any of its corporate trust matters. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "U.S. Government Obligations" means direct obligations of the United States of America for the payment of which the full faith and credit of the United States of America is pledged. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination will be designated an Unrestricted Subsidiary by the Board of Directors of the Company as provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Subsidiary of the Company as an Unrestricted Subsidiary so long as (1) it has no Indebtedness other than Non-Recourse Indebtedness; provided, however, that notwithstanding any other provision of this Indenture, a Subsidiary shall not fail to constitute an Unrestricted Subsidiary by reason of (A) the guarantee by the Company or a Restricted Subsidiary in connection with synthetic lease obligations Incurred to finance the construction or upgrade of drilling rigs, drillships or similar vessels; and (B) obligations of the Company or a Restricted Subsidiary relating to Indebtedness of an Unrestricted Subsidiary if such Indebtedness constituted a Permitted Investment or a Restricted Payment permitted by the "Limitation on Restricted Payments" covenant at the time of its Incurrence or at the time of designation of such Subsidiary as an Unrestricted Subsidiary; and (2) after giving effect thereto, such designation was permitted by the "Limitation on Restricted Payments" covenant. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing a resolution of the Board of Directors with the Trustee giving effect to such designation. The Board of Directors of the Company may designate any Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after giving effect to such designation, (x) no Default or Event of Default shall have occurred and be continuing and (y) the Company could incur $1.00 of additional Indebtedness under Section 3.09(a). Section 1.2Other Definitions Term Defined in Section "Agent Members" 2.01(c) "Authorized Agent" 9.07 "Custodian" 5.01 "DTC" 2.03 "Event of Default" 5.01 "Funding Guarantor" 9.03 "Global Security" 2.01(b) "Guarantees" 9.01(a) "Judgement Currency" 9.09 "Non-U.S. Guarantor" 9.07 "Original Securities" 2.02 "Paying Agent" 2.03 "Registrar" 2.03 "Regulation S" 2.01(b) "Restricted Payment" 3.12 "Rule 144A" 2.01(b) "Significant Subsidiary" 5.01 "Successor" 4.01 "Suspended Covenants" 3.13 Section I.3Incorporation by Reference of Trust Indenture Act Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Holder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company and each Guarantor. All terms used in this Indenture that are defined by the TIA, defined by a TIA reference to another statute or defined by an SEC rule under the TIA have the meanings so assigned to them. Section 1.04 Rules of ConstructionSection Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; and (5) provisions apply to successive events and transactions. ARTICLE II THE SECURITIES Section 2.01 Form and Dating (a) General. The [ ]-Year Securities and the 10-Year Securities, any notations thereon relating to the Guarantees and the Trustee's certificate of authentication shall be substantially in the form of Exhibits A and B, respectively, to this Indenture, the terms of which are hereby incorporated into this Indenture. The Securities may have notations, legends or endorsements required by law, securities exchange rule, the Company's certificate of incorporation or bylaws, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company). Each Security shall be dated the date of its authentication. The Securities shall be in registered form without coupons and only in denominations of $1,000 and any integral multiples thereof. The terms and provisions contained in the Securities shall constitute, and are hereby expressly made, a part of this Indenture and to the extent applicable, the Company, the Guarantors, if any, and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. (b) Global Securities. Original Securities of any Series offered and sold to a QIB in reliance on Rule 144A under the Securities Act ("Rule 144A") or in reliance on Regulation S under the Securities Act ("Regulation S"), in each case as provided in the Purchase Agreement, shall be issued initially in the form of one or more permanent global Securities in definitive, fully registered form without interest coupons with the global securities legend and restricted securities legend set forth in Section 2.06 (each, a "Global Security"), which shall be deposited on behalf of the purchasers of the Original Securities represented thereby with the Trustee, at its New York office, as custodian for the Depositary (or with such other custodian as the Depositary may direct), and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee as hereinafter provided. (c) Book-entry Provisions. This Section 2.01(c) shall apply only to a Global Security deposited with or on behalf of the Depositary. The Company shall execute and the Trustee shall, in accordance with this Section 2.01(c), authenticate and deliver initially one or more Global Securities that (i) shall be registered in the name of the Depositary for such Global Security or Global Securities or the nominee of such Depositary and (ii) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary's instructions or held by the Trustee as custodian for the Depositary. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary or by the Trustee as the custodian of the Depositary or under such Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Security. (d) Certificated Securities. Except as provided in this Section 2.01 or Section 2.06 or 2.07, owners of beneficial interests in Global Securities will not be entitled to receive physical delivery of certificated Securities. Section 2.02 Execution and Authentication One Officer of the Company shall sign the Securities on behalf of the Company by manual or facsimile signature. The Company's seal may be impressed, affixed, imprinted or reproduced on the Securities and may be in facsimile form. If an Officer of the Company whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall be valid nevertheless. A Security shall not be entitled to any benefit under this Indenture or be valid or obligatory for any purpose until authenticated by the manual signature of an authorized signatory of the Trustee, which signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate (i) for original issue on the Issue Date each of (A) the 5-Year Series A Securities in the aggregate principal amount of $100,000,000 and (B) the 10-Year Series A Securities in the aggregate principal amount of $300,000,000 (collectively, the "Original Securities"), and (ii) the Series B Securities for original issue, pursuant to an Exchange Offer or Private Exchange, for a like principal amount of Series A Securities, in each case, upon a written order of the Company signed by one Officer of the Company. Such order shall specify (a) the amount of the Securities of each series to be authenticated and the date of original issue thereof, and (b) whether the Securities are Series A Securities or Series B Securities. The aggregate principal amount of Securities outstanding at any time may not exceed (i) $100,000,000 in the case of the 5-Year Securities and (ii) $300,000,000 in the case of the 10-Year Securities, except as provided in Section 2.08 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company, or an Affiliate of any of them. The Series A Securities of any series and the corresponding Series B Securities of such series shall be considered collectively to be a single class for all purposes of this Indenture, including, without limitations waivers, amendments, redemptions and offers to purchase. Section 2.03 Registrar and Paying Agent The Company shall maintain an office or agency where Securities may be presented for registration of transfer or exchange ("Registrar") and an office or agency where Securities may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Registrar or Paying Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture. The Company may change any Paying Agent or Registrar without notice to any Holder. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints the Trustee as Registrar and Paying Agent. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect each Global Security. Section 2.04 Paying Agent to Hold Money in Trust The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of or premium, if any, or interest on the Securities, whether such money shall have been paid to it by the Company or any Guarantor, and will notify the Trustee of any default by the Company or any Guarantor in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon payment over to the Trustee and upon accounting for any funds disbursed, the Paying Agent (if other than the Company or a Subsidiary of the Company) shall have no further liability for the money. If the Company or a Subsidiary of the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Section 2.05 Holder Lists The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each Interest Payment Date, and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, and the Company shall otherwise comply with TIA Section 312(a). Section 2.06 Transfer and Exchange (a) Transfer and Exchange of Global Securities. (i) The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the Depositary, in accordance with this Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depositary therefor. A transferor of a beneficial interest in a Global Security shall deliver to the Registrar a written order given in accordance with the Depositary's procedures containing information regarding the participant account of the Depositary to be credited with a beneficial interest in the Global Security. The Registrar shall, in accordance with such instructions, instruct the Depositary to credit to the account of the Person specified in such instructions a beneficial interest in the Global Security and to debit the account of the Person making the transfer the beneficial interest in the Global Security being transferred. (ii) Notwithstanding any other provisions of this Indenture (other than the provisions set forth in Section 2.07), a Global Security may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (iii) In the event that a Global Security is exchanged for Securities in definitive registered form pursuant to this Section 2.06 or Section 2.07 of this Indenture, prior to the consummation of an Exchange Offer or prior to or in a transfer made pursuant to an effective Shelf Registration Statement with respect to such Securities, such Securities may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this Section 2.06 (including the certification and other requirements set forth on the reverse of the Original Securities intended to ensure that such transfers comply with Rule 144A or Regulation S, as the case may be, or are otherwise in compliance with the requirements of the Securities Act) and such other procedures as may from time to time be adopted by the Company. (b) Legend. (i) Except as permitted by the following paragraphs (ii), (iii) and (iv), each Security certificate evidencing the Global Securities (and all Securities issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form: "THIS SECURITY (OR ITS PREDECESSOR) AND ANY GUARANTEE THEREOF WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (ii) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), OR (iv) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE." (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Security) pursuant to Rule 144 under the Securities Act, in the case of any Transfer Restricted Security that is represented by a Global Security, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a certificated Security that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security, if the Holder certifies in writing to the Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Security). (iii) After a transfer of any Original Securities or Private Exchange Securities during the period of the effectiveness of and pursuant to a Shelf Registration Statement with respect to such Original Securities or Private Exchange Securities, as the case may be, all requirements pertaining to legends on such Initial Security or such Private Exchange Security will cease to apply, the requirements requiring any such Initial Security or such Private Exchange Security issued to certain Holders be issued in global form will cease to apply, and a certificated Original Security or Private Exchange Security without legends will be available to the transferee of the Holder of such Original Securities or Private Exchange Securities upon exchange of such transferring Holder's certificated Original Security or Private Exchange Security or directions to transfer such Holder's interest in the Global Security, as applicable. (iv) Upon the consummation of a Registered Exchange Offer with respect to the Original Securities pursuant to which Holders of such Original Securities are offered Exchange Securities in exchange for their Original Securities, all requirements pertaining to such Original Securities that Original Securities issued to certain Holders be issued in global form will cease to apply and certificated Original Securities with the restricted securities legend set forth in Section 2.06(b) will be available to Holders of such Original Securities that do not exchange their Original Securities, and Exchange Securities in certificated or global form will be available to Holders that exchange such Original Securities in such Exchange Offer. (v) Upon the consummation of a Private Exchange with respect to the Original Securities pursuant to which Holders of such Original Securities are offered Private Exchange Securities in exchange for their Original Securities, all requirements pertaining to such Original Securities that Original Securities issued to certain Holders be issued in global form will still apply, and Private Exchange Securities in global form with the Restricted Securities Legend set forth in Section 2.06(b) will be available to Holders that exchange such Original Securities in such Private Exchange. (c) Cancellation or Adjustment of Global Security. At such time as all beneficial interests in a Global Security have either been exchanged for certificated Securities, redeemed, repurchased or canceled, such Global Security shall be returned to the Depositary for cancellation or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Security is exchanged for certificated Securities, redeemed, repurchased or canceled, the principal amount of Securities represented by such Global Security shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Securities Custodian for such Global Security) with respect to such Global Security, by the Trustee or the Securities Custodian, to reflect such reduction. (d) Obligations with Respect to Transfers and Exchanges of Securities. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate certificated Securities and Global Securities at the Registrar's or co-registrar's request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchange or transfer pursuant to Sections 5.11, 8.05 and 10.06 of the Indenture). (ii) The Registrar or co-registrar shall not be required to register the transfer of or exchange of (a) any certificated Security selected for redemption in whole or in part pursuant to Article X of this Indenture, except the unredeemed portion of any certificated Security being redeemed in part, or (b) any Security for a period beginning 15 Business Days before the mailing of a notice of an offer to repurchase or redeem Securities or 15 Business Days before an interest payment date. (iii) Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. (iv) All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. (e) No Obligation of the Trustee. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security, a member of, or a participant in the Depositary or other Person with respect to the accuracy of the records of the Depositary or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depositary) of any notice (including any notice of redemption) or the payment of any amount, under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders under the Securities shall be given or made only to or upon the order of the registered Holders (which shall be the Depositary or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through the Depositary subject to the applicable rules and procedures of the Depositary. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depositary with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depositary participants, members or beneficial owners in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. Section 2.07 Certificated Securities (a) A Global Security deposited with the Depositary or with the Trustee as custodian for the Depositary pursuant to Section 2.01 shall be transferred to the beneficial owners thereof in the form of certificated Securities in an aggregate principal amount equal to the principal amount of such Global Security, in exchange for such Global Security, only if such transfer complies with Section 2.06 and (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security or if at any time such Depositary ceases to be a "clearing agency" registered under the Exchange Act and a successor depositary is not appointed by the Company within 90 days of such notice, or (ii) the Company, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of certificated Securities under this Indenture. (b) Any Global Security that is transferred to the beneficial owners thereof pursuant to this Section shall be surrendered by the Depositary to the Trustee at its office located in the Borough of Manhattan, The City of New York, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Security, an equal aggregate principal amount of certificated Original Securities of authorized denominations. Any portion of a Global Security transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 and any integral multiple thereof and registered in such names as the Depositary shall direct. Any certificated Initial Security delivered in exchange for an interest in the Global Security shall, except as otherwise provided by Section 2.06(d), bear the restricted securities legend set forth in Exhibit 1 hereto. (c) Subject to the provisions of Section 2.06(b), the registered Holder of a Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. (d) In the event of the occurrence of either of the events specified in Section 2.07(a), the Company will promptly make available to the Trustee a reasonable supply of certificated Securities in definitive, fully registered form without interest coupons. (e) In the event that a certificated Security issued pursuant to this Section 2.07 is exchanged for another certificated Security prior to the consummation of an Exchange Offer or prior to or in a transfer made pursuant to an effective Shelf Registration Statement with respect to such Securities, such Securities may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of (i) Section 2.06(a)(iii) (including the certification and other requirements set forth on the reverse of the Original Securities intended to ensure that such transfers comply with Rule 144A or Regulation S, as the case may be, or are otherwise in compliance with the requirements of the Securities Act) and such other procedures as may from time to time be adopted by the Company and (ii) Section 2.06(b). Section 2.08 Replacement Securities If any mutilated Security is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, the Company shall issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements are met. If required by the Trustee, the Company or any Guarantor, such Holder must furnish an indemnity bond that is sufficient in the judgment of the Trustee, the Company and the Guarantors to protect the Company, the Guarantors, the Trustee, any Agent or any authenticating agent from any loss which any of them may suffer if a Security is replaced. The Company, the Trustee and the Guarantors may charge for their expenses in replacing a Security. If, after the delivery of such replacement Security, a bona fide purchaser of the original Security in lieu of which such replacement Security was issued presents for payment or registration such original Security, the Trustee shall be entitled to recover such replacement Security from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Trustee, the Company or any Guarantor in connection therewith. Every replacement Security is an additional obligation of the Company and the Guarantors. Section 2.09 Outstanding Securities. The Securities outstanding at any time are all the Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Security effected by the Trustee hereunder and those described in this Section 2.09 as not outstanding. If a Security is replaced pursuant to Section 2.08 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. If the principal amount of any Security is considered paid under Section 3.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. A Security does not cease to be outstanding because the Company, a Guarantor or an Affiliate of any of them holds the Security. Section 2.10 Treasury Securities In determining whether the Holders of the required principal amount of Securities of any series have concurred in any direction, waiver or consent, Securities owned by the Company, any Guarantor or an Affiliate of any of them shall be disregarded, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee knows are so owned shall be so disregarded. Section 2.11 Temporary Securities Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities, but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. Section 2.12 CancellationSection 2.12 Cancellation. The Company or any Guarantor at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for registration of transfer, exchange, payment, replacement or cancellation. Unless the Company shall direct that canceled Securities be returned to it, after written notice to the Company all canceled Securities held by the Trustee shall be disposed of in accordance with the usual disposal procedures of the Trustee, and the Trustee shall maintain a record of their disposal. The Company may not issue new Securities to replace Securities that have been paid or that have been delivered to the Trustee for cancellation. Section 2.13 Defaulted Interest If the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest on the defaulted interest, in each case at the rate provided in the Securities and in Section 3.01 hereof. The Company may pay the defaulted interest to the Persons who are Holders on a subsequent special record date. At least 15 days before any special record date, the Company (or the Trustee, in the name of and at the expense of the Company) shall mail to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. Section 2.14 Persons Deemed Owners The Company, the Trustee, any Agent and any authenticating agent may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payments of principal of or premium, if any, or interest on such Security and for all other purposes. None of the Company, the Trustee, any Agent or any authenticating agent shall be affected by any notice to the contrary. ARTICLE III COVENANTS Section 3.01 Payment of Securities The Company shall pay the principal of and premium, if any, and interest (including additional interest, if any, required by the Registration Rights Agreement referred to in Section 3.11 hereof) on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, other than the Company or a Subsidiary of the Company, holds by 11:00 a.m., Eastern time, on that date money deposited by the Company designated for and sufficient to pay all principal, premium and interest then due. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal, and premium, if any, at a rate equal to the then applicable interest rate on the Securities to the extent lawful; and it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. Section 3.02 Maintenance of Office or Agency The Company will maintain, in the Borough of Manhattan, The City of New York, an office or agency (which may be an office of the Trustee, the Registrar or the Paying Agent) where Securities may be presented for registration of transfer or exchange, where Securities may be presented for payment and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. Unless otherwise designated by the Company by written notice to the Trustee, such office or agency shall be the principal office of the agent of the Trustee, in The City of New York which, on the date hereof, is located at the address set forth in Section 11.02 hereof. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof. Section 3.03 SEC Reports; Financial Statements (a) Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the SEC and provide the Trustee and the Holders with such annual reports and such information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act within 15 days after the date it is required (or would otherwise have been required) to file such reports, information and documents. (b) In addition, whether or not required by the rules and regulations of the SEC, the Company will file a copy of all such information and reports with the SEC for public availability (unless the SEC will not accept such filing). In addition, the Company shall furnish to the Holders and to prospective investors, upon the requests of Holders, any information required to be delivered pursuant to Rule 144A (d) (4) under the Securities Act so long as the Securities are not freely transferable under the Securities Act. (c) The Company shall provide the Trustee with a sufficient number of copies of all reports and other documents and information that the Trustee may be required to deliver to Holders under this Section 3.03. Section 3.04 Compliance Certificate (a) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company, a statement signed by two Officers of the Company, which need not constitute an Officers' Certificate, complying with TIA Section 314(a)(4) and stating that in the course of performance by the signing Officers of the Company of their duties as such Officers of the Company they would normally obtain knowledge of the keeping, observing, performing and fulfilling by the Company of its obligations under this Indenture, and further stating, as to each such Officer signing such statement, that to the best of his knowledge the Company and each Guarantor, if any, has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which such Officer may have knowledge and what action the Company or such Guarantor, as the case may be, is taking or proposes to take with respect thereto). (b) The Company and the Guarantors, if any, shall, so long as any of the Securities are outstanding, deliver to the Trustee, forthwith upon any Officer of the Company or any Guarantor becoming aware of any Default or Event of Default under this Indenture, an Officers' Certificate specifying such Default or Event of Default and what action the Company or such Guarantor is taking or proposes to take with respect thereto. Section 3.05 Corporate Existence Subject to Article IV hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate, partnership and other existence of each of its Subsidiaries and all rights (charter and statutory) and franchises of the Company and its Subsidiaries, provided that the Company shall not be required to preserve the corporate existence of any Subsidiary of the Company or any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries taken as a whole and that the loss thereof would not have a material adverse effect on the business, prospects, assets or financial condition of the Company and its Subsidiaries taken as a whole and would not have any material adverse effect on the payment and performance of the obligations of the Company and the Guarantors under the Securities and this Indenture. Section 3.06 Maintenance of Properties The Company shall cause all material properties owned by or leased to the Company or any Subsidiary of the Company or used or held for use in the conduct of its business or the business of any such Subsidiary to be maintained and kept in good condition, repair and working order (reasonable wear and tear and casualty losses excepted) and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly conducted at all times; provided that nothing in this Section 3.06 shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any such Subsidiary and not disadvantageous in any material respect to the Holders. Section 3.07 Payment of Taxes and Other Claims The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges levied or imposed upon the Company or any of its Subsidiaries or upon the income, profits or property of the Company or any of its Subsidiaries, and (ii) all material lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon the property of the Company or any of its Subsidiaries; provided that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith, and by appropriate proceedings. Section 3.08 Waiver of Stay, Extension or Usury Laws The Company and each Guarantor, if any, covenant (to the extent that they may lawfully do so) that they will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law, which would prohibit or forgive the Company or any Guarantor from paying all or any portion of the principal of, or premium, if any, or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that they may lawfully do so) the Company and each Guarantor hereby expressly waive all benefit or advantage of any such law, and covenant that they will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 3.09 Limitation on Indebtedness (a) The Company will not, and will not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness; provided, however, the Company may Incur Indebtedness if the pro forma Consolidated EBITDA Coverage Ratio at the date of such Incurrence exceeds 2.25 to 1.0. (b) Notwithstanding clause (a), the following Indebtedness may be incurred: (1) Indebtedness of the Company pursuant to one or more Credit Facilities (and the guarantee of such Indebtedness by Restricted Subsidiaries); provided, however, that the aggregate amount of such Indebtedness outstanding at such time shall not exceed $350 million; (2) Indebtedness of the Company or a Restricted Subsidiary owed to and held by a Restricted Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by the Company; provided, however, that any subsequent issuance or transfer of any Capital Stock that results in such Restricted Subsidiary to whom Indebtedness is owed ceasing to be a Restricted Subsidiary or any transfer of such Indebtedness (other than to the Company or another Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness; (3) The Securities and Indebtedness Incurred in exchange for, or the proceeds of which are used to refund or refinance, any Indebtedness permitted by this clause (3); provided, however, that (i) the principal amount of the Indebtedness so Incurred shall not exceed the principal amount of the Indebtedness so exchanged, refunded or refinanced (plus the amount of reasonable fees and expenses incurred in connection therewith, including any premium or defeasance costs) and (ii) the Indebtedness so Incurred (A) shall not mature prior to the Stated Maturity of the Indebtedness so exchanged, refunded or refinanced and (B) shall have an Average Life equal to or greater than the remaining Average Life of the Indebtedness so exchanged, refunded or refinanced; (4) Indebtedness of the Company or any Restricted Subsidiary (other than Indebtedness described in clause (1), (2) or (3) above) (x) outstanding on the Issue Date (including without limitation, the Cliffs Senior Notes) or Incurred pursuant to agreements as in effect on the Issue Date and (y) Indebtedness Incurred in exchange for, or the proceeds of which are used to refund or refinance, any Indebtedness permitted by this clause (4) or permitted by clause (a) above; provided, however, that (i) the principal amount of the Indebtedness so Incurred shall not exceed the principal amount of the Indebtedness so exchanged, refunded or refinanced (plus the amount of reasonable fees and expenses incurred in connection therewith, including any premium or defeasance costs); and (ii) the Indebtedness so Incurred (A) shall not mature prior to the Stated Maturity of the Indebtedness so exchanged, refunded or refinanced and (B) shall have an Average Life equal to or greater than the remaining Average Life of the Indebtedness so exchanged, refunded or refinanced; (5) Indebtedness of the Company or any Restricted Subsidiary consisting of guarantees in connection with any synthetic lease obligations of Persons Incurred to finance the construction or upgrade of the drillship Deepwater Frontier and the drillship Pathfinder pursuant to agreements governing such obligations; (6) Acquired Indebtedness of any Restricted Subsidiary in an aggregate amount not to exceed $300 million, provided that the Company on a pro forma basis could Incur $1.00 of additional Indebtedness pursuant to paragraph (a) of this covenant; (7) Indebtedness of the Company or any Restricted Subsidiary consisting of guarantees, indemnities or obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets, including, without limitation, shares of Capital Stock; (8) The Incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse Indebtedness; provided, however, that if any such Indebtedness ceases to be Non- Recourse Indebtedness of any Unrestricted Subsidiary, subject to the definition of "Unrestricted Subsidiary", such event shall be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (8); (9) Obligations of the Company or a Restricted Subsidiary under performance or surety bonds relating to building contracts for the construction of drilling rigs, drillships or similar vessels or contracts for the installation of related equipment; (10) Hedging Obligations; and (11) Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount which, together with all other Indebtedness of the Company then outstanding (other than Indebtedness permitted by clauses (1) through (10) of this paragraph (b) or paragraph (a)) does not exceed $50 million. (c) Notwithstanding clauses (a) and (b), the Company shall not issue any Indebtedness if the proceeds thereof are used, directly or indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the Securities to at least the same extent as such Subordinated Obligations. Section 3.10 Limitation on Sale/Leaseback Transactions The Company shall not, and shall not permit any Restricted Subsidiary of the Company to, enter into any Sale/Leaseback Transaction with any Person (other than the Company or a Restricted Subsidiary of the Company) unless: (a) the Company or such Restricted Subsidiary would be entitled to incur Indebtedness, in a principal amount equal to the Attributable Indebtedness with respect to such Sale/Leaseback Transaction, secured by a Lien on the property subject to such Sale/Leaseback Transaction pursuant to Section 3.10 hereof without equally and ratably securing the Securities pursuant to such Section; (b) after the Issue Date and within a period commencing six months prior to the consummation of such Sale/Leaseback Transaction and ending six months after the consummation thereof, the Company or such Restricted Subsidiary shall have expended for property used or to be used in the ordinary course of business of the Company and its Restricted Subsidiaries an amount equal to all or a portion of the Net Proceeds of such Sale/Leaseback Transaction and the Company shall have elected to designate such amount as a credit against such Sale/Leaseback Transaction (with any such amount not being so designated to be applied as set forth in clause (c) below); or (c) the Company, during the 12-month period after the effective date of such Sale/Leaseback Transaction, shall have applied to the voluntary defeasance or retirement of Securities or any Pari Passu Indebtedness an amount equal to the greater of the Net Proceeds of the sale or transfer of the property leased in such Sale/Leaseback Transaction and the fair value, as determined by the Board of Directors, of such property at the time of entering into such Sale/Leaseback Transaction (in either case adjusted to reflect the remaining term of the lease and any amount expended by the Company as set forth in clause (b) above), less an amount equal to the principal amount of Securities and Pari Passu Indebtedness voluntarily defeased or retired by the Company within such 12-month period and not designated as a credit against any other Sale/Leaseback Transaction entered into by the Company or any Restricted Subsidiary of the Company during such period. Section 3.11 Limitation on Liens The Company shall not, and shall not permit any Restricted Subsidiary of the Company to, issue, assume or guarantee any Indebtedness for borrowed money secured by any Lien on any property or asset now owned or hereafter acquired by the Company or such Restricted Subsidiary without making effective provision whereby any and all Securities then or thereafter outstanding will be secured by a Lien equally and ratably with any and all other obligations thereby secured for so long as any such obligations shall be so secured. Notwithstanding the foregoing, the Company or any Restricted Subsidiary of the Company may, without so securing the Securities, issue, assume or guarantee Indebtedness for borrowed money secured by the following Liens: (a) Liens existing on the Issue Date or provided for under the terms of agreements existing on the Issue Date; (b) Liens on property securing (i) all or any portion of the cost of acquiring, constructing, altering, improving or repairing any property or assets, real or personal, or improvements used or to be used in connection with such property or (ii) Indebtedness incurred by the Company or any Restricted Subsidiary of the Company prior to or within one year after the later of the acquisition, the completion of construction, alteration, improvement or repair or the commencement of commercial operation thereof, which Indebtedness is incurred for the purpose of financing all or any part of the purchase price thereof or construction or improvements thereon; (c) Liens securing Indebtedness owed by a Restricted Subsidiary of the Company to the Company or to any other Restricted Subsidiary of the Company; (d) Liens on property existing at the time of acquisition of such property by the Company or any of its Restricted Subsidiaries or Liens on the property of any Person existing at the time such Person becomes a Restricted Subsidiary of the Company and, in any case, not incurred as a result of (or in connection with or in anticipation of) the acquisition of such Property or such Person becoming a Restricted Subsidiary of the Company, provided that such Liens do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries other than the property encumbered at the time such property is acquired by the Company or any of its Restricted Subsidiaries or such Person becomes a Restricted Subsidiary of the Company and, in any case, do not secure Indebtedness with a principal amount in excess of the principal amount outstanding at such time; (e) Liens on any property securing (i) Indebtedness incurred in connection with the construction, installation or financing of pollution control or abatement facilities or other forms of industrial revenue bond financing or (ii) Indebtedness issued or guaranteed by the United States or any State thereof or any department, agency or instrumentality of either; (f) any Lien extending, renewing or replacing (or successive extensions, renewals or replacements of) any Lien of any type permitted under clause (a), (b), (d) or (e) above, provided that such Lien extends to or covers only the property that is subject to the Lien being extended, renewed or replaced and that the principal amount of the Indebtedness secured thereby shall not exceed the principal amount of Indebtedness so secured at the time of such extension, renewal or replacement; or (g) Liens (exclusive of any Lien of any type otherwise permitted under clauses (a) through (f) above) securing Indebtedness for borrowed money of the Company or any Restricted Subsidiary of the Company in an aggregate principal amount which, together with the aggregate amount of Attributable Indebtedness deemed to be outstanding in respect of all Sale/Leaseback Transactions entered into pursuant to clause (a) of Section 3.09 hereof (exclusive of any such Sale/Leaseback Transactions otherwise permitted under clauses (a) through (f) above), does not at the time such Indebtedness is incurred exceed 15% of the Consolidated Net Worth of the Company (as shown in the most recent audited consolidated balance sheet of the Company and its Restricted Subsidiaries). Section 3.12 Limitation on Restricted Payments (a) The Company will not, and will not permit any Restricted Subsidiary, directly or indirectly, to: (1) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of its Capital Stock, except: (A) dividends or distributions payable solely in its Non-Convertible Capital Stock or in options, warrants or other rights to purchase its Non-Convertible Capital Stock, (B) dividends or distributions payable to the Company or a Restricted Subsidiary, and (C) pro rata dividends or distributions on the Capital Stock of a Restricted Subsidiary held by minority stockholders (including, without limitation, minority stockholders of Arcade Drilling AS, a Norwegian corporation); (2) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or of any direct or indirect parent of the Company, or any Restricted Subsidiary (except Capital Stock held by the Company or a Restricted Subsidiary); (3) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition); or (4) make any Investment other than a Permitted Investment (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment being herein referred to as a "Restricted Payment"), if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (i) a Default shall have occurred and be continuing (or would result therefrom); or (ii) the Company would not be permitted to Incur an additional $1.00 of Indebtedness pursuant to Section 3.09(a) after giving pro forma effect to such Restricted Payment; or (iii) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter during which the Securities were originally issued to the end of the most recent fiscal quarter ending at least 45 days prior to the date of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) 100% of the aggregate net proceeds (including the fair market value of non-cash proceeds, which shall be determined in good faith by the Board of Directors of the Company) received by the Company from the issue or sale of its Capital Stock (other than Redeemable Stock or Exchangeable Stock) subsequent to the Issue Date (other than an issuance or sale to a Restricted Subsidiary or an employee stock ownership plan or similar trust); (C) the amount by which Indebtedness of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Restricted Subsidiary) subsequent to the Incurrence of any Indebtedness of the Company convertible or exchangeable for Capital Stock (other than Redeemable Stock or Exchangeable Stock) of the Company (less the amount of any cash, or other property, distributed by the Company upon such conversion or exchange); (D) to the extent not otherwise included in Consolidated Net Income, the net reduction in Investments in Unrestricted Subsidiaries resulting from dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary after the Issue Date from any Unrestricted Subsidiary or from the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary (valued in each case as provided in the definition of Investment), not to exceed in the case of any Restricted Subsidiary the total amount of Investments (other than Permitted Investments) in such Restricted Subsidiary made by the Company and its Restricted Subsidiaries in such Unrestricted Subsidiary after the Issue Date; and (E) $20 million. (b) The provisions of clause (a) of this Section shall not prohibit: (1) any purchase or redemption of Capital Stock or Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Redeemable Stock or Exchangeable Stock and other than Capital Stock issued or sold to a Restricted Subsidiary or an employee stock ownership plan); provided, however, that (i) such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments and (ii) the Net Cash Proceeds from such sale shall be excluded from clauses (4)(iii)(B) and (4)(iii)(C) of Section (a); (2) any purchase or redemption of Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be Incurred pursuant to the provisions of Section 3.09; provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; and (3) dividends paid within 60 days after the date of declaration if at such date of declaration such dividend would have complied with this provision; provided, however, that at the time of payment of such dividend, no other Default shall have occurred and be continuing (or would result therefrom); provided further, however, that such dividend shall be included in the calculation of the amount of Restricted Payments. Section 3.13 Covenant Termination In the event that at any time (a) the ratings assigned to the Securities by both of the Rating Agencies are Investment Grade Ratings and (b) no Default has occurred and is continuing under this Indenture, the Company and its Restricted Subsidiaries will no longer be subject to the provisions of Sections 3.09 and 3.12 (together, the "Suspended Covenants"). In the event that the Company is not subject to the Suspended Covenants for any period of time as a result of the preceding sentence and, subsequently, one or both Rating Agencies withdraws its ratings or downgrades the ratings assigned to the Securities below the required Investment Grade Ratings, then the Company and its Restricted Subsidiaries will again be subject to the Suspended Covenants and compliance with the Suspended Covenants with respect to Restricted Payments made after the time of such withdrawal or downgrade will be calculated in accordance with the provisions of Section 3.12 as if such Section had been in effect during the entire period of time from the date of this Indenture. Section 3.14 Registration Rights Agreement The Company shall perform its obligations under the Registration Rights Agreement and shall comply in all material respects with the terms and conditions contained therein including, without limitation, the payment of any additional interest required by Section 6 of the Registration Rights Agreement. ARTICLE IV SUCCESSORS Section 4.01 Limitations on Mergers and Consolidations Neither the Company nor any Guarantor (other than any Guarantor that has been released from its Guarantee pursuant to the provisions of Section 9.06 hereof) shall consolidate with or merge into any Person, or sell, lease, convey, transfer or otherwise dispose of all or substantially all of its assets to any Person, unless: (i) the Person formed by or surviving such consolidation or merger (if other than the Company or such Guarantor, as the case may be), or to which such sale, lease, conveyance, transfer or other disposition shall be made (collectively, the "Successor"), is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia (or, alternatively, in the case of a Guarantor organized under the laws of a jurisdiction outside the United States, a corporation organized and existing under the laws of such foreign jurisdiction), and the Successor assumes by supplemental indenture in a form satisfactory to the Trustee all of the obligations of the Company or such Guarantor, as the case may be, under this Indenture and the Securities; (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (iii) in the case of the Company, immediately after giving effect to such transaction, the resulting, surviving or transferee Person would be able to Incur at least $1.00 of Indebtedness pursuant to Section 3.09(a); and (iv) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that the transaction and such supplemental indenture comply with this Indenture. Section 4.02 Successor Corporation Substituted Upon any consolidation or merger of the Company or any Guarantor, or any sale, lease, conveyance, transfer or other disposition of all or substantially all of the assets of the Company or any Guarantor in accordance with Section 4.01 hereof, the Successor formed by such consolidation or into or with which the Company or such Guarantor is merged or to which such sale, lease, conveyance, transfer or other disposition or assignment is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company or such Guarantor, as the case may be, under this Indenture and the Securities with the same effect as if such Successor had been named as the Company or such Guarantor herein and the predecessor Company or Guarantor, in the case of a sale, conveyance, transfer or other disposition, shall be released from all obligations under this Indenture and the Securities. ARTICLE V DEFAULTS AND REMEDIES Section 5.01 Events of Default An "Event of Default" with respect to any series of Securities occurs if: (1) the Company or any Guarantor defaults in the payment of interest on any Security of such series when the same becomes due and payable and such default continues for a period of 30 days; (2) the Company or any Guarantor defaults in the payment of the principal of or premium, if any, on any Security of such series when the same becomes due and payable at maturity, upon acceleration, upon redemption or otherwise; (3) the Company or any Guarantor fails to comply with any of its other agreements or covenants in, or provisions of, the Securities of such series, any Guarantees or this Indenture and such failure continues for the period and after the notice specified in the last paragraph of this Section 5.01; (4) any default shall occur which results in the acceleration of the maturity of any Indebtedness of the Company or any Restricted Subsidiary of the Company (other than the Securities of such series or any Non-Recourse Indebtedness) having an outstanding principal amount of $20 million or more individually or, taken together with all other such Indebtedness that has been so accelerated, in the aggregate; or any default shall occur in the payment of any principal or interest in respect of any Indebtedness of the Company or any Restricted Subsidiary of the Company (other than the Securities of such series or any Non-Recourse Indebtedness) having an outstanding principal amount of $20 million or more individually or, taken together with all other such Indebtedness with respect to which any such payment has not been made, in the aggregate and such default shall be continuing for a period of 30 days without the Company or such Restricted Subsidiary, as the case may be, effecting a cure of such default; (5) a final judgment or order for the payment of money in excess of $20 million (net of applicable insurance coverage) shall be rendered against the Company, any Guarantor or any other "significant subsidiary" (as such term is defined in Regulation S-X under the Exchange Act, a "Significant Subsidiary") of the Company that is a Restricted Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 60 days; (6) the Company, any Guarantor or any other Significant Subsidiary of the Company that is a Restricted Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or for a substantial part of its property, or (D) makes a general assignment for the benefit of its creditors; or (7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that remains unstayed and in effect for 60 days and that: (A) is for relief against the Company, any Guarantor or any other Significant Subsidiary of the Company that is a Restricted Subsidiary as debtor in an involuntary case, (B) appoints a Custodian of the Company, any Guarantor or any other Significant Subsidiary of the Company that is a Restricted Subsidiary or a Custodian for all or for a substantial part of the property of the Company, any Guarantor or any other Significant Subsidiary of the Company that is a Restricted Subsidiary, or (C) orders the liquidation of the Company, any Guarantor or any other Significant Subsidiary of the Company that is a Restricted Subsidiary. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. The Trustee shall not be deemed to know of a Default or Event of Default unless a Trust Officer at the Corporate Trust Office of the Trustee has actual knowledge of such Default or the Trustee receives written notice at the Corporate Trust Office of the Trustee of such Default or Event of Default with specific reference to such Default. When a Default is cured, it ceases. A Default under clause (3) of this Section is not an Event of Default until the Trustee notifies the Company and, in the case of a Default by a Guarantor, such Guarantor, or the Holders of at least 25% in principal amount of the Securities of any series then outstanding notify the Company, such Guarantor (where applicable) and the Trustee, of the Default, and neither the Company nor such Guarantor cures the Default within 60 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." Section 5.02 Acceleration If an Event of Default (other than an Event of Default specified in clause (6) or (7) of Section 5.01 hereof with respect to the Company or any Guarantor) with respect to any series of Securities occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the then outstanding Securities of such series by notice to the Company and the Trustee, may declare the principal of and premium, if any, and accrued and unpaid interest on all then outstanding Securities of such series to be due and payable immediately. Upon any such declaration the amounts due and payable on the Securities of such series, as determined in accordance with the next succeeding paragraph, shall be due and payable immediately. If an Event of Default specified in clause (6) or (7) of Section 5.01 hereof with respect to the Company or any Guarantor occurs, the principal of and premium, if any, and accrued and unpaid interest on all Securities then outstanding shall ipso facto become and be immediately due and payable without any declaration, notice or other act on the part of the Trustee or any Holder. The Holders of a majority in principal amount of the Securities of any series then outstanding by written notice to the Trustee may rescind an acceleration and its consequences with respect to such series (other than nonpayment of principal of, or premium, if any, or interest on the Securities of such series) if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived, except nonpayment of principal, or premium, if any, or interest that has become due solely because of the acceleration. In the event that the maturity of the Securities of any series is accelerated pursuant to this Section 5.02, 100% of the principal amount thereof shall become due and payable plus, premium, if any, and accrued interest to the date of payment. Section 5.03 Other Remedies If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of, or premium, if any, or interest on the Securities or to enforce the performance of any provision of the Securities, this Indenture or the Registration Rights Agreement. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 5.04 Waiver of Existing Defaults Subject to Sections 5.07 and 8.02 hereof, the Holders of a majority in principal amount of the Securities of any series then outstanding by notice to the Trustee may waive an existing Default or Event of Default and its consequences (including waivers obtained in connection with a tender offer or exchange offer for the Securities of such series or a solicitation of consents in respect of the Securities of such series, provided that in each case such offer or solicitation is made to all Holders of the Securities of such series then outstanding on equal terms), except (1) a continuing Default or Event of Default in the payment of the principal of, or premium, if any, or interest on the Securities of any series or (2) a continuing Default in respect of a provision that under Section 8.02 hereof cannot be amended without the consent of each Holder affected. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 5.05 Control by Majority The Holders of a majority in principal amount of the Securities of any series then outstanding may 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 it hereunder with respect to such series. However, the Trustee may refuse to follow any direction that conflicts with applicable law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of other Holders, or that may involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. Section 5.06 Limitations on Suits Subject to Section 5.07 hereof, a Holder may pursue a remedy with respect to this Indenture (including the Guarantees) or the Securities of any series only if: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in principal amount of the Securities of such series then outstanding make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity reasonably satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period the Holders of a majority in principal amount of the Securities of such series do not give the Trustee a direction inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. Section 5.07 Rights of Holders to Receive Payment Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of principal of, and premium, if any, and interest on the Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, is absolute and unconditional and shall not be impaired or affected without the consent of the Holder. Section 5.08 Collection Suit by Trustee If an Event of Default specified in clause (1) or (2) of Section 5.01 hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company and any Guarantor for the amount of principal and premium, if any, and interest remaining unpaid on any series of Securities, and interest on overdue principal and premium, if any, and, to the extent lawful, interest on overdue interest, and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 5.09 Trustee May File Proofs of Claim The Trustee is authorized to file such proofs of claim and other papers or documents and to take such actions, including participating as a member, voting or otherwise, of any committee of creditors, as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company and any Guarantor or their respective creditors or properties and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties which the Holders of the Securities of any series may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities of any series or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 5.10 Priorities If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 6.07 hereof; Second: to Holders for amounts due and unpaid on the Securities for principal, premium, if any, and interest ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal, premium, if any, and interest, respectively; and Third: to the Company. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Article. Section 5.11 Undertaking for Costs In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 5.07 hereof, or a suit by a Holder or Holders of more than 10% in principal amount of the Securities of any series then outstanding. ARTICLE VI TRUSTEE Section 6.01 Duties of Trustee (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in such exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine such certificates and opinions to determine whether or not, on their face, they appear to conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 5.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity reasonably satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. All money received by the Trustee shall, until applied as herein provided, be held in trust for the payment of the principal of, and premium if any, and interest on the Securities. Section 6.02 Rights of Trustee (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company or any Guarantor shall be sufficient if signed by an Officer of the Company or such Guarantor. (f) The Trustee is not required to give any bond or surety with respect to the performance of its duties or the exercise of its powers under this Indenture. (g) In the event the Trustee receives inconsistent or conflicting requests and indemnity from two or more groups of holders of Securities of a series, each representing less than a majority in aggregate principal amount of the Securities outstanding of such series, pursuant to the provisions of this Indenture, the Trustee, in its sole discretion, may determine what action, if any, shall be taken. (h) The Trustee's immunities and protections from liability and its right to indemnification in connection with the performance of its duties under this Indenture shall extend to the Trustee's officers, directors, agents, attorneys and employees. Such immunities and protections and right to indemnity, together with the Trustee's right to compensation, shall survive the Trustee's resignation or removal, the discharge of this Indenture and final payment of the Securities. (i) The permissive right of the Trustee to take the actions permitted by the Indenture shall not be construed as an obligation or duty to do so. (j) Except for information provided by the Trustee concerning the Trustee, the Trustee shall have no responsibility for any information in any offering memorandum or other disclosure material distributed with respect to the Securities, and the Trustee shall have no responsibility for compliance with any state or federal securities laws in connection with the Securities. Section 6.03 Individual Rights of Trustee The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company, the Guarantors or any of their Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 6.10 and 6.11 hereof. Section 6.04 Trustee's Disclaimer The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities or any money paid to the Company or upon the Company's direction under any provision hereof, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee and it shall not be responsible for any statement or recital herein or any statement in the Securities other than its certificate of authentication. Section 6.05 Notice of Defaults If a Default or Event of Default occurs and is continuing and it is known to the Trustee, the Trustee shall mail to Holders a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, or premium, if any, or interest on any Security, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Holders. Section 6.06 Reports by Trustee to Holders As promptly as practicable after each [May 15, beginning with May 15, 1999], the Trustee shall mail to Holders a brief report dated as of such reporting date that complies with TIA Section 313(a); provided, however, that if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted. The Trustee also shall comply with TIA Section 313(b). The Trustee shall also transmit by mail all reports as required by TIA Sections 313(c) and 313(d). A copy of each report at the time of its mailing to Holders shall be filed with the SEC and each securities exchange, if any, on which the Securities are listed. The Company shall notify the Trustee if and when the Securities are listed on any stock exchange. Section 6.07 Compensation and Indemnity The Company and the Guarantors jointly and severally agree to pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company and the Guarantors jointly and severally agree to reimburse the Trustee upon request for all reasonable disbursements, advances and expenses incurred by it. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company and the Guarantors jointly and severally agree to indemnify the Trustee against any loss, liability or expense incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, except as set forth in the next paragraph. The Trustee shall notify the Company and the Guarantors promptly of any claim for which it may seek indemnity. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company and the Guarantors shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent. Neither the Company nor the Guarantors shall be obligated to reimburse any expense or indemnify against any loss or liability incurred by the Trustee through negligence or bad faith. To secure the payment obligations of the Company and the Guarantors in this Section 6.07, the Trustee shall have a Lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal of, and premium, if any, and interest on the Securities. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 5.01(6) or (7) hereof occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. Section 6.08 Replacement of Trustee A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 6.08. The Trustee may resign and be discharged from the trust hereby created by so notifying the Company and the Guarantors. The Holders of a majority in principal amount of the then outstanding Securities may remove the Trustee by so notifying the Trustee and the Company. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 6.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a Custodian or public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company and the Guarantors shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Securities then outstanding may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the Securities then outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 6.10 hereof, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company and the Guarantors. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the Lien provided for in Section 6.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 6.08 hereof, the obligations of the Company and the Guarantors under Section 6.07 hereof shall continue for the benefit of the retiring Trustee. Section 6.09 Successor Trustee by Merger, etc Subject to Section 6.10 hereof, if the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee; provided, however, that in the case of a transfer of all or substantially all of its corporate trust business to another corporation, the transferee corporation expressly assumes all of the Trustee's liabilities hereunder. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. Section 6.10 Eligibility; Disqualification There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia and authorized under such laws to exercise corporate trust power, shall be subject to supervision or examination by Federal or State (or the District of Columbia) authority and shall have, or be a Subsidiary of a bank or bank holding company having, a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition. The Indenture shall always have a Trustee who satisfies the requirements of TIA Sections 310(a)(1), 310(a)(2) and 310(a)(5). The Trustee is subject to and shall comply with the provisions of TIA Section 310(b) during the period of time required by this Indenture. Nothing in this Indenture shall prevent the Trustee from filing with the SEC the application referred to in the penultimate paragraph of TIA Section 310(b). Section 6.11 Preferential Collection of Claims Against Company The Trustee is subject to and shall comply with the provisions of TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE VII DISCHARGE OF INDENTURE Section 7.01 Termination of Company's Obligations (a) This Indenture shall cease to be of further effect with respect to Securities of a series (except that the Company's and any Guarantors' obligations under Section 6.07 hereof and the Trustee's and Paying Agent's obligations under Section 7.03 hereof shall survive), and the Trustee, on demand of the Company, shall execute proper instruments acknowledging the satisfaction and discharge of this Indenture with respect to such series, when: (1) either (A) all outstanding Securities of such series theretofore authenticated and issued (other than destroyed, lost or stolen Securities that have been replaced or paid) have been delivered to the Trustee for cancellation; or (B) all outstanding Securities of such series not theretofore delivered to the Trustee for cancellation: (i) have become due and payable, or (ii) will become due and payable at their stated maturity within one year, and the Company, in the case of clause (i) or (ii) above, has deposited or caused to be deposited with the Trustee as funds (immediately available to the Holders in the case of clause (i)) in trust for such purpose an amount which, together with earnings thereon, will be sufficient to pay and discharge the entire indebtedness on such Securities of such series for principal, premium, if any, and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the stated maturity, as the case may be; (1) the Company has paid all other sums payable by it hereunder with respect to such series; and (2) the Company has delivered to the Trustee an Officers' Certificate stating that all conditions precedent to satisfaction and discharge of this Indenture with respect to such series have been complied with, together with an Opinion of Counsel to the same effect. (b) The Company and the Guarantors may, subject as provided herein, terminate all of their obligations under this Indenture with respect to Securities of a series if: (1) the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds in trust for the purpose of making the following payments dedicated solely to the benefit of the Holders (i) cash in an amount, or (ii) U.S. Government Obligations or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay, without consideration of the reinvestment of any such amounts and after payment of all taxes or other charges or assessments in respect thereof payable by the Trustee, the principal of, and premium, if any, and interest on all Securities of such series on each date that such principal, premium, if any, or interest is due and payable and to pay all other sums payable by it hereunder; provided that the Trustee shall have been irrevocably instructed to apply such money and/or the proceeds of such U.S. Government Obligations to the payment of said principal, premium, if any, and interest with respect to the Securities of such series as the same shall become due; (2) the Company has delivered to the Trustee an Officers' Certificate stating that all conditions precedent to satisfaction and discharge of this Indenture with respect to Securities of such series have been complied with, and an Opinion of Counsel to the same effect; (3) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or, insofar as clauses (6) and (7) of Section 5.01 hereof are concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); (4) the Company shall have delivered to the Trustee an Opinion of Counsel from a nationally recognized counsel acceptable to the Trustee or a tax ruling to the effect that the Holders of Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of the Company's exercise of its option under this Section 7.01(b) and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such option had not been exercised; (5) such deposit and discharge will not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound; (6) such deposit and discharge shall not cause the Trustee to have a conflicting interest as defined in TIA Section 310(b); and (7) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the passage of 91 days following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. In such event, this Indenture shall cease to be of further effect with respect to Securities of such series (except as provided in the next succeeding paragraph), and the Trustee, on demand of the Company, shall execute proper instruments acknowledging satisfaction and discharge under this Indenture. However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 3.01, 4.01, 6.07, 6.08 and 7.04 hereof, the Company's and any Guarantors' obligations in Sections 4.01, 6.07, 7.04 and 9.01 hereof and the Trustee's and Paying Agent's obligations in Section 7.03 hereof shall survive until the Securities of such series are no longer outstanding. Thereafter, only the Company's and any Guarantors' obligations in Section 6.07 hereof and the Trustee's and Paying Agent's obligations in Section 7.03 hereof shall survive. After such irrevocable deposit made pursuant to this Section 7.01(b) and satisfaction of the other conditions set forth herein, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under this Indenture except for those surviving obligations specified above. In order to have money available on a payment date to pay principal of, or premium, if any, or interest on the Securities of such series, the U.S. Government Obligations shall be payable as to principal or interest on or before such payment date in such amounts as will provide the necessary money. U.S. Government Obligations shall not be callable at the issuer's option. Section 7.02 Application of Trust Money The Trustee or a trustee satisfactory to the Trustee and the Company shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 7.01 hereof. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of, and premium, if any, and interest on Securities of the series with respect to which the deposit was made. Section 7.03 Repayment to Company The Trustee and the Paying Agent shall promptly pay to the Company upon written request any excess money or securities held by them at any time. Subject to the requirements of any applicable abandoned property laws, the Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of principal, or premium, if any, or interest that remains unclaimed for two years after the date upon which such payment shall have become due; provided, however, that the Company shall have either caused notice of such payment to be mailed to each Holder entitled thereto no less than 30 days prior to such repayment or within such period shall have published such notice in a financial newspaper of widespread circulation published in The City of New York. After payment to the Company, Holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person, and all liability of the Trustee and the Paying Agent with respect to such money shall cease. Section 7.04 Reinstatement If the Trustee or the Paying Agent is unable to apply any money or U. S. Government Obligations in accordance with Section 7.01 hereof by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the obligations of the Company and any Guarantors under this Indenture and the Securities of the applicable series shall be revived and reinstated as though no deposit had occurred pursuant to Section 7.01 hereof until such time as the Trustee or the Paying Agent is permitted to apply all such money or U. S. Government Obligations in accordance with Section 7.01 hereof; provided, however, that if the Company or any Guarantor has made any payment of principal of or interest on any Securities of such series because of the reinstatement of its obligations, the Company or such Guarantor shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or the Paying Agent. ARTICLE VIII AMENDMENTS Section 8.01 Without Consent of Holders The Company, the Guarantors, if any, and the Trustee may amend or supplement this Indenture or any of the Securities or waive any provision hereof or thereof without the consent of any Holder: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to comply with Sections 4.01 and 4.02 hereof; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; (4) to reflect the release of any Guarantor from its Guarantee, or the addition of any Subsidiary of the Company as a Guarantor, in the manner provided by Section 9.06 hereof; (5) to comply with any requirement in order to effect or maintain the qualification of this Indenture under the TIA; (6) to add guarantees of the Securities; (7) to comply with any requirements of the SEC in connection with qualifying this Indenture under the TIA; (8) to add to the covenants of the Company or any Guarantor for the benefit of the Holders or to surrender any right or power herein conferred upon the Company or any Guarantor; or (9) to make any change that does not adversely affect the rights hereunder of any Holder in any material respect. Upon the request of the Company and the Guarantors, if any, accompanied by a resolution of the Board of Directors and of the board of directors, board of trustees or managing partners of each Guarantor authorizing the execution of any such supplemental indenture, and upon receipt by the Trustee of the documents described in Section 8.06 hereof, the Trustee shall join with the Company and any Guarantors in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture and make any further appropriate agreements and stipulations that may be therein contained. After an amendment, supplement or waiver under this Section 8.01 becomes effective, the Company shall mail to the Holders of each Security affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. Section 8.02 With Consent of Holders Except as provided below in this Section 8.02, the Company, the Guarantors and the Trustee may amend or supplement this Indenture with respect to the Securities of a series or the Securities of any series with the written consent (including consents obtained in connection with a tender offer or exchange offer for the Securities of such series or a solicitation of consents in respect of the Securities of such series, provided that in each case such offer or solicitation is made to all Holders of the Securities of such series then outstanding on equal terms) of the Holders of at least a majority in principal amount of the Securities of such series then outstanding. Upon the request of the Company and the Guarantors, if any, accompanied by a resolution of the Board of Directors and of the board of directors, board of trustees or managing partners of each Guarantor, if any, authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 8.06 hereof, the Trustee shall join with the Company and the Guarantors, if any, in the execution of such supplemental indenture. It shall not be necessary for the consent of the Holders under this Section 8.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. The Holders of a majority in principal amount of the Securities of any series then outstanding may waive compliance in a particular instance by the Company or the Guarantors with any provision of this Indenture or the Securities of such series (including waivers obtained in connection with a tender offer or exchange offer for the Securities of such series or a solicitation of consents in respect of the Securities of such series, provided that in each case such offer or solicitation is made to all Holders of the Securities of such series then outstanding on equal terms). However, without the consent of each Holder affected, an amendment, supplement or waiver under this Section may not: (1) reduce the amount of the Securities of any series whose Holders must consent to an amendment, supplement or waiver; (2) reduce the rate of or change the time for payment of interest, including default interest, on any Security; (3) reduce the principal of or change the fixed maturity of any Security or alter the premium or other provisions with respect to redemption under Section 10.07 or specified in the Securities; (4) make any Security payable in money other than that stated in the Security; (5) impair the right to institute suit for the enforcement of any payment of principal of, or premium, if any, or interest on any Security pursuant to Sections 5.07 and 5.08 hereof, except as limited by Section 5.06 hereof; (6) make any change in the percentage of principal amount of the Securities of any series necessary to waive compliance with certain provisions of this Indenture pursuant to Section 5.04 or 5.07 hereof or this clause of this Section 8.02; or (7) waive a continuing Default or Event of Default in the payment of principal of, or premium, if any, or interest on the Securities of any series. The right of any Holder to participate in any consent required or sought pursuant to any provision of this Indenture (and the obligation of the Company to obtain any such consent otherwise required from such Holder) may be subject to the requirement that such Holder shall have been the Holder of record of the Securities with respect to which such consent is required or sought as of a date identified by the Trustee in a notice furnished to Holders in accordance with the terms of this Indenture. Section 8.03 Compliance with Trust Indenture Act Every amendment to this Indenture or the Securities of any series shall comply in form and substance with the TIA as then in effect. Section 8.04 Revocation and Effect of Consents A consent to an amendment (which includes a supplement) or waiver by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security of any series or portion of a Security of such series that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his or her Security or portion of a Security if the Trustee receives written notice of revocation at any time pror to (but not after) the date the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Securities have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment or waiver or to take any other action with respect to the Securities of any series under this Indenture. If a record date is fixed, then notwithstanding the provisions of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No consent shall be valid or effective for more than 90 days after such record date unless consents from Holders of the principal amount of the Securities of such series required hereunder for such amendment or waiver to be effective shall have also been given and not revoked within such 90-day period. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it is of the type described in any of clauses (1) through (7) of Section 8.02 hereof. In such case, the amendment or waiver shall bind each Holder who has consented to it and every subsequent Holder that evidences the same debt as the consenting Holder's Security. Section 8.05 Notation on or Exchange of Securities If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. Section 8.06 Trustee to Sign Amendments, etc The Trustee shall sign any amendment, waiver or supplemental indenture authorized pursuant to this Article if the amendment, waiver or supplemental indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment, waiver or supplemental indenture, the Trustee shall be entitled to receive and subject to Section 6.01 hereof, shall be fully protected in relying upon, an Opinion of Counsel as conclusive evidence that such amendment, waiver or supplemental indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, and that it will be valid and binding upon the Company and the Guarantors, if any, in accordance with its terms. ARTICLE IX GUARANTEES OF SECURITIES Section 9.01 Unconditional Guarantees (a) For value received, the Guarantors, jointly and severally, hereby fully, unconditionally and absolutely guarantee (the "Guarantees") to the Holders and to the Trustee the due and punctual payment of the principal of, and premium, if any, and interest on the Securities and all other amounts due and payable under this Indenture and the Securities by the Company, when and as such principal, premium, if any, and interest shall become due and payable, whether at the stated maturity, upon redemption or by declaration of acceleration or otherwise, according to the terms of the Securities and this Indenture. (b) Failing payment when due of any amount guaranteed pursuant to the Guarantees, for whatever reason, each Guarantor will be obligated to pay the same immediately. Each Guarantee hereunder is intended to be a general, unsecured, senior obligation of each Guarantor and will rank pari passu in right of payment with all Indebtedness of each such Guarantor that is not, by its terms, expressly subordinated in right of payment to the Guarantee of such Guarantor. Each of the Guarantors hereby agrees that its obligations hereunder shall be full, unconditional and absolute, irrespective of the validity, regularity or enforceability of the Securities, the Guarantees or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, any release of any other Guarantor, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each of the Guarantors hereby agrees that in the event of a default in payment of the principal of, or premium, if any, or interest on the Securities of any series, whether at the stated maturity, upon redemption or by declaration of acceleration or otherwise, legal proceedings may be instituted by the Trustee on behalf of the Holders or, subject to Section 5.06 hereof, by the Holders, on the terms and conditions set forth in this Indenture, directly against each of the Guarantors to enforce the Guarantees without first proceeding against the Company. (c) The obligations of each Guarantor under this Article IX shall be as aforesaid full, unconditional and absolute and shall not be impaired, modified, released or limited by any occurrence or condition whatsoever, including, without limitation, (i) any compromise, settlement, release, waiver, renewal, extension, indulgence or modification of, or any change in, any of the obligations and liabilities of the Company or any Guarantor contained in any of the Securities or this Indenture, (ii) any impairment, modification, release or limitation of the liability of the Company, any Guarantor or any of their estates in bankruptcy, or any remedy for the enforcement thereof, resulting from the operation of any present or future provision of any applicable Bankruptcy Law, as amended, or other statute or from the decision of any court, (iii) the assertion or exercise by the Company, any Guarantor or the Trustee of any rights or remedies under any of the Securities or this Indenture or their delay in or failure to assert or exercise any such rights or remedies, (iv) the assignment or the purported assignment of any property as security for any of the Securities, including all or any part of the rights of the Company or any Guarantor under this Indenture, (v) the extension of the time for payment by the Company or any Guarantor of any payments or other sums or any part thereof owing or payable under any of the terms and provisions of any of the Securities or this Indenture or of the time for performance by the Company or any Guarantor of any other obligations under or arising out of any such terms and provisions or the extension or the renewal of any thereof, (vi) the modification or amendment (whether material or otherwise) of any duty, agreement or obligation of the Company or any Guarantor set forth in this Indenture, (vii) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all of the assets, marshaling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of, or other similar proceeding affecting, the Company or any of the Guarantors or any of their respective assets, or the disaffirmance of any of the Securities, the Guarantees or this Indenture in any such proceeding, (viii) the release or discharge of the Company or any Guarantor from the performance or observance of any agreement, covenant, term or condition contained in any of such instruments by operation of law, (ix) the unenforceability of any of the Securities, the Guarantees or this Indenture or (x) any other circumstance which might otherwise constitute a legal or equitable discharge of a surety or guarantor. (d) Each of the Guarantors hereby (i) waives diligence, presentment, demand of payment, filing of claims with a court in the event of the merger, insolvency or bankruptcy of the Company or a Guarantor, and all demands whatsoever, (ii) acknowledges that any agreement, instrument or document evidencing the Guarantees may be transferred and that the benefit of its obligations hereunder shall extend to each holder of any agreement, instrument or document evidencing the Guarantees without notice to them and (iii) covenants that its Guarantee will not be discharged except by complete performance of the Guarantees. Each Guarantor further agrees that if at any time all or any part of any payment theretofore applied by any Person to any Guarantee is, or must be, rescinded or returned for any reason whatsoever, including without limitation, the insolvency, bankruptcy or reorganization of any Guarantor, such Guarantee shall, to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence notwithstanding such application, and the Guarantees shall continue to be effective or be reinstated, as the case may be, as though such application had not been made. (e) Each Guarantor shall be subrogated to all rights of the Holders and the Trustee against the Company in respect of any amounts paid by such Guarantor pursuant to the provisions of this Indenture; provided, however, that no Guarantor shall be entitled to enforce or to receive any payments arising out of, or based upon, such right of subrogation with respect to any of the Securities until all of the Securities and the Guarantees thereof shall have been paid in full or discharged. (f) A director, officer, employee or stockholder, as such, of any Guarantor shall not have any liability for any obligations of such Guarantor under this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Section 9.02 Limitation of Guarantor's Liability Each Guarantor and by its acceptance hereof each Holder hereby confirms that it is the intention of all such parties that the guarantee by such Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of any federal, state or foreign law. To effectuate the foregoing intention, the Holders and each Guarantor hereby irrevocably agree that each Guarantor's liability shall be limited to the lesser of (i) the aggregate amount of the obligations of the Company under the Securities and this Indenture and (ii) the amount, if any, which would not have (A) rendered such Guarantor "insolvent" (as such term is defined in the Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or (B) left such Guarantor with unreasonably small capital at the time its Guarantee of the Securities was entered into; provided that it will be a presumption in any lawsuit or other proceedings in which a Guarantor is a party that the amount guaranteed pursuant to the Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of such Guarantor, or debtor in possession or trustee in bankruptcy of the Guarantor, otherwise proves in such a lawsuit that the aggregate liability of the Guarantor is the amount set forth in clause (ii) above. In making any determination as to solvency or sufficiency of capital of a Guarantor in accordance with the previous sentence, the right of such Guarantor to contribution from other Guarantors, and any other rights such Guarantor may have, contractual or otherwise, shall be taken into account. Section 9.03 Contribution In order to provide for just and equitable contribution among the Guarantors, the Guarantors agree, inter se, that in the event any payment or distribution is made by any Guarantor (a "Funding Guarantor") under its Guarantee, such Funding Guarantor shall be entitled to a contribution from each other Guarantor in a pro rata amount based on the Adjusted Net Assets of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by the Funding Guarantor in discharging the Company's obligations with respect to the Securities or any other Guarantor's obligations with respect to its Guarantee thereof. Section 9.04 Execution and Delivery of Guarantees To further evidence the Guarantees, each Guarantor hereby agrees that a notation relating to such Guarantees shall be endorsed on each Security authenticated and delivered by the Trustee and executed by either manual or facsimile signature of an Officer of each Guarantor. Each of the Guarantors hereby agrees that its Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation relating to such Guarantee. If an Officer of a Guarantor whose signature is on this Indenture or a Security no longer holds that office at the time the Trustee authenticates such Security or at any time thereafter, such Guarantor's Guarantee of such Security shall be valid nevertheless. The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of any Guarantee set forth in this Indenture on behalf of the Guarantor. Section 9.05 Addition of Guarantors (a) If any Subsidiary of the Company guarantees (or becomes a co-obligor on) any Funded Indebtedness of the Company other than the Securities at any time subsequent to the Issue Date (including, without limitation, following any release of such Subsidiary pursuant to Section 9.06 hereof from any Guarantee previously provided by it under this Article IX), then the Company shall (i) cause the Securities then outstanding to be equally and ratably guaranteed by such Subsidiary, but only to the extent that such Securities are not already guaranteed by such Subsidiary on reasonably comparable terms and (ii) cause such Subsidiary to execute and deliver a supplemental indenture, in substantially the form of Exhibit C hereto, evidencing its provision of a Guarantee in accordance with clause (b) below. (b) Any Person may become a Guarantor by executing and delivering to the Trustee (i) a supplemental indenture in form and substance satisfactory to the Trustee, which subjects such Person to the provisions (including the representations and warranties) of this Indenture as a Guarantor and (ii) an Opinion of Counsel and Officers' Certificate to the effect that such supplemental indenture has been duly authorized and executed by such Person and constitutes the legal, valid, binding and enforceable obligation of such Person (subject to such customary exceptions concerning creditors' rights and equitable principles as may be acceptable to the Trustee in its discretion and provided that no opinion need be rendered concerning the enforceability of the Guarantee). Section 9.06 Release of Guarantee Notwithstanding anything to the contrary in this Article IX, in the event that any Guarantor shall no longer be a guarantor of (or co-obligor on) any Funded Indebtedness of the Company other than the Securities and other than Funded Indebtedness of the Company (i) subject to a release provision substantially similar to this Section 9.06 and (ii) the related guarantee (or obligation) of which will be released substantially concurrently with the release of the Guarantee of such Guarantor pursuant to this Section 9.06, and so long as no Default or Event of Default shall have occurred or be continuing, such Guarantor, upon giving notice to the Trustee to the foregoing effect, shall be deemed to be released from all of its obligations under this Indenture and the Guarantee of such Guarantor shall be of no further force or effect. Following the receipt by the Trustee of any such notice, the Company shall cause this Indenture to be amended as provided in Section 8.01 hereof; provided, however, that the failure to so amend this Indenture shall not affect the validity of the termination of the Guarantee of such Guarantor. Section 9.07 Consent to Jurisdiction and Service of Process Each Guarantor that is not organized under the laws of the United States (including the States and the District of Columbia) (each a "Non-U.S. Guarantor") hereby appoints the principal office of CT Corporation System in The City of New York which, on the date hereof, is located at 1633 Broadway, New York, New York 10019, as the authorized agent thereof (the "Authorized Agent") upon whom process may be served in any action, suit or proceeding arising out of or based on this Indenture or the Securities which may be instituted in the Supreme Court of the State of New York or the United States District Court for the Southern District of New York, in either case in The Borough of Manhattan, The City of New York, by the Holder of any Security, and each Non-U.S. Guarantor hereby waives any objection which it may now or hereafter have to the laying of venue of any such proceeding and expressly and irrevocably accepts and submits, for the benefit of the Holders from time to time of the Securities, to the nonexclusive jurisdiction of any such court in respect of any such action, suit or proceeding, for itself and with respect to its properties, revenues and assets. Such appointment shall be irrevocable unless and until the appointment of a successor authorized agent for such purpose, and such successor's acceptance of such appointment, shall have occurred. Each Non-U.S. Guarantor agrees to take any and all actions, including the filing of any and all documents and instruments, that may be necessary to continue such appointment in full force and effect as aforesaid. Service of process upon the Authorized Agent with respect to any such action shall be deemed, in every respect, effective service of process upon any such Non-U.S. Guarantor. Notwithstanding the foregoing, any action against any Non-U.S. Guarantor arising out of or based on any Security may also be instituted by the Holder of such Security in any court in the jurisdiction of organization of such Non-U.S. Guarantor, and such Non-U.S. Guarantor expressly accepts the jurisdiction of any such court in any such action. The Company shall require the Authorized Agent to agree in writing to accept the foregoing appointment as agent for service of process. Section 9.08 Waiver of Immunity To the extent that any Non-U.S. Guarantor or any of its properties, assets or revenues may have or may hereafter become entitled to, or have attributed to it, any right of immunity, on the grounds of sovereignty or otherwise, from any legal action, suit or proceeding, from the giving of any relief in any thereof, from set-off or counterclaim, from the jurisdiction of any court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution of judgment, or from execution of judgment, or other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, in any jurisdiction in which proceedings may at any time be commenced, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Indenture or the Securities, such Non-U.S. Guarantor, to the maximum extent permitted by law, hereby irrevocably and unconditionally waives, and agrees not to plead or claim, any such immunity and consents to such relief and enforcement. Section 9.09 Judgment Currency Each Non-U.S. Guarantor agrees to indemnify the Trustee and each Holder against any loss incurred by it as a result of any judgment or order being given or made and expressed and paid in a currency (the "Judgment Currency") other than United States dollars and as a result of any variation as between (i) the rate of exchange at which the United States dollar amount is converted into the Judgment Currency for the purpose of such judgment or order and (ii) the spot rate of exchange in The City of New York at which the Trustee or such Holder on the date of payment of such judgment or order is able to purchase United States dollars with the amount of the Judgment Currency actually received by the Trustee or such Holder. The foregoing indemnity shall constitute a separate and independent obligation of each Non-U.S. Guarantor and shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. The term "spot rate of exchange" shall include any premiums and costs of exchange payable in connection with the purchase of, or conversion into, United States dollars. ARTICLE X REDEMPTION Section 10.01 Notices to Trustee If the Company elects to redeem the Securities of any series pursuant to the redemption provisions of Section 10.07, it shall furnish to the Trustee, at least 45 days but not more than 60 days before a Redemption Date (unless the Trustee consents in writing to a shorter period of at least 30 days prior to the Redemption Date), an Officers' Certificate setting forth the Redemption Date, the principal amount of such Securities to be redeemed and the Redemption Price. Section 10.02 Selection of Securities to be Redeemed If less than all of the Securities of a series are to be redeemed, the Trustee shall select the Securities of such series to be redeemed by such method as the Trustee in its sole discretion shall deem fair and appropriate. The particular Securities of such series to be redeemed shall be selected, unless otherwise provided herein, not less than 30 days nor more than 60 days prior to the Redemption Date by the Trustee from the outstanding Securities of such series not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Securities of such series selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed. Securities and portions of them selected shall be in amounts of $1,000 or whole multiples of $1,000. Except as provided in the preceding sentence, provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. Section 10.03 Notices to Holders (a) At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail in conformity with Section 11.02 a notice of redemption to each Holder whose Securities are to be redeemed. The Notice shall identify the Securities to be redeemed and shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the Redemption Date, upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion will be issued; (iv) the name and address of the Paying Agent; (v) that Securities called for redemption must be surrendered to the Paying Agent at the address specified in such notice to collect the Redemption Price; (vi) that unless the Company defaults in making the redemption payment, interest on Securities called for redemption ceases to accrue on and after the Redemption Date and the only remaining right of the Holders is to receive payment of the Redemption Price upon surrender to the Paying Agent of the Securities; and (vii) the aggregate principal amount of Securities of each series being redeemed. If any of the Securities to be redeemed is in the form of a Global Security, then the Company shall modify such notice to the extent necessary to accord with the procedures of the Depositary applicable to redemptions. (b) At the Company's request, the Trustee shall give the notice required in Section 10.03(a) in the Company's name; provided, however, that the Company shall deliver to the Trustee, at least 45 days prior to the Redemption Date (unless the Trustee consents in writing to a shorter period at least 30 days prior to the Redemption Date), an Officer's Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in Section 10.03(a). Section 10.04 Effect of Notices of Redemption Once notice of redemption is mailed pursuant to Section 10.03, Securities called for redemption become due and payable on the Redemption Date at the Redemption Price. Upon surrender to the Paying Agent, such Securities shall be paid out at the Redemption Price. Section 10.05 Deposit of Redemption Price At least one Business Day prior to the Redemption Date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the Redemption Price of all Securities to be redeemed on that date. The Trustee or the Paying Agent shall return to the Company any money not required for that purpose less the expenses of the Trustee as provided herein. If the Company complies with the preceding paragraph, interest on the Securities or portions thereof to be redeemed (whether or not such Securities are presented for payment) will cease to accrue on the applicable Redemption Date. If any Security called for redemption shall not be so paid upon surrender because of the failure of the Company to comply with the preceding paragraph, then interest will be paid on the unpaid principal and premium, if any, from the Redemption Date until such principal and premium are paid and, to the extent lawful, on any interest not paid on such unpaid principal, in each case at the rate provided in the Securities and in Section 3.01. Section 10.06 Securities Redeemed in Part Upon surrender of a Security that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the Holder, at the expense of the Company, a new Security equal in principal amount to the unredeemed portion of the Security surrendered. Section 10.07 Optional Redemption The Securities of any series (other than the 5-year Securities) may be redeemed at any time, at the option of the Company, in whole or from time to time in part, at the Redemption Price specified in such Securities. Any redemption pursuant to this Section 10.07 shall be made, to the extent applicable, pursuant to the provisions of Sections 10.01 through 10.06. ARTICLE XI MISCELLANEOUS Section 11.01 Trust Indenture Act Controls If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. If this Indenture excludes any provision of the TIA that is required to be included, such provision shall be deemed included herein. Section 11.02 Notices Any notice or communication by the Company, the Guarantors, if any, or the Trustee to the others is duly given if in writing and delivered in person or mailed by first-class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the other's address: If to the Company or the Guarantors: R&B Falcon Corporation 901 Threadneedle Street Houston, Texas 77079 Attention: Leighton E. Moss Telecopier No. (281) 496-0285 If to the Trustee: For payment registration, transfer or exchange of the Securities: By Hand: Chase Bank of Texas, National Association One Main Place 1201 Main Street, 18th Floor Dallas, Texas 75202 Attention: Registered Bond Events Telecopier No. (214) 672-5932 By Mail: Chase Bank of Texas, National Association P. O. Box 2320 Dallas, Texas 75221-2320 Attention: Registered Bond Events For all other communications relating to the Securities: Chase Bank of Texas, National Association Global Trust Services 600 Travis Street, Suite 1150 Houston, Texas 77002 Telephone: (713) 216-6686 Telecopy: (713) 216-5476 Address of the Trustee in New York: For Physical Securities: The Chase Manhattan Bank 55 Water Street, North Building Room 234, Windows 20 and 21 New York, New York 10041 Telephone: (212) 638-0454 Telecopy: (212) 638-7380 or 7381 For Book Entry Securities: The Chase Manhattan Bank DTC Participant #2423 Telephone: (212) 638-0454 Telecopy: (212) 638-7380 or 7381 The Company, the Guarantors or the Trustee by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Notwithstanding the foregoing, notices to the Trustee shall be effective only upon receipt. Any notice or communication to a Holder shall be mailed by first-class mail, postage prepaid, to the Holder's address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company or any Guarantor mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. All notices or communications, including without limitation notices to the Trustee or the Company or any Guarantor by Holders, shall be in writing, except as set forth below, and in the English language. In case by reason of the suspension of regular mail service, or by reason of any other cause, it shall be impossible to mail any notice required by this Indenture, then such method of notification as shall be made with the approval of the Trustee shall constitute a sufficient mailing of such notice. Section 11.03 Communication by Holders with Other Holders Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities. The Company, the Guarantors, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). Section 11.04 Certificate and Opinion as to Conditions Precedent Upon any request or application by the Company or any Guarantor to the Trustee to take any action under this Indenture, the Company or such Guarantor shall, if requested by the Trustee, furnish to the Trustee: (1) an Officers' Certificate (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with. Section 11.05 Statements Required in Certificate or Opinion Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. Section 11.06 Rules by Trustee and Agents The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or the Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 11.07 Legal Holidays If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. Section 11.08 No Recourse Against Others A director, officer, employee or stockholder of the Company or any Guarantor, as such, shall not have any liability for any obligations of the Company or such Guarantor under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. Section 11.09 Governing Law THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUCTED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. Section 11.10 No Adverse Interpretation of Other Agreements This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company, any Guarantor or any other Subsidiary of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 11.11 Successors All agreements of the Company and the Guarantors in this Indenture and the Securities shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successor. Section 11.12 Severability In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 11.13 Counterpart Originals The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 11.14 Table of Contents, Headings, etc The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. R&B FALCON CORPORATION By: /S/ ROBERT F. FULTON ------------------------- Name: Robert F. Fulton Title: Executive Vice President CHASE BANK OF TEXAS, NATIONAL ASSOCIATION By: /S/ MAURI J. COWEN ------------------------ Name: Mauri J. Cowen Title: Vice President and Trust Officer EXHIBIT A [FACE OF 5-YEAR SECURITY] R&B FALCON CORPORATION 9-1/8% SERIES [A/B] SENIOR NOTE DUE 2003 CUSIP 74912 EAJ0 No. ___ $___________ R&B Falcon Corporation, a Delaware corporation (the "Company"), for value received promises to pay to ___________________________ or registered assigns, the principal sum of $_________ Dollars on December [ ], 200__ [or such greater or lesser amount as is indicated on the Schedule of Exchanges of Securities on the other side of this Security].* Interest Payment Dates: June 15 and December 15 Record Dates: June 1 and December 1 Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. Dated: R&B FALCON CORPORATION By:_________________________ By:_________________________ Certificate of Authentication: _________________________ as Trustee, certifies that this is one of the Securities referred to in the within-mentioned Indenture. By:______________________ Authorized Signature [Global Securities Legend] [UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. THE DEPOSITARY TRUST COMPANY SHALL ACT AS THE DEPOSITARY UNTIL A SUCCESSOR SHALL BE APPOINTED BY THE COMPANY AND THE REGISTRAR. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]* [Transfer Restricted Securities Legend] [THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.]* [REVERSE OF 5-YEAR SECURITY] R&B FALCON CORPORATION 9-1/2% SERIES [A/B] SENIOR NOTE DUE 2003 This Security is one of a duly authorized issue of 9-1/2% Series [A/B] Senior Notes due 2003 (the "Securities") of R&B Falcon Corporation, a Delaware corporation (the "Company"). 1. Interest. The Company promises to pay interest on the principal amount of this Security at 9-1/2% per annum from December 22, 1998 until maturity. The Company will pay interest semiannually on June 15 and December 15 of each year (each an "Interest Payment Date"), or if any such day is not a Business Day, on the next succeeding Business Day. Interest on the Securities will accrue from the most recent Interest Payment Date on which interest has been paid or, if no interest has been paid, from December 22, 1998; provided that if there is no existing Default in the payment of interest, and if this Security is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be June 15, 1999. The Company also promises to pay any additional interest required by Section 6 of the Registration Rights Agreement (as defined in paragraph 17 below), upon the conditions, at the rates and for the periods specified therein. Further, the Company shall pay interest on overdue principal and premium, if any, from time to time on demand at a rate equal to the interest rate then in effect; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the record date next preceding the Interest Payment Date, even if such Securities are canceled after such record date and on or before such Interest Payment Date. The Holder must surrender this Security to a Paying Agent to collect principal and premium, if any, payments. The Company will pay the principal of, and premium, if any, and interest on the Securities in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. Payments in respect of the Securities represented by a Global Security (including principal, premium, if any, and interest) will be made by wire transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Company will make all payments in respect of a certificated Security (including principal, premium, if any, and interest) by mailing a check to the registered address of each Holder thereof; provided, however, that payments on a certificated Security will be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 3. Ranking and Guarantees. The Securities are senior unsecured obligations of the Company. The Indenture provides that any Subsidiary that guarantees Funded Indebtedness of the Company after the Issue Date will be required to equally and ratably guarantee the Securities. The Guarantee of the Securities by any subsidiary may be released if, but only so long as, no other Funded Indebtedness of the Company is guaranteed by such Subsidiary. Each of the Guarantees is an unsecured obligation of the Guarantor providing such Guarantee. Certain limitations to the obligations of the Guarantors are set forth in further detail in the Indenture. References herein to the Indenture or the Securities shall be deemed also to refer to the Guarantees set forth in the Indenture except where the context otherwise requires. 4. Optional Redemption. The Securities may be redeemed at any time, at the option of the Company, in whole or from time to time in part, at a price equal to 100% of their principal amount plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the Redemption Date) plus the Make-Whole Premium, if any (the "Redemption Price"). The amount of the Make-Whole Premium with respect to any Security (or portion thereof) to be redeemed will be equal to the excess, if any, of: (i) the sum of the present values, calculated as of the Redemption Date, of: (A) each interest payment that, but for such redemption would have been payable on the Security (or portion thereof) being redeemed on each Interest Payment Date occurring after the Redemption Date (excluding any accrued and unpaid interest for the period prior to the Redemption Date); and (B) the principal amount that, but for such redemption, would have been payable at the final maturity of the Security (or portion thereof) being redeemed; over (ii) the principal amount of the Security (or portion thereof) being redeemed. The present values of interest and principal payments referred to in clause (i) above will be determined in accordance with generally accepted principles of financial analysis. Such present values will be calculated by discounting the amount of each payment of interest or principal from the date that each such payment would have been payable, but for the redemption, to the Redemption Date at a discount rate equal to the Treasury Yield plus 50 basis points. The Make-Whole Premium will be calculated by an Independent Investment Banker (as defined in the Indenture). For purposes of determining the Make-Whole Premium, "Treasury Yield" means a rate of interest per annum equal to the weekly average yield to maturity of United States Treasury Notes that have a constant maturity that corresponds to the remaining term to maturity of the Securities, calculated to the nearest 1/12 of a year (the "Remaining Term"). The Treasury Yield will be determined as of the third Business Day immediately preceding the applicable Redemption Date. The weekly average yields of United States Treasury Notes will be determined by reference to the most recent statistical release published by the Federal Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or any successor release (the "H.15 Statistical Release"). If the H.15 Statistical Release sets forth a weekly average yield for United States Treasury Notes having a constant maturity that is the same as the Remaining Term, then Treasury Yield will be equal to such weekly average yield. In all other cases, the Treasury Yield will be calculated by interpolation, on a straight-line basis, between the weekly average yields on the United States Treasury Notes that have a constant maturity closest to and greater than the Remaining Term and the United States Treasury Notes that have a constant maturity closest to and less than the Remaining Term (in each case as set forth in the H.15 Statistical Release). Any weekly average yields so calculated by interpolation will be rounded to the nearest 1/100 of 1%, with any figure of 1/200% or above being rounded upward. If weekly average yields for United States Treasury Notes are not available in the H.15 Statistical Release or otherwise, then the Treasury Yield will be calculated by interpolation of comparable rates selected by the Independent Investment Banker. Periodic interest installments with respect to which the Interest Payment Date is on or prior to any Redemption Date will be payable to Holders of record at the close of business on the relevant record dates referred to herein, all as provided in the Indenture. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. On or after the Redemption Date interest will cease to accrue on Securities or on the portions thereof called for redemption, as the case may be. 5. Paying Agent and Registrar. Initially, Chase Bank of Texas, National Association (the "Trustee"), the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar, co-registrar or additional paying agent without notice to any Holder. The Company may act in any such capacity. 6. Indenture. The Company issued the Securities under an Indenture dated as of December 22, 1998 (the "Indenture") among the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb), as in effect on the date of execution of the Indenture. The Securities are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The Securities are unsecured general obligations of the Company. 7. Denominations, Transfer, Exchange. The Securities are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Securities during the period between a record date and the corresponding Interest Payment Date. 8. Persons Deemed Owners. The registered Holder of a Security shall be treated as its owner for all purposes. 9. Amendments and Waivers. Subject to certain exceptions and limitations, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Securities, and any existing Default under, or compliance with any provision of, the Indenture may be waived (other than any continuing Default or Event of Default in the payment of the principal of, or premium, if any, or interest on the Securities) by the Holders of at least a majority in principal amount of the Securities then outstanding in accordance with the terms of the Indenture. Without the consent of any Holder, the Company, any Guarantors and the Trustee may amend or supplement the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency; to provide for uncertificated Securities in addition to or in place of certificated Securities; to provide for the assumption of the obligations of the Company and any Guarantor under the Indenture to Holders in the case of the merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company or any Guarantor; to reflect the release of any Guarantor from its Guarantee to the extent permitted by the Indenture; to add guarantees to the Securities; to add to the covenants of the Company or any Guarantors or to surrender any right of the Company or any Guarantor; to make any change that does not materially adversely affect the rights of any Holder; or to comply with the qualification of the Indenture under the Trust Indenture Act of 1939, as amended. The right of any Holder to participate in any consent required or sought pursuant to any provision of the Indenture (and the obligation of the Company to obtain any such consent otherwise required from such Holder) may be subject to the requirement that such Holder shall have been the Holder of record of any Securities with respect to which such consent is required or sought as of a date identified by the Trustee in a notice furnished to Holders in accordance with the terms of the Indenture. Without the consent of each Holder affected, the Company may not (i) reduce the amount of Securities whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the rate of or change the time for payment of interest, including default interest, on any Security, (iii) reduce the principal of or change the fixed maturity of any Security or alter the premium or other provisions with respect to redemption, (iv) make any Security payable in money other than that stated in the Security, (v) impair the right to institute suit for the enforcement of any payment of principal of, or premium, if any, or interest on any Security, (vi) make any change in the percentage of principal amount of Securities necessary to waive compliance with certain provisions of the Indenture or (vii) waive a continuing Default or Event of Default in the payment of principal of, or premium, if any, or interest on the Securities. 10. Defaults and Remedies. Events of Default include: default in payment of interest on the Securities for 30 days; default in payment of principal of, or premium, if any, on the Securities; failure by the Company or any Guarantor for 60 days after written notice by the Trustee or by the Holders of at least 25% of the aggregate principal amount of the Securities then outstanding to it to comply with any of its other covenants or agreements in the Indenture, the Guarantees or the Securities; the acceleration of the maturity of any Indebtedness of the Company or any Subsidiary of the Company (other than the Securities or any Non-Recourse Indebtedness) that has an outstanding principal amount of $20 million or more individually or in the aggregate; a default in the payment of principal or interest in respect of any Indebtedness of the Company or any Subsidiary of the Company (other than the Securities or any Non-Recourse Indebtedness) having an outstanding principal amount of $20 million or more individually or in the aggregate, and such default shall be continuing for a period of 30 days without the Company or such Subsidiary, as the case may be, effecting a cure of such default; a final judgment or order for the payment of money in excess of $20 million (net of applicable insurance coverage) having been rendered against the Company, any Guarantor or any other "significant subsidiary" (as such term is defined in Regulation S-X under the Securities Exchange Act of 1934, as amended; a "Significant Subsidiary") of the Company and such judgment or order shall continue unsatisfied and unstayed for a period of 60 days; or certain events involving bankruptcy, insolvency or reorganization of the Company, any Guarantor or any other Significant Subsidiary of the Company. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Securities may declare the principal of, and premium, if any, and interest on all the Securities to be immediately due and payable, except that in the case of an Event of Default arising from certain events of bankruptcy, insolvency or reorganization of the Company or any Guarantor, all outstanding Securities become due and payable immediately without further action or notice. The amount due and payable upon the acceleration of any Security is equal to 100% of the principal amount thereof plus premium, if any, and accrued interest to the date of payment. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity reasonably satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal or premium, if any, or interest) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. 11. Discharge Prior to Maturity. The Indenture shall be discharged and canceled upon the payment of all of the Securities and shall be discharged except for certain obligations upon the irrevocable deposit with the Trustee of funds or U.S. Government Obligations sufficient for such payment. 12. Trustee Dealings with Company and Guarantors. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company, any Guarantors or their respective Affiliates, and may otherwise deal with the Company, any Guarantors or their respective Affiliates, as if it were not Trustee. 13. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company or any Guarantor shall not have any liability for any obligations of the Company or any Guarantor under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 14. Authentication. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 15. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed thereon. 16. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. Additional Rights of Holders of Transfer Restricted Securities. In addition to the rights provided to Holders of Securities under the Indenture, Holders of Transfer Restricted Securities shall have all the rights set forth in the Registration Rights Agreement, dated as of the Issue Date (the "Registration Rights Agreement"), among the Company and the Initial Purchasers. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: R&B Falcon Corporation 901 Threadneedle Houston, Texas 77079 Attention: Leighton E. Moss FORM OF NOTATION ON SECURITY RELATING TO FUTURE GUARANTEES Each Guarantor (which term includes any successor Person under the Indenture), has fully, unconditionally and absolutely guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture, the due and punctual payment of the principal of, and premium, if any, and interest on the Securities and all other amounts due and payable under the Indenture and the Securities by the Company. The obligations of the Guarantors to the Holders of Securities and to the Trustee pursuant to the Guarantees and the Indenture are expressly set forth in Article IX of the Indenture and reference is hereby made to the Indenture for the precise terms of the Guarantees. [NAMES OF GUARANTORS] By:____________________ ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to _________________________________________ ______________________________________________________________________ (Insert assignee's social security or tax I.D. number) _______________________________________________________________________ _______________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ____________________________________________ as agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date: ___________________________ Your Signature:________________________________________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee:___________________________________________________ (Participant in a Recognized Signature Guaranty Medallion Program) In connection with any transfer of any of the Securities evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Securities are being transferred as specified below: CHECK ONE (1) [] to the Company or a Subsidiary thereof; or (2) [] to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933, as amended) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or (3) [] outside the United States to a "foreign person" in compliance with Rule 904 of Regulation S under the Securities Act of 1933, as amended; or (4) [] pursuant to an effective registration statement under the Securities Act of 1933, as amended; or (5) [] pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Rule 144 thereunder. and unless the box below is checked, the undersigned confirms that such Security is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"): [] The transferee is an Affiliate of the Company. Unless one of items (1) through (5) above is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if item (3), or (5) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Securities, in their sole discretion, such written legal opinions, certifications (including an investment letter) and other information as the Trustee or the Company have reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. If none of the foregoing items are checked, the Trustee or Registrar shall not be obligated to register this Security in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.06 of the Indenture shall have been satisfied. Signed:____________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee:________________________ TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated:_________________ _________________________ Notice: to be executed by an executive officer* SCHEDULE OF EXCHANGES OF SECURITIES* The following exchanges, redemptions or repurchases of a part of this Global Security have been made: Principal Amount of Signature of Global authorized Security Officer, Amount of decrease Amount of increase following Trustee Date of in Principal Amount in Principal Amount such decrease or Securities Transaction of Global Security of Global Security (or increase) Custodian - ----------- ------------------- ------------------- ------------- ------------- *This Schedule should be included only if the Security is a Global Security. EXHIBIT B [FACE OF 10-YEAR SECURITY] R&B FALCON CORPORATION 9-1/2% SERIES [A/B] SENIOR NOTE DUE 2008 CUSIP 74912 EAL5 No. ___ $___________ R&B Falcon Corporation, a Delaware corporation (the "Company"), for value received promises to pay to ___________________________ or registered assigns, the principal sum of $_________ Dollars on December ___, 2008 [or such greater or lesser amount as is indicated on the Schedule of Exchanges of Securities on the other side of this Security.*] Interest Payment Dates: June 15 and December 15 Record Dates: June 1 and December 1 Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. Dated: R&B FALCON CORPORATION By:_________________________ By:_________________________ Certificate of Authentication: ____________________________ as Trustee, certifies that this is one of the Securities referred to in the within-mentioned Indenture. By:_____________________ Authorized Signature [Global Securities Legend] [UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. THE DEPOSITORY TRUST COMPANY SHALL ACT AS THE DEPOSITARY UNTIL A SUCCESSOR SHALL BE APPOINTED BY THE COMPANY AND THE REGISTRAR. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]* [Transfer Restricted Securities Legend] [THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.]* [REVERSE OF 10-YEAR SECURITY] R&B FALCON CORPORATION 9-1/2% SERIES [A/B] SENIOR NOTE DUE 2008 This Security is one of a duly authorized issue of 9-1/2% Series [A/B] Senior Notes due 2008 (the "Securities") of R&B Falcon Corporation, a Delaware corporation (the "Company"). 1. Interest. The Company promises to pay interest on the principal amount of this Security at 9-1/2% per annum from December 22, 1998 until maturity. The Company will pay interest semiannually on June 15 and December 15 of each year (each an "Interest Payment Date"), or if any such day is not a Business Day, on the next succeeding Business Day. Interest on the Securities will accrue from the most recent Interest Payment Date on which interest has been paid or, if no interest has been paid, from December 22, 1998; provided that if there is no existing Default in the payment of interest, and if this Security is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be June 15, 1999. The Company also promises to pay any additional interest required by Section 6 of the Registration Rights Agreement (as defined in paragraph 17 below), upon the conditions, at the rates and for the periods specified therein. Further, the Company shall pay interest on overdue principal and premium, if any, from time to time on demand at a rate equal to the interest rate then in effect; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the record date next preceding the Interest Payment Date, even if such Securities are canceled after such record date and on or before such Interest Payment Date. The Holder must surrender this Security to a Paying Agent to collect principal and premium, if any, payments. The Company will pay the principal of, and premium, if any, and interest on the Securities in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. Payments in respect of the Securities represented by a Global Security (including principal, premium, if any, and interest) will be made by wire transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Company will make all payments in respect of a certificated Security (including principal, premium, if any, and interest) by mailing a check to the registered address of each Holder thereof; provided, however, that payments on a certificated Security will be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 3. Ranking and Guarantees. The Securities are senior unsecured obligations of the Company. The Indenture provides that any Subsidiary that guarantees Funded Indebtedness of the Company after the Issue Date will be required to equally and ratably guarantee the Securities. The Guarantee of the Securities by any subsidiary may be released if, but only so long as, no other Funded Indebtedness of the Company is guaranteed by such Subsidiary. Each of the Guarantees is an unsecured obligation of the Guarantor providing such Guarantee. Certain limitations to the obligations of the Guarantors are set forth in further detail in the Indenture. References herein to the Indenture or the Securities shall be deemed also to refer to the Guarantees set forth in the Indenture except where the context otherwise requires. 4. Optional Redemption. The Securities may be redeemed at any time, at the option of the Company, in whole or from time to time in part, at a price equal to 100% of their principal amount plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the Redemption Date) plus the Make-Whole Premium, if any (the "Redemption Price"). The amount of the Make-Whole Premium with respect to any Security (or portion thereof) to be redeemed will be equal to the excess, if any, of: (i) the sum of the present values, calculated as of the Redemption Date, of: (A) each interest payment that, but for such redemption would have been payable on the Security (or portion thereof) being redeemed on each Interest Payment Date occurring after the Redemption Date (excluding any accrued and unpaid interest for the period prior to the Redemption Date); and (B) the principal amount that, but for such redemption, would have been payable at the final maturity of the Security (or portion thereof) being redeemed; over (ii) the principal amount of the Security (or portion thereof) being redeemed. The present values of interest and principal payments referred to in clause (i) above will be determined in accordance with generally accepted principles of financial analysis. Such present values will be calculated by discounting the amount of each payment of interest or principal from the date that each such payment would have been payable, but for the redemption, to the Redemption Date at a discount rate equal to the Treasury Yield plus 50 basis points. The Make-Whole Premium will be calculated by an Independent Investment Banker (as defined in the Indenture). For purposes of determining the Make-Whole Premium, "Treasury Yield" means a rate of interest per annum equal to the weekly average yield to maturity of United States Treasury Notes that have a constant maturity that corresponds to the remaining term to maturity of the Securities, calculated to the nearest 1/12 of a year (the "Remaining Term"). The Treasury Yield will be determined as of the third Business Day immediately preceding the applicable Redemption Date. The weekly average yields of United States Treasury Notes will be determined by reference to the most recent statistical release published by the Federal Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" or any successor release (the "H.15 Statistical Release"). If the H.15 Statistical Release sets forth a weekly average yield for United States Treasury Notes having a constant maturity that is the same as the Remaining Term, then Treasury Yield will be equal to such weekly average yield. In all other cases, the Treasury Yield will be calculated by interpolation, on a straight-line basis, between the weekly average yields on the United States Treasury Notes that have a constant maturity closest to and greater than the Remaining Term and the United States Treasury Notes that have a constant maturity closest to and less than the Remaining Term (in each case as set forth in the H.15 Statistical Release). Any weekly average yields so calculated by interpolation will be rounded to the nearest 1/100 of 1%, with any figure of 1/200% or above being rounded upward. If weekly average yields for United States Treasury Notes are not available in the H.15 Statistical Release or otherwise, then the Treasury Yield will be calculated by interpolation of comparable rates selected by the Independent Investment Banker. Periodic interest installments with respect to which the Interest Payment Date is on or prior to any Redemption Date will be payable to Holders of record at the close of business on the relevant record dates referred to herein, all as provided in the Indenture. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. On or after the Redemption Date interest will cease to accrue on Securities or on the portions thereof called for redemption, as the case may be. 5. Paying Agent and Registrar. Initially, Chase Bank of Texas, National Association (the "Trustee"), the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar, co-registrar or additional paying agent without notice to any Holder. The Company may act in any such capacity. 6. Indenture. The Company issued the Securities under an Indenture dated as of December 22, 1998 (the "Indenture") among the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb), as in effect on the date of execution of the Indenture. The Securities are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The Securities are unsecured general obligations of the Company. 7. Denominations, Transfer, Exchange. The Securities are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Securities during the period between a record date and the corresponding Interest Payment Date. 8. Persons Deemed Owners. The registered Holder of a Security shall be treated as its owner for all purposes. 9. Amendments and Waivers. Subject to certain exceptions and limitations, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Securities, and any existing Default under, or compliance with any provision of, the Indenture may be waived (other than any continuing Default or Event of Default in the payment of the principal of, or premium, if any, or interest on the Securities) by the Holders of at least a majority in principal amount of the Securities then outstanding in accordance with the terms of the Indenture. Without the consent of any Holder, the Company, any Guarantors and the Trustee may amend or supplement the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency; to provide for uncertificated Securities in addition to or in place of certificated Securities; to provide for the assumption of the obligations of the Company and any Guarantor under the Indenture to Holders in the case of the merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company or any Guarantor; to reflect the release of any Guarantor from its Guarantee to the extent permitted by the Indenture; to add guarantees to the Securities; to add to the covenants of the Company or any Guarantors or to surrender any right of the Company or any Guarantor; to make any change that does not materially adversely affect the rights of any Holder; or to comply with the qualification of the Indenture under the Trust Indenture Act of 1939, as amended. The right of any Holder to participate in any consent required or sought pursuant to any provision of the Indenture (and the obligation of the Company to obtain any such consent otherwise required from such Holder) may be subject to the requirement that such Holder shall have been the Holder of record of any Securities with respect to which such consent is required or sought as of a date identified by the Trustee in a notice furnished to Holders in accordance with the terms of the Indenture. Without the consent of each Holder affected, the Company may not (i) reduce the amount of Securities whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the rate of or change the time for payment of interest, including default interest, on any Security, (iii) reduce the principal of or change the fixed maturity of any Security or alter the premium or other provisions with respect to redemption, (iv) make any Security payable in money other than that stated in the Security, (v) impair the right to institute suit for the enforcement of any payment of principal of, or premium, if any, or interest on any Security, (vi) make any change in the percentage of principal amount of Securities necessary to waive compliance with certain provisions of the Indenture or (vii) waive a continuing Default or Event of Default in the payment of principal of, or premium, if any, or interest on the Securities. 10. Defaults and Remedies. Events of Default include: default in payment of interest on the Securities for 30 days; default in payment of principal of, or premium, if any, on the Securities; failure by the Company or any Guarantor for 60 days after written notice by the Trustee or by the Holders of at least 25% of the aggregate principal amount of the Securities then outstanding to it to comply with any of its other covenants or agreements in the Indenture, the Guarantees or the Securities; the acceleration of the maturity of any Indebtedness of the Company or any Subsidiary of the Company (other than the Securities or any Non-Recourse Indebtedness) that has an outstanding principal amount of $20 million or more individually or in the aggregate; a default in the payment of principal or interest in respect of any Indebtedness of the Company or any Subsidiary of the Company (other than the Securities or any Non-Recourse Indebtedness) having an outstanding principal amount of $20 million or more individually or in the aggregate, and such default shall be continuing for a period of 30 days without the Company or such Subsidiary, as the case may be, effecting a cure of such default; a final judgment or order for the payment of money in excess of $20 million (net of applicable insurance coverage) having been rendered against the Company, any Guarantor or any other "significant subsidiary" (as such term is defined in Regulation S-X under the Securities Exchange Act of 1934, as amended; a "Significant Subsidiary") of the Company and such judgment or order shall continue unsatisfied and unstayed for a period of 60 days; or certain events involving bankruptcy, insolvency or reorganization of the Company, any Guarantor or any other Significant Subsidiary of the Company. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Securities may declare the principal of, and premium, if any, and interest on all the Securities to be immediately due and payable, except that in the case of an Event of Default arising from certain events of bankruptcy, insolvency or reorganization of the Company or any Guarantor, all outstanding Securities become due and payable immediately without further action or notice. The amount due and payable upon the acceleration of any Security is equal to 100% of the principal amount thereof plus premium, if any, and accrued interest to the date of payment. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity reasonably satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal or premium, if any, or interest) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. 11. Discharge Prior to Maturity. The Indenture shall be discharged and canceled upon the payment of all of the Securities and shall be discharged except for certain obligations upon the irrevocable deposit with the Trustee of funds or U.S. Government Obligations sufficient for such payment. 12. Trustee Dealings with Company and Guarantors. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company, any Guarantors or their respective Affiliates, and may otherwise deal with the Company, any Guarantors or their respective Affiliates, as if it were not Trustee. 13. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company or any Guarantor shall not have any liability for any obligations of the Company or any Guarantor under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 14. Authentication. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 15. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed thereon. 16. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. Additional Rights of Holders of Transfer Restricted Securities. In addition to the rights provided to Holders of Securities under the Indenture, Holders of Transfer Restricted Securities shall have all the rights set forth in the Registration Rights Agreement, dated as of the Issue Date (the "Registration Rights Agreement"), among the Company and the Initial Purchasers. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: R&B Falcon Corporation 901 Threadneedle Houston, Texas 77079 Attention: Leighton E. Moss FORM OF NOTATION ON SECURITY RELATING TO FUTURE GUARANTEES Each Guarantor (which term includes any successor Person under the Indenture), has fully, unconditionally and absolutely guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture, the due and punctual payment of the principal of, and premium, if any, and interest on the Securities and all other amounts due and payable under the Indenture and the Securities by the Company. The obligations of the Guarantors to the Holders of Securities and to the Trustee pursuant to the Guarantees and the Indenture are expressly set forth in Article IX of the Indenture and reference is hereby made to the Indenture for the precise terms of the Guarantees. [NAMES OF GUARANTORS] By:___________________ ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to _____________________________________________ _______________________________________________________________________ (Insert assignee's social security or tax I.D. number) _______________________________________________________________________ _______________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ____________________________________________ as agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date: ___________________________ Your Signature:_________________________________________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee:____________________________________________________ (Participant in a Recognized Signature Guaranty Medallion Program) In connection with any transfer of any of the Securities evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Securities are being transferred as specified below: CHECK ONE (1) [] to the Company or a Subsidiary thereof; or (2) [] to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933, as amended) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or (3) [] outside the United States to a "foreign person" in compliance with Rule 904 of Regulation S under the Securities Act of 1933, as amended; or (4) [] pursuant to an effective registration statement under the Securities Act of 1933, as amended; or (5) [] pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Rule 144 thereunder. and unless the box below is checked, the undersigned confirms that such Security is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"): [] The transferee is an Affiliate of the Company. Unless one of items (1) through (5) above is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if item (3), or (5) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Securities, in their sole discretion, such written legal opinions, certifications (including an investment letter) and other information as the Trustee or the Company have reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. If none of the foregoing items are checked, the Trustee or Registrar shall not be obligated to register this Security in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.06 of the Indenture shall have been satisfied. Signed:_________________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee:________________________________________ TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated:_______________________ ____________________________ Notice: to be executed by an executive officer]* SCHEDULE OF EXCHANGES OF SECURITIES* The following exchanges, redemptions or repurchases of a part of this Global Security have been made: Amount of Amount of Principal of Signature of decrease in increase in Amount Global authorized Principal Principal Security Officer, Amount of Amount of following Trustee or Date of Global Global such decrease Securities Transaction Security Security (or increase) Custodian - ----------- -------- -------- ------------- --------- *This Schedule should be included only if the Security is a Global Security. EXHIBIT C FORM OF SUPPLEMENTAL INDENTURE Supplemental Indenture (this "Supplemental Indenture"), dated as of ____________ between ____________________, a __________ corporation (the "New Guarantor"), a subsidiary of R&B Falcon Corporation, a Delaware corporation (the "Company"), and [____________________], as trustee under the indenture referred to below (the "Trustee"). Capitalized terms used herein and not defined herein shall have the meaning ascribed to them in the Indenture (as defined below). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (as amended or supplemented from time to time, the "Indenture"), dated as of December 22, 1998; WHEREAS, Section 9.05 of the Indenture provides that under certain circumstances the Company must cause certain of its subsidiaries to execute and deliver to the Trustee a supplemental indenture pursuant to which such subsidiaries shall unconditionally guarantee all of the Company's obligations under the Securities (as defined in the Indenture) pursuant to a Guarantee on the terms and conditions set forth herein; and WHEREAS, pursuant to Section 9.05 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which are hereby acknowledged, the New Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Securities as follows: 1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings ascribed to them in the Indenture. 2. Agreement to Guarantee. The New Guarantor hereby fully, unconditionally and absolutely guarantees, jointly and severally with all other Guarantors, the Company's obligations under the Securities and the Indenture on the terms and subject to the conditions set forth in Article IX of the Indenture and agrees to be bound by all other applicable provisions of the Indenture. 3. No Recourse Against Others. No past, present or future director, officer, employee, incorporator, shareholder or agent of any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Securities, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Securities. 4. New York Law to Govern. The internal law of the State of New York shall govern and be used to construe this Supplemental Indenture. 5. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 6. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 7. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the correctness of the recitals of fact contained herein, all of which recitals are made solely by the New Guarantor. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: __________________ [Name of New Subsidiary Guarantor] By:________________________ Name: Title: Dated: __________________ [_______________________________ ] as Trustee By:________________________ Name: Title: _______________________________ EX-10.75 4 Exhibit 10.75 R&B FALCON CORPORATION STOCK OPTION AGREEMENT This Stock Option Agreement ("Agreement") is made between R&B Falcon Corporation, a Delaware corporation ("Company"), and Paul B. Loyd, Jr. ("Optionee") as of February 11, 1999 (the "Effective Date"). WITNESSETH: WHEREAS, the Committee which administers the R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan ("Plan") has selected the Optionee to receive a nonqualified stock option under the terms of the Plan as an incentive to the Optionee to remain in the employ of the Company and contribute to the performance of the Company, on the terms and subject to the conditions provided herein; NOW THEREFORE, for and in consideration of these premises, it is hereby agreed as follows: 1. As used herein, the terms set forth below shall have the following respective meanings: (a) "Disability" means Disability as defined in the Employment Agreement; and (b) "Employment Agreement" means that certain Employment Agreement dated March 25, 1998 between the Optionee and the Company. 2. The option awarded hereunder is issued in accordance with and subject to all of the terms, conditions and provisions of the Plan and administrative interpretations thereunder, if any, which have been adopted by the Committee and are in effect on the date hereof. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Plan. 3. On the terms and subject to the conditions contained herein, the Company hereby grants to the Optionee an option (the "Option") for a term of ten years ending on February 11, 2009 ("Option Period") to purchase from the Company 184,121 shares ("Option Shares") of the Company's Common Stock, at a price equal to $6.25 per share. 4. This Option shall not be exercisable, except upon the death or Disability of the Optionee, until after 6 months immediately following the Effective Date and thereafter shall be exercisable for any number of shares up to and including the aggregate number of shares subject to this Option, irrespective of whether the Optionee is an employee of the Company at the time of any such exercise; provided the number of shares as to which this Option becomes exercisable shall, in each case, be reduced by the number of shares theretofore purchased pursuant to the terms hereof. 5. The Option may be exercised by the Optionee, in whole or in part, by giving written notice to the Compensation and Benefits Department of the Company setting forth the number of Option Shares with respect to which the option is to be exercised, accompanied by payment for the shares to be purchased and any appropriate withholding taxes, and specifying the address to which the certificate for such shares is to be mailed (or to the extent permitted by the Company, the written instructions referred to in the last sentence of this section). Payment shall be by means of cash, certified check, bank draft or postal money order payable to the order of the Company. As promptly as practicable after receipt of such written notification and payment, the Company shall deliver, or cause to be delivered, to the Optionee certificates for the number of Option Shares with respect to which the Option has been so exercised. 6. Subject to approval of the Committee, which shall not be unreasonably withheld, the Optionee may pay for any Option Shares with respect to which the Option is exercised by tendering to the Company other shares of Common Stock at the time of the exercise or partial exercise hereof. The certificates representing such other shares of Common Stock must be accompanied by a stock power duly executed with signature guaranteed in accordance with market practice. The value of the Common Stock so tendered shall be its Fair Market Value. 7. The Option shall not be transferable by the Optionee otherwise than as expressly permitted by the Plan. During the lifetime of the Optionee, the Option shall be exercisable only by her or him. No transfer of the Option shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. 8. The Optionee shall have no rights as a stockholder with respect to any Option Shares until the date of issuance of a certificate for Option Shares purchased pursuant to this Agreement. Until such time, the Optionee shall not be entitled to dividends or to vote at meetings of the stockholders of the Company. 9. The Company may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required in connection with the option herein granted. The Optionee may pay all or any portion of the taxes required to be withheld by the Company or paid by the Optionee in connection with the exercise of all or any portion of the option herein granted by electing to have the Company withhold shares of Common Stock, or by delivering previously owned shares of Common Stock, having a Fair Market Value equal to the amount required to be withheld or paid. The Optionee must make the foregoing election on or before the date that the amount of tax to be withheld is determined ("Tax Date"). Any such election is irrevocable and subject to disapproval by the Committee. If the Optionee is subject to the short-swing profits recapture provisions of Section 16(b) of the Exchange Act, any such election shall be subject to the following additional restrictions: (a) Such election may not be made within six months of the grant of this option, provided that this limitation shall not apply in the event of death or Disability. (b) Such election must be made either in an Election Window (as hereinafter defined) or at such other time as may be consistent with Section 16(b) of the Exchange Act and the rules promulgated thereunder. Where the Tax Date in respect of the exercise of all or any portion of this Option is deferred until after such exercise and the Optionee elects stock withholding, the full amount of shares of Common Stock will be issued or transferred to the Optionee upon exercise of this Option, but the Optionee shall be unconditionally obligated to tender back to the Company on the Tax Date the number of shares necessary to discharge with respect to such Option exercise the greater of (i) the Company's withholding obligation and (ii) all or any portion of the holder's federal and state tax obligation attributable to the Option exercise. An Election Window is any period commencing on the third business day following the Company's release of a quarterly or annual summary statement of sales and earnings and ending on the twelfth business day following such release. 10. Upon the acquisition of any shares pursuant to the exercise of the Option, the Optionee will enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Agreement. 11. The certificates representing the Option Shares purchased by exercise of an option will be stamped or otherwise imprinted with a legend in such form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer, and the stock transfer records of the Company will reflect stop-transfer instructions, as appropriate, with respect to such shares. 12. Unless otherwise provided herein, every notice hereunder shall be in writing and shall be delivered by hand or by registered or certified mail. All notices of the exercise by the Optionee of any option hereunder shall be directed to R&B Falcon Corporation, Attention: Benefits and Compensation Department, at the Company's principal office address from time to time. Any notice given by the Company to the Optionee directed to him or her at his or her address on file with the Company shall be effective to bind any other person who shall acquire rights hereunder. The Company shall be under no obligation whatsoever to advise the Optionee of the existence, maturity or termination of any of the Optionee's rights hereunder and the Optionee shall be deemed to have familiarized himself with all matters contained herein and in the Plan which may affect any of the Optionee's rights or privileges hereunder. 13. Whenever the term "Optionee" is used herein under circumstances applicable to any other person or persons to whom this award, in accordance with the provisions of Paragraph 7, may be transferred, the word "Optionee" shall be deemed to include such person or persons. References to the masculine gender herein also include the feminine gender for all purposes. 14. Notwithstanding any of the other provisions hereof, the Optionee agrees that he or she will not exercise the Option, and that the Company will not be obligated to issue any shares pursuant to this Agreement, if the exercise of the Option or the issuance of such shares of Common Stock would constitute a violation by the Optionee or by the Company of any provision of any law or regulation of any governmental authority or any national securities exchange. 15. This Agreement is subject to the Plan, a copy of which will be provided the to Optionee upon written request. The terms and provisions of the Plan (including any subsequent amendments thereto) are incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. All definitions of words and terms contained in the Plan shall be applicable to this Agreement. 16. In the event of a corporate merger or other business combination in which the Company is not the surviving entity, the economic equivalent number of the voting shares of common stock of, or participating interests in, the surviving entity, based on the terms of such merger or other business combination, shall be substituted for the number of Option Shares held by the Participant hereunder, and the exercise price per share set out in Section 3 above shall be likewise adjusted, to reflect substantially the same economic equivalent value of the Option Shares to the Participant prior to any such merger or other business combination. In the event of a split-off, spin-off or creating of a different class of common stock of the Company (including, without limitation, a tracking stock), the Participant shall receive an option to purchase an equivalent number of the shares of common stock or voting interests of such separate entity being split-off or spun-off or of the shares of the new class of common stock of the Company, as if Participant had owned the shares underlying the Option Shares on the record date for any such split-off, spin-off or creation of a new class of common stock of the Company, and the exercise price set out in Section 3 hereof and applicable to the options to purchase shares or the voting interests of the new entity being split-off or spun-off shall be adjusted to reflect substantially the same economic equivalent value of the Option Shares to the Optionee prior to any such split-off, spin-off or creation of a new class of common stock of the Company IN WITNESS WHEREOF, this Agreement is effective as of the 11th of February, 1999. R&B FALCON CORPORATION By:_______________________________ Its:_______________________________ OPTIONEE ___________________________________ Paul B. Loyd, Jr. EX-10.76 5 Exhibit 10.76 R&B FALCON CORPORATION STOCK OPTION AGREEMENT This Stock Option Agreement ("Agreement") is made between R&B Falcon Corporation, a Delaware corporation ("Company"), and Steven A. Webster ("Optionee") as of February 11, 1999 (the "Effective Date"). WITNESSETH: WHEREAS, the Committee which administers the R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan ("Plan") has selected the Optionee to receive a nonqualified stock option under the terms of the Plan as an incentive to the Optionee to remain in the employ of the Company and contribute to the performance of the Company, on the terms and subject to the conditions provided herein; NOW THEREFORE, for and in consideration of these premises, it is hereby agreed as follows: 1. As used herein, the terms set forth below shall have the following respective meanings: (a) "Disability" means Disability as defined in the Employment Agreement; and (b) "Employment Agreement" means that certain Employment Agreement dated March 25, 1998 between the Optionee and the Company. 2. The option awarded hereunder is issued in accordance with and subject to all of the terms, conditions and provisions of the Plan and administrative interpretations thereunder, if any, which have been adopted by the Committee and are in effect on the date hereof. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Plan. 3. On the terms and subject to the conditions contained herein, the Company hereby grants to the Optionee an option (the "Option") for a term of ten years ending on February 11, 2009 ("Option Period") to purchase from the Company 212,447 shares ("Option Shares") of the Company's Common Stock, at a price equal to $6.25 per share. 4. This Option shall not be exercisable, except upon the death or Disability of the Optionee, until after 6 months immediately following the Effective Date and thereafter shall be exercisable for any number of shares up to and including the aggregate number of shares subject to this Option, irrespective of whether the Optionee is an employee of the Company at the time of any such exercise; provided the number of shares as to which this Option becomes exercisable shall, in each case, be reduced by the number of shares theretofore purchased pursuant to the terms hereof. 5. The Option may be exercised by the Optionee, in whole or in part, by giving written notice to the Compensation and Benefits Department of the Company setting forth the number of Option Shares with respect to which the option is to be exercised, accompanied by payment for the shares to be purchased and any appropriate withholding taxes, and specifying the address to which the certificate for such shares is to be mailed (or to the extent permitted by the Company, the written instructions referred to in the last sentence of this section). Payment shall be by means of cash, certified check, bank draft or postal money order payable to the order of the Company. As promptly as practicable after receipt of such written notification and payment, the Company shall deliver, or cause to be delivered, to the Optionee certificates for the number of Option Shares with respect to which the Option has been so exercised. 6. Subject to approval of the Committee, which shall not be unreasonably withheld, the Optionee may pay for any Option Shares with respect to which the Option is exercised by tendering to the Company other shares of Common Stock at the time of the exercise or partial exercise hereof. The certificates representing such other shares of Common Stock must be accompanied by a stock power duly executed with signature guaranteed in accordance with market practice. The value of the Common Stock so tendered shall be its Fair Market Value. 7. The Option shall not be transferable by the Optionee otherwise than as expressly permitted by the Plan. During the lifetime of the Optionee, the Option shall be exercisable only by her or him. No transfer of the Option shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. 8. The Optionee shall have no rights as a stockholder with respect to any Option Shares until the date of issuance of a certificate for Option Shares purchased pursuant to this Agreement. Until such time, the Optionee shall not be entitled to dividends or to vote at meetings of the stockholders of the Company. 9. The Company may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required in connection with the option herein granted. The Optionee may pay all or any portion of the taxes required to be withheld by the Company or paid by the Optionee in connection with the exercise of all or any portion of the option herein granted by electing to have the Company withhold shares of Common Stock, or by delivering previously owned shares of Common Stock, having a Fair Market Value equal to the amount required to be withheld or paid. The Optionee must make the foregoing election on or before the date that the amount of tax to be withheld is determined ("Tax Date"). Any such election is irrevocable and subject to disapproval by the Committee. If the Optionee is subject to the short-swing profits recapture provisions of Section 16(b) of the Exchange Act, any such election shall be subject to the following additional restrictions: (a) Such election may not be made within six months of the grant of this option, provided that this limitation shall not apply in the event of death or Disability. (b) Such election must be made either in an Election Window (as hereinafter defined) or at such other time as may be consistent with Section 16(b) of the Exchange Act and the rules promulgated thereunder. Where the Tax Date in respect of the exercise of all or any portion of this Option is deferred until after such exercise and the Optionee elects stock withholding, the full amount of shares of Common Stock will be issued or transferred to the Optionee upon exercise of this Option, but the Optionee shall be unconditionally obligated to tender back to the Company on the Tax Date the number of shares necessary to discharge with respect to such Option exercise the greater of (i) the Company's withholding obligation and (ii) all or any portion of the holder's federal and state tax obligation attributable to the Option exercise. An Election Window is any period commencing on the third business day following the Company's release of a quarterly or annual summary statement of sales and earnings and ending on the twelfth business day following such release. 10. Upon the acquisition of any shares pursuant to the exercise of the Option, the Optionee will enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Agreement. 11. The certificates representing the Option Shares purchased by exercise of an option will be stamped or otherwise imprinted with a legend in such form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer, and the stock transfer records of the Company will reflect stop-transfer instructions, as appropriate, with respect to such shares. 12. Unless otherwise provided herein, every notice hereunder shall be in writing and shall be delivered by hand or by registered or certified mail. All notices of the exercise by the Optionee of any option hereunder shall be directed to R&B Falcon Corporation, Attention: Benefits and Compensation Department, at the Company's principal office address from time to time. Any notice given by the Company to the Optionee directed to him or her at his or her address on file with the Company shall be effective to bind any other person who shall acquire rights hereunder. The Company shall be under no obligation whatsoever to advise the Optionee of the existence, maturity or termination of any of the Optionee's rights hereunder and the Optionee shall be deemed to have familiarized himself with all matters contained herein and in the Plan which may affect any of the Optionee's rights or privileges hereunder. 13. Whenever the term "Optionee" is used herein under circumstances applicable to any other person or persons to whom this award, in accordance with the provisions of Paragraph 7, may be transferred, the word "Optionee" shall be deemed to include such person or persons. References to the masculine gender herein also include the feminine gender for all purposes. 14. Notwithstanding any of the other provisions hereof, the Optionee agrees that he or she will not exercise the Option, and that the Company will not be obligated to issue any shares pursuant to this Agreement, if the exercise of the Option or the issuance of such shares of Common Stock would constitute a violation by the Optionee or by the Company of any provision of any law or regulation of any governmental authority or any national securities exchange. 15. This Agreement is subject to the Plan, a copy of which will be provided the to Optionee upon written request. The terms and provisions of the Plan (including any subsequent amendments thereto) are incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. All definitions of words and terms contained in the Plan shall be applicable to this Agreement. 16. In the event of a corporate merger or other business combination in which the Company is not the surviving entity, the economic equivalent number of the voting shares of common stock of, or participating interests in, the surviving entity, based on the terms of such merger or other business combination, shall be substituted for the number of Option Shares held by the Participant hereunder, and the exercise price per share set out in Section 3 above shall be likewise adjusted, to reflect substantially the same economic equivalent value of the Option Shares to the Participant prior to any such merger or other business combination. In the event of a split-off, spin-off or creating of a different class of common stock of the Company (including, without limitation, a tracking stock), the Participant shall receive an option to purchase an equivalent number of the shares of common stock or voting interests of such separate entity being split-off or spun-off or of the shares of the new class of common stock of the Company, as if Participant had owned the shares underlying the Option Shares on the record date for any such split-off, spin-off or creation of a new class of common stock of the Company, and the exercise price set out in Section 3 hereof and applicable to the options to purchase shares or the voting interests of the new entity being split-off or spun-off shall be adjusted to reflect substantially the same economic equivalent value of the Option Shares to the Optionee prior to any such split-off, spin-off or creation of a new class of common stock of the Company IN WITNESS WHEREOF, this Agreement is effective as of the 11th day of February, 1999. R&B FALCON CORPORATION By:_______________________________ Its:_______________________________ OPTIONEE ___________________________________ Steven A. Webster EX-10.77 6 Exhibit 10.77 R&B FALCON CORPORATION STOCK OPTION AGREEMENT This Stock Option Agreement ("Agreement") is made between R&B Falcon Corporation, a Delaware corporation ("Company"), and T. W. Nagle ("Optionee") as of February 11, 1999 (the "Effective Date"). WITNESSETH: WHEREAS, the Committee which administers the R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan ("Plan") has selected the Optionee to receive a nonqualified stock option under the terms of the Plan as an incentive to the Optionee to remain in the employ of the Company and contribute to the performance of the Company, on the terms and subject to the conditions provided herein; NOW THEREFORE, for and in consideration of these premises, it is hereby agreed as follows: 1. As used herein, the terms set forth below shall have the following respective meanings: (a) "Disability" means Disability as defined in the Employment Agreement; and (b) "Employment Agreement" means that certain Employment Agreement dated March 25, 1998 between the Optionee and the Company. 2. The option awarded hereunder is issued in accordance with and subject to all of the terms, conditions and provisions of the Plan and administrative interpretations thereunder, if any, which have been adopted by the Committee and are in effect on the date hereof. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Plan. 3. On the terms and subject to the conditions contained herein, the Company hereby grants to the Optionee an option (the "Option") for a term of ten years ending on February 11, 2009 ("Option Period") to purchase from the Company 74,339 shares ("Option Shares") of the Company's Common Stock, at a price equal to $6.25 per share. 4. This Option shall not be exercisable, except upon the death or Disability of the Optionee, until after 6 months immediately following the Effective Date and thereafter shall be exercisable for any number of shares up to and including the aggregate number of shares subject to this Option, irrespective of whether the Optionee is an employee of the Company at the time of any such exercise; provided the number of shares as to which this Option becomes exercisable shall, in each case, be reduced by the number of shares theretofore purchased pursuant to the terms hereof. 5. The Option may be exercised by the Optionee, in whole or in part, by giving written notice to the Compensation and Benefits Department of the Company setting forth the number of Option Shares with respect to which the option is to be exercised, accompanied by payment for the shares to be purchased and any appropriate withholding taxes, and specifying the address to which the certificate for such shares is to be mailed (or to the extent permitted by the Company, the written instructions referred to in the last sentence of this section). Payment shall be by means of cash, certified check, bank draft or postal money order payable to the order of the Company. As promptly as practicable after receipt of such written notification and payment, the Company shall deliver, or cause to be delivered, to the Optionee certificates for the number of Option Shares with respect to which the Option has been so exercised. 6. Subject to approval of the Committee, which shall not be unreasonably withheld, the Optionee may pay for any Option Shares with respect to which the Option is exercised by tendering to the Company other shares of Common Stock at the time of the exercise or partial exercise hereof. The certificates representing such other shares of Common Stock must be accompanied by a stock power duly executed with signature guaranteed in accordance with market practice. The value of the Common Stock so tendered shall be its Fair Market Value. 7. The Option shall not be transferable by the Optionee otherwise than as expressly permitted by the Plan. During the lifetime of the Optionee, the Option shall be exercisable only by her or him. No transfer of the Option shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. 8. The Optionee shall have no rights as a stockholder with respect to any Option Shares until the date of issuance of a certificate for Option Shares purchased pursuant to this Agreement. Until such time, the Optionee shall not be entitled to dividends or to vote at meetings of the stockholders of the Company. 9. The Company may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required in connection with the option herein granted. The Optionee may pay all or any portion of the taxes required to be withheld by the Company or paid by the Optionee in connection with the exercise of all or any portion of the option herein granted by electing to have the Company withhold shares of Common Stock, or by delivering previously owned shares of Common Stock, having a Fair Market Value equal to the amount required to be withheld or paid. The Optionee must make the foregoing election on or before the date that the amount of tax to be withheld is determined ("Tax Date"). Any such election is irrevocable and subject to disapproval by the Committee. If the Optionee is subject to the short-swing profits recapture provisions of Section 16(b) of the Exchange Act, any such election shall be subject to the following additional restrictions: (a) Such election may not be made within six months of the grant of this option, provided that this limitation shall not apply in the event of death or Disability. (b) Such election must be made either in an Election Window (as hereinafter defined) or at such other time as may be consistent with Section 16(b) of the Exchange Act and the rules promulgated thereunder. Where the Tax Date in respect of the exercise of all or any portion of this Option is deferred until after such exercise and the Optionee elects stock withholding, the full amount of shares of Common Stock will be issued or transferred to the Optionee upon exercise of this Option, but the Optionee shall be unconditionally obligated to tender back to the Company on the Tax Date the number of shares necessary to discharge with respect to such Option exercise the greater of (i) the Company's withholding obligation and (ii) all or any portion of the holder's federal and state tax obligation attributable to the Option exercise. An Election Window is any period commencing on the third business day following the Company's release of a quarterly or annual summary statement of sales and earnings and ending on the twelfth business day following such release. 10. Upon the acquisition of any shares pursuant to the exercise of the Option, the Optionee will enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Agreement. 11. The certificates representing the Option Shares purchased by exercise of an option will be stamped or otherwise imprinted with a legend in such form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer, and the stock transfer records of the Company will reflect stop-transfer instructions, as appropriate, with respect to such shares. 12. Unless otherwise provided herein, every notice hereunder shall be in writing and shall be delivered by hand or by registered or certified mail. All notices of the exercise by the Optionee of any option hereunder shall be directed to R&B Falcon Corporation, Attention: Benefits and Compensation Department, at the Company's principal office address from time to time. Any notice given by the Company to the Optionee directed to him or her at his or her address on file with the Company shall be effective to bind any other person who shall acquire rights hereunder. The Company shall be under no obligation whatsoever to advise the Optionee of the existence, maturity or termination of any of the Optionee's rights hereunder and the Optionee shall be deemed to have familiarized himself with all matters contained herein and in the Plan which may affect any of the Optionee's rights or privileges hereunder. 13. Whenever the term "Optionee" is used herein under circumstances applicable to any other person or persons to whom this award, in accordance with the provisions of Paragraph 7, may be transferred, the word "Optionee" shall be deemed to include such person or persons. References to the masculine gender herein also include the feminine gender for all purposes. 14. Notwithstanding any of the other provisions hereof, the Optionee agrees that he or she will not exercise the Option, and that the Company will not be obligated to issue any shares pursuant to this Agreement, if the exercise of the Option or the issuance of such shares of Common Stock would constitute a violation by the Optionee or by the Company of any provision of any law or regulation of any governmental authority or any national securities exchange. 15. This Agreement is subject to the Plan, a copy of which will be provided the to Optionee upon written request. The terms and provisions of the Plan (including any subsequent amendments thereto) are incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. All definitions of words and terms contained in the Plan shall be applicable to this Agreement. 16. In the event of a corporate merger or other business combination in which the Company is not the surviving entity, the economic equivalent number of the voting shares of common stock of, or participating interests in, the surviving entity, based on the terms of such merger or other business combination, shall be substituted for the number of Option Shares held by the Participant hereunder, and the exercise price per share set out in Section 3 above shall be likewise adjusted, to reflect substantially the same economic equivalent value of the Option Shares to the Participant prior to any such merger or other business combination. In the event of a split-off, spin-off or creating of a different class of common stock of the Company (including, without limitation, a tracking stock), the Participant shall receive an option to purchase an equivalent number of the shares of common stock or voting interests of such separate entity being split-off or spun-off or of the shares of the new class of common stock of the Company, as if Participant had owned the shares underlying the Option Shares on the record date for any such split-off, spin-off or creation of a new class of common stock of the Company, and the exercise price set out in Section 3 hereof and applicable to the options to purchase shares or the voting interests of the new entity being split-off or spun-off shall be adjusted to reflect substantially the same economic equivalent value of the Option Shares to the Optionee prior to any such split-off, spin-off or creation of a new class of common stock of the Company IN WITNESS WHEREOF, this Agreement is effective as of the 11th day of February, 1999. R&B FALCON CORPORATION By:_______________________________ Its:_______________________________ OPTIONEE ___________________________________ T. W. Nagle EX-10.78 7 Exhibit 10.78 R&B FALCON CORPORATION STOCK OPTION AGREEMENT This Stock Option Agreement ("Agreement") is made between R&B Falcon Corporation, a Delaware corporation ("Company"), and Robert F. Fulton ("Optionee") as of February 11, 1999 (the "Effective Date"). WITNESSETH: WHEREAS, the Committee which administers the R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan ("Plan") has selected the Optionee to receive a nonqualified stock option under the terms of the Plan as an incentive to the Optionee to remain in the employ of the Company and contribute to the performance of the Company, on the terms and subject to the conditions provided herein; NOW THEREFORE, for and in consideration of these premises, it is hereby agreed as follows: 1. As used herein, the terms set forth below shall have the following respective meanings: (a) "Disability" means Disability as defined in the Employment Agreement; and (b) "Employment Agreement" means that certain Employment Agreement dated March 25, 1998 between the Optionee and the Company. 2. The option awarded hereunder is issued in accordance with and subject to all of the terms, conditions and provisions of the Plan and administrative interpretations thereunder, if any, which have been adopted by the Committee and are in effect on the date hereof. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Plan. 3. On the terms and subject to the conditions contained herein, the Company hereby grants to the Optionee an option (the "Option") for a term of ten years ending on February 11, 2009 ("Option Period") to purchase from the Company 55,514 shares ("Option Shares") of the Company's Common Stock, at a price equal to $6.25 per share. 4. This Option shall not be exercisable, except upon the death or Disability of the Optionee, until after 6 months immediately following the Effective Date and thereafter shall be exercisable for any number of shares up to and including the aggregate number of shares subject to this Option, irrespective of whether the Optionee is an employee of the Company at the time of any such exercise; provided the number of shares as to which this Option becomes exercisable shall, in each case, be reduced by the number of shares theretofore purchased pursuant to the terms hereof. 5. The Option may be exercised by the Optionee, in whole or in part, by giving written notice to the Compensation and Benefits Department of the Company setting forth the number of Option Shares with respect to which the option is to be exercised, accompanied by payment for the shares to be purchased and any appropriate withholding taxes, and specifying the address to which the certificate for such shares is to be mailed (or to the extent permitted by the Company, the written instructions referred to in the last sentence of this section). Payment shall be by means of cash, certified check, bank draft or postal money order payable to the order of the Company. As promptly as practicable after receipt of such written notification and payment, the Company shall deliver, or cause to be delivered, to the Optionee certificates for the number of Option Shares with respect to which the Option has been so exercised. 6. Subject to approval of the Committee, which shall not be unreasonably withheld, the Optionee may pay for any Option Shares with respect to which the Option is exercised by tendering to the Company other shares of Common Stock at the time of the exercise or partial exercise hereof. The certificates representing such other shares of Common Stock must be accompanied by a stock power duly executed with signature guaranteed in accordance with market practice. The value of the Common Stock so tendered shall be its Fair Market Value. 7. The Option shall not be transferable by the Optionee otherwise than as expressly permitted by the Plan. During the lifetime of the Optionee, the Option shall be exercisable only by her or him. No transfer of the Option shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. 8. The Optionee shall have no rights as a stockholder with respect to any Option Shares until the date of issuance of a certificate for Option Shares purchased pursuant to this Agreement. Until such time, the Optionee shall not be entitled to dividends or to vote at meetings of the stockholders of the Company. 9. The Company may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required in connection with the option herein granted. The Optionee may pay all or any portion of the taxes required to be withheld by the Company or paid by the Optionee in connection with the exercise of all or any portion of the option herein granted by electing to have the Company withhold shares of Common Stock, or by delivering previously owned shares of Common Stock, having a Fair Market Value equal to the amount required to be withheld or paid. The Optionee must make the foregoing election on or before the date that the amount of tax to be withheld is determined ("Tax Date"). Any such election is irrevocable and subject to disapproval by the Committee. If the Optionee is subject to the short-swing profits recapture provisions of Section 16(b) of the Exchange Act, any such election shall be subject to the following additional restrictions: (a) Such election may not be made within six months of the grant of this option, provided that this limitation shall not apply in the event of death or Disability. (b) Such election must be made either in an Election Window (as hereinafter defined) or at such other time as may be consistent with Section 16(b) of the Exchange Act and the rules promulgated thereunder. Where the Tax Date in respect of the exercise of all or any portion of this Option is deferred until after such exercise and the Optionee elects stock withholding, the full amount of shares of Common Stock will be issued or transferred to the Optionee upon exercise of this Option, but the Optionee shall be unconditionally obligated to tender back to the Company on the Tax Date the number of shares necessary to discharge with respect to such Option exercise the greater of (i) the Company's withholding obligation and (ii) all or any portion of the holder's federal and state tax obligation attributable to the Option exercise. An Election Window is any period commencing on the third business day following the Company's release of a quarterly or annual summary statement of sales and earnings and ending on the twelfth business day following such release. 10. Upon the acquisition of any shares pursuant to the exercise of the Option, the Optionee will enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Agreement. 11. The certificates representing the Option Shares purchased by exercise of an option will be stamped or otherwise imprinted with a legend in such form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer, and the stock transfer records of the Company will reflect stop-transfer instructions, as appropriate, with respect to such shares. 12. Unless otherwise provided herein, every notice hereunder shall be in writing and shall be delivered by hand or by registered or certified mail. All notices of the exercise by the Optionee of any option hereunder shall be directed to R&B Falcon Corporation, Attention: Benefits and Compensation Department, at the Company's principal office address from time to time. Any notice given by the Company to the Optionee directed to him or her at his or her address on file with the Company shall be effective to bind any other person who shall acquire rights hereunder. The Company shall be under no obligation whatsoever to advise the Optionee of the existence, maturity or termination of any of the Optionee's rights hereunder and the Optionee shall be deemed to have familiarized himself with all matters contained herein and in the Plan which may affect any of the Optionee's rights or privileges hereunder. 13. Whenever the term "Optionee" is used herein under circumstances applicable to any other person or persons to whom this award, in accordance with the provisions of Paragraph 7, may be transferred, the word "Optionee" shall be deemed to include such person or persons. References to the masculine gender herein also include the feminine gender for all purposes. 14. Notwithstanding any of the other provisions hereof, the Optionee agrees that he or she will not exercise the Option, and that the Company will not be obligated to issue any shares pursuant to this Agreement, if the exercise of the Option or the issuance of such shares of Common Stock would constitute a violation by the Optionee or by the Company of any provision of any law or regulation of any governmental authority or any national securities exchange. 15. This Agreement is subject to the Plan, a copy of which will be provided the to Optionee upon written request. The terms and provisions of the Plan (including any subsequent amendments thereto) are incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. All definitions of words and terms contained in the Plan shall be applicable to this Agreement. 16. In the event of a corporate merger or other business combination in which the Company is not the surviving entity, the economic equivalent number of the voting shares of common stock of, or participating interests in, the surviving entity, based on the terms of such merger or other business combination, shall be substituted for the number of Option Shares held by the Participant hereunder, and the exercise price per share set out in Section 3 above shall be likewise adjusted, to reflect substantially the same economic equivalent value of the Option Shares to the Participant prior to any such merger or other business combination. In the event of a split-off, spin-off or creating of a different class of common stock of the Company (including, without limitation, a tracking stock), the Participant shall receive an option to purchase an equivalent number of the shares of common stock or voting interests of such separate entity being split-off or spun-off or of the shares of the new class of common stock of the Company, as if Participant had owned the shares underlying the Option Shares on the record date for any such split-off, spin-off or creation of a new class of common stock of the Company, and the exercise price set out in Section 3 hereof and applicable to the options to purchase shares or the voting interests of the new entity being split-off or spun-off shall be adjusted to reflect substantially the same economic equivalent value of the Option Shares to the Optionee prior to any such split-off, spin-off or creation of a new class of common stock of the Company IN WITNESS WHEREOF, this Agreement is effective as of the 11th day of February, 1999. R&B FALCON CORPORATION By:_______________________________ Its:_______________________________ OPTIONEE ___________________________________ Robert F. Fulton EX-10.79 8 Exhibit 10.79 R&B FALCON CORPORATION STOCK OPTION AGREEMENT This Stock Option Agreement ("Agreement") is made between R&B Falcon Corporation, a Delaware corporation ("Company"), and Andrew Bakonyi ("Optionee") as of February 11, 1999 (the "Effective Date"). WITNESSETH: WHEREAS, the Committee which administers the R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan ("Plan") has selected the Optionee to receive a nonqualified stock option under the terms of the Plan as an incentive to the Optionee to remain in the employ of the Company and contribute to the performance of the Company, on the terms and subject to the conditions provided herein; NOW THEREFORE, for and in consideration of these premises, it is hereby agreed as follows: 1. As used herein, the terms set forth below shall have the following respective meanings: (a) "Disability" means Disability as defined in the Employment Agreement; and (b) "Employment Agreement" means that certain Employment Agreement dated March 25, 1998 between the Optionee and the Company. 2. The option awarded hereunder is issued in accordance with and subject to all of the terms, conditions and provisions of the Plan and administrative interpretations thereunder, if any, which have been adopted by the Committee and are in effect on the date hereof. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Plan. 3. On the terms and subject to the conditions contained herein, the Company hereby grants to the Optionee an option (the "Option") for a term of ten years ending on February 11, 2009 ("Option Period") to purchase from the Company 90,819 shares ("Option Shares") of the Company's Common Stock, at a price equal to $6.25 per share. 4. This Option shall not be exercisable, except upon the death or Disability of the Optionee, until after 6 months immediately following the Effective Date and thereafter shall be exercisable for any number of shares up to and including the aggregate number of shares subject to this Option, irrespective of whether the Optionee is an employee of the Company at the time of any such exercise; provided the number of shares as to which this Option becomes exercisable shall, in each case, be reduced by the number of shares theretofore purchased pursuant to the terms hereof. 5. The Option may be exercised by the Optionee, in whole or in part, by giving written notice to the Compensation and Benefits Department of the Company setting forth the number of Option Shares with respect to which the option is to be exercised, accompanied by payment for the shares to be purchased and any appropriate withholding taxes, and specifying the address to which the certificate for such shares is to be mailed (or to the extent permitted by the Company, the written instructions referred to in the last sentence of this section). Payment shall be by means of cash, certified check, bank draft or postal money order payable to the order of the Company. As promptly as practicable after receipt of such written notification and payment, the Company shall deliver, or cause to be delivered, to the Optionee certificates for the number of Option Shares with respect to which the Option has been so exercised. 6. Subject to approval of the Committee, which shall not be unreasonably withheld, the Optionee may pay for any Option Shares with respect to which the Option is exercised by tendering to the Company other shares of Common Stock at the time of the exercise or partial exercise hereof. The certificates representing such other shares of Common Stock must be accompanied by a stock power duly executed with signature guaranteed in accordance with market practice. The value of the Common Stock so tendered shall be its Fair Market Value. 7. The Option shall not be transferable by the Optionee otherwise than as expressly permitted by the Plan. During the lifetime of the Optionee, the Option shall be exercisable only by her or him. No transfer of the Option shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. 8. The Optionee shall have no rights as a stockholder with respect to any Option Shares until the date of issuance of a certificate for Option Shares purchased pursuant to this Agreement. Until such time, the Optionee shall not be entitled to dividends or to vote at meetings of the stockholders of the Company. 9. The Company may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required in connection with the option herein granted. The Optionee may pay all or any portion of the taxes required to be withheld by the Company or paid by the Optionee in connection with the exercise of all or any portion of the option herein granted by electing to have the Company withhold shares of Common Stock, or by delivering previously owned shares of Common Stock, having a Fair Market Value equal to the amount required to be withheld or paid. The Optionee must make the foregoing election on or before the date that the amount of tax to be withheld is determined ("Tax Date"). Any such election is irrevocable and subject to disapproval by the Committee. If the Optionee is subject to the short-swing profits recapture provisions of Section 16(b) of the Exchange Act, any such election shall be subject to the following additional restrictions: (a) Such election may not be made within six months of the grant of this option, provided that this limitation shall not apply in the event of death or Disability. (b) Such election must be made either in an Election Window (as hereinafter defined) or at such other time as may be consistent with Section 16(b) of the Exchange Act and the rules promulgated thereunder. Where the Tax Date in respect of the exercise of all or any portion of this Option is deferred until after such exercise and the Optionee elects stock withholding, the full amount of shares of Common Stock will be issued or transferred to the Optionee upon exercise of this Option, but the Optionee shall be unconditionally obligated to tender back to the Company on the Tax Date the number of shares necessary to discharge with respect to such Option exercise the greater of (i) the Company's withholding obligation and (ii) all or any portion of the holder's federal and state tax obligation attributable to the Option exercise. An Election Window is any period commencing on the third business day following the Company's release of a quarterly or annual summary statement of sales and earnings and ending on the twelfth business day following such release. 10. Upon the acquisition of any shares pursuant to the exercise of the Option, the Optionee will enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Agreement. 11. The certificates representing the Option Shares purchased by exercise of an option will be stamped or otherwise imprinted with a legend in such form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer, and the stock transfer records of the Company will reflect stop-transfer instructions, as appropriate, with respect to such shares. 12. Unless otherwise provided herein, every notice hereunder shall be in writing and shall be delivered by hand or by registered or certified mail. All notices of the exercise by the Optionee of any option hereunder shall be directed to R&B Falcon Corporation, Attention: Benefits and Compensation Department, at the Company's principal office address from time to time. Any notice given by the Company to the Optionee directed to him or her at his or her address on file with the Company shall be effective to bind any other person who shall acquire rights hereunder. The Company shall be under no obligation whatsoever to advise the Optionee of the existence, maturity or termination of any of the Optionee's rights hereunder and the Optionee shall be deemed to have familiarized himself with all matters contained herein and in the Plan which may affect any of the Optionee's rights or privileges hereunder. 13. Whenever the term "Optionee" is used herein under circumstances applicable to any other person or persons to whom this award, in accordance with the provisions of Paragraph 7, may be transferred, the word "Optionee" shall be deemed to include such person or persons. References to the masculine gender herein also include the feminine gender for all purposes. 14. Notwithstanding any of the other provisions hereof, the Optionee agrees that he or she will not exercise the Option, and that the Company will not be obligated to issue any shares pursuant to this Agreement, if the exercise of the Option or the issuance of such shares of Common Stock would constitute a violation by the Optionee or by the Company of any provision of any law or regulation of any governmental authority or any national securities exchange. 15. This Agreement is subject to the Plan, a copy of which will be provided the to Optionee upon written request. The terms and provisions of the Plan (including any subsequent amendments thereto) are incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. All definitions of words and terms contained in the Plan shall be applicable to this Agreement. 16. In the event of a corporate merger or other business combination in which the Company is not the surviving entity, the economic equivalent number of the voting shares of common stock of, or participating interests in, the surviving entity, based on the terms of such merger or other business combination, shall be substituted for the number of Option Shares held by the Participant hereunder, and the exercise price per share set out in Section 3 above shall be likewise adjusted, to reflect substantially the same economic equivalent value of the Option Shares to the Participant prior to any such merger or other business combination. In the event of a split-off, spin-off or creating of a different class of common stock of the Company (including, without limitation, a tracking stock), the Participant shall receive an option to purchase an equivalent number of the shares of common stock or voting interests of such separate entity being split-off or spun-off or of the shares of the new class of common stock of the Company, as if Participant had owned the shares underlying the Option Shares on the record date for any such split-off, spin-off or creation of a new class of common stock of the Company, and the exercise price set out in Section 3 hereof and applicable to the options to purchase shares or the voting interests of the new entity being split-off or spun-off shall be adjusted to reflect substantially the same economic equivalent value of the Option Shares to the Optionee prior to any such split-off, spin-off or creation of a new class of common stock of the Company IN WITNESS WHEREOF, this Agreement is effective as of the 11th day of February, 1999. R&B FALCON CORPORATION By:_______________________________ Its:_______________________________ OPTIONEE ___________________________________ Andrew Bakonyi EX-10.80 9 Exhibit 10.80 R&B FALCON CORPORATION STOCK OPTION AGREEMENT This Stock Option Agreement ("Agreement") is made between R&B Falcon Corporation, a Delaware corporation ("Company"), and Bernie Stewart ("Optionee") as of February 11, 1999 (the "Effective Date"). WITNESSETH: WHEREAS, the Committee which administers the R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan ("Plan") has selected the Optionee to receive a nonqualified stock option under the terms of the Plan as an incentive to the Optionee to remain in the employ of the Company and contribute to the performance of the Company, on the terms and subject to the conditions provided herein; NOW THEREFORE, for and in consideration of these premises, it is hereby agreed as follows: 1. As used herein, the terms set forth below shall have the following respective meanings: (a) "Disability" means Disability as defined in the Employment Agreement; and (b) "Employment Agreement" means that certain Employment Agreement dated March 25, 1998 between the Optionee and the Company. 2. The option awarded hereunder is issued in accordance with and subject to all of the terms, conditions and provisions of the Plan and administrative interpretations thereunder, if any, which have been adopted by the Committee and are in effect on the date hereof. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Plan. 3. On the terms and subject to the conditions contained herein, the Company hereby grants to the Optionee an option (the "Option") for a term of ten years ending on February 11, 2009 ("Option Period") to purchase from the Company 62,251 shares ("Option Shares") of the Company's Common Stock, at a price equal to $6.25 per share. 4. This Option shall not be exercisable, except upon the death or Disability of the Optionee, until after 6 months immediately following the Effective Date and thereafter shall be exercisable for any number of shares up to and including the aggregate number of shares subject to this Option, irrespective of whether the Optionee is an employee of the Company at the time of any such exercise; provided the number of shares as to which this Option becomes exercisable shall, in each case, be reduced by the number of shares theretofore purchased pursuant to the terms hereof. 5. The Option may be exercised by the Optionee, in whole or in part, by giving written notice to the Compensation and Benefits Department of the Company setting forth the number of Option Shares with respect to which the option is to be exercised, accompanied by payment for the shares to be purchased and any appropriate withholding taxes, and specifying the address to which the certificate for such shares is to be mailed (or to the extent permitted by the Company, the written instructions referred to in the last sentence of this section). Payment shall be by means of cash, certified check, bank draft or postal money order payable to the order of the Company. As promptly as practicable after receipt of such written notification and payment, the Company shall deliver, or cause to be delivered, to the Optionee certificates for the number of Option Shares with respect to which the Option has been so exercised. 6. Subject to approval of the Committee, which shall not be unreasonably withheld, the Optionee may pay for any Option Shares with respect to which the Option is exercised by tendering to the Company other shares of Common Stock at the time of the exercise or partial exercise hereof. The certificates representing such other shares of Common Stock must be accompanied by a stock power duly executed with signature guaranteed in accordance with market practice. The value of the Common Stock so tendered shall be its Fair Market Value. 7. The Option shall not be transferable by the Optionee otherwise than as expressly permitted by the Plan. During the lifetime of the Optionee, the Option shall be exercisable only by her or him. No transfer of the Option shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. 8. The Optionee shall have no rights as a stockholder with respect to any Option Shares until the date of issuance of a certificate for Option Shares purchased pursuant to this Agreement. Until such time, the Optionee shall not be entitled to dividends or to vote at meetings of the stockholders of the Company. 9. The Company may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required in connection with the option herein granted. The Optionee may pay all or any portion of the taxes required to be withheld by the Company or paid by the Optionee in connection with the exercise of all or any portion of the option herein granted by electing to have the Company withhold shares of Common Stock, or by delivering previously owned shares of Common Stock, having a Fair Market Value equal to the amount required to be withheld or paid. The Optionee must make the foregoing election on or before the date that the amount of tax to be withheld is determined ("Tax Date"). Any such election is irrevocable and subject to disapproval by the Committee. If the Optionee is subject to the short-swing profits recapture provisions of Section 16(b) of the Exchange Act, any such election shall be subject to the following additional restrictions: (a) Such election may not be made within six months of the grant of this option, provided that this limitation shall not apply in the event of death or Disability. (b) Such election must be made either in an Election Window (as hereinafter defined) or at such other time as may be consistent with Section 16(b) of the Exchange Act and the rules promulgated thereunder. Where the Tax Date in respect of the exercise of all or any portion of this Option is deferred until after such exercise and the Optionee elects stock withholding, the full amount of shares of Common Stock will be issued or transferred to the Optionee upon exercise of this Option, but the Optionee shall be unconditionally obligated to tender back to the Company on the Tax Date the number of shares necessary to discharge with respect to such Option exercise the greater of (i) the Company's withholding obligation and (ii) all or any portion of the holder's federal and state tax obligation attributable to the Option exercise. An Election Window is any period commencing on the third business day following the Company's release of a quarterly or annual summary statement of sales and earnings and ending on the twelfth business day following such release. 10. Upon the acquisition of any shares pursuant to the exercise of the Option, the Optionee will enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Agreement. 11. The certificates representing the Option Shares purchased by exercise of an option will be stamped or otherwise imprinted with a legend in such form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer, and the stock transfer records of the Company will reflect stop-transfer instructions, as appropriate, with respect to such shares. 12. Unless otherwise provided herein, every notice hereunder shall be in writing and shall be delivered by hand or by registered or certified mail. All notices of the exercise by the Optionee of any option hereunder shall be directed to R&B Falcon Corporation, Attention: Benefits and Compensation Department, at the Company's principal office address from time to time. Any notice given by the Company to the Optionee directed to him or her at his or her address on file with the Company shall be effective to bind any other person who shall acquire rights hereunder. The Company shall be under no obligation whatsoever to advise the Optionee of the existence, maturity or termination of any of the Optionee's rights hereunder and the Optionee shall be deemed to have familiarized himself with all matters contained herein and in the Plan which may affect any of the Optionee's rights or privileges hereunder. 13. Whenever the term "Optionee" is used herein under circumstances applicable to any other person or persons to whom this award, in accordance with the provisions of Paragraph 7, may be transferred, the word "Optionee" shall be deemed to include such person or persons. References to the masculine gender herein also include the feminine gender for all purposes. 14. Notwithstanding any of the other provisions hereof, the Optionee agrees that he or she will not exercise the Option, and that the Company will not be obligated to issue any shares pursuant to this Agreement, if the exercise of the Option or the issuance of such shares of Common Stock would constitute a violation by the Optionee or by the Company of any provision of any law or regulation of any governmental authority or any national securities exchange. 15. This Agreement is subject to the Plan, a copy of which will be provided the to Optionee upon written request. The terms and provisions of the Plan (including any subsequent amendments thereto) are incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. All definitions of words and terms contained in the Plan shall be applicable to this Agreement. 16. In the event of a corporate merger or other business combination in which the Company is not the surviving entity, the economic equivalent number of the voting shares of common stock of, or participating interests in, the surviving entity, based on the terms of such merger or other business combination, shall be substituted for the number of Option Shares held by the Participant hereunder, and the exercise price per share set out in Section 3 above shall be likewise adjusted, to reflect substantially the same economic equivalent value of the Option Shares to the Participant prior to any such merger or other business combination. In the event of a split-off, spin-off or creating of a different class of common stock of the Company (including, without limitation, a tracking stock), the Participant shall receive an option to purchase an equivalent number of the shares of common stock or voting interests of such separate entity being split-off or spun-off or of the shares of the new class of common stock of the Company, as if Participant had owned the shares underlying the Option Shares on the record date for any such split-off, spin-off or creation of a new class of common stock of the Company, and the exercise price set out in Section 3 hereof and applicable to the options to purchase shares or the voting interests of the new entity being split-off or spun-off shall be adjusted to reflect substantially the same economic equivalent value of the Option Shares to the Optionee prior to any such split-off, spin-off or creation of a new class of common stock of the Company IN WITNESS WHEREOF, this Agreement is effective as of the 11th day of February, 1999. R&B FALCON CORPORATION By:_______________________________ Its:_______________________________ OPTIONEE ___________________________________ Bernie Stewart EX-10.81 10 Exhibit 10.81 R&B FALCON CORPORATION STOCK OPTION AGREEMENT This Stock Option Agreement ("Agreement") is made between R&B Falcon Corporation, a Delaware corporation ("Company"), and W. K. Hillin ("Optionee") as of February 11, 1999 (the "Effective Date"). WITNESSETH: WHEREAS, the Committee which administers the R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan ("Plan") has selected the Optionee to receive a nonqualified stock option under the terms of the Plan as an incentive to the Optionee to remain in the employ of the Company and contribute to the performance of the Company, on the terms and subject to the conditions provided herein; NOW THEREFORE, for and in consideration of these premises, it is hereby agreed as follows: 1. As used herein, the terms set forth below shall have the following respective meanings: (a) "Disability" means Disability as defined in the Employment Agreement; and (b) "Employment Agreement" means that certain Employment Agreement dated March 25, 1998 between the Optionee and the Company. 2. The option awarded hereunder is issued in accordance with and subject to all of the terms, conditions and provisions of the Plan and administrative interpretations thereunder, if any, which have been adopted by the Committee and are in effect on the date hereof. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Plan. 3. On the terms and subject to the conditions contained herein, the Company hereby grants to the Optionee an option (the "Option") for a term of ten years ending on February 11, 2009 ("Option Period") to purchase from the Company 45,497 shares ("Option Shares") of the Company's Common Stock, at a price equal to $6.25 per share. 4. This Option shall not be exercisable, except upon the death or Disability of the Optionee, until after 6 months immediately following the Effective Date and thereafter shall be exercisable for any number of shares up to and including the aggregate number of shares subject to this Option, irrespective of whether the Optionee is an employee of the Company at the time of any such exercise; provided the number of shares as to which this Option becomes exercisable shall, in each case, be reduced by the number of shares theretofore purchased pursuant to the terms hereof. 5. The Option may be exercised by the Optionee, in whole or in part, by giving written notice to the Compensation and Benefits Department of the Company setting forth the number of Option Shares with respect to which the option is to be exercised, accompanied by payment for the shares to be purchased and any appropriate withholding taxes, and specifying the address to which the certificate for such shares is to be mailed (or to the extent permitted by the Company, the written instructions referred to in the last sentence of this section). Payment shall be by means of cash, certified check, bank draft or postal money order payable to the order of the Company. As promptly as practicable after receipt of such written notification and payment, the Company shall deliver, or cause to be delivered, to the Optionee certificates for the number of Option Shares with respect to which the Option has been so exercised. 6. Subject to approval of the Committee, which shall not be unreasonably withheld, the Optionee may pay for any Option Shares with respect to which the Option is exercised by tendering to the Company other shares of Common Stock at the time of the exercise or partial exercise hereof. The certificates representing such other shares of Common Stock must be accompanied by a stock power duly executed with signature guaranteed in accordance with market practice. The value of the Common Stock so tendered shall be its Fair Market Value. 7. The Option shall not be transferable by the Optionee otherwise than as expressly permitted by the Plan. During the lifetime of the Optionee, the Option shall be exercisable only by her or him. No transfer of the Option shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. 8. The Optionee shall have no rights as a stockholder with respect to any Option Shares until the date of issuance of a certificate for Option Shares purchased pursuant to this Agreement. Until such time, the Optionee shall not be entitled to dividends or to vote at meetings of the stockholders of the Company. 9. The Company may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required in connection with the option herein granted. The Optionee may pay all or any portion of the taxes required to be withheld by the Company or paid by the Optionee in connection with the exercise of all or any portion of the option herein granted by electing to have the Company withhold shares of Common Stock, or by delivering previously owned shares of Common Stock, having a Fair Market Value equal to the amount required to be withheld or paid. The Optionee must make the foregoing election on or before the date that the amount of tax to be withheld is determined ("Tax Date"). Any such election is irrevocable and subject to disapproval by the Committee. If the Optionee is subject to the short-swing profits recapture provisions of Section 16(b) of the Exchange Act, any such election shall be subject to the following additional restrictions: (a) Such election may not be made within six months of the grant of this option, provided that this limitation shall not apply in the event of death or Disability. (b) Such election must be made either in an Election Window (as hereinafter defined) or at such other time as may be consistent with Section 16(b) of the Exchange Act and the rules promulgated thereunder. Where the Tax Date in respect of the exercise of all or any portion of this Option is deferred until after such exercise and the Optionee elects stock withholding, the full amount of shares of Common Stock will be issued or transferred to the Optionee upon exercise of this Option, but the Optionee shall be unconditionally obligated to tender back to the Company on the Tax Date the number of shares necessary to discharge with respect to such Option exercise the greater of (i) the Company's withholding obligation and (ii) all or any portion of the holder's federal and state tax obligation attributable to the Option exercise. An Election Window is any period commencing on the third business day following the Company's release of a quarterly or annual summary statement of sales and earnings and ending on the twelfth business day following such release. 10. Upon the acquisition of any shares pursuant to the exercise of the Option, the Optionee will enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Agreement. 11. The certificates representing the Option Shares purchased by exercise of an option will be stamped or otherwise imprinted with a legend in such form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer, and the stock transfer records of the Company will reflect stop-transfer instructions, as appropriate, with respect to such shares. 12. Unless otherwise provided herein, every notice hereunder shall be in writing and shall be delivered by hand or by registered or certified mail. All notices of the exercise by the Optionee of any option hereunder shall be directed to R&B Falcon Corporation, Attention: Benefits and Compensation Department, at the Company's principal office address from time to time. Any notice given by the Company to the Optionee directed to him or her at his or her address on file with the Company shall be effective to bind any other person who shall acquire rights hereunder. The Company shall be under no obligation whatsoever to advise the Optionee of the existence, maturity or termination of any of the Optionee's rights hereunder and the Optionee shall be deemed to have familiarized himself with all matters contained herein and in the Plan which may affect any of the Optionee's rights or privileges hereunder. 13. Whenever the term "Optionee" is used herein under circumstances applicable to any other person or persons to whom this award, in accordance with the provisions of Paragraph 7, may be transferred, the word "Optionee" shall be deemed to include such person or persons. References to the masculine gender herein also include the feminine gender for all purposes. 14. Notwithstanding any of the other provisions hereof, the Optionee agrees that he or she will not exercise the Option, and that the Company will not be obligated to issue any shares pursuant to this Agreement, if the exercise of the Option or the issuance of such shares of Common Stock would constitute a violation by the Optionee or by the Company of any provision of any law or regulation of any governmental authority or any national securities exchange. 15. This Agreement is subject to the Plan, a copy of which will be provided the to Optionee upon written request. The terms and provisions of the Plan (including any subsequent amendments thereto) are incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. All definitions of words and terms contained in the Plan shall be applicable to this Agreement. 16. In the event of a corporate merger or other business combination in which the Company is not the surviving entity, the economic equivalent number of the voting shares of common stock of, or participating interests in, the surviving entity, based on the terms of such merger or other business combination, shall be substituted for the number of Option Shares held by the Participant hereunder, and the exercise price per share set out in Section 3 above shall be likewise adjusted, to reflect substantially the same economic equivalent value of the Option Shares to the Participant prior to any such merger or other business combination. In the event of a split-off, spin-off or creating of a different class of common stock of the Company (including, without limitation, a tracking stock), the Participant shall receive an option to purchase an equivalent number of the shares of common stock or voting interests of such separate entity being split-off or spun-off or of the shares of the new class of common stock of the Company, as if Participant had owned the shares underlying the Option Shares on the record date for any such split-off, spin-off or creation of a new class of common stock of the Company, and the exercise price set out in Section 3 hereof and applicable to the options to purchase shares or the voting interests of the new entity being split-off or spun-off shall be adjusted to reflect substantially the same economic equivalent value of the Option Shares to the Optionee prior to any such split-off, spin-off or creation of a new class of common stock of the Company IN WITNESS WHEREOF, this Agreement is effective as of the 11th day of February, 1999. R&B FALCON CORPORATION By:_______________________________ Its:_______________________________ OPTIONEE ___________________________________ W. K. Hillin EX-10.82 11 Exhibit 10.82 R&B FALCON CORPORATION STOCK OPTION AGREEMENT This Stock Option Agreement ("Agreement") is made between R&B Falcon Corporation, a Delaware corporation ("Company"), and L. E. Moss ("Optionee") as of February 11, 1999 (the "Effective Date"). WITNESSETH: WHEREAS, the Committee which administers the R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan ("Plan") has selected the Optionee to receive a nonqualified stock option under the terms of the Plan as an incentive to the Optionee to remain in the employ of the Company and contribute to the performance of the Company, on the terms and subject to the conditions provided herein; NOW THEREFORE, for and in consideration of these premises, it is hereby agreed as follows: 1. As used herein, the terms set forth below shall have the following respective meanings: (a) "Disability" means Disability as defined in the Employment Agreement; and (b) "Employment Agreement" means that certain Employment Agreement dated March 25, 1998 between the Optionee and the Company. 2. The option awarded hereunder is issued in accordance with and subject to all of the terms, conditions and provisions of the Plan and administrative interpretations thereunder, if any, which have been adopted by the Committee and are in effect on the date hereof. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Plan. 3. On the terms and subject to the conditions contained herein, the Company hereby grants to the Optionee an option (the "Option") for a term of ten years ending on February 11, 2009 ("Option Period") to purchase from the Company 45,497 shares ("Option Shares") of the Company's Common Stock, at a price equal to $6.25 per share. 4. This Option shall not be exercisable, except upon the death or Disability of the Optionee, until after 6 months immediately following the Effective Date and thereafter shall be exercisable for any number of shares up to and including the aggregate number of shares subject to this Option, irrespective of whether the Optionee is an employee of the Company at the time of any such exercise; provided the number of shares as to which this Option becomes exercisable shall, in each case, be reduced by the number of shares theretofore purchased pursuant to the terms hereof. 5. The Option may be exercised by the Optionee, in whole or in part, by giving written notice to the Compensation and Benefits Department of the Company setting forth the number of Option Shares with respect to which the option is to be exercised, accompanied by payment for the shares to be purchased and any appropriate withholding taxes, and specifying the address to which the certificate for such shares is to be mailed (or to the extent permitted by the Company, the written instructions referred to in the last sentence of this section). Payment shall be by means of cash, certified check, bank draft or postal money order payable to the order of the Company. As promptly as practicable after receipt of such written notification and payment, the Company shall deliver, or cause to be delivered, to the Optionee certificates for the number of Option Shares with respect to which the Option has been so exercised. 6. Subject to approval of the Committee, which shall not be unreasonably withheld, the Optionee may pay for any Option Shares with respect to which the Option is exercised by tendering to the Company other shares of Common Stock at the time of the exercise or partial exercise hereof. The certificates representing such other shares of Common Stock must be accompanied by a stock power duly executed with signature guaranteed in accordance with market practice. The value of the Common Stock so tendered shall be its Fair Market Value. 7. The Option shall not be transferable by the Optionee otherwise than as expressly permitted by the Plan. During the lifetime of the Optionee, the Option shall be exercisable only by her or him. No transfer of the Option shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. 8. The Optionee shall have no rights as a stockholder with respect to any Option Shares until the date of issuance of a certificate for Option Shares purchased pursuant to this Agreement. Until such time, the Optionee shall not be entitled to dividends or to vote at meetings of the stockholders of the Company. 9. The Company may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required in connection with the option herein granted. The Optionee may pay all or any portion of the taxes required to be withheld by the Company or paid by the Optionee in connection with the exercise of all or any portion of the option herein granted by electing to have the Company withhold shares of Common Stock, or by delivering previously owned shares of Common Stock, having a Fair Market Value equal to the amount required to be withheld or paid. The Optionee must make the foregoing election on or before the date that the amount of tax to be withheld is determined ("Tax Date"). Any such election is irrevocable and subject to disapproval by the Committee. If the Optionee is subject to the short-swing profits recapture provisions of Section 16(b) of the Exchange Act, any such election shall be subject to the following additional restrictions: (a) Such election may not be made within six months of the grant of this option, provided that this limitation shall not apply in the event of death or Disability. (b) Such election must be made either in an Election Window (as hereinafter defined) or at such other time as may be consistent with Section 16(b) of the Exchange Act and the rules promulgated thereunder. Where the Tax Date in respect of the exercise of all or any portion of this Option is deferred until after such exercise and the Optionee elects stock withholding, the full amount of shares of Common Stock will be issued or transferred to the Optionee upon exercise of this Option, but the Optionee shall be unconditionally obligated to tender back to the Company on the Tax Date the number of shares necessary to discharge with respect to such Option exercise the greater of (i) the Company's withholding obligation and (ii) all or any portion of the holder's federal and state tax obligation attributable to the Option exercise. An Election Window is any period commencing on the third business day following the Company's release of a quarterly or annual summary statement of sales and earnings and ending on the twelfth business day following such release. 10. Upon the acquisition of any shares pursuant to the exercise of the Option, the Optionee will enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Agreement. 11. The certificates representing the Option Shares purchased by exercise of an option will be stamped or otherwise imprinted with a legend in such form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer, and the stock transfer records of the Company will reflect stop-transfer instructions, as appropriate, with respect to such shares. 12. Unless otherwise provided herein, every notice hereunder shall be in writing and shall be delivered by hand or by registered or certified mail. All notices of the exercise by the Optionee of any option hereunder shall be directed to R&B Falcon Corporation, Attention: Benefits and Compensation Department, at the Company's principal office address from time to time. Any notice given by the Company to the Optionee directed to him or her at his or her address on file with the Company shall be effective to bind any other person who shall acquire rights hereunder. The Company shall be under no obligation whatsoever to advise the Optionee of the existence, maturity or termination of any of the Optionee's rights hereunder and the Optionee shall be deemed to have familiarized himself with all matters contained herein and in the Plan which may affect any of the Optionee's rights or privileges hereunder. 13. Whenever the term "Optionee" is used herein under circumstances applicable to any other person or persons to whom this award, in accordance with the provisions of Paragraph 7, may be transferred, the word "Optionee" shall be deemed to include such person or persons. References to the masculine gender herein also include the feminine gender for all purposes. 14. Notwithstanding any of the other provisions hereof, the Optionee agrees that he or she will not exercise the Option, and that the Company will not be obligated to issue any shares pursuant to this Agreement, if the exercise of the Option or the issuance of such shares of Common Stock would constitute a violation by the Optionee or by the Company of any provision of any law or regulation of any governmental authority or any national securities exchange. 15. This Agreement is subject to the Plan, a copy of which will be provided the to Optionee upon written request. The terms and provisions of the Plan (including any subsequent amendments thereto) are incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. All definitions of words and terms contained in the Plan shall be applicable to this Agreement. 16. In the event of a corporate merger or other business combination in which the Company is not the surviving entity, the economic equivalent number of the voting shares of common stock of, or participating interests in, the surviving entity, based on the terms of such merger or other business combination, shall be substituted for the number of Option Shares held by the Participant hereunder, and the exercise price per share set out in Section 3 above shall be likewise adjusted, to reflect substantially the same economic equivalent value of the Option Shares to the Participant prior to any such merger or other business combination. In the event of a split-off, spin-off or creating of a different class of common stock of the Company (including, without limitation, a tracking stock), the Participant shall receive an option to purchase an equivalent number of the shares of common stock or voting interests of such separate entity being split-off or spun-off or of the shares of the new class of common stock of the Company, as if Participant had owned the shares underlying the Option Shares on the record date for any such split-off, spin-off or creation of a new class of common stock of the Company, and the exercise price set out in Section 3 hereof and applicable to the options to purchase shares or the voting interests of the new entity being split-off or spun-off shall be adjusted to reflect substantially the same economic equivalent value of the Option Shares to the Optionee prior to any such split-off, spin-off or creation of a new class of common stock of the Company IN WITNESS WHEREOF, this Agreement is effective as of the 11th day of February, 1999. R&B FALCON CORPORATION By:_______________________________ Its:_______________________________ OPTIONEE ___________________________________ L. E. Moss EX-10.83 12 Exhibit 10.83 R&B FALCON CORPORATION STOCK OPTION AGREEMENT This Stock Option Agreement ("Agreement") is made between R&B Falcon Corporation, a Delaware corporation ("Company"), and C. R. Ofner ("Optionee") as of February 11, 1999 (the "Effective Date"). WITNESSETH: WHEREAS, the Committee which administers the R&B Falcon Corporation 1998 Employee Long-Term Incentive Plan ("Plan") has selected the Optionee to receive a nonqualified stock option under the terms of the Plan as an incentive to the Optionee to remain in the employ of the Company and contribute to the performance of the Company, on the terms and subject to the conditions provided herein; NOW THEREFORE, for and in consideration of these premises, it is hereby agreed as follows: 1. As used herein, the terms set forth below shall have the following respective meanings: (a) "Disability" means Disability as defined in the Employment Agreement; and (b) "Employment Agreement" means that certain Employment Agreement dated March 25, 1998 between the Optionee and the Company. 2. The option awarded hereunder is issued in accordance with and subject to all of the terms, conditions and provisions of the Plan and administrative interpretations thereunder, if any, which have been adopted by the Committee and are in effect on the date hereof. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Plan. 3. On the terms and subject to the conditions contained herein, the Company hereby grants to the Optionee an option (the "Option") for a term of ten years ending on February 11, 2009 ("Option Period") to purchase from the Company 32,201 shares ("Option Shares") of the Company's Common Stock, at a price equal to $6.25 per share. 4. This Option shall not be exercisable, except upon the death or Disability of the Optionee, until after 6 months immediately following the Effective Date and thereafter shall be exercisable for any number of shares up to and including the aggregate number of shares subject to this Option, irrespective of whether the Optionee is an employee of the Company at the time of any such exercise; provided the number of shares as to which this Option becomes exercisable shall, in each case, be reduced by the number of shares theretofore purchased pursuant to the terms hereof. 5. The Option may be exercised by the Optionee, in whole or in part, by giving written notice to the Compensation and Benefits Department of the Company setting forth the number of Option Shares with respect to which the option is to be exercised, accompanied by payment for the shares to be purchased and any appropriate withholding taxes, and specifying the address to which the certificate for such shares is to be mailed (or to the extent permitted by the Company, the written instructions referred to in the last sentence of this section). Payment shall be by means of cash, certified check, bank draft or postal money order payable to the order of the Company. As promptly as practicable after receipt of such written notification and payment, the Company shall deliver, or cause to be delivered, to the Optionee certificates for the number of Option Shares with respect to which the Option has been so exercised. 6. Subject to approval of the Committee, which shall not be unreasonably withheld, the Optionee may pay for any Option Shares with respect to which the Option is exercised by tendering to the Company other shares of Common Stock at the time of the exercise or partial exercise hereof. The certificates representing such other shares of Common Stock must be accompanied by a stock power duly executed with signature guaranteed in accordance with market practice. The value of the Common Stock so tendered shall be its Fair Market Value. 7. The Option shall not be transferable by the Optionee otherwise than as expressly permitted by the Plan. During the lifetime of the Optionee, the Option shall be exercisable only by her or him. No transfer of the Option shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof. 8. The Optionee shall have no rights as a stockholder with respect to any Option Shares until the date of issuance of a certificate for Option Shares purchased pursuant to this Agreement. Until such time, the Optionee shall not be entitled to dividends or to vote at meetings of the stockholders of the Company. 9. The Company may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required in connection with the option herein granted. The Optionee may pay all or any portion of the taxes required to be withheld by the Company or paid by the Optionee in connection with the exercise of all or any portion of the option herein granted by electing to have the Company withhold shares of Common Stock, or by delivering previously owned shares of Common Stock, having a Fair Market Value equal to the amount required to be withheld or paid. The Optionee must make the foregoing election on or before the date that the amount of tax to be withheld is determined ("Tax Date"). Any such election is irrevocable and subject to disapproval by the Committee. If the Optionee is subject to the short-swing profits recapture provisions of Section 16(b) of the Exchange Act, any such election shall be subject to the following additional restrictions: (a) Such election may not be made within six months of the grant of this option, provided that this limitation shall not apply in the event of death or Disability. (b) Such election must be made either in an Election Window (as hereinafter defined) or at such other time as may be consistent with Section 16(b) of the Exchange Act and the rules promulgated thereunder. Where the Tax Date in respect of the exercise of all or any portion of this Option is deferred until after such exercise and the Optionee elects stock withholding, the full amount of shares of Common Stock will be issued or transferred to the Optionee upon exercise of this Option, but the Optionee shall be unconditionally obligated to tender back to the Company on the Tax Date the number of shares necessary to discharge with respect to such Option exercise the greater of (i) the Company's withholding obligation and (ii) all or any portion of the holder's federal and state tax obligation attributable to the Option exercise. An Election Window is any period commencing on the third business day following the Company's release of a quarterly or annual summary statement of sales and earnings and ending on the twelfth business day following such release. 10. Upon the acquisition of any shares pursuant to the exercise of the Option, the Optionee will enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Agreement. 11. The certificates representing the Option Shares purchased by exercise of an option will be stamped or otherwise imprinted with a legend in such form as the Company or its counsel may require with respect to any applicable restrictions on sale or transfer, and the stock transfer records of the Company will reflect stop-transfer instructions, as appropriate, with respect to such shares. 12. Unless otherwise provided herein, every notice hereunder shall be in writing and shall be delivered by hand or by registered or certified mail. All notices of the exercise by the Optionee of any option hereunder shall be directed to R&B Falcon Corporation, Attention: Benefits and Compensation Department, at the Company's principal office address from time to time. Any notice given by the Company to the Optionee directed to him or her at his or her address on file with the Company shall be effective to bind any other person who shall acquire rights hereunder. The Company shall be under no obligation whatsoever to advise the Optionee of the existence, maturity or termination of any of the Optionee's rights hereunder and the Optionee shall be deemed to have familiarized himself with all matters contained herein and in the Plan which may affect any of the Optionee's rights or privileges hereunder. 13. Whenever the term "Optionee" is used herein under circumstances applicable to any other person or persons to whom this award, in accordance with the provisions of Paragraph 7, may be transferred, the word "Optionee" shall be deemed to include such person or persons. References to the masculine gender herein also include the feminine gender for all purposes. 14. Notwithstanding any of the other provisions hereof, the Optionee agrees that he or she will not exercise the Option, and that the Company will not be obligated to issue any shares pursuant to this Agreement, if the exercise of the Option or the issuance of such shares of Common Stock would constitute a violation by the Optionee or by the Company of any provision of any law or regulation of any governmental authority or any national securities exchange. 15. This Agreement is subject to the Plan, a copy of which will be provided the to Optionee upon written request. The terms and provisions of the Plan (including any subsequent amendments thereto) are incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail. All definitions of words and terms contained in the Plan shall be applicable to this Agreement. 16. In the event of a corporate merger or other business combination in which the Company is not the surviving entity, the economic equivalent number of the voting shares of common stock of, or participating interests in, the surviving entity, based on the terms of such merger or other business combination, shall be substituted for the number of Option Shares held by the Participant hereunder, and the exercise price per share set out in Section 3 above shall be likewise adjusted, to reflect substantially the same economic equivalent value of the Option Shares to the Participant prior to any such merger or other business combination. In the event of a split-off, spin-off or creating of a different class of common stock of the Company (including, without limitation, a tracking stock), the Participant shall receive an option to purchase an equivalent number of the shares of common stock or voting interests of such separate entity being split-off or spun-off or of the shares of the new class of common stock of the Company, as if Participant had owned the shares underlying the Option Shares on the record date for any such split-off, spin-off or creation of a new class of common stock of the Company, and the exercise price set out in Section 3 hereof and applicable to the options to purchase shares or the voting interests of the new entity being split-off or spun-off shall be adjusted to reflect substantially the same economic equivalent value of the Option Shares to the Optionee prior to any such split-off, spin-off or creation of a new class of common stock of the Company IN WITNESS WHEREOF, this Agreement is effective as of the 11th day of February, 1999. R&B FALCON CORPORATION By:_______________________________ Its:_______________________________ OPTIONEE ___________________________________ C. R. Ofner EX-10.170 13 EXHIBIT 10.170 SECOND AMENDMENT TO LETTER OF CREDIT AGREEMENT SECOND AMENDMENT TO LETTER OF CREDIT AGREEMENT, dated as of October 22, 1998 (this "Amendment"), among R&B FALCON CORPORATION, a Delaware corporation (the "Obligor") and CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH (the "Bank"). All capitalized terms used herein and not otherwise defined shall have the meanings provided such terms in the L/C Agreement referred to below. W I T N E S S E T H : WHEREAS, the Obligor and the Bank are parties to a Letter of Credit Agreement, dated as of December 30, 1996 (as amended to date, the "L/C Agreement"); and WHEREAS, the parties thereto and hereto wish to amend the L/C Agreement as herein provided; NOW, THEREFORE, it is agreed: I. Amendments to L/C Agreement. 1. Section 7.01 of the L/C Agreement is hereby amended by (i) deleting the word "and" at the end of clause (e) thereof, (ii) redesignating clause (f) thereof as clause (g) and (iii) inserting the following new clause (f) immediately following clause (e) thereof: (f) Indebtedness of Cliffs Drilling acquired pursuant to the Cliffs Acquisition in an aggregate principal amount not to exceed $235,000,000, provided that (i) such Indebtedness existed at the time of the consummation of the Cliffs Acquisition and was not created in contemplation thereof (and the provisions thereof were not altered in any material respect in contemplation thereof), (ii) the Obligor shall have no liability with respect to any such Indebtedness and (iii) any Liens securing such Indebtedness apply only to the assets of Cliffs Drilling acquired pursuant to the Cliffs Acquisition (and no additional assets are granted as security following, or in contemplation of, the Cliffs Acquisition); and 2. Section 7.04 of the L/C Agreement is hereby amended by (i) deleting the word "and" at the end of clause (c) thereof, (ii) redesignating clause (d) thereof as clause (e) and (iii) inserting the following new clause (d) immediately following clause (c) thereof: (d) The Obligor and its Subsidiaries may consummate the Cliffs Acquisition in accordance with the Cliffs Acquisition Documents delivered to the Administrative Agent prior to the Second Amendment Effective Date; and 3. Section 7.08 of the L/C Agreement is hereby amended by (i) deleting the word "and" at the end of clause (iv) thereof and inserting a comma in lieu thereof and (ii) inserting the following new clause (vi) immediately following clause (v) thereof: "and (vi) this Section 7.08 shall not prohibit the restricted payment provisions contained in the Cliffs Indenture and the Cliffs Credit Agreement to the extent such restrictions and any exceptions thereto are not materially altered pursuant to the Cliffs Acquisition or in anticipation thereof in a manner which would be adverse to the Bank" 4. Section 7.12 of the L/C Agreement is hereby amended by inserting the text ",or the Cliffs Indenture or Cliffs Credit Agreement as in existence on the Second Amendment Effective Date" immediately following the reference to "Agreement" appearing therein. 5. Section 9 of the L/C Agreement is hereby amended by inserting the following new definitions in appropriate alphabetical order: "Cliffs Acquisition" shall mean the acquisition by a Wholly- Owned Subsidiary of the Obligor by way of merger of all of the capital stock of Cliffs Drilling in accordance with the Cliffs Acquisition Documents. "Cliffs Acquisition Documents" shall mean the Agreement and Plan of Merger, dated as of August 21, 1998, among the Obligor, RBF Cliffs Acquisition Corp. and Cliffs Drilling, and all exhibits, schedules and ancillary documents thereto. "Cliffs Credit Agreement" shall mean the Third Restated Credit Agreement, dated July 29, 1998, among Cliffs Drilling, Cliffs Oil & Gas Company, Cliffs Drilling International, Inc. and ING (U.S.) Capital Corporation, as agent for the lenders named therein, as the same may be amended, modified or supplemented from time to time in accordance therewith and herewith. "Cliffs Drilling" shall mean Cliffs Drilling Company, a Delaware Corporation. "Cliffs Indenture" shall mean the Indenture, dated as of May 15, 1996, among Cliffs Drilling Company, certain of its subsidiaries, and Fleet National Bank, as Trustee, governing Cliffs Drilling's 10.25% Senior Notes due 2003 and each supplemental indenture executed in connection therewith prior to the date hereof. "Second Amendment Effective Date" shall mean November 20, 1998. II Miscellaneous Provisions. 1. In order to induce the Bank to enter into this Amendment, the Obligor hereby represents and warrants that: (a) no Default or Event of Default exists as of the Second Amendment Effective Date both before and after giving effect to this Amendment; and (b) all of the representations and warranties contained in the L/C Agreement and the other Credit Documents are true and correct in all material respects on the Second Amendment Effective Date both before and after giving effect to this Amendment, with the same effect as though such representations and warranties had been made on and as of the Second Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). 2. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the L/C Agreement or any other Credit Document. 3. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Obligor and the Agent. 4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 5. This Amendment shall become effective on the date (the "Second Amendment Effective Date") when each of the Obligor and the Bank shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Bank at its Notice Office. 6. From and after the Second Amendment Effective Date, all references in the L/C Agreement and each of the other Credit Documents to the L/C Agreement shall be deemed to be references to the L/C Agreement as amended hereby. * * * IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. R&B FALCON CORPORATION By:_________________________ Title: CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH By:_________________________ Title: By:_________________________ Title: EX-10.171 14 EXHIBIT 10.171 THIRD AMENDMENT TO LETTER OF CREDIT AGREEMENT THIRD AMENDMENT TO LETTER OF CREDIT AGREEMENT, dated as of October 22, 1998 (this "Amendment"), among R&B FALCON CORPORATION, a Delaware corporation (the "Obligor") and CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH (the "Bank"). All capitalized terms used herein and not otherwise defined shall have the meanings provided such terms in the L/C Agreement referred to below. W I T N E S S E T H : WHEREAS, the Obligor and the Bank are parties to a Letter of Credit Agreement, dated as of December 30, 1996 (as amended to date, the "L/C Agreement"); and WHEREAS, the parties thereto and hereto wish to amend the L/C Agreement as herein provided; NOW, THEREFORE, it is agreed: I. Amendments to L/C Agreement. 1. Section 1.01(c) of the L/C Agreement is hereby amended by deleting the reference therein to "$20,000,000" and inserting a reference to "$10,000,000" in lieu thereof. 2. Section 5.05 of the L/C Agreement is hereby amended by deleting clause (a) thereof in its entirety and inserting the following new clause (a) in lieu thereof: (a) All Letters of Credit issued hereunder shall be used to provide for the general corporate purposes of the Obligor and its Subsidiaries; provided that no Letter of Credit shall be issued to support Indebtedness for borrowed money of the Obligor or any of its Subsidiaries. 3. Section 7.01 of the L/C Agreement is hereby amended by (i) deleting the word "and" at the end of clause (f) thereof, (ii) redesignating clause (g) thereof as clause (h) and (iii) inserting the following new clause (g) immediately following clause (f) thereof: (g) Additional senior Indebtedness of the Obligor in an aggregate principal amount not to exceed $400,000,000 and additional subordinated Indebtedness of the Obligor in an aggregate principal amount not to exceed $200,000,000; provided that (i) no respective issue of Indebtedness incurred pursuant to this clause (g) shall have any scheduled amortization payments or a final maturity prior to the fourth anniversary of the initial borrowing of such respective issue of Indebtedness and (ii) the Obligor shall not make any optional repayments (whether in cash, securities, or other property), including any sinking fund or similar deposit, on account of such Indebtedness; and 4. Section 7.02 of the L/C Agreement is hereby amended by (i) deleting the word "and" at the end of clause (c) thereof, (ii) deleting the period at the end of clause (d) thereof and inserting a semi-colon in lieu thereof and (iii) inserting the following new clauses (e) and (f) immediately following clause (d) thereof: (e) the Obligor and its Subsidiaries may pledge assets in support of Indebtedness permitted by Section 7.01(e), provided that the aggregate principal amount of Indebtedness secured by Liens permitted by this clause (e) shall not at any time exceed 15.0% of the Obligor's Consolidated Net Worth (as defined in the Indenture); and (f) the Obligor and its Subsidiaries may pledge the rig RBS8M, the contract with Shell Deepwater Development Inc. relating to such rig, the construction contact with respect to such rig and the insurances maintained on such rig in support of Permitted Project Debt described in clause (ii) of the definition of Permitted Project Debt (including any refinancing of such Indebtedness permitted by clause (iii) of the definition of Permitted Project Debt). 5. Section 7.06 of the L/C Agreement is hereby amended by (i) deleting the word "and" at the end of clause (b) thereof and inserting a comma in lieu thereof and (ii) inserting the following new clause (d) immediately prior to the period at the end of clause (c) thereof: and (d) Arcade Drilling AS may make share capital distributions to its shareholders pro rata according to their respective ownership percentages 6. Section 7.10 of the L/C Agreement is hereby amended by deleting said section in its entirety and inserting the following new Section 7.10 in lieu thereof: 7.10. EBITDA Leverage Ratio. The Obligor will not permit its EBITDA Leverage Ratio as of the end of any fiscal quarter of the Obligor (calculated quarterly at the end of each fiscal quarter) (x) ending on or before December 31, 1999, to be greater than 3.75:1.00 and (y) ending thereafter, to be greater than 3.25:1.00. For purposes of this Section 7.10, "EBITDA Leverage Ratio" shall mean the ratio of (i) the difference of Funded Debt minus cash and cash equivalents of the Obligor on a consolidated basis to (ii) EBITDA for the four fiscal quarters ending on such date; provided that (A) EBITDA for the period ending on June 30, 1998 shall equal the product of EBITDA for the six-month period ending on such date times 2 and (B) EBITDA for the period ending on September 30, 1998 shall equal the product of EBITDA for the nine-month period ending on such date times 1.33. 7. Section 9 of the L/C Agreement is hereby amended by deleting the definitions of "Maturity Date" and "Permitted Project Debt" appearing therein and inserting the following new definitions, respectively, in lieu thereof: "Maturity Date" shall mean June 30, 2000. "Permitted Project Debt" shall mean Indebtedness (including, without limitation, or duplication, the Guarantee of any such Indebtedness by the Obligor and, in the case of clause (ii) below, the issuance by the Obligor or any of its Subsidiaries of a surety bond in support of any such Indebtedness) incurred in connection with (i) the construction of Deepwater Pathfinder, Deepwater Frontier and Drillship III (including, without limitation, the Loans) by the respective joint venture or Subsidiary owning such vessel not to exceed $375,000,000 in the aggregate, (ii) the construction of the rig RBS8M (formerly RBS6) in an aggregate principal amount not to exceed $250,000,000 and (iii) all extensions, renewals and replacements of any such Indebtedness described in clauses (i) and (ii) above by the primary obligor thereof that do not increase the outstanding principal amount thereof. 8. Notwithstanding anything to the contrary contained in the L/C Agreement (including, without limitation, Section 7.08), the indenture governing the Obligor's $400,000,000 notes offering closing on or about December 22, 1998 shall be permitted to contain such negative covenants with respect to Liens and Restricted Payments as the Obligor deems appropriate to effectuate such notes offering. II Miscellaneous Provisions. 1. In order to induce the Banks to enter into this Amendment, the Obligor hereby represents and warrants that: (a) no Default or Event of Default exists as of the Third Amendment Effective Date both before and after giving effect to this Amendment; and (b) all of the representations and warranties contained in the L/C Agreement and the other Credit Documents are true and correct in all material respects on the Third Amendment Effective Date both before and after giving effect to this Amendment, with the same effect as though such representations and warranties had been made on and as of the Third Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). 2. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the L/C Agreement or any other Credit Document. 3. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Obligor and the Agent. 4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 5. This Amendment shall become effective on the date (the "Third Amendment Effective Date") when the Obligor and the Bank shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Bank at its Notice Office. 6. From and after the Third Amendment Effective Date, all references in the L/C Agreement and each of the other Credit Documents to the L/C Agreement shall be deemed to be references to the L/C Agreement as amended hereby. * * * * IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. R&B FALCON CORPORATION By:_________________________ Title: CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH By:_________________________ Title: By:_________________________ Title: EX-10.172 15 EXHIBIT 10.172 FOURTH AMENDMENT TO LETTER OF CREDIT AGREEMENT FOURTH AMENDMENT TO LETTER OF CREDIT AGREEMENT, dated as of January 21, 1999 (this "Amendment"), among R&B FALCON CORPORATION, a Delaware corporation (the "Obligor") and CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH (the "Bank"). All capitalized terms used herein and not otherwise defined shall have the meanings provided such terms in the L/C Agreement. W I T N E S S E T H : WHEREAS, the Obligor and the Bank are parties to a Letter of Credit Agreement, dated as of December 30, 1996 (as amended to date, the "L/C Agreement"); and WHEREAS, the parties hereto wish to amend the L/C Agreement as herein provided; NOW, THEREFORE, it is agreed: I. Amendments to L/C Agreement. 1. Section 7.01 of the L/C Agreement is hereby amended by (i) deleting the word "and" at the end of clause (g) thereof, (ii) redesignating clause (h) thereof as clause (i), (iii) inserting the following new clause (h) immediately following clause (g) thereof: (h) Indebtedness of the Obligor (including any extensions or refinancing thereof, provided that any such refinancing or extension does not increase the principal amount thereof beyond that outstanding on the date of such extension or refinancing), the proceeds of which are used solely to discharge indebtedness of Cliffs Drilling under the 10.25% senior notes of Cliffs Drilling due 2003, and in an aggregate principal amount not to exceed that necessary to discharge the portion of such notes required to be redeemed pursuant to the offer to repurchase made pursuant to the Cliffs Acquisition; provided that such Indebtedness (or refinancing thereof, as the case may be) shall (i) be unsecured and subordinate to the Loans and (ii) shall have a maturity date not earlier than one year after the Maturity Date (as such term is defined from time to time), except that such maturity may occur earlier if and to the extent such maturity results solely in the conversion of such Indebtedness into, or exchange for, other Indebtedness of the Obligor, in the same aggregate principal amount, which is unsecured and subordinated to the Loans and has a maturity date not earlier than one year after the Maturity Date (as such term is defined from time to time); and , and (iv) deleting clause (f) thereof in its entirety and inserting the following new clause (f) in lieu thereof : (f) Indebtedness of Cliffs Drilling acquired pursuant to the Cliffs Acquisition (including any loans made pursuant to unused revolving commitments) in an aggregate principal amount not to exceed $235,000,000, provided that (i) such Indebtedness (or commitments, as the case may be) existed at the time of the consummation of the Cliffs Acquisition and was not created in contemplation thereof (and the provisions thereof were not altered in any material respect in contemplation thereof), (ii) the Obligor has no liability with respect to any such Indebtedness and (iii) any Liens securing such Indebtedness apply only to the assets of Cliffs Drilling acquired pursuant to the Cliffs Acquisition (and no additional assets are granted as security following, or in contemplation of, the Cliffs Acquisition), and any extension or refinancing of such Indebtedness, provided that such extension or refinancing (x) does not increase the principal amount of such Indebtedness above the outstanding amount thereof immediately prior to giving effect to such refinancing, (y) does not have a maturity date prior to one year after the Maturity Date (as defined from time to time) and (z) is not secured by any assets not securing the Indebtedness to be refinanced; and 2. Section 7.06 of the L/C Agreement is hereby amended by (i) deleting the word "and" appearing at the end of clause (c) thereof and inserting a comma in lieu thereof and (ii) inserting the following new clause (e) immediately prior to the period at the end of clause (d) thereof: and (e) so long as no Default or Event of Default then exists or would result immediately after giving effect thereto, the Obligor may pay dividends on its preferred stock not to exceed a rate commensurate with a 10% coupon on such preferred stock. 3. Section 7.09 of the L/C Agreement is hereby amended by deleting said section in its entirety and inserting the following new Section 7.09 in lieu thereof: 7.09. Tangible Net Worth. The Obligor will not permit at any time its Tangible Net Worth to be less than $600,000,000 plus (i) 50% of its cumulative Consolidated Net Income, if positive, for the period from April 1, 1998 through the date of calculation, plus (ii) 100% of any equity issued by the Obligor after the Effective Date; provided that , for purposes of this Section 7.09, the Cliffs Acquisition shall be deemed to constitute the issuance by the Obligor of equity in an amount equal to the increase in the Obligor's Tangible Net Worth resulting from the Cliffs Acquisition. 4. Section 7 of the L/C Agreement is hereby amended by inserting the following new Section 7.13: Section 7.13 Restriction on Certain Debt Payments. The Obligor shall not repay any indebtedness incurred pursuant to Section 7.01(h) except out of net proceeds from the issuance by the Obligor of (i) capital stock permitted to be issued hereunder or (ii) refinancing Indebtedness permitted pursuant to Section 7.01(h); provided that, so long as no Default or Event of Default exists or would result immediately after giving effect to such payment, this Section 7.13 shall not be deemed to prevent the Obligor from making regularly scheduled payments of accrued interest on such Indebtedness. 5. Annex 7.01 of the L/C Agreement is hereby amended by adding thereto the following item: "20. Guaranty by R&B dated as of November 28, 1995 in favor of Deep Sea Investors, L.L.C. with respect to the obligations of Reading & Bates Drilling Co. under the Memorandum of Agreement and a charter as of the same date with respect to the semisubmersible drilling unit M.G Hulme." 6. Annex V of the L/C Agreement is hereby amended by adding thereto the following item: "12. Preferred Mortgage on the Jim Cunningham dated November 28, 1995 between Reading & Bates Drilling Co. and Wilmington Trust Company, as Trustee, for the benefit of Deep Sea Investors, L.L.C., in connection with item 20 of Schedule 7.01." II Miscellaneous Provisions. 1. In order to induce the Bank to enter into this Amendment, the Obligor hereby represents and warrants that: (a) no Default or Event of Default exists as of the Fourth Amendment Effective Date both before and after giving effect to this Amendment; and (b) all of the representations and warranties contained in the L/C Agreement and the other Credit Documents are true and correct in all material respects on the Fourth Amendment Effective Date both before and after giving effect to this Amendment, with the same effect as though such representations and warranties had been made on and as of the Fourth Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). 2. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the L/C Agreement or any other Credit Document. 3. This Amendment may be executed in any number of counterparts and by the parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Obligor and the Bank. 4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 5. This Amendment shall become effective on the date (the "Fourth Amendment Effective Date") when each of the Obligor and the Bank shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Bank at its Notice Office. 6. From and after the Fourth Amendment Effective Date, all references in the L/C Agreement and each of the other Credit Documents to the L/C Agreement shall be deemed to be references to the L/C Agreement as amended hereby. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. R&B FALCON CORPORATION By:_________________________ Title: CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH By:_________________________ Title: By:_________________________ Title: EX-10.173 16 EXHIBIT 10.173 FIFTH AMENDMENT TO LETTER OF CREDIT AGREEMENT FIFTH AMENDMENT TO LETTER OF CREDIT AGREEMENT, dated as of February 22, 1999 (this "Amendment"), among R&B FALCON CORPORATION, a Delaware corporation (the "Obligor") and CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH (the "Bank"). All capitalized terms used herein and not otherwise defined shall have the meanings provided such terms in the L/C Agreement (as defined below). W I T N E S S E T H : WHEREAS, the Bank and the Obligor are parties to a Letter of Credit Agreement, dated as of December 30, 1996 (as amended to date, the "L/C Agreement"); and WHEREAS, the parties thereto and hereto wish to amend the L/C Agreement as herein provided; NOW, THEREFORE, it is agreed: I. Amendments to L/C Agreement and Other Terms. 1. Section 6 of the L/C Agreement is hereby amended by inserting the following new Section 6.11 immediately following Section 6.10: 6.11 Backstop Letter of Credit. The Obligor agrees that on or before March 31, 1999, it shall deliver to the Bank, as beneficiary, an irrevocable sight letter of credit issued by a bank satisfactory to the Bank and otherwise in form and substance satisfactory to the Bank, which letter of credit shall support the Obligations of the Obligor hereunder, with such letter of credit to have an expiry date not earlier than one month after the Maturity Date. 2. Section 7.01 of the L/C Agreement is hereby amended by (i) deleting clause (e) thereof in its entirety and inserting the following new clause (e) in lieu thereof: (e) Indebtedness of the Obligor created under the R&B Falcon Credit Agreement in an aggregate principal amount not exceed $200,000,000. , (ii) deleting the word "and" at the end of clause (h) thereof, (ii) redesignating clause (i) thereof as clause (j), and (iii) inserting the following new clause (i) immediately following clause (h) thereof: (i) Senior unsecured Indebtedness of the Obligor (including any refinancing thereof, provided that any such refinancing does not increase the principal amount thereof beyond that outstanding on the date of such refinancing) in an aggregate principal amount not to exceed $350,000,000; provided that such Indebtedness (or refinancing thereof, as the case may be) shall at all times (i) be unsecured and (ii) have a maturity date not earlier than one year after the Maturity Date (as such term is defined from time to time) (except for any refinancing which results solely in the conversion of such Indebtedness into, or exchange for, other Indebtedness of the Obligor, in an aggregate principal amount not to exceed that outstanding on the date of such refinancing, which is unsecured and has a maturity date not earlier than one year after the Maturity Date (as such term is defined from time to time)); and 3. Section 7.11 of the L/C Agreement is hereby amended by (i) deleting clause (iii) thereof in its entirety and inserting the following new clause (iii) in lieu thereof: and (iii) sales of properties and assets which shall not exceed $50,000,000 in fair market value in the aggregate in any fiscal year of the Obligor; provided that in addition to the above permitted asset sales, the Obligor and its Subsidiaries shall be permitted to sell Non-Core Assets not exceeding $250,000,000 in fair market value in the aggregate in any fiscal year of the Obligor. 4. Section 7.10 of the L/C Agreement is hereby amended by deleting said section in its entirety and inserting the following new Section 7.10 in lieu thereof: 7.10. Interest Coverage Ratio. The Obligor will not permit its Interest Coverage Ratio at the end of any fiscal quarter of the Obligor (calculated quarterly at the end of each fiscal quarter of the Obligor) to be less than (i) at any time prior to January 1, 2000, 1.50:1.00 and (ii) at any time thereafter, 1.75:1.00. For purposes of this Section 7.10, the "Interest Coverage Ratio" shall mean the ratio of (x) EBITDA for the four fiscal quarters of the Obligor ending on such date to (y) Consolidated Interest Expense for the four fiscal quarters of the Obligor ending on such date. 5. Section 7.13 of the L/C Agreement is hereby amended by deleting said section in its entirety and inserting the following new Section 7.13 in lieu thereof: Section 7.13 Restriction on Certain Debt Payments. The Obligor shall not (i) repay any indebtedness incurred pursuant to Section 7.01(h) except out of net proceeds from the issuance by the Obligor of (x) capital stock permitted to be issued hereunder or (y) refinancing Indebtedness permitted pursuant to Section 7.01(h); provided that, so long as no Default or Event of Default exists or would result immediately after giving effect to such payment, this Section 7.13(i) shall not be deemed to prevent the Obligor from making regularly scheduled payments of accrued interest on such Indebtedness or (ii) make any optional or voluntary payment or prepayment on or redemption or acquisition for value of, or any prepayment or redemption as a result of any asset sale, change of control or similar event of any indebtedness incurred pursuant to Section 7.01(i). 6. Section 9 of the L/C Agreement is hereby amended by (i) deleting the definitions of "EBITDA" and "Eurodollar Margin" appearing therein and (ii) inserting the following new definitions in appropriate alphabetical order: "Consolidated Interest Expense" shall mean, for any period, total interest expense (including that attributable to Capital Lease Obligations) of the Obligor and its Subsidiaries in accordance with GAAP (provided that, in any event, Consolidated Interest Expense shall not include capitalized interest) on a consolidated basis with respect to all outstanding Indebtedness of the Obligor and its Subsidiaries, including, without limitation, all commissions, discounts, and other fees and charges owed with respect to letters of credit and bankers' acceptance financing. "EBITDA" shall mean, for any period, the sum of Consolidated Net Income for such period plus the following expenses or charges to the extent deducted from Consolidated Net Income in such period: interest, dividends on preferred stock, taxes, depreciation, depletion and amortization. Notwithstanding the foregoing, the calculation of EBITDA shall not take into account any extraordinary gains or losses, any non-cash items, or any non-recurring gains or charges. "Non-Core Assets" shall mean (i) the drilling rigs Seillean, Iolair, Peregrine VI (Hull), Peregrine VIII (Hull) and Rig 82, (ii) Equipment Packages for Peregrine VI and Peregrine VIII and (iii) four supply boats located in West Africa on the Fifth Amendment Effective Date, each as determined on the Fifth Amendment Effective Date. "Fifth Amendment" shall mean the Fifth Amendment to this Agreement, dated as of February 22, 1999. "Fifth Amendment Effective Date" shall have the meaning provided in the Fifth Amendment. 7. Notwithstanding anything to the contrary contained in Section 1.01 of the L/C Agreement or in any other provision thereof, as of the Fifth Amendment Effective Date, (i) the Bank shall not be required to issue, nor shall the Obligor be entitled to request, any new Letter of Credit under the L/C Agreement and (ii) no Letter of Credit outstanding under the L/C Agreement on the Fifth Amendment Effective Date shall be extended beyond the then applicable expiry date of such Letter of Credit, in each case without the express prior written consent of the Bank. In addition, as of the Fifth Amendment Effective Date, the Unutilized Commitment shall be deemed to be $0 for all purposes of the L/C Agreement (including, without limitation, for purposes of Section 2.01(b)). 8. Pursuant to Section 7.12 of the L/C Agreement, the Bank hereby consents to the Fourth Amendment to the R&B Falcon Credit Agreement, and the granting of the collateral contemplated therein, in the form delivered to the Bank prior to the Fifth Amendment Effective Date. II Miscellaneous Provisions. 1. In order to induce the Bank to enter into this Amendment, the Obligor hereby represents and warrants that: (a) no Default or Event of Default exists as of the Fifth Amendment Effective Date both before and after giving effect to this Amendment; and (b) all of the representations and warranties contained in the L/C Agreement and the other Credit Documents are true and correct in all material respects on the Fifth Amendment Effective Date both before and after giving effect to this Amendment, with the same effect as though such representations and warranties had been made on and as of the Fifth Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). 2. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the L/C Agreement or any other Credit Document. 3. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Obligor and the Bank. 4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 5. This Amendment shall become effective as of 12:01 AM (New York time) on the date (the "Fifth Amendment Effective Date") when (i) each of the Obligor and the Bank shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Bank at its Notice Office, and (ii) the Obligor shall have consummated an issuance of its convertible preferred stock and received cash proceeds from such issuance of not less than $250,000,000 less fees and commissions. 6. From and after the Fifth Amendment Effective Date, all references in the L/C Agreement and each of the other Credit Documents to the L/C Agreement shall be deemed to be references to the L/C Agreement as amended hereby. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. R&B FALCON CORPORATION By:_________________________ Title: CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH By:_________________________ Title: By:_________________________ Title: EX-10.176 17 ======================================================================== EXHIBIT 10.176 AMENDED AND RESTATED BAREBOAT CHARTER M. G. HULME, JR. BETWEEN DEEP SEA INVESTORS, L.L.C., as OWNER AND READING & BATES DRILLING CO., as CHARTERER ======================================================================== TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS 1 ARTICLE 2 SCHEDULES AND OBJECTIVES 10 2.1 Schedules 10 2.2 Objectives 11 2.3 Condition of the Property 11 ARTICLE 3 TERM, DELIVERY DATE AND PURCHASE OPTION 12 3.1 Duration 12 3.2 Delivery of the Vessel to the Charterer 13 3.3 Early Termination 13 3.4 Remedies 16 3.5 Redelivery of the Vessel 18 3.6 Survey of the Vessel at End of Charter Period 19 3.7 Purchase Option 20 3.8 Determination of Purchase Option Price 21 ARTICLE 4 NATURE OF COMPENSATION 21 4.1 Absolute Obligation 21 4.2 Net Charter 23 ARTICLE 5 CONDITIONS TO EFFECTIVENESS 23 5.1 Conditions 23 ARTICLE 6 REPRESENTATIONS AND WARRANTIES 25 6.1 Representations and Warranties of the Owner 25 6.2 Representations and Warranties of the Charterer 26 ARTICLE 7 USE AND OPERATION OF THE VESSEL 29 7.1 Use of the Vessel 29 7.2 Manning, etc., of the Vessel 30 7.3 Documentation of the Vessel 30 7.4 General and Particular Average 31 7.5 Site and Access 31 7.6 Owner Liability for Materials Furnished by the Charterer 31 7.7 Environmental and Related Reporting and Inspection 31 7.8 Notice of Entry 32 ARTICLE 8 MAINTENANCE OF CONDITION AND CLASSIFICATION; REPAIRS 32 8.1 Maintenance of Classification 32 8.2 Repair 33 8.3 Drydocking or Underwater Survey in Lieu of Drydocking 33 8.4 Required Survey 33 ARTICLE 9 EQUIPMENT AND STORES 34 9.1 Fuel, etc. 34 9.2 Equipment, etc. 34 9.3 The Charterer's Additional Equipment, etc. 35 9.4 Title to Improvements; Option to Purchase 35 9.5 No Lease of Essential Severables 36 ARTICLE 10 THE CHARTERER'S CHANGES, ADDITIONS AND REPLACEMENTS 36 10.1 Structural Changes or Alterations; Installation of Equipment, etc. 36 10.2 Replacement of Parts 37 10.3 Vessel Markings 37 ARTICLE 11 ADDITIONAL COVENANTS 38 11.1 General Covenants 38 11.2 No Impairment 38 11.3 Financial Information 38 11.4 Compliance Certificates 39 11.5 Further Assurances, etc. 40 11.6 Maintenance of Corporate Existence, etc. 40 11.7 Conditions of Consolidation, Merger, etc. 41 11.8 Indemnity of the Owner by Customers for Oil Pollution and Related Environmental Claims 42 ARTICLE 12 PAYMENTS, INVOICES AND SECURITY 43 12.1 Basic Hire 43 12.2 Supplemental Hire 43 12.3 Payment Terms 44 12.4 Invoices 44 12.5 Security for Obligations 44 ARTICLE 13 GENERAL OBLIGATIONS AND PERFORMANCE 48 13.1 Independent Owner Relationships 48 13.2 Inspection 48 13.3 Performance of the Charterer 48 13.4 Operations Outside of U.S. Waters 49 ARTICLE 14 LIABILITY AND INDEMNITY 49 14.1 Survival of Indemnities 49 14.2 Pollution 49 14.3 The Charterer's Indemnity 50 14.4 Patent Infringement 50 14.5 Both-to-Blame Collision Clause 51 14.6 Liens, Attachments and Encumbrances 51 14.7 Indemnification by the Charterer 52 14.8 The Charterer's Duties to Remove Liens, etc. 52 ARTICLE 15 INSURANCE 53 15.1 The Charterer's Insurance 53 15.2 Nonperformance of Insurance Companies 53 15.3 Subrogation 54 ARTICLE 16 ASSIGNMENT OF CHARTER 54 16.1 Assignment and Subcontract by the Owner 54 16.2 Assignment by the Charterer 54 16.3 Assignment of Subcharter Hire 56 ARTICLE 17 LOSS, TAKING OR SEIZURE 57 17.1 Taking by the U.S. Government 57 17.2 Event of Loss not a Total Loss 57 17.3 Payment of Stipulated Loss Value 58 17.4 Application of Payments 58 17.5 Date of Loss 58 17.6 Effect of Payment of Stipulated Loss Value 59 ARTICLE 18 TAX 59 18.1 Characterization as a Lease 59 18.2 Representations 60 18.3 Tax Indemnity 61 18.4 Payments 63 18.5 Records 63 ARTICLE 19 GENERAL 64 19.1 Notices 64 19.2 Expenses 65 19.3 The Owner's Right to Perform for the Charterer 66 19.4 Waivers 66 19.5 Entire Agreement 66 19.6 Successors and Assigns 66 19.7 Law 66 19.8 Parties' Intention 67 19.9 Counterparts; Uniform Commercial Code 68 19.10 Warranty of Authority 68 19.11 Usage; Headings 68 19.12 Waiver of Jury Trial 68 19.13 Venue; Service of Process 69 19.14 Agent for Service of Process 69 SIGNATURES 70 Schedule A Description of Vessel M. G. Hulme, Jr., Including Specifications Schedule B-1 First Upgrade Program Schedule B-2 Second Upgrade Program Schedule C Charterer's Insurance Schedule D Stipulated Loss Value Schedule E Pending Litigation Schedule F Computation of Basic Hire Upgrade Adjustment =========================================================================== AMENDED AND RESTATED BAREBOAT CHARTER "M.G. HULME, JR." This Amended and Restated Bareboat Charter dated as of July 23, 1997 is between Deep Sea Investors, L.L.C., a Delaware limited liability company (the "Owner"), and Reading & Bates Drilling Co., an Oklahoma corporation, as the Charterer (the "Charterer"); W I T N E S S E T H: WHEREAS, the Charterer and the Owner have entered into the Bareboat Charter dated as of November 28, 1995 (the "Original Agreement") under which the Owner as the owner of the Vessel M.G. HULME, JR. (as described hereunder at Schedule A (the "Vessel") chartered such Vessel to the Charterer on a bareboat basis to conduct drilling activities; WHEREAS, with the concurrence of the Owner and the Charterer, the Vessel is undergoing an upgrade; WHEREAS, the Charterer desires to continue to charter the Vessel as upgraded, and the Charterer and the Owner have agreed to amend and restate the Original Agreement in accordance with the terms and conditions set forth herein; NOW, THEREFORE, the parties hereto, each in consideration of the promises and agreements of the other, hereby amend and restate the Original Agreement in its entirety as follows: ARTICLE 1 DEFINITIONS When used in this Charter (in addition to the terms defined elsewhere in this Charter), the following terms shall have the following meanings: "Additional Collateral" has the meaning assigned to such term in Section 12.5(a). "Adequate Provision" means, with respect to any Lien, claim, liability or other obligation, the posting with or for the benefit of the Owner Group, of a bond or letter of credit issued by a bank, surety or other similar institution acceptable to the Owner or other collateral acceptable to the Owner, in each case, pursuant to documentation in form and substance acceptable to the Owner, having a face amount or fair market value no less than the amount owed under such Lien, claim, liability or other obligation. "Affiliate(s)" in relation to a party hereto, means any person controlling, controlled by or under common control with such party, with the concept of control in such context meaning the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of another, whether through the ownership of voting securities, by contract or otherwise. "Appraisal Procedure" means the procedure specified in the succeeding sentences for determining an amount or value. If either the Owner or the Charterer shall give written notice to the other requesting determination of such amount or value by appraisal, the Owner and the Charterer shall consult for the purpose of appointing a mutually acceptable qualified independent appraiser. If such parties shall be unable to agree on an appraiser within 20 days of the giving of such notice, such amount or value shall be determined by a panel of three independent appraisers, one of whom shall be selected by the Charterer, another of whom shall be selected by the Owner and the third of whom shall be selected by the American Arbitration Association (or its successor) if such other two appraisers shall be unable to agree upon a third appraiser within 10 days of the selection date of the second of such two appraisers; provided, that if (a) either party shall not select its appraiser within 35 days after giving of such notice, such amount or value shall be determined solely by the appraiser selected by the other party, and (b) if both parties shall not select their respective appraisers within such period, such amount or value shall be determined solely by an appraiser selected by the American Arbitration Association (or its successor). The appraiser or appraisers appointed pursuant to the foregoing procedure shall be instructed to determine such amount or value within the lesser of: (i) 45 days after such appointment and (ii) the applicable period remaining until delivery of such appraisal is required under this Charter and the Charter Documents; and such determination shall be final and binding upon the parties. If three appraisers shall be appointed, the determination of the appraiser that shall differ most from the other two appraisers shall be excluded, the remaining two determinations shall be averaged and such average shall constitute the determination of the appraisers. The Charterer shall pay all fees and expenses relating to an appraisal for any purpose under this Charter. "Basic Hire" means the charter hire amount payable on the Payment Dates as set forth in Section 12.1. "Business Day" means any day on which commercial banks are open for business in New York City, New York. "Charter" means this Bareboat Charter as it may from time to time be supplemented, amended, waived or modified in accordance with the terms hereof. "Charter Documents" means this Charter, the Guaranty, the Security Documents, the Upgrade Documents and any other document, instrument or agreement executed in connection herewith or therewith. "Charter Period" means, collectively, the Primary Term and, if any, the Extended Term. "Charterer" means Reading & Bates Drilling Co., an Oklahoma corporation, and its successors and assigns to the extent permitted by the terms hereof. "Charterer Group" means, individually and collectively, the Charterer and its subsidiaries, its and their co-venturers, contractors and subcontractors and its and their Affiliates, and the employees, invitees and insurers of all of those entities, but shall expressly exclude the Owner Group. "Code" means the United States Internal Revenue Code of 1986, as amended, and any amending or superseding tax laws of the United States of America. "Contractor" means Ham Marine, Inc., a Mississippi corporation, and any other Person performing all or any part of the Second Upgrade Program. "Cunningham Mortgage" means the Preferred Ship Mortgage dated as of November 28, 1995 made by the Charterer in favor of the Trustee covering the Jim Cunningham, as amended by the First Supplement to Preferred Ship Mortgage dated as of July ___, 1997, and any other amendment, supplement or modification thereof entered into in accordance with the term thereof or hereof. "Crude Oil" means any hydrocarbon product that is in liquid form at surface temperature and pressure, including condensate. "Debt" means, for any Person (without duplication), whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (a) every obligation of such Person for money borrowed, (b) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (d) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business), (e) every obligation of such Person under a lease that under generally accepted accounting principles is required to be capitalized on the balance sheet of such Person, (f) every obligation under any charter, operating lease or title retention arrangement with an original term in excess of one year or which is renewable at the option of the tenant for a total term of one year or more, (g) the maximum fixed redemption or repurchase price of redeemable stock of such Person that by its terms or otherwise is required to be redeemed, if any, at the time of determination plus accrued but unpaid dividends, and (h) every obligation of the type referred to in clauses (a) through (g) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable for, directly or indirectly, as obligor, guarantor or otherwise. "Default" means any event or condition which after notice or lapse of time or both would become an Event of Default. "Delivery Date" means November 29, 1995. "Drilling Contracts" means any contractual arrangement with respect to the Vessel providing for the use or employment of the Vessel for the locating of, drilling for, development of, extraction of or processing of Crude Oil, Natural Gas or mineral deposits found in underwater locations, and activities ancillary thereto. "Escalated" means, with respect to any amount and as at any date of determination, such amount as multiplied by a fraction (a) the numerator of which is the Consumer Price Index - U.S. Average as published by the Bureau of Statistics of the Department of Labor (or if the publication of the Consumer Price Index is discontinued, a comparable index similar in nature to the discontinued index which clearly reflects the change in the real value of the purchasing power of the Dollar as reasonably selected by the Owner (hereafter in this definition referred to as the "index")) reported for the calendar year immediately preceding such date and (b) the denominator of which is equal to the index reported for 1995. "Event of Default" means any of the events defined as such in Section 3.3(b). "Event of Loss" means any of the following events: (a) the actual or constructive loss of the Vessel for the lesser of (i) six (6) months (or such longer period of up to 12 months from the date of such loss so long as the Charterer shall have made arrangements within such six (6) month period for the repair and restoration of the Vessel satisfactory to the Owner and the Independent Engineer and is diligently proceeding with such repair and restoration) or (ii) the remainder of the Charter Period, (b) the loss, theft or destruction of the Vessel, (c) damage or destruction of the Vessel or damage to the Vessel to such extent as shall make repair thereof uneconomical or other event resulting in the Vessel's being permanently rendered unfit for normal use for any reason whatsoever, other than obsolescence, or (d) the condemnation, confiscation, requisition, seizure, forfeiture or other taking of title to or use of the Vessel (except that, in the case of a taking of title, or taking of use by the United States Government, a period equal to the lesser of (i) six (6) months and (ii) the then remaining term of the Charter Period shall have elapsed from the date of such taking), in each case as determined by the Owner. "Expiration Date" means the last day of the Primary Term. "Extended Term" has the meaning assigned to such term in Section 3.1(b). "Fair Market Sale Value" means, for any property, the cash sale value of such property that would be obtained in an arm's-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer-user (other than a person currently in possession or a used equipment dealer), which determination shall be made (a), in the case of the Vessel, without deduction for any costs of removal of the Vessel from the location of current use and in the case of the First Upgrade Severables without deduction for the cost of removal or delivery, and (b) on the assumption that such property is free and clear of all liens, charges and encumbrances and, in the case of the Vessel is in the condition and repair in which it is required to be returned pursuant to Section 3.5 hereof (but otherwise on an "as-is" basis). "First Upgrade Maintenance" means that portion of the improvements contemplated by the First Upgrade Program that constitutes ordinary and usual maintenance as more fully described on Schedule B-1. "First Upgrade Nonseverables" means that portion of the improvements contemplated by the First Upgrade Program that is not readily removable without causing material damage to the Vessel as more fully described on Schedule B-1. "First Upgrade Program" means the upgrade of the Vessel from its 850 meter water capacity to 1,000 meters as more fully described in the First Upgrade Contract, any other Upgrade Documents related thereto and the plans, specifications and schedules set forth on Schedule B- 1. "First Upgrade Severables" means that portion of the improvements contemplated by the First Upgrade Program that is readily removable from the Vessel without causing material damage to the Vessel as more fully described on Schedule B-1. "Guarantor" means Reading & Bates Corporation, a Delaware corporation, or any other Person that guarantees or provides collateral or other credit support for the obligations of the Charterer hereunder. "Guaranty" shall mean the Guaranty entered into by any Guarantor for the benefit of the Owner, as the same may from time to time be supplemented, amended, waived or modified in accordance with the terms thereof. "Highest Lawful Rate" means the maximum nonusurious contract rate of interest permitted by applicable law. "Hire" means Basic Hire and Supplemental Hire, collectively. "Income Taxes" means all income, franchise or similar Taxes which are based on, or measured by or with respect to, net income. "Indemnitee" has the meaning assigned to such term in Section 14.3. "Independent Engineer" means Barnett & Casbarian, or any other Person selected by the Owner and approved by the Charterer, which approval shall not be unreasonably withheld or delayed. "Investor" means each of GATX Marine Investors Corporation, MDFC Equipment Leasing Corporation, Heller Financial Leasing, Inc. and their respective successors and assigns. "Jim Cunningham" means the drilling rig Jim Cunningham, official number 651643. "Lien" means any mortgage, pledge, lien, charge, encumbrance, lease, right, security interest or claim of any nature. "Limited Liability Company Agreement" means the Amended and Restated Limited Liability Company Agreement dated as of July ___, 1997 among GATX Marine Investors Corporation, MDFC Equipment Leasing Corporation, and Heller Financial Leasing, Inc. creating the Owner. "MOA" means the Memorandum of Agreement dated as of November 28, 1995 between Reading and Bates, Inc. and the Owner. "Moody's" means Moody's Investor Service, Inc., a New York corporation, and its successors and assigns. "Mortgages" means the Cunningham Mortgage and any other mortgage that may from time to time secure the Obligations. "Natural Gas" means any mixture of hydrocarbons or of hydrocarbons and noncombustible gases, in a gaseous form at surface temperature and pressure, which consists essentially of methane, but includes ethane, propane, butanes, and other liquefiable hydrocarbons. "1954 Code" means the United States Internal Revenue Code of 1954, as amended and in effect prior to the enactment of the Tax Reform Act of 1986 (Pub. L. No. 99-514). "Nonseverables" means improvements, modifications and additions to the Vessel that are not readily removable without causing damage to the Vessel or that in accordance with applicable statutes, orders, cases, rules, regulations and other laws may not be removed from the Vessel. "Obligations" means the obligations of the Obligors under the Charter Documents. "Obligors" means, collectively, the Charterer and each Guarantor. "Operating Area" means any area in which the Charterer shall operate the Vessel with notice to the Owner pursuant to Section 13.4. "Overdue Rate" means an interest rate per annum equal to the lesser of (a) the Prime Rate plus four percent (4%) per annum and (b) the Highest Lawful Rate. "Owner" means Deep Sea Investors, L.L.C., a limited liability company organized under the laws of the State of Delaware. "Owner Group" means, individually and collectively, the Owner and its subsidiaries, its and their co-venturers and contractors and subcontractors and the Investors, its and their respective Affiliates (other than the Charterer), and its and their shareholders, directors, officers, attorneys, accountants, consultants and representatives, the employees, insurers and invitees of all of those entities, the Trustee and the Vessel, but shall expressly exclude Charterer Group. "Owner Liens" means Liens described in clause (b) of the definition of Permitted Liens. "Owner's Cost" means, as of any date, the sum of (a) the purchase price of the Vessel, (b) the First Upgrade Nonseverable Cost and (c) the Second Upgrade Cost. "Payment Date" means each date that is a monthly anniversary date of the calendar day immediately before the Delivery Date (such monthly date being deemed for this purpose to be the day of each succeeding month corresponding to such date immediately before the Delivery Date or, if such month does not have a corresponding day, the last day of such month), up to and including the end of the Charter Period. "Permitted Liens" means, as of any date, (a) any lien arising out of a claim for crew's wages, supplies or the like, or salvage not covered by insurance, or for taxes, assessments or other governmental charges, in each case, incurred in the ordinary course of business, and in existence as of the date of determination for not more than 30 days and, as of the date of determination, neither overdue nor in the aggregate in excess of $1,000,000 unless such are being contested in good faith and by appropriate Persons and proceedings, in each case, in the Owner's judgment and unless Adequate Provision has been provided by the Charterer for payment of such amounts that may become due and payable and such Lien attaches only to such Adequate Provision and not to the Vessel, any part thereof or any Drilling Contract and, in the Owner's judgment, no risk of forfeiture or other loss of the Vessel, any part thereof, or any right of the Charterer or the Owner under any Drilling Contract, exists, or is threatened or imminent; (b) any lien created by, through or under the Owner as a result of claims against the Owner for which the Owner is not entitled to indemnification from the Charterer or any Guarantor, or discharge of which is not the obligation of the Charterer or any Guarantor, whether at law, by contract, in equity or under admiralty principles; and (c) Drilling Contracts complying with the provisions of this Charter and the other Charter Documents and the rights of the Charterer under this Charter, including subcharters of the Vessel in accordance with the terms of this Charter, provided that no such contracts, rights or subcharters shall suffer or permit to be continued any Lien or encumbrance incurred by Charterer or any subcharterer or any of their agents which might have priority over the title and interest of the Owner in the Vessel or any part thereof or equipment or other property used in connection with the Vessel. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint stock company, trust or unincorporated organization or any government or any agency or any political subdivision thereof. "Primary Term" has the meaning assigned to such term in Section 3.1(a). "Prime Rate" means the per annum rate of interest published from time to time in the Eastern edition of The Wall Street Journal, which rate shall change with each published change in such rate, effective as of the date of such publication. "Purchase Option Price" means the Fair Market Sale Value of the Vessel determined in accordance with Section 3.8, not to exceed 40% of Owner's Cost. "Randolph Yost" means the Randolph Yost, Official Number 601699, and all fixtures, equipment and improvements of any kind whatsoever installed or located thereon and owned by the Charterer. "Rated Securities" means the implied long-term senior unsecured debt of Reading & Bates. "Reading & Bates" means Reading & Bates Corporation, a Delaware corporation. "Rights Assignment" has the meaning assigned to such term in Section 16.3. "Sale Date" means the date, if any, on which the Charterer acquires the Vessel by exercise of its purchase option granted pursuant to Section 3.7. "Second Upgrade Agreement" means the Upgrade Agreement dated July __ and effective as of April 22, 1997 between the Owner and R&B Drilling, individually and as agent. "Second Upgrade Contract" means the Ship Repair Agreement dated as of April 22, 1997 between Ham Marine, Inc., a Mississippi corporation, and the Charterer. "Second Upgrade Cost" means an amount not to exceed (i) $25,346,756.15 to be paid under the Second Upgrade Agreement plus (ii) any amounts authorized by the Owner to be paid to construct the Second Upgrade Program. "Second Upgrade Default" means the occurrence of an Upgrade Event of Default (as defined in the Second Upgrade Agreement). "Second Upgrade Program" means the upgrade of the Vessel from its current 1,000 meter water capacity to 4,000 feet as more fully described in the Second Upgrade Agreement, any other Upgrade Documents (as defined in the Second Upgrade Agreement) and the plans, specifications and schedules set forth on Schedule B-2. "Second Upgrade Severables" means the severables acquired in connection with the Second Upgrade Program. "Security Agreement" means the Security Agreement dated November 28, 1995 between the Owner and the Trustee, as amended by the First Amendment to Security Agreement dated as of July ___, 1997 between the Owner and the Trustee, as such agreement may be further amended, supplemented or modified in accordance with the terms thereof and hereof. "Security Documents" means the Mortgages, the Security Agreement, and any other agreement, instrument or document executed and delivered for the purpose of supporting or securing the Obligations. "Severables" means improvements, modifications or additions to the Vessel that are readily removable without causing damage to the Vessel and may, in accordance with all applicable statutes, orders, cases, rules, regulations and other laws, be removed from the Vessel. "S&P" means Standard & Poor's Ratings Group, a division of McGraw- Hill Companies, Inc., a New York corporation, and its successors and assigns. "Shipping Act, 1916" shall mean the United States Shipping Act, 1916, as amended. "Shipyard" means Ham Marine, Inc.'s shipyard in Pascagoula, Mississippi. "Stipulated Loss Value" as of any Payment Date listed by number in Schedule D hereto means an amount determined by multiplying Owner's Cost by the percentage set forth in Schedule D opposite such Payment Date number. "Subsidiary" means for any Person, any other corporation, partnership, joint venture, limited liability company or other entity at least a majority of the voting stock of which is beneficially owned, directly or indirectly by such Person or its Subsidiaries. "Substitute Collateral" has the meaning assigned to such term in Section 12.5(d). "Supplemental Hire" shall mean any and all amounts, liabilities and obligations other than Basic Hire that the Charterer assumes or agrees to pay hereunder to the Owner, including, without limitation, Stipulated Loss Value and indemnity payments. "Taxes" means all federal, foreign, state, local or other net or gross income, gross receipts, sales, use, stamp, documentary, transfer, general consumption, ad valorem, property, value added, franchise, production, import, export, withholding, payroll, employment, excise or similar taxes, assessments, duties, fees, levies or other governmental charges, including without limitation, license, recording, documentation and registration fees, together with any interest thereon, any penalties, additions to tax or additional amounts with respect thereto and any interest in respect of such penalties, additions or additional amounts. "Third Parties" means all persons and entities that are not Charterer Group or Owner Group. "Timely Liquidation Value" means, for any property, the cash sale value of such property that would be obtained in an arm's-length transaction between a seller that must sell such property in no more than 90 days and an informed and willing buyer-user, which determination shall be made with a deduction for the removal of the property from its location and on the assumption that such property is in its current actual condition, which condition shall reflect its current physical condition and location and any applicable legal, governmental, physical, contractual and other impediments to sale or use. "Trustee" means Wilmington Trust Company not in its individual capacity but solely as trustee for the benefit of the Owner under the Mortgages and any of its successors or assigns in such capacity. "UCC" means the Uniform Commercial Code as enacted in the State of New York. "Upgrade Documents" has the meaning assigned to such term in the Second Upgrade Agreement. "Upgrade Programs" means, collectively, the First Upgrade Program and the Second Upgrade Program. "Vessel" means the M. G. HULME, JR., as described on Schedule A, as upgraded pursuant to the Upgrade Programs, and all fixtures, equipment and improvements of any kind whatsoever installed or located thereon pursuant to this Charter (including, without limitation, the First Upgrade Severables and the Second Upgrade Severables) or as otherwise agreed to by the Charterer and the Owner. ARTICLE 2 SCHEDULES AND OBJECTIVES 2.1 Schedules The following schedules are attached hereto and made a part hereof for all purposes. In the event there are any conflicts between the body of this Charter and the schedules attached hereto, the provisions in the body of this Charter will prevail. (a) Schedules Schedule A - Description of the Vessel, including specifications. Schedule B-1 - First Upgrade Program Schedule B-2 - Second Upgrade Program Schedule C - Charterer's Insurance Schedule D - Stipulated Loss Value Schedule E - Pending Litigation Schedule F - Computation of Basic Hire Adjustment for Second Upgrade 2.2 Objectives The Owner shall provide the Vessel to the Charterer on a bareboat or demise charter basis. The Owner shall not be responsible for any other service, manning, operations or equipment whatsoever. By the Owner providing the Vessel to the Charterer in accordance with this Charter, upon the terms and subject to the conditions hereof, the Charterer shall take and have command, possession and control of the Vessel during the term of this Charter; as a part hereof, and without limit to the foregoing, the Charterer's command, possession and control of the Vessel shall specifically include the obligation to have the Vessel under the command of an Offshore Installation Manager certified by and for the area in which the Vessel is operating from time to time. 2.3 CONDITION OF THE PROPERTY. THE CHARTERER ACKNOWLEDGES AND AGREES THAT IT IS CHARTERING THE VESSEL AND OTHER PROPERTY HEREUNDER "AS IS", "WHERE IS", AND "WITH ALL FAULTS, WHETHER LATENT OR DISCERNIBLE", WITHOUT REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY THE OWNER, OWNER GROUP OR ANY INVESTOR AND IN EACH CASE SUBJECT TO (A) THE EXISTING STATE OF TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C) ALL APPLICABLE LEGAL REQUIREMENTS AND (D) VIOLATIONS OF LEGAL REQUIREMENTS WHICH MAY EXIST ON THE DATE HEREOF. NONE OF OWNER, ANY MEMBER, OWNER GROUP, OR ANY INVESTOR HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) OR SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE, VALUE, HABITABILITY, USE, SEAWORTHINESS, CONDITION, STABILITY, SUITABILITY, DESIGN, OPERATION, CLASS, COMPLIANCE WITH LAWS, CONFORMANCE TO SPECIFICATIONS, MERCHANTABILITY OR FITNESS FOR USE OF ANY PROPERTY (OR ANY PART THEREOF FOR A PARTICULAR PURPOSE OR WITH RESPECT TO PATENT INFRINGEMENT), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY PROPERTY (OR ANY PART THEREOF), AND NONE OF OWNER, OWNER GROUP OR ANY INVESTOR SHALL BE LIABLE FOR ANY LATENT, HIDDEN OR PATENT DEFECT THEREIN, ANY REPRESENTATION, WARRANTY OR PROMISE, EXPRESS OR IMPLIED, WHICH ANY MANUFACTURER OR BUILDER OF THE VESSEL OR ANY PROPERTY (OR ANY PART THEREOF) MAY HAVE MADE OR MAY BE DEEMED TO HAVE MADE OR THE FAILURE OF ANY PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY LEGAL REQUIREMENT OR ANY DAMAGES, WHETHER ACTUAL, SPECIAL, CONSEQUENTIAL OR INCIDENTAL, ARISING HEREFROM OR THEREFROM. THE CHARTERER HAS BEEN AFFORDED FULL OPPORTUNITY TO INSPECT THE VESSEL, IS (INSOFAR AS THE OWNER IS CONCERNED) SATISFIED WITH THE RESULTS OF ITS INSPECTIONS AND IS ENTERING INTO THIS CHARTER SOLELY ON THE BASIS OF THE RESULTS OF ITS OWN INSPECTIONS, AND ALL RISKS INCIDENT TO THE MATTERS DESCRIBED IN THE PRECEDING SENTENCE, AS BETWEEN OWNER, THE OWNER GROUP AND THE INVESTORS, ON THE ONE HAND, AND THE CHARTERER, ON THE OTHER HAND, ARE TO BE BORNE BY THE CHARTERER. NOTHING IN THIS SECTION 2.3 OR THE CHARTER SHALL OPERATE TO NEGATE OR DIMINISH ANY CLAIM FOR BREACH OF ANY REPRESENTATION, WARRANTY OR COVENANT THAT THE OWNER MAY NOW OR HEREAFTER HAVE UNDER ANY CHARTER DOCUMENT OR ARISING OUT OF THE TRANSACTIONS CONTEMPLATED THEREBY. ARTICLE 3 TERM, DELIVERY DATE AND PURCHASE OPTION 3.1 Duration (a) Subject to the terms and conditions of this Charter, the Owner bareboat (demise) charters to the Charterer, and the Charterer bareboat (demise) charters from the Owner, the Vessel for a period beginning on the Delivery Date and ending on the 10th anniversary of the Delivery Date (the "Primary Term"), with the option to extend this Charter pursuant to Section 3.1(b). (b) At the end of the Primary Term, and subject to the terms and conditions of this Charter, the term of this Charter may be extended for a period of 90 days (the "Extended Term") by the Charterer providing 180 days' written notice to the Owner prior to the end of the Primary Term if, and only if, such extension is necessary to complete a Drilling Contract in progress that is in full force and effect on the date such extension notice is delivered and no Default or Event of Default has occurred and is continuing. The Charterer, at its sole cost and expense, shall provide the Owner with independent verification of the necessity of any such extension in form and substance satisfactory to the Owner. During such Extended Term, if any, all of the obligations of the Charterer under this Charter during the Charter Period shall continue for the Extended Term, including, without limitation, the obligation to pay Basic Hire under Section 12.1. Prior to any extension of the Primary Period for the Vessel, the Charterer shall give the Owner its good faith estimate of the date on which the existing Drilling Contract will be completed. (c) The Charterer shall, at all reasonable times during the last 180 days of the Charter Period, permit access to the Vessel to the Owner and to Persons designated by the Owner in connection with any prospective sale or prospective rechartering of the Vessel by the Owner, and shall permit the inspection of the Vessel by such Persons; provided, however, that the exercise of such rights shall in no way unreasonably interfere with the use of the Vessel by the Charterer. 3.2 Delivery of the Vessel to the Charterer The Vessel was delivered by the Owner to the Charterer at Garden Banks Block 387, Outer Continental Shelf, Gulf of Mexico on November 29, 1995, pursuant to the MOA. Upon such delivery, the Vessel became subject to all the terms and conditions of this Charter. Such delivery of the Vessel by the Owner to the Charterer, without further action, irrevocably constituted acceptance by the Charterer of the Vessel for all purposes of this Charter, and shall be conclusive proof that the Vessel was at such time in compliance with all requirements of this Charter and that the Vessel was at such time seaworthy, in accordance with specifications, in good working order, condition and repair and without defect or inherent vice in title, condition, design, operation or fitness for use, whether or not discoverable by the Charterer as of the date hereof, and free and clear of all Liens, other than Permitted Liens; provided, however, that nothing contained herein shall in any way diminish or otherwise affect any right the Charterer, the Owner or any of their respective Affiliates may have against any shipyard, manufacturer, supplier, vendor or any other Person in respect of the Vessel. FROM AND AFTER THE DELIVERY DATE, THE CHARTERER SHALL NOT BE ENTITLED TO MAKE OR ASSERT ANY CLAIM AGAINST OWNER, THE OWNER GROUP OR ANY INVESTOR ON ACCOUNT OF ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE VESSEL, THE CONSUMABLE STORES ON BOARD OR WITH RESPECT TO ITS TITLE, SEAWORTHINESS, MERCHANTABILITY, FITNESS, HABITABILITY, VALUE, USE, CONDITION, SUITABILITY, CLASS, COMPLIANCE WITH LAWS, DESIGN, OPERATION, CONFORMANCE TO SPECIFICATIONS NOR ABSENCE OF DEFECTS, LATENT, HIDDEN, PATENT OR OTHER, NOR WITH RESPECT TO PATENT INFRINGEMENT. FROM AND AFTER THE DELIVERY DATE, THE CHARTERER WAIVES ANY CLAIM IT MIGHT HAVE AGAINST OWNER, THE OWNER GROUP OR ANY INVESTOR FOR ANY LIABILITY, CLAIM, LOSS, DAMAGE OR EXPENSE OF ANY KIND OR NATURE BY OR WITH RESPECT TO THE VESSEL OR ANY DEFICIENCY OR DEFECT THEREIN OR INADEQUACY THEREOF, THE USE OR MAINTENANCE THEREOF, ANY INTERRUPTION OR LOSS OF SERVICE OR USE THEREOF, WHETHER IN CONTRACT, TORT OR ANY THEORY OF PRODUCT OR STRICT LIABILITY. 3.3 Early Termination This Charter shall terminate in accordance with any notice of termination given in accordance with this Section 3.3. This Charter shall also terminate at the time stipulated below for any of the following reasons: (a) At the option of the Owner, this Charter shall terminate immediately and upon written notice to the Charterer if any Event of Loss occurs and upon such termination the Charterer shall pay the Owner on the earlier of (i) the receipt of any insurance payable in respect of such Event of Loss and (ii) 60 days after the occurrence of such Event of Loss, the Stipulated Loss Value of the Vessel set forth on Schedule D as of the Payment Date preceding the occurrence of such Event of Loss plus any past due Hire, plus the sum of the per diem of the Basic Hire due on the next Payment Date, for each day during the period from the next preceding Payment Date to the date of such Event of Loss (unless the Event of Loss shall occur on a Payment Date, in which case, such payment shall be equal to the Stipulated Loss Value on such Payment Date plus any Hire due on such Payment Date), in each case, together with interest thereon computed from the date of such Event of Loss to the date of actual payment at a rate per annum equal to the Overdue Rate. If the time of such loss be uncertain, the loss shall be deemed to have occurred as of the time at which communication from the Vessel was last heard. It is expressly understood that the Charterer shall bear all risk of any such loss. (b) Each of the following events shall be an "Event of Default": (i) the Charterer shall fail to pay the Owner any amounts due and payable hereunder when due; or (ii) the Charterer shall fail to perform any of its obligations under Article 5, Sections 7.3, 10.1, 11.1(a), 11.6, 11.7, 11.8, 12.5, 13.4, or 14.6, Article 15, Section 17.3 or Article 18 hereof or any other obligation as to which the Charterer is specifically accorded elsewhere herein or otherwise any notice and/or grace period in which to perform such obligation or to cure such breach thereof or default therein and such notice shall have been given and/or such grace period shall have expired without cure of such failure; or (iii) any Obligor shall fail to perform any of its obligations hereunder or under any Charter Document (other than those specified in Section 3.3(a) or (b)(i)) which is not cured within the lesser of (A) 10 days or (B) the then remaining term of the Charter Period of the occurrence thereof; or (iv) any representation, warranty or statement made or deemed made by any Obligor in any Charter Document or information furnished by or on behalf of any Obligor in any instrument, certificate or other document delivered by or on behalf of any Obligor shall be untrue in any material respect on the date made or deemed made; or (v) (i) any Obligor shall fail to pay any principal of or premium or interest on any Debt (excluding Debt under this Charter) of such Obligor under which any aggregate amount of at least $1,000,000 is outstanding or committed, when the same becomes due and payable, and such failure shall continue after any applicable grace period; or (ii) any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after any applicable grace period, if the effect of such event or condition results in the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case, prior to the stated maturity thereof; or legal action shall be taken with respect to such other event (including, but not limited to, the commencement of proceedings seeking specific performance or injunctive or other equitable relief); or (vi) any Obligor shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or voluntarily or involuntarily dissolves or is dissolved, or terminates or is terminated; or any proceeding shall be instituted by or against such Person or any of its subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or any such Person or any of its subsidiaries shall take any corporate or other organizational action to authorize any of the actions set forth above in this subsection (vi); provided, however, that nothing contained in this Section 3.3(b)(vi) or otherwise shall be deemed to limit, restrict or prohibit Owner in any manner from intervening in any such proceeding described above and enforcing any of its rights and remedies whether under this Charter or any of the Charter Documents, at law, in admiralty or equity or otherwise; or (vii) a judgment or order for the payment of money in the amount of at least $1,000,000 or more shall be rendered against any Obligor and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (viii) any provision of this Charter or any Charter Document shall at any time for any reason cease to be valid and binding on any Obligor, or shall be declared to be null and void, or the validity or enforceability thereof shall be contested by any Obligor, or any Obligor shall deny that it has any or further liability or obligation under this Charter or any Charter Document; or (ix) failure of any Obligor to comply with, or to incur any liability, whether fixed or contingent, under or pursuant to, any statute, law, regulation or other governmental requirement to which such Obligor is subject, including but not limited to ERISA, the Oil Pollution Act of 1990 ("OPA") and any other environmental, health or safety law or regulation, in each case, which might reasonably be expected to have a material adverse effect on the condition (financial and otherwise), business prospects or the ability of such Obligor to perform its obligations under the Charter Documents; or (x) any Lien securing the Obligations shall fail to be perfected, valid or enforceable, or any material adverse effect shall occur respecting the value or suitability as collateral of any property encumbered by such Lien (unless the Charterer shall have provided Substitute Collateral in accordance with Section 12.5(c)), including, without limitation, any levy, attachment or seizure thereof or, subject to Section 12.5, the Lien securing the Obligations under the Cunningham Mortgage shall fail to be a first priority preferred ship mortgage at any time after December 31, 1997; or (xi) the Completion (as defined in the Second Upgrade Agreement) shall not occur on or before September 30, 1997; or (xii) a Second Upgrade Default shall occur and be continuing. 3.4 Remedies Upon the occurrence and during the continuation of any Event of Default, the Owner may, at its option, declare this Charter to be in default; and at any time thereafter, the Owner may do, and the Charterer shall comply with, one or more of the following, as the Owner in its sole discretion shall elect: (a) Upon written demand (which demand shall have the effect of terminating all of the Charterer's rights to use or possess the Vessel or act as agent under the Upgrade Programs), the Owner may cause the Charterer to, and the Charterer hereby agrees that it will, at the Charterer's sole cost and expense, promptly redeliver the Vessel, or cause the Vessel to be redelivered, to the Owner with all reasonable dispatch and in the same manner and in the same condition as if the Vessel were being redelivered at the expiration of the Charter Period in accordance with all of the provisions of Section 3.5, and all obligations of the Charterer under said Section shall apply to such redelivery; or the Owner or its agent, at the Owner's option, without further notice, may, but shall be under no obligation to, retake the Vessel wherever found, whether upon the high seas or at any port, harbor or other place and irrespective of whether the Charterer, any subcharterer or any other person may be in possession of the Vessel, all without prior demand and without legal process, and for that purpose the Owner or its agent may enter upon any dock, pier or other premises where the Vessel may be and may take possession thereof, without the Owner or its agent incurring any liability by reason of such retaking, whether for the restoration of damage to property caused by such retaking or for damages of any kind to any Person for or with respect to any cargo carried or to be carried by the Vessel or for any other reason. Henceforth, the Owner shall hold, possess and enjoy the Vessel, free and clear of any right of the Charterer or its successors or assigns to possess or use the Vessel for any reason whatsoever. The exercise by the Owner of its remedies under this paragraph (a) shall be without prejudice, and in addition, to any of the Owner's other remedies referred to in this Charter or any of the other Charter Documents or at law, in admiralty or equity. (b) The Owner, by written notice to the Charterer specifying a payment date not less than 10 days, nor more than 30 days, after the date of such notice, may require the Charterer to pay to the Owner, and the Charterer hereby agrees that it will pay to the Owner, on the payment date specified in such notice, as liquidated damages for loss of a bargain and not as a penalty and in lieu of any further Basic Hire payments hereunder, an amount equal to all unpaid Basic Hire payable on each Payment Date occurring on or before the payment date specified in such notice, plus the Stipulated Loss Value computed as of the Payment Date preceding the payment date specified in such notice plus the sum of the per diem of the Basic Hire due on the next Payment Date for each day during the period from the next preceding Payment Date to the date of such Event of Loss (or as of such payment date specified in such notice if such payment date specified in such notice is a Payment Date), together with interest on such amounts at the Overdue Rate for the period, if any, from the Payment Date as of which such Stipulated Loss Value is calculated to and including the date of actual payment. Upon such payment of liquidated damages, the Owner shall pay over to the Charterer the net proceeds of any sale, charter or other disposition of the Vessel as and when received but only after deducting all costs and expenses whatsoever incurred by the Owner in connection therewith, to the extent such net proceeds do not exceed the amount of such Stipulated Loss Value actually so paid. Nothing contained in the preceding sentence or otherwise shall require the Owner to sell, charter or otherwise dispose of the Vessel at any time. (c) The Owner may exercise any other right or remedy that may be available to it under applicable law, in equity or admiralty or proceed by appropriate court action to enforce the terms of this Charter or to recover damages for the breach hereof or to terminate this Charter. (d) The Owner or its agent may sell the Vessel at public or private sale, with or without notice to the Charterer, advertisement or publication, as the Owner may determine, or otherwise may dispose of, hold, possess, use, operate, charter (whether for a period greater or less than the balance of what would have been the Charter Period in the absence of the termination of the Charterer's rights to the Vessel) to others or keep idle the Vessel, all on such terms and conditions and at such place or places as the Owner may determine and all free and clear of any rights of the Charterer and of any claim of the Charterer in admiralty, in equity, at law or by statute, whether for loss or damage or otherwise, and without any duty to the Charterer except to the extent provided in paragraph (b) above. The Charterer and the Owner agree that 10 days' written notice of the sale to be made by the Owner or its designee or after the time in which a private sale shall occur is commercially reasonable notice for all purposes. In addition, the Charterer shall be liable for any and all Supplemental Hire payable hereunder before, during or after the exercise of any of the foregoing remedies and for all insurance premiums and all demurrage, docking and anchorage charges and all legal fees and any other costs and expenses whatsoever incurred by the Owner or any Investor by reason of the occurrence of any Event of Default or by reason of the exercise by the Owner of any right or remedy hereunder, including, without limitation, any costs and expenses incurred by the Owner in connection with any retaking of the Vessel or, upon the redelivery or retaking of the Vessel in accordance with this Section 3.4, the placing of the Vessel in the condition required by and otherwise complying with the terms of Section 3.5 hereof. No right or remedy referred to in this Section 3.4 is intended to be exclusive, but each shall be cumulative and is in addition to, and may be exercised concurrently with, any other right or remedy which is referred to in this Section 3.4 or which may otherwise be available to the Owner at law, in equity or in admiralty, including without limitation the right to terminate this Charter. There shall be deducted from the aggregate amount so recoverable by the Owner, the net balance, if any, remaining of any monies held by the Owner which would have been required by the terms hereof to have been paid to the Charterer but for the occurrence of an Event of Default. The rights of the Owner and the obligations of the Charterer under this Section 3.4 shall be effective and enforceable regardless of the pendency of any proceeding which has or might have the effect of preventing the Owner or the Charterer from complying with the terms of this Charter. No express or implied waiver by the Owner of any Event of Default shall in any way be, or be construed to be, a waiver of any further or subsequent Event of Default. To the extent permitted by applicable law, the Charterer hereby waives any rights now or hereafter conferred by statute or otherwise which may require the Owner to sell, charter or otherwise use the Vessel in mitigation of the Owner's damages. 3.5 Redelivery of the Vessel Upon termination of this Charter, the Charterer shall, at its sole cost and expense not to exceed $2,500,000 as Escalated, redeliver the Vessel to the Owner at an anchorage of the Owner's choice. The Charterer shall notify the Owner in writing at least 360 days prior to the expiration of the Charter Period of the location in which the Vessel will be operating at the expiration of the Charter Period. The Charterer agrees that at the time of such redelivery the Vessel shall be free and clear of all Liens (other than Owner Liens), shall be entitled to and shall have the classification and rating required by Section 8.1, with no requirements, specifications or recommendations of the American Bureau of Shipping or of any governmental agency or department unfulfilled and with all required certificates in effect, shall be in compliance with all laws, conventions, treaties and customs and rules and regulations issued thereunder or applicable in any way to the Vessel or any use or operation thereof, shall be free of any insignia of the Charterer or others, shall be charter free, cargo free, safely afloat, securely moored, free of charge and be in the same good order and condition as described in the third sentence of Section 3.2, but with the Upgrade Programs completed and as required by Section 8.1, ordinary wear and tear excepted; provided however, that in the event that the Owner elects not to exercise its option to purchase Severables (other than Second Upgrade Severables) acquired after the Delivery Date pursuant to Section 9.4, the Charterer shall redeliver the Vessel to the Owner with Severables comparable to the Severables aboard the Vessel when the Vessel was delivered to the Charterer pursuant to Section 3.2 and Severables comparable to the Second Upgrade Severables. Any Coast Guard certificates required to be issued annually with respect to the Vessel shall have been issued within 12 months of the date of redelivery of the Vessel. At the time and place of redelivery of the Vessel, the Charterer shall also deliver to the Owner all documentation, plans, drawings, specifications, logbooks, classification and inspection, records, operating manuals, records of modification, overhaul, use and/or maintenance and other warranties and documents then in its possession or control which were furnished by the manufacturers or builders of the Vessel, the Upgrade Programs or any other upgrade of the Vessel or any supplier of equipment on the Vessel or otherwise maintained by the Charterer. Upon redelivery of the Vessel hereunder, the Charterer, if requested in writing by the Owner, will arrange for, at the Charterer's cost and expense, docking or appropriate anchorage or storage facilities for the Vessel for a period not exceeding 150 days, including, but not limited to, any crew, staffing, materials, fuel or other costs or expenses incurred to stack the Vessel with full marine and maintenance crews. 3.6 Survey of the Vessel at End of Charter Period At least 120 days before redelivery of the Vessel pursuant to Section 3.5, but sufficiently in advance of such redelivery date to permit any needed repairs to be completed by such redelivery date, a joint survey shall be made by the Charterer and the Owner (with drydocking or underwater survey in lieu of drydocking and bottom painting, unless the Owner shall otherwise agree in writing) to determine the condition and fitness of the Vessel, during which survey the Vessel's tanks shall be gas-freed and the Vessel's engines and boilers opened for inspection; the redelivery survey shall meet all requirements of the next special survey of the Vessel, provided that if a special survey of the Vessel has been made, pursuant to the provisions of Article 8, within 30 months prior to such redelivery, the records of such special survey shall be taken into account in determining the scope of the joint survey required pursuant to this Section 3.6. If requested by the Owner, a surveyor from the American Bureau of Shipping shall be present and the Charterer shall permit such surveyor to examine all areas of hull and items of machinery and other parts of the Vessel. The Charterer will pay for the costs of such survey, drydocking or underwater survey in lieu of drydocking and bottom painting and the Charterer shall notify the Owner at least 10 days in advance of the time and place of such drydocking or underwater survey in lieu of drydocking, bottom painting and survey. The Charterer, at its sole cost and expense, will fully correct and repair any condition disclosed by such survey to the extent necessary to cause the Vessel, on or before the date specified for redelivery, to comply with all of the terms of Section 8.1. The term of the Charter Period shall be extended for any period necessary (a) so as to permit the survey described in this Section 3.6 to occur at least 120 days before redelivery of the Vessel pursuant to Section 3.5 whether as a result of this Vessel's use in completing a Drilling Contract in progress under Section 3.1(b) or otherwise; and (b) to make such repairs. During such extension period, if any, all of the obligations of the Charterer under this Charter applicable during the Charter Period shall continue in respect of such extension period. Upon redelivery of the Vessel under this or the preceding paragraph, the Charterer, if requested in writing by the Owner, will provide docking or appropriate anchorage or storage facilities for the Vessel (if available at the designated port) for a period not exceeding 150 days at the Charterer's cost and expense, including, but not limited to, any crew, staffing, materials, fuels or other cost or expense to stack the Vessel with full marine and maintenance crews. 3.7 Purchase Option. No more than 540, but no less than 360 days prior to the Expiration Date, the Charterer may, so long as no Default or Event of Default has occurred and is continuing, give the Owner irrevocable written notice (the "Expiration Date Election Notice") that the Charterer elects to exercise its option to purchase the Vessel (except for the First Upgrade Severables). If the Charterer elects to exercise such option, then the Charterer shall pay to the Owner on the Expiration Date an amount in immediately available funds equal to the Purchase Option Price and, upon receipt of such amount plus all other amounts payable under this Charter and the other Charter Documents, the Owner shall transfer all of the Owner's right, title and interest in the Vessel (except for the First Upgrade Severables), such transfer shall be "AS IS", "WHERE IS", without recourse and without any representation or warranty of any kind or nature whatsoever, either express or implied (except for the absence of Liens arising as a result of claims against the Owner for which the Owner is not entitled to indemnification from the Charterer or any Guarantor or the payment or discharge of which is not the obligation of the Charterer or any Guarantor), in the then-current physical condition of the Vessel and without any other representation or warranty on the part of, or recourse to, the Owner. 3.8 Determination of Purchase Option Price During the period from the delivery of the Expiration Date Election Notice to the Owner until 210 days prior to the Sale Date, the Charterer and the Owner may mutually agree on the Fair Market Sale Value of the Vessel as of the Sale Date, and if the Charterer and the Owner fail to so agree, such Fair Market Sale Value shall be determined not less than 90 days before the Sale Date by application of the Appraisal Procedure. ARTICLE 4 NATURE OF COMPENSATION 4.1 Absolute Obligation The obligation of the Charterer to pay to the Owner the fees, rates, hires, indemnities and reimbursements specified in this Charter shall be absolute and unconditional and shall not be affected by any circumstance whatsoever, and the Charterer waives (and agrees not to allege or pursue) any right to any such defense, including without limitation, (a) any setoff, counterclaim, abatement, reduction, recoupment, defense, or other right that the Charterer may have against the Owner or any other Person, firm, company, or entity for any reason whatsoever; (b) any unavailability of the Vessel after its delivery to the Charterer for any reason; (c) any damage, loss or destruction of or damage to the Vessel or interruption, restriction, interference, or cessation in the use or possession thereof by the Charterer for any reason whatsoever, at whatever time and of whatever duration; (d) any confiscation, expropriation, nationalization, requisition, seizure, inability to export, deprivation, or other taking of title to or possession or use of the Vessel or any part thereof by any government or governmental authority or otherwise; (e) any restriction on possession or use of the Vessel; (f) the interference with or prohibition of the Charterer's possession or use of the Vessel; (g) any invalidity or unenforceability or lack of due authorization or other infirmity of this Charter or the lack of right, power or authority of any Obligor or the Owner to enter into this Charter or any Charter Document; (h) any default by the Owner; (i) any defect in the title, condition, quality or fitness for a particular purpose of the Vessel or other property or service provided hereunder; (j) any amendment or modification of or supplement to the Charter Documents, any agreements relating to any thereof or any other instrument or agreement applicable to the Vessel or any part thereof, or any assignment or transfer of any thereof, or any furnishing or acceptance of additional security, or any release of any security, or any failure or inability to perfect any security; (k) any failure on the part of the Owner, the Owner Group or any Investor or any other Person to perform or comply with any term of any instrument or agreement; (l) any waiver, consent, change, extension, indulgence or other action or inaction under or in respect of any such instrument or agreement or any exercise or nonexercise of any right, remedy, power or privilege under or in respect of any such instrument or agreement or this Charter; (m) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation, or similar proceeding with respect to any Obligor, the Owner, the Owner Group or any Investor, or their respective properties or creditors, or any action taken by any trustee or receiver or by any court in any such proceeding, including, without limitation, any termination or rejection of this Charter by any court or any trustee, receiver or liquidating agent of any Obligor, the Owner Group, any Investor, or the Owner or of any of their respective properties in connection with any such proceeding; (n) any assignment or other transfer of this Charter by the Charterer or the Owner or any lien, charge or encumbrance on or affecting the Charterer's estate in, or any subchartering of, all or any part of the Vessel; (o) any libel, attachment, levy, detention, sequestration or taking into custody of the Vessel, or any interruption or prevention of or restriction on or interference with the use or possession of the Vessel; (p) any act, omission or breach on the part of the Owner under this Charter or under any other agreement at any time existing among the Owner or any Obligor or under any other law, governmental regulation or other agreement applicable to such Persons or the Vessel; (q) any claim as a result of any other dealing between the Owner and any Obligor; (r) any ineligibility of the Vessel, or any denial of the Vessel's right, to engage in any trade or activity; (s) any failure to obtain any required governmental consent for any transfer of rights or title required to be made by the Owner under this Charter; (t) any ineligibility of the Vessel for documentation under the laws of any jurisdiction; (u) the recovery of any judgment against any Person or any action to enforce the same; (v) any defect in the seaworthiness, condition, design, operation or fitness for use or other characteristics of the Vessel; (w) any change in the ownership, direct or indirect, of the capital stock of the Owner or any of the Obligors; or (x) any other cause, circumstance, or happening, whether similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding and whether or not any Obligor could have foreseen or shall have notice or knowledge of any of the foregoing. Except as specifically provided herein, the Charterer hereby waives any and all rights that it may now have or which at any time hereafter may be conferred upon it, by statute, at law, in admiralty or equity or otherwise, to terminate, cancel, quit or surrender this Charter. All payments hereunder shall be final and, once paid, be fully and finally earned and nonrefundable, and the Charterer shall not seek to recover all or any part of such payment from the Owner for any reason whatsoever. The Charterer shall remain obligated under this Charter in accordance with its terms and shall not take any action to terminate, rescind or avoid this Charter, notwithstanding any action for bankruptcy, insolvency, reorganization, liquidation, dissolution, or other proceeding affecting the Owner, any governmental authority or any other Person, or any action with respect to this Charter or any Charter Document which may be taken by any trustee, receiver or liquidator of the Owner, any governmental authority or any other Person or by any court with respect to the Owner or any governmental authority. The Charterer hereby waives all right (i) to terminate or surrender this Charter or (ii) to avail itself of any abatement, suspension, deferment, reduction, setoff, counterclaim or defense with respect to any amount payable hereunder. The Charterer shall remain obligated under this Charter in accordance with its terms and the Charterer hereby waives any and all rights now or hereafter conferred by statute, at law, in admiralty or equity or otherwise to limit or modify any of the Owner's rights or remedies or any of the Charterer's rights, remedies, obligations or liabilities as described in this Charter or any Charter Document (such waiver to include, without limitation, any and all rights and remedies against a lessor under Article 2A of the UCC or to avoid strict compliance with its obligations under this Charter). 4.2 Net Charter This Charter is a net Charter and it is intended that the Charterer shall pay all costs, charges, fees, assessments, expenses, duties and taxes of every character incurred in connection with the delivery, storage, use, possession, operation, maintenance, repair, chartering, recovery, retaking, and return of the Vessel, including without limitation those described elsewhere in this Charter. The parties intend that the obligations of the Charterer hereunder shall be covenants and agreements that are separate and independent of the Owner's obligations hereunder or hereafter arising or existing and shall continue unaffected. ARTICLE 5 CONDITIONS TO EFFECTIVENESS 5.1 Conditions This Charter shall become effective upon (i) receipt by the Owner of each of the documents described in subsections (a) through (k) below, in form and substance satisfactory to the Owner and each Investor, and (ii) satisfaction of each of the other conditions set forth in subsections (l) through (p) below in a manner satisfactory to the Owner and each Investor in all respects. (a) This Charter duly executed by Charterer. (b) A confirmation of Guaranty duly executed by Reading & Bates in form and substance satisfactory to the Owner. (c) A First Supplement to Preferred Mortgage, duly executed by Charterer, mortgaging the Jim Cunningham in form and substance satisfactory to the Owner. (d) A First Supplement to Security Agreement duly executed by Charterer in form and substance satisfactory to the Owner. (e) Duly executed Officers' Certificates, dated as of the Closing Date, from an executive officer and the Secretary or Assistant Secretary of each of the Charterer and Reading & Bates (collectively, the "R&B Companies") certifying copies of resolutions of each of the R&B Companies approving this Charter and the other Charter Documents to which each is a party and authorizing the transactions contemplated herein and therein, duly adopted at a meeting of, or by the unanimous written consent of, the Board of Directors of each corporation, and the articles or certificates of incorporation and by-laws of the R&B Companies, as in effect at such time. (f) An original executed opinion dated the Closing Date from Wayne K. Hillin, General Counsel to the R&B Companies, setting forth customary opinions regarding (i) the R&B Companies' due organization, valid existence, good standing, corporate power and authority, (ii) the legal, valid and binding nature of this Charter and the other Charter Documents, (iii) the absence of violations of, or conflicts with, laws, corporate organizational and governance documents or other agreements, (iv) the absence of any required consents, and (v) such other matters as the Owner may reasonably require be addressed. In addition, such opinion shall also opine that no consent or approval of the U.S. Department of Transportation Maritime Administration, the United States Coast Guard or any other entity having jurisdiction over the Vessel, the Collateral Vessels or any of the R&B Companies is required in order to consummate the transactions contemplated hereby or by any of the other Charter Documents. (g) An original executed opinion from Baker & Botts, L.L.P., counsel to the Owner, regarding (i) the legal, valid and binding nature of this Charter and certain other Charter Documents and (ii) certain tax matters. (h) UCC financing statements, duly executed by Charterer, as required by the Owner to perfect the security interest granted under the Security Agreement, to be filed with the appropriate filing offices. (i) An appraisal report for the Vessel in form and substance satisfactory to the Owner. (j) A certificate of insurance for the Vessel and a detailed written report signed by an independent marine insurance broker, evidencing compliance with the insurance requirements set forth in the Charter. (k) A duly executed Second Upgrade Agreement. (l) No loss, constructive loss or requisitioning for use by any governmental authority of the Vessel shall have occurred. (m) No change shall have occurred in applicable law or regulations thereunder or in interpretations thereof by any regulatory authority which would make it illegal for the Charterer, the Owner or any Investor to enter into any of the transactions contemplated in the Charter Documents or which would subject the Charterer, the owner or any Investor to any penalty or other liability as a result of any transaction contemplated in any of the Charter Documents. (n) No material adverse change shall have occurred in the physical condition of the Vessel since December 31, 1995. (o) All governmental and regulatory approvals, licenses and authorizations necessary or, in the opinion of the Owner, the Investors or their respective counsel, advisable in connection with the transactions contemplated in the Charter Documents shall have been duly received or obtained. (p) The Owner's determination that, since December 31, 1996, no material adverse change has occurred with respect to the financial or other condition of Charterer or Reading & Bates. ARTICLE 6 REPRESENTATIONS AND WARRANTIES 6.1 Representations and Warranties of the Owner. To induce the Charterer to enter into this Charter and to consummate the transactions contemplated hereby, the Owner represents and warrants to the Charterer that as of the date of execution of this Charter: (a) Organization and Good Standing. The Owner is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) Authority. The Owner has taken all action required by Delaware law, and by the Limited Liability Company Agreement to authorize the execution and delivery of this Charter. This Charter constitutes the legal, valid and binding obligation of the Owner, enforceable against the Owner in accordance with its terms, subject to bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights and by general principles of equity. Neither the execution and delivery of this Charter nor will the consummation of the transactions by it in accordance with the terms hereof: (i) violate or conflict with any provision of the Limited Liability Company Agreement of the Owner, or (ii) violate or conflict with any provision of any law, rule, regulation, order, permit, certificate, writ, judgment, injunction, decree, determination, award or other decision of any court, government, government agency or instrumentality, domestic or foreign, or arbitrator binding upon the Owner, which violation or conflict is reasonably likely to prevent the Owner's performance of its obligations hereunder. Neither the execution and delivery of this Charter nor the consummation of the transactions contemplated hereby will result in a breach of, or constitute a default (or with notice or lapse of time or both result in a breach of or constitute a default) under or otherwise give any person the right to terminate any mortgage, indenture, loan or credit agreement, lease, license, contract or any other agreement or instrument to which the Owner is a party or by which it or any of its properties is bound or affected. (c) EXCEPT AS EXPRESSLY SET OUT IN THIS SECTION 6.1, OWNER EXPRESSLY DISCLAIMS ANY EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES, INCLUDING WITHOUT LIMITATION, SEAWORTHINESS, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR WITH RESPECT TO PATENT INFRINGEMENT, VALUE, USE, CONDITION, SUITABILITY, CLASS, OPERATION, COMPLIANCE WITH LAWS, DESIGN, CONFORMANCE WITH SPECIFICATIONS, OR ABSENCE OF DEFECTS, HIDDEN, PATENT, LATENT OR OTHER. 6.2 Representations and Warranties of the Charterer. To induce the Owner to enter into this Charter and to consummate the transactions contemplated hereby, the Charterer represents and warrants to the Owner that as of the date of execution of this Charter: (a) Organization and Good Standing. The Charterer is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma and is duly qualified or licensed and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases any facility or property or has any office, or in which the character of its business or operations requires such qualification or licensing, in each case related to the subject matter of this Charter or any of the Charter Documents. (b) Authority. The Charterer has taken all action required by law, its Certificate of Incorporation, as amended, and its By-Laws to authorize the execution and delivery of this Charter and each of the Charter Documents to which it is a party. This Charter and each of the Charter Documents to which it is a party constitute the legal, valid and binding obligations of the Charterer, enforceable against the Charterer in accordance with their respective terms, subject to bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights and by general principles of equity. Neither the execution and delivery of this Charter or any of the Charter Documents, nor will the consummation of the transactions by it in accordance with the terms hereof or thereof: (i) violate or conflict with any provision of its Certificate of Incorporation or By-Laws, (ii) violate or conflict with any provision of any law, rule, regulation, order, permit, certificate, writ, judgment, injunction, decree, determination, award or other decision of any court, government, government agency or instrumentality, domestic or foreign, or arbitrator binding upon it, or (iii) create any conflicts or resulting liens or require any consents that the Charterer has not obtained. Neither the execution and delivery of this Charter and each of the Charter Documents to which it is a party nor the consummation of the transactions contemplated hereby or thereby will result in a breach of, or constitute a default (or with notice or lapse of time or both result in a breach of or constitute a default) under or otherwise give any person the right to terminate any mortgage, indenture, loan or credit agreement, lease, license, contract or any agreement or instrument to which the Charterer is a party or by which it or any of its properties is bound or affected. (c) Litigation. There is no action, suit, proceeding, claim or investigation pending or, to the best of the Charterer's knowledge after due and reasonable inquiry, threatened against or affecting the Charterer or any of its properties or related to the subject matter of this Charter or any of the Charter Documents before any court, government agency or regulatory authority (federal, state, local or foreign) that questions the validity or enforceability of this Charter or any Charter Document or is reasonably likely to impair its ability to perform its obligations under this Charter or any of the Charter Documents or to cause a material adverse effect on the business, financial condition or prospects of the Charterer. There are no orders, writs, judgments, stipulations, injunctions, decrees, determinations, awards or other decisions of any court, government or governmental agency or instrumentality, domestic or foreign, or any arbitrator outstanding against the Charterer having or likely to have any such effect. (d) No Defaults. No event or condition has occurred and is continuing that constitutes, or with the lapse of time or the giving of notice or both, would constitute, an Event of Default by the Charterer or any other Member of the Charterer Group, as the case may be, under this Charter or any of the Charter Documents or a default or by the Charterer or any other Member of the Charterer Group under any indenture, trust, deed, loan agreement, lease other instrument or contract, agreement, instrument or obligation (i) under which any such Person pays, receives, borrows, lends, or is obligated or entitled to pay, receive, borrow or lend, consideration in excess of $1,000,000 to which it is a party or by which it is bound or affected, or (ii) which is reasonably likely to have a material adverse effect on the business, financial condition or prospects of the Charterer or its ability to perform its obligations under the Charter. (e) Obligations and Liens. Except as disclosed in writing to, and specifically consented to in writing by, the Owner, the Charterer has no outstanding obligations, or Liens on its properties, for unpaid Taxes other than Taxes incurred in the ordinary course of business, and in existence for not more than 30 days and which are not overdue unless such Taxes are, in the Owner's reasonable judgment, being contested in good faith and by appropriate Persons and proceedings. (f) Government Regulations. The Charterer is not in violation of and is not alleged to be in violation of any law, rule, regulation, order, permit, certificate, writ, judgment, stipulation, injunction, decree, determination, award or decision of any court, government, or governmental agency or instrumentality, domestic or foreign, or arbitrator binding upon it, which violation or alleged violation is reasonably likely to have a material adverse effect on the business, financial condition or prospects of the Charterer or its ability to perform its obligations under this Charter or any of the Charter Documents. (g) No Labor Unrest. There are no strikes or other significant labor disputes in progress or pending or, to the best of the Charterer's knowledge after due and reasonable inquiry, threatened against or affecting the Charterer. (h) Pollution Regulations. Neither the Charterer nor any member of the Charterer Group is the subject of any actual or threatened environmental, health or safety investigation or enforcement proceeding related to its operations or business or the subject matter of this Charter or any of the Charter Documents. To the best of the Charterer's knowledge after due and reasonable inquiry, the Charterer is in compliance with all applicable laws and regulations relating to pollution control and environmental, health and safety matters in all jurisdictions in which the Charterer is doing business. (i) Providing of Information. All information that the Charterer at any time has furnished or will furnish the Owner for use in any statement, application or other filing provided for in this Charter or any of the Charter Documents, does or shall (as the case may be) meet all requirements of applicable laws, rules and regulations and does not or shall not (as the case may be) as of the date prepared or delivered to the Owner contain any statement which is false or misleading with respect to any material fact and does not or shall not (as the case may be) as of the date prepared or delivered to the Owner omit any material fact required to be stated therein or necessary in order to make such information not false or misleading for the purpose for which such information was furnished and no correction of any information or omission that is no longer true and correct in all material respects that has not been made need be made or updated in order to make such information, taken as a whole, not false or misleading in any material respect. For purposes of this Section 6.2(i), "information" includes, without limitation, all information contained in the data sheets, projections, pro forma sources and uses, the Drilling Contracts, the "M.G. Hulme, Jr." 1,000 Meter Water Depth Upgrade Shipyard Specification, Rev. 5, dated October 21, 1995 by D.N. Edelson, Project Engineer, the Enserch-Green Canyon Analysis, dated September 11, 1995 and the Reading & Bates Corporation/GATX Due Diligence Confidential Binder, dated July 20, 1995, in each case as provided to the Investors prior to the date hereof. Each audited income statement, balance sheet and statement of operation and cash flows dated as of December 31, 1996 and for the fiscal year then ended and the unaudited income statement, balance sheet and statement of operation and cash flows dated as of March 31, 1997 and for the three months then ended were prepared in accordance with generally accepted accounting principles, consistently applied, are true, complete and correct, and fairly present the financial condition, the results of operations and cash flows for Reading & Bates and its consolidated subsidiaries, including the Charterer, for the dates and periods stated; and there is no outstanding Debt, lien or liability, whether direct or contingent, that is material to the Charterer and not shown in such financial statements. (j Insurance. The Charterer maintains insurance listed on Schedule C and other insurance in a manner consistent with persons engaged in the same or similar business and in compliance with this Charter. (k Certain Federal Laws and Requirements. (i) The Charterer and its affiliates are exempt from the Public Utility Holding Company Act of 1935. (ii) None of the Charterer and its subsidiaries, whether separately or together, is an investment company under the Investment Company Act of 1940. (iii) Except as expressly identified in this Charter, neither the Charterer nor any affiliate of the Charterer, as that term is defined in the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations thereunder ("ERISA"), has any material unfunded ERISA liabilities. (l Permits and Authorizations. The Charterer has obtained all governmental permits, authorizations, certificates and approvals and given or made all notices and filings required under applicable law for the execution, delivery and performance of this Charter and the other Charter Documents and its possession, use and operation of the Vessel. Without limiting the generality of the foregoing, and more specifically, the Charterer has and maintains all environmental, health and safety permits necessary or appropriate for its operations and all such permits are in good standing and the Charterer is in compliance with all terms and conditions of such permits and all applicable environmental, health or safety requirements of law. ARTICLE 7 USE AND OPERATION OF THE VESSEL 7.1 Use of the Vessel The Charterer shall have the full use of the Vessel and may, subject to the terms and conditions of this Charter, employ the Vessel as a semisubmersible drilling unit throughout the world consistent with its design capability, except that the Vessel shall not be used contrary to and shall comply with (a) all applicable laws or regulations of any governmental authority, treaties or conventions (including, but not limited to, all environmental, health and safety laws) and (b) the terms or policies of any insurance then required hereunder; and provided that, with respect to the use or possession of the Vessel outside of the territorial waters and/or the Outer Continental Shelf of the United States, the Charterer shall give such indemnities suitable to the Owner in an amount and form, and obtain and continue such additional insurance coverage, in such amounts, having such terms and conditions and with such carriers, as the Owner may reasonably require at any time or from time to time in connection with the use or possession of the Vessel in any given area outside the territorial waters and/or the Outer Continental Shelf of the United States. The Charterer, in respect of the Vessel, shall at all times comply with all applicable laws and regulations (including, but not limited to, all environmental, health and safety laws), and with the applicable provisions and conditions of all licenses, permits, consents and approvals of any governmental authority. 7.2 Manning, etc., of the Vessel During the Charter Period, the Charterer shall have the exclusive possession and control of the Vessel and shall man, victual, navigate and operate, supply, fuel, maintain and repair the Vessel at its own expense or by its own measurement and shall pay all other charges and expenses of every kind and nature whatsoever incidental to the possession, use and operation of the Vessel. During the Charter Period, the possession, use, operation and maintenance of the Vessel shall be at the sole risk, cost and expense of the Charterer until redelivery pursuant to the terms hereof upon the termination or expiration of this Charter. As between the Owner and the Charterer, the Offshore Installation Manager, officers and crew of the Vessel and all other persons at any time on board the Vessel shall be deemed to be engaged and employed exclusively by the Charterer and shall be deemed to be and remain the Charterer's servants, navigating and working the Vessel solely on behalf of and at the risk of the Charterer and the Charterer shall hold each Indemnitee harmless from any and all claims against it by, or as the result of any act or omission of, any such Offshore Installation Manager, officer, member of the crew or other person. The Charterer assumes and shall satisfy all costs and liabilities incurred in connection with all salvage services received by the Vessel. 7.3 Documentation of the Vessel Neither the Owner nor the Charterer (without the prior written consent of the other) will do or suffer or permit to be done anything which can or might change or injuriously affect the documentation of the Vessel for foreign trade under the laws and flag of the United States of America. The Charterer covenants and agrees that it will not (a) cause or permit the Vessel to be operated in any manner which could subject the Owner to any criminal penalty, or (b) operate or locate the Vessel, or permit the Vessel to be operated or located, in any area excluded from coverage from any insurance required by the provisions of Article 15 or (c) unless there shall have been an actual or total loss or agreed or compromised total loss of the Vessel, abandon the Vessel in any foreign port. The Owner and the Charterer hereby respectively represent that they are as of the date of execution of this Charter, and covenant that they shall remain during the Charter Period, "citizens of the United States" within the meaning of Section 2 of the Shipping Act, 1916, as amended. The Charterer agrees that the Vessel will be operated solely in the domestic or foreign commerce of the United States. The Charterer shall throughout the Charter Period maintain to the satisfaction of the Owner at the Charterer's sole cost and expense such documentation of the Vessel, and shall not do or suffer or permit to be done anything which can or might change or injuriously affect the documentation of the Vessel for foreign trade under the laws and the flag of the United States or which would result in a violation of any law or regulation of the United States applicable to a vessel owned by a citizen of the United States, as defined in the Shipping Act, 1916. 7.4 General and Particular Average Whenever necessary, average adjusters shall be appointed by the Charterer, who shall, at the Charterer's sole cost and expense, attend to the settlement and collection of both general and particular average losses. 7.5 Site and Access The Charterer will be responsible for selecting and mooring the Vessel in a safe and prudent manner at a location in the Operating Area. The Charterer will conduct sea bottom condition surveys acceptable to the Owner where required by the Vessel's hull underwater surveyor at the Charterer's sole cost and expense and will be responsible for identifying, marking and clearing the location of all major impediments or hazards to operations or causing same to be done. Removal of all impediments or hazards shall be, as between Owner and the Charterer, at the Charterer's sole cost and expense. 7.6 Owner Liability for Materials Furnished by the Charterer Without limiting any indemnity provided by the Charterer, the Owner shall not be liable for any loss or damage resulting from the use or possession of equipment, materials, supplies or other items furnished by the Charterer. 7.7 Environmental and Related Reporting and Inspection The Charterer shall notify the Owner in writing within five days of the Charterer's obtaining notice or knowledge thereof of any (a) notice of claim that there has been a release or threatened release of any contaminant into the environment from the Vessel or any equipment, machinery or property related thereto; (b) notice of any investigation by any governmental authority evaluating whether any remedial action is necessary or appropriate to respond to any release or threatened release of any contaminant into the environment from the Vessel or any equipment, machinery or property related thereto; (c) notice that the Vessel or any equipment, machinery or property related thereto is subject to an environmental Lien; (d) the commencement or threat of any judicial, administrative or other proceeding alleging a violation of any environmental, health or safety requirements of law; or (e) any new or proposed changes to any existing environmental, health or safety requirement of law that could have a material adverse effect upon the use or operations of the Vessel or the Charterer. The Charterer shall provide from time to time documentation deemed adequate by the Owner showing the Charterer's compliance with financial responsibility requirements of all applicable environmental, health and safety laws. 7.8 Notice of Entry The Charterer will provide written notice within ten (10) days of entry of the Vessel into the jurisdictional waters of any foreign country or of any state or territory of the United States other than Louisiana, Texas and any other state in which the Owner has filed financing statements or taken other action to perfect its Lien upon the equipment owned by the Charterer and its Affiliates and used in connection with the Vessel. ARTICLE 8 MAINTENANCE OF CONDITION AND CLASSIFICATION; REPAIRS 8.1 Maintenance of Classification The Charterer shall at all times and, at its sole cost and expense, procurement and risk (a) have exclusive control of the Vessel, (b) maintain and preserve the Vessel in accordance with good commercial maintenance practices, and keep the Vessel and her drilling and other equipment in good running order, condition and repair, so that the Vessel shall be tight, staunch, strong and well and sufficiently tackled, appareled, furnished, equipped and in every respect seaworthy and in good operating condition, and (to the extent that such prescribes a standard of maintenance that exceeds the foregoing standard in any respect) in the condition, running order and repair which equals or exceeds industry standards and the condition, running order and repair of vessels and their equipment owned by the Charterer of like kind and age, and, in addition, shall (i) cause the Vessel to be a semi-submersible drilling unit capable of operating in water depths of up to 3,280 feet before completion of the Second Upgrade Program and 4,000 feet after completion of the Second Upgrade Program and to have technical specifications, characteristics and capabilities at least the substantial equivalent of those set forth in Schedule A hereto as upgraded in accordance with the First Upgrade Program and after completion of the Second Upgrade Program as set forth in Schedule B-2; and (ii) keep the Vessel in such condition as will entitle her, during the Charter Period and at the date of redelivery to the Owner, to the highest applicable classification and rating to which an existing vessel of the same age and type can qualify under the then existing rules and standards of the American Bureau of Shipping and shall furnish to the Owner within 90 days after each anniversary of the Delivery Date and at any other time upon the request of the Owner true and correct photostatic copies of all certificates issued by the American Bureau of Shipping evidencing the maintenance of such classification. (iii) The Vessel shall, and the Charterer covenants that it will, at all times comply with all applicable safety, operational and maintenance requirements of the United States Coast Guard and any other United States, international or other authority and all laws, treaties and conventions, and rules and regulations (including, but not limited to, all environmental, health and safety laws) issued thereby or applicable in any way to the Vessel or any use, possession or operation thereof and shall have on board, when required thereby, valid certificates and appropriate environmental, health and safety permits showing compliance therewith. The Charterer shall, at its expense, make all modifications and alterations to the Vessel which may be necessary to comply with the provisions of this Section 8.1. 8.2 Repair The Vessel shall be repaired and overhauled by the Charterer and the Charterer shall install, affix and attach replacement parts thereon, at its sole cost and expense, in each case, whenever necessary to keep the same in good condition, repair and working order in accordance with Section 8.1 or as a result of any requirement hereof. The Vessel shall likewise be drydocked or undergo an underwater survey in lieu of drydocking, cleaned and bottom painted by the Charterer, at its expense, whenever necessary, but in any event at least as often as necessary in order to maintain the classification referred to in Section 8.1. The Charterer shall, at its expense, promptly and duly comply with all requirements of the applicable classification society including those resulting from each special survey of the Vessel. The Charterer shall, at its expense, promptly furnish the Owner with written information as to any casualty involving any loss or damage to the Vessel in excess of $500,000 and, upon request, all survey reports in connection therewith. 8.3 Drydocking or Underwater Survey in Lieu of Drydocking The Charterer shall give the Owner notice of each proposed drydocking or underwater survey in lieu of drydocking 20 days in advance if practicable, otherwise as long in advance as may be practicable under the circumstances. The Owner, any Investor or any authorized representative of any thereof may at any time, upon reasonable notice at its own expense (but after the occurrence of an Event of Default, at the Charterer's sole cost and expense), inspect the Vessel at drydocking or underwater survey in lieu of drydocking or otherwise, at any time or from time to time, and inspect the Vessel's logs, but neither the Owner nor any Investor shall have any duty to do so. 8.4 Required Survey At the request of the Owner following any explosion, release accident, storm, act of God or other event or incident that gives the Owner reasonable concern for the physical condition and operating ability of the Vessel and at the Charterer's expense, a qualified independent marine surveyor or surveyors of recognized standing, acceptable to the Owner, shall conduct a survey of the Vessel. For purpose of such surveys, the Vessel need not be drydocked (or subjected to an underwater survey in lieu of drydocking) unless required by customary survey practices for drilling vessels of similar age, type and service. The Charterer shall submit a detailed report of the independent marine surveyor to the Owner promptly upon the completion of such survey, containing: (a) the location of the Vessel at the time of inspection; (b) the findings and recommendations of the independent marine surveyor with respect to the condition of the Vessel; and (c) the opinion of the independent marine surveyor as to whether the Vessel has been maintained in accordance with the terms of this Article 8. ARTICLE 9 EQUIPMENT AND STORES 9.1 Fuel, etc. The Owner acknowledges that such fuel, lubricating oil and unbroached consumable stores as may be aboard the Vessel at the time of its delivery to the Charterer will be the property of the Charterer. 9.2 Equipment, etc. The Charterer shall have the use, without additional payment to the Owner, of such equipment, outfit, furniture, furnishings, appliances, spare or replacement parts and nonconsumable stores as shall have been on board the Vessel on the Delivery Date. The same or their substantial equivalent shall be returned to the Owner on redelivery or retaking of the Vessel in the same good order and condition as received by the Charterer on the Delivery Date, ordinary wear and tear excepted, and any such items damaged or so worn in service as to be unfit for use, or used as a spare part for replacement purposes, or lost or destroyed shall be replaced by the Charterer with an identical or substantially equivalent replacement item in at least as good working order and condition as those of the replaced item when received by the Charterer on the Delivery Date at or before redelivery of the Vessel. Such replacement, whenever made, shall be deemed part of the "Vessel" for all purposes of, and its use or possession shall be subject to the terms and conditions of, this Charter. 9.3 The Charterer's Additional Equipment, etc. The Charterer shall at its own expense provide such additional equipment, outfit, tools, replacement parts, crockery, linen, and other items not included in inventories as provided in this Article 9 as may be required in the operation of the Vessel, and such equipment, and other items, shall become, on being placed on board the Vessel and without further act, part of the Vessel and the property of the Owner for all purposes of this Charter, provided that so long as no Default or Event of Default shall have occurred and be continuing, any such equipment and other items, so provided by the Charterer (and not required to be provided or to have been provided by Section 9.2 or any other provision of this Charter other than this Section 9.3) and capable of being removed without causing damage to the Vessel may be removed by the Charterer at the expiration of the Charter Period, and such equipment, and other items, shall become, without further act, the property of the Charterer. At least 90 days prior to delivery or retaking of the Vessel (or such lesser time as may be available in connection with any retaking), the Charterer shall give notice to the Owner of any such equipment or other items leased from third parties, which the Charterer has elected not to remove, and will furnish the Owner with copies of all leases and contracts relating thereto, and the Owner may, within 30 days thereafter (or such lesser time as may be applicable in connection with any retaking), elect to retain all or any part of such equipment on board the Vessel subject to any required approval of the lessors of such equipment. Upon redelivery or retaking the Owner shall assume the rights, obligations and liabilities of the lessee under such leases arising subsequent to delivery or retaking in connection with any equipment that the Owner elects to so retain. The Charterer shall at its sole cost and expense remove from the Vessel any such leased equipment which the Owner does not so elect to retain and shall cause to be repaired at its sole cost and expense any damage to the Vessel or any part or property thereof resulting in any manner from the Charterer's removal of any equipment. By its acceptance of the Vessel upon delivery, the Charterer represents and warrants to the Owner that there is on board the Vessel an inventory of equipment, outfit, appliances, tools, replacement parts, nonconsumable stores, crockery, linen, and other items, as in the reasonable judgment and experience of the Charterer are necessary or appropriate to the possession, use and operation of the Vessel and the Charterer hereby covenants that, subject to Section 9.3, upon redelivery or retaking of the Vessel by the Owner, such inventory, which may include replacement items of equivalent value, shall be on board the Vessel. 9.4 Title to Improvements; Option to Purchase Title to Nonseverables of the Vessel acquired after the Delivery Date shall without further act vest in the Owner and shall be deemed to constitute a part of the Vessel and be subject to this Charter. Title to all Severables of the Vessel acquired after the Delivery Date (other than Severables that replace or substitute for Severables that have been provided by the Owner and Severables provided in connection with the Second Upgrade Program, the title to which shall vest in the Owner) shall vest in the Charterer; provided, however, that the Charterer may not remove any thereof from the Vessel (except to the extent subsequently replaced or worn out) prior to the end of the Charter Period except that the Charterer may, so long as no Default or Event of Default shall have occurred and be continuing, remove at the Charterer's expense and risk any such Severables, provided, further, that the Owner may elect to purchase for cash any such Severables at the time of redelivery of the Vessel to the Owner in accordance with any of the provisions of this Charter. Contemporaneously with its delivery of the Expiration Date Election Notice, the Charterer shall notify the Owner of the Severables described above that it intends to remove. To exercise the election referred to in the second proviso to the second preceding sentence of this Section 9.4, the Owner shall give to the Charterer written notice of its election to purchase on or prior to such redelivery. The purchase price of such Severables shall be equal to the Fair Market Sale Value thereof, as of the date of purchase as determined by mutual agreement or, in the absence of such agreement, by the Appraisal Procedure. The Charterer shall repair any damage caused by the removal of any Severables to the Owner's reasonable satisfaction. 9.5 No Lease of Essential Severables The Charterer shall not lease any Severables that are necessary or appropriate for the use, possession or operation of the Vessel in accordance with the terms and conditions of this Charter and the Charter Documents but shall hold good and marketable title to all such Severables that are, in accordance with industry practice, customarily owned by drilling contractors engaged in businesses similar to the Charterer's business, free and clear of all Liens other than Permitted Liens. ARTICLE 10 THE CHARTERER'S CHANGES, ADDITIONS AND REPLACEMENTS 10.1 Structural Changes or Alterations; Installation of Equipment, etc. Except as may be required by Article 8 or 9 or the Upgrade Programs, the Charterer shall not make any structural changes or alterations in the Vessel, or any change, alteration, addition or improvement to the Vessel that is Nonseverable (except for changes, alterations, additions or improvements required to be made pursuant to applicable law), and shall make no material changes or alterations in the Vessel's machinery or boilers, unless and to the extent that, in each instance, (a) it first secures written approval of the Owner (which may be withheld in the Owner's sole discretion if such change or alteration would materially change the type or character of the Vessel or would adversely affect Owner's status as a lessor for federal income tax purposes, but otherwise such approval shall not be unreasonably withheld) and (b) any such change or alteration is made at the Charterer's expense and risk and does not diminish the value, utility, useful life or seaworthiness of the Vessel below the value, utility, useful life and seaworthiness of the Vessel immediately prior to such change if the Vessel were then in the condition and state of seaworthiness required to be maintained by the terms of this Charter. Subject to the foregoing provision, the Charterer may install any pumps, gear or equipment it may require in addition to that on board the Vessel on delivery, provided that such installations are accomplished at the Charterer's sole cost, expense and risk. Pumps, gear and equipment so installed shall, without necessity of further act, become part of the Vessel and the property of the Owner; provided that so long as no Default or Event of Default shall have occurred and be continuing, any such pumps, gear or equipment not required to be installed in order to meet the requirements of Articles 8 and 9 and not installed as replacements for property included in the Vessel on the date hereof are subject to the Owner's option to purchase set forth in Section 9.4, and, if not purchased by the Owner, may be removed (so long as such removal can be accomplished without damage to the Vessel) by the Charterer, at its own expense and risk, at any time during, or at the expiration of, the Charter Period, whereupon such pumps, gear or equipment shall, without necessity of further act, become the property of the Charterer. 10.2 Replacement of Parts In addition to the permitted structural changes or alterations and the addition of pumps, gear and equipment referred to in Section 10.1, the Charterer may, in the ordinary course of maintenance, repair or overhaul of the Vessel, remove any item of property (including any item referred to in Section 9.2 or 9.3 constituting a part of the Vessel), provided such item is replaced as promptly as possible by an item of property which is free and clear of all Liens and is in as good operating condition, working order and repair, and is as seaworthy as, and has a value, useful life and utility at least equal to that of, the item of property being replaced (including each item of equipment) and assuming the Vessel is in the working order, condition and repair and state of seaworthiness required by the terms of this Charter. Any item of property so removed from the Vessel shall remain the property of the Owner until replaced in accordance with the terms of the preceding sentence, but shall then, without further act, become the property of the Charterer but shall remain subject to the Owner's option to purchase set forth in Section 9.4. Any such replacement item of property shall, without further act, become the property of the Owner, deemed part of the "Vessel" as defined herein for all purposes, and its use and possession shall be subject to the terms and conditions hereof. 10.3 Vessel Markings The Charterer shall not allow the name of any person, association or corporation, other than as required hereby, to be placed on the Vessel (other than the current name of "M. G. Hulme, Jr.") as a designation which might be interpreted as indicating a claim of ownership thereof by any person, association or corporation other than the Owner, but, for purposes of identification, the Charterer shall have the right at its sole cost and expense to paint the Vessel in its own colors, to install and display its stack insignia or name, and to fly its own house flag, or to utilize the colors, insignia, name or flag of any Affiliate of the Charterer. The Charterer shall notify the Owner of each such choice of colors, name, insignia or flag before making any such change. ARTICLE 11 ADDITIONAL COVENANTS 11.1 General Covenants From and after the date of execution of this Charter and until the termination or expiration of this Charter, the Charterer shall: (a continue its business as presently conducted and maintain its existence, rights and privileges; (b comply with its obligations set forth in this Charter and all applicable laws (including, without limitation, all environmental, health and safety laws); and (c maintain its books and records in compliance with generally accepted accounting principles, consistently applied with such adjustments or changes as to which the independent public accountants referred to in Section 11.3 concur. 11.2 No Impairment Notwithstanding any other contract or other claim of right, from and after the date of execution of this Charter and until the termination or expiration of this Charter, the Charterer Group shall not enter any contract or agreement or perform or omit any act that in any way materially limits or impairs, or the effect of which would be to materially limit or impair, the ability of any member of the Charterer Group to comply with and fulfill its obligations set forth in the Charter Documents. 11.3 Financial Information The Charterer will furnish, or cause to be furnished, to the Owner and each Investor: (a) within 45 days after the end of each of the first three fiscal quarters during each fiscal year of Reading & Bates, a consolidated balance sheet of Reading & Bates and its consolidated Subsidiaries as of the close of each such fiscal quarter, together with a consolidated income statement and consolidated statement of cash flows of Reading & Bates and such Subsidiaries for such fiscal quarter, in each case setting forth in comparative form the corresponding consolidated figures for the same period of the next preceding fiscal year, all in reasonable detail and certified by the chief financial officer of Reading & Bates as being true, complete and correct and as fairly presenting the financial condition and the results of operations of the respective corporations covered thereby, subject to year-end adjustments; (b) within 90 days after the close of each fiscal year of Reading & Bates, (i) audited consolidated balance sheets of Reading & Bates and its consolidated Subsidiaries as of the close of such fiscal year, together with consolidated profit and loss statements and consolidated statements of cash flows of Reading & Bates and such Subsidiaries for such fiscal year, certified as being true, complete and correct by Arthur Andersen & Co. or independent public accountants of comparable national standing and reputation as fairly presenting the consolidated financial position, results of operations and cash flow of Reading & Bates and such Subsidiaries as of the end of such fiscal year and the consolidated results of their operations for such fiscal year, and as fairly presenting in all material respects in conformity with generally accepted accounting principles applied on a basis consistent with prior fiscal years with such adjustments or changes as to which such independent public accountants concur; and (ii) an update of the Contract Data Sheet previously submitted to the Investors (including, but not limited to, rig and contract status and updated annual budget) true, complete and correct and fairly presenting the information contained therein as of the date and of its submission to the Owner and the Investors); (c) within 30 days after the filing thereof with the Securities and Exchange Commission, a copy of each report, form or prospectus filed by Reading & Bates or any of its Subsidiaries with the Securities and Exchange Commission, within three days of the issuance of any press release or similar materials issued by Reading & Bates or any of its Subsidiaries; and (d) such other financial or other information relating to the affairs of Reading & Bates and its consolidated Subsidiaries as the Owner or any Investor may from time to time reasonably request. 11.4 Compliance Certificates The Charterer shall furnish or cause to be furnished, to the Owner and the Investors: (a) within 45 days after the end of the first, second and third quarterly accounting period in each fiscal year of Reading & Bates, and within 90 days after the end of each fiscal year of Reading & Bates, a certificate of the Chairman, the President or a Vice President and the Chief Financial Officer of Reading & Bates stating that each of the Charterer and each Guarantor has performed and complied with all the terms and provisions of this Charter or the Guaranty and/or the other Charter Documents, as the case may be, or, if there shall have been an Event of Default hereunder or if any Guarantor shall be in default under the Guaranty, specifying all such defaults and the nature thereof of which the signer of such certificate may have notice or knowledge; (b) within 90 days after the end of each fiscal year of Reading & Bates, a certificate of the independent public accountants reporting on the financial statements for such year (i) stating that their examination in connection with such financial statements has been made in accordance with generally accepted auditing standards and has included a review of the relevant terms of the Guaranty, the Charter and the other Charter Documents, (ii) stating whether or not such examination has disclosed the existence, during or at the end of such year, of any default by the Charterer or any Guarantor in the observance of any of the terms of the Guaranty, this Charter or the other Charter Documents, insofar as they relate to accounting matters, and, if such examination has disclosed any such default, specifying all such defaults and the nature thereof (it being understood that such accountants shall not be liable for any failure to obtain knowledge of any such default which would not be disclosed in the course of such examination), and (iii) stating that they have reviewed the certificate of the officers of Reading & Bates, delivered with respect to such year pursuant to paragraph (a) of this Section 11.4, and confirming the matters set forth in such certificate; (c) promptly after Reading & Bates' receipt thereof, any audit management letter or similar document submitted after the date hereof by independent accountants in connection with each annual or interim audit made by such accountants with respect to the financial condition or affairs of Readings and Bates or any Guarantor; and (d) as promptly as practicable (but in any event not later than 15 days) after any officer of the Charterer or any Guarantor obtains notice or knowledge of the occurrence of any default (which has not been remedied or waived) in the performance or observance of any of the terms or provisions of the Guaranty or any of the other Charter Documents or any Event of Default under the Charter, a certificate of either the Chairman, the President or a Vice President and the Chief Financial Officer of the Charterer or Guarantor (as the case may be) describing the default or Event of Default and stating the date of commencement thereof, what action the Charterer proposes to take with respect thereto and the estimated date when it will be remedied. 11.5 Further Assurances, etc. The Charterer shall, at its sole cost and expense, promptly and duly execute, acknowledge and deliver to the Owner such further documents, instruments, financing and similar statements and assurances and take such further action as the Owner may from time to time reasonably request in order more effectively to carry out the intent and purpose of this Charter or the Charter Documents, to establish and protect the rights and remedies created or intended to be created in favor of the Owner hereunder or under the Charter Documents, and to protect the title of the Owner in and to the Vessel. The Charterer shall also promptly furnish to the Owner such information as may be required to enable the Owner timely to file any reports required to be filed by it as the owner under the Charter or as the owner of the Vessel with any governmental authority. 11.6 Maintenance of Corporate Existence, etc. The Charterer shall at all times maintain its corporate existence except as permitted by Section 11.7 and will do or cause to be done all things necessary to preserve and keep in full force and effect its rights (charter and statutory) and franchises; provided that (a) it shall not be required to preserve any right or franchise if its Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of its business and (b) the loss thereof does not materially adversely affect or diminish the rights of the Owner or any Investor. 11.7 Conditions of Consolidation, Merger, etc. The Charterer shall not consolidate with or merge into any other corporation or convey, transfer, or lease, all or substantially all of its assets as an entirety to any Person, unless each of the following conditions is satisfied: (a) The Person formed by such consolidation, merger or acquisition by conveyance, transfer or lease all or substantially all the assets of the Charterer as an entirety (the "Resulting Entity"), shall, at the same time, by consolidation, merger, conveyance, transfer or lease, acquire all or substantially all of the assets of the Guarantor as entireties, shall be a citizen of the United States within the meaning of the Shipping Act, 1916 or shall have obtained the approval of the U.S. Maritime Administration for any such consolidation, merger (and the Owner and the Investors, without any expense to any of the foregoing, shall have received an opinion of counsel selected by the Owner as to such citizenship of the United States of such Person, in form and substance satisfactory in all respects to the Owner), and shall be a corporation organized and existing under the laws of one of the several states of the United States of America or the District of Columbia. Such Person, prior to or upon the occurrence of any such transaction, shall execute and deliver to the Owner an agreement in form and substance satisfactory to the Owner, containing an assumption by such Person of the due and punctual performance and observance of each covenant and condition of the Charter and the Charter Documents to be performed or observed by the Charterer. (b) Before and immediately after giving effect to such transaction, no Default, or Event of Default shall have occurred and be continuing. (c) After giving effect to such transaction, the rating of the long- term unsecured senior debt or implied long-term unsecured senior debt rating of the Resulting Entity shall be and shall be maintained for six months thereafter at least "B+" by S&P and, if rated by Moody's, at least "B1". (d) The Charterer shall have delivered to the Owner and each Investor, prior to or upon the occurrence of such transaction, a Certificate of either the Chairman or the President and the Chief Financial Officer of the Charterer, and an opinion of counsel satisfactory to the Owner, each stating that such consolidation, merger, conveyance, transfer or lease and the assumption agreement described in Section 11.7(a) comply with this Section 11.7 and that all conditions precedent relating to such transaction herein provided for have been fully complied with. Upon any consolidation or merger, or any conveyance, transfer or lease of all or substantially all of the assets of the Charterer as an entirety in accordance with this Section 11.7, the Resulting Entity shall succeed to, and be substituted for, and any exercise of every right and power, obligation and liability of, the Charterer under this Charter and the Charter Documents with the same effect as if such Resulting Entity had been named as the Charterer herein and therein. No such conveyance, transfer or lease of all or substantially all of the assets of the Charterer, as an entirety shall have the effect of releasing the Charterer or any Guarantor, as the case may be, or any Resulting Entity which shall theretofore have become such in the manner prescribed in this Section 11.7 from its liability under this Charter, the Guaranty or the Charter Documents. Nothing contained herein shall permit any charter, subcharter or other arrangement for the use, operation or possession of the Vessel except in compliance with the applicable provisions of this Charter. 11.8 Indemnity of the Owner by Customers for Oil Pollution and Related Environmental Claims The Charterer shall cause each of its customers or operators under any Drilling Contract to (a) indemnify, defend and hold harmless the Owner, the Investors and their Affiliates from any and all claims, demands, liabilities, losses, damages, lawsuits and expenses respecting pollution claims resulting from the release of Crude Oil as a consequence of a blowout, crater or other cause arising out of or in connection with operations under such Drilling Contract, in accordance with normal industry practice, and any and all related environmental, health or safety matters (including, but not limited to, all cost and expense of controlling clean-up of pollution and all penalties imposed by any Person) irrespective of whether the Charterer, the Owner or any of their Affiliates may have been or may be alleged to have been negligent or otherwise legally at fault; and (b) if any customer under such Drilling Contract does not maintain (i) a consolidated tangible net worth as determined in accordance with generally accepted accounting principles of at least $500,000,000 (or be a consolidated Subsidiary of a parent entity having such consolidated tangible net worth) or (ii) a senior unsecured debt rating by S&P of "BBB-" or by Moody's of "Baa3" (or be a consolidated direct or indirect Subsidiary of a parent entity having a senior unsecured debt rating meeting such criteria), such customer shall provide (or the Charterer shall provide) operators extra expense or energy exploration and development insurance coverage in an amount of at least the difference between $150,000,000 (or such greater amount, as may be necessary to meet the applicable financial responsibility requirements under the Oil Pollution Act of 1990, or any other applicable laws, as amended from time to time) and the amount of the Charterer's contingent operators extra expense or energy exploration and development insurance or other coverage in effect at such time, with such underwriters or carriers and containing such terms and conditions as the Owner may require, in the form normally and customarily carried by oil and gas operators engaged in offshore drilling operations, for oil pollution liability and expense, with the Owner, Investors, the Owner Group and the Charterer named as additional insureds and having the benefit of waivers of subrogation. ARTICLE 12 PAYMENTS, INVOICES AND SECURITY 12.1 Basic Hire The Charterer shall pay to the Owner, in arrears on each Payment Date through the Primary Term, an amount equal to 1.17860% of Owner's Cost (the "Primary Term Basic Hire") as adjusted on the date of each disbursement to the Charterer as agent under the Second Upgrade Agreement according to the methodology outlined on Schedule F attached hereto, and during any Extended Term, 125% of the Primary Term Basic Hire payable on each Payment Date during such Extended Term. The payment each month of the Basic Hire shall be a continuing obligation for each month during which this Charter is in effect, and no invoice for such amount need be issued to the Charterer by the Owner. The Charterer's obligation to make such payment is unconditional and absolute during the term hereof and shall not be affected by any event of force majeure or otherwise. 12.2 Supplemental Hire In addition to its obligation to pay Basic Hire hereunder, the Charterer shall pay to the Owner any and all Supplemental Hire as and when the same shall become due and owing, and in the event of any failure on the part of the Charterer to pay any Supplemental Hire, the Owner shall have all rights, powers and remedies provided for herein or at law or in equity or admiralty or otherwise in the case of nonpayment of Basic Hire. The Charterer shall pay to the Owner, as Supplemental Hire, all costs incurred by the Owner in performing or complying with the Charter Documents if the Charterer fails to perform or comply with any of its agreements contained in this Charter, or any Charter Document including, but not limited to: (a Direct and indirect cost of permits, licenses and the like required of the Owner as owner of the Vessel. Owner shall use reasonable efforts, without filing suit or incurring out-of- pocket or other additional cost or expense, to avail itself of applicable exemptions and/or reductions of such costs. (b All premiums and other costs to the Owner for insurance as specified in Articles 11.8 and 15. (c Unless otherwise expressly set forth herein in Section 19.2, the Charterer shall bear directly or reimburse the Owner, upon proof of payment by the Owner, all fees and expenses (including fees and expenses of the Owner's counsel) incurred by the Owner in the performance of or related to this Charter or any Charter Documents. 12.3 Payment Terms The Charterer shall pay all amounts for Supplemental Hire invoiced by the Owner within 10 days after receipt of such invoice. Any Basic Hire not paid when due and any invoices not paid in immediately available funds within 10 days after receipt by the Charterer shall accrue interest from the due date until paid at a per annum rate of interest equal to the Overdue Rate, computed on a basis of 360 days, for actual days elapsed. Payments shall be made by wire transfer in immediately available funds prior to 12:00 noon, New York City time, on the day when each such payment shall be due to the Owner's account at a financial institution located in the State of New York or at such other office as the Owner may from time to time designate in writing to the Charterer. All payments to the Owner hereunder shall be without any offset, counterclaim, discount or deduction and shall be made in United States Dollars. All payments to the Owner stated in this Charter are exclusive of any Taxes, including, without limitation, sales, excise, value added, stamp, documentary, transfer, ad valorem, general consumption, property, use, export, import, employment, payroll, withholding or other similar Taxes, which may be imposed on or incurred by the Owner, its employees or the Investors (other than, except as otherwise provided herein, Taxes on the net income or franchise of the Owner, its employees or the Investors), and all costs associated therewith, in connection with performance by the Owner of, or the Owner's rights under, this Charter, including the costs associated with bonds or letters of credit that are not otherwise the responsibility of the Charterer under this Charter. The Charterer shall pay the Owner the amount of all such charges, Taxes and costs upon receipt of an invoice, subject to the Charterer's right to reasonably verify the Owner's payment of such amounts. The Owner shall use reasonable efforts, without filing suit or incurring any out-of-pocket or other additional costs, to avail itself of any and all applicable exemptions and/or reductions of such taxes. The Charterer shall, at the Owner's request, pay such sums directly or post any required bonds or letter of credit required on any such items. 12.4 Invoices The Owner shall render to the Charterer a monthly invoice on or before the 15th day of each month showing all Supplemental Hire payable to the Owner for the preceding month. 12.5 Security for Obligations (a To secure the Obligations, the Obligors have executed and delivered the Security Documents. Subject to Section 12.5(b), (c), (d) and (e), the Charterer shall maintain (i) the Cunningham Mortgage or (ii) any Substitute Collateral that has a fair market value at least equal to the Stipulated Loss Value at the time of any delivery of such Substitute Collateral (collectively, the "Additional Collateral") to secure the Obligations. (b In the event that, at any time during the periods set forth below, the Timely Liquidation Value of the Vessel as determined in accordance with the Appraisal Procedure at such time is at least the Stipulated Loss Value at such time, neither S&P nor Moody's has a negative outlook for Reading & Bates at such time and a Drilling Contract is in full force and effect at such time that provides adequate cash flow to service the Obligations for the term of such Drilling Contract, the Charterer may request a reduction in the amount of Additional Collateral as follows: (i) after the fourth anniversary of the Delivery Date and so long as (A) the rating of S&P of the Rated Securities is at least "BB+" and the rating, if any, of Moody's of the Rated Securities is at least "Ba1", and (B) no Default has occurred, the Timely Liquidation Value of the Jim Cunningham or the Timely Liquidation Value of Substitute Collateral (as determined by the Appraisal Procedure) required to be maintained shall be reduced to 50% of the Stipulated Loss Value; (ii) after the seventh anniversary of the Delivery Date and so long as (A) the rating of S&P of the Rated Securities is at least "BBB-" or higher by S&P and the rating, if any, of Moody's of the Rated Securities is at least "Baa3", and (B) no Default has occurred, no Additional Collateral shall be required to be maintained; or (iii) at any time, and so long as (A) the rating of S&P of the Rated Securities is at least "BBB+" or higher by S&P and the rating, if any, of Moody's of the Rated Securities is at least "Baa1", and (B) no Default has occurred, no Additional Collateral shall be required to be maintained. (c The Owner shall release its lien and security interest in that portion of the Additional Collateral that is in excess of the Additional Collateral (the "Released Collateral") the Charterer is required to maintain pursuant to Section 12.5(b). From and after such release the Charterer shall maintain such Released Collateral or other property (the "Negative Pledge Property") mutually agreed upon by the Owner and the Charterer that has a Timely Liquidation Value equal to the Stipulated Loss Value at the time of such release, free and clear of all Liens (other than Permitted Liens as defined in the Cunningham Mortgage). The Charterer shall immediately notify the Owner and each of the Investors of the occurrence of any event that would not entitle the Charterer to maintain reduced Additional Collateral pursuant to Section 12.5(b) and shall promptly reinstate or grant, as the case may be, Liens upon the Negative Pledge Property or, with the approval of the Owner, provide other Substitute Collateral in accordance with Section 12.5(d) as required under Section 12.5(b). (d The Charterer shall be entitled to exchange collateral for the Obligations or discharge its obligation to reinstate Additional Collateral or Substitute Collateral by providing substitute property as collateral securing the Obligations (the "Substitute Collateral") if each of the following conditions precedent shall have been satisfied: (i) The Charterer shall have notified the Owner of its intention to provide Substitute Collateral, which Substitute Collateral shall be cash, cash equivalents, or a mobile offshore drilling unit and otherwise in all respects satisfactory in form and substance to the Owner. (ii) All instruments conveying or granting to the Charterer such Substitute Collateral and any related agreements or instruments shall in all respects be satisfactory in form and substance to the Owner. (iii) The Owner and each of the Investors shall have received with respect to such Substitute Collateral a report at the sole cost and expense of the Charterer prepared in accordance with the Appraisal Procedure, in form and substance reasonably satisfactory to the Owner, that the fair market value of such Substitute Collateral when added to the fair market value of other Additional Collateral for the Obligations shall, after giving effect to any release, be in compliance with Section 12.5 (a) or (b), as applicable. (iv) The Charterer shall at its sole cost and expense have obtained (to the satisfaction of the Owner) all government approvals required in connection with the ownership, use, occupancy, possession, operation or ordinary maintenance of such Substitute Collateral, compliance with applicable environmental, health and safety laws and regulations and the mortgaging of such Substitute Collateral to the Owner. Each such governmental approval shall be in full force and effect. (v) The Charterer shall at its sole cost and expense have conducted or caused to be conducted such title examination or title review with respect to such Substitute Collateral as a reasonably prudent operator would conduct under the circumstances, and the Owner shall have approved the status of title of such Substitute Collateral. The Charterer shall have furnished to the Owner such title policy or other title assurances as it receives in connection with the acquisition of such Substitute Collateral. (vi) The Charterer shall at its sole cost and expense have obtained such casualty, liability and other insurance with respect to such Substitute Collateral as shall be requested by the Owner, which insurance shall in all respects comply with, and shall be in all respects subject to, Article 15. The Owner and each of the Investors shall have received a certificate of an independent insurance broker setting forth the insurance obtained in accordance with this paragraph (vi) and certifying that such insurance is in full force and effect and that all premiums then due thereon have been paid. (vii) The Charterer shall at its sole cost and expense have executed and delivered to the Owner or to a trustee or collateral agent designated by them and acting on their behalf, a mortgage and security agreement or other instrument or other document granting to the Owner or such trustee or collateral agent a mortgage Lien and security interest, subject to no other Liens (other than Permitted Liens as defined in the Cunningham Mortgage), in and to such Substitute Collateral, each deed, lease, assignment or other instrument of conveyance referred to in paragraph (ii) above, each government action as referred to in paragraph (iv) above, each ancillary contract and any agreement providing for the operation of such Substitute Collateral (which assignment shall be consented to by the operator, on terms satisfactory to the Owner), subject to no Liens (other than Permitted Liens as defined in the Cunningham Mortgage). Such mortgage and security agreement or such other instrument shall be in full force and effect and shall be in all respects satisfactory in form and substance to the Owner. Each of the foregoing instruments and any necessary documents relating thereto, including, without limitation, financing statements under the applicable Uniform Commercial Code or other instruments for filing or recordation, shall have been duly recorded and filed in all public offices in which such recordation or filing is necessary in order to provide constructive notice to third parties of the interests and Liens created thereby and in order to establish, perfect, preserve and protect the validity and effectiveness thereof and the mortgage Lien and security interest created by such mortgage and security agreement or other instrument on all property purported to be subject thereto; and all taxes, fees and other charges payable in connection with any and all of the foregoing shall have been paid in full by the Charterer. (viii) The Owner and the Investors shall have received such environmental reports with respect to such Substitute Collateral (in form and substance satisfactory to the Owner) as they may request. (ix) The Owner and each of the Investors shall have received such opinions of counsel satisfactory to the Owner as to such matters relating to the acquisition of such Substitute Collateral, including the validity and enforceability of all documents and instruments referred to in this Section 12.5(d) and the validity, extent and priority of the Owner's Lien, as the Owner shall reasonably request, which opinions shall be in form and substance satisfactory to the Owner and from counsel acceptable to the Owner. (x) The Charterer shall have paid all costs and expenses incurred by the Owner and each of the Investors in respect of obtaining any release of Additional Collateral, the Mortgages or the Substitute Collateral, regardless of whether such release, Collateral, the Mortgages, Substitute Collateral or Additional Collateral is delivered. (xi) The Owner shall have received an Officer's Certificate, containing such representations and warranties with respect to such Substitute Collateral and the matters set forth in this Section 12.5(d) and any other matters as shall be reasonably requested by the Owner, and such other documents or evidence as to the satisfaction of the conditions set forth in this Section 12.5(d), as the Owner shall reasonably request. ARTICLE 13 GENERAL OBLIGATIONS AND PERFORMANCE 13.1 Independent Owner Relationships In the performance of this Charter, the Owner is an independent contractor. In the performance of this Charter, the Charterer is an independent contractor and shall control and direct the operation of the Vessel and the performance of the details of the work to be performed by the Charterer's personnel and shall be responsible for the results of such work, all in accordance with the obligations imposed upon the Charterer hereunder and under the Charter Documents. The presence of and the observation by the Owner's representative(s) at the site of any work shall not relieve the Charterer from the Charterer's obligations and responsibilities hereunder. 13.2 Inspection The Owner shall have the right, at the Charterer's sole cost and expense, to inspect the Vessel and its book and records at all reasonable times if the exercise of such inspection right would not unreasonably interfere with the operator's operations on the Vessel at the time or any applicable governmental approval, which approvals the Charterer shall endeavor to obtain in good faith, and shall have the right to confer with and have access to the officers and employees of the Charterer and any Guarantor in connection with any such inspection. The Owner shall have the right annually to cause the Vessel to be surveyed by a marine surveyor at the Owner's (but, after the occurrence and during the continuance of any Default, the Charterer's) expense. The Charterer shall correct at its sole cost expense all material deficiencies discovered during any such survey or inspection. 13.3 Performance of the Charterer The Charterer shall exercise due diligence to carry out any and all operations with respect to the Vessel in a safe, workmanlike manner in accordance with good offshore industry practice, which requirement shall specifically include, not by way of limitation in any manner whatsoever, the obligations to have the Vessel under the command of an offshore instillation manager certified by and for the area in which the Vessel is operating. 13.4 Operations Outside of U.S. Waters In the event that the Charterer intends to operate the Vessel outside of U.S. territorial waters and/or the Outer Continental Shelf, the Charterer shall submit at least 15 days before movement of the Vessel to the intended area of operation such documentation demonstrating to the Owner's reasonable satisfaction (a) that operation of the Vessel within the intended area of operation complies with all applicable laws and regulations of the United States and of the intended area of operation; (b) that the Vessel can be removed from such intended area of operation upon either cessation of the Vessel's operation in the area or termination of this Charter; (c) that the Charterer provides all additional indemnities and has secured political risk insurance for such area additive to the insurances provided for herein and (d) the Vessel is not subject to any lien or interest that might have priority over the title and interest of the Owner. Each move to a new area outside U.S. territorial waters, whether or not subject to the jurisdiction of a different foreign country, shall meet the foregoing requirements and those of Section 7.1. ARTICLE 14 LIABILITY AND INDEMNITY 14.1 Survival of Indemnities The indemnities set forth in this Charter shall survive the termination of this Charter, and shall remain enforceable (subject only to debtor relief laws and general equitable principles) as to any claim, demand, liability, damage and expense arising out of or incidental to this Charter, without regard to the termination of this Charter. 14.2 Pollution The Charterer shall assume all responsibility for the control and removal of, and hold Owner Group harmless from loss, liabilities or damage or claims arising from, directly or indirectly, pollution or contamination by any liquid or nonliquid or waste material wheresoever found that is discharged, spilled or leaked from the Vessel or noncompliance with environmental, health and safety laws (including but not limited to, those stemming from release of pollutants, private toxic tort claims, off-site disposal of waste or other pollutants, PCB's, and asbestos-containing materials on or in the Vessel (irrespective of whether any of the foregoing occurred, existed or arose before or after the date hereof)). To the extent that any law, regulation or governmental entity acting within its jurisdiction imposes on Owner Group liability for any such pollution, notwithstanding such imposition of direct liability, the Charterer shall have designated Owner Group as an additional insured under its insurance policies and the Charterer shall hold the Owner harmless from such loss, liabilities, damage or claims and reimburse Owner Group for any amounts that Owner Group may be required to pay. This indemnity is valid irrespective of the negligence or fault, whether sole, joint, active or passive of the indemnified party and whether predicated on strict liability, statutory duty, contractual indemnity or any other theory of liability of the indemnified party. 14.3 The Charterer's Indemnity (a) The Charterer shall defend, indemnify and hold Owner Group, its officers, directors, employees, agents and Affiliates (collectively, the "Indemnitees") harmless from and against all claims, liabilities, damages, Taxes and expenses (including, without limitation, attorneys' fees and other costs of defense), including all claims of any type whatsoever, irrespective of insurance coverage, arising out of, incidental to, or related to this Charter, any of the Charter Documents, any of the transactions contemplated hereby or thereby, the Vessel, the Jim Cunningham, the Randolph Yost or any Additional Collateral or Substitute Collateral, except, unless otherwise specifically provided herein, any claims directly arising out of the Owner's gross negligence or willful misconduct. (b) If it is judicially determined that the monetary limits of insurance required under this Charter or of the indemnities voluntarily and mutually assumed in this Charter (which the Owner and the Charterer hereby agree will be supported either by available liability insurance, under which the insurer has no right of subrogation against the indemnitee, or voluntarily self-insured in respect of permitted deductibles) exceed the maximum limits permitted under applicable law, it is agreed that such insurance requirements or indemnities shall automatically be amended to conform to the maximum monetary limits permitted under such law. (c) The Charterer shall indemnify, pay and hold harmless Owner Group against any loss, liability, cost or expense incurred in respect of the Vessel, including actual or constructive loss of the Vessel, or any effort to interdict the payment to the Owner of proceeds arising out of or related to this Charter. (d) The indemnities in this Charter apply without regard to any conflicting rules of liability under any applicable law or regulation and shall include indemnification for any and all claims in which recovery, indemnification or contribution is sought directly or indirectly by any person or entity against Owner Group whether predicated on negligence, strict liability, statutory duty or contractual indemnity, except any such liability directly arising out of the gross negligence or willful misconduct of the Owner unless otherwise expressly specified herein. 14.4 Patent Infringement (a) The Charterer shall assume liability for, and shall defend, indemnify and hold the Owner harmless from and against, all suits and actions alleging that the Vessel, any equipment or part thereof, or any operation of the Vessel, any such equipment or part thereof constitutes an infringement of any letters patent. (b) If, as a result of any changes required by the Charterer in equipment furnished by the Owner, or any changes required by the Charterer in operation of such equipment or part thereof, a claim is filed against the Owner alleging that such equipment or any such operation conducted infringes any letters patent, then the Charterer shall be liable for all such claims and indemnify and hold the Owner harmless from all such claims. 14.5 Both-to-Blame Collision Clause Without limitation on any other indemnity of the Charterer contained herein, if the liability for any collision in which the Vessel is involved while performing this Charter should be determined in accordance with the laws of the United States of America, the following clauses shall apply: (a) If the Vessel comes into collision with another ship as a result of the negligence of the other ship and any act, neglect or default of the Master, mariner, pilot or the servants of the Charterer in the navigation or in the management of the Vessel, the Charterer shall indemnify the Owner against all direct, consequential or special loss or liability to the other ship or her owner. (b) The foregoing provisions shall also apply where the owners, operators or those in charge of any ship or ships or objects other than, or in addition to, the colliding ships or objects are at fault in respect of a collision or contact. 14.6 Liens, Attachments and Encumbrances None of the Charterer, any subcharterer or party to a Drilling Contract shall have the right, power or authority to create, incur or permit to exist any Lien upon the Vessel, except for Permitted Liens. The Charterer further agrees to carry a true copy of this Charter with the ship's papers on board the Vessel, and to exhibit the same to any person having business with the Vessel which may give rise to any lien or claim upon the Vessel other than a Permitted Lien or to the sale, conveyance or mortgage of the Vessel, and on demand, to any person having business with the Vessel or to any representative of the Owner, the Owner Group or any Investor. The Charterer shall also place and keep prominently displayed on board the Vessel a notice, framed under glass, printed in plain type of such size that the paragraph of reading matter shall cover a space not less than six inches wide by nine inches high, reading as follows: NOTICE OF CHARTER This Vessel is owned by Deep Sea Investors, L.L.C. It is under bareboat demise charter to Reading & Bates Drilling Co. Under the terms of this Charter none of the Charterer, any subcharterer, the Master nor any other person has any right, power or authority to create, incur or permit to be imposed on the Vessel (a) any lien whatsoever other than liens for current crew's wages, general average and salvage, in each case, incurred in the ordinary course of business and that are not yet overdue complying with the provisions of such charter and (b) any claims whatsoever under any drilling contracts in respect of the Vessel other than claims complying with the provisions of such charter. Such notice shall be promptly changed from time to time to reflect the identity of the successors or assigns of the Owner. 14.7 Indemnification by the Charterer The Charterer shall indemnify and hold harmless the Owner against any Liens, claims or liabilities of whatsoever nature, other than Permitted Liens (but if the Vessel is being redelivered to, or otherwise coming into the possession of, the Owner pursuant to the terms and conditions of this Charter, other than Permitted Liens arising as the result of claims against the Owner for which the Owner is not entitled to indemnification hereunder only), whether such Liens, claims or liabilities now exist or are created hereafter or are founded or unfounded, upon or relating to the Vessel, its possession, management, maintenance, repair, use, employment, chartering or subchartering or operation or any act or omission of the Charterer. 14.8 The Charterer's Duties to Remove Liens, etc. Without limitation of the generality of the Charterer's indemnities provided for in Section 8.2 and Article 14, the Charterer agrees that if a libel or a complaint in admiralty or any other legal proceeding shall be filed against the Vessel, or if the Vessel shall be otherwise levied upon or taken into custody or detained or sequestered by virtue of proceedings in any court or tribunal or by any government or other authority because of any Liens, claims or liabilities arising from any claims, other than claims against the Owner the payment or discharge of which is not the obligation of the Charterer or any Guarantor or with respect to which the Owner is not entitled to indemnification from the Charterer or any Guarantor. The Charterer shall at its own expense within 15 days thereafter cause the Vessel to be released and all such Liens and (except to the extent that the same shall currently be contested by the Charterer in good faith by appropriate persons and appropriate proceedings in the Owner's sole judgment and shall not affect the continued release, or until any risk of forfeiture or other loss of or to the Vessel, or in any manner whatsoever interfere with the use and operation of the Vessel) claims and liabilities to be discharged. The Charterer shall forthwith notify the Owner by telecopy, telex or telegram, confirmed by letter, of each such event and of each such release and discharge. The Charterer shall advise the Owner in writing at least once in each three-month period as to the status and merits of all such excepted claims and liabilities being so contested by the Charterer and not discharged within fifteen days as provided above, which are either not bonded or affect the ability of the Charterer to use any Vessel in the ordinary course of its business. The Charterer will pay and discharge when due all claims for repairs and other charges incident to current operations of the Vessel or with respect to any change, alteration or addition made pursuant to this Charter and will not permit any lien referred to in clause (b) or (c) of the definition of "Permitted Liens" which has ripened into a cause of action to be in effect for more than 30 days unless it is fully bonded or covered by insurance or Adequate Provision. ARTICLE 15 INSURANCE 15.1 The Charterer's Insurance The Charterer shall, at its own expense, procure and maintain in effect with respect to and for the duration of this Charter the insurance policies with limits of at least, and with deductibles, if any, of no more than, those as set forth in Schedule C approved by the Owner and having such terms and conditions, and with carriers and/or underwriters approved by the Owner (such approval not to be unreasonably withheld). Any policies of insurance carried by the Charterer in accordance with this Article 15 shall (a) provide that the interests of Owner Group in such policies shall not be invalidated by any action, inaction, neglect, breach of warranty or misrepresentation of the Charterer or change in ownership of the Vessel and shall insure Owner Group's interests as they appear, regardless of any breach or violation by the Charterer of any warranty, declaration or condition contained in such policies, and (b) be primary without right of contribution from any other insurance which may be carried by Owner Group with respect to its interests in the Vessel. The Charterer shall immediately notify underwriters of and shall furnish all necessary information concerning any occurrence which may give rise to a claim under any of said insurance policies. Prior to commencement of any operations under this Charter and any renewal of the insurance policies required to be maintained hereunder, the Charterer shall provide the Owner with insurance certificates evidencing the Charterer's insurance coverage; such certificates shall provide for at least 30 days' (seven days, in the case of war risk) prior written notice to the Owner and each of the Investors of any material change in, reduction or cancellation of any of said insurance policies and shall show the Charterer, the Owner, the Owner Group and the Investors as sole loss payees and additional insureds thereunder as their interests appear. If requested, copies of all correspondence and documents sent to underwriters, related to any accident or claim arising out of or in connection with the performance of the work hereunder, shall be provided to the Owner. 15.2 Nonperformance of Insurance Companies The insolvency, liquidation, bankruptcy, or failure of any insurance company providing insurance for the Charterer or the Owner or their respective subcontractors, or failure of any such insurance company to pay claims accruing, shall not be considered a waiver of, nor shall it excuse the Charterer from complying with, any of the provisions of this Charter or any of the Charter Documents, except that any such act or omission by an insurance company shall not be deemed a breach of this Charter by the Charterer. 15.3 Subrogation The Charterer agrees to endorse each such insurance policy to waive the underwriters' and insurance providers' right of subrogation with respect to Owner Group; and the Charterer agrees to indemnify and hold Owner Group harmless with respect to any rights of subrogation pursued by the Charterer's underwriters or insurance providers against Owner Group. ARTICLE 16 ASSIGNMENT OF CHARTER 16.1 Assignment and Subcontract by the Owner The Owner shall have the right, at any time, to assign all or part of this Charter to any Person, so long as such Person agrees to be bound by this Charter and, at the time of such assignment, has, or is a consolidated Subsidiary of a parent entity having, a consolidated net worth of at least $50,000,000 as determined in accordance with generally accepted accounting principles and is not primarily engaged in the offshore drilling business, other than as a financier or lessor of offshore drilling equipment or operations. 16.2 Assignment by the Charterer The Charterer shall not have the right to assign this Charter or to subcharter the Vessel without the prior written consent of the Owner. Subject to the terms of applicable law, the Charterer shall have the right, without the consent of the Owner, so long as no Default or Event of Default shall have occurred and be continuing, to subcharter the Vessel on a bareboat or time basis to any Subsidiary of Reading & Bates that is and remains throughout the term of such subcharter a Subsidiary of Reading & Bates and a citizen of the United States within the meaning of the Shipping Act, 1916, and to enter into, and to permit the Vessel to serve under, Drilling Contracts that comply with the terms hereof and the other Charter Documents (provided no such Drilling Contract constitutes a demise or a bareboat charter or any grant of any property right or other interest in the Vessel between the Charterer and others) provided that: (a) each such subcharter and Drilling Contract shall be consistent with the terms of this Charter and the subcharterer shall have agreed not further to subcharter the Vessel without complying with this Section 16.2 with respect to such further subcharter; (b) either (i) the subcharterer under such subcharter or the customer under a Drilling Contract is a citizen of the United States within the meaning of the Shipping Act, 1916 and evidence thereof satisfactory to the Owner in its sole judgment shall be submitted to the Owner within 30 days of entering into such subcharter, (ii) the prior approval of the U.S. Maritime Administration under the Shipping Act, 1916 of such subcharter, in form satisfactory to the Owner in its sole judgment, shall have been obtained and, within 30 days of entering into such subcharter or Drilling Contract, evidence thereof satisfactory to the Owner in its sole judgment, shall have been submitted to the Owner or (iii) such subcharter or Drilling Contract shall be covered by a general approval of the U.S. Maritime Administration under sections 9 and 37 or any other applicable sections of the Shipping Act, 1916 and the Charterer shall have given written notice to the Owner to that effect, which notice shall set forth in reasonable detail the facts which establish such coverage with respect to such subcharter or Drilling Contract; (c) such subcharter or Drilling Contract shall not violate any laws of the United States of America or any regulations, rules, interpretations or orders thereunder; (d) irrespective of any such subcharter, the Charterer shall remain liable for all of its obligations under this Charter and the Charter Documents to the same extent as if such subcharter or Drilling Contract were not in effect; (e) the subcharterer under each such subcharter shall comply with all applicable laws and regulations, provided that violations of laws or regulations by any such subcharterer that (i) will not result in the Owner, the Owner Group or the Vessel being in violation of, or subject to any fine, penalty or other sanction under any applicable law or regulation or any risk of forfeiture or other loss of or to the Vessel, (ii) do not otherwise adversely affect the interests of the Owner or the Owner Group or the Investors hereunder, and (iii) are not consented to by the Charterer shall not, by reason of this clause (e), constitute a breach, or cause such subcharter to be in violation of the terms of this Charter so long as the Charterer is taking appropriate action to terminate such violation or to terminate such subcharter; (f) such subcharter or Drilling Contract shall, by its terms, expire no later than the end of the Charter Period, or any extension thereof, and Charterer shall not suffer or permit to be continued under any such subcharter or Drilling Contract any lien or encumbrance incurred by it or its agents, which might have priority over the title and interest of the Owner in the Vessel and any part thereof, or equipment or other property used in connection with the Vessel; and (g) any Drilling Contract shall be on terms and conditions in substantially the form generally used in offshore drilling and with an operator and having (i) a consolidated tangible net worth as determined in accordance with generally accepted accounting principles of at least $500,000,000 (or be a consolidated Subsidiary of a parent entity having such a consolidated tangible net worth), or (ii) a senior unsecured debt rating by S&P of "BBB-" or by Moody's of "Baa3" (or be a consolidated direct or indirect Subsidiary of a parent entity having a senior unsecured debt rating meeting such criteria) or (iii) maintaining (or the Charterer providing) operators extra expense or energy exploration and development insurance coverage in an amount of at least the difference between $150,000,000 (or such greater amount, as may be necessary to meet the applicable financial responsibility requirements under the Oil Pollution Act of 1990, or any other applicable laws, as amended from time to time) and the amount of the Charterer's contingent operators extra expense or energy exploration and development insurance or other coverage in effect at such time, with such underwriters or carriers and containing such terms and conditions as the Owner may require, in the form normally and customarily maintained by oil and gas operators engaged in offshore drilling operations, for oil pollution liability and expense, with the Owner, Investors, the Owner Group and the Charterer named as additional insureds and having the benefit of waivers of subrogation and with carriers or underwriters reasonably acceptable to the Owner. The Charterer shall within 30 days after entering into each Drilling Contract notify the Owner of the period thereof and of the identity of the other party and its relationship with the Charterer, if any. 16.3 Assignment of Subcharter Hire. The Charterer hereby sells, assigns, transfers, creates a security interest in and sets over unto the Owner all of the Charterer's right, title and interest in and to all accounts, chattel paper, contract rights and general intangibles, and all monies and claims for monies due and to become due under, or arising out of, and all claims for damages arising out of the breach of, any subcharter or Drilling Contract (Drilling Contracts being considered, for purposes of this Section 16.3, subcharters) relating to the Vessel, whether now existing or hereafter entered into. It is expressly agreed that, anything herein contained to the contrary notwithstanding, the Charterer shall remain liable under each such subcharter to perform all of its obligations thereunder, and the Owner shall have no obligations or liabilities thereunder by reason of or arising out of the foregoing assignment (herein, the "Rights Assignment"). Upon the demand of the Owner after the occurrence and during the continuation of an Event of Default, the Charterer will specifically authorize and direct each person liable therefor to make payment of all monies due and to become due under or arising out of each such subcharter to the Owner or as the Owner shall direct, and upon such demand irrevocably authorizes and empowers the Owner to ask, demand, receive, receipt and give acquittance for any and all such amounts which may be or become due or payable or remain unpaid at any time or times to the Charterer by each such person under or arising out of such subcharters; to endorse any checks, drafts or other orders for the payment of money payable to the Charterer in payment therefor; and in its discretion to file any claims or take any action or proceeding either in its own name or in the name of the Charterer or otherwise which the Owner may deem to be necessary or advisable in the premises. The Charterer hereby irrevocably authorizes the Owner after any such demand has been made, in its own name or in the name and on behalf of the Charterer, to give notification to persons obligated under such subcharters that payment is to be made to the Owner or as the Owner directs and hereby agrees to cause to be delivered to the Owner consents of such persons to the Rights Assignment, in form and substance satisfactory to the Owner. The Charterer agrees that at any time and from time to time, upon the Owner's written request, the Charterer will execute and deliver such further documents and do such further acts and things as the Owner may request in order to effect further the purposes of the Rights Assignment, provided that no such consent referred to in the preceding paragraph may be required under this sentence. The Charterer hereby irrevocably authorizes the Owner, at the Charterer's expense, to file such financing statements relating to the Rights Assignment, without the Charterer's signature, as the Owner at its option may deem appropriate, and appoints the Owner as the Charterer's attorney-in-fact to execute any such financing statements in the Charterer's name and to perform all other acts which the Owner deems appropriate to perfect and continue the security interest created hereby. The Charterer covenants and agrees with the Owner that the Charterer will (a) duly perform and observe all of the terms and provisions of such subcharters on the part of the Charterer to be performed or observed, (b) clearly record in the books and records of the Charterer notations of the Rights Assignment and (c) in the event that the Charterer shall receive payment of any money which should have been paid directly to the Owner pursuant to a demand made or notice given under this Section 16.3 forthwith turn over the same to the Owner or as the Owner may direct, in the identical form in which received (except for such endorsements as may be required thereon). ARTICLE 17 LOSS, TAKING OR SEIZURE. 17.1 Taking by the U.S. Government A taking of the Vessel for use by the United States Government shall not terminate this Charter, but the Charterer shall remain liable for all its obligations hereunder, including its liability for payment of Hire, until the expiration of the Charter Period. If, at the expiration of the lesser of the then remaining term of the Charter Period or 180 days after the taking of the Vessel for use by the United States Government Charter Period, the Vessel shall still be subject to such taking for use by the United States Government, an Event of Loss shall be deemed to have occurred on the last day of such 180-day period or the Charter Period, whichever occurs first. 17.2 Event of Loss not a Total Loss In the case of any Event of Loss arising out of damage to the Vessel other than actual total loss, the Charterer shall notify the Owner that the Vessel is deemed to be subject to an Event of Loss and shall not consent to a compromise or arranged total loss without the prior written agreement of its insurance underwriters that the Vessel is a constructive or compromised total loss and that such underwriters agree to pay an amount at least equal to the amount payable by the Charterer under Section 17.3. 17.3 Payment of Stipulated Loss Value Upon the occurrence of an Event of Loss, the Charterer shall forthwith give the Owner written notice of such Event of Loss and shall pay to the Owner within 60 days following the date of the occurrence of such Event of Loss the Stipulated Loss Value of the Vessel calculated as of such Basic Hire Payment Date occurring after the occurrence of the Event of Loss plus interest at a rate per annum equal to the Overdue Rate. The Charterer shall also pay to the Owner all Basic Hire due on the Payment Dates next occurring after the date of occurrence of such Event of Loss and, if the date on which such Stipulated Loss Value actually is paid in full is not such a Payment Date, an amount equal to the Overdue Rate (computed on the basis of a 360-day year for actual days elapsed) on the amount of such Stipulated Loss Value for the period from such Payment Date to the date such Stipulated Loss Value is paid in full. 17.4 Application of Payments In the case of all payments (other than insurance proceeds) received by the Owner or the Charterer from any governmental authority or otherwise as compensation for an Event of Loss, so much of such payments as shall not exceed the sum of the Stipulated Loss Value and an amount equal to interest hereon required to be paid by the Charterer as above provided and any Hire then due and owing by the Charterer hereunder shall be applied, provided no Default or Event of Default shall have occurred and be continuing, first, in reduction of the Charterer's obligation to pay such Hire, if any, then due and owing; and second, in reduction of the Charterer's obligation to pay such Stipulated Loss Value and such amount equal to interest thereon as provided above if not already paid by the Charterer or, if already paid by the Charterer, to reimburse the Charterer for its payment of such Stipulated Loss Value and the balance, if any, of such payments remaining thereafter shall be paid over to, or retained by, the Owner. 17.5 Date of Loss For the purpose of this Charter, the date of the occurrence of an Event of Loss shall be the date of the casualty or other occurrence giving rise to such Event of Loss (or the earlier of the expiration of the remaining term of the Charter Period or the date 180 days after such taking thereafter, in the case of a taking of title or use or possession of the government of the United States of America, as provided in the definition of Event of Loss set forth in Section 1 hereof), and if the date of such casualty or other occurrence shall be uncertain, such date shall be deemed the date the Vessel was last heard from. 17.6 Effect of Payment of Stipulated Loss Value In the event that the Charterer shall make payment in full of any overdue payments of Basic Hire, and of such Stipulated Loss Value and an amount equal to interest thereon as provided above, the Charterer shall have no further obligation to make any payment of Basic Hire payable after the Payment Date as of which such Stipulated Loss Value was calculated, and the Charterer, subject to the Charterer's obtaining any governmental consent required, (a) shall be subrogated to all rights which the Owner shall have with respect to the Vessel, (b) shall receive assignments and bills of sale from the Owner (in such form described in Section 3.7 hereof, but without any representation or warranty of any character on the part of the Owner) of any or all such rights, together with all of the Owner's right, title and interest in and to the Vessel and all machinery and equipment pertaining thereto, and (c) shall have the right to abandon the Vessel to underwriters on behalf of the Owner as well as itself. In such case, the Owner shall execute such documents and take such other action as the Charterer may reasonably require to effect the surrender of the Vessel to the insurance underwriters. Nothing herein contained shall relieve the Charterer or the Owner of any of its obligations under Article 18 incurred up to and including the date of the Event of Loss. After the payment in full of the Stipulated Loss Value of the Vessel and such other amounts, the Charterer's obligation to pay further Basic Hire with respect to such Vessel shall terminate. All insurance proceeds received as the result of an Event of Loss with respect to the Vessel, and all payments (other than insurance proceeds) received by the Owner or the Charterer from any governmental authority or otherwise as compensation for an Event of Loss with respect to the Vessel, shall be applied in reduction of the Charterer's obligation to pay Stipulated Loss Value with respect to the Vessel (plus any other amounts of Basic Hire and Supplemental Hire then due and payable with respect to the Vessel), if not already paid by the Charterer, or, if already paid by the Charterer, shall be applied to reimburse the Charterer for its payment of the Stipulated Loss Value with respect to the Vessel and the balance, if any, of such proceeds or payments remaining thereafter shall be paid over to, or retained by, the Charterer. ARTICLE 18 TAX 18.1 Characterization as a Lease Each of the parties hereto intends that, for Income Tax purposes, this Charter will be treated as a lease of the Vessel (except for the Severables to which Charterer has title pursuant to Section 9.4) from the Owner to the Charterer, the Owner will be treated as the sole owner of the Vessel (except for the Severables to which Charterer has title pursuant to Section 9.4) and the Charterer will be treated as not having any ownership interest in the Vessel (except for the Severables to which Charterer has title pursuant to Section 9.4), the Owner or any partnership or joint venture with the Owner. The Charterer, the Owner, each of the Investors and any Affiliate thereof will not take any action or file any return or other document which is inconsistent with such characterization. 18.2 Representations The Charterer represents, warrants and covenants to the Owner, each of the Investors and any Affiliate thereof as follows: (a) All information provided by the Charterer and its Affiliates to any independent appraiser or engineer with respect to the Vessel and the Upgrade Programs was and is true, complete and accurate, and the Charterer and its Affiliates did not omit any factual information necessary to make such first-mentioned information not misleading or omit any factual information required to permit any such independent appraiser or engineer to perform the duties for which he was retained; (b) Reading and Bates, Inc. was the original owner of the Vessel and initially placed the Vessel in service during its taxable year ended December 31, 1983; (c) The Charterer is not, and will not become at any time during any period in which the Owner is claiming federal income tax depreciation deductions, a "tax-exempt entity" (within the meaning of Section 168(h)(1)(A) of the Code and Section 168(j)(3)(A) of the 1954 Code); (d) During any period during which the Owner is claiming federal income tax depreciation deductions, the Charterer will take no action and will not suffer any action to be taken by any Person (other than the Owner) which would cause the Vessel to constitute "tax-exempt use property" within the meaning of Section 168(h)(1) of the Code (or Section 168(j)(3) of the 1954 Code), or property used "predominantly outside the United States" within the meaning of Section 168(g)(1)(A) of the Code (or Section 168(f)(2) of the 1954 Code); (e) Immediately prior to the Delivery Date, Reading and Bates, Inc. was entitled to accelerated cost recovery deductions with respect to the Vessel, computed on the basis that (i) the Vessel is "5-year property" (within the meaning of Section 168(c)(2)(B) of the 1954 Code) and (ii) recovery percentages applicable to the Vessel are those set forth for 5-year property pursuant to Section 168(b)(1) of the 1954 Code; (f) Neither the Charterer nor any of its Affiliates bore any of the cost of the First Upgrade Nonseverables. Neither the Charterer nor any of its Affiliates will bear any of the cost of the Second Upgrade Program; (g) The total cost of the First Upgrade Program was reasonable and based on arm's-length negotiations; (h) All of the First Upgrade Severables will be readily removable from the Vessel without causing material damage to the Vessel; (i) The allocation of the total cost of the First Upgrade Program among the First Upgrade Nonseverables, the First Upgrade Severables, and the First Upgrade Maintenance as set forth on Schedule B-1 is reasonable; (j) The First Upgrade Maintenance consisted solely of ordinary and routine maintenance and repairs that did not materially add to the Vessel's value or appreciably prolong the Vessel's useful life; (k) The Charterer has not made and will not make, with respect to the period beginning with the Delivery Date and ending with the date (if any) on which the Charterer acquires title to the Vessel from the Owner, any claim predicated on tax or legal ownership of such Vessel; (l) Immediately after the First Upgrade Completion, the basis for Income Tax purposes of the Vessel in the hands of the Owner took into account (a) the purchase price of the Vessel, including all related costs, expenses, commissions, taxes, etc. incurred by the Owner in connection with the acquisition of the Vessel, and (b) all costs incurred by the Owner pursuant to the First Upgrade Program; (m) The Vessel does not require any improvements, modifications, upgrades or additions in order to be rendered complete or suitable for its intended use, and the Vessel is ready and available for the Charterer's intended use; and (n) No member of the "Lessee Group" (as such term is defined in Revenue Procedure 75-21, 1975-1 C.B. 715, as modified by Revenue Procedure 79-48, 1979-2 C.B. 529) of which the Charterer is a member has, nor will it acquire at any time during the Charter Period, any investment in the Vessel within the meaning of Section 4(4) of said Revenue Procedures that is not permitted thereunder. 18.3 Tax Indemnity The Charterer shall indemnify and hold the Owner, each of the Investors and any Affiliate thereof harmless from: (a) Any Taxes (other than Income Taxes) imposed on or incurred by the Owner, such Investor or any Affiliate, employee, agent or representative thereof with respect to this Charter or any of the Charter Documents, the Vessel, any direct or indirect interest therein or any amounts paid or payable in connection therewith; (b) Any Income Taxes (other than U.S. federal Income Taxes) imposed on or incurred by the Owner, such Investor or any Affiliate thereof (i) caused by or arising from the location or operation of the Vessel in any particular waters or (ii) imposed by any jurisdiction, other than the jurisdiction of incorporation of such Investor or the jurisdiction of a place of business of such Investor (unless such place of business is determined on the basis of the location of the Vessel or the operation of the Vessel or this Charter or any of the Charter Documents), in respect of the Vessel or by reason of the transactions contemplated by the Charter or any of the Charter Documents; (c) Any Income Taxes imposed on or incurred by the Owner, such Investor or any Affiliate thereof caused by or arising from the Vessel's failing to qualify for accelerated cost recovery deductions, computed on the basis that (i) the Vessel is "5-year property" (within the meaning of Section 168(c)(2)(B) of the 1954 Code) and (ii) recovery percentages applicable to the Vessel are those set forth for 5-year property pursuant to Section 168(b)(1) of the 1954 Code, by reason of any act of commission or omission, misrepresentation or breach of any agreement, covenant or warranty contained in the Charter or any of the Charter Documents on the part of the Charterer, any subcharterer, assignee or user of the Vessel or any Affiliate thereof; (d) Any Income Taxes imposed on or incurred by the Owner, such Investor or any Affiliate thereof caused by or arising from the charter, subcharter or use of the Vessel to or by a "tax-exempt entity" (within the meaning of Section 168(h)(1)(A) of the Code or Section 168(j)(3)(A) of the 1954 Code); (e) Any Income Taxes imposed on or incurred by the Owner, such Investor or any Affiliate thereof caused by or arising from the Vessel's becoming limited use property; (f) Any Income Taxes imposed on or incurred by the Owner, such Investor or any Affiliate thereof caused by or arising from any item of loss or deduction attributable to the Vessel, this Charter or any of the Charter Documents or the transactions contemplated by the Charter or any of the Charter Documents not being treated as derived from, or allocable to, sources within the United States; (g) Any Income Taxes imposed on or incurred by the Owner, such Investor or any Affiliate thereof caused by or arising from any replacement, improvement, modification, upgrade, addition or capital expenditure made or to be made to or in connection with the Vessel or pursuant to this Charter, any of the Charter Documents or the transactions contemplated by the Charter or any of the Charter Documents or otherwise; (h) Any Taxes payable as a result of any inaccuracy or breach of any representation, warranty or covenant of the Charterer under this Charter or any of the Charter Documents; (i) Any Income Taxes imposed on or incurred by the Owner, such Investor or any Affiliate thereof caused by or arising from the inclusion in income of any amount paid or payable by the Charterer under this Section 18.3; and (j) Any attorneys' fees or other costs incurred by the Owner, such Investor or any Affiliate thereof in connection with any payment from the Charterer under this Section 18.3. 18.4 Payments Any amount to which the Owner, any of the Investors or any Affiliate thereof is entitled under Section 18.3 shall be paid in a lump sum equal to the present value of the amounts of the existing and anticipated Taxes described in Section 18.3 payable by such indemnitee for all affected taxable periods. In the case of any such amount caused by a loss of Income Tax deductions, such amount shall be reduced (but not below zero) by an amount equal to the present value of the amounts of existing and anticipated reductions in Income Taxes payable by such indemnitee for all affected taxable periods that would not be realized but for the loss of such deductions. Any amount to which such an indemnitee is entitled under Section 18.3 shall be calculated on the basis of (i) a conclusive presumption that such indemnitee has and will have sufficient amounts of taxable income, foreign-source income, and foreign income tax liability so as to be able to fully utilize on a current basis any Income Tax benefits which could be derived from the Owner's ownership of the Vessel, (ii) a conclusive presumption that such indemnitee is and will be liable for Taxes at the highest marginal rates in effect for the relevant taxable period, (iii) the date or dates on which any payment of Taxes (including estimated Taxes) shall be due or would be due for the relevant taxable period if such indemnitee was actually liable for Taxes for such relevant period, and (iv) an after-tax discount rate of 4.42% per annum, discounted quarterly. Any such amount shall be paid by the Charterer to such indemnitee within thirty (30) days following the receipt by the Charterer of written notice from such indemnitee which requests such amount and provides details supporting the calculation of such amount. 18.5 Records The Charterer will maintain sufficient records with respect to the Vessel and this Charter, will preserve and retain any such records until the expiration of the statutory period of limitations (including extensions) of the taxable periods to which any such records relate and will provide copies of such records as the Owner or any of the Investors or any Affiliate thereof may reasonably request to enable the Owner, such Investor or any Affiliate thereof to fulfill its Tax filing obligations. ARTICLE 19 GENERAL 19.1 Notices Notices and other communications required or permitted hereunder shall be in writing and shall be deemed sufficient for all purposes if sent by registered or certified letter, nationally recognized overnight courier service specifying one-day delivery, facsimile or telex to the recipient's address stipulated below and shall be effective from the date of receipt thereof. Other addresses may be substituted for those below upon giving notice thereof in the manner provided above: if to the Owner: Deep Sea Investors, L.L.C. "GATX Marine Investors Corporation Four Embarcadero Center, Suite 2200 San Francisco, California 94111 Attn: Portfolio Management Fax: (415) 955-3415 Heller Financial 150 East 42nd Street New York, New York 10017 Attn: Legal Department Fax: (212) 880-7158 Heller Financial Leasing, Inc. 500 W. Monroe Street Chicago, Illinois 60661 Attn: CEFD - Central Region Credit Manager Fax: (312) 441-7519 MDFC Equipment Leasing Corporation 4060 Lakewood Boulevard, 6th Floor Long Beach, California 90808 Attn: Senior Documentation Officer Fax: (310) 627-3002 if to the Charterer: Reading & Bates Drilling Co. 901 Threadneedle, Suite 200 Houston, Texas 77079 Attn: Chief Financial Officer Fax: (281) 496-0285 19.2 Expenses Whether or not any of the transactions contemplated hereby are consummated, each of the Charterer and the Owner shall pay its own expenses, including legal and appraisal fees and expenses, in connection with the negotiation, execution and delivery of this Charter. In addition, the Charterer shall pay upon demand all other costs and expenses incurred by the Owner and the Investors in connection with the enforcement of any of their rights or remedies, any future amendments, supplements, waivers or consents with respect to any of the Charter Documents, including, without limitation: (a) the reasonable expenses and disbursements of counsel for the Owner and the reasonable fees, expenses and disbursements of Baker & Botts, L.L.P., special counsel for the Investors, or any other counsel for services rendered after the Delivery Date in connection with any Charter Document or any transaction contemplated thereby, or any modification, amendment or waiver of any thereof; (b) all other reasonable expenses in connection with such transactions including, without limitation, the expenses of appraisers, other counsel or of experts whose opinions are required by the terms hereof (to the extent not specifically required to be paid by third parties by the terms hereof), printing expenses and all fees, taxes and other charges payable in connection with the recording or filing of instruments and financing statements desirable under the Charter Documents; (c) reimbursement to the Owner and Investors for their reasonable out-of-pocket expenses in connection with entering into such transactions, and any and all fees, expenses and disbursements of the character referred to in clauses (a) and (b) above which shall have been paid by the Owner or any of the Investors; and (d) reimbursement to the Owner and Investors in an amount sufficient to hold each of them harmless from and against any and all liability and loss with respect to or resulting from any and all claims for or on account of brokers' or finders' fees or commissions or financial advisory fees by any brokers, finders or financial advisors engaged by the Charterer or the Guarantor with respect to such transactions. 19.3 The Owner's Right to Perform for the Charterer If the Charterer fails to perform or comply with any of its agreements contained herein other than its obligations to pay Hire, the Owner, may upon notice to the Charterer itself perform or comply with such agreement, and the amount of any expenses of the Owner incurred in connection with such performance or compliance, together with interest on such amount at the Overdue Rate, shall be deemed Supplemental Hire, payable by the Charterer upon demand. Without in any way limiting the obligations of the Charterer hereunder, the Charterer hereby irrevocably appoints the Owner as its agent and attorney, with full power and authority at any time at which the Charterer is obligated to deliver possession of the Vessel to the Owner, to demand and take possession of the Vessel in the name and on behalf of the Charterer from whomsoever shall be at the time in possession thereof in the manner described in, and with all rights and remedies conferred under, Section 3.4(a) hereof. 19.4 Waivers None of the requirements of this Charter shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Charter, or other duly authorized agent or representative of the Person designated in writing by a senior officer of such Person and then any such waiver shall apply only in the specific instance and for the specific purpose for which such is given. 19.5 Entire Agreement This Charter and the Charter Documents contain the entire agreement between the parties with respect to the subject matter hereof and supersede and replace any oral or written communications heretofore made between the parties relating to the subject matter hereof. 19.6 Successors and Assigns This Charter shall inure to the benefit of and be binding upon the successors and assigns of the parties, provided that, except as expressly set forth herein, the Charterer may not assign its rights hereunder without the express written consent of the Owner and that the assignor shall remain liable for the performance of its assignee unless specifically released by the other party hereto. 19.7 Law The validity, construction, interpretation and effect of this Charter shall be governed by the general maritime laws of the United States, without regard to any choice of law rules that would otherwise require the application of the laws of any other jurisdiction, except that where the general maritime laws of the United States look to or adopt state law, this Charter shall be governed by the laws of the State of New York, without regard to any choice of law rules that would otherwise require the application of the laws of any other jurisdiction. 19.8 Parties' Intention It is the intent of all parties hereto and affected hereby in the execution and performance of this Charter, the Charter Documents and all related documentation to remain in strict compliance with all applicable laws from time to time in effect. Further, it is the intent of all parties hereto and affected hereby to evidence, by this Charter, a lease between the Owner, as lessor, and the Charterer, as lessee, rather than any other form of financial arrangement including specifically, but without limitation, a loan or other debt financing. Any and all payments, amounts, liabilities, commitment fees and other amounts expended and obligations of the Charterer incurred or arising in connection with this Charter, the Charter Documents and all related documentation are intended to evidence, lease payment obligations of the Charterer or reimbursements to the Owner and the Investors or their agents, representatives or designees, for services actually performed, goods actually furnished or provided, or other expenses or liabilities for which reimbursement is provided in connection with this Charter and the Charter Documents. To the extent that any such charge herein provided for or payment herein made is held or deemed to be held by a court of competent jurisdiction to be "interest", the parties hereto and affected hereby stipulate and agree that none of the terms and provisions contained in or pertaining to this Charter, the Charter Documents or any related document shall ever be construed to create a contract to pay for the use, forbearance or detention of money with interest at a rate or in an amount in excess of the maximum lawful non-usurious rate or amount of interest permitted to be charged, paid or received under said laws. For purposes of this Charter, the Charter Documents and all related documentation, "interest" shall include the aggregate of all charges which constitute interest under applicable laws, which term "applicable laws" shall include, but not be limited to, the laws of the State of New York and, to the extent they may apply, the laws of the United States of America, that are contracted for, chargeable or receivable under this Charter and all related documentation. The Charterer shall never be required to pay unearned interest on any of its obligations hereunder or in connection herewith and shall never be required to pay interest on any of its obligations hereunder or in connection herewith at a rate or in an amount in excess of the maximum lawful non-usurious rate or amount of interest that may be lawfully charged under applicable laws, and the provisions of this paragraph shall control over all other provisions of this Charter, the Charter Documents and all related documentation which may be in apparent conflict herewith. If the effective rate or amount of interest which would otherwise be payable under or in connection with this Charter or any related documentation would exceed the maximum lawful non-usurious rate or amount of interest the Owner or any Investor or any assignee thereof is allowed by applicable laws to charge, collect and receive, or in the event any such person or entity shall charge, collect or receive monies that are deemed to constitute interest which would, in the absence of this Section 19.8, be in excess of an amount permitted to be charged, collected and received under the applicable laws then in effect, then any such excess amount shall be reduced to the amount allowed under said laws as now or hereafter construed by courts having jurisdiction, and all such monies so collected, charged or received that are deemed to constitute interest in excess of the maximum lawful non-usurious rate or amount of interest permitted by applicable laws shall be immediately, at the option of the recipient thereof, be applied to principal, if any outstanding, or returned to or credited to the account of the Charterer upon such determination. 19.9 Counterparts; Uniform Commercial Code This Charter may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. Each counterpart of this Charter which has been executed by the parties hereto shall be prominently marked to identify the party to whom originally delivered. If this Charter constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction), a security interest in this Charter may be created only by the transfer or possession of the counterpart marked "Owner's Copy" and containing a receipt therefor executed by the Owner on or immediately following the signature page thereof and, in addition, the Owner may file Uniform Commercial Code Financing Statements in any relevant jurisdiction. 19.10 Warranty of Authority By executing this Charter on behalf of any entity, each signatory to this Charter represents and warrants that he or she has full and valid authority to enter into this Charter on behalf of the entity for which he or she signs. 19.11 Usage; Headings Unless the context otherwise requires, use of the singular number in this Charter shall include the plural number and vice versa, and use of one gender herein shall include each other gender and vice versa. Use of the words "hereof", "herein", "hereto", "hereby", "hereunder", or words of similar import in this Charter refer to this Charter as a whole and not to any specific paragraph, subparagraph, section, sentence, clause or part of this Charter. Section headings and numbers herein are for reference purposes only and do not constitute a part of this Charter (unless the context indicates otherwise). 19.12 WAIVER OF JURY TRIAL EACH OF THE CHARTERER AND THE OWNER WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS CHARTER, THE CHARTER DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. 19.13 VENUE; SERVICE OF PROCESS THE CHARTERER, FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, HEREBY KNOWINGLY AND INTENTIONALLY AND IRREVOCABLY AND UNCONDITIONALLY a) SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEW YORK AND THE FEDERAL COURTS SITTING IN THE STATE OF NEW YORK AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS CHARTER OR THE OTHER CHARTER DOCUMENTS BY SERVICE OF PROCESS AS PROVIDED BY NEW YORK LAW, b) WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THIS CHARTER OR THE OTHER CHARTER DOCUMENTS BROUGHT IN ANY NEW YORK STATE COURT OR FEDERAL COURT SITTING IN THE STATE OF NEW YORK, c) WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, d) CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH LITIGATION BY THE MAILING OF COPIES THEREOF BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, TO THE CHARTERER AT THE ADDRESS SET FORTH HEREIN AND e) AGREES THAT ANY LEGAL PROCEEDING AGAINST THE CHARTERER ARISING OUT OF, RELATED TO OR IN CONNECTION WITH THIS CHARTER OR THE OTHER CHARTER DOCUMENTS OR THE OBLIGATIONS HEREUNDER OR THEREUNDER MAY BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE OWNER TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE CHARTERER OR ANY OF THE OTHER MEMBER OF THE CHARTERER GROUP IN ANY OTHER JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY APPLICABLE LAW. 19.14 Agent for Service of Process The Charterer hereby irrevocably designates The Prentice-Hall Corporation, with offices at 500 Central Avenue, Albany, New York 12206-2290, as agent to receive for and on behalf of the Charterer service of process in New York. In the event that The Prentice-Hall Corporation System, Inc. resigns or ceases to serve as the Charterer's agent for service of process hereunder, the Charterer agrees forthwith (a) to designate another agent for service of process in the State of New York and (b) to give prompt written notice to the Owner of the name and address of such agent. The Owner agrees to use reasonable efforts to cause a copy of such process served on such agent to be promptly forwarded to the Charterer at its address set forth herein, and the Charterer agrees that the failure of the Charterer to receive such copy shall not impair or affect in any way the validity of such service of process or of any judgment based thereon. The Charterer agrees that the failure of its agent for service of process to give any notice of any such service of process to the Charterer shall not impair or affect the validity of such service or of any judgment based thereon. If, despite the foregoing, there is for any reason no agent for service of process of the Charterer available to be served, then the Charterer further irrevocably consents to the service of process by the mailing thereof by the Owner by registered or certified mail, postage prepaid, to the Charterer at its address herein. Nothing in this Section 19.14 shall affect the right of the Owner to serve legal process in any other manner permitted by law or affect the right of the Owner to bring any action or proceeding against the Charterer or its property in the courts of any other jurisdiction. IN WITNESS HEREOF, the parties hereto have executed this Charter on the _____ day of July, 1997. DEEP SEA INVESTORS, L.L.C. READING & BATES DRILLING CO. By: GATX MARINE INVESTORS CORPORATION, Member By: By: Name: Name: Title: Title: By: HELLER FINANCIAL LEASING, INC. Member By: Name: Title: By: MDFC EQUIPMENT LEASING CORPORATION, Member By: Name: Title: SCHEDULE A DESCRIPTION OF VESSEL M.G. HULME, JR., INCLUDING SPECIFICATIONS SCHEDULE B-1 FIRST UPGRADE PROGRAM SCHEDULE B-2 SECOND UPGRADE PROGRAM SCHEDULE C CHARTERER'S INSURANCE As specified in Article 15, the Charterer shall maintain the following insurance coverage: 1. Workmen's Compensation and Employers' Liability Insurance All of the Charterer's employees shall be covered for statutory benefits as set forth and required by applicable law in the Area of Operation or such other jurisdiction under which the Charterer may become obligated to pay benefits. Employers' Liability insurance, including appropriate maritime coverage covering all employees, shall be provided with minimum primary policy limits as required by applicable statute, or U.S. $1 million per occurrence, whichever is greater. 2. Comprehensive General Liability Insurance coverage shall be provided for liability arising from all operations of the Charterer. The policy shall include coverage for premises and operations, independent contractors, completed operations, and contractual liability (or their equivalents). Insurance coverage shall also be provided for all owned, hired, and nonowned vehicles. The minimum primary policy limits shall be U.S. $1 million single limit per occurrence under the General Liability policies. Automobile Liability insurance shall have minimum policy limits of U.S. $1,000,000 single limit per occurrence, or such greater amount as required by law. 3. Protection and Indemnity (Marine Liability) Insurance Full form marine protection and indemnity insurance, including, but not limited to, sudden and accidental pollution liability and contractual liability coverage or equivalent insurance (including equivalent insurance against liability for fines and penalties arising out of the operation of the Vessel) with such club or under forms of policies approved by the Owner. Such protection and indemnity insurance shall be maintained in the broadest forms generally available in the United States market, shall be in an amount not less than that carried by experienced and responsible companies engaged in the drilling of petroleum, shall include a cross-liability endorsement and shall be placed through independent brokers of recognized standing and with first-class underwriters reasonably acceptable to the Owner. No hull and machinery or protection and indemnity insurance shall provide for a deductible amount in excess of $500,000 with respect to the Vessel without the prior written consent of the Owner. 4. Excess Liability The Charterer shall carry Excess Liability Insurance in amounts not less than $200 million each occurrence in addition to and in excess of all primary Liability Coverages carried by Charterer, including but not limited to insurance required under Paragraphs 1, 2 and 3 (oil pollution sublimit $80 million per Paragraph 6). 5. Marine Physical Damage, Including Hull and Machinery All risk Marine and hull and machinery shall be provided with a limit equal to that normally carried by experienced and responsible companies engaged in offshore drilling, but shall not be less than the greater of (a) 110% of the Stipulated Loss Value of the Vessel; or (b) the Fair Market Sale Value of the Vessel. Coverage shall include collision liability and navigation limits adequate for the Vessel's trade. 6. Oil Pollution Insurance Oil pollution insurance coverage issued by the Vessel's P & I Club or equivalent coverage in the amount of not less than US $80,000,000 per occurrence, unless additional insurance or proof of financial responsibility of a greater amount shall be required by a governmental authority, in which case such greater amount shall be obtained and kept in full force and effect by the Charterer. The Charterer shall maintain insurance, if available, covering similar oil removal risks or liabilities and civil or criminal penalties incident thereto and not attributable to the action or inaction of the Owner under any law, regulation or judicial decision of any of the United States of America or foreign jurisdiction or jurisdictions or political subdivision thereof applicable to the Vessel or its operations to the extent such insurance is requested in writing by the Owner and recommended by an independent marine insurance broker as insurance which it would be imprudent not to carry for the protection of the Charterer and the Owner in view of the nature of the Vessel and the Vessel's operations. 7. War, Political Risk, Confiscation and Expropriation Insurance If and to the extent that the Vessel is operated outside of the territorial waters and/or the Outer Continental Shelf of the United States (and in addition to any coverage required by the Owner for such operations under this Charter), War, Political Risk, Confiscation and Expropriation Insurance shall be provided for the Vessel with a limit equal to the value insured under Paragraph 5 above. 8. Other Losses Losses not covered by the above stated policies because of deductibles and policy limits stated above shall be borne according to the liability and indemnity provisions of this Charter. 9. Owner Group as Additional Insured All coverages and other insurance policies carried by the Charterer or that the Charterer is required at any time to maintain pursuant to this Charter shall name Owner Group as an additional insured and loss payee for all risks and losses for which the Charterer is liable under this Charter. 10. Additional Provisions The Charterer will deliver to the Owner and each of the Investors copies of all cover notes and certificates of insurance and, if requested by the Owner copies of all binders and policies with respect to insurance carried on the Vessel. On or before the Delivery Date of the Vessel, and on each anniversary of the Delivery Date, and each time there is a reduction or material change in the insurance coverage carried on the Vessel, the Charterer will furnish to the Owner and each of the Investors a detailed report signed by independent marine insurance brokers (who may be the insurance brokers regularly employed by the Charterer) appointed by the Charterer and reasonably acceptable to the Owner, describing the insurance policies then carried and maintained on the Vessel (including the names of the underwriters, the types of risk covered by such polices, the amount insured thereunder and the expiration date thereof) and stating that in the opinion of said insurance brokers such insurance is adequate and reasonable for protection of the Owner, is in compliance with the terms of Article 15 and is comparable with that carried by other responsible operators of similar drilling vessels. All policies shall include the following: (i) breach of warranty protection to the Owner Group, (ii) waiver of subrogation clause and (iii) at least 30 days' prior written notice of cancellation or material modification. The insurance shall be primary, without right of contribution from any other insurance which may be carried by the Owner Group, and contain a waiver of set off of premiums against claims proceeds and provide for no recourse for premium payments by the Owner Group. SCHEDULE D STIPULATED LOSS VALUE* SCHEDULE E PENDING LITIGATION Proceedings disclosed in Reading & Bates' Report on Form 10-Q dated March 31, 1997 filed with the Securities & Exchange Commission. SCHEDULE F Computation of Basic Hire Adjustment for Second Upgrade Effective as of each Upgrade Disbursement Date (as defined in the Second Upgrade Agreement), the Basic Hire shall be adjusted for the amount to be funded by the Owner on such date by reference to the yield of the 6.375% coupon August 2002 U.S. Treasury note as published in The Wall Street Journal on the second Business Day immediately preceding such date and otherwise in accordance with the methodology used in the example shown below. Example: Upgrade Disbursement Date: July 29, 1997 Assumed Published U.S. Treasury note yield: 6.11% Value of Severables in respect of which reimbursement is sought: $ 5,560,683.00 Value of Nonseverables in respect of which reimbursement is sought: $ 4,720,896.00 Total amount in respect of which reimbursement is sought: $ 10,281,579.00 Revised Primary Term Basic Hire (expressed as a % of Owner's Cost): 1.1896% _______________________________ * Immediately prior to an Upgrade Disbursement Date (as defined in the Second Upgrade Agreement), the Owner will deliver to the Charterer a revised schedule of Stipulated Loss Values. The revised schedule shall reflect the amount which the Charterer has requested be reimbursed by the Owner on such date and shall otherwise be produced using the same methodology as was used in preparation of the figures which appear in this Schedule D. Upon the relevant disbursement being made, such revised schedule shall for all purposes be and become Schedule D of this Charter. EX-10.177 18 EXHIBIT 10.177 ========================================================================= AMENDED AND RESTATED BAREBOAT CHARTER M. G. HULME, JR. BETWEEN DEEP SEA INVESTORS, L.L.C., as OWNER AND READING & BATES DRILLING CO., as CHARTERER DATED AS OF JULY 1, 1998 ==================================================================== TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS 1 ARTICLE 2 SCHEDULES AND OBJECTIVES 11 2.1 Schedules 11 2.2 Objectives 11 2.3 CONDITION OF THE PROPERTY 12 ARTICLE 3 TERM, DELIVERY DATE AND PURCHASE OPTION 13 3.1 Duration 13 3.2 Delivery of the Vessel to the Charterer 13 3.3 Early Termination 14 3.4 Remedies 17 3.5 Redelivery of the Vessel 19 3.6 Survey of the Vessel at End of Charter Period 20 3.7 Purchase Option 21 3.8 Determination of Purchase Option Price 21 ARTICLE 4 NATURE OF COMPENSATION 21 4.1 Absolute Obligation 21 4.2 Net Charter 23 ARTICLE 5 CONDITIONS TO EFFECTIVENESS 24 5.1 Conditions 24 ARTICLE 6 REPRESENTATIONS AND WARRANTIES 25 6.1 Representations and Warranties of the Owner 26 6.2 Representations and Warranties of the Charterer 27 ARTICLE 7 USE AND OPERATION OF THE VESSEL 30 7.1 Use of the Vessel 30 7.2 Manning, etc., of the Vessel 31 7.3 Documentation of the Vessel 31 7.4 General and Particular Average 32 7.5 Site and Access 32 7.6 Owner Liability for Materials Furnished by the Charterer 32 7.7 Environmental and Related Reporting and Inspection 32 7.8 Notice of Entry 32 ARTICLE 8 MAINTENANCE OF CONDITION AND CLASSIFICATION; REPAIRS 33 8.1 Maintenance of Classification 33 8.2 Repair 34 8.3 Drydocking or Underwater Survey in Lieu of Drydocking 34 8.4 Required Survey 34 ARTICLE 9 EQUIPMENT AND STORES 35 9.1 Fuel, etc. 35 9.2 Equipment, etc. 35 9.3 The Charterer's Additional Equipment, etc. 35 9.4 Title to Improvements; Option to Purchase 36 9.5 No Lease of Essential Severables 37 ARTICLE 10 THE CHARTERER'S CHANGES, ADDITIONS AND REPLACEMENTS 37 10.1 Structural Changes or Alterations; Installation of Equipment, etc. 37 10.2 Replacement of Parts 38 10.3 Vessel Markings 38 ARTICLE 11 ADDITIONAL COVENANTS 38 11.1 General Covenants 38 11.2 No Impairment 39 11.3 Financial Information 39 11.4 Compliance Certificates 40 11.5 Further Assurances, etc. 41 11.6 Maintenance of Corporate Existence, etc. 41 11.7 Conditions of Consolidation, Merger, etc. 41 11.8 Indemnity of the Owner by Customers for Oil Pollution and Related Environmental Claims 43 ARTICLE 12 PAYMENTS, INVOICES AND SECURITY 43 12.1 Basic Hire 43 12.2 Supplemental Hire 44 12.3 Payment Terms 44 12.4 Invoices 45 12.5 Security for Obligations 45 ARTICLE 13 GENERAL OBLIGATIONS AND PERFORMANCE 48 13.1 Independent Owner Relationships 48 13.2 Inspection 49 13.3 Performance of the Charterer 49 13.4 Operations Outside of U.S. Waters 49 ARTICLE 14 LIABILITY AND INDEMNITY 50 14.1 Survival of Indemnities 50 14.2 Pollution 50 14.3 The Charterer's Indemnity 50 14.4 Patent Infringement 51 14.5 Both-to-Blame Collision Clause 51 14.6 Liens, Attachments and Encumbrances 52 14.7 Indemnification by the Charterer 52 14.8 The Charterer's Duties to Remove Liens, etc. 53 ARTICLE 15 INSURANCE 53 15.1 The Charterer's Insurance 53 15.2 Nonperformance of Insurance Companies 54 15.3 Subrogation 54 ARTICLE 16 ASSIGNMENT OF CHARTER 54 16.1 Assignment and Subcontract by the Owner 54 16.2 Assignment by the Charterer 55 16.3 Assignment of Subcharter Hire 57 ARTICLE 17 LOSS, TAKING OR SEIZURE. 58 17.1 Taking by the U.S. Government 58 17.2 Event of Loss not a Total Loss 58 17.3 Payment of Stipulated Loss Value 58 17.4 Application of Payments 59 17.5 Date of Loss 59 17.6 Effect of Payment of Stipulated Loss Value 59 ARTICLE 18 TAX 60 18.1 Characterization as a Lease 60 18.2 Representations 60 18.3 Tax Indemnity 62 18.4 Payments 63 18.5 Records 64 ARTICLE 19 GENERAL 64 19.1 Notices 64 19.2 Expenses 65 19.3 The Owner's Right to Perform for the Charterer 66 19.4 Waivers 66 19.5 Entire Agreement 66 19.6 Successors and Assigns 67 19.7 Law 67 19.8 Parties' Intention 67 19.9 Counterparts; Uniform Commercial Code 68 19.10 Warranty of Authority 68 19.11 Usage; Headings 68 19.12 WAIVER OF JURY TRIAL 69 19.13 VENUE; SERVICE OF PROCESS 69 19.14 Agent for Service of Process 70 SIGNATURES 70 Schedule A Description of Vessel M. G. Hulme, Jr., Including Specifications Schedule B-1 First Upgrade Program Schedule B-2 Second Upgrade Program Schedule B-3 Third Upgrade Program Schedule C Charterer's Insurance Schedule D Stipulated Loss Value Schedule E Pending Litigation Schedule F Computation of Basic Hire Upgrade Adjustment ======================================================================= AMENDED AND RESTATED BAREBOAT CHARTER "M.G. HULME, JR." This Amended and Restated Bareboat Charter dated as of July 1, 1998 is between Deep Sea Investors, L.L.C., a Delaware limited liability company (the "Owner"), and R&B Falcon Drilling Co. (formerly known as Reading & Bates Drilling Co.), an Oklahoma corporation, as the Charterer (the "Charterer"); W I T N E S S E T H: WHEREAS, the Charterer and the Owner have entered into the Bareboat Charter dated as of November 28, 1995 (the "Original Agreement") and the Amended and Restated Bareboat Charter dated as of July 23, 1997 (the "Amended Agreement") under which the Owner as the owner of the Vessel M.G. HULME, JR. (as described hereunder at Schedule A (the "Vessel") chartered such Vessel to the Charterer on a bareboat basis to conduct drilling activities; WHEREAS, with the concurrence of the Owner and the Charterer, the Vessel is undergoing an upgrade; and WHEREAS, the Charterer desires to continue to charter the Vessel as upgraded, and the Charterer and the Owner have agreed to amend and restate the Amended Agreement in accordance with the terms and conditions set forth herein; NOW, THEREFORE, the parties hereto, each in consideration of the promises and agreements of the other, hereby amend and restate the Amended Agreement in its entirety as follows: ARTICLE 1 DEFINITIONS When used in this Charter (in addition to the terms defined elsewhere in this Charter), the following terms shall have the following meanings: "Additional Collateral" has the meaning assigned to such term in Section 12.5(a). "Adequate Provision" means, with respect to any Lien, claim, liability or other obligation, the posting with or for the benefit of the Owner Group, of a bond or letter of credit issued by a bank, surety or other similar institution acceptable to the Owner or other collateral acceptable to the Owner, in each case, pursuant to documentation in form and substance acceptable to the Owner, having a face amount or fair market value no less than the amount owed under such Lien, claim, liability or other obligation. "Affiliate(s)" in relation to a party hereto, means any person controlling, controlled by or under common control with such party, with the concept of control in such context meaning the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of another, whether through the ownership of voting securities, by contract or otherwise. "Appraisal Procedure" means the procedure specified in the succeeding sentences for determining an amount or value. If either the Owner or the Charterer shall give written notice to the other requesting determination of such amount or value by appraisal, the Owner and the Charterer shall consult for the purpose of appointing a mutually acceptable qualified independent appraiser. If such parties shall be unable to agree on an appraiser within 20 days of the giving of such notice, such amount or value shall be determined by a panel of three independent appraisers, one of whom shall be selected by the Charterer, another of whom shall be selected by the Owner and the third of whom shall be selected by the American Arbitration Association (or its successor) if such other two appraisers shall be unable to agree upon a third appraiser within 10 days of the selection date of the second of such two appraisers; provided, that if (a) either party shall not select its appraiser within 35 days after giving of such notice, such amount or value shall be determined solely by the appraiser selected by the other party, and (b) if both parties shall not select their respective appraisers within such period, such amount or value shall be determined solely by an appraiser selected by the American Arbitration Association (or its successor). The appraiser or appraisers appointed pursuant to the foregoing procedure shall be instructed to determine such amount or value within the lesser of: (i) 45 days after such appointment and (ii) the applicable period remaining until delivery of such appraisal is required under this Charter and the Charter Documents; and such determination shall be final and binding upon the parties. If three appraisers shall be appointed, the determination of the appraiser that shall differ most from the other two appraisers shall be excluded, the remaining two determinations shall be averaged and such average shall constitute the determination of the appraisers. The Charterer shall pay all fees and expenses relating to an appraisal for any purpose under this Charter. "Basic Hire" means the charter hire amount payable on the Payment Dates as set forth in Section 12.1. "Business Day" means any day on which commercial banks are open for business in New York City, New York. "Charter" means this Bareboat Charter as it may from time to time be supplemented, amended, waived or modified in accordance with the terms hereof. "Charter Documents" means this Charter, the Guaranty, the Security Documents, the Upgrade Documents and any other document, instrument or agreement executed in connection herewith or therewith. "Charter Period" means, collectively, the Primary Term and, if any, the Extended Term. "Charterer" means Reading & Bates Drilling Co., an Oklahoma corporation, and its successors and assigns to the extent permitted by the terms hereof. "Charterer Group" means, individually and collectively, the Charterer and its subsidiaries, its and their co-venturers, contractors and subcontractors and its and their Affiliates, and the employees, invitees and insurers of all of those entities, but shall expressly exclude the Owner Group. "Code" means the United States Internal Revenue Code of 1986, as amended, and any amending or superseding tax laws of the United States of America. "Contractor" means Newpark Marine Fabricators, Inc., a Texas corporation, and any other Person performing all or any part of the Third Upgrade Program. "Cunningham Mortgage" means the Preferred Ship Mortgage dated as of November 28, 1995 made by the Charterer in favor of the Trustee covering the Jim Cunningham, as amended by the First Supplement to Preferred Ship Mortgage dated as of July 23, 1997, and the Second Supplement to Preferred Ship Mortgage dated as of July 1, 1998 and any other amendment, supplement or modification thereof entered into in accordance with the term thereof or hereof. "Crude Oil" means any hydrocarbon product that is in liquid form at surface temperature and pressure, including condensate. "Debt" means, for any Person (without duplication), whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (a) every obligation of such Person for money borrowed, (b) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (d) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business), (e) every obligation of such Person under a lease that under generally accepted accounting principles is required to be capitalized on the balance sheet of such Person, (f) every obligation under any charter, operating lease or title retention arrangement with an original term in excess of one year or which is renewable at the option of the tenant for a total term of one year or more, (g) the maximum fixed redemption or repurchase price of redeemable stock of such Person that by its terms or otherwise is required to be redeemed, if any, at the time of determination plus accrued but unpaid dividends, and (h) every obligation of the type referred to in clauses (a) through (g) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable for, directly or indirectly, as obligor, guarantor or otherwise. "Default" means any event or condition which after notice or lapse of time or both would become an Event of Default. "Delivery Date" means November 29, 1995. "Drilling Contracts" means any contractual arrangement with respect to the Vessel providing for the use or employment of the Vessel for the locating of, drilling for, development of, extraction of or processing of Crude Oil, Natural Gas or mineral deposits found in underwater locations, and activities ancillary thereto. "Escalated" means, with respect to any amount and as at any date of determination, such amount as multiplied by a fraction (a) the numerator of which is the Consumer Price Index - U.S. Average as published by the Bureau of Statistics of the Department of Labor (or if the publication of the Consumer Price Index is discontinued, a comparable index similar in nature to the discontinued index which clearly reflects the change in the real value of the purchasing power of the Dollar as reasonably selected by the Owner (hereafter in this definition referred to as the "index")) reported for the calendar year immediately preceding such date and (b) the denominator of which is equal to the index reported for 1995. "Event of Default" means any of the events defined as such in Section 3.3(b). "Event of Loss" means any of the following events: (a) the actual or constructive loss of the Vessel for the lesser of (i) six (6) months (or such longer period of up to 12 months from the date of such loss so long as the Charterer shall have made arrangements within such six (6) month period for the repair and restoration of the Vessel satisfactory to the Owner and the Independent Engineer and is diligently proceeding with such repair and restoration) or (ii) the remainder of the Charter Period, (b) the loss, theft or destruction of the Vessel, (c) damage or destruction of the Vessel or damage to the Vessel to such extent as shall make repair thereof uneconomical or other event resulting in the Vessel's being permanently rendered unfit for normal use for any reason whatsoever, other than obsolescence, or (d) the condemnation, confiscation, requisition, seizure, forfeiture or other taking of title to or use of the Vessel (except that, in the case of a taking of title, or taking of use by the United States Government, a period equal to the lesser of (i) six (6) months and (ii) the then remaining term of the Charter Period shall have elapsed from the date of such taking), in each case as determined by the Owner. "Expiration Date" means the last day of the Primary Term. "Extended Term" has the meaning assigned to such term in Section 3.1(b). "Fair Market Sale Value" means, for any property, the cash sale value of such property that would be obtained in an arm's-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer-user (other than a person currently in possession or a used equipment dealer), which determination shall be made (a), in the case of the Vessel, without deduction for any costs of removal of the Vessel from the location of current use and in the case of the First Upgrade Severables without deduction for the cost of removal or delivery, and (b) on the assumption that such property is free and clear of all liens, charges and encumbrances and, in the case of the Vessel is in the condition and repair in which it is required to be returned pursuant to Section 3.5 hereof (but otherwise on an "as-is" basis). "First Upgrade Maintenance" means that portion of the improvements contemplated by the First Upgrade Program that constitutes ordinary and usual maintenance as more fully described on Schedule B-1. "First Upgrade Nonseverables" means that portion of the improvements contemplated by the First Upgrade Program that is not readily removable without causing material damage to the Vessel as more fully described on Schedule B-1. "First Upgrade Program" means the upgrade of the Vessel from its 850 meter water capacity to 1,000 meters as more fully described in the First Upgrade Contract, any other Upgrade Documents related thereto and the plans, specifications and schedules set forth on Schedule B- 1. "First Upgrade Severables" means that portion of the improvements contemplated by the First Upgrade Program that is readily removable from the Vessel without causing material damage to the Vessel as more fully described on Schedule B-1. "Guarantor" means R&B Falcon and any other Person that guarantees or provides collateral or other credit support for the obligations of the Charterer hereunder. "Guaranty" shall mean the Guaranty entered into by any Guarantor for the benefit of the Owner, as the same may from time to time be supplemented, amended, waived or modified in accordance with the terms thereof. "Highest Lawful Rate" means the maximum nonusurious contract rate of interest permitted by applicable law. "Hire" means Basic Hire and Supplemental Hire, collectively. "Income Taxes" means all income, franchise or similar Taxes which are based on, or measured by or with respect to, net income. "Indemnitee" has the meaning assigned to such term in Section 14.3. "Independent Engineer" means Barnett & Casbarian, or any other Person selected by the Owner and approved by the Charterer, which approval shall not be unreasonably withheld or delayed. "Investor" means each of GATX Marine Investors Corporation, MDFC Equipment Leasing Corporation, Heller Financial Leasing, Inc. and their respective successors and assigns. "Jim Cunningham" means the drilling rig Jim Cunningham, official number 651643. "Lien" means any mortgage, pledge, lien, charge, encumbrance, lease, right, security interest or claim of any nature. "Limited Liability Company Agreement" means the Amended and Restated Limited Liability Company Agreement dated as of July 1, 1998 among GATX Marine Investors Corporation, MDFC Equipment Leasing Corporation, and Heller Financial Leasing, Inc. creating the Owner. "MOA" means the Memorandum of Agreement dated as of November 28, 1995 between Reading and Bates, Inc. and the Owner. "Moody's" means Moody's Investor Service, Inc., a New York corporation, and its successors and assigns. "Mortgages" means the Cunningham Mortgage and any other mortgage that may from time to time secure the Obligations. "Natural Gas" means any mixture of hydrocarbons or of hydrocarbons and noncombustible gases, in a gaseous form at surface temperature and pressure, which consists essentially of methane, but includes ethane, propane, butanes, and other liquefiable hydrocarbons. "1954 Code" means the United States Internal Revenue Code of 1954, as amended and in effect prior to the enactment of the Tax Reform Act of 1986 (Pub. L. No. 99-514). "Nonseverables" means improvements, modifications and additions to the Vessel that are not readily removable without causing damage to the Vessel or that in accordance with applicable statutes, orders, cases, rules, regulations and other laws may not be removed from the Vessel. "Obligations" means the obligations of the Obligors under the Charter Documents. "Obligors" means, collectively, the Charterer and each Guarantor. "Operating Area" means any area in which the Charterer shall operate the Vessel with notice to the Owner pursuant to Section 13.4. "Overdue Rate" means an interest rate per annum equal to the lesser of (a) the Prime Rate plus four percent (4%) per annum and (b) the Highest Lawful Rate. "Owner" means Deep Sea Investors, L.L.C., a limited liability company organized under the laws of the State of Delaware. "Owner Group" means, individually and collectively, the Owner and its subsidiaries, its and their co-venturers and contractors and subcontractors and the Investors, its and their respective Affiliates (other than the Charterer), and its and their shareholders, directors, officers, attorneys, accountants, consultants and representatives, the employees, insurers and invitees of all of those entities, the Trustee and the Vessel, but shall expressly exclude Charterer Group. "Owner Liens" means Liens described in clause (b) of the definition of Permitted Liens. "Owner's Cost" means, as of any date, the sum of (a) the purchase price of the Vessel, (b) the First Upgrade Nonseverable Cost, (c) the Second Upgrade Cost and (d) the Third Upgrade Cost. "Payment Date" means each date that is a monthly anniversary date of the calendar day immediately before the Delivery Date (such monthly date being deemed for this purpose to be the day of each succeeding month corresponding to such date immediately before the Delivery Date or, if such month does not have a corresponding day, the last day of such month), up to and including the end of the Charter Period. "Permitted Liens" means, as of any date, (a) any lien arising out of a claim for crew's wages, supplies or the like, or salvage not covered by insurance, or for taxes, assessments or other governmental charges, in each case, incurred in the ordinary course of business, and in existence as of the date of determination for not more than 30 days and, as of the date of determination, neither overdue nor in the aggregate in excess of $1,000,000 unless such are being contested in good faith and by appropriate Persons and proceedings, in each case, in the Owner's judgment and unless Adequate Provision has been provided by the Charterer for payment of such amounts that may become due and payable and such Lien attaches only to such Adequate Provision and not to the Vessel, any part thereof or any Drilling Contract and, in the Owner's judgment, no risk of forfeiture or other loss of the Vessel, any part thereof, or any right of the Charterer or the Owner under any Drilling Contract, exists, or is threatened or imminent; (b) any lien created by, through or under the Owner as a result of claims against the Owner for which the Owner is not entitled to indemnification from the Charterer or any Guarantor, or discharge of which is not the obligation of the Charterer or any Guarantor, whether at law, by contract, in equity or under admiralty principles; and (c) Drilling Contracts complying with the provisions of this Charter and the other Charter Documents and the rights of the Charterer under this Charter, including subcharters of the Vessel in accordance with the terms of this Charter, provided that no such contracts, rights or subcharters shall suffer or permit to be continued any Lien or encumbrance incurred by Charterer or any subcharterer or any of their agents which might have priority over the title and interest of the Owner in the Vessel or any part thereof or equipment or other property used in connection with the Vessel. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint stock company, trust or unincorporated organization or any government or any agency or any political subdivision thereof. "Primary Term" has the meaning assigned to such term in Section 3.1(a). "Prime Rate" means the per annum rate of interest published from time to time in the Eastern edition of The Wall Street Journal, which rate shall change with each published change in such rate, effective as of the date of such publication. "Purchase Option Price" means the Fair Market Sale Value of the Vessel determined in accordance with Section 3.8, not to exceed 40% of Owner's Cost. "Randolph Yost" means the Randolph Yost, Official Number 601699, and all fixtures, equipment and improvements of any kind whatsoever installed or located thereon and owned by the Charterer. "R&B Falcon" means R&B Falcon Corporation, a Delaware corporation. "Rated Securities" means the implied long-term senior unsecured debt of R&B Falcon. "Reading & Bates" means Reading & Bates Corporation, a Delaware corporation. "Rights Assignment" has the meaning assigned to such term in Section 16.3. "Sale Date" means the date, if any, on which the Charterer acquires the Vessel by exercise of its purchase option granted pursuant to Section 3.7. "Second Upgrade Agreement" means the Upgrade Agreement dated July 23, 1997, but effective as of April 22, 1997 between the Owner and R&B Drilling, individually and as agent. "Second Upgrade Contract" means the Ship Repair Agreement dated as of April 22, 1997 between Ham Marine, Inc., a Mississippi corporation, and the Charterer. "Second Upgrade Cost" means an amount not to exceed (i) $25,346,756.15 to be paid under the Second Upgrade Agreement plus (ii) any amounts authorized by the Owner to be paid to construct the Second Upgrade Program. "Second Upgrade Default" means the occurrence of an Upgrade Event of Default (as defined in the Second Upgrade Agreement). "Second Upgrade Program" means the upgrade of the Vessel from its current 1,000 meter water capacity to 4,000 feet as more fully described in the Second Upgrade Agreement, any other Upgrade Documents (as defined in the Second Upgrade Agreement) and the plans, specifications and schedules set forth on Schedule B-2. "Second Upgrade Severables" means the severables acquired in connection with the Second Upgrade Program. "Security Agreement" means the Security Agreement dated November 28, 1995 between the Owner and the Trustee, as amended by the Ratification Agreement dated as of July 23, 1997 between the Owner and the Trustee, and the Ratification Agreement dated as of July 1, 1998 as such agreement may be further amended, supplemented or modified in accordance with the terms thereof and hereof. "Security Documents" means the Mortgages, the Security Agreement, and any other agreement, instrument or document executed and delivered for the purpose of supporting or securing the Obligations. "Severables" means improvements, modifications or additions to the Vessel that are readily removable without causing damage to the Vessel and may, in accordance with all applicable statutes, orders, cases, rules, regulations and other laws, be removed from the Vessel. "S&P" means Standard & Poor's Ratings Group, a division of McGraw- Hill Companies, Inc., a New York corporation, and its successors and assigns. "Shipping Act, 1916" shall mean the United States Shipping Act, 1916, as amended. "Shipyard" means Newpark Marine Fabricators's shipyard in Galveston, Texas. "Stipulated Loss Value" as of any Payment Date listed by number in Schedule D hereto means an amount determined by multiplying Owner's Cost by the percentage set forth in Schedule D opposite such Payment Date number. "Subsidiary" means for any Person, any other corporation, partnership, joint venture, limited liability company or other entity at least a majority of the voting stock of which is beneficially owned, directly or indirectly by such Person or its Subsidiaries. "Substitute Collateral" has the meaning assigned to such term in Section 12.5(d). "Supplemental Hire" shall mean any and all amounts, liabilities and obligations other than Basic Hire that the Charterer assumes or agrees to pay hereunder to the Owner, including, without limitation, Stipulated Loss Value and indemnity payments. "Taxes" means all federal, foreign, state, local or other net or gross income, gross receipts, sales, use, stamp, documentary, transfer, general consumption, ad valorem, property, value added, franchise, production, import, export, withholding, payroll, employment, excise or similar taxes, assessments, duties, fees, levies or other governmental charges, including without limitation, license, recording, documentation and registration fees, together with any interest thereon, any penalties, additions to tax or additional amounts with respect thereto and any interest in respect of such penalties, additions or additional amounts. "Third Parties" means all persons and entities that are not Charterer Group or Owner Group. "Third Upgrade Agreement" means the Upgrade Agreement dated July 1, 1998 but effective as of May 29, 1998 between the Owner and R&B Drilling, individually and as agent. "Third Upgrade Contract" means the Master Service Agreement dated as of May 29, 1998 between Newpark Marine Fabricators, Inc., a Texas corporation, and the Charterer. "Third Upgrade Cost" means an amount not to exceed (i) $9,258,157 to be paid under the Third Upgrade Agreement plus (ii) any amounts authorized by the Owner to be paid to construct the Third Upgrade Program. "Third Upgrade Default" means the occurrence of an Upgrade Event of Default (as defined in the Third Upgrade Agreement). "Third Upgrade Program" means the upgrade of the Vessel from its current 4,000 feet water capacity to 5,000 feet as more fully described in the Third Upgrade Agreement, any other Upgrade Documents (as defined in the Third Upgrade Agreement) and the plans, specifications and schedules set forth on Schedule B-3. "Third Upgrade Severables" means the severables acquired in connection with the Third Upgrade Program. "Timely Liquidation Value" means, for any property, the cash sale value of such property that would be obtained in an arm's-length transaction between a seller that must sell such property in no more than 90 days and an informed and willing buyer-user, which determination shall be made with a deduction for the removal of the property from its location and on the assumption that such property is in its current actual condition, which condition shall reflect its current physical condition and location and any applicable legal, governmental, physical, contractual and other impediments to sale or use. "Trustee" means Wilmington Trust Company not in its individual capacity but solely as trustee for the benefit of the Owner under the Mortgages and any of its successors or assigns in such capacity. "UCC" means the Uniform Commercial Code as enacted in the State of New York. "Upgrade Documents" has the meaning assigned to such term in the Third Upgrade Agreement. "Upgrade Programs" means, collectively, the First Upgrade Program, the Second Upgrade Program and the Third Upgrade Program. "Vessel" means the M. G. HULME, JR., as described on Schedule A, as upgraded pursuant to the Upgrade Programs, and all fixtures, equipment and improvements of any kind whatsoever installed or located thereon pursuant to this Charter (including, without limitation, the First Upgrade Severables, the Second Upgrade Severables and the Third Upgrade Severables) or as otherwise agreed to by the Charterer and the Owner. ARTICLE 2 SCHEDULES AND OBJECTIVES 2.1 Schedules The following schedules are attached hereto and made a part hereof for all purposes. In the event there are any conflicts between the body of this Charter and the schedules attached hereto, the provisions in the body of this Charter will prevail. (a) Schedules Schedule A - Description of the Vessel, including specifications. Schedule B-1 - First Upgrade Program Schedule B-2 - Second Upgrade Program Schedule B-3 - Third Upgrade Program Schedule C - Charterer's Insurance Schedule D - Stipulated Loss Value Schedule E - Pending Litigation Schedule F - Computation of Basic Hire Adjustment for Third Upgrade 2.2 Objectives The Owner shall provide the Vessel to the Charterer on a bareboat or demise charter basis. The Owner shall not be responsible for any other service, manning, operations or equipment whatsoever. By the Owner providing the Vessel to the Charterer in accordance with this Charter, upon the terms and subject to the conditions hereof, the Charterer shall take and have command, possession and control of the Vessel during the term of this Charter; as a part hereof, and without limit to the foregoing, the Charterer's command, possession and control of the Vessel shall specifically include the obligation to have the Vessel under the command of an Offshore Installation Manager certified by and for the area in which the Vessel is operating from time to time. 2.3 CONDITION OF THE PROPERTY. THE CHARTERER ACKNOWLEDGES AND AGREES THAT IT IS CHARTERING THE VESSEL AND OTHER PROPERTY HEREUNDER AAS IS", AWHERE IS", AND AWITH ALL FAULTS, WHETHER LATENT OR DISCERNIBLE", WITHOUT REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY THE OWNER, OWNER GROUP OR ANY INVESTOR AND IN EACH CASE SUBJECT TO (A) THE EXISTING STATE OF TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C) ALL APPLICABLE LEGAL REQUIREMENTS AND (D) VIOLATIONS OF LEGAL REQUIREMENTS WHICH MAY EXIST ON THE DATE HEREOF. NONE OF OWNER, ANY MEMBER, OWNER GROUP, OR ANY INVESTOR HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) OR SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE, VALUE, HABITABILITY, USE, SEAWORTHINESS, CONDITION, STABILITY, SUITABILITY, DESIGN, OPERATION, CLASS, COMPLIANCE WITH LAWS, CONFORMANCE TO SPECIFICATIONS, MERCHANTABILITY OR FITNESS FOR USE OF ANY PROPERTY (OR ANY PART THEREOF FOR A PARTICULAR PURPOSE OR WITH RESPECT TO PATENT INFRINGEMENT), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY PROPERTY (OR ANY PART THEREOF), AND NONE OF OWNER, OWNER GROUP OR ANY INVESTOR SHALL BE LIABLE FOR ANY LATENT, HIDDEN OR PATENT DEFECT THEREIN, ANY REPRESENTATION, WARRANTY OR PROMISE, EXPRESS OR IMPLIED, WHICH ANY MANUFACTURER OR BUILDER OF THE VESSEL OR ANY PROPERTY (OR ANY PART THEREOF) MAY HAVE MADE OR MAY BE DEEMED TO HAVE MADE OR THE FAILURE OF ANY PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY LEGAL REQUIREMENT OR ANY DAMAGES, WHETHER ACTUAL, SPECIAL, CONSEQUENTIAL OR INCIDENTAL, ARISING HEREFROM OR THEREFROM. THE CHARTERER HAS BEEN AFFORDED FULL OPPORTUNITY TO INSPECT THE VESSEL, IS (INSOFAR AS THE OWNER IS CONCERNED) SATISFIED WITH THE RESULTS OF ITS INSPECTIONS AND IS ENTERING INTO THIS CHARTER SOLELY ON THE BASIS OF THE RESULTS OF ITS OWN INSPECTIONS, AND ALL RISKS INCIDENT TO THE MATTERS DESCRIBED IN THE PRECEDING SENTENCE, AS BETWEEN OWNER, THE OWNER GROUP AND THE INVESTORS, ON THE ONE HAND, AND THE CHARTERER, ON THE OTHER HAND, ARE TO BE BORNE BY THE CHARTERER. NOTHING IN THIS SECTION 2.3 OR THE CHARTER SHALL OPERATE TO NEGATE OR DIMINISH ANY CLAIM FOR BREACH OF ANY REPRESENTATION, WARRANTY OR COVENANT THAT THE OWNER MAY NOW OR HEREAFTER HAVE UNDER ANY CHARTER DOCUMENT OR ARISING OUT OF THE TRANSACTIONS CONTEMPLATED THEREBY. ARTICLE 3 TERM, DELIVERY DATE AND PURCHASE OPTION 3.1 Duration (a) Subject to the terms and conditions of this Charter, the Owner bareboat (demise) charters to the Charterer, and the Charterer bareboat (demise) charters from the Owner, the Vessel for a period beginning on the Delivery Date and ending on the 10th anniversary of the Delivery Date (the "Primary Term"), with the option to extend this Charter pursuant to Section 3.1(b). (b) At the end of the Primary Term, and subject to the terms and conditions of this Charter, the term of this Charter may be extended for a period of 90 days (the "Extended Term") by the Charterer providing 180 days' written notice to the Owner prior to the end of the Primary Term if, and only if, such extension is necessary to complete a Drilling Contract in progress that is in full force and effect on the date such extension notice is delivered and no Default or Event of Default has occurred and is continuing. The Charterer, at its sole cost and expense, shall provide the Owner with independent verification of the necessity of any such extension in form and substance satisfactory to the Owner. During such Extended Term, if any, all of the obligations of the Charterer under this Charter during the Charter Period shall continue for the Extended Term, including, without limitation, the obligation to pay Basic Hire under Section 12.1. Prior to any extension of the Primary Period for the Vessel, the Charterer shall give the Owner its good faith estimate of the date on which the existing Drilling Contract will be completed. (c) The Charterer shall, at all reasonable times during the last 180 days of the Charter Period, permit access to the Vessel to the Owner and to Persons designated by the Owner in connection with any prospective sale or prospective rechartering of the Vessel by the Owner, and shall permit the inspection of the Vessel by such Persons; provided, however, that the exercise of such rights shall in no way unreasonably interfere with the use of the Vessel by the Charterer. 3.2 Delivery of the Vessel to the Charterer The Vessel was delivered by the Owner to the Charterer at Garden Banks Block 387, Outer Continental Shelf, Gulf of Mexico on November 29, 1995, pursuant to the MOA. Upon such delivery, the Vessel became subject to all the terms and conditions of this Charter. Such delivery of the Vessel by the Owner to the Charterer, without further action, irrevocably constituted acceptance by the Charterer of the Vessel for all purposes of this Charter, and shall be conclusive proof that the Vessel was at such time in compliance with all requirements of this Charter and that the Vessel was at such time seaworthy, in accordance with specifications, in good working order, condition and repair and without defect or inherent vice in title, condition, design, operation or fitness for use, whether or not discoverable by the Charterer as of the date hereof, and free and clear of all Liens, other than Permitted Liens; provided, however, that nothing contained herein shall in any way diminish or otherwise affect any right the Charterer, the Owner or any of their respective Affiliates may have against any shipyard, manufacturer, supplier, vendor or any other Person in respect of the Vessel. FROM AND AFTER THE DELIVERY DATE, THE CHARTERER SHALL NOT BE ENTITLED TO MAKE OR ASSERT ANY CLAIM AGAINST OWNER, THE OWNER GROUP OR ANY INVESTOR ON ACCOUNT OF ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE VESSEL, THE CONSUMABLE STORES ON BOARD OR WITH RESPECT TO ITS TITLE, SEAWORTHINESS, MERCHANTABILITY, FITNESS, HABITABILITY, VALUE, USE, CONDITION, SUITABILITY, CLASS, COMPLIANCE WITH LAWS, DESIGN, OPERATION, CONFORMANCE TO SPECIFICATIONS NOR ABSENCE OF DEFECTS, LATENT, HIDDEN, PATENT OR OTHER, NOR WITH RESPECT TO PATENT INFRINGEMENT. FROM AND AFTER THE DELIVERY DATE, THE CHARTERER WAIVES ANY CLAIM IT MIGHT HAVE AGAINST OWNER, THE OWNER GROUP OR ANY INVESTOR FOR ANY LIABILITY, CLAIM, LOSS, DAMAGE OR EXPENSE OF ANY KIND OR NATURE BY OR WITH RESPECT TO THE VESSEL OR ANY DEFICIENCY OR DEFECT THEREIN OR INADEQUACY THEREOF, THE USE OR MAINTENANCE THEREOF, ANY INTERRUPTION OR LOSS OF SERVICE OR USE THEREOF, WHETHER IN CONTRACT, TORT OR ANY THEORY OF PRODUCT OR STRICT LIABILITY. 3.3 Early Termination This Charter shall terminate in accordance with any notice of termination given in accordance with this Section 3.3. This Charter shall also terminate at the time stipulated below for any of the following reasons: (a) At the option of the Owner, this Charter shall terminate immediately and upon written notice to the Charterer if any Event of Loss occurs and upon such termination the Charterer shall pay the Owner on the earlier of (i) the receipt of any insurance payable in respect of such Event of Loss and (ii) 60 days after the occurrence of such Event of Loss, the Stipulated Loss Value of the Vessel set forth on Schedule D as of the Payment Date preceding the occurrence of such Event of Loss plus any past due Hire, plus the sum of the per diem of the Basic Hire due on the next Payment Date, for each day during the period from the next preceding Payment Date to the date of such Event of Loss (unless the Event of Loss shall occur on a Payment Date, in which case, such payment shall be equal to the Stipulated Loss Value on such Payment Date plus any Hire due on such Payment Date), in each case, together with interest thereon computed from the date of such Event of Loss to the date of actual payment at a rate per annum equal to the Overdue Rate. If the time of such loss be uncertain, the loss shall be deemed to have occurred as of the time at which communication from the Vessel was last heard. It is expressly understood that the Charterer shall bear all risk of any such loss. (b) Each of the following events shall be an "Event of Default": (i) the Charterer shall fail to pay the Owner any amounts due and payable hereunder when due; or (ii) the Charterer shall fail to perform any of its obligations under Article 5, Sections 7.3, 10.1, 11.1(a), 11.6, 11.7, 11.8, 12.5, 13.4, or 14.6, Article 15, Section 17.3 or Article 18 hereof or any other obligation as to which the Charterer is specifically accorded elsewhere herein or otherwise any notice and/or grace period in which to perform such obligation or to cure such breach thereof or default therein and such notice shall have been given and/or such grace period shall have expired without cure of such failure; or (iii) any Obligor shall fail to perform any of its obligations hereunder or under any Charter Document (other than those specified in Section 3.3(a) or (b)(i)) which is not cured within the lesser of (A) 10 days or (B) the then remaining term of the Charter Period of the occurrence thereof; or (iv) any representation, warranty or statement made or deemed made by any Obligor in any Charter Document or information furnished by or on behalf of any Obligor in any instrument, certificate or other document delivered by or on behalf of any Obligor shall be untrue in any material respect on the date made or deemed made; or (v) (i) any Obligor shall fail to pay any principal of or premium or interest on any Debt (excluding Debt under this Charter) of such Obligor under which any aggregate amount of at least $1,000,000 is outstanding or committed, when the same becomes due and payable, and such failure shall continue after any applicable grace period; or (ii) any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after any applicable grace period, if the effect of such event or condition results in the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case, prior to the stated maturity thereof; or legal action shall be taken with respect to such other event (including, but not limited to, the commencement of proceedings seeking specific performance or injunctive or other equitable relief); or (vi) any Obligor shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or voluntarily or involuntarily dissolves or is dissolved, or terminates or is terminated; or any proceeding shall be instituted by or against such Person or any of its subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or any such Person or any of its subsidiaries shall take any corporate or other organizational action to authorize any of the actions set forth above in this subsection (vi); provided, however, that nothing contained in this Section 3.3(b)(vi) or otherwise shall be deemed to limit, restrict or prohibit Owner in any manner from intervening in any such proceeding described above and enforcing any of its rights and remedies whether under this Charter or any of the Charter Documents, at law, in admiralty or equity or otherwise; or (vii) a judgment or order for the payment of money in the amount of at least $1,000,000 or more shall be rendered against any Obligor and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (viii) any provision of this Charter or any Charter Document shall at any time for any reason cease to be valid and binding on any Obligor, or shall be declared to be null and void, or the validity or enforceability thereof shall be contested by any Obligor, or any Obligor shall deny that it has any or further liability or obligation under this Charter or any Charter Document; or (ix) failure of any Obligor to comply with, or to incur any liability, whether fixed or contingent, under or pursuant to, any statute, law, regulation or other governmental requirement to which such Obligor is subject, including but not limited to ERISA, the Oil Pollution Act of 1990 (AOPA") and any other environmental, health or safety law or regulation, in each case, which might reasonably be expected to have a material adverse effect on the condition (financial and otherwise), business prospects or the ability of such Obligor to perform its obligations under the Charter Documents; or (x) any Lien securing the Obligations shall fail to be perfected, valid or enforceable, or any material adverse effect shall occur respecting the value or suitability as collateral of any property encumbered by such Lien (unless the Charterer shall have provided Substitute Collateral in accordance with Section 12.5(c)), including, without limitation, any levy, attachment or seizure thereof or, subject to Section 12.5, the Lien securing the Obligations under the Cunningham Mortgage shall fail to be a first priority preferred ship mortgage at any time after December 31, 1997; or (xi) the Completion (as defined in the Third Upgrade Agreement) shall not occur on or before September 30, 1998; or (xii) a Third Upgrade Default shall occur and be continuing. 3.4 Remedies Upon the occurrence and during the continuation of any Event of Default, the Owner may, at its option, declare this Charter to be in default; and at any time thereafter, the Owner may do, and the Charterer shall comply with, one or more of the following, as the Owner in its sole discretion shall elect: (a) Upon written demand (which demand shall have the effect of terminating all of the Charterer's rights to use or possess the Vessel or act as agent under the Upgrade Programs), the Owner may cause the Charterer to, and the Charterer hereby agrees that it will, at the Charterer's sole cost and expense, promptly redeliver the Vessel, or cause the Vessel to be redelivered, to the Owner with all reasonable dispatch and in the same manner and in the same condition as if the Vessel were being redelivered at the expiration of the Charter Period in accordance with all of the provisions of Section 3.5, and all obligations of the Charterer under said Section shall apply to such redelivery; or the Owner or its agent, at the Owner's option, without further notice, may, but shall be under no obligation to, retake the Vessel wherever found, whether upon the high seas or at any port, harbor or other place and irrespective of whether the Charterer, any subcharterer or any other person may be in possession of the Vessel, all without prior demand and without legal process, and for that purpose the Owner or its agent may enter upon any dock, pier or other premises where the Vessel may be and may take possession thereof, without the Owner or its agent incurring any liability by reason of such retaking, whether for the restoration of damage to property caused by such retaking or for damages of any kind to any Person for or with respect to any cargo carried or to be carried by the Vessel or for any other reason. Henceforth, the Owner shall hold, possess and enjoy the Vessel, free and clear of any right of the Charterer or its successors or assigns to possess or use the Vessel for any reason whatsoever. The exercise by the Owner of its remedies under this paragraph (a) shall be without prejudice, and in addition, to any of the Owner's other remedies referred to in this Charter or any of the other Charter Documents or at law, in admiralty or equity. (b) The Owner, by written notice to the Charterer specifying a payment date not less than 10 days, nor more than 30 days, after the date of such notice, may require the Charterer to pay to the Owner, and the Charterer hereby agrees that it will pay to the Owner, on the payment date specified in such notice, as liquidated damages for loss of a bargain and not as a penalty and in lieu of any further Basic Hire payments hereunder, an amount equal to all unpaid Basic Hire payable on each Payment Date occurring on or before the payment date specified in such notice, plus the Stipulated Loss Value computed as of the Payment Date preceding the payment date specified in such notice plus the sum of the per diem of the Basic Hire due on the next Payment Date for each day during the period from the next preceding Payment Date to the date of such Event of Loss (or as of such payment date specified in such notice if such payment date specified in such notice is a Payment Date), together with interest on such amounts at the Overdue Rate for the period, if any, from the Payment Date as of which such Stipulated Loss Value is calculated to and including the date of actual payment. Upon such payment of liquidated damages, the Owner shall pay over to the Charterer the net proceeds of any sale, charter or other disposition of the Vessel as and when received but only after deducting all costs and expenses whatsoever incurred by the Owner in connection therewith, to the extent such net proceeds do not exceed the amount of such Stipulated Loss Value actually so paid. Nothing contained in the preceding sentence or otherwise shall require the Owner to sell, charter or otherwise dispose of the Vessel at any time. (c) The Owner may exercise any other right or remedy that may be available to it under applicable law, in equity or admiralty or proceed by appropriate court action to enforce the terms of this Charter or to recover damages for the breach hereof or to terminate this Charter. (d) The Owner or its agent may sell the Vessel at public or private sale, with or without notice to the Charterer, advertisement or publication, as the Owner may determine, or otherwise may dispose of, hold, possess, use, operate, charter (whether for a period greater or less than the balance of what would have been the Charter Period in the absence of the termination of the Charterer's rights to the Vessel) to others or keep idle the Vessel, all on such terms and conditions and at such place or places as the Owner may determine and all free and clear of any rights of the Charterer and of any claim of the Charterer in admiralty, in equity, at law or by statute, whether for loss or damage or otherwise, and without any duty to the Charterer except to the extent provided in paragraph (b) above. The Charterer and the Owner agree that 10 days' written notice of the sale to be made by the Owner or its designee or after the time in which a private sale shall occur is commercially reasonable notice for all purposes. In addition, the Charterer shall be liable for any and all Supplemental Hire payable hereunder before, during or after the exercise of any of the foregoing remedies and for all insurance premiums and all demurrage, docking and anchorage charges and all legal fees and any other costs and expenses whatsoever incurred by the Owner or any Investor by reason of the occurrence of any Event of Default or by reason of the exercise by the Owner of any right or remedy hereunder, including, without limitation, any costs and expenses incurred by the Owner in connection with any retaking of the Vessel or, upon the redelivery or retaking of the Vessel in accordance with this Section 3.4, the placing of the Vessel in the condition required by and otherwise complying with the terms of Section 3.5 hereof. No right or remedy referred to in this Section 3.4 is intended to be exclusive, but each shall be cumulative and is in addition to, and may be exercised concurrently with, any other right or remedy which is referred to in this Section 3.4 or which may otherwise be available to the Owner at law, in equity or in admiralty, including without limitation the right to terminate this Charter. There shall be deducted from the aggregate amount so recoverable by the Owner, the net balance, if any, remaining of any monies held by the Owner which would have been required by the terms hereof to have been paid to the Charterer but for the occurrence of an Event of Default. The rights of the Owner and the obligations of the Charterer under this Section 3.4 shall be effective and enforceable regardless of the pendency of any proceeding which has or might have the effect of preventing the Owner or the Charterer from complying with the terms of this Charter. No express or implied waiver by the Owner of any Event of Default shall in any way be, or be construed to be, a waiver of any further or subsequent Event of Default. To the extent permitted by applicable law, the Charterer hereby waives any rights now or hereafter conferred by statute or otherwise which may require the Owner to sell, charter or otherwise use the Vessel in mitigation of the Owner's damages. 3.5 Redelivery of the Vessel Upon termination of this Charter, the Charterer shall, at its sole cost and expense not to exceed $2,500,000 as Escalated, redeliver the Vessel to the Owner at an anchorage of the Owner's choice. The Charterer shall notify the Owner in writing at least 360 days prior to the expiration of the Charter Period of the location in which the Vessel will be operating at the expiration of the Charter Period. The Charterer agrees that at the time of such redelivery the Vessel shall be free and clear of all Liens (other than Owner Liens), shall be entitled to and shall have the classification and rating required by Section 8.1, with no requirements, specifications or recommendations of the American Bureau of Shipping or of any governmental agency or department unfulfilled and with all required certificates in effect, shall be in compliance with all laws, conventions, treaties and customs and rules and regulations issued thereunder or applicable in any way to the Vessel or any use or operation thereof, shall be free of any insignia of the Charterer or others, shall be charter free, cargo free, safely afloat, securely moored, free of charge and be in the same good order and condition as described in the third sentence of Section 3.2, but with the Upgrade Programs completed and as required by Section 8.1, ordinary wear and tear excepted; provided however, that in the event that the Owner elects not to exercise its option to purchase Severables (other than Third Upgrade Severables) acquired after the Delivery Date pursuant to Section 9.4, the Charterer shall redeliver the Vessel to the Owner with Severables comparable to the Severables aboard the Vessel when the Vessel was delivered to the Charterer pursuant to Section 3.2 and Severables comparable to the Third Upgrade Severables. Any Coast Guard certificates required to be issued annually with respect to the Vessel shall have been issued within 12 months of the date of redelivery of the Vessel. At the time and place of redelivery of the Vessel, the Charterer shall also deliver to the Owner all documentation, plans, drawings, specifications, logbooks, classification and inspection, records, operating manuals, records of modification, overhaul, use and/or maintenance and other warranties and documents then in its possession or control which were furnished by the manufacturers or builders of the Vessel, the Upgrade Programs or any other upgrade of the Vessel or any supplier of equipment on the Vessel or otherwise maintained by the Charterer. Upon redelivery of the Vessel hereunder, the Charterer, if requested in writing by the Owner, will arrange for, at the Charterer's cost and expense, docking or appropriate anchorage or storage facilities for the Vessel for a period not exceeding 150 days, including, but not limited to, any crew, staffing, materials, fuel or other costs or expenses incurred to stack the Vessel with full marine and maintenance crews. 3.6 Survey of the Vessel at End of Charter Period At least 120 days before redelivery of the Vessel pursuant to Section 3.5, but sufficiently in advance of such redelivery date to permit any needed repairs to be completed by such redelivery date, a joint survey shall be made by the Charterer and the Owner (with drydocking or underwater survey in lieu of drydocking and bottom painting, unless the Owner shall otherwise agree in writing) to determine the condition and fitness of the Vessel, during which survey the Vessel's tanks shall be gas-freed and the Vessel's engines and boilers opened for inspection; the redelivery survey shall meet all requirements of the next special survey of the Vessel, provided that if a special survey of the Vessel has been made, pursuant to the provisions of Article 8, within 30 months prior to such redelivery, the records of such special survey shall be taken into account in determining the scope of the joint survey required pursuant to this Section 3.6. If requested by the Owner, a surveyor from the American Bureau of Shipping shall be present and the Charterer shall permit such surveyor to examine all areas of hull and items of machinery and other parts of the Vessel. The Charterer will pay for the costs of such survey, drydocking or underwater survey in lieu of drydocking and bottom painting and the Charterer shall notify the Owner at least 10 days in advance of the time and place of such drydocking or underwater survey in lieu of drydocking, bottom painting and survey. The Charterer, at its sole cost and expense, will fully correct and repair any condition disclosed by such survey to the extent necessary to cause the Vessel, on or before the date specified for redelivery, to comply with all of the terms of Section 8.1. The term of the Charter Period shall be extended for any period necessary (a) so as to permit the survey described in this Section 3.6 to occur at least 120 days before redelivery of the Vessel pursuant to Section 3.5 whether as a result of this Vessel's use in completing a Drilling Contract in progress under Section 3.1(b) or otherwise; and (b) to make such repairs. During such extension period, if any, all of the obligations of the Charterer under this Charter applicable during the Charter Period shall continue in respect of such extension period. Upon redelivery of the Vessel under this or the preceding paragraph, the Charterer, if requested in writing by the Owner, will provide docking or appropriate anchorage or storage facilities for the Vessel (if available at the designated port) for a period not exceeding 150 days at the Charterer's cost and expense, including, but not limited to, any crew, staffing, materials, fuels or other cost or expense to stack the Vessel with full marine and maintenance crews. 3.7 Purchase Option. No more than 540, but no less than 360 days prior to the Expiration Date, the Charterer may, so long as no Default or Event of Default has occurred and is continuing, give the Owner irrevocable written notice (the "Expiration Date Election Notice") that the Charterer elects to exercise its option to purchase the Vessel (except for the First Upgrade Severables). If the Charterer elects to exercise such option, then the Charterer shall pay to the Owner on the Expiration Date an amount in immediately available funds equal to the Purchase Option Price and, upon receipt of such amount plus all other amounts payable under this Charter and the other Charter Documents, the Owner shall transfer all of the Owner's right, title and interest in the Vessel (except for the First Upgrade Severables), such transfer shall be AAS IS", AWHERE IS", without recourse and without any representation or warranty of any kind or nature whatsoever, either express or implied (except for the absence of Liens arising as a result of claims against the Owner for which the Owner is not entitled to indemnification from the Charterer or any Guarantor or the payment or discharge of which is not the obligation of the Charterer or any Guarantor), in the then-current physical condition of the Vessel and without any other representation or warranty on the part of, or recourse to, the Owner. 3.8 Determination of Purchase Option Price During the period from the delivery of the Expiration Date Election Notice to the Owner until 210 days prior to the Sale Date, the Charterer and the Owner may mutually agree on the Fair Market Sale Value of the Vessel as of the Sale Date, and if the Charterer and the Owner fail to so agree, such Fair Market Sale Value shall be determined not less than 90 days before the Sale Date by application of the Appraisal Procedure. ARTICLE 4 NATURE OF COMPENSATION 4.1 Absolute Obligation The obligation of the Charterer to pay to the Owner the fees, rates, hires, indemnities and reimbursements specified in this Charter shall be absolute and unconditional and shall not be affected by any circumstance whatsoever, and the Charterer waives (and agrees not to allege or pursue) any right to any such defense, including without limitation, (a) any setoff, counterclaim, abatement, reduction, recoupment, defense, or other right that the Charterer may have against the Owner or any other Person, firm, company, or entity for any reason whatsoever; (b) any unavailability of the Vessel after its delivery to the Charterer for any reason; (c) any damage, loss or destruction of or damage to the Vessel or interruption, restriction, interference, or cessation in the use or possession thereof by the Charterer for any reason whatsoever, at whatever time and of whatever duration; (d) any confiscation, expropriation, nationalization, requisition, seizure, inability to export, deprivation, or other taking of title to or possession or use of the Vessel or any part thereof by any government or governmental authority or otherwise; (e) any restriction on possession or use of the Vessel; (f) the interference with or prohibition of the Charterer's possession or use of the Vessel; (g) any invalidity or unenforceability or lack of due authorization or other infirmity of this Charter or the lack of right, power or authority of any Obligor or the Owner to enter into this Charter or any Charter Document; (h) any default by the Owner; (i) any defect in the title, condition, quality or fitness for a particular purpose of the Vessel or other property or service provided hereunder; (j) any amendment or modification of or supplement to the Charter Documents, any agreements relating to any thereof or any other instrument or agreement applicable to the Vessel or any part thereof, or any assignment or transfer of any thereof, or any furnishing or acceptance of additional security, or any release of any security, or any failure or inability to perfect any security; (k) any failure on the part of the Owner, the Owner Group or any Investor or any other Person to perform or comply with any term of any instrument or agreement; (l) any waiver, consent, change, extension, indulgence or other action or inaction under or in respect of any such instrument or agreement or any exercise or nonexercise of any right, remedy, power or privilege under or in respect of any such instrument or agreement or this Charter; (m) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation, or similar proceeding with respect to any Obligor, the Owner, the Owner Group or any Investor, or their respective properties or creditors, or any action taken by any trustee or receiver or by any court in any such proceeding, including, without limitation, any termination or rejection of this Charter by any court or any trustee, receiver or liquidating agent of any Obligor, the Owner Group, any Investor, or the Owner or of any of their respective properties in connection with any such proceeding; (n) any assignment or other transfer of this Charter by the Charterer or the Owner or any lien, charge or encumbrance on or affecting the Charterer's estate in, or any subchartering of, all or any part of the Vessel; (o) any libel, attachment, levy, detention, sequestration or taking into custody of the Vessel, or any interruption or prevention of or restriction on or interference with the use or possession of the Vessel; (p) any act, omission or breach on the part of the Owner under this Charter or under any other agreement at any time existing among the Owner or any Obligor or under any other law, governmental regulation or other agreement applicable to such Persons or the Vessel; (q) any claim as a result of any other dealing between the Owner and any Obligor; (r) any ineligibility of the Vessel, or any denial of the Vessel's right, to engage in any trade or activity; (s) any failure to obtain any required governmental consent for any transfer of rights or title required to be made by the Owner under this Charter; (t) any ineligibility of the Vessel for documentation under the laws of any jurisdiction; (u) the recovery of any judgment against any Person or any action to enforce the same; (v) any defect in the seaworthiness, condition, design, operation or fitness for use or other characteristics of the Vessel; (w) any change in the ownership, direct or indirect, of the capital stock of the Owner or any of the Obligors; or (x) any other cause, circumstance, or happening, whether similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding and whether or not any Obligor could have foreseen or shall have notice or knowledge of any of the foregoing. Except as specifically provided herein, the Charterer hereby waives any and all rights that it may now have or which at any time hereafter may be conferred upon it, by statute, at law, in admiralty or equity or otherwise, to terminate, cancel, quit or surrender this Charter. All payments hereunder shall be final and, once paid, be fully and finally earned and nonrefundable, and the Charterer shall not seek to recover all or any part of such payment from the Owner for any reason whatsoever. The Charterer shall remain obligated under this Charter in accordance with its terms and shall not take any action to terminate, rescind or avoid this Charter, notwithstanding any action for bankruptcy, insolvency, reorganization, liquidation, dissolution, or other proceeding affecting the Owner, any governmental authority or any other Person, or any action with respect to this Charter or any Charter Document which may be taken by any trustee, receiver or liquidator of the Owner, any governmental authority or any other Person or by any court with respect to the Owner or any governmental authority. The Charterer hereby waives all right (i) to terminate or surrender this Charter or (ii) to avail itself of any abatement, suspension, deferment, reduction, setoff, counterclaim or defense with respect to any amount payable hereunder. The Charterer shall remain obligated under this Charter in accordance with its terms and the Charterer hereby waives any and all rights now or hereafter conferred by statute, at law, in admiralty or equity or otherwise to limit or modify any of the Owner's rights or remedies or any of the Charterer's rights, remedies, obligations or liabilities as described in this Charter or any Charter Document (such waiver to include, without limitation, any and all rights and remedies against a lessor under Article 2A of the UCC or to avoid strict compliance with its obligations under this Charter). 4.2 Net Charter This Charter is a net Charter and it is intended that the Charterer shall pay all costs, charges, fees, assessments, expenses, duties and taxes of every character incurred in connection with the delivery, storage, use, possession, operation, maintenance, repair, chartering, recovery, retaking, and return of the Vessel, including without limitation those described elsewhere in this Charter. The parties intend that the obligations of the Charterer hereunder shall be covenants and agreements that are separate and independent of the Owner's obligations hereunder or hereafter arising or existing and shall continue unaffected. ARTICLE 5 CONDITIONS TO EFFECTIVENESS 5.1 Conditions This Charter shall become effective upon (i) receipt by the Owner of each of the documents described in subsections (a) through (k) below, in form and substance satisfactory to the Owner and each Investor, and (ii) satisfaction of each of the other conditions set forth in subsections (l) through (p) below in a manner satisfactory to the Owner and each Investor in all respects. (a) This Charter duly executed by Charterer. (b) A Guaranty duly executed by R&B Falcon in form and substance satisfactory to the Owner. (c) A Second Supplement to Preferred Mortgage, duly executed by Charterer, mortgaging the Jim Cunningham in form and substance satisfactory to the Owner. (d) A Ratification Agreement duly executed by Charterer and the Owner in form and substance satisfactory to the Owner. (e) Duly executed Officers' Certificates, dated as of the Closing Date, from an executive officer and the Secretary or Assistant Secretary of each of the Charterer and R&B Falcon (collectively, the AR&B Companies") certifying copies of resolutions of each of the R&B Companies approving this Charter and the other Charter Documents to which each is a party and authorizing the transactions contemplated herein and therein, duly adopted at a meeting of, or by the unanimous written consent of, the Board of Directors of each corporation, and the articles or certificates of incorporation and by-laws of the R&B Companies, as in effect at such time. (f) An original executed opinion dated the Closing Date from Wayne K. Hillin, General Counsel to the R&B Companies, setting forth customary opinions regarding (i) the R&B Companies' due organization, valid existence, good standing, corporate power and authority, (ii) the legal, valid and binding nature of this Charter and the other Charter Documents, (iii) the absence of violations of, or conflicts with, laws, corporate organizational and governance documents or other agreements, (iv) the absence of any required consents, and (v) such other matters as the Owner may reasonably require be addressed. In addition, such opinion shall also opine that no consent or approval of the U.S. Department of Transportation Maritime Administration, the United States Coast Guard or any other entity having jurisdiction over the Vessel, the Collateral Vessels or any of the R&B Companies is required in order to consummate the transactions contemplated hereby or by any of the other Charter Documents. (g) An original executed opinion from Baker & Botts, L.L.P., counsel to the Owner, regarding (i) the legal, valid and binding nature of this Charter and certain other Charter Documents and (ii) certain tax matters. (h) [intentionally deleted] (i) [intentionally deleted] (j) A consent to the assignment of Third Upgrade Contract to the Owner executed by the Contractor. (k) A duly executed Third Upgrade Agreement. (l) No loss, constructive loss or requisitioning for use by any governmental authority of the Vessel shall have occurred. (m) No change shall have occurred in applicable law or regulations thereunder or in interpretations thereof by any regulatory authority which would make it illegal for the Charterer, the Owner or any Investor to enter into any of the transactions contemplated in the Charter Documents or which would subject the Charterer, the owner or any Investor to any penalty or other liability as a result of any transaction contemplated in any of the Charter Documents. (n) No material adverse change shall have occurred in the physical condition of the Vessel since December 31, 1995. (o) All governmental and regulatory approvals, licenses and authorizations necessary or, in the opinion of the Owner, the Investors or their respective counsel, advisable in connection with the transactions contemplated in the Charter Documents shall have been duly received or obtained. (p) The Owner's determination that, since December 31, 1997, no material adverse change has occurred with respect to the financial or other condition of Charterer or Reading & Bates and R&B Falcon. ARTICLE 6 REPRESENTATIONS AND WARRANTIES 6.1 Representations and Warranties of the Owner. To induce the Charterer to enter into this Charter and to consummate the transactions contemplated hereby, the Owner represents and warrants to the Charterer that as of the date of execution of this Charter: (a) Organization and Good Standing. The Owner is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) Authority. The Owner has taken all action required by Delaware law, and by the Limited Liability Company Agreement to authorize the execution and delivery of this Charter. This Charter constitutes the legal, valid and binding obligation of the Owner, enforceable against the Owner in accordance with its terms, subject to bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights and by general principles of equity. Neither the execution and delivery of this Charter nor will the consummation of the transactions by it in accordance with the terms hereof: (i) violate or conflict with any provision of the Limited Liability Company Agreement of the Owner, or (ii) violate or conflict with any provision of any law, rule, regulation, order, permit, certificate, writ, judgment, injunction, decree, determination, award or other decision of any court, government, government agency or instrumentality, domestic or foreign, or arbitrator binding upon the Owner, which violation or conflict is reasonably likely to prevent the Owner's performance of its obligations hereunder. Neither the execution and delivery of this Charter nor the consummation of the transactions contemplated hereby will result in a breach of, or constitute a default (or with notice or lapse of time or both result in a breach of or constitute a default) under or otherwise give any person the right to terminate any mortgage, indenture, loan or credit agreement, lease, license, contract or any other agreement or instrument to which the Owner is a party or by which it or any of its properties is bound or affected. (c) EXCEPT AS EXPRESSLY SET OUT IN THIS SECTION 6.1, OWNER EXPRESSLY DISCLAIMS ANY EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES, INCLUDING WITHOUT LIMITATION, SEAWORTHINESS, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR WITH RESPECT TO PATENT INFRINGEMENT, VALUE, USE, CONDITION, SUITABILITY, CLASS, OPERATION, COMPLIANCE WITH LAWS, DESIGN, CONFORMANCE WITH SPECIFICATIONS, OR ABSENCE OF DEFECTS, HIDDEN, PATENT, LATENT OR OTHER. 6.2 Representations and Warranties of the Charterer. To induce the Owner to enter into this Charter and to consummate the transactions contemplated hereby, the Charterer represents and warrants to the Owner that as of the date of execution of this Charter: (a) Organization and Good Standing. The Charterer is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma and is duly qualified or licensed and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases any facility or property or has any office, or in which the character of its business or operations requires such qualification or licensing, in each case related to the subject matter of this Charter or any of the Charter Documents. (b) Authority. The Charterer has taken all action required by law, its Certificate of Incorporation, as amended, and its By-Laws to authorize the execution and delivery of this Charter and each of the Charter Documents to which it is a party. This Charter and each of the Charter Documents to which it is a party constitute the legal, valid and binding obligations of the Charterer, enforceable against the Charterer in accordance with their respective terms, subject to bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors' rights and by general principles of equity. Neither the execution and delivery of this Charter or any of the Charter Documents, nor will the consummation of the transactions by it in accordance with the terms hereof or thereof: (i) violate or conflict with any provision of its Certificate of Incorporation or By-Laws, (ii) violate or conflict with any provision of any law, rule, regulation, order, permit, certificate, writ, judgment, injunction, decree, determination, award or other decision of any court, government, government agency or instrumentality, domestic or foreign, or arbitrator binding upon it, or (iii) create any conflicts or resulting liens or require any consents that the Charterer has not obtained. Neither the execution and delivery of this Charter and each of the Charter Documents to which it is a party nor the consummation of the transactions contemplated hereby or thereby will result in a breach of, or constitute a default (or with notice or lapse of time or both result in a breach of or constitute a default) under or otherwise give any person the right to terminate any mortgage, indenture, loan or credit agreement, lease, license, contract or any agreement or instrument to which the Charterer is a party or by which it or any of its properties is bound or affected. (c) Litigation. There is no action, suit, proceeding, claim or investigation pending or, to the best of the Charterer's knowledge after due and reasonable inquiry, threatened against or affecting the Charterer or any of its properties or related to the subject matter of this Charter or any of the Charter Documents before any court, government agency or regulatory authority (federal, state, local or foreign) that questions the validity or enforceability of this Charter or any Charter Document or is reasonably likely to impair its ability to perform its obligations under this Charter or any of the Charter Documents or to cause a material adverse effect on the business, financial condition or prospects of the Charterer. There are no orders, writs, judgments, stipulations, injunctions, decrees, determinations, awards or other decisions of any court, government or governmental agency or instrumentality, domestic or foreign, or any arbitrator outstanding against the Charterer having or likely to have any such effect. (d) No Defaults. No event or condition has occurred and is continuing that constitutes, or with the lapse of time or the giving of notice or both, would constitute, an Event of Default by the Charterer or any other Member of the Charterer Group, as the case may be, under this Charter or any of the Charter Documents or a default or by the Charterer or any other Member of the Charterer Group under any indenture, trust, deed, loan agreement, lease other instrument or contract, agreement, instrument or obligation (i) under which any such Person pays, receives, borrows, lends, or is obligated or entitled to pay, receive, borrow or lend, consideration in excess of $1,000,000 to which it is a party or by which it is bound or affected, or (ii) which is reasonably likely to have a material adverse effect on the business, financial condition or prospects of the Charterer or its ability to perform its obligations under the Charter. (e) Obligations and Liens. Except as disclosed in writing to, and specifically consented to in writing by, the Owner, the Charterer has no outstanding obligations, or Liens on its properties, for unpaid Taxes other than Taxes incurred in the ordinary course of business, and in existence for not more than 30 days and which are not overdue unless such Taxes are, in the Owner's reasonable judgment, being contested in good faith and by appropriate Persons and proceedings. (f Government Regulations. The Charterer is not in violation of and is not alleged to be in violation of any law, rule, regulation, order, permit, certificate, writ, judgment, stipulation, injunction, decree, determination, award or decision of any court, government, or governmental agency or instrumentality, domestic or foreign, or arbitrator binding upon it, which violation or alleged violation is reasonably likely to have a material adverse effect on the business, financial condition or prospects of the Charterer or its ability to perform its obligations under this Charter or any of the Charter Documents. (g No Labor Unrest. There are no strikes or other significant labor disputes in progress or pending or, to the best of the Charterer's knowledge after due and reasonable inquiry, threatened against or affecting the Charterer. (h Pollution Regulations. Neither the Charterer nor any member of the Charterer Group is the subject of any actual or threatened environmental, health or safety investigation or enforcement proceeding related to its operations or business or the subject matter of this Charter or any of the Charter Documents. To the best of the Charterer's knowledge after due and reasonable inquiry, the Charterer is in compliance with all applicable laws and regulations relating to pollution control and environmental, health and safety matters in all jurisdictions in which the Charterer is doing business. (i Providing of Information. All information that the Charterer at any time has furnished or will furnish the Owner for use in any statement, application or other filing provided for in this Charter or any of the Charter Documents, does or shall (as the case may be) meet all requirements of applicable laws, rules and regulations and does not or shall not (as the case may be) as of the date prepared or delivered to the Owner contain any statement which is false or misleading with respect to any material fact and does not or shall not (as the case may be) as of the date prepared or delivered to the Owner omit any material fact required to be stated therein or necessary in order to make such information not false or misleading for the purpose for which such information was furnished and no correction of any information or omission that is no longer true and correct in all material respects that has not been made need be made or updated in order to make such information, taken as a whole, not false or misleading in any material respect. For purposes of this Section 6.2(i), "information" includes, without limitation, all information contained in the data sheets, projections, pro forma sources and uses, the Drilling Contracts, the AM.G. Hulme, Jr." 1,000 Meter Water Depth Upgrade Shipyard Specification, Rev. 5, dated October 21, 1995 by D.N. Edelson, Project Engineer, the Enserch-Green Canyon Analysis, dated September 11, 1995 and the Reading & Bates Corporation/GATX Due Diligence Confidential Binder, dated July 20, 1995, in each case as provided to the Investors prior to the date hereof. Each audited income statement, balance sheet and statement of operation and cash flows dated as of December 31, 1997 and for the fiscal year then ended and the unaudited income statement, balance sheet and statement of operation and cash flows dated as of March 31, 1998 and for the three months then ended were prepared in accordance with generally accepted accounting principles, consistently applied, are true, complete and correct, and fairly present the financial condition, the results of operations and cash flows for R&B Falcon and its consolidated subsidiaries, including the Charterer, for the dates and periods stated; and there is no outstanding Debt, lien or liability, whether direct or contingent, that is material to the Charterer and not shown in such financial statements. (j Insurance. The Charterer maintains insurance listed on Schedule C and other insurance in a manner consistent with persons engaged in the same or similar business and in compliance with this Charter. (k Certain Federal Laws and Requirements. (i) The Charterer and its affiliates are exempt from the Public Utility Holding Company Act of 1935. (ii) None of the Charterer and its subsidiaries, whether separately or together, is an investment company under the Investment Company Act of 1940. (iii) Except as expressly identified in this Charter, neither the Charterer nor any affiliate of the Charterer, as that term is defined in the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations thereunder (AERISA"), has any material unfunded ERISA liabilities. (l Permits and Authorizations. The Charterer has obtained all governmental permits, authorizations, certificates and approvals and given or made all notices and filings required under applicable law for the execution, delivery and performance of this Charter and the other Charter Documents and its possession, use and operation of the Vessel. Without limiting the generality of the foregoing, and more specifically, the Charterer has and maintains all environmental, health and safety permits necessary or appropriate for its operations and all such permits are in good standing and the Charterer is in compliance with all terms and conditions of such permits and all applicable environmental, health or safety requirements of law. ARTICLE 7 USE AND OPERATION OF THE VESSEL 7.1 Use of the Vessel The Charterer shall have the full use of the Vessel and may, subject to the terms and conditions of this Charter, employ the Vessel as a semisubmersible drilling unit throughout the world consistent with its design capability, except that the Vessel shall not be used contrary to and shall comply with (a) all applicable laws or regulations of any governmental authority, treaties or conventions (including, but not limited to, all environmental, health and safety laws) and (b) the terms or policies of any insurance then required hereunder; and provided that, with respect to the use or possession of the Vessel outside of the territorial waters and/or the Outer Continental Shelf of the United States, the Charterer shall give such indemnities suitable to the Owner in an amount and form, and obtain and continue such additional insurance coverage, in such amounts, having such terms and conditions and with such carriers, as the Owner may reasonably require at any time or from time to time in connection with the use or possession of the Vessel in any given area outside the territorial waters and/or the Outer Continental Shelf of the United States. The Charterer, in respect of the Vessel, shall at all times comply with all applicable laws and regulations (including, but not limited to, all environmental, health and safety laws), and with the applicable provisions and conditions of all licenses, permits, consents and approvals of any governmental authority. 7.2 Manning, etc., of the Vessel During the Charter Period, the Charterer shall have the exclusive possession and control of the Vessel and shall man, victual, navigate and operate, supply, fuel, maintain and repair the Vessel at its own expense or by its own measurement and shall pay all other charges and expenses of every kind and nature whatsoever incidental to the possession, use and operation of the Vessel. During the Charter Period, the possession, use, operation and maintenance of the Vessel shall be at the sole risk, cost and expense of the Charterer until redelivery pursuant to the terms hereof upon the termination or expiration of this Charter. As between the Owner and the Charterer, the Offshore Installation Manager, officers and crew of the Vessel and all other persons at any time on board the Vessel shall be deemed to be engaged and employed exclusively by the Charterer and shall be deemed to be and remain the Charterer's servants, navigating and working the Vessel solely on behalf of and at the risk of the Charterer and the Charterer shall hold each Indemnitee harmless from any and all claims against it by, or as the result of any act or omission of, any such Offshore Installation Manager, officer, member of the crew or other person. The Charterer assumes and shall satisfy all costs and liabilities incurred in connection with all salvage services received by the Vessel. 7.3 Documentation of the Vessel Neither the Owner nor the Charterer (without the prior written consent of the other) will do or suffer or permit to be done anything which can or might change or injuriously affect the documentation of the Vessel for foreign trade under the laws and flag of the United States of America. The Charterer covenants and agrees that it will not (a) cause or permit the Vessel to be operated in any manner which could subject the Owner to any criminal penalty, or (b) operate or locate the Vessel, or permit the Vessel to be operated or located, in any area excluded from coverage from any insurance required by the provisions of Article 15 or (c) unless there shall have been an actual or total loss or agreed or compromised total loss of the Vessel, abandon the Vessel in any foreign port. The Owner and the Charterer hereby respectively represent that they are as of the date of execution of this Charter, and covenant that they shall remain during the Charter Period, "citizens of the United States" within the meaning of Section 2 of the Shipping Act, 1916, as amended. The Charterer agrees that the Vessel will be operated solely in the domestic or foreign commerce of the United States. The Charterer shall throughout the Charter Period maintain to the satisfaction of the Owner at the Charterer's sole cost and expense such documentation of the Vessel, and shall not do or suffer or permit to be done anything which can or might change or injuriously affect the documentation of the Vessel for foreign trade under the laws and the flag of the United States or which would result in a violation of any law or regulation of the United States applicable to a vessel owned by a citizen of the United States, as defined in the Shipping Act, 1916. 7.4 General and Particular Average Whenever necessary, average adjusters shall be appointed by the Charterer, who shall, at the Charterer's sole cost and expense, attend to the settlement and collection of both general and particular average losses. 7.5 Site and Access The Charterer will be responsible for selecting and mooring the Vessel in a safe and prudent manner at a location in the Operating Area. The Charterer will conduct sea bottom condition surveys acceptable to the Owner where required by the Vessel's hull underwater surveyor at the Charterer's sole cost and expense and will be responsible for identifying, marking and clearing the location of all major impediments or hazards to operations or causing same to be done. Removal of all impediments or hazards shall be, as between Owner and the Charterer, at the Charterer's sole cost and expense. 7.6 Owner Liability for Materials Furnished by the Charterer Without limiting any indemnity provided by the Charterer, the Owner shall not be liable for any loss or damage resulting from the use or possession of equipment, materials, supplies or other items furnished by the Charterer. 7.7 Environmental and Related Reporting and Inspection The Charterer shall notify the Owner in writing within five days of the Charterer's obtaining notice or knowledge thereof of any (a) notice of claim that there has been a release or threatened release of any contaminant into the environment from the Vessel or any equipment, machinery or property related thereto; (b) notice of any investigation by any governmental authority evaluating whether any remedial action is necessary or appropriate to respond to any release or threatened release of any contaminant into the environment from the Vessel or any equipment, machinery or property related thereto; (c) notice that the Vessel or any equipment, machinery or property related thereto is subject to an environmental Lien; (d) the commencement or threat of any judicial, administrative or other proceeding alleging a violation of any environmental, health or safety requirements of law; or (e) any new or proposed changes to any existing environmental, health or safety requirement of law that could have a material adverse effect upon the use or operations of the Vessel or the Charterer. The Charterer shall provide from time to time documentation deemed adequate by the Owner showing the Charterer's compliance with financial responsibility requirements of all applicable environmental, health and safety laws. 7.8 Notice of Entry The Charterer will provide written notice within ten (10) days of entry of the Vessel into the jurisdictional waters of any foreign country or of any state or territory of the United States other than Louisiana, Texas and any other state in which the Owner has filed financing statements or taken other action to perfect its Lien upon the equipment owned by the Charterer and its Affiliates and used in connection with the Vessel. ARTICLE 8 MAINTENANCE OF CONDITION AND CLASSIFICATION; REPAIRS 8.1 Maintenance of Classification The Charterer shall at all times and, at its sole cost and expense, procurement and risk (a) have exclusive control of the Vessel, (b) maintain and preserve the Vessel in accordance with good commercial maintenance practices, and keep the Vessel and her drilling and other equipment in good running order, condition and repair, so that the Vessel shall be tight, staunch, strong and well and sufficiently tackled, appareled, furnished, equipped and in every respect seaworthy and in good operating condition, and (to the extent that such prescribes a standard of maintenance that exceeds the foregoing standard in any respect) in the condition, running order and repair which equals or exceeds industry standards and the condition, running order and repair of vessels and their equipment owned by the Charterer of like kind and age, and, in addition, shall (i) cause the Vessel to be a semi-submersible drilling unit capable of operating in water depths of up to 3,280 feet before completion of the Second Upgrade Program, 4,000 feet after completion of the Second Upgrade Program and 5,000 feet after completion of the Third Upgrade and to have technical specifications, characteristics and capabilities at least the substantial equivalent of those set forth in Schedule A hereto as upgraded in accordance with the First Upgrade Program and the Second Upgrade Program as set forth in Schedule B-2 and after completion of the Third Upgrade Program as set forth in Schedule B-3; and (ii) keep the Vessel in such condition as will entitle her, during the Charter Period and at the date of redelivery to the Owner, to the highest applicable classification and rating to which an existing vessel of the same age and type can qualify under the then existing rules and standards of the American Bureau of Shipping and shall furnish to the Owner within 90 days after each anniversary of the Delivery Date and at any other time upon the request of the Owner true and correct photostatic copies of all certificates issued by the American Bureau of Shipping evidencing the maintenance of such classification. (iii) The Vessel shall, and the Charterer covenants that it will, at all times comply with all applicable safety, operational and maintenance requirements of the United States Coast Guard and any other United States, international or other authority and all laws, treaties and conventions, and rules and regulations (including, but not limited to, all environmental, health and safety laws) issued thereby or applicable in any way to the Vessel or any use, possession or operation thereof and shall have on board, when required thereby, valid certificates and appropriate environmental, health and safety permits showing compliance therewith. The Charterer shall, at its expense, make all modifications and alterations to the Vessel which may be necessary to comply with the provisions of this Section 8.1. 8.2 Repair The Vessel shall be repaired and overhauled by the Charterer and the Charterer shall install, affix and attach replacement parts thereon, at its sole cost and expense, in each case, whenever necessary to keep the same in good condition, repair and working order in accordance with Section 8.1 or as a result of any requirement hereof. The Vessel shall likewise be drydocked or undergo an underwater survey in lieu of drydocking, cleaned and bottom painted by the Charterer, at its expense, whenever necessary, but in any event at least as often as necessary in order to maintain the classification referred to in Section 8.1. The Charterer shall, at its expense, promptly and duly comply with all requirements of the applicable classification society including those resulting from each special survey of the Vessel. The Charterer shall, at its expense, promptly furnish the Owner with written information as to any casualty involving any loss or damage to the Vessel in excess of $500,000 and, upon request, all survey reports in connection therewith. 8.3 Drydocking or Underwater Survey in Lieu of Drydocking The Charterer shall give the Owner notice of each proposed drydocking or underwater survey in lieu of drydocking 20 days in advance if practicable, otherwise as long in advance as may be practicable under the circumstances. The Owner, any Investor or any authorized representative of any thereof may at any time, upon reasonable notice at its own expense (but after the occurrence of an Event of Default, at the Charterer's sole cost and expense), inspect the Vessel at drydocking or underwater survey in lieu of drydocking or otherwise, at any time or from time to time, and inspect the Vessel's logs, but neither the Owner nor any Investor shall have any duty to do so. 8.4 Required Survey At the request of the Owner following any explosion, release accident, storm, act of God or other event or incident that gives the Owner reasonable concern for the physical condition and operating ability of the Vessel and at the Charterer's expense, a qualified independent marine surveyor or surveyors of recognized standing, acceptable to the Owner, shall conduct a survey of the Vessel. For purpose of such surveys, the Vessel need not be drydocked (or subjected to an underwater survey in lieu of drydocking) unless required by customary survey practices for drilling vessels of similar age, type and service. The Charterer shall submit a detailed report of the independent marine surveyor to the Owner promptly upon the completion of such survey, containing: (a) the location of the Vessel at the time of inspection; (b) the findings and recommendations of the independent marine surveyor with respect to the condition of the Vessel; and (c) the opinion of the independent marine surveyor as to whether the Vessel has been maintained in accordance with the terms of this Article 8. ARTICLE 9 EQUIPMENT AND STORES 9.1 Fuel, etc. The Owner acknowledges that such fuel, lubricating oil and unbroached consumable stores as may be aboard the Vessel at the time of its delivery to the Charterer will be the property of the Charterer. 9.2 Equipment, etc. The Charterer shall have the use, without additional payment to the Owner, of such equipment, outfit, furniture, furnishings, appliances, spare or replacement parts and nonconsumable stores as shall have been on board the Vessel on the Delivery Date. The same or their substantial equivalent shall be returned to the Owner on redelivery or retaking of the Vessel in the same good order and condition as received by the Charterer on the Delivery Date, ordinary wear and tear excepted, and any such items damaged or so worn in service as to be unfit for use, or used as a spare part for replacement purposes, or lost or destroyed shall be replaced by the Charterer with an identical or substantially equivalent replacement item in at least as good working order and condition as those of the replaced item when received by the Charterer on the Delivery Date at or before redelivery of the Vessel. Such replacement, whenever made, shall be deemed part of the "Vessel" for all purposes of, and its use or possession shall be subject to the terms and conditions of, this Charter. 9.3 The Charterer's Additional Equipment, etc. The Charterer shall at its own expense provide such additional equipment, outfit, tools, replacement parts, crockery, linen, and other items not included in inventories as provided in this Article 9 as may be required in the operation of the Vessel, and such equipment, and other items, shall become, on being placed on board the Vessel and without further act, part of the Vessel and the property of the Owner for all purposes of this Charter, provided that so long as no Default or Event of Default shall have occurred and be continuing, any such equipment and other items, so provided by the Charterer (and not required to be provided or to have been provided by Section 9.2 or any other provision of this Charter other than this Section 9.3) and capable of being removed without causing damage to the Vessel may be removed by the Charterer at the expiration of the Charter Period, and such equipment, and other items, shall become, without further act, the property of the Charterer. At least 90 days prior to delivery or retaking of the Vessel (or such lesser time as may be available in connection with any retaking), the Charterer shall give notice to the Owner of any such equipment or other items leased from third parties, which the Charterer has elected not to remove, and will furnish the Owner with copies of all leases and contracts relating thereto, and the Owner may, within 30 days thereafter (or such lesser time as may be applicable in connection with any retaking), elect to retain all or any part of such equipment on board the Vessel subject to any required approval of the lessors of such equipment. Upon redelivery or retaking the Owner shall assume the rights, obligations and liabilities of the lessee under such leases arising subsequent to delivery or retaking in connection with any equipment that the Owner elects to so retain. The Charterer shall at its sole cost and expense remove from the Vessel any such leased equipment which the Owner does not so elect to retain and shall cause to be repaired at its sole cost and expense any damage to the Vessel or any part or property thereof resulting in any manner from the Charterer's removal of any equipment. By its acceptance of the Vessel upon delivery, the Charterer represents and warrants to the Owner that there is on board the Vessel an inventory of equipment, outfit, appliances, tools, replacement parts, nonconsumable stores, crockery, linen, and other items, as in the reasonable judgment and experience of the Charterer are necessary or appropriate to the possession, use and operation of the Vessel and the Charterer hereby covenants that, subject to Section 9.3, upon redelivery or retaking of the Vessel by the Owner, such inventory, which may include replacement items of equivalent value, shall be on board the Vessel. 9.4 Title to Improvements; Option to Purchase Title to Nonseverables of the Vessel acquired after the Delivery Date shall without further act vest in the Owner and shall be deemed to constitute a part of the Vessel and be subject to this Charter. Title to all Severables of the Vessel acquired after the Delivery Date (other than Severables that replace or substitute for Severables that have been provided by the Owner and Severables provided in connection with the Second Upgrade Program and the Third Upgrade Program, the title to which shall vest in the Owner) shall vest in the Charterer; provided, however, that the Charterer may not remove any thereof from the Vessel (except to the extent subsequently replaced or worn out) prior to the end of the Charter Period except that the Charterer may, so long as no Default or Event of Default shall have occurred and be continuing, remove at the Charterer's expense and risk any such Severables, provided, further, that the Owner may elect to purchase for cash any such Severables at the time of redelivery of the Vessel to the Owner in accordance with any of the provisions of this Charter. Contemporaneously with its delivery of the Expiration Date Election Notice, the Charterer shall notify the Owner of the Severables described above that it intends to remove. To exercise the election referred to in the second proviso to the second preceding sentence of this Section 9.4, the Owner shall give to the Charterer written notice of its election to purchase on or prior to such redelivery. The purchase price of such Severables shall be equal to the Fair Market Sale Value thereof, as of the date of purchase as determined by mutual agreement or, in the absence of such agreement, by the Appraisal Procedure. The Charterer shall repair any damage caused by the removal of any Severables to the Owner's reasonable satisfaction. 9.5 No Lease of Essential Severables The Charterer shall not lease any Severables that are necessary or appropriate for the use, possession or operation of the Vessel in accordance with the terms and conditions of this Charter and the Charter Documents but shall hold good and marketable title to all such Severables that are, in accordance with industry practice, customarily owned by drilling contractors engaged in businesses similar to the Charterer's business, free and clear of all Liens other than Permitted Liens. ARTICLE 10 THE CHARTERER'S CHANGES, ADDITIONS AND REPLACEMENTS 10.1 Structural Changes or Alterations; Installation of Equipment, etc. Except as may be required by Article 8 or 9 or the Upgrade Programs, the Charterer shall not make any structural changes or alterations in the Vessel, or any change, alteration, addition or improvement to the Vessel that is Nonseverable (except for changes, alterations, additions or improvements required to be made pursuant to applicable law), and shall make no material changes or alterations in the Vessel's machinery or boilers, unless and to the extent that, in each instance, (a) it first secures written approval of the Owner (which may be withheld in the Owner's sole discretion if such change or alteration would materially change the type or character of the Vessel or would adversely affect Owner's status as a lessor for federal income tax purposes, but otherwise such approval shall not be unreasonably withheld) and (b) any such change or alteration is made at the Charterer's expense and risk and does not diminish the value, utility, useful life or seaworthiness of the Vessel below the value, utility, useful life and seaworthiness of the Vessel immediately prior to such change if the Vessel were then in the condition and state of seaworthiness required to be maintained by the terms of this Charter. Subject to the foregoing provision, the Charterer may install any pumps, gear or equipment it may require in addition to that on board the Vessel on delivery, provided that such installations are accomplished at the Charterer's sole cost, expense and risk. Pumps, gear and equipment so installed shall, without necessity of further act, become part of the Vessel and the property of the Owner; provided that so long as no Default or Event of Default shall have occurred and be continuing, any such pumps, gear or equipment not required to be installed in order to meet the requirements of Articles 8 and 9 and not installed as replacements for property included in the Vessel on the date hereof are subject to the Owner's option to purchase set forth in Section 9.4, and, if not purchased by the Owner, may be removed (so long as such removal can be accomplished without damage to the Vessel) by the Charterer, at its own expense and risk, at any time during, or at the expiration of, the Charter Period, whereupon such pumps, gear or equipment shall, without necessity of further act, become the property of the Charterer. 10.2 Replacement of Parts In addition to the permitted structural changes or alterations and the addition of pumps, gear and equipment referred to in Section 10.1, the Charterer may, in the ordinary course of maintenance, repair or overhaul of the Vessel, remove any item of property (including any item referred to in Section 9.2 or 9.3 constituting a part of the Vessel), provided such item is replaced as promptly as possible by an item of property which is free and clear of all Liens and is in as good operating condition, working order and repair, and is as seaworthy as, and has a value, useful life and utility at least equal to that of, the item of property being replaced (including each item of equipment) and assuming the Vessel is in the working order, condition and repair and state of seaworthiness required by the terms of this Charter. Any item of property so removed from the Vessel shall remain the property of the Owner until replaced in accordance with the terms of the preceding sentence, but shall then, without further act, become the property of the Charterer but shall remain subject to the Owner's option to purchase set forth in Section 9.4. Any such replacement item of property shall, without further act, become the property of the Owner, deemed part of the "Vessel" as defined herein for all purposes, and its use and possession shall be subject to the terms and conditions hereof. 10.3 Vessel Markings The Charterer shall not allow the name of any person, association or corporation, other than as required hereby, to be placed on the Vessel (other than the current name of AM. G. Hulme, Jr.") as a designation which might be interpreted as indicating a claim of ownership thereof by any person, association or corporation other than the Owner, but, for purposes of identification, the Charterer shall have the right at its sole cost and expense to paint the Vessel in its own colors, to install and display its stack insignia or name, and to fly its own house flag, or to utilize the colors, insignia, name or flag of any Affiliate of the Charterer. The Charterer shall notify the Owner of each such choice of colors, name, insignia or flag before making any such change. ARTICLE 11 ADDITIONAL COVENANTS 11.1 General Covenants From and after the date of execution of this Charter and until the termination or expiration of this Charter, the Charterer shall: (a continue its business as presently conducted and maintain its existence, rights and privileges; (b comply with its obligations set forth in this Charter and all applicable laws (including, without limitation, all environmental, health and safety laws); and (c maintain its books and records in compliance with generally accepted accounting principles, consistently applied with such adjustments or changes as to which the independent public accountants referred to in Section 11.3 concur. 11.2 No Impairment Notwithstanding any other contract or other claim of right, from and after the date of execution of this Charter and until the termination or expiration of this Charter, the Charterer Group shall not enter any contract or agreement or perform or omit any act that in any way materially limits or impairs, or the effect of which would be to materially limit or impair, the ability of any member of the Charterer Group to comply with and fulfill its obligations set forth in the Charter Documents. 11.3 Financial Information The Charterer will furnish, or cause to be furnished, to the Owner and each Investor: (a) within 45 days after the end of each of the first three fiscal quarters during each fiscal year of R&B Falcon, a consolidated balance sheet of R&B Falcon and its consolidated Subsidiaries as of the close of each such fiscal quarter, together with a consolidated income statement and consolidated statement of cash flows of R&B Falcon and such Subsidiaries for such fiscal quarter, in each case setting forth in comparative form the corresponding consolidated figures for the same period of the next preceding fiscal year, all in reasonable detail and certified by the Chief Financial Officer or Principal Accounting Officer of R&B Falcon as being true, complete and correct and as fairly presenting the financial condition and the results of operations of the respective corporations covered thereby, subject to year-end adjustments; (b) within 90 days after the close of each fiscal year of R&B Falcon, (i) audited consolidated balance sheets of R&B Falcon and its consolidated Subsidiaries as of the close of such fiscal year, together with consolidated profit and loss statements and consolidated statements of cash flows of R&B Falcon and such Subsidiaries for such fiscal year, certified as being true, complete and correct by Arthur Andersen & Co. or independent public accountants of comparable national standing and reputation as fairly presenting the consolidated financial position, results of operations and cash flow of R&B Falcon and such Subsidiaries as of the end of such fiscal year and the consolidated results of their operations for such fiscal year, and as fairly presenting in all material respects in conformity with generally accepted accounting principles applied on a basis consistent with prior fiscal years with such adjustments or changes as to which such independent public accountants concur; and (ii) an update of the Contract Data Sheet previously submitted to the Investors (including, but not limited to, rig and contract status and updated annual budget) true, complete and correct and fairly presenting the information contained therein as of the date and of its submission to the Owner and the Investors); (c) within 30 days after the filing thereof with the Securities and Exchange Commission, a copy of each report, form or prospectus filed by R&B Falcon or any of its Subsidiaries with the Securities and Exchange Commission, within three days of the issuance of any press release or similar materials issued by R&B Falcon or any of its Subsidiaries; and (d) such other financial or other information relating to the affairs of R&B Falcon and its consolidated Subsidiaries as the Owner or any Investor may from time to time reasonably request. 11.4 Compliance Certificates The Charterer shall furnish or cause to be furnished, to the Owner and the Investors: (a) within 45 days after the end of the first, second and third quarterly accounting period in each fiscal year of R&B Falcon, and within 90 days after the end of each fiscal year of R&B Falcon, a certificate of the Chairman, the President or a Vice President and the Chief Financial Officer or Principal Accounting Officer of R&B Falcon stating that each of the Charterer and each Guarantor has performed and complied with all the terms and provisions of this Charter or the Guaranty and/or the other Charter Documents, as the case may be, or, if there shall have been an Event of Default hereunder or if any Guarantor shall be in default under the Guaranty, specifying all such defaults and the nature thereof of which the signer of such certificate may have notice or knowledge; (b) within 90 days after the end of each fiscal year of R&B Falcon, a certificate of the independent public accountants reporting on the financial statements for such year (i) stating that their examination in connection with such financial statements has been made in accordance with generally accepted auditing standards and has included a review of the relevant terms of the Guaranty, the Charter and the other Charter Documents, (ii) stating whether or not such examination has disclosed the existence, during or at the end of such year, of any default by the Charterer or any Guarantor in the observance of any of the terms of the Guaranty, this Charter or the other Charter Documents, insofar as they relate to accounting matters, and, if such examination has disclosed any such default, specifying all such defaults and the nature thereof (it being understood that such accountants shall not be liable for any failure to obtain knowledge of any such default which would not be disclosed in the course of such examination), and (iii) stating that they have reviewed the certificate of the officers of R&B Falcon, delivered with respect to such year pursuant to paragraph (a) of this Section 11.4, and confirming the matters set forth in such certificate; (c) promptly after R&B Falcon's receipt thereof, any audit management letter or similar document submitted after the date hereof by independent accountants in connection with each annual or interim audit made by such accountants with respect to the financial condition or affairs of R&B Falcon or any Guarantor; and (d) as promptly as practicable (but in any event not later than 15 days) after any officer of the Charterer or any Guarantor obtains notice or knowledge of the occurrence of any default (which has not been remedied or waived) in the performance or observance of any of the terms or provisions of the Guaranty or any of the other Charter Documents or any Event of Default under the Charter, a certificate of either the Chairman, the President or a Vice President and the Chief Financial Officer or Principal Accounting Officer of the Charterer or Guarantor (as the case may be) describing the default or Event of Default and stating the date of commencement thereof, what action the Charterer proposes to take with respect thereto and the estimated date when it will be remedied. 11.5 Further Assurances, etc. The Charterer shall, at its sole cost and expense, promptly and duly execute, acknowledge and deliver to the Owner such further documents, instruments, financing and similar statements and assurances and take such further action as the Owner may from time to time reasonably request in order more effectively to carry out the intent and purpose of this Charter or the Charter Documents, to establish and protect the rights and remedies created or intended to be created in favor of the Owner hereunder or under the Charter Documents, and to protect the title of the Owner in and to the Vessel. The Charterer shall also promptly furnish to the Owner such information as may be required to enable the Owner timely to file any reports required to be filed by it as the owner under the Charter or as the owner of the Vessel with any governmental authority. 11.6 Maintenance of Corporate Existence, etc. The Charterer shall at all times maintain its corporate existence except as permitted by Section 11.7 and will do or cause to be done all things necessary to preserve and keep in full force and effect its rights (charter and statutory) and franchises; provided that (a) it shall not be required to preserve any right or franchise if its Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of its business and (b) the loss thereof does not materially adversely affect or diminish the rights of the Owner or any Investor. 11.7 Conditions of Consolidation, Merger, etc. The Charterer shall not consolidate with or merge into any other corporation or convey, transfer, or lease, all or substantially all of its assets as an entirety to any Person, unless each of the following conditions is satisfied: (a) The Person formed by such consolidation, merger or acquisition by conveyance, transfer or lease all or substantially all the assets of the Charterer as an entirety (the "Resulting Entity"), shall, at the same time, by consolidation, merger, conveyance, transfer or lease, acquire all or substantially all of the assets of the Guarantor as entireties, shall be a citizen of the United States within the meaning of the Shipping Act, 1916 or shall have obtained the approval of the U.S. Maritime Administration for any such consolidation, merger (and the Owner and the Investors, without any expense to any of the foregoing, shall have received an opinion of counsel selected by the Owner as to such citizenship of the United States of such Person, in form and substance satisfactory in all respects to the Owner), and shall be a corporation organized and existing under the laws of one of the several states of the United States of America or the District of Columbia. Such Person, prior to or upon the occurrence of any such transaction, shall execute and deliver to the Owner an agreement in form and substance satisfactory to the Owner, containing an assumption by such Person of the due and punctual performance and observance of each covenant and condition of the Charter and the Charter Documents to be performed or observed by the Charterer. (b) Before and immediately after giving effect to such transaction, no Default, or Event of Default shall have occurred and be continuing. (c) After giving effect to such transaction, the rating of the long- term unsecured senior debt or implied long-term unsecured senior debt rating of the Resulting Entity shall be and shall be maintained for six months thereafter at least AB+" by S&P and, if rated by Moody's, at least AB1". (d) The Charterer shall have delivered to the Owner and each Investor, prior to or upon the occurrence of such transaction, a Certificate of either the Chairman or the President and the Chief Financial Officer of the Charterer, and an opinion of counsel satisfactory to the Owner, each stating that such consolidation, merger, conveyance, transfer or lease and the assumption agreement described in Section 11.7(a) comply with this Section 11.7 and that all conditions precedent relating to such transaction herein provided for have been fully complied with. Upon any consolidation or merger, or any conveyance, transfer or lease of all or substantially all of the assets of the Charterer as an entirety in accordance with this Section 11.7, the Resulting Entity shall succeed to, and be substituted for, and any exercise of every right and power, obligation and liability of, the Charterer under this Charter and the Charter Documents with the same effect as if such Resulting Entity had been named as the Charterer herein and therein. No such conveyance, transfer or lease of all or substantially all of the assets of the Charterer, as an entirety shall have the effect of releasing the Charterer or any Guarantor, as the case may be, or any Resulting Entity which shall theretofore have become such in the manner prescribed in this Section 11.7 from its liability under this Charter, the Guaranty or the Charter Documents. Nothing contained herein shall permit any charter, subcharter or other arrangement for the use, operation or possession of the Vessel except in compliance with the applicable provisions of this Charter. 11.8 Indemnity of the Owner by Customers for Oil Pollution and Related Environmental Claims The Charterer shall cause each of its customers or operators under any Drilling Contract to (a) indemnify, defend and hold harmless the Owner, the Investors and their Affiliates from any and all claims, demands, liabilities, losses, damages, lawsuits and expenses respecting pollution claims resulting from the release of Crude Oil as a consequence of a blowout, crater or other cause arising out of or in connection with operations under such Drilling Contract, in accordance with normal industry practice, and any and all related environmental, health or safety matters (including, but not limited to, all cost and expense of controlling clean-up of pollution and all penalties imposed by any Person) irrespective of whether the Charterer, the Owner or any of their Affiliates may have been or may be alleged to have been negligent or otherwise legally at fault; and (b) if any customer under such Drilling Contract does not maintain (i) a consolidated tangible net worth as determined in accordance with generally accepted accounting principles of at least $500,000,000 (or be a consolidated Subsidiary of a parent entity having such consolidated tangible net worth) or (ii) a senior unsecured debt rating by S&P of ABBB-" or by Moody's of ABaa3" (or be a consolidated direct or indirect Subsidiary of a parent entity having a senior unsecured debt rating meeting such criteria), such customer shall provide (or the Charterer shall provide) operators extra expense or energy exploration and development insurance coverage in an amount of at least the difference between $150,000,000 (or such greater amount, as may be necessary to meet the applicable financial responsibility requirements under the Oil Pollution Act of 1990, or any other applicable laws, as amended from time to time) and the amount of the Charterer's contingent operators extra expense or energy exploration and development insurance or other coverage in effect at such time, with such underwriters or carriers and containing such terms and conditions as the Owner may require, in the form normally and customarily carried by oil and gas operators engaged in offshore drilling operations, for oil pollution liability and expense, with the Owner, Investors, the Owner Group and the Charterer named as additional insureds and having the benefit of waivers of subrogation. ARTICLE 12 PAYMENTS, INVOICES AND SECURITY 12.1 Basic Hire The Charterer shall pay to the Owner, in arrears on each Payment Date through the Primary Term, an amount equal to 1.2024% of Owner's Cost (the "Primary Term Basic Hire") as adjusted on the date of each disbursement to the Charterer as agent under the Third Upgrade Agreement according to the methodology outlined on Schedule F attached hereto, and during any Extended Term, 125% of the Primary Term Basic Hire payable on each Payment Date during such Extended Term. The payment each month of the Basic Hire shall be a continuing obligation for each month during which this Charter is in effect, and no invoice for such amount need be issued to the Charterer by the Owner. The Charterer's obligation to make such payment is unconditional and absolute during the term hereof and shall not be affected by any event of force majeure or otherwise. 12.2 Supplemental Hire In addition to its obligation to pay Basic Hire hereunder, the Charterer shall pay to the Owner any and all Supplemental Hire as and when the same shall become due and owing, and in the event of any failure on the part of the Charterer to pay any Supplemental Hire, the Owner shall have all rights, powers and remedies provided for herein or at law or in equity or admiralty or otherwise in the case of nonpayment of Basic Hire. The Charterer shall pay to the Owner, as Supplemental Hire, all costs incurred by the Owner in performing or complying with the Charter Documents if the Charterer fails to perform or comply with any of its agreements contained in this Charter, or any Charter Document including, but not limited to: (a Direct and indirect cost of permits, licenses and the like required of the Owner as owner of the Vessel. Owner shall use reasonable efforts, without filing suit or incurring out-of- pocket or other additional cost or expense, to avail itself of applicable exemptions and/or reductions of such costs. (b All premiums and other costs to the Owner for insurance as specified in Articles 11.8 and 15. (c Unless otherwise expressly set forth herein in Section 19.2, the Charterer shall bear directly or reimburse the Owner, upon proof of payment by the Owner, all fees and expenses (including fees and expenses of the Owner's counsel) incurred by the Owner in the performance of or related to this Charter or any Charter Documents. 12.3 Payment Terms The Charterer shall pay all amounts for Supplemental Hire invoiced by the Owner within 10 days after receipt of such invoice. Any Basic Hire not paid when due and any invoices not paid in immediately available funds within 10 days after receipt by the Charterer shall accrue interest from the due date until paid at a per annum rate of interest equal to the Overdue Rate, computed on a basis of 360 days, for actual days elapsed. Payments shall be made by wire transfer in immediately available funds prior to 12:00 noon, New York City time, on the day when each such payment shall be due to the Owner's account at a financial institution located in the State of New York or at such other office as the Owner may from time to time designate in writing to the Charterer. All payments to the Owner hereunder shall be without any offset, counterclaim, discount or deduction and shall be made in United States Dollars. All payments to the Owner stated in this Charter are exclusive of any Taxes, including, without limitation, sales, excise, value added, stamp, documentary, transfer, ad valorem, general consumption, property, use, export, import, employment, payroll, withholding or other similar Taxes, which may be imposed on or incurred by the Owner, its employees or the Investors (other than, except as otherwise provided herein, Taxes on the net income or franchise of the Owner, its employees or the Investors), and all costs associated therewith, in connection with performance by the Owner of, or the Owner's rights under, this Charter, including the costs associated with bonds or letters of credit that are not otherwise the responsibility of the Charterer under this Charter. The Charterer shall pay the Owner the amount of all such charges, Taxes and costs upon receipt of an invoice, subject to the Charterer's right to reasonably verify the Owner's payment of such amounts. The Owner shall use reasonable efforts, without filing suit or incurring any out-of-pocket or other additional costs, to avail itself of any and all applicable exemptions and/or reductions of such taxes. The Charterer shall, at the Owner's request, pay such sums directly or post any required bonds or letter of credit required on any such items. 12.4 Invoices The Owner shall render to the Charterer a monthly invoice on or before the 15th day of each month showing all Supplemental Hire payable to the Owner for the preceding month. 12.5 Security for Obligations (a To secure the Obligations, the Obligors have executed and delivered the Security Documents. Subject to Section 12.5(b), (c), (d) and (e), the Charterer shall maintain (i) the Cunningham Mortgage or (ii) any Substitute Collateral that has a fair market value at least equal to the Stipulated Loss Value at the time of any delivery of such Substitute Collateral (collectively, the "Additional Collateral") to secure the Obligations. (b In the event that, at any time during the periods set forth below, the Timely Liquidation Value of the Vessel as determined in accordance with the Appraisal Procedure at such time is at least the Stipulated Loss Value at such time, neither S&P nor Moody's has a negative outlook for R&B Falcon at such time and a Drilling Contract is in full force and effect at such time that provides adequate cash flow to service the Obligations for the term of such Drilling Contract, the Charterer may request a reduction in the amount of Additional Collateral as follows: (i) after the fourth anniversary of the Delivery Date and so long as (A) the rating of S&P of the Rated Securities is at least ABB+" and the rating, if any, of Moody's of the Rated Securities is at least ABa1", and (B) no Default has occurred, the Timely Liquidation Value of the Jim Cunningham or the Timely Liquidation Value of Substitute Collateral (as determined by the Appraisal Procedure) required to be maintained shall be reduced to 50% of the Stipulated Loss Value; (ii) after the seventh anniversary of the Delivery Date and so long as (A) the rating of S&P of the Rated Securities is at least ABBB-" or higher by S&P and the rating, if any, of Moody's of the Rated Securities is at least ABaa3", and (B) no Default has occurred, no Additional Collateral shall be required to be maintained; or (iii) at any time, and so long as (A) the rating of S&P of the Rated Securities is at least ABBB+" or higher by S&P and the rating, if any, of Moody's of the Rated Securities is at least ABaa1", and (B) no Default has occurred, no Additional Collateral shall be required to be maintained. (c The Owner shall release its lien and security interest in that portion of the Additional Collateral that is in excess of the Additional Collateral (the "Released Collateral") the Charterer is required to maintain pursuant to Section 12.5(b). From and after such release the Charterer shall maintain such Released Collateral or other property (the "Negative Pledge Property") mutually agreed upon by the Owner and the Charterer that has a Timely Liquidation Value equal to the Stipulated Loss Value at the time of such release, free and clear of all Liens (other than Permitted Liens as defined in the Cunningham Mortgage). The Charterer shall immediately notify the Owner and each of the Investors of the occurrence of any event that would not entitle the Charterer to maintain reduced Additional Collateral pursuant to Section 12.5(b) and shall promptly reinstate or grant, as the case may be, Liens upon the Negative Pledge Property or, with the approval of the Owner, provide other Substitute Collateral in accordance with Section 12.5(d) as required under Section 12.5(b). (d) The Charterer shall be entitled to exchange collateral for the Obligations or discharge its obligation to reinstate Additional Collateral or Substitute Collateral by providing substitute property as collateral securing the Obligations (the "Substitute Collateral") if each of the following conditions precedent shall have been satisfied: (i) The Charterer shall have notified the Owner of its intention to provide Substitute Collateral, which Substitute Collateral shall be cash, cash equivalents, or a mobile offshore drilling unit and otherwise in all respects satisfactory in form and substance to the Owner. (ii) All instruments conveying or granting to the Charterer such Substitute Collateral and any related agreements or instruments shall in all respects be satisfactory in form and substance to the Owner. (iii) The Owner and each of the Investors shall have received with respect to such Substitute Collateral a report at the sole cost and expense of the Charterer prepared in accordance with the Appraisal Procedure, in form and substance reasonably satisfactory to the Owner, that the fair market value of such Substitute Collateral when added to the fair market value of other Additional Collateral for the Obligations shall, after giving effect to any release, be in compliance with Section 12.5 (a) or (b), as applicable. (iv) The Charterer shall at its sole cost and expense have obtained (to the satisfaction of the Owner) all government approvals required in connection with the ownership, use, occupancy, possession, operation or ordinary maintenance of such Substitute Collateral, compliance with applicable environmental, health and safety laws and regulations and the mortgaging of such Substitute Collateral to the Owner. Each such governmental approval shall be in full force and effect. (v) The Charterer shall at its sole cost and expense have conducted or caused to be conducted such title examination or title review with respect to such Substitute Collateral as a reasonably prudent operator would conduct under the circumstances, and the Owner shall have approved the status of title of such Substitute Collateral. The Charterer shall have furnished to the Owner such title policy or other title assurances as it receives in connection with the acquisition of such Substitute Collateral. (vi) The Charterer shall at its sole cost and expense have obtained such casualty, liability and other insurance with respect to such Substitute Collateral as shall be requested by the Owner, which insurance shall in all respects comply with, and shall be in all respects subject to, Article 15. The Owner and each of the Investors shall have received a certificate of an independent insurance broker setting forth the insurance obtained in accordance with this paragraph (vi) and certifying that such insurance is in full force and effect and that all premiums then due thereon have been paid. (vii) The Charterer shall at its sole cost and expense have executed and delivered to the Owner or to a trustee or collateral agent designated by them and acting on their behalf, a mortgage and security agreement or other instrument or other document granting to the Owner or such trustee or collateral agent a mortgage Lien and security interest, subject to no other Liens (other than Permitted Liens as defined in the Cunningham Mortgage), in and to such Substitute Collateral, each deed, lease, assignment or other instrument of conveyance referred to in paragraph (ii) above, each government action as referred to in paragraph (iv) above, each ancillary contract and any agreement providing for the operation of such Substitute Collateral (which assignment shall be consented to by the operator, on terms satisfactory to the Owner), subject to no Liens (other than Permitted Liens as defined in the Cunningham Mortgage). Such mortgage and security agreement or such other instrument shall be in full force and effect and shall be in all respects satisfactory in form and substance to the Owner. Each of the foregoing instruments and any necessary documents relating thereto, including, without limitation, financing statements under the applicable Uniform Commercial Code or other instruments for filing or recordation, shall have been duly recorded and filed in all public offices in which such recordation or filing is necessary in order to provide constructive notice to third parties of the interests and Liens created thereby and in order to establish, perfect, preserve and protect the validity and effectiveness thereof and the mortgage Lien and security interest created by such mortgage and security agreement or other instrument on all property purported to be subject thereto; and all taxes, fees and other charges payable in connection with any and all of the foregoing shall have been paid in full by the Charterer. (viii) The Owner and the Investors shall have received such environmental reports with respect to such Substitute Collateral (in form and substance satisfactory to the Owner) as they may request. (ix) The Owner and each of the Investors shall have received such opinions of counsel satisfactory to the Owner as to such matters relating to the acquisition of such Substitute Collateral, including the validity and enforceability of all documents and instruments referred to in this Section 12.5(d) and the validity, extent and priority of the Owner's Lien, as the Owner shall reasonably request, which opinions shall be in form and substance satisfactory to the Owner and from counsel acceptable to the Owner. (x) The Charterer shall have paid all costs and expenses incurred by the Owner and each of the Investors in respect of obtaining any release of Additional Collateral, the Mortgages or the Substitute Collateral, regardless of whether such release, Collateral, the Mortgages, Substitute Collateral or Additional Collateral is delivered. (xi) The Owner shall have received an Officer's Certificate, containing such representations and warranties with respect to such Substitute Collateral and the matters set forth in this Section 12.5(d) and any other matters as shall be reasonably requested by the Owner, and such other documents or evidence as to the satisfaction of the conditions set forth in this Section 12.5(d), as the Owner shall reasonably request. ARTICLE 13 GENERAL OBLIGATIONS AND PERFORMANCE 13.1 Independent Owner Relationships In the performance of this Charter, the Owner is an independent contractor. In the performance of this Charter, the Charterer is an independent contractor and shall control and direct the operation of the Vessel and the performance of the details of the work to be performed by the Charterer's personnel and shall be responsible for the results of such work, all in accordance with the obligations imposed upon the Charterer hereunder and under the Charter Documents. The presence of and the observation by the Owner's representative(s) at the site of any work shall not relieve the Charterer from the Charterer's obligations and responsibilities hereunder. 13.2 Inspection The Owner shall have the right, at the Charterer's sole cost and expense, to inspect the Vessel and its book and records at all reasonable times if the exercise of such inspection right would not unreasonably interfere with the operator's operations on the Vessel at the time or any applicable governmental approval, which approvals the Charterer shall endeavor to obtain in good faith, and shall have the right to confer with and have access to the officers and employees of the Charterer and any Guarantor in connection with any such inspection. The Owner shall have the right annually to cause the Vessel to be surveyed by a marine surveyor at the Owner's (but, after the occurrence and during the continuance of any Default, the Charterer's) expense. The Charterer shall correct at its sole cost expense all material deficiencies discovered during any such survey or inspection. 13.3 Performance of the Charterer The Charterer shall exercise due diligence to carry out any and all operations with respect to the Vessel in a safe, workmanlike manner in accordance with good offshore industry practice, which requirement shall specifically include, not by way of limitation in any manner whatsoever, the obligations to have the Vessel under the command of an offshore instillation manager certified by and for the area in which the Vessel is operating. 13.4 Operations Outside of U.S. Waters In the event that the Charterer intends to operate the Vessel outside of U.S. territorial waters and/or the Outer Continental Shelf, the Charterer shall submit at least 15 days before movement of the Vessel to the intended area of operation such documentation demonstrating to the Owner's reasonable satisfaction (a) that operation of the Vessel within the intended area of operation complies with all applicable laws and regulations of the United States and of the intended area of operation; (b) that the Vessel can be removed from such intended area of operation upon either cessation of the Vessel's operation in the area or termination of this Charter; (c) that the Charterer provides all additional indemnities and has secured political risk insurance for such area additive to the insurances provided for herein and (d) the Vessel is not subject to any lien or interest that might have priority over the title and interest of the Owner. Each move to a new area outside U.S. territorial waters, whether or not subject to the jurisdiction of a different foreign country, shall meet the foregoing requirements and those of Section 7.1. ARTICLE 14 LIABILITY AND INDEMNITY 14.1 Survival of Indemnities The indemnities set forth in this Charter shall survive the termination of this Charter, and shall remain enforceable (subject only to debtor relief laws and general equitable principles) as to any claim, demand, liability, damage and expense arising out of or incidental to this Charter, without regard to the termination of this Charter. 14.2 Pollution The Charterer shall assume all responsibility for the control and removal of, and hold Owner Group harmless from loss, liabilities or damage or claims arising from, directly or indirectly, pollution or contamination by any liquid or nonliquid or waste material wheresoever found that is discharged, spilled or leaked from the Vessel or noncompliance with environmental, health and safety laws (including but not limited to, those stemming from release of pollutants, private toxic tort claims, off-site disposal of waste or other pollutants, PCB's, and asbestos-containing materials on or in the Vessel (irrespective of whether any of the foregoing occurred, existed or arose before or after the date hereof)). To the extent that any law, regulation or governmental entity acting within its jurisdiction imposes on Owner Group liability for any such pollution, notwithstanding such imposition of direct liability, the Charterer shall have designated Owner Group as an additional insured under its insurance policies and the Charterer shall hold the Owner harmless from such loss, liabilities, damage or claims and reimburse Owner Group for any amounts that Owner Group may be required to pay. This indemnity is valid irrespective of the negligence or fault, whether sole, joint, active or passive of the indemnified party and whether predicated on strict liability, statutory duty, contractual indemnity or any other theory of liability of the indemnified party. 14.3 The Charterer's Indemnity (a) The Charterer shall defend, indemnify and hold Owner Group, its officers, directors, employees, agents and Affiliates (collectively, the "Indemnitees") harmless from and against all claims, liabilities, damages, Taxes and expenses (including, without limitation, attorneys' fees and other costs of defense), including all claims of any type whatsoever, irrespective of insurance coverage, arising out of, incidental to, or related to this Charter, any of the Charter Documents, any of the transactions contemplated hereby or thereby, the Vessel, the Jim Cunningham, the Randolph Yost or any Additional Collateral or Substitute Collateral, except, unless otherwise specifically provided herein, any claims directly arising out of the Owner's gross negligence or willful misconduct. (b) If it is judicially determined that the monetary limits of insurance required under this Charter or of the indemnities voluntarily and mutually assumed in this Charter (which the Owner and the Charterer hereby agree will be supported either by available liability insurance, under which the insurer has no right of subrogation against the indemnitee, or voluntarily self-insured in respect of permitted deductibles) exceed the maximum limits permitted under applicable law, it is agreed that such insurance requirements or indemnities shall automatically be amended to conform to the maximum monetary limits permitted under such law. (c) The Charterer shall indemnify, pay and hold harmless Owner Group against any loss, liability, cost or expense incurred in respect of the Vessel, including actual or constructive loss of the Vessel, or any effort to interdict the payment to the Owner of proceeds arising out of or related to this Charter. (d) The indemnities in this Charter apply without regard to any conflicting rules of liability under any applicable law or regulation and shall include indemnification for any and all claims in which recovery, indemnification or contribution is sought directly or indirectly by any person or entity against Owner Group whether predicated on negligence, strict liability, statutory duty or contractual indemnity, except any such liability directly arising out of the gross negligence or willful misconduct of the Owner unless otherwise expressly specified herein. 14.4 Patent Infringement (a) The Charterer shall assume liability for, and shall defend, indemnify and hold the Owner harmless from and against, all suits and actions alleging that the Vessel, any equipment or part thereof, or any operation of the Vessel, any such equipment or part thereof constitutes an infringement of any letters patent. (b) If, as a result of any changes required by the Charterer in equipment furnished by the Owner, or any changes required by the Charterer in operation of such equipment or part thereof, a claim is filed against the Owner alleging that such equipment or any such operation conducted infringes any letters patent, then the Charterer shall be liable for all such claims and indemnify and hold the Owner harmless from all such claims. 14.5 Both-to-Blame Collision Clause Without limitation on any other indemnity of the Charterer contained herein, if the liability for any collision in which the Vessel is involved while performing this Charter should be determined in accordance with the laws of the United States of America, the following clauses shall apply: (a) If the Vessel comes into collision with another ship as a result of the negligence of the other ship and any act, neglect or default of the Master, mariner, pilot or the servants of the Charterer in the navigation or in the management of the Vessel, the Charterer shall indemnify the Owner against all direct, consequential or special loss or liability to the other ship or her owner. (b) The foregoing provisions shall also apply where the owners, operators or those in charge of any ship or ships or objects other than, or in addition to, the colliding ships or objects are at fault in respect of a collision or contact. 14.6 Liens, Attachments and Encumbrances None of the Charterer, any subcharterer or party to a Drilling Contract shall have the right, power or authority to create, incur or permit to exist any Lien upon the Vessel, except for Permitted Liens. The Charterer further agrees to carry a true copy of this Charter with the ship's papers on board the Vessel, and to exhibit the same to any person having business with the Vessel which may give rise to any lien or claim upon the Vessel other than a Permitted Lien or to the sale, conveyance or mortgage of the Vessel, and on demand, to any person having business with the Vessel or to any representative of the Owner, the Owner Group or any Investor. The Charterer shall also place and keep prominently displayed on board the Vessel a notice, framed under glass, printed in plain type of such size that the paragraph of reading matter shall cover a space not less than six inches wide by nine inches high, reading as follows: NOTICE OF CHARTER This Vessel is owned by Deep Sea Investors, L.L.C. It is under bareboat demise charter to R&B Falcon Drilling Co. Under the terms of this Charter none of the Charterer, any subcharterer, the Master nor any other person has any right, power or authority to create, incur or permit to be imposed on the Vessel (a) any lien whatsoever other than liens for current crew's wages, general average and salvage, in each case, incurred in the ordinary course of business and that are not yet overdue complying with the provisions of such charter and (b) any claims whatsoever under any drilling contracts in respect of the Vessel other than claims complying with the provisions of such charter. Such notice shall be promptly changed from time to time to reflect the identity of the successors or assigns of the Owner. 14.7 Indemnification by the Charterer The Charterer shall indemnify and hold harmless the Owner against any Liens, claims or liabilities of whatsoever nature, other than Permitted Liens (but if the Vessel is being redelivered to, or otherwise coming into the possession of, the Owner pursuant to the terms and conditions of this Charter, other than Permitted Liens arising as the result of claims against the Owner for which the Owner is not entitled to indemnification hereunder only), whether such Liens, claims or liabilities now exist or are created hereafter or are founded or unfounded, upon or relating to the Vessel, its possession, management, maintenance, repair, use, employment, chartering or subchartering or operation or any act or omission of the Charterer. 14.8 The Charterer's Duties to Remove Liens, etc. Without limitation of the generality of the Charterer's indemnities provided for in Section 8.2 and Article 14, the Charterer agrees that if a libel or a complaint in admiralty or any other legal proceeding shall be filed against the Vessel, or if the Vessel shall be otherwise levied upon or taken into custody or detained or sequestered by virtue of proceedings in any court or tribunal or by any government or other authority because of any Liens, claims or liabilities arising from any claims, other than claims against the Owner the payment or discharge of which is not the obligation of the Charterer or any Guarantor or with respect to which the Owner is not entitled to indemnification from the Charterer or any Guarantor. The Charterer shall at its own expense within 15 days thereafter cause the Vessel to be released and all such Liens and (except to the extent that the same shall currently be contested by the Charterer in good faith by appropriate persons and appropriate proceedings in the Owner's sole judgment and shall not affect the continued release, or until any risk of forfeiture or other loss of or to the Vessel, or in any manner whatsoever interfere with the use and operation of the Vessel) claims and liabilities to be discharged. The Charterer shall forthwith notify the Owner by telecopy, telex or telegram, confirmed by letter, of each such event and of each such release and discharge. The Charterer shall advise the Owner in writing at least once in each three-month period as to the status and merits of all such excepted claims and liabilities being so contested by the Charterer and not discharged within fifteen days as provided above, which are either not bonded or affect the ability of the Charterer to use any Vessel in the ordinary course of its business. The Charterer will pay and discharge when due all claims for repairs and other charges incident to current operations of the Vessel or with respect to any change, alteration or addition made pursuant to this Charter and will not permit any lien referred to in clause (b) or (c) of the definition of "Permitted Liens" which has ripened into a cause of action to be in effect for more than 30 days unless it is fully bonded or covered by insurance or Adequate Provision. ARTICLE 15 INSURANCE 15.1 The Charterer's Insurance The Charterer shall, at its own expense, procure and maintain in effect with respect to and for the duration of this Charter the insurance policies with limits of at least, and with deductibles, if any, of no more than, those as set forth in Schedule C approved by the Owner and having such terms and conditions, and with carriers and/or underwriters approved by the Owner (such approval not to be unreasonably withheld). Any policies of insurance carried by the Charterer in accordance with this Article 15 shall (a) provide that the interests of Owner Group in such policies shall not be invalidated by any action, inaction, neglect, breach of warranty or misrepresentation of the Charterer or change in ownership of the Vessel and shall insure Owner Group's interests as they appear, regardless of any breach or violation by the Charterer of any warranty, declaration or condition contained in such policies, and (b) be primary without right of contribution from any other insurance which may be carried by Owner Group with respect to its interests in the Vessel. The Charterer shall immediately notify underwriters of and shall furnish all necessary information concerning any occurrence which may give rise to a claim under any of said insurance policies. Prior to commencement of any operations under this Charter and any renewal of the insurance policies required to be maintained hereunder, the Charterer shall provide the Owner with insurance certificates evidencing the Charterer's insurance coverage; such certificates shall provide for at least 30 days' (seven days, in the case of war risk) prior written notice to the Owner and each of the Investors of any material change in, reduction or cancellation of any of said insurance policies and shall show the Charterer, the Owner, the Owner Group and the Investors as sole loss payees and additional insureds thereunder as their interests appear. If requested, copies of all correspondence and documents sent to underwriters, related to any accident or claim arising out of or in connection with the performance of the work hereunder, shall be provided to the Owner. 15.2 Nonperformance of Insurance Companies The insolvency, liquidation, bankruptcy, or failure of any insurance company providing insurance for the Charterer or the Owner or their respective subcontractors, or failure of any such insurance company to pay claims accruing, shall not be considered a waiver of, nor shall it excuse the Charterer from complying with, any of the provisions of this Charter or any of the Charter Documents, except that any such act or omission by an insurance company shall not be deemed a breach of this Charter by the Charterer. 15.3 Subrogation The Charterer agrees to endorse each such insurance policy to waive the underwriters' and insurance providers' right of subrogation with respect to Owner Group; and the Charterer agrees to indemnify and hold Owner Group harmless with respect to any rights of subrogation pursued by the Charterer's underwriters or insurance providers against Owner Group. ARTICLE 16 ASSIGNMENT OF CHARTER 16.1 Assignment and Subcontract by the Owner The Owner shall have the right, at any time, to assign all or part of this Charter to any Person, so long as such Person agrees to be bound by this Charter and, at the time of such assignment, has, or is a consolidated Subsidiary of a parent entity having, a consolidated net worth of at least $50,000,000 as determined in accordance with generally accepted accounting principles and is not primarily engaged in the offshore drilling business, other than as a financier or lessor of offshore drilling equipment or operations. 16.2 Assignment by the Charterer The Charterer shall not have the right to assign this Charter or to subcharter the Vessel without the prior written consent of the Owner. Subject to the terms of applicable law, the Charterer shall have the right, without the consent of the Owner, so long as no Default or Event of Default shall have occurred and be continuing, to subcharter the Vessel on a bareboat or time basis to any Subsidiary of R&B Falcon that is and remains throughout the term of such subcharter a Subsidiary of R&B Falcon and a citizen of the United States within the meaning of the Shipping Act, 1916, and to enter into, and to permit the Vessel to serve under, Drilling Contracts that comply with the terms hereof and the other Charter Documents (provided no such Drilling Contract constitutes a demise or a bareboat charter or any grant of any property right or other interest in the Vessel between the Charterer and others) provided that: (a) each such subcharter and Drilling Contract shall be consistent with the terms of this Charter and the subcharterer shall have agreed not further to subcharter the Vessel without complying with this Section 16.2 with respect to such further subcharter; (b) either (i) the subcharterer under such subcharter or the customer under a Drilling Contract is a citizen of the United States within the meaning of the Shipping Act, 1916 and evidence thereof satisfactory to the Owner in its sole judgment shall be submitted to the Owner within 30 days of entering into such subcharter, (ii) the prior approval of the U.S. Maritime Administration under the Shipping Act, 1916 of such subcharter, in form satisfactory to the Owner in its sole judgment, shall have been obtained and, within 30 days of entering into such subcharter or Drilling Contract, evidence thereof satisfactory to the Owner in its sole judgment, shall have been submitted to the Owner or (iii) such subcharter or Drilling Contract shall be covered by a general approval of the U.S. Maritime Administration under sections 9 and 37 or any other applicable sections of the Shipping Act, 1916 and the Charterer shall have given written notice to the Owner to that effect, which notice shall set forth in reasonable detail the facts which establish such coverage with respect to such subcharter or Drilling Contract; (c) such subcharter or Drilling Contract shall not violate any laws of the United States of America or any regulations, rules, interpretations or orders thereunder; (d) irrespective of any such subcharter, the Charterer shall remain liable for all of its obligations under this Charter and the Charter Documents to the same extent as if such subcharter or Drilling Contract were not in effect; (e) the subcharterer under each such subcharter shall comply with all applicable laws and regulations, provided that violations of laws or regulations by any such subcharterer that (i) will not result in the Owner, the Owner Group or the Vessel being in violation of, or subject to any fine, penalty or other sanction under any applicable law or regulation or any risk of forfeiture or other loss of or to the Vessel, (ii) do not otherwise adversely affect the interests of the Owner or the Owner Group or the Investors hereunder, and (iii) are not consented to by the Charterer shall not, by reason of this clause (e), constitute a breach, or cause such subcharter to be in violation of the terms of this Charter so long as the Charterer is taking appropriate action to terminate such violation or to terminate such subcharter; (f) such subcharter or Drilling Contract shall, by its terms, expire no later than the end of the Charter Period, or any extension thereof, and Charterer shall not suffer or permit to be continued under any such subcharter or Drilling Contract any lien or encumbrance incurred by it or its agents, which might have priority over the title and interest of the Owner in the Vessel and any part thereof, or equipment or other property used in connection with the Vessel; and (g) any Drilling Contract shall be on terms and conditions in substantially the form generally used in offshore drilling and with an operator and having (i) a consolidated tangible net worth as determined in accordance with generally accepted accounting principles of at least $500,000,000 (or be a consolidated Subsidiary of a parent entity having such a consolidated tangible net worth), or (ii) a senior unsecured debt rating by S&P of ABBB-" or by Moody's of ABaa3" (or be a consolidated direct or indirect Subsidiary of a parent entity having a senior unsecured debt rating meeting such criteria) or (iii) maintaining (or the Charterer providing) operators extra expense or energy exploration and development insurance coverage in an amount of at least the difference between $150,000,000 (or such greater amount, as may be necessary to meet the applicable financial responsibility requirements under the Oil Pollution Act of 1990, or any other applicable laws, as amended from time to time) and the amount of the Charterer's contingent operators extra expense or energy exploration and development insurance or other coverage in effect at such time, with such underwriters or carriers and containing such terms and conditions as the Owner may require, in the form normally and customarily maintained by oil and gas operators engaged in offshore drilling operations, for oil pollution liability and expense, with the Owner, Investors, the Owner Group and the Charterer named as additional insureds and having the benefit of waivers of subrogation and with carriers or underwriters reasonably acceptable to the Owner. The Charterer shall within 30 days after entering into each Drilling Contract notify the Owner of the period thereof and of the identity of the other party and its relationship with the Charterer, if any. 16.3 Assignment of Subcharter Hire. The Charterer hereby sells, assigns, transfers, creates a security interest in and sets over unto the Owner all of the Charterer's right, title and interest in and to all accounts, chattel paper, contract rights and general intangibles, and all monies and claims for monies due and to become due under, or arising out of, and all claims for damages arising out of the breach of, any subcharter or Drilling Contract (Drilling Contracts being considered, for purposes of this Section 16.3, subcharters) relating to the Vessel, whether now existing or hereafter entered into. It is expressly agreed that, anything herein contained to the contrary notwithstanding, the Charterer shall remain liable under each such subcharter to perform all of its obligations thereunder, and the Owner shall have no obligations or liabilities thereunder by reason of or arising out of the foregoing assignment (herein, the "Rights Assignment"). Upon the demand of the Owner after the occurrence and during the continuation of an Event of Default, the Charterer will specifically authorize and direct each person liable therefor to make payment of all monies due and to become due under or arising out of each such subcharter to the Owner or as the Owner shall direct, and upon such demand irrevocably authorizes and empowers the Owner to ask, demand, receive, receipt and give acquittance for any and all such amounts which may be or become due or payable or remain unpaid at any time or times to the Charterer by each such person under or arising out of such subcharters; to endorse any checks, drafts or other orders for the payment of money payable to the Charterer in payment therefor; and in its discretion to file any claims or take any action or proceeding either in its own name or in the name of the Charterer or otherwise which the Owner may deem to be necessary or advisable in the premises. The Charterer hereby irrevocably authorizes the Owner after any such demand has been made, in its own name or in the name and on behalf of the Charterer, to give notification to persons obligated under such subcharters that payment is to be made to the Owner or as the Owner directs and hereby agrees to cause to be delivered to the Owner consents of such persons to the Rights Assignment, in form and substance satisfactory to the Owner. The Charterer agrees that at any time and from time to time, upon the Owner's written request, the Charterer will execute and deliver such further documents and do such further acts and things as the Owner may request in order to effect further the purposes of the Rights Assignment, provided that no such consent referred to in the preceding paragraph may be required under this sentence. The Charterer hereby irrevocably authorizes the Owner, at the Charterer's expense, to file such financing statements relating to the Rights Assignment, without the Charterer's signature, as the Owner at its option may deem appropriate, and appoints the Owner as the Charterer's attorney-in-fact to execute any such financing statements in the Charterer's name and to perform all other acts which the Owner deems appropriate to perfect and continue the security interest created hereby. The Charterer covenants and agrees with the Owner that the Charterer will (a) duly perform and observe all of the terms and provisions of such subcharters on the part of the Charterer to be performed or observed, (b) clearly record in the books and records of the Charterer notations of the Rights Assignment and (c) in the event that the Charterer shall receive payment of any money which should have been paid directly to the Owner pursuant to a demand made or notice given under this Section 16.3 forthwith turn over the same to the Owner or as the Owner may direct, in the identical form in which received (except for such endorsements as may be required thereon). ARTICLE 17 LOSS, TAKING OR SEIZURE. 17.1 Taking by the U.S. Government A taking of the Vessel for use by the United States Government shall not terminate this Charter, but the Charterer shall remain liable for all its obligations hereunder, including its liability for payment of Hire, until the expiration of the Charter Period. If, at the expiration of the lesser of the then remaining term of the Charter Period or 180 days after the taking of the Vessel for use by the United States Government, the Vessel shall still be subject to such taking for use by the United States Government, an Event of Loss shall be deemed to have occurred on the last day of such 180- day period or the Charter Period, whichever occurs first. 17.2 Event of Loss not a Total Loss In the case of any Event of Loss arising out of damage to the Vessel other than actual total loss, the Charterer shall notify the Owner that the Vessel is deemed to be subject to an Event of Loss and shall not consent to a compromise or arranged total loss without the prior written agreement of its insurance underwriters that the Vessel is a constructive or compromised total loss and that such underwriters agree to pay an amount at least equal to the amount payable by the Charterer under Section 17.3. 17.3 Payment of Stipulated Loss Value Upon the occurrence of an Event of Loss, the Charterer shall forthwith give the Owner written notice of such Event of Loss and shall pay to the Owner within 60 days following the date of the occurrence of such Event of Loss the Stipulated Loss Value of the Vessel calculated as of such Basic Hire Payment Date occurring after the occurrence of the Event of Loss plus interest at a rate per annum equal to the Overdue Rate. The Charterer shall also pay to the Owner all Basic Hire due on the Payment Dates next occurring after the date of occurrence of such Event of Loss and, if the date on which such Stipulated Loss Value actually is paid in full is not such a Payment Date, an amount equal to the Overdue Rate (computed on the basis of a 360-day year for actual days elapsed) on the amount of such Stipulated Loss Value for the period from such Payment Date to the date such Stipulated Loss Value is paid in full. 17.4 Application of Payments In the case of all payments (other than insurance proceeds) received by the Owner or the Charterer from any governmental authority or otherwise as compensation for an Event of Loss, so much of such payments as shall not exceed the sum of the Stipulated Loss Value and an amount equal to interest hereon required to be paid by the Charterer as above provided and any Hire then due and owing by the Charterer hereunder shall be applied, provided no Default or Event of Default shall have occurred and be continuing, first, in reduction of the Charterer's obligation to pay such Hire, if any, then due and owing; and second, in reduction of the Charterer's obligation to pay such Stipulated Loss Value and such amount equal to interest thereon as provided above if not already paid by the Charterer or, if already paid by the Charterer, to reimburse the Charterer for its payment of such Stipulated Loss Value and the balance, if any, of such payments remaining thereafter shall be paid over to, or retained by, the Owner. 17.5 Date of Loss For the purpose of this Charter, the date of the occurrence of an Event of Loss shall be the date of the casualty or other occurrence giving rise to such Event of Loss (or the earlier of the expiration of the remaining term of the Charter Period or the date 180 days after such taking thereafter, in the case of a taking of title or use or possession of the government of the United States of America, as provided in the definition of Event of Loss set forth in Section 1 hereof), and if the date of such casualty or other occurrence shall be uncertain, such date shall be deemed the date the Vessel was last heard from. 17.6 Effect of Payment of Stipulated Loss Value In the event that the Charterer shall make payment in full of any overdue payments of Basic Hire, and of such Stipulated Loss Value and an amount equal to interest thereon as provided above, the Charterer shall have no further obligation to make any payment of Basic Hire payable after the Payment Date as of which such Stipulated Loss Value was calculated, and the Charterer, subject to the Charterer's obtaining any governmental consent required, (a) shall be subrogated to all rights which the Owner shall have with respect to the Vessel, (b) shall receive assignments and bills of sale from the Owner (in such form described in Section 3.7 hereof, but without any representation or warranty of any character on the part of the Owner) of any or all such rights, together with all of the Owner's right, title and interest in and to the Vessel and all machinery and equipment pertaining thereto, and (c) shall have the right to abandon the Vessel to underwriters on behalf of the Owner as well as itself. In such case, the Owner shall execute such documents and take such other action as the Charterer may reasonably require to effect the surrender of the Vessel to the insurance underwriters. Nothing herein contained shall relieve the Charterer or the Owner of any of its obligations under Article 18 incurred up to and including the date of the Event of Loss. After the payment in full of the Stipulated Loss Value of the Vessel and such other amounts, the Charterer's obligation to pay further Basic Hire with respect to such Vessel shall terminate. All insurance proceeds received as the result of an Event of Loss with respect to the Vessel, and all payments (other than insurance proceeds) received by the Owner or the Charterer from any governmental authority or otherwise as compensation for an Event of Loss with respect to the Vessel, shall be applied in reduction of the Charterer's obligation to pay Stipulated Loss Value with respect to the Vessel (plus any other amounts of Basic Hire and Supplemental Hire then due and payable with respect to the Vessel), if not already paid by the Charterer, or, if already paid by the Charterer, shall be applied to reimburse the Charterer for its payment of the Stipulated Loss Value with respect to the Vessel and the balance, if any, of such proceeds or payments remaining thereafter shall be paid over to, or retained by, the Charterer. ARTICLE 18 TAX 18.1 Characterization as a Lease Each of the parties hereto intends that, for Income Tax purposes, this Charter will be treated as a lease of the Vessel (except for the Severables to which Charterer has title pursuant to Section 9.4) from the Owner to the Charterer, the Owner will be treated as the sole owner of the Vessel (except for the Severables to which Charterer has title pursuant to Section 9.4) and the Charterer will be treated as not having any ownership interest in the Vessel (except for the Severables to which Charterer has title pursuant to Section 9.4), the Owner or any partnership or joint venture with the Owner. The Charterer, the Owner, each of the Investors and any Affiliate thereof will not take any action or file any return or other document which is inconsistent with such characterization. 18.2 Representations The Charterer represents, warrants and covenants to the Owner, each of the Investors and any Affiliate thereof as follows: (a) All information provided by the Charterer and its Affiliates to any independent appraiser or engineer with respect to the Vessel and the Upgrade Programs was and is true, complete and accurate, and the Charterer and its Affiliates did not omit any factual information necessary to make such first-mentioned information not misleading or omit any factual information required to permit any such independent appraiser or engineer to perform the duties for which he was retained; (b) Reading and Bates, Inc. was the original owner of the Vessel and initially placed the Vessel in service during its taxable year ended December 31, 1983; (c) The Charterer is not, and will not become at any time during any period in which the Owner is claiming federal income tax depreciation deductions, a "tax-exempt entity" (within the meaning of Section 168(h)(1)(A) of the Code and Section 168(j)(3)(A) of the 1954 Code); (d) During any period during which the Owner is claiming federal income tax depreciation deductions, the Charterer will take no action and will not suffer any action to be taken by any Person (other than the Owner) which would cause the Vessel to constitute "tax-exempt use property" within the meaning of Section 168(h)(1) of the Code (or Section 168(j)(3) of the 1954 Code), or property used "predominantly outside the United States" within the meaning of Section 168(g)(1)(A) of the Code (or Section 168(f)(2) of the 1954 Code); (e) Immediately prior to the Delivery Date, Reading and Bates, Inc. was entitled to accelerated cost recovery deductions with respect to the Vessel, computed on the basis that (i) the Vessel is A5-year property" (within the meaning of Section 168(c)(2)(B) of the 1954 Code) and (ii) recovery percentages applicable to the Vessel are those set forth for 5-year property pursuant to Section 168(b)(1) of the 1954 Code; (f) Neither the Charterer nor any of its Affiliates bore any of the cost of the First Upgrade Nonseverables. Neither the Charterer nor any of its Affiliates will bear any of the cost of the Second Upgrade Program or the Third Upgrade Program; (g) The total cost of the First Upgrade Program was reasonable and based on arm's-length negotiations; (h) All of the First Upgrade Severables will be readily removable from the Vessel without causing material damage to the Vessel; (i) The allocation of the total cost of the First Upgrade Program among the First Upgrade Nonseverables, the First Upgrade Severables, and the First Upgrade Maintenance as set forth on Schedule B-1 is reasonable; (j) The First Upgrade Maintenance consisted solely of ordinary and routine maintenance and repairs that did not materially add to the Vessel's value or appreciably prolong the Vessel's useful life; (k) The Charterer has not made and will not make, with respect to the period beginning with the Delivery Date and ending with the date (if any) on which the Charterer acquires title to the Vessel from the Owner, any claim predicated on tax or legal ownership of such Vessel; (l) Immediately after the First Upgrade Completion, the basis for Income Tax purposes of the Vessel in the hands of the Owner took into account (a) the purchase price of the Vessel, including all related costs, expenses, commissions, taxes, etc. incurred by the Owner in connection with the acquisition of the Vessel, and (b) all costs incurred by the Owner pursuant to the First Upgrade Program; (m) The Vessel does not require any improvements, modifications, upgrades or additions in order to be rendered complete or suitable for its intended use, and the Vessel is ready and available for the Charterer's intended use; and (n) No member of the "Lessee Group" (as such term is defined in Revenue Procedure 75-21, 1975-1 C.B. 715, as modified by Revenue Procedure 79-48, 1979-2 C.B. 529) of which the Charterer is a member has, nor will it acquire at any time during the Charter Period, any investment in the Vessel within the meaning of Section 4(4) of said Revenue Procedures that is not permitted thereunder. 18.3 Tax Indemnity The Charterer shall indemnify and hold the Owner, each of the Investors and any Affiliate thereof harmless from: (a) Any Taxes (other than Income Taxes) imposed on or incurred by the Owner, such Investor or any Affiliate, employee, agent or representative thereof with respect to this Charter or any of the Charter Documents, the Vessel, any direct or indirect interest therein or any amounts paid or payable in connection therewith; (b) Any Income Taxes (other than U.S. federal Income Taxes) imposed on or incurred by the Owner, such Investor or any Affiliate thereof (i) caused by or arising from the location or operation of the Vessel in any particular waters or (ii) imposed by any jurisdiction, other than the jurisdiction of incorporation of such Investor or the jurisdiction of a place of business of such Investor (unless such place of business is determined on the basis of the location of the Vessel or the operation of the Vessel or this Charter or any of the Charter Documents), in respect of the Vessel or by reason of the transactions contemplated by the Charter or any of the Charter Documents; (c) Any Income Taxes imposed on or incurred by the Owner, such Investor or any Affiliate thereof caused by or arising from the Vessel's failing to qualify for accelerated cost recovery deductions, computed on the basis that (i) the Vessel is A5-year property" (within the meaning of Section 168(c)(2)(B) of the 1954 Code) and (ii) recovery percentages applicable to the Vessel are those set forth for 5-year property pursuant to Section 168(b)(1) of the 1954 Code, by reason of any act of commission or omission, misrepresentation or breach of any agreement, covenant or warranty contained in the Charter or any of the Charter Documents on the part of the Charterer, any subcharterer, assignee or user of the Vessel or any Affiliate thereof; (d) Any Income Taxes imposed on or incurred by the Owner, such Investor or any Affiliate thereof caused by or arising from the charter, subcharter or use of the Vessel to or by a "tax-exempt entity" (within the meaning of Section 168(h)(1)(A) of the Code or Section 168(j)(3)(A) of the 1954 Code); (e) Any Income Taxes imposed on or incurred by the Owner, such Investor or any Affiliate thereof caused by or arising from the Vessel's becoming limited use property; (f) Any Income Taxes imposed on or incurred by the Owner, such Investor or any Affiliate thereof caused by or arising from any item of loss or deduction attributable to the Vessel, this Charter or any of the Charter Documents or the transactions contemplated by the Charter or any of the Charter Documents not being treated as derived from, or allocable to, sources within the United States; (g) Any Income Taxes imposed on or incurred by the Owner, such Investor or any Affiliate thereof caused by or arising from any replacement, improvement, modification, upgrade, addition or capital expenditure made or to be made to or in connection with the Vessel or pursuant to this Charter, any of the Charter Documents or the transactions contemplated by the Charter or any of the Charter Documents or otherwise; (h) Any Taxes payable as a result of any inaccuracy or breach of any representation, warranty or covenant of the Charterer under this Charter or any of the Charter Documents; (i) Any Income Taxes imposed on or incurred by the Owner, such Investor or any Affiliate thereof caused by or arising from the inclusion in income of any amount paid or payable by the Charterer under this Section 18.3; and (j) Any attorneys' fees or other costs incurred by the Owner, such Investor or any Affiliate thereof in connection with any payment from the Charterer under this Section 18.3. 18.4 Payments Any amount to which the Owner, any of the Investors or any Affiliate thereof is entitled under Section 18.3 shall be paid in a lump sum equal to the present value of the amounts of the existing and anticipated Taxes described in Section 18.3 payable by such indemnitee for all affected taxable periods. In the case of any such amount caused by a loss of Income Tax deductions, such amount shall be reduced (but not below zero) by an amount equal to the present value of the amounts of existing and anticipated reductions in Income Taxes payable by such indemnitee for all affected taxable periods that would not be realized but for the loss of such deductions. Any amount to which such an indemnitee is entitled under Section 18.3 shall be calculated on the basis of (i) a conclusive presumption that such indemnitee has and will have sufficient amounts of taxable income, foreign-source income, and foreign income tax liability so as to be able to fully utilize on a current basis any Income Tax benefits which could be derived from the Owner's ownership of the Vessel, (ii) a conclusive presumption that such indemnitee is and will be liable for Taxes at the highest marginal rates in effect for the relevant taxable period, (iii) the date or dates on which any payment of Taxes (including estimated Taxes) shall be due or would be due for the relevant taxable period if such indemnitee was actually liable for Taxes for such relevant period, and (iv) an after-tax discount rate of 4.42% per annum, discounted quarterly. Any such amount shall be paid by the Charterer to such indemnitee within thirty (30) days following the receipt by the Charterer of written notice from such indemnitee which requests such amount and provides details supporting the calculation of such amount. 18.5 Records The Charterer will maintain sufficient records with respect to the Vessel and this Charter, will preserve and retain any such records until the expiration of the statutory period of limitations (including extensions) of the taxable periods to which any such records relate and will provide copies of such records as the Owner or any of the Investors or any Affiliate thereof may reasonably request to enable the Owner, such Investor or any Affiliate thereof to fulfill its Tax filing obligations. ARTICLE 19 GENERAL 19.1 Notices Notices and other communications required or permitted hereunder shall be in writing and shall be deemed sufficient for all purposes if sent by registered or certified letter, nationally recognized overnight courier service specifying one-day delivery, facsimile or telex to the recipient's address stipulated below and shall be effective from the date of receipt thereof. Other addresses may be substituted for those below upon giving notice thereof in the manner provided above: if to the Owner: Deep Sea Investors, L.L.C. "GATX Marine Investors Corporation Four Embarcadero Center, Suite 2200 San Francisco, California 94111 Attn: Portfolio Management Fax: (415) 955-3415 Heller Financial, Inc. 150 East 42nd Street New York, New York 10017 Attn: Legal Department Fax: (212) 880-7158 Heller Financial Leasing, Inc. 500 W. Monroe Street Chicago, Illinois 60661 Attn: CEFD - Central Region Credit Manager Fax: (312) 441-7519 Boeing Capital Corporation 4060 Lakewood Boulevard, 6th Floor Long Beach, California 90808 Attn: Senior Documentation Officer Fax: (310) 627-3002 if to the Charterer: R&B Falcon Drilling Co. 901 Threadneedle, Suite 200 Houston, Texas 77079 Attn: Vice President and Treasurer Fax: (281) 496-0285 19.2 Expenses Whether or not any of the transactions contemplated hereby are consummated, each of the Charterer and the Owner shall pay its own expenses, including legal and appraisal fees and expenses, in connection with the negotiation, execution and delivery of this Charter. In addition, the Charterer shall pay upon demand all other costs and expenses incurred by the Owner and the Investors in connection with the enforcement of any of their rights or remedies, any future amendments, supplements, waivers or consents with respect to any of the Charter Documents, including, without limitation: (a) the reasonable expenses and disbursements of counsel for the Owner and the reasonable fees, expenses and disbursements of Baker & Botts, L.L.P., special counsel for the Investors, or any other counsel for services rendered after the Delivery Date in connection with any Charter Document or any transaction contemplated thereby, or any modification, amendment or waiver of any thereof; (b) all other reasonable expenses in connection with such transactions including, without limitation, the expenses of appraisers, other counsel or of experts whose opinions are required by the terms hereof (to the extent not specifically required to be paid by third parties by the terms hereof), printing expenses and all fees, taxes and other charges payable in connection with the recording or filing of instruments and financing statements desirable under the Charter Documents; (c) reimbursement to the Owner and Investors for their reasonable out-of-pocket expenses in connection with entering into such transactions, and any and all fees, expenses and disbursements of the character referred to in clauses (a) and (b) above which shall have been paid by the Owner or any of the Investors; and (d) reimbursement to the Owner and Investors in an amount sufficient to hold each of them harmless from and against any and all liability and loss with respect to or resulting from any and all claims for or on account of brokers' or finders' fees or commissions or financial advisory fees by any brokers, finders or financial advisors engaged by the Charterer or the Guarantor with respect to such transactions. 19.3 The Owner's Right to Perform for the Charterer If the Charterer fails to perform or comply with any of its agreements contained herein other than its obligations to pay Hire, the Owner, may upon notice to the Charterer itself perform or comply with such agreement, and the amount of any expenses of the Owner incurred in connection with such performance or compliance, together with interest on such amount at the Overdue Rate, shall be deemed Supplemental Hire, payable by the Charterer upon demand. Without in any way limiting the obligations of the Charterer hereunder, the Charterer hereby irrevocably appoints the Owner as its agent and attorney, with full power and authority at any time at which the Charterer is obligated to deliver possession of the Vessel to the Owner, to demand and take possession of the Vessel in the name and on behalf of the Charterer from whomsoever shall be at the time in possession thereof in the manner described in, and with all rights and remedies conferred under, Section 3.4(a) hereof. 19.4 Waivers None of the requirements of this Charter shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Charter, or other duly authorized agent or representative of the Person designated in writing by a senior officer of such Person and then any such waiver shall apply only in the specific instance and for the specific purpose for which such is given. 19.5 Entire Agreement This Charter and the Charter Documents contain the entire agreement between the parties with respect to the subject matter hereof and supersede and replace any oral or written communications heretofore made between the parties relating to the subject matter hereof. 19.6 Successors and Assigns This Charter shall inure to the benefit of and be binding upon the successors and assigns of the parties, provided that, except as expressly set forth herein, the Charterer may not assign its rights hereunder without the express written consent of the Owner and that the assignor shall remain liable for the performance of its assignee unless specifically released by the other party hereto. 19.7 Law The validity, construction, interpretation and effect of this Charter shall be governed by the general maritime laws of the United States, without regard to any choice of law rules that would otherwise require the application of the laws of any other jurisdiction, except that where the general maritime laws of the United States look to or adopt state law, this Charter shall be governed by the laws of the State of New York, without regard to any choice of law rules that would otherwise require the application of the laws of any other jurisdiction. 19.8 Parties' Intention It is the intent of all parties hereto and affected hereby in the execution and performance of this Charter, the Charter Documents and all related documentation to remain in strict compliance with all applicable laws from time to time in effect. Further, it is the intent of all parties hereto and affected hereby to evidence, by this Charter, a lease between the Owner, as lessor, and the Charterer, as lessee, rather than any other form of financial arrangement including specifically, but without limitation, a loan or other debt financing. Any and all payments, amounts, liabilities, commitment fees and other amounts expended and obligations of the Charterer incurred or arising in connection with this Charter, the Charter Documents and all related documentation are intended to evidence, lease payment obligations of the Charterer or reimbursements to the Owner and the Investors or their agents, representatives or designees, for services actually performed, goods actually furnished or provided, or other expenses or liabilities for which reimbursement is provided in connection with this Charter and the Charter Documents. To the extent that any such charge herein provided for or payment herein made is held or deemed to be held by a court of competent jurisdiction to be "interest", the parties hereto and affected hereby stipulate and agree that none of the terms and provisions contained in or pertaining to this Charter, the Charter Documents or any related document shall ever be construed to create a contract to pay for the use, forbearance or detention of money with interest at a rate or in an amount in excess of the maximum lawful non-usurious rate or amount of interest permitted to be charged, paid or received under said laws. For purposes of this Charter, the Charter Documents and all related documentation, "interest" shall include the aggregate of all charges which constitute interest under applicable laws, which term "applicable laws" shall include, but not be limited to, the laws of the State of New York and, to the extent they may apply, the laws of the United States of America, that are contracted for, chargeable or receivable under this Charter and all related documentation. The Charterer shall never be required to pay unearned interest on any of its obligations hereunder or in connection herewith and shall never be required to pay interest on any of its obligations hereunder or in connection herewith at a rate or in an amount in excess of the maximum lawful non-usurious rate or amount of interest that may be lawfully charged under applicable laws, and the provisions of this paragraph shall control over all other provisions of this Charter, the Charter Documents and all related documentation which may be in apparent conflict herewith. If the effective rate or amount of interest which would otherwise be payable under or in connection with this Charter or any related documentation would exceed the maximum lawful non-usurious rate or amount of interest the Owner or any Investor or any assignee thereof is allowed by applicable laws to charge, collect and receive, or in the event any such person or entity shall charge, collect or receive monies that are deemed to constitute interest which would, in the absence of this Section 19.8, be in excess of an amount permitted to be charged, collected and received under the applicable laws then in effect, then any such excess amount shall be reduced to the amount allowed under said laws as now or hereafter construed by courts having jurisdiction, and all such monies so collected, charged or received that are deemed to constitute interest in excess of the maximum lawful non-usurious rate or amount of interest permitted by applicable laws shall be immediately, at the option of the recipient thereof, be applied to principal, if any outstanding, or returned to or credited to the account of the Charterer upon such determination. 19.9 Counterparts; Uniform Commercial Code This Charter may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. Each counterpart of this Charter which has been executed by the parties hereto shall be prominently marked to identify the party to whom originally delivered. If this Charter constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction), a security interest in this Charter may be created only by the transfer or possession of the counterpart marked "Owner's Copy" and containing a receipt therefor executed by the Owner on or immediately following the signature page thereof and, in addition, the Owner may file Uniform Commercial Code Financing Statements in any relevant jurisdiction. 19.10 Warranty of Authority By executing this Charter on behalf of any entity, each signatory to this Charter represents and warrants that he or she has full and valid authority to enter into this Charter on behalf of the entity for which he or she signs. 19.11 Usage; Headings Unless the context otherwise requires, use of the singular number in this Charter shall include the plural number and vice versa, and use of one gender herein shall include each other gender and vice versa. Use of the words "hereof", "herein", "hereto", "hereby", "hereunder", or words of similar import in this Charter refer to this Charter as a whole and not to any specific paragraph, subparagraph, section, sentence, clause or part of this Charter. Section headings and numbers herein are for reference purposes only and do not constitute a part of this Charter (unless the context indicates otherwise). 19.12 WAIVER OF JURY TRIAL EACH OF THE CHARTERER AND THE OWNER WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS CHARTER, THE CHARTER DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. 19.13 VENUE; SERVICE OF PROCESS THE CHARTERER, FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, HEREBY KNOWINGLY AND INTENTIONALLY AND IRREVOCABLY AND UNCONDITIONALLY a) SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEW YORK AND THE FEDERAL COURTS SITTING IN THE STATE OF NEW YORK AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS CHARTER OR THE OTHER CHARTER DOCUMENTS BY SERVICE OF PROCESS AS PROVIDED BY NEW YORK LAW, b) WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THIS CHARTER OR THE OTHER CHARTER DOCUMENTS BROUGHT IN ANY NEW YORK STATE COURT OR FEDERAL COURT SITTING IN THE STATE OF NEW YORK, c) WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, d) CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH LITIGATION BY THE MAILING OF COPIES THEREOF BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, TO THE CHARTERER AT THE ADDRESS SET FORTH HEREIN AND e) AGREES THAT ANY LEGAL PROCEEDING AGAINST THE CHARTERER ARISING OUT OF, RELATED TO OR IN CONNECTION WITH THIS CHARTER OR THE OTHER CHARTER DOCUMENTS OR THE OBLIGATIONS HEREUNDER OR THEREUNDER MAY BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE OWNER TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE CHARTERER OR ANY OF THE OTHER MEMBER OF THE CHARTERER GROUP IN ANY OTHER JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY APPLICABLE LAW. 19.14 Agent for Service of Process The Charterer hereby irrevocably designates The Prentice-Hall Corporation, with offices at 500 Central Avenue, Albany, New York 12206-2290, as agent to receive for and on behalf of the Charterer service of process in New York. In the event that The Prentice-Hall Corporation System, Inc. resigns or ceases to serve as the Charterer's agent for service of process hereunder, the Charterer agrees forthwith (a) to designate another agent for service of process in the State of New York and (b) to give prompt written notice to the Owner of the name and address of such agent. The Owner agrees to use reasonable efforts to cause a copy of such process served on such agent to be promptly forwarded to the Charterer at its address set forth herein, and the Charterer agrees that the failure of the Charterer to receive such copy shall not impair or affect in any way the validity of such service of process or of any judgment based thereon. The Charterer agrees that the failure of its agent for service of process to give any notice of any such service of process to the Charterer shall not impair or affect the validity of such service or of any judgment based thereon. If, despite the foregoing, there is for any reason no agent for service of process of the Charterer available to be served, then the Charterer further irrevocably consents to the service of process by the mailing thereof by the Owner by registered or certified mail, postage prepaid, to the Charterer at its address herein. Nothing in this Section 19.14 shall affect the right of the Owner to serve legal process in any other manner permitted by law or affect the right of the Owner to bring any action or proceeding against the Charterer or its property in the courts of any other jurisdiction. IN WITNESS HEREOF, the parties hereto have executed this Charter on July 1, 1998. R&B FALCON DRILLING CO. (formerly known as READING & DEEP SEA INVESTORS, L.L.C. BATES DRILLING CO.) By: GATX MARINE INVESTORS CORPORATION, Member By: By: Name: Name: Title: Title: By: HELLER FINANCIAL LEASING, INC. Member By: Name: Title: By: MDFC EQUIPMENT LEASING CORPORATION, Member By: Name: Title: SCHEDULE A DESCRIPTION OF VESSEL M.G. HULME, JR., INCLUDING SPECIFICATIONS SCHEDULE B-1 FIRST UPGRADE PROGRAM SCHEDULE B-2 SECOND UPGRADE PROGRAM SCHEDULE B-3 THIRD UPGRADE PROGRAM SCHEDULE C CHARTERER'S INSURANCE As specified in Article 15, the Charterer shall maintain the following insurance coverage: 1. Workmen's Compensation and Employers' Liability Insurance All of the Charterer's employees shall be covered for statutory benefits as set forth and required by applicable law in the Area of Operation or such other jurisdiction under which the Charterer may become obligated to pay benefits. Employers' Liability insurance, including appropriate maritime coverage covering all employees, shall be provided with minimum primary policy limits as required by applicable statute, or U.S. $1 million per occurrence, whichever is greater. 2. Comprehensive General Liability Insurance coverage shall be provided for liability arising from all operations of the Charterer. The policy shall include coverage for premises and operations, independent contractors, completed operations, and contractual liability (or their equivalents). Insurance coverage shall also be provided for all owned, hired, and nonowned vehicles. The minimum primary policy limits shall be U.S. $1 million single limit per occurrence under the General Liability policies. Automobile Liability insurance shall have minimum policy limits of U.S. $1,000,000 single limit per occurrence, or such greater amount as required by law. 3. Protection and Indemnity (Marine Liability) Insurance Full form marine protection and indemnity insurance, including, but not limited to, sudden and accidental pollution liability and contractual liability coverage or equivalent insurance (including equivalent insurance against liability for fines and penalties arising out of the operation of the Vessel) with such club or under forms of policies approved by the Owner. Such protection and indemnity insurance shall be maintained in the broadest forms generally available in the United States market, shall be in an amount not less than that carried by experienced and responsible companies engaged in the drilling of petroleum, shall include a cross-liability endorsement and shall be placed through independent brokers of recognized standing and with first-class underwriters reasonably acceptable to the Owner. No hull and machinery or protection and indemnity insurance shall provide for a deductible amount in excess of $500,000 with respect to the Vessel without the prior written consent of the Owner. 4. Excess Liability The Charterer shall carry Excess Liability Insurance in amounts not less than $200 million each occurrence in addition to and in excess of all primary Liability Coverages carried by Charterer, including but not limited to insurance required under Paragraphs 1, 2 and 3 (oil pollution sublimit $80 million per Paragraph 6). 5. Marine Physical Damage, Including Hull and Machinery All risk Marine and hull and machinery shall be provided with a limit equal to that normally carried by experienced and responsible companies engaged in offshore drilling, but shall not be less than the greater of (a) 110% of the Stipulated Loss Value of the Vessel; or (b) the Fair Market Sale Value of the Vessel. Coverage shall include collision liability and navigation limits adequate for the Vessel's trade. 6. Oil Pollution Insurance Oil pollution insurance coverage issued by the Vessel's P & I Club or equivalent coverage in the amount of not less than US $80,000,000 per occurrence, unless additional insurance or proof of financial responsibility of a greater amount shall be required by a governmental authority, in which case such greater amount shall be obtained and kept in full force and effect by the Charterer. The Charterer shall maintain insurance, if available, covering similar oil removal risks or liabilities and civil or criminal penalties incident thereto and not attributable to the action or inaction of the Owner under any law, regulation or judicial decision of any of the United States of America or foreign jurisdiction or jurisdictions or political subdivision thereof applicable to the Vessel or its operations to the extent such insurance is requested in writing by the Owner and recommended by an independent marine insurance broker as insurance which it would be imprudent not to carry for the protection of the Charterer and the Owner in view of the nature of the Vessel and the Vessel's operations. 7. War, Political Risk, Confiscation and Expropriation Insurance If and to the extent that the Vessel is operated outside of the territorial waters and/or the Outer Continental Shelf of the United States (and in addition to any coverage required by the Owner for such operations under this Charter), War, Political Risk, Confiscation and Expropriation Insurance shall be provided for the Vessel with a limit equal to the value insured under Paragraph 5 above. 8. Other Losses Losses not covered by the above stated policies because of deductibles and policy limits stated above shall be borne according to the liability and indemnity provisions of this Charter. 9. Owner Group as Additional Insured All coverages and other insurance policies carried by the Charterer or that the Charterer is required at any time to maintain pursuant to this Charter shall name Owner Group as an additional insured and loss payee for all risks and losses for which the Charterer is liable under this Charter. 10. Additional Provisions The Charterer will deliver to the Owner and each of the Investors copies of all cover notes and certificates of insurance and, if requested by the Owner copies of all binders and policies with respect to insurance carried on the Vessel. On or before the Delivery Date of the Vessel, and on each anniversary of the Delivery Date, and each time there is a reduction or material change in the insurance coverage carried on the Vessel, the Charterer will furnish to the Owner and each of the Investors a detailed report signed by independent marine insurance brokers (who may be the insurance brokers regularly employed by the Charterer) appointed by the Charterer and reasonably acceptable to the Owner, describing the insurance policies then carried and maintained on the Vessel (including the names of the underwriters, the types of risk covered by such polices, the amount insured thereunder and the expiration date thereof) and stating that in the opinion of said insurance brokers such insurance is adequate and reasonable for protection of the Owner, is in compliance with the terms of Article 15 and is comparable with that carried by other responsible operators of similar drilling vessels. All policies shall include the following: (i) breach of warranty protection to the Owner Group, (ii) waiver of subrogation clause and (iii) at least 30 days' prior written notice of cancellation or material modification. The insurance shall be primary, without right of contribution from any other insurance which may be carried by the Owner Group, and contain a waiver of set off of premiums against claims proceeds and provide for no recourse for premium payments by the Owner Group. SCHEDULE D STIPULATED LOSS VALUE* SCHEDULE E PENDING LITIGATION Proceedings disclosed in R & B Falcon Corporation's Report on Form 10-Q dated March 31, 1998 filed with the Securities & Exchange Commission. SCHEDULE F Computation of Basic Hire Adjustment for Third Upgrade Effective as of each Upgrade Disbursement Date (as defined in the Second Upgrade Agreement), the Basic Hire shall be adjusted for the amount to be funded by the Owner on such date by reference to the yield of the 6.375% coupon August 2002 U.S. Treasury note as published in The Wall Street Journal on the second Business Day immediately preceding such date and otherwise in accordance with the methodology used in the example shown below. Example: Upgrade Disbursement Date: July 29, 1997 Assumed Published U.S. Treasury note yield: 6.11% Value of Severables in respect of which reimbursement is sought: $5,560,683.00 Value of Nonseverables in respect of which reimbursement is sought: $4,720,896.00 Total amount in respect of which reimbursement is sought: $10,281,579.00 Revised Primary Term Basic Hire (expressed as a % of Owner's Cost): 1.1896% [needs to be revised] _______________________________ * Immediately prior to an Upgrade Disbursement Date (as defined in the Third Upgrade Agreement), the Owner will deliver to the Charterer a revised schedule of Stipulated Loss Value. The revised schedule shall reflect the amount which the Charterer has requested be reimbursed by the Owner on such date and shall otherwise be produced using the same methodology as was used in preparation of the figures which appear in this Schedule D. Upon the relevant disbursement being made, such revised schedule shall for all purposes be and become Schedule D of this Charter. EX-10.183 19 EXHIBIT 10.183 AMENDMENT NO.1 TO LIMITED LIABILITY COMPANY AGREEMENT Amendment No. 1 dated as of February 7, 1997 ("Amendment No. 1") to the Limited Liability Company Agreement made and entered into on October 28, 1996 (the "Agreement") by and between Conoco Development Company (sometimes referred to as "Conoco") and RB Deepwater Exploration Inc. (sometimes referred to as "Reading & Bates"). For and in consideration of the mutual covenants, rights, and obligations contained herein, the benefits to be derived therefrom, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members hereby agree to amend the Agreement, effective as of the first date shown above, as follows: A. Definitions. Unless otherwise defined in this Amendment, capitalized terms shall have the respective meanings ascribed to them in the Agreement. B. Amendments to the Agreement. The Agreement is amended as follows: 1. Section 3.2 of the Agreement is amended in its entirety to read: "3.2 Purposes. The purposes of the Company are (a) to cause the Drillship to be built and equipped, as described in Exhibit "A", to take delivery of the Drillship from the Builder, to operate the Drillship and perform the Drilling Contract and other drilling and related contracts obtained by the Company for the Drillship, and to carry out any and all modifications to the Drillship deemed necessary or appropriate by the Members Committee (including modifications to the Drillship which might change the overall use of same from a mobile offshore drilling unit to a floating production, storage and offloading vessel), (b) to obtain the necessary permanent and construction financing [it being understood and agreed that with respect to the construction financing Conoco or an Affiliate of Conoco shall provide the necessary cost overrun guaranties in a form acceptable to Conoco or its Affiliate and the Company (such construction financing meeting such other conditions as Conoco or its Affiliate and the Company may require) to support such financing for the Company from third parties (without any obligation of Reading & Bates to provide any such guaranties) to enable the Company to acquire the Drillship (including entering into the Purchase Note)], and to enter into from time to time such other financing arrangements as may be necessary, appropriate, or advisable to enable the Company to accomplish its purposes and to mortgage, pledge, assign, grant a security interest in, or otherwise encumber the Drillship, its earnings and insurances, and any or all of the other Company assets to secure the Purchase Note and such other financing arrangements, (c) to contract for a second shipshape self-propelled offshore drilling vessel, substantially the same as the Drillship, (the "Second Drillship") to be built by the Builder, and if the necessary approvals are obtained, to notify the Builder on or before April 30, 1997, all as specified in the construction contract between the Builder and the Company for the Second Drillship, and proceed to complete construction and take delivery of the Second Drillship, to obtain the necessary construction and permanent financing (on terms and conditions satisfactory to the Members) to enable the Company to take delivery of the Second Drillship, to operate the Second Drillship and perform drilling and related contracts obtained by the Company for the Second Drillship, and to carry out any and all modifications to the Second Drillship to the Second Drillship deemed necessary by the Members Committee (including modifications to the Drillship which might change the overall use of same from a mobile offshore drilling unit to a floating production, storage and offloading vessel), (d) to sell, assign, lease, exchange, or otherwise Dispose of, or refinance or additionally finance, all or substantially all of the Company's interest in one or more or all of its assets, (e) to maximize the profits of the Company, and (f) to engage in all activities and to enter into, exercise the rights and enjoy the benefits under, and discharge the obligations of the Company pursuant to, all contracts, agreements, and documents that may be necessary, appropriate, or advisable to enable the Company to accomplish the purposes set forth in clauses (a), (b), (c), (d) and (e) of this sentence, and (g) any other lawful business purpose or activity that may be legally exercised by a limited liability company under the Act, as the Members may agree." 2. Section 5.1 of the Agreement is amended to add at the end thereof the following additional paragraph: "With respect to the Second Drillship each Member agrees to loan to the Company, subject to the prior approval of Conoco Inc., the sum of $7,225,090 in order to enable the Company: (x) to execute the shipbuilding contract with the Builder for the Second Drillship, such shipbuilding contract to be substantially in the form of the Shipbuilding Contract with such changes therefrom as shall be approved by the Members Committee, and (y) to pay the first installment to the Builder due thereunder; such loan to be secured by a promissory note executed by the Company substantially in the form attached as Exhibit 1A to Amendment No. 1." 3. Section 5.2 is amended by adding to the end thereof the following additional paragraph: "Each of the Members agrees, to the extent required by the construction lender(s) of the Company with respect to the Second Drillship, it will provide or cause to be provided by its Affiliate a cost overrun guaranty (or other similar type guaranty) in favor of such interim construction lender(s), in a form acceptable to the Members, pursuant to which the respective guarantor for each Member would guarantee that Member's respective Sharing Ratio percentage, so the Company will be able to fund that amount of any cost overruns incurred by Company under the shipbuilding contract to be entered into between the Company and Builder with respect to the Second Drillship, in order for the Company to take delivery of the Second Drillship under such shipbuilding contract. Accordingly, the Members also agree, within three business days after demand by any such interim construction lenders, to contribute to the Company in cash, their respective Member's Sharing Ratio of any and all such additional monies necessary in order to enable Company to take delivery of the Second Drillship under such shipbuilding contract (including owner furnished equipment) in compliance with the terms of any such cost overrun guaranties. 4. Section 5.3 is amended by deleting the phrase "the Drillship" in the third and fourth lines and substituting therefor the phrase "each of the Drillship and the Second Drillship". C. Full Force and Effect. Except as otherwise amended above, the Agreement shall remain in full force and effect. D. Further Assurances. Reading & Bates and Conoco agree to duly execute and deliver all other documents and take such other action as may be reasonably necessary and proper to effect the intention of the parties in connection with this Amendment No. 1 and the transactions contemplated thereby. EXECUTED on this 7th day of February, 1997. MEMBERS CONOCO DEVELOPMENT COMPANY By:_________________________ Its:________________________ RB DEEPWATER EXPLORATION INC. By:_________________________ Its:________________________ STATE OF TEXAS ) ) SS COUNTY OF HARRIS ) BEFORE me, , a Notary Public, on this day personally appeared , , of Conoco Development Company, a corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed. Given under my hand and seal of office this 7th day of February, 1997 in Houston, Texas. My commission expires: _______________________ Notary Public STATE OF TEXAS ) ) SS COUNTY OF HARRIS ) BEFORE me, , a Notary Public, on this day personally appeared , , of RB Deepwater Exploration Inc., a corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed. Given under my hand and seal of office this 7th day of February, 1997 in Houston, Texas. My commission expires: ______________________ Notary Public EX-10.184 20 EXHIBIT 10.184 AMENDMENT NO. 2 TO LIMITED LIABILITY COMPANY AGREEMENT Amendment No. 2 dated as of April 30, 1997 ("Amendment No. 2") to the Limited Liability Company Agreement made and entered into on October 28, 1996 (the "Agreement"), as amended by Amendment No. 1 dated February 7, 1997 ("Amendment No.l"), by and between Conoco Development Company (sometimes referred to as "Conoco") and RB Deepwater Exploration Inc. (sometimes referred to as "Reading & Bates"). For and in consideration of the mutual covenants, rights, and obligations contained herein, the benefits to be derived therefrom, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members hereby agree to amend the Agreement further, effective as of the first date shown above, as follows: A. Definitions. Unless otherwise defined in this Amendment, capitalized terms shall have the respective meanings ascribed to them in the Agreement. B. Amendment of Agreement. Effective as of April 30, 1997, the Agreement is amended so as to delete the modifications and amendments made by Amendment No. 1 and the Agreement is restored to the terms and conditions in effect prior to such Amendment No. 1, as if such Amendment No. 1 had never been made. C. Full Force and Effect. Except as otherwise amended above, the Agreement remains in full force and effect. D. Further Assurances. Reading & Bates and Conoco agree to duly execute and deliver all other documents and take such other action as may be reasonably necessary and proper to effect the intention of the parties set out in this Amendment No. 2. EXECUTED on this 30th day of April, 1997. MEMBERS CONOCO DEVELOPMENT COMPANY By:_________________________ Its:________________________ RB DEEPWATER EXPLORATION INC. By:_________________________ Its:________________________ STATE OF TEXAS ) ) SS COUNTY OF HARRIS ) BEFORE me, , a Notary Public, on this day personally appeared , , of Conoco Development Company, a corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed. Given under my hand and seal of office this 25th day of April, 1997 in Houston, Texas. My commission expires: ______________________ Notary Public STATE OF TEXAS ) ) SS COUNTY OF HARRIS ) BEFORE me, , a Notary Public, on this day personally appeared , , of RB Deepwater Exploration Inc., a corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed. Given under my hand and seal of office this 25th day of April, 1997 in Houston, Texas. My commission expires: _____________________ Notary Public EX-10.185 21 EXHIBIT 10.185 AMENDMENT NO. 3 TO LIMITED LIABILITY COMPANY AGREEMENT Amendment No. 3 dated as of April 24, 1998 ("Amendment No. 3") to the Limited Liability Company Agreement made and entered into on October 28, 1996 (the "Agreement") by and between Conoco Development Company (sometimes referred to as "Conoco") and RB Deepwater Exploration Inc. (sometimes referred to as "Reading & Bates"). For and in consideration of the mutual covenants, rights, and obligations contained herein, the benefits to be derived therefrom, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members hereby agree to amend the Agreement, effective as of the first date shown above, as follows: A. Definitions. Unless otherwise defined in this Amendment, capitalized terms shall have the respective meanings ascribed to them in the Agreement. B. Amendments to the Agreement. The Agreement is amended as follows: 1. All references in the Agreement to "Reading & Bates Corporation" shall be deleted, and "R&B Falcon Corporation" substituted therefor. 2. The form of Indemnification Agreement, with respect to Reading & Bates, shall be deleted, and in lieu thereof, the attached form of Indemnification Agreement shall be substituted therefor. C. Full Force and Effect. Except as otherwise amended above, the Agreement shall remain in full force and effect. D. Further Assurances. Reading & Bates and Conoco agree to duly execute and deliver all other documents and take such other action as may be reasonably necessary and proper to effect the intention of the parties in connection with this Amendment No. 3 and the transactions contemplated thereby. EXECUTED as of the 24th day of April, 1998. MEMBERS CONOCO DEVELOPMENT COMPANY By:_________________________ Its:________________________ RB DEEPWATER EXPLORATION INC. By:_________________________ Tim W. Nagle Its: Vice President and Treasurer STATE OF TEXAS ) ) SS COUNTY OF HARRIS ) BEFORE me, , a Notary Public, on this day personally appeared , , of Conoco Development Company, a corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed. Given under my hand and seal of office this day of June, 1998 in Houston, Texas. My commission expires: _____________________ Notary Public STATE OF TEXAS ) ) SS COUNTY OF HARRIS ) BEFORE me, Harriet L. Ingram, a Notary Public, on this day personally appeared Tim W. Nagle, Vice President and Treasurer, of RB Deepwater Exploration Inc., a corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed. Given under my hand and seal of office this 24th day of June, 1998 in Houston, Texas. My commission expires: _____________________ Notary Public EX-10.186 22 EXHIBIT 10.186 AMENDMENT NO. 4 TO LIMITED LIABILITY COMPANY AGREEMENT Amendment No. 4 dated as of August 7, 1998 ("Amendment No. 4") to the Limited Liability Company Agreement made and entered into on October 28, 1996 (the "Agreement") by and between Conoco Development Company (sometimes referred to as "Conoco") and RBF Deepwater Exploration Inc. (formerly known as RB Deepwater Exploration Inc. and sometimes referred to as "Reading & Bates"). For and in consideration of the mutual covenants, rights, and obligations contained herein, the benefits to be derived therefrom, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members hereby agree to amend the Agreement, effective as of the first date shown above, as follows: A. Definitions. Unless otherwise defined in this Amendment, capitalized terms shall have the respective meanings ascribed to them in the Agreement. B. Amendments. The Agreement is amended as follows: 1. All references in the Agreement to "RB Deepwater Exploration Inc." are amended to read "RBF Deepwater Exploration Inc." 2. Section 5.1 is amended and restated to read as follows: "5.1 Initial Contributions. Each Member agrees that it will make an equal initial equity contribution to the Company of $15,750,000 ($31,500,000 in the aggregate by Conoco and Reading & Bates). The equal initial equity contributions represent the Sharing Ratios of Conoco and Reading & Bates, and payment shall be made to the Company by such Members on the earlier of (i) on [September 30, 2008], (ii) with the prior written approval of the Member's Committee, on demand, in whole or in part, or (iii) as provided in the promissory notes referred to in the next succeeding sentence. In order to secure its obligation to make such initial equity contribution, each Member agrees upon execution of Amendment No. 4 to this Agreement (and upon surrender to such Member that certain promissory note dated October 28, 1996 in the amount of $22,000,000) it will deliver to the Company a demand promissory note in favor of the Company for $15,750,000, each such demand promissory note to call for a partial payment in cash of $2,500,000 on September 30, 1998 and to allow the Company to make demands contemporaneously to each of the Members for equal payments of such notes thereafter until maturity. Such promissory notes shall be in the form attached as Exhibit "E" to Amendment No. 4 to this Agreement and shall be payable as provided therein. It is understood and agreed by the Members that any and all payments of such initial equity contribution, in whole or in part, by a Member shall contemporaneously reduce the principal of that Member's promissory note referred to in this Section 5.1 by the same amounts, and likewise any and all payments made by a Member with respect to any demands made with respect to such Member's promissory note shall contemporaneously be credited against such Member's obligation to make its initial equity contribution under this Section 5.1. 3. Section 8.1(b)(ii) is amended and restated to read as follows: "(ii)to approve (w) the commencement by the Company of any case, proceeding or other action under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, arrangement, winding-up, liquidation, dissolution, composition or other relief with respect to the Company or its debts; (x) the seeking of the appointment of a receiver, trustee, custodian or other similar official for the Company or for all or any substantial part of its property; (y) the filing by the Company of any voluntary petition in bankruptcy or any answer seeking reorganization in a proceeding under any bankruptcy, insolvency or similar laws or any answer admitting the material obigations of a petition filed against the Company in any such proceeding; or (z) if the Company becomes a debtor-in possession under applicable bankruptcy laws, to approve any rejection of the Drilling Contract by the Company." 4. Exhibit "E" of the Agreement is deleted, and Exhibit "E" attached hereto is substituted therefor. C. Full Force and Effect. Except as otherwise amended above, the Agreement shall remain in full force and effect. D. Further Assurances. Reading & Bates and Conoco agree to duly execute and deliver all other documents and take such other action as may be reasonably necessary and proper to effect the intention of the parties in connection with this Amendment No. 4 and the transactions contemplated thereby. EXECUTED as of the __th day of August, 1998. MEMBERS CONOCO DEVELOPMENT COMPANY By:__________________________ Its:_________________________ RBF DEEPWATER EXPLORATION INC. By:__________________________ Tim W. Nagle Its: Vice President and Treasurer STATE OF TEXAS ) ) SS COUNTY OF HARRIS ) BEFORE me, , a Notary Public, on this day personally appeared , , of Conoco Development Company, a corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed. Given under my hand and seal of office this day of August, 1998 in Houston, Texas. My commission expires: _________________________ Notary Public STATE OF TEXAS ) ) SS COUNTY OF HARRIS ) BEFORE me, Harriet L. Ingram, a Notary Public, on this day personally appeared Tim W. Nagle, Vice President and Treasurer, of RBF Deepwater Exploration Inc., a corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed. Given under my hand and seal of office this __th day of August, 1998 in Houston, Texas. My commission expires: _____________________ Notary Public EX-10.188 23 EXHIBIT 10.188 AMENDMENT NO. 1 TO LIMITED LIABILITY COMPANY AGREEMENT Amendment No. 1 dated as of April 24, 1998 ("Amendment No. 1") to the Limited Liability Company Agreement made and entered into on April 30, 1997 (the "Agreement") by and between Conoco Development II Inc. (sometimes referred to as "Conoco") and RB Deepwater II Exploration Inc. (sometimes referred to as "Reading & Bates"). For and in consideration of the mutual covenants, rights, and obligations contained herein, the benefits to be derived therefrom, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members hereby agree to amend the Agreement, effective as of the first date shown above, as follows: A. Definitions. Unless otherwise defined in this Amendment, capitalized terms shall have the respective meanings ascribed to them in the Agreement. B. Amendments to the Agreement. The Agreement is amended as follows: 1. All references in the Agreement to "Reading & Bates Corporation" shall be deleted, and "R&B Falcon Corporation" substituted therefor. 2. The form of Indemnification Agreement, with respect to Reading & Bates, shall be deleted, and in lieu thereof, the attached form of Indemnification Agreement shall be substituted therefor. C. Full Force and Effect. Except as otherwise amended above, the Agreement shall remain in full force and effect. D. Further Assurances. Reading & Bates and Conoco agree to duly execute and deliver all other documents and take such other action as may be reasonably necessary and proper to effect the intention of the parties in connection with this Amendment No. 1 and the transactions contemplated thereby. EXECUTED as of the 24th day of April, 1998. MEMBERS CONOCO DEVELOPMENT II INC. By:_________________________ Its:________________________ RB DEEPWATER EXPLORATION II INC. By:_________________________ Tim W. Nagle Vice President and Treasurer STATE OF TEXAS ) ) SS COUNTY OF HARRIS ) BEFORE me, , a Notary Public, on this day personally appeared , , of Conoco Development II Inc., a corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed. Given under my hand and seal of office this day of June, 1998 in Houston, Texas. My commission expires: ________________________ Notary Public STATE OF TEXAS ) ) SS COUNTY OF HARRIS ) BEFORE me, Harriet L. Ingram, a Notary Public, on this day personally appeared Tim W. Nagle, Vice President and Treasurer, of RB Deepwater Exploration II Inc., a corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed. Given under my hand and seal of office this 24th day of June, 1998 in Houston, Texas. My commission expires: _____________________ Notary Public EX-10.191 24 EXHIBIT 10.191 FIRST AMENDMENT TO LOAN AGREEMENT This FIRST AMENDMENT TO LOAN AGREEMENT (this "Amendment") dated as of April 21, 1997 is among TRB HOLDING CORPORATION, a Delaware corporation (the "Borrower"), READING & BATES (U.K.) LIMITED, a limited liability company organized under the laws of the United Kingdom ("Reading & Bates (U.K.)"; the Borrower and Reading & Bates (U.K.), individually, a "Company" and collectively, the "Companies"), and NISSHO IWAI EUROPE PLC, an English corporation (the "Lender"). PRELIMINARY STATEMENT. The Companies and the Lender are parties to a Loan Agreement dated as of December 14, 1996 (the "Loan Agreement"; capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Loan Agreement) and desire to amend the Loan Agreement as set forth in this Amendment. SECTION 1. Amendment of the Loan Agreement. (a) The following definitions contained in Section 1.01 of the Loan Agreement are hereby amended in their entirety to read as follows: "Assignment and Assumption Agreement" means collectively the various Novation Agreements dated on or about the Drawdown Date among the Borrower, the Partnership, TRB Subsidiary, Reading & Bates (U.K.) and/or RBDC. "Commitment Termination Date" means April 28, 1997, unless the Commitment is sooner terminated pursuant to Section 2.02 hereof. "Drawdown Date" means the date of the drawdown of the Commitment which shall occur no later than April 28, 1997. "Interest Period" means the period commencing on the date the Advance is (a) made or (b) continued, and ending on the fifteenth (15th) calendar day in the next month thereafter, provided that the first interest period shall end on May 15, 1997. If such fifteenth (15th) day is not a Business day, the Interest Period shall be extended to the next succeeding Business Day. "Maturity Date" means, subject to Section 8.01, January 15, 2002. "Operating Days" means, for any period, the actual number of operating days of the Vessel in such period during which the Vessel is earning a daily rate of renumeration in excess of zero under a Charter Agreement. "Vessel Sales Agreement" means the Agreement for the Sale and Purchase of OPV "Seillean" dated as of May 31, 1996 between Britoil (Beta) Limited and RB Drilling Co., as novated under the Novation Agreement dated August 30, 1996 among Britoil (Beta), RB Drilling Co. and RBDC, and as further amended or modified in accordance with this Agreement. (b) Section 3.03(a) of the Loan Agreement is hereby amended in its entirety to read as follows: (a) The Borrower shall repay the Loan on each Repayment Date in an amount equal to the greater of (i) Excess Cash Flow received during the month prior to the month of each Repayment Date (the "Monthly Period"); provided that the first Monthly Period shall be from the Closing Date until April 30, 1997, and (ii) the Minimum Payment for such Repayment Date. Each repayment shall be applied first to accrued and unpaid interest and then to principal. (c) Section 5.01(e) of the Loan Agreement is hereby amended in its entirety to read as follows: Insurance. The Borrower and Reading & Bates (U.K.) shall have delivered to the Lender a certificate of an insurer reasonably satisfactory to the Lender listing the coverages maintained by the Borrower, which coverages shall be acceptable to the Lender and stating that, except as otherwise provided in Schedule 6.11, the Lender has been named loss payee with first priority to receive payments in respect of any property insurance on the Vessel and, except as otherwise provided in Schedule 6.11, each of the NIC Parties as an additional insured thereunder. (d) Section 7.14 of the Loan Agreement is hereby amended in its entirety to read as follows: Further Assurances. At any time or from time to time upon the request of the Lender, each Company shall execute and deliver (or cause to be executed and delivered) such further documents and do such other acts and things as the Lender may reasonably request in order to effect fully the transactions contemplated by of the Transaction Documents. Without limiting the generality of the foregoing, the Companies shall execute and deliver any documents, including amendments to, or replacements of, the Assignment of Charter, and take such other action (including, without limitation, filing of the Ship Mortgage, the Assignment of Charter, and appropriately completed and duly executed Uniform Commercial Code financing statements and other documents in the State of Texas, the Republic of Panama, the United Kingdom and other jurisdictions and obtaining appropriate acknowledgments from any charterer under any Charter Agreement) as may be necessary or as the Lender shall have reasonably requested to perfect the Lender's first priority liens in the Vessel and any earnings and other amounts payable under any Charter Agreement or in connection therewith. The Companies agree to take any action requested by the Lender to exercise any of their respective rights or remedies, at law, by contract or otherwise, in the event that any default or event of default by Britoil or any other charterer shall occur under the Donan Charter Agreement, any Charter Agreement or document executed in connection therewith (collectively, the "Charter Documents"). The Companies shall provide to the Lender copies of all Charter Documents promptly after their receipt thereof. The Companies shall provide the Lender notice of any default or event of default that occurs under any Charter Document within three Business Days after any Company obtains knowledge thereof. The Companies shall consult with the Lender before taking any action to enforce any of its rights or remedies in respect of any such default or event of default and shall take or omit to take such actions only at the direction of the Lender. (e) A new Section 7.23 is hereby added to the Loan Agreement: Section 7.23 Charter Agreement Payments. Immediately upon its receipt of any payment under any Charter Agreement, each Company shall deposit or cause to be deposited such payment in the Lockbox in the same form received, with any necessary endorsement. Until such payment has been so deposited, such Company shall segregate such payment from its other funds and hold such payment in trust for the Lender. (f) Section 8.01(d) is hereby amended by deleting the reference to "7.22" in such section and substituting "7.23" in lieu thereof. (g) Schedule 6.11 to the Loan Agreement is hereby deleted and a new Schedule 6.11 is hereby added to the Loan Agreement in the form of Schedule 6.11 attached hereto. SECTION 2. Execution of Exhibits. Attached to the Loan Agreement are certain exhibits. The parties hereto have agreed to execute and deliver or accept certain agreements in the form of such exhibits. The parties have executed and delivered or accepted the execution and delivery of definitive documentation respecting Exhibits A through F, I, K, M and O in a form other than as attached to the Loan Agreement. The parties agree that any reference in the Loan Agreement or the other Loan Documents to any of such agreement or certificate shall mean and be a reference to the definitive document as executed or accepted. SECTION 3. Representations and Warranties True; No Default or Event of Default. By its execution and delivery hereof each of the Borrower and Reading & Bates (U.K.) represents and warrants that, as of the date hereof and after giving effect to this Amendment, (a) the representations and warranties contained the Loan Document to which such Person is a party are true and correct on and as of the date hereof as though made on and as of such date (except to the extent that such representations and warranties relate solely and expressly to an earlier date), and (b) no event has occurred and is continuing which constitutes a Default or an Event of Default. SECTION 4. Effectiveness, Reference to the Loan Agreement. This Amendment shall become effective when each of the Lender, the Borrower and Reading & Bates (U.K.) shall have executed and returned to the other party a counterpart of this Amendment. Upon and after the effectiveness of this Amendment, each reference in the Loan Agreement, the Note or the Security Instruments to "the Loan Agreement," "this Agreement," "hereunder," "herein" or words of like import shall mean and be a reference to the Loan Agreement as amended hereby. SECTION 5. Ratification of Loan Agreement. Except as expressly affected by the provisions set forth herein, the Loan Agreement, as amended hereby, shall remain in full force and effect and is hereby ratified and confirmed by the Borrower and Reading & Bates (U.K.). The execution, delivery, and effectiveness of this Amendment shall not, except as expressly provided herein, operate as an amendment or waiver of any right, power or remedy of the Lender under the Loan Agreement, the Note, the Security Instruments, or any other Loan Document, nor constitute a waiver of any other provision of the Loan Agreement. SECTION 6. Further Assurances. Each of the Borrower and Reading & Bates (U.K.) agrees to do, execute, acknowledge and deliver all and every such further acts and instruments as the Lender may request for the better assuring and confirming unto the Lender all and singular the rights granted or intended to be granted hereby or hereunder. SECTION 7. Costs and Expenses. Pursuant to Section 9.03 of the Loan Agreement, each of the Borrower and Reading & Bates (U.K.) agrees to pay on demand all costs and expenses of the Lender in connection with the preparation, reproduction, execution and delivery of this Amendment (including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Lender). SECTION 8. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND SHALL BE BINDING UPON THE COMPANIES AND THE LENDER AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS. SECTION 9. Final Agreement. This Amendment may be executed in one or more counterparts, each of which shall constitute an original but when taken together shall constitute but one agreement. The written Loan Agreement, as amended by this Amendment, and the other documents executed in connection therewith, represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. This Agreement and such writings supersede all prior proposals, negotiations, agreements, and understandings relating to such subject matter. IN WITNESS WHEREOF, the parties hereto, by their officers duly authorized have executed this Amendment as of the date first written above. TRB HOLDING CORPORATION, as Borrower By:________________________________ T.W. Nagle Executive Vice President Finance Administration READING & BATES (U.K.) LIMITED By:________________________________ T.W. Nagle Authorized Agent NISSHO IWAI EUROPE PLC, as Lender By:________________________________ Kazutoshi Kimura Attorney-in-Fact EX-10.193 25 EXHIBIT 10.193 FIRST AMENDMENT TO FIRST NAVAL MORTGAGE This First Amendment to First Naval Mortgage (this "Amendment"), made as of April 21, 1997, by TRB HOLDING CORPORATION, a Delaware corporation (the "Mortgagor"), whose address is 901 Threadneedle, Suite 200, Houston, Texas 77079, TRB SUBSIDIARY CORPORATION, a Delaware corporation ("TRBS"), which has the same address as the Mortgagor, to NISSHO IWAI EUROPE PLC, an English corporation, whose address is Bastion House, 140 London Wall, London, EC2Y SJT, United Kingdom (the "Lender"); WHEREAS: 1. Mortgagor has executed and delivered to the Lender the First Naval Mortgage dated as of April 7, 1997 (the "Original Mortgage"), recorded at Entry No. 6108, Volume 255 in the Registry Journal Book of the Republic of Panama which covers the vessel known as "Seillean", Gross Register Tons (GRT): 50,928.00; Net Register Tons: 15,278.00, Length: 236.47 meters, Width: 37 meters, Depth: 19.80 meters, Permanent Navigation Patent No. 23272-96, Radio Call Letters: 3FPF6, and Registration No. 25519-PEXT, and with the home port of Panama City, the Republic of Panama (the "Vessel") to secure, among other obligations, the obligations of Mortgagor, Reading & Bates (U.K.) Limited, an English limited liability company (the "Charterer") and Lender under the Loan Agreement (the "Loan Agreement") dated as of December 14, 1996. Unless otherwise defined herein, all capitalized terms used herein have the meanings assigned thereto in the Original Mortgage. 2. The Mortgagor has transferred a 10% undivided interest in and to the Vessel to TRBS pursuant to a Bill of Sale dated April 21, 1997, which interest is transferred subject to the lien and mortgage of the Original Mortgage and the Lender has consented to such transfer in accordance with the terms hereof. 3. This Amendment is entered in to for the purpose of evidencing TRBS' acknowledgment of such lien and mortgage and the Lender's consent to such transfer. 4. TRBS will derive substantial benefit from obtaining its interest in the Vessel. NOW, THEREFORE, THIS MORTGAGE WITNESSETH: That in consideration of the premises and of other good and valuable consideration, the receipt of which is hereby acknowledged, to secure and guarantee the payment on demand of the Obligations, TRBS hereby executes and constitutes a first and absolute naval mortgage in accordance with the provisions of Chapter V, Title IV of Book II of the Code of Commerce, and the pertinent provisions of the Civil Code and other legislation of the Republic of Panama, upon its 10% undivided interest in and to the Vessel, including all masts, boilers, cables, engines, machinery, bowsprits, sails, rigging, boats, anchors, chains, tackle, apparel, furniture, fittings, tools, pumps, equipment and supplies, and all other appurtenances and accessories and additions, improvements and replacements now or hereafter belonging thereto, whether or not removed therefrom, property of the shipowner, of Panamanian flag and registry; TO HAVE AND TO HOLD all and singular the above described Vessel unto the Lender, its successors and assigns, forever; PROVIDED, HOWEVER, that if Mortgagor and TRBS, their successors or assigns shall perform, discharge and observe all and singular the terms, the Obligations and the other covenants and agreements herein, then this Mortgage shall cease, otherwise to remain in full force and affect. 1. TRBS agrees that its interest in the Vessel and related property is subject to the lien of the Original Mortgage, although TRBS is not otherwise personally liable for the obligations under the Loan Agreement. 2. TRBS covenants and agrees to the extent of its interest in the Vessel, to perform all obligations of the Mortgagor under the Original Mortgage in the same manner as if TRBS were an original party thereto as follows: 3. All notices to the Mortgagor and the Lender hereto shall be given at the addresses and in the manner set forth in Section 9.02 of the Loan Agreement and all notices to TRBS shall be to the address set forth in the preamble and sent in the manner set forth in Section 9.02 of the Loan Agreement. 4. All covenants and agreements of Mortgagor herein contained shall bind Mortgagor and TRBS, their successors and assigns, and shall inure to the benefit of Lender and its successors and assigns. Following any assignment hereof by Lender, any reference herein to "Lender" shall be deemed to refer to the assignee. 5. If any provision of this Amendment be held to be invalid under the provisions of any applicable law, such invalid provision shall be deemed deleted from this Amendment but the validity of the Mortgage shall not otherwise be affected. 6. Except as amended hereby the Original Mortgage shall be in full force and effect. 7. TRBS, Mortgagor and Lender confer a Special Power of Attorney with right of substitution upon Messrs. ICAZA, GONZALEZ-RUIZ & ALEMAN, a law firm domiciled in the City of Panama, Republic of Panama to take all necessary steps to record this instrument of mortgage in the Public Registry Office of the Republic of Panama, and do whatsoever said law firm may consider appropriate for the fulfillment of any and all laws and regulations governing the ship mortgage in the Republic of Panama. IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed as of the day and year first above written. TRB HOLDING CORPORATION By:_____________________________ T. W. Nagle Executive Vice President Finance and Administration NOTARIAL CERTIFICATE I, the undersigned, NOTARY PUBLIC, duly authorized, admitted and sworn, residing and practicing in Houston, Harris County, Texas, U.S.A., DO HEREBY CERTIFY THAT: I. T. W. Nagle, as Executive Vice President Finance and Administration of the above mentioned corporation did sign and deliver the above written mortgage in my presence and that the signature appearing above is his authentic signature. II. Sufficient proof has been produced to me that T. W. Nagle has power to execute said mortgage on behalf of the corporation. I further certify that the above signature of T. W. Nagle was set thereon in my presence and is, therefore, authentic. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my seal of office this _________ day of __________ in the year of Our Lord One thousand nine hundred ninety-seven. Notary Public (Apostille) TRB SUBSIDIARY CORPORATION By:______________________________ T. W. Nagle Vice President and Treasurer NOTARIAL CERTIFICATE I, the undersigned, NOTARY PUBLIC, duly authorized, admitted and sworn, residing and practicing in Houston, Harris County, Texas, U.S.A., DO HEREBY CERTIFY THAT: I. T. W. Nagle, as Vice President and Treasurer of the above mentioned corporation did sign and deliver the above written mortgage in my presence and that the signature appearing above is his authentic signature. II. Sufficient proof has been produced to me that T. W. Nagle has power to execute said mortgage on behalf of the corporation. I further certify that the above signature of T. W. Nagle was set thereon in my presence and is, therefore, authentic. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my seal of office this _________ day of __________ in the year of Our Lord One thousand nine hundred ninety-seven. Notary Public (Apostille) ACCEPTANCE OF MORTGAGE I, the undersigned, as Senior Vice President and Senior General Manager of Houston office of NISSHO IWAI EUROPE, PLC., referred to as the "Lender" in the above First Preferred Ship Mortgage on the m.v. "Seillean", hereby ACCEPTS for all legal purposes said First Preferred Ship Mortgage on behalf of the "Lender". Date: NISSHO IWAI EUROPE PLC. By:__________________________________ Kazutoshi Kimura Senior Vice President and Senior General Manager of Houston Office NOTARIAL CERTIFICATE OF ACCEPTANCE OF MORTGAGE I, the undersigned, NOTARY PUBLIC, duly authorized, admitted and sworn, residing and practicing in Houston, Harris County, Texas, U.S.A., DO HEREBY CERTIFY THAT: I. Kazutoshi Kimura, as Senior Vice President and Senior General Manager of Houston office of the above mentioned corporation did sign and accept the above written mortgage in my presence and that the signature appearing above is his authentic signature. II. Sufficient proof has been produced to me that the said Kazutoshi Kimura has power to execute said mortgage on behalf of the corporation. I further certify that the above signature of Kazutoshi Kimura was set thereon in my presence and is, therefore, authentic. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my seal of office this _________ day of __________ in the year of Our Lord One thousand nine hundred ninety-seven. Notary Public (Apostille) EX-10.194 26 EXHIBIT 10.194 SECOND AMENDMENT TO FIRST NAVAL MORTGAGE This Second Amendment to First Naval Mortgage (this "Amendment"), made as of April 25, 1997, by RB FPSO L.P., a Cayman Islands limited partnership (the "Partnership"), TRB HOLDING CORPORATION, a Delaware corporation (the "Mortgagor"), whose address is 901 Threadneedle, Suite 200, Houston, Texas 77079, and TRB SUBSIDIARY CORPORATION, a Delaware corporation ("TRBS") to NISSHO IWAI EUROPE PLC, an English corporation, whose address is Bastion House, 140 London Wall, London, EC2Y SJT, United Kingdom (the "Lender"); WHEREAS: 1. The Mortgagor has executed and delivered to the Lender the First Naval Mortgage dated as of April 7, 1997 (the "Original Mortgage"), recorded at Entry No. 6108, Volume 255 in the Registry Journal Book of the Republic of Panama which covers the vessel known as "Seillean", Gross Register Tons (GRT): 50,928.00; Net Register Tons: 15,278.00, Length: 236.47 meters, Width: 37 meters, Depth: 19.80 meters, Permanent Navigation Patent No. 23272-96, Radio Call Letters: 3FPF6, and Registration No. 25519-PEXT, and with the home port of Panama City, the Republic of Panama (the "Vessel") to secure, among other obligations, the obligations of TRBH, Reading & Bates (U.K.) Limited, an English limited liability company (the "Charterer") and Lender under the Loan Agreement (the "Loan Agreement") dated as of December 14, 1996. Unless otherwise defined herein, all capitalized terms used herein have the meanings assigned thereto in the Original Mortgage. 2. The Mortgagor transferred a 10% undivided interest in and to the Vessel to TRBS pursuant to a Bill of Sale dated April 21, 1997, which interest was transferred subject to the lien and mortgage of the Original Mortgage and the Lender consented to such transfer in accordance with the terms hereof. The First Amendment to First Naval Mortgage (the "First Amendment") dated April 21, 1997 was entered in to for the purpose of evidencing TRBS' acknowledgment of such lien and mortgage and the Lender's consent to such transfer. 3. The Mortgagor and TRBS transferred all of their interest in and to the Vessel to the Partnership pursuant to two Bill of Sale dated April 25, 1997, which interest was transferred subject to the lien and mortgage of the Original Mortgage and the Lender consented to such transfer in accordance with the terms hereof. 4. This Amendment is entered in to for the purpose of evidencing the Partnership's acknowledgment of such lien and mortgage and the Lender's consent to such transfer. 5. The Partnership will derive substantial benefit from obtaining its interest in the Vessel. NOW, THEREFORE, THIS MORTGAGE WITNESSETH: That in consideration of the premises and of other good and valuable consideration, the receipt of which is hereby acknowledged, to secure and guarantee the payment on demand of the Obligations, the Partnership hereby executes and constitutes a first and absolute naval mortgage in accordance with the provisions of Chapter V, Title IV of Book II of the Code of Commerce, and the pertinent provisions of the Civil Code and other legislation of the Republic of Panama, upon its undivided interest in and to the Vessel, including all masts, boilers, cables, engines, machinery, bowsprits, sails, rigging, boats, anchors, chains, tackle, apparel, furniture, fittings, tools, pumps, equipment and supplies, and all other appurtenances and accessories and additions, improvements and replacements now or hereafter belonging thereto, whether or not removed therefrom, property of the shipowner, of Panamanian flag and registry; TO HAVE AND TO HOLD all and singular the above described Vessel unto the Lender, its successors and assigns, forever; PROVIDED, HOWEVER, that if Mortgagor and the Partnership, their successors or assigns shall perform, discharge and observe all and singular the terms, the Obligations and the other covenants and agreements herein, then this Mortgage shall cease, otherwise to remain in full force and affect. 1. The Partnership agrees that its interest in the Vessel and related property is subject to the lien of the Original Mortgage, although the Partnership is not otherwise personally liable for the obligations under the Loan Agreement. 2. The Partnership covenants and agrees to the extent of its interest in the Vessel, to perform all obligations of the Mortgagor under the Original Mortgage in the same manner as if the Partnership were an original party thereto as follows: 3. All notices to the Mortgagor and the Lender hereto shall be given at the addresses and in the manner set forth in Section 9.02 of the Loan Agreement and all notices to the Partnership and TRBS shall be addressed as follows and sent in the manner set forth in Section 9.02 of the Loan Agreement. If to the Partnership, at: RB FPSO L.P. 901 Threadneedle, Suite 200 Houston, Texas 77079 If to TRBS, at: TRB Subsidiary Corporation 901 Threadneedle, Suite 200 Houston, Texas 77079 4. All covenants and agreements of Mortgagor herein contained shall bind Mortgagor and the Partnership, their successors and assigns, and shall inure to the benefit of Lender and its successors and assigns. Following any assignment hereof by Lender, any reference herein to "Lender" shall be deemed to refer to the assignee. 5. If any provision of this Amendment be held to be invalid under the provisions of any applicable law, such invalid provision shall be deemed deleted from this Amendment but the validity of the Mortgage shall not otherwise be affected. 6. Except as amended hereby and by the First Amendment the Original Mortgage shall be in full force and effect. 7. The Partnership, Mortgagor and Lender confer a Special Power of Attorney with right of substitution upon Messrs. ICAZA, GONZALEZ-RUIZ & ALEMAN, a law firm domiciled in the City of Panama, Republic of Panama to take all necessary steps to record this instrument of mortgage in the Public Registry Office of the Republic of Panama, and do whatsoever said law firm may consider appropriate for the fulfillment of any and all laws and regulations governing the ship mortgage in the Republic of Panama. IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed as of the day and year first above written. TRB HOLDING CORPORATION By:__________________________________ T. W. Nagle Executive Vice President Finance and Administration NOTARIAL CERTIFICATE I, the undersigned, NOTARY PUBLIC, duly authorized, admitted and sworn, residing and practicing in Houston, Harris County, Texas, U.S.A., DO HEREBY CERTIFY THAT: I. T. W. Nagle, as Executive Vice President Finance and Administration of the above mentioned corporation did sign and deliver the above written mortgage in my presence and that the signature appearing above is his authentic signature. II Sufficient proof has been produced to me that T. W. Nagle has power to execute said mortgage on behalf of the corporation. I further certify that the above signature of T. W. Nagle was set thereon in my presence and is, therefore, authentic. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my seal of office this _________ day of __________ in the year of Our Lord One thousand nine hundred ninety-seven. ___________________________ Notary Public TRB SUBSIDIARY CORPORATION By:_____________________________ T. W. Nagle Vice President and Treasurer NOTARIAL CERTIFICATE I, the undersigned, NOTARY PUBLIC, duly authorized, admitted and sworn, residing and practicing in Houston, Harris County, Texas, U.S.A., DO HEREBY CERTIFY THAT: I. T. W. Nagle, as Vice President and Treasurer of the above mentioned corporation did sign and deliver the above written mortgage in my presence and that the signature appearing above is his authentic signature. II Sufficient proof has been produced to me that T. W. Nagle has power to execute said mortgage on behalf of the corporation. I further certify that the above signature of T. W. Nagle was set thereon in my presence and is, therefore, authentic. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my seal of office this _________ day of __________ in the year of Our Lord One thousand nine hundred ninety-seven. ________________________ Notary Public RB FPSO L.P. By: TRB Holding Corporation, its general partner By:__________________________________ T. W. Nagle Executive Vice President Finance and Administration NOTARIAL CERTIFICATE I, the undersigned, NOTARY PUBLIC, duly authorized, admitted and sworn, residing and practicing in Houston, Harris County, Texas, U.S.A., DO HEREBY CERTIFY THAT: I. T. W. Nagle, as Executive Vice President Finance and Administration of TRB Holding Corporation, general partner of RB FPSO L.P. did sign and deliver the above written mortgage in my presence and that the signature appearing above is his authentic signature. II. Sufficient proof has been produced to me that the said T. W. Nagle has power to execute said mortgage on behalf of the corporation as general partner of the partnership. I further certify that the above signature of T. W. Nagle was set thereon in my presence and is, therefore, authentic. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my seal of office this _________ day of __________ in the year of Our Lord One thousand nine hundred ninety-seven. __________________________ Notary Public ACCEPTANCE OF MORTGAGE I, the undersigned, as Senior Vice President and Senior General Manager of Houston office of NISSHO IWAI EUROPE, PLC., referred to as the "Lender" in the above Second Amendment to First Naval Mortgage on the m.v. "Seillean", hereby ACCEPTS for all legal purposes said Second Amendment to First Naval Mortgage on behalf of the "Lender". Date: NISSHO IWAI EUROPE PLC. By:_________________________________ Kazutoshi Kimura Senior Vice President and Senior General Manager of Houston office NOTARIAL CERTIFICATE OF ACCEPTANCE OF MORTGAGE I, the undersigned, NOTARY PUBLIC, duly authorized, admitted and sworn, residing and practicing in Houston, Harris County, Texas, U.S.A., DO HEREBY CERTIFY THAT: I. Kazutoshi Kimura, as Senior Vice President and Senior General Manager of Houston office of the above mentioned corporation did sign and accept the above written mortgage in my presence and that the signature appearing above is his authentic signature. II. Sufficient proof has been produced to me that the said Kazutoshi Kimura has power to execute said mortgage on behalf of the corporation. I further certify that the above signature of Kazutoshi Kimura was set thereon in my presence and is, therefore, authentic. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my seal of office this _________ day of __________ in the year of Our Lord One thousand nine hundred ninety-seven. _________________________ Notary Public EX-10.198 27 EXHIBIT 10.198 ========================================================================== CONTRACT FOR CONSTRUCTION AND SALE OF VESSEL (HULL NO. HRBS8-D) BETWEEN R&B FALCON DRILLING CO. AND HYUNDAI HEAVY INDUSTRIES CO., LTD. AND HYUNDAI CORPORATION =========================================================================== INDEX PAGE PREAMBLE P-1 ARTICLE I - DESCRIPTION AND CLASS 1. Description: I-1 2. Dimensions and Characteristics: I-1 3. The Classification, Rules and Regulations: I-2 4. Registration: I-3 5. Drawings and Document Approval I-3 ARTICLE II - CONTRACT PRICE, TERMS OF PAYMENT & OPTIONS 1. Contract Price: II-5 2. Adjustment of Contract Price: II-5 3. Currency: II-5 4. Terms of Payment: II-5 5. Method of Payment: II-6 6. Notice of Payment before Delivery: II-7 7. Expenses: II-7 8. Prepayment: II-7 9. Options II-7 10. Supply of Marine Equipment II-8 ARTICLE III - ADJUSTMENT OF CONTRACT PRICE 1. Delivery: III-1 2. Displacement: III-2 3. Weight Control III-3 4. Effect of Rescission: III-3 ARTICLE IV - APPROVAL OF PLANS AND DRAWINGS AND INSPECTION DURING CONSTRUCTION 1. Approval of Plans and Drawings: IV-1 2. Appointment of OWNER's Supervisor IV-1 3. Inspection by the Supervisor: IV-1 4. Facilities: IV-3 5. Liability of BUILDER and OWNER: IV-3 6. Responsibility of OWNER: IV-4 7. Delivery and Construction Schedule: IV-5 8. Responsibility of BUILDER: IV-5 ARTICLE V MODIFICATIONS, CHANGES AND EXTRAS 1. How Effected: V-1 2. Changes in Rules of Classification Society, Regulations, etc.: V-1 3. Substitution of Materials: V-2 ARTICLE VI - TRIALS AND ACCEPTANCE 1. Notice: VI-1 2. Weather Condition: VI-1 3. How Conducted: VI-2 4. Method of Acceptance or Rejection: VI-2 5. Effect of Acceptance: VI-3 6. Disposition of Surplus Consumable Stores VI-3 ARTICLE VII - DELIVERY 1. Time and Place: VII-1 2. When and How Effected: VII-1 3. Documents to be delivered to OWNER: VII-1 4. Tender of VESSEL: VII-2 5. Title and Risk: VII-3 6. Removal of VESSEL: VII-3 ARTICLE VIII - DELAYS AND EXTENSION OF TIME FOR DELIVERY (FORCE MAJEURE) 1. Causes of Delay (Force Majeure): VIII-1 2. Notice of Delay: VIII-1 3. Definition of Permissible Delay: VIII-2 4. Right to Rescind for Excessive Delay: VIII-2 ARTICLE IX - WARRANTY OF QUALITY 1. Guarantee: IX-1 2. Notice of Defects: IX-1 3. Remedy of Defects: IX-2 4. Extent of BUILDER's Responsibility: IX-3 5. Guarantee Engineer: IX-4 ARTICLE X - RESCISSION BY OWNER 1. Notice: X-1 2. Refundment by BUILDER: X-1 3. Discharge of Obligations: X-1 ARTICLE XI - OWNER'S DEFAULT 1. Definition of Default: XI-1 2. Effect of Default on or before Delivery of VESSEL: XI-1 3. Disposal of VESSEL: XI-2 4. Dispute: XI-2 ARTICLE XII - ARBITRATION 1. Decision by the Classification Society: XII-1 2. Proceedings of Arbitration: XII-1 3. Notice of Award: XII-2 4. Expenses: XII-2 5. Entry in Court: XII-2 6. Alteration of Delivery Date: XII-2 ARTICLE XIII - SUCCESSOR AND ASSIGNS ARTICLE XIV - TAXES AND DUTIES 1. Taxes and Duties Incurred in Korea: XIV-1 2. Taxes and Duties Incurred Outside Korea XIV-1 ARTICLE XV - PATENTS, TRADEMARKS, COPYRIGHTS, ETC. 1. Patents: XV-1 2. General Plans, Specifications and Working Drawings: XV-1 ARTICLE XVI - OWNER'S SUPPLIES 1. Responsibility of OWNER: XVI-1 2. Responsibility of BUILDER: XVI-3 3. Title: XVI-4 4. OWNERS's Supplies Refundment: XVI-4 ARTICLE XVII - INSURANCE 1. Extent of Insurance Coverage: XVII-1 2. Application of the Recovered Amounts: XVII-3 3. Termination of BUILDER's Obligation to Insure: XVII-3 ARTICLE XVIII - NOTICE 1. Address: XVIII-1 2. Language: XVIII-1 3. Effective Date of Notice: XVIII-1 ARTICLE XIX - EFFECTIVE DATE OF CONTRACT ARTICLE XX - INTERPRETATION 1. Laws Applicable: XX-1 2. Discrepancies: XX-1 3. Entire Agreement: XX-1 4. Amendments and Supplements: XX-1 ARTICLE XXI - CONFIDENTIALITY END OF CONTRACT E-1 EXHIBIT "A" LETTER OF REFUNDMENT GUARANTEE EA-1 THIS CONTRACT, made and entered into on this 16th day of December, 1998 by and between R&B FALCON DRILLING CO., a corporation existing under the laws of Oklahoma, and having an office at 901 Threadneedle, Houston, Texas 77079-2902 (hereinafter called the "OWNER"), on the one part and HYUNDAI HEAVY INDUSTRIES CO., LTD., a corporation incorporated and existing under the laws the Republic of Korea, having its registered office at #1, Cheonha-Dong, Dong-Ku, Ulsan, Korea and HYUNDAI CORPORATION, a corporation incorporated and existing under the laws the Republic of Korea, having its registered office at 140-2 Kye-Dong, Chongro-Ku, Seoul, Korea (hereinafter collectively called the "BUILDER"), on the other part. W I T N E S S E T H: In consideration of the mutual covenants herein contained, the BUILDER agrees to build One (1) VESSEL as described in the specification attached hereto as Exhibit 1 of this Contract (hereinafter referred to as the "VESSEL") and in accordance with (i) the Delivery and Construction Schedule attached hereto as Exhibit 2 and (ii) the BUILDER's Unit Rates attached hereto as Exhibit 3 (said Exhibits 1 through 3 being hereinafter collectively called the "Specifications") which Specifications have been initialed by representatives of the parties hereto for identification and which Specifications hereby are each incorporated herein by reference hereto and made an integral part of this Contract, at the BUILDER's shipyard located in Ulsan, Korea (hereinafter referred to as the "Shipyard") and to deliver and sell the same to the OWNER, and the OWNER hereby agrees to purchase and accept delivery of the VESSEL from the BUILDER, upon the terms and conditions hereinafter set forth. ARTICLE I - DESCRIPTION AND CLASS 1. Description: The VESSEL, having the BUILDER's Hull No. HRBS8-D, shall be constructed, equipped and completed in accordance with the provisions of this Contract, and the Specifications (as heretofore defined), which Specifications are an integral part of this Contract as heretofore provided. 2. Dimensions and Characteristics: NOTE: U. S. Units are approximate Metric Units U.S. Units Overall Structure Length 120.7 m 396.0 ft. Breadth 78.0 m 255.9 ft. Upper Hull Length 81.5 m 267.4 ft. Breadth 61.0 m 200.1 ft. Depth 8.5 m 27.9 ft. MainDeck Length 84.1 m 275.9 ft. Breadth 61.0 m 200.1 ft. Pontoons (two each) Length 114.0 m 374.0 ft. Breadth (amidship) 13.4 m 44.0 ft. Breadth (ends) 16.5 m 54.1 ft. Depth 9.1 m 29.9 ft. Corner Radius 3.0 m 9.8 ft. Transverse Distance (c. to c.) 61.50 m 201.8 ft. Columns (four each) Horizontal Section (LxB) 17.0 m X 16.5 m (@WL) 55.8 ft. X 54.1 ft. 14.0 m X 16.5 m (bottom)45.9 ft. X 54.1 ft. Corner Radius 3.0 m 9.8.ft. Vertical Height 23.9 m 78.4 ft. Longitudinal Distance (c. to c.) 60.0 m 196.9 ft. Transverse Distance (c. to c.) at Top 46.0 m 150.9 ft. at Bottom 61.5 m 201.8 ft. Transverse Braces (two each) Length 45.0 m 147.6 ft. Breadth 6.0 m 19.7 ft. Depth 3.0 m 9.8 ft. Corner Radius 0.6 m 2.0 ft. Longitudinal Distance (c. to c.) 68.0 m 223.1 ft. Centerline Elevation 1.5 m 4.9 ft. Diagonal Braces (four each) Diameter 3.0 m 9.8 ft. Centerline Elevation 1.5 m 4.9 ft. Elevations Drill Floor 46.0 m 150.9 ft. Main Deck (at sides) 41.5 m 136.2 ft. Second Deck 38.0 m 124.7 ft. Third Deck (Inner bottom Top) 34.5 m 113.2 ft. Upper Hull Bottom 33.0 m 108.3 ft. Lower Hull Top 9.1 m 29.9 ft. Draft Operating Condition (G.O.M.) 23.0 m 75.5 ft. Severe Storm Condition 16.5 m 54.1 ft. Transit Condition 8.8 m 28.9 ft. Operating Condition (W.O.S.) 9.1 m 29.9 ft. The details of the aforementioned particulars, as well as the definitions and the methods of measurements and calculations shall be as indicated in the Specifications and shall be subject to adjustment with design development. The design criteria, deckload criteria and variable loads will be as in the Specifications. 3. The Classification, Rules and Regulations: The Vessel, including hull, machinery, equipment and outfitting, shall be constructed in accordance with the Rules and Regulations (edition and amendments thereto being in effect as of the signing date of the Contract) of the Classification Society and under survey of the Classification Society (hereinafter called as "the Class") and shall be distinguished in register by symbol of: American Bureau of Shipping +A1 "Column Stabilized Drilling Unit", +CDS, +AMS, (P) , PAS, DPS - 3 ABS statement of fact for UK/Den/HSE compliance, and Drilling System Compliance. Decisions of the Classification Society as to compliance or non-compliance with the classification rules and regulations shall be final and binding upon both parties hereto. Details of Class notation shall be in accordance with the Specifications. The VESSEL shall also comply with the rules, regulations and requirements of the regulatory bodies as described and listed in the Specifications. The VESSEL will be built and delivered (i) in accordance with the terms of this Contract and the Specifications, (ii) in full compliance and certification to and with the IMO MODU code with amendments, (iii) in full compliance with the regulations, provisions, and requirements included in the Specifications, (iv) in full compliance with the requirements of the Classification Society so as to be classed with the Classification Society as a MODU, and (v) so that the VESSEL will be approved to operate worldwide. BUILDER will take all action necessary, and remedy at its cost and expense, any deficiency which constitutes a failure to comply with the above requirements. All the fees and charges incidental to the Classification Society and in respect to compliance with the above referred rules, regulations and requirements, as well as all VESSEL design fees and/or royalties (except for any fees and/or royalties for the basic design, specifications and OWNER's Supplies), shall be for account of the BUILDER. BUILDER shall be responsible for obtaining the Classification Society's approval of all required plans and drawings of the VESSEL. 4. Registration: The VESSEL, at the time of its delivery and acceptance, shall be registered at the port of registry by the OWNER under the flag of the United States of America at the OWNER's expense. 5. Drawings and Document Approval The BUILDER shall be responsible to prepare detailed working drawings and submit these to ABS and the OWNER for approval in accordance with the Specifications. The BUILDER shall provide to the OWNER a copy of all correspondence to ABS concurrent with its sending to ABS. Furthermore, the BUILDER shall request ABS to copy the OWNER on all its correspondence to the BUILDER and vendors relative to this project, including relevant output from ABS' engineering management system. (End of Article) ARTICLE II - CONTRACT PRICE, TERMS OF PAYMENT & OPTIONS 1. Contract Price: The purchase price of the VESSEL, net receivable by the BUILDER and exclusive of the OWNER's Supplies (as defined in Paragraph 1 of Article XVI hereof) is United States Dollars One Hundred and Thirty-Nine Million Five Hundred SeventySeven (US$139,577,000) (hereinafter referred to as the "Contract Price"). The Contract Price shall be subject to upward or downward adjustment, if any, as hereinafter set forth in this Contract. 2. Adjustment of Contract Price: Increase or decrease of the Contract Price, if any, due to adjustments thereof made in accordance with the provisions of this Contract shall be adjusted by way of addition to or subtraction from the Contract Price upon delivery of the VESSEL in the manner as hereinafter provided. 3. Currency: Any and all payments by the OWNER to the BUILDER, or vice versa if any which are due under this Contract in regards to the Contract Price shall be made in United States Dollars. 4. Terms of Payment: The Contract Price shall be due and payable by the OWNER to the BUILDER in the installments as follows: (a) First Installment: The First Installment amounting to United States Dollars Thirteen Million Five Hundred Eighty-Eight Thousand Eight Hundred(US$13,588,800) shall be due and payable by January 31, 1999, provided that the Letter of Refundment Guarantee required under Article X has been received by the OWNER or its designee. (b) Second Installment: The Second Installment amounting to United States Dollars Thirteen Million Five Hundred Eighty-Eight Thousand Eight Hundred(US$13,588,800) shall be due and payable thirteen (13) months after the first installment payment. (c) Third Installment: The Third Installment amounting to United States Dollars Thirteen Million Five Hundred Eighty-Eight Thousand Eight Hundred(US$13,588,800) shall be due and payable eighteen (18) months after the first installment payment. (d) Fourth Installment: The Fourth Installment amounting to United States Dollars Ninety-Eight Million Eight Hundred and Ten Thousand Six Hundred(US$98,810,600) plus any increase or minus any decrease due to adjustment of the Contract Price under and pursuant to the provisions of this Contract, shall be due and payable upon delivery of the VESSEL or upon tender for delivery of the VESSEL pursuant to Paragraph 4 of Article VII of this Contract. 5. Method of Payment: (a) First Installment: Within January 31, 1999, the OWNER shall remit by telegraphic transfer the first installment to the BUILDER's account number in the Korea Exchange Bank or to the banks which the BUILDER may designate (hereinafter referred to as the "BUILDER's BANK") in favor of Hyundai Heavy Industries, Co., Ltd. (b) Second and Third Installments: Upon the due date of the second and third installments, in accordance with Article II, 4 (b), (c) and (d) as appropriate, the OWNER shall remit by telegraphic transfer each of the respective installments to the account at the BUILDER's BANK in favor of Hyundai Heavy Industries Co., Ltd. (c) Fourth Installment: At the time of delivery of the Vessel to the OWNER pursuant to Section 2 of Article VII of this Contract, the OWNER shall remit by telegraphic transfer the fourth installment to the account at the BUILDER's BANK in favor of Hyundai Heavy Industries, Co., Ltd., with an irrevocable instruction that the amount so remitted shall be payable to the BUILDER against presentation by the BUILDER to the BUILDER's BANK of a copy of PROTOCOL OF DELIVERY and ACCEPTANCE OF THE VESSEL executed by the OWNER and the BUILDER. No payment due under this Contract shall be delayed, suspended or withheld by the OWNER on account of any dispute or disagreement between the parties hereto. Any claim which the OWNER may have against the BUILDER hereunder shall be settled and liquidated separately from any payment by the OWNER to the BUILDER of the Contract Price hereunder. 6. Notice of Payment before Delivery: With the exception of the first installment, the BUILDER shall give the OWNER Ten (10) banking days prior notice in writing or telex or telefax confirmed in writing by registered mail of the anticipated due date and amount of each installment payable before delivery of the VESSEL. 7. Expenses: Expenses and bank charges for remitting payments and any taxes (other than taxes on income imposed on the BUILDER), duties, expenses and fees applicable to remitting such payment shall be for account of the OWNER. 8. Prepayment: The OWNER may prepay any or all of the installments of the Contract Price, provided that the OWNER declares the OWNER's intention to do so in writing or by telex confirmed in writing stating in advance the intended date of such prepayment, subject to the BUILDER's acceptance, which shall not be unreasonably withheld. 9. Options The BUILDER hereby grants to the OWNER options to purchase one (1) additional deepwater semisubmersible drilling units (the "OPTION VESSEL(S)") of the same size and Specifications as the VESSEL. In the event OWNER exercises this option, the purchase price, payment terms and delivery period of the OPTION VESSEL shall be the same as for the Vessel. The notice period for exercising such option shall be within eight months of the date of this contract. All contract terms and conditions shall, except as may otherwise be specifically modified herein, be on the same terms and conditions as are set out in this Contract for the VESSEL, mutatis mutandis. The specifications for the OPTION VESSEL shall be the same as the "Specifications" identified and defined in this Contract. Any extras or change orders made to the Specifications of the VESSEL subsequent to the date of this Contract shall not be included in the specifications for the OPTION VESSEL but OWNER shall be entitled to request same pursuant to the shipbuilding contract for the OPTION VESSEL with appropriate credits for design, engineering and other non-recurring costs and any other price and delivery date adjustment or consequence. 10. Supply of Marine Equipment OWNER has the option to pay BUILDER United States Dollars One Million Eight Hundred Thousand (US$1,800,000) as a fixed lump sum for procurement engineering, purchasing and the associated costs for the supply of six generators, medium voltage switchgear and IACS, with vendors, invoices to be passed through to the Buyer for direct payment. OWNER also has the option to purchase individually, medium voltage switchgear and ICAS, in which case the BUILDER has proposed that its fee be 11.5% of vendors' net prices and/or engine generator sets in which case, Builder has proposed its fee for purchase of such engine generator sets be 4.78% of vendors' net prices. (End of Article) ARTICLE III - ADJUSTMENT OF CONTRACT PRICE The Contract Price shall be subject to adjustment, as hereinafter set forth, in the event of the following contingencies (it being understood by both parties that any reduction of the Contract Price is by way of liquidated damages and not by way of penalty): 1. Delivery: (a) No adjustment shall be made and the Contract Price shall remain unchanged for the first Thirty (30) days of delay in delivery of the VESSEL beyond the Delivery Date as defined in Article VII hereof (ending as of twelve o'clock midnight of the Thirtieth (30th) day of delay). (b) If the delivery of the VESSEL is delayed more than Thirty (30) days after the Delivery Date, then, in such event, beginning at twelve o'clock midnight of the Thirtieth (30th) day after the Delivery Date, the Contract Price shall be reduced by the sum of Twenty Thousand United Dollars (US$20,000) for each full day thereafter for which delivery is delayed. However, the total reduction in the Contract Price pursuant to this Paragraph (b) shall not be more than as would be the case for a delay of One Hundred Fifty (150) days counting from midnight of the Thirtieth (30th) day after the Delivery Date at the above specified rate of reduction. (c) However, if the delay in delivery of the VESSEL should continue for a period of One Hundred Eighty (180) days from the Delivery Date in Paragraph 1 of Article VII, then in such event, and after such period has expired, the OWNER may, at its option, rescind this Contract in accordance with the provisions of Article X hereof. The BUILDER may, at any time after the expiration of the aforementioned One Hundred Eighty (180) days of delay in delivery, if the OWNER has not served notice of rescission as provided in Article X hereof, demand in writing that the OWNER shall make an election, in which case the OWNER shall, within Twenty (20) days after such demand is received by the OWNER, notify the BUILDER of its intention either to rescind this Contract or to consent to the acceptance of the VESSEL at a specified future date which date BUILDER represents to OWNER is the earliest date BUILDER can deliver the VESSEL to OWNER under this Contract, based on the circumstances then known. If the OWNER shall not make an election within Twenty (20) days as provided hereinabove, the OWNER shall be deemed to have accepted such extension of the Delivery Date to the future delivery date indicated by the BUILDER and it being understood by the parties hereto that if the VESSEL is not delivered by such specified date, the OWNER shall have the same right of rescission upon the same terms and conditions as hereinabove provided. (d) After the Delivery Date, should OWNER decide to keep the VESSEL at BUILDER's facility prior to tow-out, OWNER shall pay to BUILDER the reasonable cost of any services associated with the VESSEL's stay during such period of time. (e) If the delivery of the VESSEL is made more than thirty (30) days earlier than the Delivery Date, then, in such event, beginning with the thirty-first (31) day prior to the Delivery Date, the Contract Price of the VESSEL shall be increased by adding thereto Twenty Thousand United States Dollars (US$20,000) for each full day. However, the total increase in the Contract Price pursuant to this Paragraph (d) shall not be more than as would be the case for an early delivery of Sixty (60) days counting from the Thirty-first (31) day prior to the Delivery Date at the above specified rate of increase. (f) For the purpose of this Article, the delivery of the VESSEL shall be deemed to be delayed when and if the VESSEL, after taking into account all postponements of the Delivery Date by reason of permissible delay as defined in Article VIII and/or any other reason under this Contract, is not delivered by the date upon which delivery is required under the terms of this Contract. 2. Displacement: (a) The guaranteed displacement of the VESSEL is 40,700 metric tons at 16.5 meters draft and 47,509 metric tons at 23.0 meters draft, subject to adjustment with design development. (b) In the event of a discrepancy (whether higher or lower) in either guaranteed displacement of the VESSEL being one thousand (1,000) metric tons or more, then, the OWNER may, at its option, reject the VESSEL and rescind this Contract in accordance with the provisions of Article X hereof or accept the VESSEL at a reduction in the Contract Price of One Million United States Dollars. (US$1,000,000). 3. Weight Control The BUILDER shall negotiate reasonable steel weight tolerances with the mill to meet minimum ABS scantling requirements and appraise the OWNER of this value. The BUILDER shall develop and implement a weight control procedure in accordance with the Specifications and track actual weights by periodically weighing some of the major assemblies as they are being completed. The BUILDER shall earn a weight performance bonus of United States Dollars Two Thousand (US$2,000) per ton steel of actual lightship weight below the agreed contract lightship weight. Likewise, the BUILDER shall accrue a weight penalty of United States Dollars Two Thousand (US$2,000) per ton steel of actual lightship weight over agreed contract lightship weight. Actual lightship weight shall be determined on the basis of the ABS approved inclining test. The agreed lightship weight will be set by the BUILDER and the OWNER within four (4) months following ABS approval of the basic design package. 4. Effect of Rescission: It is expressly understood and agreed by the parties that in any case, if the OWNER rescinds this Contract under this Article, the OWNER shall not be entitled to any liquidated damages, or any other recourse unless by means of the provisions of Article X hereof. (End of Article) ARTICLE IV - APPROVAL OF PLANS AND DRAWINGS AND INSPECTION DURING CONSTRUCTION 1. Approval of Plans and Drawings: The BUILDER shall obtain the approval of the OWNER for the plans and drawings in accordance with the procedures set forth in the Specifications. 2. Appointment of OWNER's Supervisor: The OWNER may send to and maintain at the Shipyard and/or the Engineering Office, at the OWNER's own cost and expense, one supervisor (herein called the "Supervisor") who shall be duly authorized in writing by the OWNER, which authorization shall be described in a separate letter to be sent to the BUILDER prior to the Supervisor's arrival, to act on behalf of the OWNER in connection with the modifications of the Specifications, adjustments of the Contract Price and Delivery Date in writing, approval of the plans and drawings, attendance to the tests and inspections relating to the VESSEL, its machinery, equipment and outfitting, and any other matters for which he is specifically authorized by the OWNER. The Supervisor may appoint assistant(s) to attend at the Shipyard and/or the Engineering Office for the purposes as aforesaid. 3. Inspection by the Supervisor: The necessary inspections of the VESSEL, its machinery, equipment and outfitting shall be carried out by the Classification Society, other regulatory bodies and/or the Supervisor throughout the entire period of construction in order to ensure that the construction of the VESSEL is duly performed in accordance with the Specifications. The Supervisor shall have, during construction of the VESSEL, the right to attend such tests and inspections of the VESSEL, its machinery and equipment within the premises of either the BUILDER or its subcontractors. Detailed procedures of the inspection and the tests thereof shall be in accordance with Specifications. The Supervisor shall, within the limits of the authority conferred upon him by the OWNER, make decisions or give advice to the BUILDER on behalf of the OWNER promptly on all problems arising out of, or in connection with, the construction of the VESSEL and generally act in a reasonable manner with a view to cooperating to the utmost with the BUILDER in the construction process of the VESSEL. The decision, approval or advice of the Supervisor within the limits of authority conferred on the Supervisor by the OWNER shall be deemed to have been given by the OWNER. THE OWNER's Supervisor shall notify the BUILDER promptly in writing of his discovery of any construction or materials, which he believes do not or will not conform to the requirements of the Contract or the Specifications and likewise advise and consult with the BUILDER on all matters pertaining to the construction of the VESSEL, as may be required by the BUILDER, or as he may deem necessary. However, if the Supervisor fails to submit to the BUILDER promptly any such demand concerning alterations or changes with respect to the construction, arrangement or outfit of the VESSEL which the Supervisor has examined, inspected or attended at the test thereof under this Contract or the Specifications, the Supervisor shall be deemed to have approved the same and shall be precluded from making any demand for alterations, changes, or complaints with respect thereto at a later date. The BUILDER shall comply with any such demand which is not contradictory to this Contract, provided that any and all such demands by the Supervisor with regard to construction, arrangement and outfit of the VESSEL shall be submitted in writing to the authorized representative of the BUILDER. The BUILDER shall notify the Supervisor of the names of the persons who are from time to time authorized by the BUILDER for this purpose. It is agreed upon between the OWNER and the BUILDER that the modifications, alterations or changes and other measures necessary to comply with such demand may be effected at a convenient time and place at the BUILDER's reasonable discretion in view of the construction schedule of the VESSEL. In the event that the Supervisor shall advise the BUILDER that he has discovered and believes the construction or materials do not or will not conform to the requirements of this Contract and the BUILDER shall not agree with the views of the Supervisor in such respect, either the OWNER or the BUILDER may either seek an opinion of the Classification Society or request an arbitration in accordance with the provisions of Article XII hereof. The Classification Society or the Arbitration Board shall determine whether or not a nonconformity with the provisions of this Contract exist. If the Classification Society or the Arbitration Board enters a determination in favor of the OWNER, then in such case the BUILDER shall make the necessary alterations or changes, or if such alterations or changes cannot be made in time to meet the construction schedule for the VESSEL the BUILDER shall make fair and reasonable adjustment of the Contract Price in lieu of such alterations and changes. If the Classification Society or the Arbitration Board enters a determination in favor of the BUILDER, then the time for delivery of the VESSEL shall be extended for a period of delay in construction, if any, occasioned by such proceedings, and the OWNER shall compensate the BUILDER for the proven loss and damages (always excluding consequential damages) incurred to the BUILDER as a result of the dispute herein referred to. OWNER's Supervisor, at his discretion, may refuse to inspect or attend tests where adequate safety measures have not been implemented and in such event such tests/inspections shall not be deemed complete. 4. Facilities: (a) The BUILDER shall furnish the Supervisor and his staff with adequate furnished office space and such other reasonable facilities according to the BUILDER's practice at or in the immediate vicinity of BUILDER's Offshore Yard and its Engineering Office as may be necessary to enable them to effectively carry out their duties as further specified in the Specifications.. The OWNER shall pay for any extra services at the BUILDER's normal rate of charge. BUILDER shall advise OWNER in advance of BUILDER's normal rate of charge for any facilities for which OWNER will be required to pay. (b) The BUILDER shall make available for OWNER's personnel at the OWNER's request, during the VESSEL's construction, a minimum of 15 two or three bedroom apartments furnished with the BUILDER's standard furniture, electrical facilities and utilities. If the OWNER requests the BUILDER to provide the OWNER with special furniture and facilities beyond the BUILDER's standard, any additional costs which may result therefrom, if any, will be borne by OWNER. Costs for such housing, on a monthly rental basis, will be presented to OWNER prior to occupation and shall be reimbursed by OWNER, along with metered utility and telephone charges. The BUILDER will use best efforts to furnish additional apartments requested by the OWNER. 5. Liability of BUILDER and OWNER: The BUILDER agrees to fully protect, defend, indemnify and hold OWNER harmless from and against all liabilities, obligations, claims or actions for personal injury or death arising out of performance by BUILDER or OWNER of their obligations hereunder prior to the acceptance by OWNER of the VESSEL, and asserted by or on behalf of, (i) any employee, agent, contractor, or subcontractor of BUILDER, or (ii)any employee of any agent, contractor, or subcontractor of BUILDER, regardless of the basis of such claims and even if such claims should arise out of the sole or concurrent fault or negligence of OWNER, or any employee, agent, contractor or subcontractor of OWNER. Similarly, the OWNER agrees to fully protect, defend, indemnify and hold BUILDER harmless from and against all liabilities, obligations, claims or actions for personal injury or death arising out of performance by BUILDER or OWNER of their obligations hereunder prior to the acceptance by OWNER of the VESSEL, and asserted by or on behalf of, (i) any employee, agent, contractor, or subcontractor of OWNER, or (ii)any employee of any agent, contractor, or subcontractor of OWNER, regardless of the basis of such claims and even if such claims should arise out of the sole or concurrent fault or negligence of BUILDER, or any employee, agent or subcontractor of BUILDER. 6. Responsibility of OWNER: The OWNER shall undertake and assure that the Supervisor shall carry out his duties hereunder in accordance with the normal shipbuilding practice of the BUILDER, which BUILDER represents and confirms is in all material respects in accordance with good international shipbuilding practice and in such a way so as to avoid any unnecessary increase in building cost, delay in the construction of the VESSEL, and/or any disturbance in the construction schedule of the BUILDER. The BUILDER has the right to request the OWNER to replace the Supervisor who is deemed unsuitable and unsatisfactory for the proper progress of the VESSEL's construction. The OWNER shall investigate the situation by sending its representative(s) to the Shipyard if necessary, and if the OWNER considers that such BUILDER's request is justified, the OWNER shall effect such replacement as soon as conveniently arrangeable. 7. Delivery and Construction Schedule: Attached hereto as Exhibit 2 is a tentative Delivery and Construction Schedule, and within Sixty (60) days after the date of this Contract, BUILDER shall deliver or cause to be delivered to OWNER a final Delivery and Construction Schedule (herein, as from time to time amended with the knowledge of OWNER, referred to as the "Schedule"), prepared in reasonable detail and setting forth the estimated time table for the construction of the VESSEL, it being understood that the Schedule may be used by OWNER for purposes of verifying and measuring the progress being made under the terms of this Contract. 8. Responsibility of BUILDER: (a) BUILDER personnel and subcontractors which, in the sole opinion of OWNER, are found to be in violation of the safety policies established by BUILDER or those specially in place during the construction of the VESSEL, may be requested to be removed from the project by the OWNER's Supervisor. BUILDER will immediately take such actions as necessary to comply with OWNER's reasonable request. (b) The BUILDER is to assign a dedicated safety supervisor and a sufficient number of safety inspectors to remain in effect throughout the Contract to monitor employee and subcontractor safety, scaffolding and safety netting, tank entry, work permitting procedures, electrical safety, etc. Upon request by the OWNER, the safety supervisor shall participate in OWNER's daily safety and quality meetings. (c) The BUILDER shall provide a 24 hour fire-watch at the VESSEL construction site. In addition, at various locations around the site, fire alarm stations will be situated whereby a manual alarm may be sounded and a local emergency response team is notified and activated. (d) BUILDER shall immediately report to OWNER all incidents and/or accidents involving injury, no matter the level of severity, including first aid, loss of property, no matter the value, as well as any identified hazards and/or near misses occurring. Any and all reports of hazards, accidents, incidents, or near misses will result in the immediate and full ceasing of construction activities in the affected area until such time as adequate precautions have been implemented. (e) BUILDER hereby agrees that the cranes and other related lifting gear of the VESSEL will not be used by BUILDER during construction (except for the testing and commissioning stage), without the prior written approval of OWNER. Should such approval be given, BUILDER shall return such cranes to normal in functional respect of operation, including, but not limited to the changing of all wires. (f) It is agreed by BUILDER and OWNER that no more than twenty percent (20%), by number, of all blocks fabricated for construction of the VESSEL will be built outside of BUILDER's own yard and then only by local subcontractors. In case more than twenty percent (20%) of all blocks for the VESSEL is required by the BUILDER to be fabricated outside of BUILDER's own yard, then the BUILDER shall obtain the OWNER's prior written consent. (g) All initial spare parts for equipment furnished by the BUILDER, ("BUILDER Furnished Equipment") , including those necessary for shipyard start-up testing and for the commissioning of equipment, shall be provided by BUILDER at BUILDER's cost. Further, BUILDER shall provide to OWNER a listing of all critical spare parts (any long lead item and those spares causing equipment to be out of service for extended periods of time) and two years operating spare parts. In addition, BUILDER agrees to specifically identify on the listing any and all ABS required spare parts. BUILDER will provide such spare parts listing to OWNER as soon as an order for equipment is placed, but in no case later than 90 days prior to VESSEL delivery. The OWNER is responsible for supplying all the equipment and material in accordance with the OWNER's Supplies list made part of the Specifications including the spare/service parts for start-up testing and commissioning and specialized tools and initial consumables for the OWNER's Supplies. (h) BUILDER agrees that any material and/or supplies not fabricated by the BUILDER will originate from a vendor so specified in the Specifications. In the event procurement of material and/or supplies from the approved vendors are not available due to shortage or delay in delivery thereof to meet the BUILDER's overall construction schedule of the VESSEL, the BUILDER may mobilize and originate from other equivalent with the OWNER's consent, which shall not be unreasonably withheld. (i) The BUILDER shall, on a monthly basis, provide OWNER with a written progress report regarding the construction of the VESSEL based on the BUILDER's standards in accordance with their procedure. Such report is to include a summary of the progress to date, the progress since the previous report and a report on weight control. In a form and frequency to be agreed, the BUILDER will furnish the OWNER a simple written report updating the progress on major milestones in the production schedule. Informal oral reports shall be furnished to the OWNER by the BUILDER upon request. In addition, BUILDER shall include a limited number of color photographs relevant to the fabrication process for the construction period of the VESSEL in the progress report. Photographs are to be 5 x 7 inches, bound in books with dates and descriptive captions. As soon as each volume is available, BUILDER shall furnish three (3) sets of books of photographs (two sent directly to OWNER's Houston office) and one (1) set of negatives to the OWNER. (j) It is the intent of the BUILDER to seek third party engineering services in order to assist with the detailed engineering of the VESSEL. In this regard, the BUILDER agrees that it will seek the prior consent of the OWNER before the selection of a qualified engineering consultant company is made. The BUILDER shall establish a detailed scope and schedule for any such third party work and submit same to the OWNER for approval. (End of Article) ARTICLE V - MODIFICATIONS, CHANGES AND EXTRAS 1. How Effected: The Specifications may be modified and/or changed by written request of the OWNER subject to BUILDER's approval (which approval shall not be unreasonably withheld) provided that any modifications and/or changes requested by the OWNER (or an accumulation of such modifications and/or changes) will not adversely affect the BUILDER's other commitments. The BUILDER will respond within fourteen (14) days of OWNER's request for quotation (unless otherwise agreed) of the aforementioned change. Likewise, the OWNER shall notify its approval or rejection or give its comments to BUILDER within fourteen (14) days of receipt of BUILDER's quotation. In the event of an adverse effect, the BUILDER and the OWNER shall first approve a Shipyard Change Order, before such modifications and/or changes are carried out, to any adjustment in the Contract Price, time for delivery of the VESSEL or other terms and conditions of this Contract occasioned by or resulting from such modifications and/or changes. The BUILDER hereby agrees to exert its best efforts to accommodate any reasonable request by the OWNER so that the said changes and/or modifications may be made at a reasonable cost and within the shortest period of time which is reasonably possible. Any Shipyard Change Order for modifications and/or changes shall include an agreement as to the increase or decrease, if any, in the Contract Price of the VESSEL together with an agreement as to any extension or reduction in the time of delivery, or any other alterations in this Contract occasioned by such modifications and/or changes. The aforementioned agreement may be effected only by a Shipyard Change Order signed by the authorized representatives of the parties hereto. Such Shipyard Change Orders exchanged by the parties hereto pursuant to the foregoing shall constitute an amendment, and such Shipyard Change Orders shall be incorporated into this Contract and made a part hereof. The BUILDER may make minor changes to the Specifications, if found necessary for introduction of improved production methods or otherwise, provided that the BUILDER shall first obtain the OWNER's written approval which shall not be unreasonably withheld. 2. Changes in Rules of Classification Society, Regulations, etc.: If, after the date of signing this Contract, any requirements as to Classification Society, or as to the rules and regulations to which the construction of the VESSEL is required to conform, are altered or changed by the Classification Society or regulatory bodies authorized to make such alterations or changes, either of the parties hereto, upon receipt of information thereof, shall transmit such information in full to the other party in writing, thereupon within twenty-one (21) days after receipt of the said notice from the other party, the OWNER shall instruct the BUILDER in writing if such alterations or changes shall be made in the VESSEL or not, in the OWNER's sole discretion. The BUILDER shall promptly comply with such alterations or changes, if any, in the construction of the VESSEL, provided that the OWNER shall first agree: (a) To any increase or decrease in the Contract Price of the VESSEL that is reasonably occasioned by the cost of such compliance; (b) To any reasonable extension in the time of delivery of the VESSEL that is necessary due to such compliance; (c) To any reasonable deviation in the contractual displacement of the VESSEL, if compliance results in an altered displacement, or any other reasonable alterations in the terms of this Contract or of the Specifications or both, if compliance makes such alterations of terms necessary. Such agreement of the OWNER may be effected in the same manner as provided in Paragraph 1 of this Article for modifications and/or changes of the Specifications. 3. Substitution of Materials: In the event that any of the materials required by the Specifications or otherwise under this Contract for the construction of the VESSEL can not be procured in time to effect delivery of the VESSEL, or are in short supply, the BUILDER may, provided the OWNER so agrees in writing, supply other materials and equipment of the best available and like quality, capable of meeting the requirements of the Classification Society and of the rules, regulations, requirements and recommendations with which the construction of the VESSEL must comply. Any agreement as to such substitution of materials shall be effected in the manner as provided in Paragraph 1 of this Article, and shall, likewise, include decrease or increase in the Contract Price and other terms and conditions of this Contract affected by such substitution. 4. Pricing Mechanism for Change Orders The parties agree that the following principles for the pricing of change orders shall apply: i) mark-up will be 12.5% of net price of materials; ii) all other costs at unit rates; iii) for credits, 100% of net price for deletion of materials will be used; and iv) no additional engineering costs for items already added pursuant to the construction of the RBS-6. (End of Article) ARTICLE VI - TRIALS AND ACCEPTANCE 1. Notice: The sea trial shall start when the VESSEL is reasonably completed in all material respects according to the Specifications. The BUILDER shall give the OWNER at least Twenty(20) days estimated prior notice and Seven (7) days confirming prior notice in writing or by telex or telefax confirmed in writing of the time and place of the trial run of the VESSEL, and the OWNER shall promptly acknowledge receipt of such notice. The OWNER shall have its representative and his assistant(s) on board the VESSEL to witness such trial run. Failure in attendance of the OWNER's representative at the trial run of the VESSEL for any reason whatsoever after due notice to the OWNER as above provided shall be deemed to be a waiver by the OWNER of its right to have its representative on board the VESSEL at the trial run, and the BUILDER may conduct the trial run without attendance of the OWNER's representative, and in such case the OWNER shall be obligated to accept the VESSEL on the basis of certificates of the Classification Society and a certificate of the BUILDER stating that the VESSEL, upon trial run, is found to conform to this Contract. 2. Weather Condition: The trial run shall be carried out under the weather condition which is deemed favorable enough by the judgement of both the OWNER and the BUILDER. In the event of unfavorable weather on the date specified for the trial run, the same shall take place on the first available day thereafter that the weather condition permits. It is agreed that, if during the trial run of the VESSEL, the weather should suddenly become so unfavorable that orderly conduct of the trial run can no longer be continued, the trial run shall be discontinued and postponed until the first favorable day next following, unless the OWNER shall assent in writing to acceptance of the VESSEL on the basis of the trial run already made before such discontinuance has occurred. Any delay of trial run caused by such unfavorable weather condition shall operate to postpone the Delivery Date by the period of the delay involved and such delay shall be deemed as permissible delay in the delivery of the VESSEL. 3. How Conducted: (a) The VESSEL shall run the official trial run in the manner as specified in the Specifications. (b) All expenses in connection with the trial run are to be for account of the BUILDER and the BUILDER shall provide, at its own expense, the necessary crew to comply with conditions of safe navigation. (c) OWNER shall furnish complete procedures and supervision for the installation, testing and recommissioning for the BOP stack. 4. Method of Acceptance or Rejection: (a) Upon completion of the trial run, the BUILDER shall give the OWNER a notice by telex confirmed in writing of completion of the trial run, as and if the BUILDER considers that the results of trial run indicate conformity of the VESSEL to this Contract and the Specifications. The OWNER shall, within Five (5) days after receipt of such notice from the BUILDER, notify the BUILDER by telex or telefax confirmed in writing of its acceptance or rejection of the trial results. (b) However, if the result of the trial run is unacceptable, or if the VESSEL, or any part or equipment thereof, (except a defect in the OWNER's Supplies not the responsibility of the BUILDER) does not conform to the requirements of this Contract and/or the Specifications, or if the BUILDER is in agreement to non-conformity as specified in the OWNER's notice of rejection, then, the BUILDER shall take necessary steps to correct such non-conformity. The VESSEL may be redocked in the event of unsatisfactory sea-trial results for the dynamic positioning and/or thruster systems, or other major system malfunction which cannot be repaired afloat. Upon completion of correction of such non-conformity, and re-test or trial if necessary, the BUILDER shall give the OWNER notice thereof by telex or telefax confirmed in writing. The OWNER shall, within Five (5) days after receipt of such notice from the BUILDER, notify the BUILDER of its acceptance or rejection of the VESSEL's conformity by telex or telefax confirmed in writing. (c) If any event that the OWNER rejects the VESSEL, the OWNER shall indicate in detail in its notice of rejection in what respect the VESSEL, or any part or equipment thereof (except a defect in the OWNER's Supplies not the responsibility of the BUILDER) does not conform to this Contract and/or the Specifications. (d) In the event that the OWNER fails to notify the BUILDER by telex or telefax confirmed in writing of the acceptance of or the rejection together with the reason therefor of the VESSEL within the period as provided in the above Sub-paragraph (a) or (b), the OWNER shall be deemed to have accepted the trial results and/or the VESSEL, as appropriate. (e) Any dispute between the BUILDER and the OWNER as to the conformity or non-conformity of the VESSEL to the requirements of this Contract and/or the Specifications shall be submitted for final decision in accordance with Article XII hereof. 5. Effect of Acceptance: Acceptance of the VESSEL as above provided in Paragraphs 4(a) or 4(b) of this Article VI shall be final and binding so far as conformity of the VESSEL to this Contract is concerned and shall preclude the OWNER from refusing formal delivery of the VESSEL as hereinafter provided, if the BUILDER complies with all other procedural requirements for delivery as provided in Article VII hereof. However, the OWNER's acceptance of the VESSEL shall not affect the OWNER's rights under Article IX hereof. 6. Disposition of Surplus Consumable Stores: Any fuel oil furnished and paid for by the BUILDER for trial runs remaining on board the VESSEL, at the time of acceptance of the VESSEL by the OWNER, shall be bought by the OWNER from the BUILDER at the BUILDER's purchase price for such supply and payment by the OWNER thereof shall be made at the time of delivery of the VESSEL. The BUILDER shall pay the OWNER at the time of delivery of the VESSEL an amount for the consumed quantity of any lubricating oil and greases which were furnished and paid for by the OWNER at the OWNER's purchase price thereof. (End of Article) ARTICLE VII - DELIVERY 1. Time and Place: The VESSEL shall be delivered by the BUILDER to the OWNER at the Shipyard in Ulsan, Korea within November 1, 2000(unless delays occur in the construction of the VESSEL or in any performance required under this Contract due to causes which under the terms of this Contract permit postponement of the date of delivery, in which event, the aforementioned date for delivery of the VESSEL shall be changed accordingly) or, such earlier date after completion of the VESSEL according to this Contract and the Specifications. The aforementioned date, or such earlier or later date to which the requirement of delivery is advanced or postponed pursuant to this Contract, is herein called the "DELIVERY DATE11. 2. When and How Effected: Provided that the BUILDER and the OWNER shall have fulfilled all of their obligations stipulated under this Contract, the delivery of the VESSEL shall be effected forthwith by the concurrent remittance of the fourth installment in accordance with Article II, Section 5(c) and delivery by each of the parties hereto to the other of the PROTOCOL OF DELIVERY AND ACCEPTANCE, acknowledging delivery of the VESSEL by the BUILDER and acceptance thereof by the OWNER. 3. Documents to be delivered to OWNER: Upon delivery and acceptance of the VESSEL, the BUILDER shall deliver to the OWNER the following documents, which shall accompany the PROTOCOL OF DELIVERY AND ACCEPTANCE: (a) PROTOCOL OF TRIALS of the VESSEL made pursuant to the Specifications; (b) PROTOCOL OF INVENTORY of the equipment of the VESSEL, including spare parts and the like, as specified in the Specifications; (c) PROTOCOL OF STORES OF CONSUMABLE NATURE referred to under paragraph 6 of Article VI hereof; (d) ALL CERTIFICATES, including the BUILDER's CERTIFICATE required to be furnished upon delivery of the VESSEL pursuant to this Contract and the Specifications; It is agreed that if, through no fault on the part of the BUILDER, the Classification certificates and/or other certificates are not available at the time of delivery of the VESSEL, provisional certificates shall be accepted by the OWNER, provided that the BUILDER shall furnish the OWNER with the formal certificates as promptly as possible after such certificates have been issued. Application and certificate for statutory inspections by the United States Coast Guard in the Gulf of Mexico, if any, shall be arranged by the OWNER at its expense. (e) DECLARATION OF WARRANTY of the BUILDER that the VESSEL is delivered to the OWNER free and clear of any liens, charges, claims, mortgages, or other encumbrances upon the OWNER's title thereto, and in particular that the VESSEL is absolutely free of all burdens in the nature of imposts, taxes or charges imposed by Governmental Authorities, as well as all liabilities of the BUILDER to its subcontractors, employees and crew, and of the liabilities arising from the operation of the VESSEL in trial runs, or otherwise, prior to delivery; (f) DRAWINGS AND PLANS pertaining to the VESSEL as stipulated in the Specifications; (g) COMMERCIAL INVOICE; (h) Necessary export licenses, permits, and clearances by the Korean Government to enable the VESSEL to sail from Ulsan, Korea following delivery; and (i) DRAWINGS/OPERATING MANUALS. All documentation, including, but not limited to complete, as-built drawings, operations manuals, commissioning reports, inclining reports, major/minor equipment certifications, sea trial reports, spare parts list and BUILDER's vendor's documentation will be furnished by BUILDER to OWNER on or before the delivery of the VESSEL. 4. Tender of VESSEL: If the OWNER fails to take delivery of the VESSEL after completion thereof according to this Contract and the Specifications without any justifiable reason, the BUILDER shall have the right to tender delivery of the VESSEL after accomplishment of all BUILDER's obligations as provided herein. 5. Title and Risk: Title to and risk of loss of the VESSEL shall pass to the OWNER only upon the delivery and acceptance thereof having been completed as stated above; it being expressly understood that, until such delivery is effected, title to and risk of damage to or loss of the VESSEL and her equipment shall be in the BUILDER. 6. Removal of VESSEL: The OWNER shall take possession of the VESSEL immediately upon delivery and acceptance thereof and shall remove the VESSEL from the premises of the Shipyard within Seven (7) days after delivery and acceptance thereof is effected. If the OWNER shall not remove the VESSEL from the premises of the Shipyard within the aforesaid Seven (7) days, in such event, the OWNER shall pay to the BUILDER the reasonable mooring charges of the VESSEL. (End of Article) ARTICLE VIII - DELAYS AND EXTENSION OF TIME FOR DELIVERY (FORCE MAJEURE) 1. Causes of Delay (Force Majeure): If, at any time either the construction or delivery of the VESSEL or any performance required hereunder as a prerequisite to the delivery thereof is delayed by any of the following events; namely war, acts of state or government, blockade, revolution, insurrections, mobilization, civil commotion, riots, strikes, sabotage, lockouts, Acts of God or the public enemy, plague or other epidemics, quarantines, prolonged failure of electric current, freight embargoes, or defects in major forgings or castings, if any, or shortage of materials, machinery or equipment in inability to obtain delivery or delays in delivery of materials, machinery or equipment, provided that at the time of ordering the same could reasonably be expected by the BUILDER to be delivered in time, or defects in materials, machinery or equipment which could not have been detected by the BUILDER using reasonable care, or earthquakes, tidal waves, typhoons, hurricanes, prolonged or unusually severe weather conditions or delay in the construction of the BUILDER's other newbuilding projects in the same yard due to any such causes as described in this Article which in turn delay the keel laying and eventual delivery of the VESSEL in view of the Shipyard's overall building program or the BUILDER's performance under this Contract, or by destruction of the premises or works of the BUILDER or its sub-contractors, or of the VESSEL, or any part thereof, by fire, landslides, flood, lightning, explosion, or other causes beyond the control of the BUILDER, or its sub-contractors, as the case may be, or for any other causes which, under terms of this Contract, authorize and permit extension of the time for delivery of the VESSEL, then, in the event of delays due to the happening of any of the aforementioned contingencies, the Delivery Date of the VESSEL under this Contract shall be extended for a period of time which shall not exceed the total accumulated time of all such delays. 2. Notice of Delay: Within Fourteen (14) days after the date of occurrence of any cause of delay, on account of which the BUILDER claims that it is entitled under this Contract to a postponement of the Delivery Date, the BUILDER shall notify the OWNER in writing or by telex or telefax confirmed in writing of the date when such cause of delay occurred. Likewise, within Fourteen (14) days after the date of ending of such cause of delay, the BUILDER shall notify the OWNER in writing or by telex or telefax confirmed in writing of the date when such cause of delay ended. The BUILDER shall also notify promptly the OWNER of the period, by which the Delivery Date is postponed by reason of such cause of delay. If the BUILDER does not give the timely advice as above, the BUILDER shall lose the right to claim such delays as permissible delay. Failure of the OWNER to acknowledge the BUILDER's claim for postponement of the Delivery Date within fourteen (14) days after receipt by the OWNER of such notice of claim shall be deemed to be a waiver by the OWNER of its right to object to such postponement of the Delivery Date. 3. Definition of Permissible Delay: Delays on account of such causes as specified in Paragraph 1 of this Article and any other delay which under the terms of this Contract permits postponement of the Delivery Date shall be understood to be permissible delays and are to be distinguished from unauthorized delays on account of which the Contract Price is subject to adjustment as provided for in Article III hereof. 4. Right to Rescind for Excessive Delay: (a) If the total accumulated time of all delays claimed by the BUILDER on account of the causes specified in Paragraph 1 of this Article, excluding other delays of the nature which under the terms of this Contract permit postponement of the Delivery Date, amounts to One Hundred Eighty (180) days or more, then, in such event, the OWNER may rescind this Contract in accordance with the provisions of Article X hereof. The BUILDER may, at any time after the accumulated time of the aforementioned delays justifying rescission by the OWNER, demand in writing that the OWNER shall make an election, in which case the OWNER shall, within fourteen (14) working days after such demand is received by the OWNER either notify the BUILDER of its intention to rescind this Contract, or consent to a postponement of the Delivery Date to a specified future date, which date BUILDER represents to OWNER is the earliest date BUILDER can deliver the VESSEL to OWNER, based on the circumstances then known, it being understood by the parties hereto that if the VESSEL is not delivered by such future date, the OWNER shall have the same right of rescission upon the same terms and conditions as hereinabove provided. (b) If at any time during the term of this Contract, BUILDER falls more than 270 days behind in the construction of the VESSEL according to the Delivery and Construction Schedule, for any reason whatsoever, and whether as a result of permissible delay or otherwise, OWNER shall be entitled to give written notice to BUILDER that OWNER considers BUILDER in material default of its obligations under this Contract, and if BUILDER has not cured such default within Thirty (30) days after receipt of such notice, OWNER shall have the right to rescind this Contract in accordance with the provisions of Article X hereof. (End of Article) ARTICLE IX - WARRANTY OF QUALITY 1. Guarantee: The BUILDER, for the period of Twelve (12) months after delivery of the VESSEL (hereinafter called "Guarantee Period"), guarantees the VESSEL and her engines, including all parts and equipment manufactured, furnished or installed by the BUILDER or its subcontractors under this Contract, and including the machinery, equipment and appurtenances thereof (including the installation work performed or required to be performed by BUILDER under this Contract for the OWNER supplied or furnished equipment), under the Contract but excluding any item which is supplied or designated by the OWNER or by any other bodies on behalf of the OWNER, against all defects and all damages to the VESSEL resulting therefrom occurring within the Guarantee Period which are due to defective material, design and/or poor workmanship or negligent or other improper acts or omissions on the part of the BUILDER or its subcontractors (hereinafter called the "Defect" or "Defects") and are not a result of accident, ordinary wear and tear, misuse, mismanagement, negligent or other improper acts or omissions or neglect on the part of the OWNER, its employee or agents. The BUILDER shall arrange for the OWNER to obtain a five (5) year guarantee after delivery of the VESSEL for the paint materials and the ballast tank coatings through the paint manufacturer selected by the BUILDER. But, the BUILDER's guarantee for the ballast tank coating shall be in no event longer than one (1) year after delivery of the VESSEL unless major repairs as defined in Clause 3 of this Article have arisen. Such additional extended guarantee shall proceed between the OWNER and the selected manufacturer arranged by the BUILDER. Final selection of the ballast tank coatings manufacturer is subject to the approval of the OWNER, not to be unreasonably withheld. 2. Notice of Defects: The OWNER shall notify the BUILDER in writing, or by telex confirmed in writing, of any Defect for which claim is made under this guarantee, as promptly as possible after discovery thereof. The OWNER's written notice shall describe in detail the nature, cause and extent of the Defects. The BUILDER shall have no obligation for any Defect discovered prior to the expiry date of the Guarantee Period, unless notice of such Defect or any damage resulting therefrom is received by the BUILDER not later than Ten (10) BUILDER's working days after the expiry date of the Guarantee Period. 3. Remedy of Defects: (a) The BUILDER shall remedy, at its expense, any Defect against which the VESSEL is guaranteed under this Article, by making all necessary repairs or replacements at the Shipyard. (b) However, if it is impracticable to bring the VESSEL to the Shipyard, the OWNER may cause the necessary repairs or replacements to be made elsewhere which is deemed suitable for the purpose, provided that, in such event, the BUILDER may forward or supply replacement parts or materials to the VESSEL, unless forwarding or supplying thereof to the VESSEL would impair or delay the operation or working schedule of the VESSEL. In the event that the OWNER proposes to cause the necessary repairs or replacements for the VESSEL to be made at any other shipyard or works than the Shipyard, the OWNER shall first, but in all events as soon as possible, give the BUILDER notice in writing or by telex or telefax confirmed in writing of the time and place when and where such repairs will be made, and if the VESSEL is not thereby delayed, or her operation or working schedule is not thereby impaired, the BUILDER shall have the right to verify by its own representative(s) the nature, cause and extent of the Defects complained of. The BUILDER shall, in such case, promptly advise the OWNER by telex or telefax, after such examination has been completed, of its acceptance or rejection of the Defects as ones that are covered by the guarantee herein provided. Upon the BUILDER's acceptance of the Defects as justifying remedy under this Article, or upon award of the arbitration so determining, the BUILDER shall pay to the OWNER for such repairs or replacements a sum equa to the reasonable cost of making the same repairs or replacements in a first class Korean shipyard, at the prices prevailing at the time of such repairs or replacements are made. The guarantee works shall be settled regularly during the Guarantee Period. The actual reimbursement for the guarantee shall be made in a lump sum at the expiry of the Guarantee Period. (c) In any case, the VESSEL shall be taken, at the OWNER's cost and responsibility, to the place elected, ready in all respects for such repairs or replacement. (d) Any dispute under this Article shall be referred to arbitration in accordance with the provisions of Article XII hereof. (e) Repairs under this Article are guaranteed for the balance of the period set out in paragraph 1 of this Article but for major repairs are guaranteed for the longer of the balance of the period set out in paragraph 1 of this Article or 6 months from the date of completion of major repairs, but in no event longer than 18 months after the Delivery Date. For purposes hereof, "major repairs" shall be defined as a repair costing more than One Hundred Fifty Thousand United States Dollars (US$150,000) 4. Extent of BUILDER's Responsibility: (a) The BUILDER shall have no responsibility or liability for any other defect whatsoever in the VESSEL other than the Defects specified in Paragraph 1 of this Article, other than to repair all damages to the VESSEL discovered within the Guarantee Period and resulting from or caused by the Defects which are not attributable to the OWNER's (i) improper acts or omissions, (ii) negligence, or (iii) misuse. Nor shall the BUILDER in any circumstances be responsible or liable for any consequential or special loss, damage or expense, including, but not limited to, loss of time, loss of profit or earnings or demurrage directly or indirectly occasioned to the OWNER by reason of the Defects specified in Paragraph 1 of this Article or due to repairs or other works done to the VESSEL to remedy such Defects. (b) The BUILDER shall not be responsible for any defect in any part of the VESSEL which may, subsequently to delivery of the VESSEL, have been replaced or repaired in any way by any other contractor, unless done pursuant to Paragraph 3 (b) of this Article, or for any defect which have been caused or aggravated by omission or improper use and maintenance of the VESSEL on the part of the OWNER, its servants or agents or by ordinary wear and tear or by any other cause beyond control of the BUILDER (other than aggravation of defect or results of defect resulting from the use or operation of the VESSEL after knowledge of same by OWNER, where such continued use or operation was unavoidable to preserve or protect the safety of the VESSEL or her crew). (c) The guarantee contained as hereinabove in this Article replaces and excludes any other liability, guarantee, warranty and/ or condition imposed or implied by the law, customary, statutory or otherwise, by reason of the construction and sale of the VESSEL by the BUILDER for and to the OWNER. 5. Guarantee Engineer: The BUILDER shall, at the request of the OWNER, appoint a maximum of two (2) Guarantee Engineers to serve on the VESSEL as its representative for a period of up to Three (3) months from the date the VESSEL is delivered. However, if the OWNER shall deem it necessary to keep the Guarantee Engineers on the VESSEL for a longer period, then they shall remain on board the VESSEL after the said three (3) months, up to but not longer than Six (6) months from the delivery of the VESSEL. The OWNER, and its employees, shall give such Guarantee Engineers full cooperation in carrying out their duties as the representative of the BUILDER on board the VESSEL. The OWNER shall accord the Guarantee Engineers treatment comparable to the VESSEL's Chief Engineer, and shall provide board and lodging at no cost to the BUILDER or the Guarantee Engineers. The BUILDER and the OWNER shall, prior to delivery of the VESSEL, execute a separate agreement regarding the Guarantee Engineers, including an appropriate mutual hold harmless agreement. While the Guarantee Engineers are on board the VESSEL, the OWNER shall pay to the Guarantee Engineers the sum of US$5,000 per month, the expenses of their repatriation to Korea by air upon termination of their service, the expenses of their communication with the BUILDER incurred in performing their duties and expenses, if any, of their medical and hospital care in the VESSEL's hospital. BUILDER will have the option, at BUILDER's sole risk and expense, to place a maximum of two (2) Guarantee Engineers on board the VESSEL for a period of up to six (6) months. The OWNER will provide board, lodging, communications and general working support services at no cost to the BUILDER or the Guarantee Engineers but all other expenses shall be for the sole account of BUILDER. (End of Article) ARTICLE X - RESCISSION BY OWNER 1. Notice: The payments made by the OWNER prior to delivery of the VESSEL shall be in the nature of advances to the BUILDER, and in the event that the VESSEL after sea trial is rejected by the OWNER or the Contract is rescinded by the OWNER in accordance with the terms of this Contract under and pursuant to any of the provisions of this Contract specifically permitting the OWNER to do so, then the OWNER shall notify the BUILDER in writing or by telex confirmed in writing, and such rescission shall be effective as of the date when notice thereof is received by the BUILDER. 2. Refundment by BUILDER: In case the BUILDER receives the notice stipulated in Paragraph 1 of this Article, the BUILDER shall promptly refund to the OWNER the full amount of all sums paid by the OWNER to the BUILDER on account of the VESSEL, together with the interest thereon, unless the BUILDER proceeds to the arbitration under the provisions of Article XII hereof. In the event of such rescission by the OWNER, the BUILDER shall pay the OWNER interest at the rate of Eight percent (8%) per annum on the amount required herein to be refunded to the OWNER, computed from the date following the respective date on which such sums were paid by the OWNER to the BUILDER to the date of remittance by transfer of such refund to the OWNER by the BUILDER, provided, however, that if the said rescission by the OWNER is made under the provisions of Paragraph 4 of Article VIII hereof, then in such event the BUILDER shall pay the OWNER interest at the rate of Four percent (4%) per annum. on the sums refundable. As security for refund of installments prior to delivery of the VESSEL, the BUILDER shall furnish to OWNER, prior to the due date of the first installment, with a letter of guarantee covering the amount of such pre-delivery installments and issued by the BUILDER's BANK in favor of the OWNER. Such letter of guarantee shall have substantially the same form and substance as Exhibit "All annexed hereto. 3. Discharge of Obligations: Upon such refund by the BUILDER to the OWNER, all obligations, duties and liabilities of each of the parties hereto to the other under this Contract shall be forthwith completely discharged, without prejudice, however,to any claims either party may have resulting from the other party's breach of any of its obligations under this Contract. (End of Article) ARTICLE XI - OWNER'S DEFAULT 1. Definition of Default: The OWNER shall be deemed to be in default of its performance of obligations under this Contract in the following cases: (a) If the first, second or third installment is not paid by the OWNER to the BUILDER within Five (5) banking days in New York after such installment becomes due and payable as provided in Article II hereof; or (b) If the fourth installment is not paid by the OWNER to the BUILDER in New York at the time such installment becomes due and payable upon delivery of the Vessel as provided in Article II hereof; or (c) If the increased amount in the Contract Price as adjusted due and payable upon delivery of the VESSEL is not paid by the OWNER concurrently with delivery of the VESSEL as provided in Article II hereof; or (d) If the OWNER, when the VESSEL is duly tendered for delivery by the BUILDER in accordance with the provisions of this Contract, fails to accept the VESSEL within Five (5) days from the tendered date without any specific and valid ground thereof under this Contract. 2. Effect of Default on or before Delivery of VESSEL: (a) Should the OWNER make default in payment of any installment of the Contract Price on or before delivery of the VESSEL, the OWNER shall pay the installment(s) in default plus accrued interest thereon at the rate of eight percent (8%) per annum. computed from the due date of such installment to the date when the BUILDER receives the payment, and, for the purpose of Paragraph 1 of Article VII hereof, the Delivery Date of the VESSEL shall be automatically extended by a period of continuance of such default by the OWNER. In any event of default by the OWNER, the OWNER shall also pay all charges and expenses incurred to the BUILDER in direct consequence of such default. (b) If any default by the OWNER continues for a period of Ten (10) days, the BUILDER may, at its option, rescind this Contract by giving notice of such effect to the OWNER by telex or telefax confirmed in writing. XI-1 Upon dispatch by the BUILDER of such notice of rescission, this Contract shall be forthwith rescinded and terminated. In the event of such rescission of this Contract, the BUILDER shall be entitled to retain any installment or installments already paid by the OWNER to the BUILDER on account of this Contract and the OWNER's Supplies, if any. 3. Disposal of VESSEL: (a) In the event that this Contract is rescinded by the BUILDER under the provisions of Paragraph 2(b) of this Article, the BUILDER must, at its sole discretion, either complete the VESSEL and sell the same, or sell the VESSEL in its incomplete state, free of any right or claim of the OWNER. Such sale of the VESSEL by the BUILDER shall be either by public auction or private contract at the BUILDER's sole discretion and on such terms and conditions as the BUILDER shall deem fit. (b) On sale of the VESSEL, the amount of the sale proceeds received by the BUILDER shall be applied firstly to all expenses attending such sale or otherwise incurred to the BUILDER as a result of the OWNER's default, secondly to the payment of all costs and expenses of construction of the VESSEL incurred to the BUILDER less OWNER's Supplies and the installments already paid by the OWNER, and then to the compensation to the BUILDER for a reasonable loss of profit due to rescission of this Contract, and finally to the repayment to the OWNER if any balance is obtained. (c) If the proceeds of sale are insufficient to pay such total costs and loss of profit as aforesaid, the OWNER shall promptly pay the deficiency to the BUILDER upon request. 4. Dispute: Any dispute under this Article shall be referred to arbitration in accordance with the provisions of Article XII hereof. (End of Article) ARTICLE XII - ARBITRATION 1. Decision by the Classification Society: If any dispute arises between the parties hereto in regard to the design and/or construction of the VESSEL, its machinery and equipment, and/or in respect of the materials and/or workmanship thereof and/or thereon, and/or in respect of interpretations of this Contract, the parties may by mutual agreement refer the dispute to the Classification Society or to such other expert as may be mutually agreed between the parties hereto, and whose decision shall be final, conclusive and binding upon the parties hereto. 2. Proceedings of Arbitration: In the event that the parties hereto do not agree to settle a dispute according to Paragraph 1 of this Article and/or in the event of any other dispute of any kind whatsoever between the parties and relating to this Contract or its rescission or any stipulation herein, such dispute shall be submitted to arbitration in London. Each party shall appoint an arbitrator and the two arbitrators so appointed shall appoint an Umpire. If the two arbitrators are unable to agree upon an Umpire within Twenty (20) days after appointment of the second arbitrator, either of the said two arbitrators may apply to the President for the time being of the London Maritime Arbitrators Association to appoint the Umpire, and the two arbitrators and the Umpire shall constitute the Arbitration Board. Such arbitration shall be in accordance with and subject to the provisions of the British Arbitration Act 1979, or any statutory modification or re-enactment thereof for the time being in force. Either party may demand arbitration of any such dispute by giving notice to the other party. Any demand for arbitration by either of the parties hereto shall state the name of the arbitrator appointed by such party and shall also state specifically the question or questions as to which such party is demanding arbitration. within Fourteen (14) days after receipt of notice of such demand for arbitration, the other party shall in turn appoint a second arbitrator and give notice in writing of such appointment to the party demanding arbitration. If a party fails to appoint an arbitrator as aforementioned within Fourteen (14) days following receipt of notice of demand for arbitration by the other party, the party failing to appoint an arbitrator shall be deemed to have accepted and appointed, as its own arbitrator, the arbitrator appointed by the party demanding arbitration and the arbitration shall proceed before this sole arbitrator who alone in such event shall constitute the Arbitration Board. The award of the Arbitration Board shall be final and binding on both parties. 3. Notice of Award: The award decision shall immediately be communicated to the OWNER and the BUILDER by facsimile and confirmed in writing. 4. Expenses: The Arbitration Board shall determine which party shall bear the expenses of the arbitration or the portion of such expenses which each party shall bear. 5. Entry in Court: In case of failure by either party to respect the award of the Arbitration Board, the judgement may be entered in any proper court having jurisdiction thereof to enforce such award. 6. Alteration of Delivery Date: In the event of reference to arbitration of any dispute arising out of matters occurring prior to delivery of the VESSEL, the award may include any adjustment of the Delivery Date which the Arbitration Board may deem appropriate. (End of Article) ARTICLE XIII - SUCCESSOR AND ASSIGNS Neither of the parties hereto shall assign this Contract to any other individual or company unless prior consent of the other party is given in writing, such consent not to be unreasonably withheld, provided however, that the OWNER shall be freely entitled to assign this Contract to an Affiliated Company without the prior approval of BUILDER. For the purposes of any such assignment, "Affiliated Company" means a company or other legal entity which controls or is controlled by OWNER, or which is controlled by an entity which controls the OWNER. For purposes hereof, control means the ownership, directly or indirectly, of fifty percent (50%) or more of the shares or voting rights in a company or legal entity. Upon giving notice to the BUILDER of such assignment, the assignor shall, to the extent assigned, have no further obligation thereunder. The notice given by OWNER of such assignment shall include a reasonable explanation of the purpose of the assignment and shall provide sufficient information so as to allow the BUILDER to advise the BUILDER's Bank regarding any amendment of the name of the beneficiary of the Refund Guarantee provided for in Article X hereof. Upon such assignment, the OWNER shall provide to BUILDER a copy of any assignment made pursuant hereto. In the event of any assignment pursuant to the terms of this Contract, the assignee shall succeed to all of the assigned rights, responsibilities, duties and obligations of the assignor under this Contract and, to the extent assigned, the assignor shall have no further right or obligation hereunder. Should OWNER assign this Contract, any assignee or subsequent assignee of this Contract shall succeed to the rights of the OWNER to further assign this Contract under this Article XIII. (End of Article) ARTICLE XIV - TAXES AND DUTIES 1. Taxes and Duties Incurred in Korea: The BUILDER shall bear and pay all taxes, duties, stamps and fees incurred in Korea in connection with execution and/or performance of this Contract as the BUILDER, and any taxes and duties imposed in Korea upon the OWNER's Supplies resulting from the failure attributable to the BUILDER in taking all appropriate action to have such OWNER's Supplies imported into Korea under bond for ultimate export with the VESSEL following delivery. 2. Taxes and Duties Incurred Outside Korea: The OWNER shall bear and pay all taxes (other than taxes on income imposed on BUILDER), duties, stamps and fees incurred outside Korea in connection with execution and/or performance of this Contract as the OWNER, except for taxes and duties imposed upon those items (other than OWNER's Supplies) to be procured by or for the BUILDER for construction of the VESSEL which shall be the responsibility of the BUILDER. (End of Article) ARTICLE XV - PATENTS, TRADEMARKS, COPYRIGHTS, ETC. 1. Patents: Except as to OWNER's provided basic design, specifications and OWNER's Supplies, BUILDER agrees to defend, indemnify and hold OWNER harmless from any liability or claims of patent infringement of any nature or kind (including legal fees and expenses) relating to the infringement or claimed infringement of patent rights of any third party with respect to any material, service, process, or apparatus covered by this Contract, or their use for their intended purpose. With regards to the performance of the current Contract, OWNER shall defend, indemnify and hold BUILDER harmless from all claims of infringement of patent rights of any third party related to (i) processes supplied by OWNER or (ii) OWNER's Supplies. Except as otherwise provided for in this Agreement, nothing contained herein shall be construed as transferring any rights in any patents, trademarks or copyrights utilized in the performance of this Contract. 2. General Plans, Specifications and Working Drawings: (a) The OWNER retains the right to use the Specifications to inspect and/or verify the work performed by the BUILDER hereunder or to make repairs or modifications to the VESSEL or to use or operate the VESSEL (b) It is specifically agreed that the Contract Price does not include provision for BUILDER's obtaining or having obtained any and all necessary design rights from R&B Falcon Drilling Co. and Ishikawajima-Harima Heavy Industries Co., Ltd. and/or their parent, affiliated or subsidiary companies (hereinafter "Designer") nor payment of any and all design and/or royalty fees and that same has or will be obtained/paid by OWNER. 3. License The VESSEL is being constructed pursuant to a design supplied by OWNER and ISHIKAWAJIMA-HARIMA HEAVY INDUSTRIES CO., LTD. ("IHI"). It is agreed between OWNER and BUILDER that BUILDER will not construct another rig of the RBS8-D design without seeking the agreement of OWNER and IHI, nor will BUILDER disclose RBS8-D design to any third parties who are not related to the execution of this Contract, without prior consent of both OWNER and IHI. BUILDER and OWNER agree on the following principals regarding the licensing of the OWNER/IHI design: (a) OWNER and IHI (referred in this article collectively as "LICENSORS") are the joint owners of the design of "RBS8-D" Type semisubmersible Drilling Unit. (b) In order to protect the rights of the LICENSORS as joint owners of RBS8-D design, LICENSORS agree to grant BUILDER a non-exclusive license to construct and to sell RBS8-D designed Drilling Units only to OWNER. (c) The license granted to BUILDER shall not confer the right to grant a sublicense to any third party. (d) The arrangement and outfitting of RBS8-D may be modified by BUILDER to suit their production facilities or for the requirement of OWNER or by normal detail design progress. (e) BUILDER agrees to maintain confidential all information provided which is the property of LICENSORS and such information will be returned upon LICENSORS' request. (End of Article) ARTICLE XVI - OWNER'S SUPPLIES 1. Responsibility of OWNER: (a) The OWNER shall, at its own risk, cost and expense, supply and deliver to the BUILDER all of the items to be furnished by the OWNER as specified in the Specifications (herein called the OWNER's Supplies) to a first point of arrival (the port of Pusan or other places as may be agreed between the parties) in Korea in good condition. Once delivered to the first point of arrival in Korea, the OWNER's Supplies will be at the BUILDER's risk. Upon transportation of the OWNER's Supplies to the shipyard and after customs clearance, the BUILDER shall make a visual inspection of OWNER's Supplies and report to OWNER any apparent damage to the OWNER's Supplies. OWNER and BUILDER shall inspect the OWNER's Supplies after customs clearance and upon arrival thereof at the Shipyard to determine through visual examination whether the OWNER's Supplies comply with the contractual specifications or have been damaged during the transportation. If as the result of such inspections, (i) any defect to the OWNER's Supplies is found, or (ii) any damage to the OWNER's Supplies occurring prior to arrival at the shipyard is found, then all the remedies and replacements thereof are the responsibility of the OWNER. Any delay or direct expenses regarding the construction of the VESSEL resulting solely from OWNER's failure to have the OWNER's Supplies delivered in Korea as agreed herein shall be the OWNER's responsibility. Risk of transportation within Korea to the Shipyard and risk of offloading, uncrating and storage of the OWNER's Supplies upon their arrival at the Shipyard will be with BUILDER. However, the cost for inland transportation, customs clearance, insurance for inland transportation and other costs, if any, for the OWNER's Supplies shall be one half of one percent (0.5%) of the OWNER's Supplies amount on the C.I.F. value basis for those delivered to Mipo port outside the shipyard, Ulsan or one percent (1.0%) for those delivered to Pusan Port, Pusan, which shall be paid by the OWNER to the BUILDER together with the payment of the 5th installment pursuant to Article II hereof. In case such OWNER's Supplies are delivered directly to the Shipyard or Mipo Port in the Offshore Yard by the OWNER, the applicable cost (rate) shall be reduced to zero point zero percent (0.0%) of the OWNER's Supplies amount on the basis of C.I.F. value, except OWNER will pay for customs clearance or any third party costs. OWNER's Supplies sent to ports nearby the Shipyard will be assessed charges for transportation, customs clearance fee, harbor union fee, pilotage and other costs that are incurred by the BUILDER to facilitate delivery of the OWNER's Supplies to the Shipyard. These fees will be charged at actual direct cost. Any loss of or damage to the OWNER's Supplies after they are in the custody of the BUILDER will be for the account of the BUILDER and BUILDER will replace or repair any OWNER's Supplies that may be lost or damaged, and a subsequent delay due to the foregoing and resulting cost impact will be the BUILDER's responsibility. BUILDER agrees and acknowledges that any or all of the OWNER's Supplies may arrive at the Shipyard in individual parts or as component parts to be placed in or made a part of a larger system or module. The BOP is to arrive in not more than four (4) main components. (b) In order to facilitate detailed design and installation by the BUILDER of the OWNER's Supplies in or on the VESSEL, the OWNER shall furnish the BUILDER with necessary specifications, plans, drawings, instruction books, manuals, test reports and certificates required by the rules and regulations of the Specifications. If so requested by the BUILDER, the OWNER, without any charge to the BUILDER, shall cause the representatives of the manufacturers of the OWNER's Supplies to advise the BUILDER in installation thereof in or on the VESSEL. (c) Any and all of the OWNER's Supplies shall be subject to the BUILDER's reasonable right of rejection, as and if they are found to be unsuitable or in improper condition for installation. (d) The insurance for the OWNER's Supplies during storage, construction and installation at the Shipyard is covered and handled by the BUILDER at its cost and responsibility. (e) A preliminary Delivery Schedule of the OWNER's Supplies and vendor data specific to the VESSEL (Hull No. HRBS8D) showing the BUILDER's requested delivery dates is attached to the Specifications. The Delivery Schedule of the OWNER's Supplies and vendor data shall be mutually agreed, finalized and settled within Sixty (60) calendar days from the date of contract signing. The delivery dates agreed to on the Delivery Schedule will be the date OWNER's Supplies are required at the shipyard. Should the OWNER fail to deliver any of the OWNER's Supplies within Twenty (20) days of the time designated by the Delivery Schedule, the Delivery Date shall be automatically extended for a period not to exceed the actual delay, beyond twenty (20) days, incurred by the BUILDER. If no delay in the delivery of the VESSEL is incurred by the BUILDER, the Delivery Date shall not change. (f) If delay in delivery of any of the OWNER's Supplies exceeds thirty(30) days, then, the BUILDER shall be entitled to proceed with construction of the VESSEL without installation thereof in or on the VESSEL as hereinabove provided, and the OWNER shall accept and take delivery of the VESSEL so constructed, unless such delay is caused by Force Majeure in which case the provision Paragraph 1(e) of this Article shall apply. 2. Responsibility of BUILDER: The BUILDER shall be responsible for storing and handling with reasonable care of the OWNER's Supplies after delivery thereof at the Shipyard, and shall, at its own cost and expense, install them in or on the VESSEL, unless otherwise provided herein or agreed by the parties hereto, provided, always, that the BUILDER shall not be responsible for quality, efficiency and/or performance of any of the OWNER's Supplies (other than to install same in accordance with the manufacturer's specifications and requirements, copies of which have been provided to BUILDER by OWNER). It will be the BUILDER's responsibility at no cost to OWNER to: (i) assemble the OWNER's Supplies, bulk material and provide modularization and/or engineering, except procurement engineering related to the OWNER's Supplies, at the Shipyard; (ii) test the OWNER's Supplies as necessary or appropriate; (iii) construct modules from the OWNER's Supplies as appropriate; (iv) test and pre-commission the modules containing the OWNER's Supplies and to generally test all of the OWNER's Supplies; (v) install the OWNER's Supplies on the VESSEL, in modules, as required, or otherwise as required, and to integrate the OWNER's Supplies into the overall designed system of the VESSEL; (vi) test and pre-commission the integrated modules and systems; and (vii) complete and test the entire drilling system where practicable (i.e., equipment functional test only, not full operational load test) to insure that it works harmoniously as a part of the drilling process and the VESSEL so as to be able to accomplish its intended purpose. In no event will BUILDER charge any additional cost for any of the above. Pre-commission or pre-commissioning as used in this Contract or the Specifications means the putting into service or the commissioning to be done at the Shipyard prior to delivery and acceptance. Pre-commission or precommissioning does not mean commissioning that occurs elsewhere. 3. Title: Title to OWNER's Supplies shall at all times remain with OWNER during the Contract; however, BUILDER shall have the risk of loss of or damage to such OWNER's Supplies from the time set out in subparagraph 1(a) of this Article until delivery of the VESSEL. 4. OWNER's Supplies Refundment: Notwithstanding anything else contained in this Contract, BUILDER agrees that if for any reason whatsoever the VESSEL is not delivered to OWNER, other than as a result of OWNER's default under Article XI of this Contract, then BUILDER shall remit to OWNER the full value of all OWNER's Supplies which have been delivered to the Shipyard or which BUILDER has taken custody of under this Article XVI. BUILDER shall remit all amounts due under this paragraph 4 upon written demand by OWNER and upon BUILDER's request, OWNER will furnish BUILDER with reasonable documentation showing OWNER's cost of OWNER's Supplies. BUILDER shall remit all amounts due within thirty (30) days of demand. (End of Article) ARTICLE XVII - INSURANCE 1. Extent of Insurance Coverage: From the time of the launching until delivery of the VESSEL, the BUILDER shall, at its own cost and expense, keep the VESSEL and all machinery, materials and equipment delivered to the Shipyard for the VESSEL or built into or installed in or upon the VESSEL (except the OWNER's Supplies) fully insured with first class insurance companies or underwriters in Korea with coverage corresponding to the Institute of London Underwriter's Clauses for BUILDER's Risks. From the time of the first arrival of the OWNER's Supplies in the shipyard until delivery of the VESSEL, the BUILDER shall keep the OWNER's Supplies fully insured with the aforementioned insurance companies or underwriters to cover BUILDER's Risk. The amount of such insurance coverage shall, up to the date of delivery of the VESSEL, be an amount at least equal to, but not limited to, the aggregate of the payments made by the OWNER to the BUILDER plus Ninety-Two Million United States Dollars (US$92,000,000) to cover OWNER's Supplies in the custody of the Shipyard. The policy referred to in this paragraph for the OWNER's Supplies shall be taken out in the name of the BUILDER and OWNER, as their interests may appear, and all losses under such policy shall be payable to the BUILDER and OWNER, as their interests may appear. Prior to the commencement of construction of the VESSEL, the BUILDER shall obtain, at its own cost and expense, and furnish certificates or copies thereof to the OWNER, the following policies of insurance: (a) Worker's compensation (including occupational disease) and employer's liability insurance with Maritime and In Rem coverage and in accordance with the applicable statutory requirements of the country of Korea, with limits on the employer's liability coverage of not less than U.S. $500,000 for bodily injury per person, with excess liability limits of U.S. $10,000,000; (b) Comprehensive public liability, including broad form contractual liability coverage, with limits of not less than U.S. $500,000 for bodily injury per occurrence, and U.S. $500,000 for property damage per occurrence with excess liability limits of U.S. $10,000,000; (c) All-Risk BUILDER's Risk policy, including protection and indemnity, relating to the VESSEL and OWNER Supplies and in an amount equal to the aggregate of the payments made by the OWNER to the BUILDER plus Ninety-Two Million United States Dollars (US$92,000,000) to cover OWNER's Supplies in the custody of the Shipyard. At any time during the period of this Agreement, the OWNER has the right by giving prior written notice to the BUILDER to increase the amount of the insurance provided hereunder and the OWNER will promptly reimburse the BUILDER for any premiums resulting from such increase based on the published Lloyds of London rates at the time of such increase. Should the Delivery Date be later than March 1, 2000 for any cause attributable to the OWNER, any additional premium charged to continue the policy shall be borne solely by the OWNER to the extent that the delay is caused by the OWNER. The OWNER agrees that the BUILDER has the right of settlement of all losses (except for damages to or losses of OWNER Supplies) applicable under this Paragraph 2(c) with the underwriters provided such losses do not exceed U.S. $300,000 each. All deductibles under the All-Risk BUILDER's Risk policy shall be for the account of the BUILDER; and (d) Automobile liability insurance covering automobile equipment used in the performance of the work under this Agreement with limits of not less than U.S. $500,000 for bodily injury per occurrence and U.S. $500,000 for property damage per occurrence with excess liability limits of U.S. $10,000,000; All insurance policies shall, either on the face thereof or by appropriate endorsement: (w) name (except for the policy specified in Paragraph (a) hereinabove) the BUILDER and the OWNER as unqualified assureds and provide that payments thereunder shall be made to the extent that their respective interests may appear; (x) provide that they shall not be cancelled or their coverage reduced except upon thirty days, prior written notice to the BUILDER and the OWNER (if such cancellation or reduction should be caused by the BUILDER's failure to pay any premium when due, the OWNER will have the right to pay any such premium within such thirty days to maintain the coverage in effect for the benefit of the OWNER; the OWNER retains the right to be reimbursed by the BUILDER); (y) contain waiver of subrogation provisions pursuant to which the insurer waives all express or implied rights of subrogation against the BUILDER and the OWNER, the BUILDER and the OWNER hereby waiving any rights to subrogate against each other; and (z) be maintained in full force and effect by the BUILDER from commencement of construction until the Delivery Date. 2. Application of the Recovered Amounts: In the event that the VESSEL shall be damaged from any insured cause at any time before delivery of the VESSEL, and in the further event that such damage shall not constitute an actual or constructive total loss of the VESSEL, the amount received in respect of the insurance shall be applied by the BUILDER in repair of such damage, satisfactory to the Classification requirements, and the OWNER shall accept the VESSEL under this Contract if completed in accordance with this Contract and the Specifications, however, subject to the extension of delivery time under Article VIII hereof (except in case of negligence of the BUILDER). Should the VESSEL from any cause become an actual or constructive total loss, the BUILDER shall either: (a) Proceed in accordance with the terms of this Contract, in which case the amount received in respect of the insurance shall be applied to the construction and repair of damage of the VESSEL, provided the parties hereto shall have first agreed thereto in writing and to such reasonable extension of delivery time as may be necessary for the completion of such reconstruction and repair; or (b) Refund promptly to the OWNER the full amount of all sums paid by the OWNER to the BUILDER as installments in advance of delivery of the VESSEL, and deliver to the OWNER all OWNER's Supplies (or the insurance proceeds paid with respect thereto), in which case this Contract shall be deemed to be automatically terminated and shall be deemed rescinded for purposes of Article X hereof and all rights, duties, liabilities and obligations of each of the parties to the other shall forthwith cease and terminate. 3. Termination of BUILDER's Obligation to Insure: The BUILDER shall be under no obligation to insure the VESSEL hereunder after delivery of the VESSEL. (End of Article) ARTICLE XVIII - NOTICE 1. Address: Any and all notices and communications in connection with this Contract shall be addressed as follows: To the OWNER: R&B Falcon Drilling Co. 901 Threadneedle Houston, Texas 77079-2902 Attn: President Facsimile No.: (281)589-5189 To the BUILDER: Hyundai Heavy Industries, Co. Ltd. 1, Choenha-Dong Ulsan, Korea Attn: Project Director Facsimile No.: (82)522-50-1998 2. Language: Any and all notices and communications in connection with this Contract shall be written in the English language. 3. Effective Date of Notice: The notice in connection with this Contract shall become effective from the date when such notice is received by the OWNER or by the BUILDER except otherwise described in the Contract. In case any notice is made by facsimile confirmed in writing, the date when the facsimile is received shall govern. (End of Article) ARTICLE XIX - EFFECTIVE DATE OF CONTRACT This Contract shall become effective upon signing by the parties hereto. (End of Article) ARTICLE XX - INTERPRETATION 1. Laws Applicable: The parties hereto agree that the validity and the interpretation of this Contract and of each Article and part thereof shall be governed by the General Maritime Law of the United States of America, not including, however, any of its conflicts of law rules which would direct or refer to the laws of any jurisdiction. 2. Discrepancies: All general language or requirements embodied in the Specifications are intended to amplify, explain and implement the requirements of this Contract. However, in the event that any language or requirements so embodied permit an interpretation inconsistent with any provision of this Contract text, then, in each and every such event, the applicable provisions of this Contract text shall prevail and govern. In the event of conflict between the Specifications and Plans, the Specifications shall prevail and govern. 3. Entire Agreement: This Contract contains the entire agreement and understanding between the parties hereto and supersedes all prior negotiations, representations, undertakings and agreements on any subject matter of this Contract. 4. Amendments and Supplements: Any supplement, memorandum of understanding or amendment, whatsoever form it may be in relating to this Contract, to be made and signed among parties hereof after signing this Contract, shall be the integral part of this Contract and shall be predominant over the respective corresponding Article and/or Paragraph of this Contract when clearly identified as such. (End of Article) ARTICLE XXI - CONFIDENTIALITY BUILDER and OWNER agree that the terms and conditions of this Contract shall remain confidential and neither party shall disclose any such terms and conditions of this Contract to any third party without first obtaining the prior written consent of the other, provided however, that either party shall be entitled to disclose any or all of the terms and conditions of the Contract to the extent it is necessary to do so to implement, effectuate and comply with the terms of the Contract or to otherwise exercise any right or discharge any obligation that party may have pursuant to this Contract or to comply with any law, rule, regulation of any governmental entity having jurisdiction over a party or of a stock exchange, securities commission and such on which stock of a party or its affiliate is traded. (End of Article) IN WITNESS WHEREOF, the parties hereto have caused this Contract to be duly executed on the day and year first above written. OWNER: BUILDER: R&B FALCON DRILLING CO. HYUNDAI HEAVY INDUSTRIES CO., LTD. By:Andrew Bakonyi By: Youn Jae Lee Title: President Title: Chief Operating Officer HYUNDAI CORPORATION By: Dong Soo Han By: Title: Senior Vice President EXHIBIT "A" LETTER OF REFUNDMENT GUARANTEE NO. Gentlemen: We hereby open our irrevocable letter of guarantee No.____ in favor of R&B Falcon Drilling Co.(hereinafter called the "OWNER") for account of Hyundai Heavy Industries Co., Ltd. and Hyundai Corporation, as follows in consideration of the shipbuilding contract dated December 16, 1998(hereinafter called the "Contract") made by and among the OWNER and Hyundai Heavy Industries Co., Ltd. and Hyundai Corporation (hereinafter collectively called the "BUILDER") for the construction of one (1) VESSEL having BUILDER's Hull No.____(hereinafter called the "VESSEL"). If in connection with the terms of the Contract the OWNER shall become entitled to a refund of the advance payment(s) made to the BUILDER prior to the delivery of the VESSEL, we hereby irrevocably guarantee the repayment of the same to the OWNER immediately on demand USD 13,588,800 (Say Thirteen Million Five Hundred Eighty-Eight Thousand Eight Hundred only) together with interest thereon at the rate of eight per cent (8%) per annum from the date following the date of receipt by the BUILDER to the date of remittance by telegraphic transfer of such refund. The amount of this guarantee will be automatically increased, not more than two (2) times, upon BUILDER's receipt of the respective installment: each time by the amount of installment of USD 13,588,800 (Say Thirteen Million Five Hundred Eighty-Eight Thousand Eight Hundred only), plus interest thereon as provided in the Contract, but in any eventuality the amount of this guarantee shall not exceed the total sum of USD 40,766,400 (Say United States Dollars Forty Million Seven Hundred Sixty-Six Thousand Four Hundred only) plus interest thereon at the rate of eight per cent (8% per annum. from the date following the date of BUILDER's receipt of each installment to the date of remittance by telegraphic transfer of the refund. In case any refund is made to you by the BUILDER or by us under this guarantee, our liability hereunder shall be automatically reduced by the amount of such refund. In the event of rescission of the Contract being based on delays due to force majeure or other causes beyond the control of the BUILDER, as required by Article X of the Contract, interest shall be paid at the rate of four percent (4%) per annum from the date following the date of BUILDER's receipt of each installment to the date of remittance by telegraphic transfer of the refund. This letter of guarantee is available against OWNER's simple receipt and signed statement certifying that OWNER's demand for refund has been made in conformity with Article X of the Contract and the BUILDER has failed to make the refund within Thirty (30) days after your demand to the BUILDER. Refund shall be made to you by telegraphic transfer in United States Dollars. This letter of guarantee shall expire and become null and void upon receipt by the OWNER of the sum guaranteed hereby or upon acceptance by the OWNER of delivery of the VESSEL in accordance with the terms of the Contract and, in either case, this letter of guarantee shall be returned to us. This guarantee is valid from the date of this letter of guarantee until delivery or in the event of delayed delivery until such time as the VESSEL is delivered by the BUILDER to the OWNER in accordance with the terms of the Contract. Notwithstanding the provisions hereinabove, in case we receive notification from you or the BUILDER confirmed by the Arbitration Board stating that your claim to rescind the Contract or your claim for refundment thereunder has been disputed and referred to Arbitration in accordance with the provisions of the Contract, the period of validity of this guarantee shall be extended until Thirty (30) days after the final award shall be rendered in the Arbitration and a copy thereof acknowledged by the Arbitration Board. In such case, this guarantee shall not be available unless and until such acknowledged copy of the final award in the Arbitration justifying your claim is presented to US. This guarantee shall not be affected by any extension of time or concession granted by the OWNER to the BUILDER or any delay or failure of the OWNER in enforcing its rights under the Contract. The OWNER shall have the right to assign this guarantee and all of its benefits to any assignee to whom the Contract is assigned. This guarantee shall be governed by the General Maritime Law of the United States of America, not including, however, any of its conflicts of law rules which would direct or refer to the laws of any jurisdiction. Very truly yours, ____________________________________ Exhibit II RBS -8D MASTER SCHEDULE (L-1) EXHIBIT III 4.2 Schedules of Rates NOTE - HHI includes Schedules of Rates which shall be used to cost additional work that may arise outside the scope of work covered in the Lump Sum Contract price (i.e., work that will be addressed by Change Orders). Them schedules of rates shall also be used as factored at 85% to calculate credits to the Company for deleted or reduced work scope, when such credits cannot be directly determined from the Lump Sum Price. 1) Schedule of Manhour Rates for Fabrication/Construction DESCRIPTION HOURLY RATE (US$) STANDARD OVERTIME Project Management / Engineering Manager 75 94 Lead engineer 68 85 Engineer 62 78 Administrator 62 78 Drafting 45 56 Secretary 30 38 Labor(See Note below) Structural Welder / Fitter 35 53 Pipe Welder / Fitter 35 53 Mechanics 35 53 Electrican/Instruim.Technician 35 53 Blaster / Painter 35 53 Scaffolder / Rigger 32 48 Inspection / Testing / NDE Technician 40 60 NOTE The labor rates include all related management, supervision, overhead, construction consumables, overhead profit etc. 2) Unit rates for Carbon steel Pipe Work(fabricated, erected and installed) Items Size Unit Unit rates(US) Install Pipe & Fitting 1.5" & below Ton 20,160 2" to 3" Ton 15,360 4" to 6" Ton 8,640 8" to 12" Ton 4,800 14" to 18" Ton 4,320 20" & above Ton 4,080 Supports All Ton 6,240 3) Unit rates for Structural Steel (fabrication/erection and installation) Items Description Unit Unit rates(U S) Install Steel Work I)Upper Hull Ton 2,640 2)Column Ton 2,928 3)Brace Ton 2,064 4)Lower Hull Ton 2,208 5)Outfitting Ton 2,544 4) Unit Rates for Plant, Equipment and Instruments (installation labor) Items Description Unit Unit rates(US) Mat'l Install Installation Lobor M-H 48 5)Unit rates for Insulation (Material: Mineral wool) Description Unit Unit rates (US) Mat'l Install 1)Vertical, 100 mm Thickness * 14 48 2)Overhead, 150 mm Thickness * 20 48 3)StructuralMember, 50 mm T. * 9 38 4)Under Exposed Deck, 300 mm T. * 41 82 *meter squared 6) Unit rates for Catholic Protection (Anode) Items Description Unit Unit rates (US) Mat'l Install Anode Ton 3,335 960 7) Unit Rates for Blasting and Painting Items Area Unit Unit rates (US) Mat'l Install Blasting/Paint All * 6 26 Paint *meter squared 8) Unit rates for Heating, Ventilating and Air Conditioning Duct Description Unit Unit rates (US) Mat'l Install 1)Rectangular Duct (Hot Dipped Gal ) -N.E. 2000 mm Girth Meter 293 144 -Over 2000mm N.E 4000mm Girth Meter 437 216 -Over 4000mm N.E 6000mm Girth Meter 591 432 -Over 6000mm Girth Meter 1,018 576 2)Circular or Flatoval Duct -N.E. 100mm Dia Meter 9 17 -Over 100mm N.E. 200mm Dia Meter 16 31 -Over 200mm n.e. 300mm Dia Meter 26 46 -Over 300mm N.E. 400mm Dia Meter 37 62 -Over 400mm Dia Meter 52 72 9) Unit rates for Joiner Work Description Unit Unit rates (US) Mat'l Install 1) Intemal B-Class Bulkhead/Liner Panels -25mm Thk. PVC Film finished * 44 48 -50mm Thk. PVC Film finished * 60 48 -25mm Thk. SUS finished * 78 48 -50mm Thk. SUS finished * 94 48 2) Ceilings -PVC Film finished * 26 120 -US finished * 52 120 *meter squared 10) Unit rates for Electrical Cabling including Cable Tray b) Reprographic Services Use by the Owner of the Equipment Installation Yard's reprographic department to provide additional copies of documents and drawings. Reproducible Dyeline Photocopy per Copy per Copy per Copy -------- -------- -------- Size A0 USD 4 USD 8 USD 16 Size Al USD 2 USD 4 USD 8 Size A2 USD 1.5 USD 3 USD 6 Size A3 USD 1 USD 2 USD 4 Size A4 USD 0.7 USD 1.5 USD 3 c) Secretaries Person/month - USD 1,500 11) Rate of Housing Facilities for Company Personnel EX-10.200 28 EXHIBIT 10.200 =========================================================================== CONTRACT FOR CONSTRUCTION AND SALE OF A 98,000 METRIC TONS DISPLACEMENT DRILLSHIP (HULL NO. 1300) BETWEEN R&B FALCON DRILLING CO. AND SAMSUNG HEAVY INDUSTRIES CO., LTD. =========================================================================== INDEX PAGE PREAMBLE P-1 ARTICLE I - DESCRIPTION AND CLASS . . . . . . . . . . . . . . I-1 1. Description: . . . . . . . . . . . . . . . . . . . . I-1 2. Dimensions and Characteristics: . . . . . . . . . . I-1 3. The Classification, Rules and Regulations: . . . . . I-1 4. Registration: . . . . . . . . . . . . . . . . . . . I-2 ARTICLE II - CONTRACT PRICE AND TERMS OF PAYMENT . . . . . . II-3 1. Contract Price: . . . . . . . . . . . . . . . . . . II-3 2. Adjustment of Contract Price: . . . . . . . . . . . II-3 3. Currency: . . . . . . . . . . . . . . . . . . . . . II-3 4. Terms of Payment: . . . . . . . . . . . . . . . . . II-3 5. Method of Payment: . . . . . . . . . . . . . . . . II-4 6. Notice of Payment before Delivery: . . . . . . . . II-4 7. Expenses: . . . . . . . . . . . . . . . . . . . . . II-4 8. Prepayment: . . . . . . . . . . . . . . . . . . . . II-5 ARTICLE III - ADJUSTMENT OF CONTRACT PRICE . . . . . . . . III-1 1. Delivery: . . . . . . . . . . . . . . . . . . . . III-1 2. Capacity of Extended Well Test Tanks: . . . . . . III-2 3. Displacement: . . . . . . . . . . . . . . . . . . III-2 4. Effect of Rescission: . . . . . . . . . . . . . . III-3 ARTICLE IV - APPROVAL OF PLANS AND DRAWINGS AND INSPECTION DURING CONSTRUCTION . . . IV-1 1. Approval of Plans and Drawings: . . . . . . . . . IV-1 2. Appointment of BUYER's Supervisor: . . . . . . . IV-1 3. Inspection by the Supervisor: . . . . . . . . . . IV-1 4. Facilities: . . . . . . . . . . . . . . . . . . . IV-3 5. Liability of BUILDER: . . . . . . . . . . . . . . IV-3 6. Responsibility of BUYER: . . . . . . . . . . . . IV-4 7. Delivery and Construction Schedule: . . . . . . . IV-5 8. Responsibility of BUILDER: . . . . . . . . . . . IV-5 ARTICLE V - MODIFICATIONS, CHANGES AND EXTRAS . . . . . . . . V-1 1. How Effected: . . . . . . . . . . . . . . . . . . . V-1 2. Changes in Rules of Classification Society , Regulations, etc.: . . . . . . . . . . . . . . . . . . . . . . . V-1 3. Substitution of Materials: . . . . . . . . . . . . V-2 ARTICLE VI - TRIALS AND ACCEPTANCE . . . . . . . . . . . . VI-1 1. Notice: . . . . . . . . . . . . . . . . . . . . . . VI-1 2. Weather Condition: . . . . . . . . . . . . . . . VI-1 3. How Conducted: . . . . . . . . . . . . . . . . . . VI-2 4. Method of Acceptance or Rejection: . . . . . . . . VI-2 5. Effect of Acceptance: . . . . . . . . . . . . . VI-3 6. Disposition of Surplus Consumable Stores: . . . . . VI-3 ARTICLE VII - DELIVERY . . . . . . . . . . . . . . . . . . VII-1 1. Time and Place: . . . . . . . . . . . . . . . . . VII-1 2. When and How Effected: . . . . . . . . . . . . . VII-1 3. Documents to be delivered to BUYER: . . . . . . . VII-1 4. Postponement of Delivery: . . . . . . . . . . . . VII-2 5. Title and Risk: . . . . . . . . . . . . . . . . . VII-3 6. Removal of DRILLSHIP: . . . . . . . . . . . . . . VII-3 ARTICLE VIII - DELAYS AND EXTENSION OF TIME FOR DELIVERY MAJEURE) . . . . . . . . . . . . . . . . . . . . . . VIII-1 1. Causes of Delay (Force Majeure): . . . . . . . . VIII-1 2. Notice of Delay: . . . . . . . . . . . . . . . . VIII-1 3. Definition of Permissible Delay: . . . . . . . . VIII-2 4. Right to Rescind for Excessive Delay: . . . . . VIII-2 ARTICLE IX - WARRANTY OF QUALITY . . . . . . . . . . . . . IX-1 1. Guarantee: . . . . . . . . . . . . . . . . . . . IX-1 2. Notice of Defects: . . . . . . . . . . . . . . . IX-1 3. Remedy of Defects: . . . . . . . . . . . . . . . IX-2 4. Extent of BUILDER's Responsibility: . . . . . . IX-3 5. Guarantee Engineer: . . . . . . . . . . . . . . IX-4 ARTICLE X - RESCISSION BY BUYER . . . . . . . . . . . . . X-1 1. Notice: . . . . . . . . . . . . . . . . . . . . X-1 2. Refundment by BUILDER: . . .. . . . . . . . . . X-1 3. Discharge of obligations: . . . . . . . . . . . X-2 ARTICLE XI - BUYER'S DEFAULT . . . . . . . . . . . . . . . XI-1 1. Definition of Default: . . . . . . . . . . . . . XI-1 2. Effect of Default on or before Delivery of DRILLSHIP: . . . . . . . . . XI-1 3. Disposal of DRILLSHIP- . . . . . . . . . . . . . XI-2 4. Dispute: . . . . . . . . . . . . . . . . . . . . XI-2 ARTICLE XII - ARBITRATION . . . . . . . . . . . . . . . . XII-1 1. Decision by the Classification Society: . . . . XII-1 2. Proceedings of Arbitration: . . . . . . . . . . XII-1 3. Notice of Award: . . . . . . . . . . . . . . . . XII-2 4. Expenses: . . . . . . . . . . . . . . . . . . . XII-2 S. Entry in Court: . . . . . . . . . . . . . . . . XII-2 6. Alteration of Delivery Date: . . . . . . . . . . XII-2 ARTICLE XIII - SUCCESSOR AND ASSIGNS . . . . . . . . . . XIII-1 ARTICLE XIV - TAXES AND DUTIES . . . . . . . . . . . . . . XIV-1 1. Taxes and Duties Incurred in Korea: . . . . . . . XIV-1 2. Taxes and Duties Incurred Outside Korea: . . . . XIV-1 ARTICLE XV - PATENTS, TRADEMARKS, COPYRIGHTS, ETC . . . . . XV-1 1. Patents: . . . . . . . . . . . . . . . . . . . . . XV-1 2. General Plans, Specifications and Working Drawings: XV-1 ARTICLE XVI - BUYER'S SUPPLIES . . . . . . . . . . . . . . XVI-1 1. Responsibility of BUYER: . . . . . . . . . . . . XVI-1 2. Responsibility of BUILDER: . . . . . . . . . . . XVI-3 3. Title: . . . . . . . . . . . . . . . . . . . . . XVI-4 4. BUYER's Supplies Refundment: . . . . . . . . . . XVI-4 ARTICLE XVII - INSURANCE . . . . . . . . . . . . . . . . XVII-1 1. Extent of Insurance Coverage: . . . . . . . . . XVII-1 2. Application of the Recovered Amounts: . . . . . XVII-1 3. Termination of BUILDER's Obligation to Insure: XVII-2 ARTICLE XVIII - NOTICE . . . . . . . . . . . . . . . . . XVIII-1 1. Address: . . . . . . . . . . . . . . . . . . . XVIII-1 2. Language: . . . . . . . . . . . . . . . . . . . XVIII-1 3. Effective Date of Notice: . . . . . . . . . . . XVIII-1 ARTICLE XIX - EFFECTIVE DATE OF CONTRACT . . . . . . . . . XIX-1 ARTICLE XX - INTERPRETATION . . . . . . . . . . . . . . . . XX-1 1. Laws Applicable: . . . . . . . . . . . . . . . . XX-1 2. Discrepancies: . . . . . . . . . . . . . . . . . XX-1 3. Entire Agreement: . . . . . . . . . . . . . . . . XX-1 4. Amendments and Supplements: . . . . . . . . . . . XX-1 ARTICLE XXI - CONFIDENTIALITY . . . . . . . . . . . . . . . XXI-1 EXHIBIT "A" - LETTER OF REFUNDMENT GUARANTEE . . . . . . E"A"-1 THIS CONTRACT, made and entered into on this 14th day of October, 1998 by and between R&B FALCON DRILLING CO., a corporation existing under the laws of Oklahoma, and having an office at 901 Threadneedle, Houston, Texas 77079-2902 (hereinafter called the "BUYER"), on the one part and SAMSUNG HEAVY INDUSTRIES CO., LTD., a corporation incorporated and existing under the laws of the Republic of Korea of having its registered office at 890-25 DaechiDong, Kangnam-Ku, Seoul, Korea (hereinafter called the "BUILDER"), on the other part. W I T N E S S E T H: In consideration of the mutual covenants herein contained, the BUILDER agrees to build One (1) Drillship composed of hull part as described in the specification attached hereto as Exhibit 1, Volume I of this Contract (hereinafter referred to as the "VESSEL") and topside part as described in the specification attached hereto as Exhibit 1, Volume II of this Contract (hereinafter referred to as 11TOPSIDE11) (the VESSEL and TOPSIDE being hereinafter collectively referred to as the 11DRILLSHIP11) and in accordance with (i) the BUYER's Supplies List attached hereto as Exhiit 2, (ii) the BUILDER's Approved Vendor List attached hereto as Exhibit 3, and (iii) the Delivery and Construction Schedule attached hereto as Exhibit 4 (said Exhibits 1 through 4 being hereinafter collectively called the "Specifications") which Specifications have been initialed by representatives of the parties hereto for identification and which Specifications hereby are each incorporated herein by reference hereto and made an integral part of this Contract, at the BUILDER's shipyard located in Koje Island, Korea (hereinafter referred to as the "Shipyard") and to deliver and sell the same to the BUYER, and the BUYER hereby agrees to purchase and accept delivery of the DRILLSHIP from the BUILDER, upon the terms and conditions hereinafter set forth. ARTICLE I -.DESCRIPTION AND CLASS 1. Description: The DRILLSHIP, having the BUILDER's Hull No. 1300, shall be constructed, equipped and completed in accordance with the provisions of this Contract, and the Specifications (as heretofore defined), which Specifications are an integral part of this Contract as heretofore provided. 2. Dimensions and Characteristics: Length, overall Max. 227.6 meters Length, between perpendiculars abt. 219.4 meters Breadth, molded abt. 42.0 meters Depth, molded abt. 19.0 meters Scantling draft, moulded abt. 13.0 meters (structural design only) Operating draft, moulded abt. 12.0 meters Transit draft, moulded abt. 8.5 meters Thruster Motor: 5.5 MW X 6 ea. Displacement, guaranteed: 98,000 metric tons at the operating draft, moulded, of 12.0 meters. Speed: The trial speed will not be less than 12. 5 knots on the transit draught of 8.5 meters and at propulsion shaft power of 28,695 KW Cargo tank capacity, guaranteed: The total capacity of the Extended Well Test ("EWT11) tanks including slop tanks will not be less than 15,500 cubic meters at the full levels (100% volume) of EWT tanks. The details of the aforementioned particulars, as well as the definitions and the methods of measurements and calculations shall be as indicated in the Specifications. 3. The Classification, Rules and Regulations: The DRILLSHIP, including its machinery, equipment and outfittings shall be constructed and classified in accordance with the rules and regulations (the editions and amendments thereto being in force as of the signing date of this Contract) of and under special survey of the American Bureau of Shipping (hereinafter called the "Classification Society"), and shall be distinguished in the register by the symbol of +A1 E, "Ship Type Drilling Unit", FSO where applicable, +AMS, +ACCU, +DPS-3, DLA, +CDS, OMBO (except field of vision). Decisions of the Classification Society as to compliance or non-compliance with the classification rules and regulations shall be final and binding upon both parties hereto. Details of Class notation shall be in accordance with the Specifications. The DRILLSHIP shall also comply with the rules, regulations and requirements of the regulatory bodies as described and listed in the Specifications. The DRILLSHIP will be built and delivered (i) in accordance with the terms of this Contract and the Specifications, (ii) in full compliance and certification to and with the IMO MODU code with amendments, (iii) in full compliance with the regulations, provisions, and requirements included in the Specifications, (iv) in full compliance with the requirements of the Classification Society so as to be classed with the Classification Society as a MODU/FSO, and (v) so that the DRILLSHIP will be approved to operate offshore the United States Gulf of Mexico/the Outer Continental Shelf of the United States, Brazil and West Africa. BUILDER will take all action necessary, and remedy at its cost and expense, any deficiency which constitutes a failure to comply with the above requirements. All the fees and charges incidental to the Classification Society and in respect to compliance with the above referred rules, regulations and requirements, as well as all DRILLSHIP design fees and/or royalties (except any royalties for the BUYER's Supplies), shall be for account of the BUILDER. BUILDER shall be responsible for obtaining the Classification Society's approval of all required plans and drawings of the DRILLSHIP. 4. Registration: The DRILLSHIP, at the time of its delivery and acceptance, shall be registered at the port of registry by the BUYER under the Panamanian flag at the BUYER's expense. ARTICLE II - CONTRACT PRICE AND TERMS OF PAYMENT 1. Contract Price: The purchase price of the DRILLSHIP, net receivable by the BUILDER and exclusive of the BUYER's Supplies (as defined in Paragraph 1 of Article XVI hereof) is One Hundred Fourteen Million Eight Hundred and Sixty Thousand United States Dollars (US$ 114,860,000) (hereinafter referred to as the "Contract Price"). The Contract Price shall be subject to upward or downward adjustment, if any, as hereinafter set forth in this Contract. 2. Adjustment of Contract Price: Increase or decrease of the Contract Price, if any, due to adjustments thereof made in accordance with the provisions of this Contract shall be adjusted by way of addition to or subtraction from the Contract Price upon delivery of the DRILLSHIP in the manner as hereinafter provided. 3. Currency: Any and all payments by the BUYER to the BUILDER, or vice versa if any which are due under this Contract shall be made in United States Dollars. 4. Terms of Payment: The Contract Price shall be due and payable by the BUYER to the BUILDER in the installments as follows: (a) First Installment: The First Installment amounting to Twenty-One Million Nine Hundred and Fifty Thousand United States Dollars (US$ 21,950,000) shall be due and payable within three(3) banking days after execution of this Contract, provided that the Letter of Refundment Guarantee required under Article X has been received by the BUYER. (b) Second Installment: The Second Installment amounting to Ninety-Two Million Nine Hundred and Ten Thousand United States Dollars (US$ 92,910,000) plus any increase or minus any decrease due to adjustment of the Contract Price under and pursuant to the provisions of this Contract, shall be due and payable upon delivery of the DRILLSHIP or upon tender for delivery of the DRILLSHIP referred to in Paragraph 4 of Article VII of this Contract. 5. Method of Payment: (a) First Installment: Within three (3) banking days after the date of execution of this Contract, the BUYER shall remit by telegraphic transfer the first installment to the account of The Export/Import Bank of Korea, Head Office, Seoul, Korea (Account No. 04-029-695, Head Office with Bankers Trust Company, New York) or to the banks which the BUILDER may designate (hereinafter referred to as the "BUILDER's BANK") in favor of Samsung Heavy Industries Co., Ltd., provided that the Letter of Refundment Guarantee required under Article X has been received by the BUYER. (b) Second Installment: At the time of delivery of the Vessel to the Buyer pursuant to Section 2 of Article VII of this Contract, the BUYER shall remit by telegraphic transfer the second installment to the account at the BUILDER's BANK in favor of Samsung Heavy Industries Co., Ltd. with an irrevocable instruction that the amount so remitted shall be payable to the BUILDER against presentation by the BUILDER to the BUILDER's BANK of a copy of PROTOCOL OF DELIVERY and ACCEPTANCE OF THE DRILLSHIP executed by the BUYER and the BUILDER. No payment due under this Contract shall be delayed, suspended or withheld by the BUYER on account of any dispute or disagreement between the parties hereto. Any claim which the BUYER may have against the BUILDER hereunder shall be settled and liquidated separately from any payment by the BUYER to the BUILDER hereunder. 6. Notice of Payment before Delivery: The BUILDER shall give the BUYER Ten (10) banking days prior notice in writing or telex confirmed in writing by registered mail of the anticipated due date and amount of the second installment payable before delivery of the DRILLSHIP. 7. Expenses: Expenses and bank charges for remitting payments and any taxes (other than taxes on income imposed on the BUILDER) , duties, expenses and fees applicable to remitting such payment shall be for account of the BUYER. 8. Prepayment: The BUYER may prepay any or all of the installments of the Contract Price, provided that the BUYER declares the BUYER's intention to do so in writing or by telex confirmed in writing stating in advance the intended date of such prepayment, subject to the BUILDER's acceptance, which shall not be unreasonably withheld. (End of Article) ARTICLE III - ADJUSTMENT OF CONTRACT PRICE The Contract Price shall be subject to adjustment, as hereinafter set forth, in the event of the following contingencies (it being understood by both parties that any reduction of the Contract Price is by way of liquidated damages and not by way of penalty): 1. Delivery: (a) No adjustment shall be made and the Contract Price shall remain unchanged for the first Thirty (30) days of delay in delivery of the DRILLSHIP beyond the Delivery Date as defined in Article VII hereof (ending as of twelve o'clock midnight of the Thirtieth (30th) day of delay). (b) If the delivery of the DRILLSHIP is delayed more than Thirty (30) days after the Delivery Date, then, in such event, beginning at twelve o'clock midnight of the Thirtieth (30th) day after the Delivery Date, the Contract Price shall be reduced by the sum of Ten Thousand United Dollars (US$10,000) for each full day for which thereafter delivery is delayed. However, the total reduction in the Contract Price pursuant to this Paragraph (b) shall not be more than as would be the case for a delay of One Hundred Fifty (150) days counting from mid- night of the Thirtieth (30th) day after the delivery date at the above specified rate of reduction. (c) However, if the delay in delivery of the DRILLSHIP should continue for a period of One Hundred Eighty (180) days from the Delivery Date in Paragraph 1 of Article VII, then in such event, and after such period has expired, the BUYER may, at its option, rescind this Contract in accordance with the provisions of Article X hereof. The BUILDER may, at any time after the expiration of the aforementioned One Hundred Eighty (180) days of delay in delivery, if the BUYER has not served notice of rescission as provided in Article X hereof, demand in writing that the BUYER shall make an election, in which case the BUYER shall, within Twenty (20) days after such demand is received by the BUYER, notify the BUILDER of its intention either to rescind this Contract or to consent to the acceptance of the DRILLSHIP at a specified future date which date BUILDER represents to BUYER is the earliest date BUILDER can deliver the DRILLSHIP to BUYER under this Contract, based on the circumstances then known. If the BUYER shall not make an election within Twenty (20) days as provided hereinabove, the BUYER shall be deemed to have accepted such extension of the delivery date to the future delivery date indicated by the BUILDER and it being understood by the parties hereto that if the DRILLSHIP is not delivered by such specified date, the BUYER shall have the same right of rescission upon the same terms and conditions as hereinabove provided. (d) If the delivery of the DRILLSHIP is made more than thirty (30) days earlier than the Delivery Date, then, in such event, beginning with the thirty-first (31) day prior to the Delivery Date, the Contract Price of the DRILLSHIP shall be increased by adding thereto Ten Thousand United States Dollars (US$10,000) for each full day. However, the total increase in the Contract Price pursuant to this Paragraph (d) shall not be more than as would be the case for an early delivery of Sixty (60) days counting from the Thirty-first (31) day prior to the Delivery Date at the above specified rate of increase. (e) For the purpose of this Article, the delivery of the DRILLSHIP shall be deemed to be delayed when and if the DRILLSHIP, after taking into account all postponements of the Delivery Date by reason of permissible delay as defined in Article VIII and/or any other reason under this Contract, is not delivered by the date upon which delivery is required under the terms of this Contract. 2. Capacity of Extended Well Test Tanks: (a) In the event the capacity of the Extended Well Test tanks, including slop tanks, ("EWT tanks") as determined in accordance with the Specifications is 14,310 cubic meters or less, then the BUYER may, at its option, (i) reject the DRILLSHIP and rescind this Contract in accordance with the provisions of Article X hereof, or (ii) accept the DRILLSHIP with such deficiency. (b) There will be no increase or decrease of the Contract Price in the event the capacity of the EWT tanks is more than or less than the guaranteed capacity of the EWT tanks as specified in Paragraph 2 of Article I, but BUYER shall have the option of rescission as provided for in Subparagraph (a) of this paragraph 4 of Article III. 3. Displacement: (a) The guaranteed displacement of the DRILLSHIP is 98,000 metric tons at 12.0 meters. (b) In the event of a discrepancy (whether higher or lower) in the actual displacement of the DRILLSHIP being three thousand five hundred (3,500) metric tons or more, then, the BUYER may, at its option, reject the DRILLSHIP and rescind this Contract in accordance with the provisions of Article X hereof or accept the DRILLSHIP at a reduction in the Contract Price of Six Hundred Thousand United States Dollars (US$600,000). 4. Effect of Rescission: It is expressly understood and agreed by the parties that in any case, if the BUYER rescinds this Contract under this Article, the BUYER shall not be entitled to any liquidated damages, or any other recourse unless by means of the provisions of Article X hereof. (End of Article) ARTICLE IV - APPROVAL OF PLANS AND DRAWINGS AND INSPECTION DURING CONSTRUCTION 1. Approval of Plans and Drawings: The BUILDER shall obtain the approval of the BUYER for the plans and drawings in accordance with the Specification. 2. Appointment of BUYER's Supervisor: The BUYER may send to and maintain at the Shipyard, at the BUYER's own cost and expense, one supervisor (herein called the "Supervisor") who shall be duly authorized in writing by the BUYER, which authorization shall be described in a separate letter to be sent to the BUILDER prior to the Supervisor's arrival, to act on behalf of the BUYER in connection with the modifications of the Specifications, adjustments of the Contract Price and Delivery Date in writing, approval of the plans and drawings, attendance to the tests and inspections relating to the DRILLSHIP, its machinery, equipment and outfittings, and any other matters for which he is specifically authorized by the BUYER. The Supervisor may appoint assistant (s) to attend at the Shipyard for the purposes as aforesaid. 3. Inspection by the Supervisor: The necessary inspections of the DRILLSHIP, its machinery, equipment and outfittings shall be carried out by the Classification Society, other regulatory bodies and/or the Supervisor throughout the entire period of construction in order to ensure that the construction of the DRILLSHIP is duly performed in accordance with the Specifications. The Supervisor shall have, during construction of the DRILLSHIP, the right to attend such tests and inspections of the DRILLSHIP, its machinery and equipment within the premises of either the BUILDER or its subcontractors. Detailed procedures of the inspection and the tests thereof shall be in accordance with Specifications. The Supervisor shall, within the limits of the authority conferred upon him by the BUYER, make decisions or give advice to the BUILDER on behalf of the BUYER promptly on all problems arising out of, or in connection with, the construction of the DRILLSHIP and generally act in a reasonable manner with a view to cooperating to the utmost with the BUILDER in the construction process of the DRILLSHIP. The decision, approval or advice of the Supervisor within the limits of authority conferred on the Supervisor by the BUYER shall be deemed to have been given by the BUYER. THE BUYER's Supervisor shall notify the BUILDER promptly in writing of his discovery of any construction or materials, which he believes do not or will not conform to the requirements of the Contract or the Specifications and likewise advise and consult with the BUILDER on all matters pertaining to the construction of the DRILLSHIP, as may be required by the BUILDER, or as he may deem necessary. However, if the Supervisor fails to submit to the BUILDER promptly any such demand concerning alterations or changes with respect to the construction, arrangement or outfit of the DRILLSHIP which the Supervisor has examined, inspected or attended at the test thereof under this Contract or the Specifications, the Supervisor shall be deemed to have approved the same and shall be precluded from making any demand for alterations, changes, or complaints with respect thereto at a later date. The BUILDER shall comply with any such demand which is not contradictory to this Contract or the Specifications, provided that any and all such demands by the Supervisor with regard to construction, arrangement and outfit of the DRILLSHIP shall be submitted in writing to the authorized representative of the BUILDER. The BUILDER shall notify the Supervisor of the names of the persons who are from time to time authorized by the BUILDER for this purpose. It is agreed upon between the BUYER and the BUILDER that the modifications, alterations or changes and other measures necessary to comply with such demand may be effected at a convenient time and place at the BUILDER's reasonable discretion in view of the construction schedule of the vessel. In the event that the Supervisor shall advise the BUILDER that he has discovered and believes the construction or materials do not or will not conform to the requirements of this Contract or the Specifications, and the BUILDER shall not agree with the views of the Supervisor in such respect, either the BUYER or the BUILDER may either seek an opinion of the Classification Society or request an arbitration in accordance with the provisions of Article XII hereof. The Classification Society or the Arbitration Board shall determine whether or not a nonconformity with the provisions of this Contract and the Specifications exist. If the Classification Society or the Arbitration Board enters a determination in favor of the BUYER, then in such case the BUILDER shall make the necessary alterations or changes, or if such alterations or changes cannot be made in time to meet the construction schedule for the DRILLSHIP the BUILDER shall make fair and reasonable adjustment of the Contract Price in lieu of such alterations and changes. If the Classification Society or the Arbitration Board enters a determination in favor of the BUILDER, then the time for delivery of the DRILLSHIP shall be extended for a period of delay in construction, if any, occasioned by such proceedings, and the BUYER shall compensate the BUILDER for the proven loss and damages (always excluding consequential damages) incurred to the BUILDER as a result of the dispute herein referred to. BUYER's Supervisor, at his discretion, may refuse to inspect or attend tests where adequate safety measures have not been implemented and in such event such tests/inspections shall not be deemed complete. 4. Facilities: (a) The BUILDER shall furnish the Supervisor and his assistant(s) with adequate office space and such other reasonable facilities according to the BUILDER's practice at or in the immediate vicinity of the Shipyard as may be necessary to enable them to effectively carry out their duties. The BUYER shall pay for all such facilities other than office space at the BUILDER's normal rate of charge. BUILDER shall advise BUYER in advance of BUILDER's normal rate of charge for any facilities for which BUYER will be required to pay. (b) The BUILDER shall make available for BUYER's personnel at the BUYER's request, during the DRILLSHIP's construction, a minimum of 8 two or three bedroom apartments furnished with the BUILDER's standard furniture, electrical facilities and utilities. If the BUYER requests the BUILDER to provide the BUYER with special furniture and facilities beyond the BUILDER's standard, any additional costs which may result therefrom, if any, will be borne by BUYER. Costs for such housing, on a monthly rental basis, will be presented to BUYER prior to occupation and shall be reimbursed by BUYER, along with metered utility and telephone charges. The BUILDER will use best efforts to furnish additional apartments requested by the BUYER. 5. Liability of BUILDER: The BUILDER agrees to fully protect, defend, indemnify and hold BUYER harmless from and against all liabilities, obligations, claims or actions for personal injury or death arising out of performance by BUILDER or BUYER of their obligations hereunder prior to the acceptance by BUYER of the DRILLSHIP, and asserted by or on behalf of, (i) any employee, agent, contractor, or subcontractor of BUILDER, or (ii)any employee of any agent, contractor, or subcontractor of BUILDER, regardless of the basis of such claims and even if such claims should arise out of the sole or concurrent fault or negligence of BUYER, or any employee, agent, contractor or subcontractor of BUYER. Similarly, the BUYER agrees to fully protect, defend, indemnify and hold BUILDER harmless from and against all liabilities, obligations, claims or actions for personal injury or death arising out of performance by BUILDER or BUYER of their obligations hereunder prior to the acceptance by BUYER of the DRILLSHIP, and asserted by or on behalf of, (i) any employee, agent, contractor, or subcontractor of BUYER, or (ii)any employee of any agent, contractor, or subcontractor of BUYER, regardless of the basis of such claims and even if such claims should arise out of the sole or concurrent fault or negligence of BUILDER, or any employee, agent or subcontractor of BUILDER. 6. Responsibility of BUYER: The BUYER shall undertake and assure that the Supervisor shall carry out his duties hereunder in accordance with the normal shipbuilding practice of the BUILDER, which BUILDER represents and confirms is in all material respects in accordance with good international shipbuilding practice and in such a way so as to avoid any unnecessary increase in building cost, delay in the construction of the DRILLSHIP, and/or any disturbance in the construction schedule of the BUILDER. The BUILDER has the right to request the BUYER to replace the Supervisor who is deemed unsuitable and unsatisfactory for the proper progress of the DRILLSHIP's construction. The BUYER shall investigate the situation by sending its representative (s) to the Shipyard if necessary, and if the BUYER considers that such BUILDER's request is justified, the BUYER shall effect such replacement as soon as conveniently arrangeable. 7. Delivery and Construction Schedule: Attached hereto as Exhibit 4 is a tentative Delivery and Construction Schedule, and within Sixty (60) days after the date of this Contract, BUILDER shall deliver or cause to be delivered to BUYER a final Delivery and Construction Schedule (herein, as from time to time amended with the knowledge of BUYER, referred to as the "Schedule") , prepared in reasonable detail and setting forth the estimated time table for the construction of the DRILLSHIP, it being understood that the Schedule may be used by BUYER for purposes of verifying and measuring the progress being made under the terms of this Contract. 8. Responsibility of BUILDER: (a) BUILDER personnel and subcontractors which, in the sole opinion of BUYER, are found to be in violation of the safety policies established by BUILDER or those specially in place during the construction of the DRILLSHIP, may be requested to be removed from the project by the BUYER's Supervisor. BUILDER will immediately take such actions as necessary to comply with BUYER's request. (b) The BUILDER is to assign a dedicated safety supervisor and a sufficient number of safety inspectors to remain in effect throughout the Contract to monitor employee and subcontractor safety, scaffolding and safety netting, tank entry, work permitting procedures, electrical saf ety, etc. Upon request by the BUYER, the saf ety supervisor shall participate in BUYER's daily safety and quality meetings. (c) The BUILDER shall provide a 24 hour fire-watch at the DRILLSHIP construction site. In addition, at various locations around the site, fire alarm stations will be situated whereby a manual alarm may be sounded and a local emergency response team is notified and activated. (d) BUILDER shall immediately report to BUYER all incidents and/or accidents involving injury, no matter the level of severity, including first aid, loss of property, no matter the value, as well as any identified hazards and/or near misses occurring. Any and all reports of hazards, accidents, incidents, or near misses will result in the immediate and full ceasing of construction activities in the affected area until such time as adequate precautions have been implemented. (e) BUILDER hereby agrees that the cranes and other related lifting gear of the DRILLSHIP will not be used by BUILDER during construction, without the prior written approval of BUYER. BUILDER and BUYER recognize that the lifting gear of the DRILLSHIP will be used to install the BOP stack. Should such approval be given, BUILDER shall make such cranes to normal in functional respect of operation, including, but not limited to the changing of all wires. (f) It is agreed by BUILDER and BUYER that no more than twenty percent (20%), by number, of all blocks fabricated for construction of the VESSEL will be built outside of BUILDER's own yard. In case more than twenty percent (20%) of all blocks for the VESSEL is required by the BUILDER to be fabricated outside of BUILDER's own yard, then the BUILDER shall obtain the BUYER's prior written consent. Pursuant to the above, the only facilities to be used other than BUILDER's are the Hanae and Sungnae fabrication yards, provided however, funnel and/or casing may be fabricated at Oriental Fitting Co. It is agreed that all TOPSIDE fabrication will be done at BUILDER's facility. (g) All initial spare parts for BUILDER Furnished Equipment, including those necessary for shipyard start-up testing and for the commissioning of equipment, shall be provided by BUILDER at BUILDER's cost. Further, BUILDER shall provide to BUYER a listing of all critical spare parts (any long lead item and those spares causing equipment to be out of service for extended periods of time) and two years operating spare parts. In addition, BUILDER agrees to specifically identify on the listing any and all ABS required spare parts. BUILDER will provide such spare parts listing to BUYER as soon as an order for equipment is placed, but in no case later than 90 days prior to DRILLSHIP delivery. The BUYER is responsible for supplying all the equipment and material in accordance with the BUYER's Supplies list attached hereto including the spare/service parts and specialized tools and initial consumables for the BUYER's Supplies. (h) Attached hereto as Exhibit 3 is BUILDER's approved vendor list. BUILDER agrees that any material and/or supplies not fabricated by the BUILDER will originate from a vendor so specified in Exhibit 3. The manufactures and specifications of machinery and equipment for the DRILLSHIP shall be the same as the BUILDER's hull no.1255, subject to a change(s) if agreed by the BUILDER and the BUYER. In the event procurement of material and/or supplies from the approved vendors are not available due to shortage or delay in delivery thereof to meet the BUILDER's overall construction schedule of the DRILLSHIP, the BUILDER may mobilize and originate from other equivalent with the BUYER's consent, which shall not be unreasonably withheld. The BUILDER shall, on a monthly basis, provide BUYER with a written progress report regarding the construction of the VESSEL based on the BUILDER's standards in accordance with their IS09001 procedure. Such report is to include a summary of the progress to date as well as the progress since the previous report. In a form and frequency to be agreed, the BUILDER will furnish the BUYER a simple written report updating the progress on major milestones in the production schedule. Informal oral reports shall be furnished to the BUYER by the BUILDER upon request. In addition, BUILDER shall include a limited number of color photographs relevant to the fabrication process for the construction period of the DRILLSHIP in the progress report. Photographs are to be 5 x 7 inches, bound in books with dates and descriptive captions. As soon as each volume is available, BUILDER shall furnish three (3) sets of books of photographs and one (1) set of negatives to the BUYER with one (1) set and the (1) one set of negatives delivered to the project manager in Koje and two sets of photographs delivered to project sponsor in Houston, Texas. (End of Article) ARTICLE V - MODIFICATIONS, CHANGES AND EXTRAS 1. How Effected: The Specifications may be modified and/or changed by written request of the BUYER subject to BUILDER's approval (which approval shall not be unreasonably withheld) and provided that any modifications and/or changes requested by the BUYER or an accumulation of such modifications and/or changes will not adversely affect the BUILDER's other commitments and the BUYER shall first agree in writing, before such modifications and/or changes are carried out, to any adjustment in the Contract Price, time for delivery of the DRILLSHIP or other terms and conditions of this Contract or the Specifications occasioned by or resulting from such modifications and/or changes. The BUILDER hereby agrees to exert its best efforts to accommodate such reasonable request by the BUYER so that the said changes and/or modifications may be made at a reasonable cost and within the shortest period of time which is reasonably possible. Any such agreement for modifications and/or changes shall include an agreement as to the increase or decrease, if any, in the Contract Price of the DRILLSHIP together with an agreement as to any extension or reduction in the time of delivery, or any other alterations in this Contract or the Specifications occasioned by such modifications and/or changes. The aforementioned agreement to modify and/or change the Specifications may be effected by an exchange of letters signed by the authorized representatives of the parties hereto, or telex confirmed in writing, manifesting such agreement. Such letters and confirmed telex exchanged by the parties hereto pursuant to the foregoing shall constitute an amendment of the Specifications, and such letters and telex shall be incorporated into this Contract and made a part hereof. The BUILDER may make minor changes to the Specifications, if found necessary for introduction of improved production methods or otherwise, provided that the BUILDER shall first obtain the BUYER's written approval which shall not be unreasonably withheld. 2. Changes in Rules of Classification Society, Regulations, etc.: If, after the date of signing this Contract, any requirements as to Classification Society, or as to the rules and regulations to which the construction of the DRILLSHIP is required to conform, are altered or changed by the Classification Society or regulatory bodies authorized to make such alterations or changes, either of the parties hereto, upon receipt of information thereof, shall transmit such information in full to the other party in writing, thereupon within Twenty-One (21) days after receipt of the said notice from the other party, the BUYER shall instruct the BUILDER in writing if such alterations or changes shall be made in the DRILLSHIP or not, in the BUYER's sole discretion. The BUILDER shall promptly comply with such alterations or changes, if any, in the construction of the DRILLSHIP, provided that the BUYER shall first agree: (a) To any increase or decrease in the Contract Price of the DRILLSHIP that is reasonably occasioned by the cost of such compliance; (b) To any reasonable extension in the time of delivery of the DRILLSHIP that is necessary due to such compliance; (c) To any reasonable deviation in the contractual displacement of the DRILLSHIP, if compliance results in an altered displacement, or any other reasonable alterations in the terms of this Contract or of the Specifications or both, if compliance makes such alterations of terms necessary. Such agreement of the BUYER shall be effected in the same manner as provided in Paragraph 1 of this Article for modifications and/or changes of the Specifications. 3. Substitution of Materials: In the event that any of the materials required by the Specifications or otherwise under this Contract for the construction of the DRILLSHIP can not be procured in time to effect delivery of the DRILLSHIP, or are in short supply, the BUILDER may, provided the BUYER so agrees in writing, supply other materials and equipment of the best available and like quality, capable of meeting the requirements of the Classification Society and of the rules, regulations, requirements and recommendations with which the construction of the DRILLSHIP must comply. Any agreement as to such substitution of materials shall be effected in the manner as provided in Paragraph 1 of this Article, and shall, likewise, include decrease or increase in the Contract Price and other terms and conditions of this Contract affected by such substitution. (End of Article) ARTICLE VI - TRIALS AND ACCEPTANCE 1. Notice: The sea trial shall start when the DRILLSHIP is reasonably completed in all material respects according to the Specifications. The BUILDER shall give the BUYER at least Twenty(20) days estimated prior notice and Seven(7) days confirming prior notice in writing or by telex confirmed in writing of the time and place of the trial run of the DRILLSHIP, and the BUYER shall promptly acknowledge receipt of such notice. The BUYER shall have its representative and his assistant(s) on board the DRILLSHIP to witness such trial run. Failure in attendance of the BUYER's representative at the trial run of the DRILLSHIP for any reason whatsoever after due notice to the BUYER as above provided shall be deemed to be a waiver by the BUYER of its right to have its representative on board the DRILLSHIP at the trial run, and the BUILDER may conduct the trial run without attendance of the BUYER's representative, and in such case the BUYER shall be obligated to accept the DRILLSHIP on the basis of certificates of the Classification Society and a certificate of the BUILDER stating that the DRILLSHIP, upon trial run, is found to conform to this Contract and the Specifications. 2. Weather Condition: The trial run shall be carried out under the weather condition which is deemed favorable enough by the judgement of both the BUYER and the BUILDER. In the event of unfavorable weather on the date specified for the trial run, the same shall take place on the first available day thereafter that the weather condition permits. it is agreed that, if during the trial run of the DRILLSHIP, the weather should suddenly become so unfavorable that orderly conduct of the trial run can no longer be continued, the trial run shall be discontinued and postponed until the first favorable day next following, unless the BUYER shall assent in writing to acceptance of the DRILLSHIP on the basis of the trial run already made before such discontinuance has occurred. Any delay of trial run caused by such unfavorable weather condition shall operate to postpone the Delivery Date by the period of the delay involved and such delay shall be deemed as permissible delay in the delivery of the DRILLSHIP. 3. How Conducted: (a) The DRILLSHIP shall run the official trial run in the manner as specified in the Specifications. (b) All expenses in connection with the trial run are to be for account of the BUILDER and the BUILDER shall provide, at its own expense, the necessary crew to comply with conditions of safe navigation. (c) BUYER shall furnish complete procedures and supervision for the installation, testing and precommissioning for the BOP stack. 4. Method of Acceptance or Rejection: (a) Upon completion of the trial run, the BUILDER shall give the BUYER a notice by telex confirmed in writing of completion of the trial run, as and if the BUILDER considers that the results of trial run indicate conformity of the DRILLSHIP to this Contract and the Specifications. The BUYER shall, within Five (5) days after receipt of such notice from the BUILDER, notify the BUILDER by telex or telefax confirmed in writing of its acceptance or rejection of the trial results. (b) However, if the result of the trial run is unacceptable, or if the DRILLSHIP, or any part or equipment thereof, (except a defect in the BUYER's Supplies not the responsibility of the BUILDER) does not conform to the requirements of this Contract and/or the Specifications, or if the BUILDER is in agreement to non-conformity as specified in the BUYER's notice of rejection, then, the BUILDER shall take necessary steps to correct such non conformity. The DRILLSHIP may be redocked in the event of unsatisfactory sea-trial results for the dynamic positioning and thruster systems, or other major system malfunction which cannot be repaired afloat. Upon completion of correction of such non-conformity, and re-test or trial if necessary, the BUILDER shall give the BUYER notice thereof by telex or telefax confirmed in writing. The BUYER shall, within Five (5) days after receipt of such notice from the BUILDER, notify the BUILDER of its acceptance or rejection of the DRILLSHIP's conformity by telex or telefax confirmed in writing. (c) If any event that the BUYER rejects the DRILLSHIP, the BUYER shall indicate in detail in its notice of rejection in what respect the DRILLSHIP, or any part or equipment thereof (except a defect in the BUYER's Supplies not the responsibility of the BUILDER) does not conform to this Contract and/or the Specifications. (d) In the event that the BUYER fails to notify the BUILDER by telex or telefax confirmed in writing of the acceptance of or the rejection together with the reason therefor of the DRILLSHIP within the period as provided in the above Sub-paragraph (a) or (b), the BUYER shall be deemed to have accepted the trial results and/or the DRILLSHIP, as appropriate. (e) Any dispute between the BUILDER and the BUYER as to the conformity or non-conformity of the DRILLSHIP to the requirements of this Contract and/or the Specifications shall be submitted for final decision in accordance with Article XII hereof. 5. Effect of Acceptance: Acceptance of the DRILLSHIP as above provided in Paragraphs 4(a) or 4(b) of this Article VI shall be final and binding so far as conformity of the DRILLSHIP to this Contract and the Specifications is concerned and shall preclude the BUYER from refusing formal delivery of the DRILLSHIP as hereinafter provided, if the BUILDER complies with all other procedural requirements for delivery as provided in Article VII hereof. However, the BUYER's acceptance of the DRILLSHIP shall not affect the BUYER's rights under Article IX hereof. 6. Disposition of Surplus Consumable Stores: Any fuel oil furnished and paid for by the BUILDER for trial runs remaining on board the DRILLSHIP, at the time of acceptance of the DRILLSHIP by the BUYER, shall be bought by the BUYER from the BUILDER at the BUILDER's purchase price for such supply in Korea and payment by the BUYER thereof shall be made at the time of delivery of the DRILLSHIP. The BUILDER shall pay the BUYER at the time of delivery of the DRILLSHIP an amount for the consumed quantity of any lubricating oil and greases which were furnished and paid for by the BUYER at the BUYER's purchase price thereof. (End of Article) ARTICLE VII - DELIVERY 1. Time and Place: The DRILLSHIP shall be delivered by the BUILDER to the BUYER at the Shipyard on July 31, 2000 (unless delays occur in the construction of the DRILLSHIP or in any performance required under this Contract due to causes which under the terms of this Contract permit postponement of the date of delivery, in which event, the aforementioned date for delivery of the DRILLSHIP shall be changed accordingly) or, such earlier or later date after completion of the DRILLSHIP according to this Contract and the Specifications. The aforementioned date, or such earlier or later date to which the requirement of delivery is advanced or postponed pursuant to this Contract, is herein called the "Delivery Date". 2. When and How Effected: Provided that the BUILDER and the BUYER shall have fulfilled all of their obligations stipulated under this Contract, the delivery of the DRILLSHIP shall be effected forthwith by the concurrent remittance of the fifth installment in accordance with Article II, Section 5(c) and delivery by each of the parties hereto to the other of the PROTOCOL OF DELIVERY AND ACCEPTANCE, acknowledging delivery of the DRILLSHIP by the BUILDER and acceptance thereof by the BUYER. 3. Documents to be delivered to BUYER: Upon delivery and acceptance of the DRILLSHIP, the BUILDER shall deliver to the BUYER the following documents, which shall accompany the PROTOCOL OF DELIVERY AND ACCEPTANCE: (a) PROTOCOL OF TRIALS of the DRILLSHIP made pursuant to the Specifications; (b) PROTOCOL OF INVENTORY of the equipment of the DRILLSHIP, including spare parts and the like, as specified in the Specifications; (c) PROTOCOL OF STORES OF CONSUMABLE NATURE referred to under paragraph 6 of Article VI hereof; (d) ALL CERTIFICATES, including the BUILDER's CERTIFICATE required to be furnished upon delivery of the DRILLSHIP pursuant to this Contract and the Specifications; It is agreed that if, through no fault on the part of the BUILDER, the Classification certificates and/or other certificates are not available at the time of delivery of the DRILLSHIP, provisional certificates shall be accepted by the BUYER, provided that the BUILDER shall furnish the BUYER with the formal certificates as promptly as possible after such certificates have been issued. Application and certificate for statutory inspections by Panamanian Government shall be arranged by the BUYER at its expense. (e) DECLARATION OF WARRANTY of the BUILDER that the DRILLSHIP is delivered to the BUYER free and clear of any liens, charges, claims, mortgages, or other encumbrances upon the BUYER's title thereto, and in particular that the DRILLSHIP is absolutely free of all burdens in the nature of imposts, taxes or charges imposed by Korean Governmental Authorities, as well as all liabilities of the BUILDER to its subcontractors, employees and crew, and of the liabilities arising from the operation of the DRILLSHIP in trial runs, or otherwise, prior to delivery; (f) DRAWINGS AND PLANS pertaining to the DRILLSHIP as stipulated in the Specifications; (g) COMMERCIAL INVOICE; (h) Necessary permits and clearances by Korean Government to enable the DRILLSHIP to sail from Korea following delivery; and (i) DRAWINGS/OPERATING MANUALS. All documentation, including, but not limited to complete, as-built drawings, operations manuals, commissioning reports, inclining reports, major/minor equipment certifications, sea trial reports, spare parts list and BUILDER's vendor's documentation will be furnished by BUILDER to BUYER on or before the delivery of the DRILLSHIP. 4. Postponement of Delivery: Notwithstanding the conditions of this Contract, BUYER shall have the option to keep the DRILLSHIP at BUILDER's yard after the Contractual Delivery Date described in this Article VII and postpone the delivery until January 31, 2001 at the latest. In the event that BUYER exercises the delayed delivery option and decides to keep the DRILLSHIP at BUILDER's yard at BUYERS's cost and its own risk after the Contractual Delivery Date: (a) the Contract Amount shall be increased at the rate of Twenty-Five Thousand Five Hundred United States Dollars (US$ 25,500) per day to cover BUILDER's financing cost for the delayed second payment; (b) the property of the DRILLSHIP shall remain at BUILDER until final payment. However, BUYER may use the DRILLSHIP for testing and training purposes and shall be responsible for any maintenance or damages; (c) any costs caused by the delayed delivery and paid by BUILDER shall be reimbursed at cost (plus ten percent (10% mark-up on non-BUILDER reimbursable items.) This shall include, but not be limited to, additional insurance cost for any risks, electricity, fuel, office supplies, consumables, port charges (if any), equipment and labor costs rendered to BUYER for safe maintenance and under written request. 5. Title and Risk: Title to and risk of loss of the DRILLSHIP shall pass to the BUYER only upon the delivery and acceptance thereof having been completed as stated above; it being expressly understood that, except as otherwise agreed, until such delivery is effected, title to and risk of damage to or loss of the DRILLSHIP and her equipment shall be in the BUILDER. 6. Removal of DRILLSHIP: The BUYER shall take possession of the DRILLSHIP immediately upon delivery and acceptance thereof and shall remove the DRILLSHIP from the premises of the Shipyard within seven (7) days after delivery and acceptance thereof is effected. If the BUYER shall not remove the DRILLSHIP from the premises of the Shipyard within the aforesaid seven (7) days, in such event, the BUYER shall pay to the BUILDER the reasonable mooring charges of the DRILLSHIP. (End of Article) ARTICLE VIII - DELAYS AND EXTENSION OF TIME FOR DELIVERY (FORCE MAJEURE) 1. Causes of Delay (Force Majeure): If, at any time either the construction or delivery of the DRILLSHIP or any performance required hereunder as a prerequisite to the delivery thereof is delayed by any of the following events; namely war, acts of state or government, blockade, revolution, insurrections, mobilization, civil commotion, riots, strikes, sabotage, lockouts, Acts of God or the public enemy, plague or other epidemics, quarantines, prolonged failure of electric current, freight embargoes, or defects in major forgings or castings, if any, or shortage of materials, machinery or equipment in inability to obtain delivery or delays in delivery of materials, machinery or equipment, provided that at the time of ordering the same could reasonably be expected by the BUILDER to be delivered in time, or defects in materials, machinery or equipment which could not have been detected by the BUILDER using reasonable care, or earthquakes, tidal waves, typhoons, hurricanes, prolonged or unusually severe weather conditions or delay in the construction of the BUILDER's other newbuilding projects in the same drydock due to any such causes as described in this Article which in turn delay the keel laying and eventual delivery of the DRILLSHIP in view of the Shipyard's overall building program or the BUILDER's performance under this Contract, or by destruction of the premises or works of the BUILDER or its sub- contractors, or of the DRILLSHIP, or any part thereof, by fire, landslides, flood, lightning, explosion, or other causes beyond the control of the BUILDER, or its sub-contractors, as the case may be, or for any other causes which, under terms of this Contract, authorize and permit extension of the time for delivery of the DRILLSHIP, then, in the event of delays due to the happening of any of the aforementioned contingencies, the Delivery Date of the DRILLSHIP under this Contract shall be extended for a period of time which shall not exceed the total accumulated time of all such delays. 2. Notice of Delay: Within Fourteen (14) days after the date of occurrence of any cause of delay, on account of which the BUILDER claims that it is entitled under this Contract to a postponement of the Delivery Date, the BUILDER shall notify the BUYER in writing or by telex or telefax confirmed in writing of the date when such cause of delay occurred. Likewise, within Fourteen (14) days after the date of ending of such cause of delay, the BUILDER shall notify the BUYER in writing or by telex confirmed in writing of the date when such cause of delay ended. The BUILDER shall also notify promptly the BUYER of the period, by which the Delivery Date is postponed by reason of such cause of delay. If the BUILDER does not give the timely advice as above, the BUILDER shall lose the right to claim such delays as permissible delay. Failure of the BUYER to acknowledge to the BUILDER's claim for postponement of the Delivery Date within Fourteen (14) days after receipt by the BUYER of such notice of claim shall be deemed to be a waiver by the BUYER of its right to object to such postponement of the Delivery Date. 3. Definition of Permissible Delay: Delays on account of such causes as specified in Paragraph 1 of this Article and any other delay of a nature which under the terms of this Contract permits postponement of the Delivery Date shall be understood to be permissible delays and are to be distinguished from unauthorized delays on account of which the Contract Price is subject to adjustment as provided for in Article III hereof. 4. Right to Rescind for Excessive Delay: (a) If the total accumulated time of all delays claimed by the BUILDER on account of the causes specified in Paragraph 1 of this Article, excluding other delays of the nature which under the terms of this Contract permit postponement of the Delivery Date, amounts to One Hundred Eighty (180) days or more, then, in such event, the BUYER may rescind this Contract in accordance with the provisions of Article X hereof. The BUILDER may, at any time after the accumulated time of the aforementioned delays justifying rescission by the BUYER, demand in writing that the BUYER shall make an election, in which case the BUYER shall, within Fourteen (14) BUILDER's working days after such demand is received by the BUYER either notify the BUILDER of its intention to rescind this Contract, or consent to a postponement of the Delivery Date to a specified future date, which date BUILDER represents to BUYER is the earliest date BUILDER can deliver the DRILLSHIP to BUYER, based on the circumstances then known, it being understood by the parties hereto that if the DRILLSHIP is not delivered by such future date, the BUYER shall have the same right of rescission upon the same terms and conditions as hereinabove provided. (b) If at any time during the term of this Contract, BUILDER falls more than 270 days behind in the construction of the DRILLSHIP according to the Delivery and Construction Schedule, for any reason whatsoever, and whether as a result of permissible delay or otherwise, BUYER shall be entitled to give written notice to BUILDER that BUYER considers BUILDER in material default of its obligations under this Contract, and if BUILDER has not cured such default within Thirty (30) days after receipt of such notice, BUYER shall have the right to rescind this Contract in accordance with the provisions of Article X hereof. (End of Article) ARTICLE IX - WARRANTY OF QUALITY 1.Guarantee: The BUILDER, for the period of Twelve (12) months after delivery of the DRILLSHIP, including any period under the delayed delivery option which may be exercised by the BUYER as specified in Article VII-4 herein (hereinafter called "Guarantee Period"), guarantees the DRILLSHIP including all parts and equipment manufactured, furnished or installed by the BUILDER or its subcontractors under this Contract, and including the machinery, equipment and appurtenances thereof (including the installation work performed or required to be performed by BUILDER under this Contract for the BUYER supplied or furnished equipment), under the Contract but excluding any item which is supplied or designated by the BUYER or by any other bodies on behalf of the BUYER, against all defects and all damages to the DRILLSHIP resulting therefrom occurring within the Guarantee Period which are due to defective material, design and/or poor workmanship or negligent or other improper acts or commissions on the part of the BUILDER or its subcontractors (hereinafter called the "Defect" or "Defects") and are not a result of accident, ordinary wear and tear, misuse, mismanagement, negligent or other improper acts or omissions or neglect on the part of the BUYER, its employee or agents. The BUILDER shall arrange for the BUYER to obtain three (3) years guarantee after delivery of the DRILLSHIP for the paint materials in the ballast tank coatings through the paint manufacturer selected by the BUILDER. But, the BUILDER's guarantee for the ballast tank coating shall be in no event longer than one (1) year after delivery of the DRILLSHIP unless major repairs as defined in Clause 3 of this Article have arisen. Such additional extended guarantee shall proceed between the BUYER and the selected manufacturer arranged by the BUILDER. Final selection of the ballast tank coatings manufacturer is subject to the approval of the BUYER, not to be unreasonably withheld. 2. Notice of Defects: The BUYER shall notify the BUILDER in writing, or by telex confirmed in writing, of any Defect for which claim is made under this guarantee, as promptly as possible af ter discovery thereof. The BUYER's written notice shall describe in detail the nature, cause and extent of the Defects. The BUILDER shall have no obligation for any Defect discovered prior to the expiry date of the Guarantee Period, unless notice of such Defect or any damage resulting therefrom is received by the BUILDER not later than Ten (10) BUILDER's working days after the expiry date of the Guarantee Period. 3. Remedy of Defects: (a) The BUILDER shall remedy, at its expense, any Defect against which the DRILLSHIP is guaranteed under this Article, by making all necessary repairs or replacements at the Shipyard. (b) However, if it is impracticable to bring the DRILLSHIP to the Shipyard, the BUYER may cause the necessary repairs or replacements to be made elsewhere which is deemed suitable for the purpose, provided that, in such event, the BUILDER may forward or supply replacement parts or materials to the DRILLSHIP, unless forwarding or supplying thereof to the DRILLSHIP would impair or delay the operation or working schedule of the DRILLSHIP. In the event that the BUYER proposes to cause the necessary repairs or replacements for the DRILLSHIP to be made at any other shipyard or works than the Shipyard, the BUYER shall first, but in all events as soon as possible, give the BUILDER notice in writing or by telex confirmed in writing of the time and place when and where such repairs will be made, and if the DRILLSHIP is not thereby delayed, or her operation or working schedule is not thereby impaired, the BUILDER shall have the right to verify by its own representative(s) the nature, cause and extent of the Defects complained of. The BUILDER shall, in such case, promptly advise the BUYER by telex, after such examination has been completed, of its acceptance or rejection of the Defects as ones that are covered by the guarantee herein provided. Upon the BUILDER's acceptance of the Defects as justifying remedy under this Article, or upon award of the arbitration so determining, the BUILDER shall pay to the BUYER for such repairs or replacements a sum equal to the reasonable cost of making the same repairs or replacements in a first class Korean shipyard, at the prices prevailing at the time of such repairs or replacements are made. The guarantee works shall be settled regularly during the Guarantee Period. The actual reimbursement for the guarantee shall be made in a lump sum at the expiry of the Guarantee Period. (c) In any case, the DRILLSHIP shall be taken, at the BUYER's cost and responsibility, to the place elected, ready in all respects for such repairs or replacement. (d) Any dispute under this Article shall be referred to arbitration in accordance with the provisions of Article XII hereof. (e) Repairs under this Article are guaranteed for the balance of the period set out in paragraph 1 of this Article but for major repairs are guaranteed for the longer of the balance of the period set out in paragraph 1 of this Article or 6 months from the date of completion of major repairs, but in no event longer than 18 months after the Delivery Date. For purposes hereof, "major repairs" shall be defined as a repair costing more than One Hundred Fifty Thousand United States Dollars (US$150,000) 4. Extent of BUILDER's Responsibility: (a) The BUILDER shall have no responsibility or liability for any other defect whatsoever in the DRILLSHIP other than the Defects specified in Paragraph 1 of this Article, other than to repair all damages to the DRILLSHIP discovered within the Guarantee Period and resulting from or caused by the Defects which are not attributable to the BUYER's (i) improper acts or omissions, (ii) negligence, or (iii) misuse. Nor shall the BUILDER in any circumstances be responsible or liable for any consequential or special loss, damage or expense, including, but not limited to, loss of time, loss of profit of earnings or demurrage directly or indirectly occasioned to the BUYER by reason of the Defects specified in Paragraph 1 of this Article or due to repairs or other works done to the DRILLSHIP to remedy such Defects. (b) The BUILDER shall not be responsible for any defect in any part of the DRILLSHIP which may, subsequently to delivery of the DRILLSHIP, have been replaced or repaired in any way by any other contractor, unless done pursuant to Paragraph 3 (b) of this Article, or for any defect which have been caused or aggravated by omission or improper use and maintenance of the DRILLSHIP on the part of the BUYER, its ser-vants or agents or by ordinary wear and tear or by any other cause beyond control of the BUILDER (other than aggravation of defect or results of defect resulting from the use or operation of the DRILLSHIP after knowledge of same by BUYER, where such continued use or operation was unavoidable to preserve or protect the safety of the DRILLSHIP or her crew). (c) The guarantee contained as hereinabove in this Article replaces and excludes any other liability, guarantee, warranty and/ or condition imposed or implied by the law, customary, statutory or otherwise, by reason of the construction and sale of the DRILLSHIP by the BUILDER for and to the BUYER. 5. Guarantee Engineer: The BUILDER shall, at the request of the BUYER, appoint a maximum of two (2) Guarantee Engineers to serve on the DRILLSHIP as its representative for a period of up to Three (3) months from the date the DRILLSHIP is delivered. However, if the BUYER shall deem it necessary to keep the Guarantee Engineers on the DRILLSHIP for a longer period, then he shall remain on board the DRILLSHIP after the said up to Three (3) months, up to but not longer than Six (6) months from the delivery of the DRILLSHIP. The BUYER, and its employees, shall give such Guarantee Engineers full cooperation in carrying out his duties as the representative of the BUILDER on board the DRILLSHIP. The BUYER shall accord the Guarantee Engineers treatment comparable to the DRILLSHIP's Chief Engineer, and shall provide board and lodging at no cost to the BUILDER or the Guarantee Engineers. The BUILDER and the BUYER shall, prior to delivery of the DRILLSHIP, execute a separate agreement regarding the Guarantee Engineers. While the Guarantee Engineers are on board the DRILLSHIP, the BUYER shall pay to the Guarantee Engineers the sum of US$5,000 per man per month, the expenses of his repatriation to Seoul, Korea by air upon termination of his service, the expenses of his communication with the BUILDER incurred in performing his duties and expenses, if any, of his medical and hospital care in the DRILLSHIP's hospital. BUILDER will have the option, at BUILDER's sole risk and expense, to place a maximum of two (2)additional Guarantee Engineers on board the DRILLSHIP for a period of up to six (6) months. The BUYER will provide board, lodging, communications and general working support services at no cost to the BUILDER or the Guarantee Engineers but all other expenses shall be for the sole account of BUILDER. (End of Article) ARTICLE X - RESCISSION BY BUYER 1. Notice: The payments made by the BUYER prior to delivery of the DRILLSHIP shall be in the nature of advances to the BUILDER, and in the event that the DRILLSHIP after sea trial is rejected by the BUYER or the Contract is rescinded by the BUYER in accordance with the terms of this Contract under and pursuant to any of the provisions of this Contract specifically permitting the BUYER to do so, then the BUYER shall notify the BUILDER in writing or by telex confirmed in writing, and such rescission shall be effective as of the date when notice thereof is received by the BUILDER. 2. Refundment by BUILDER: In case the BUILDER receives the notice stipulated in Paragraph 1 of this Article, the BUILDER shall promptly refund to the BUYER the full amount of all sums paid by the BUYER to the BUILDER on account of the DRILLSHIP, together with the interest thereon, unless the BUILDER proceeds to the arbitration under the provisions of Article XII hereof. In the event of such rescission by the BUYER, the BUILDER shall pay the BUYER interest at the rate of Eight percent (8t) per annum on the amount required herein to be refunded to the BUYER, computed from the date following the respective date on which such sums were paid by the BUYER to the BUILDER to the date of remittance by transfer of such refund to the BUYER by the BUILDER, provided, however, that if the said rescission by the BUYER is made under the provisions of Paragraph 4 of Article VIII hereof, then in such event the BUILDER shall pay the BUYER interest at the rate of Four percent (4%) per annum on the sums refundable. As security for refund of installments prior to delivery of the DRILLSHIP, the BUILDER shall furnish to BUYER, prior to the due date of the first installment, with a letter of guarantee covering the amount of such pre-delivery installments and issued by the BUILDER's BANK in favor of the BUYER. Such letter of guarantee shall have substantially the same form and substance as Exhibit "All annexed hereto. The BUILDER represents and warrants that Korean law no longer requires issuance of an Export License on the Option vessel in connection with issuance of, or payment under, the Refund Guarantee, and shall remain responsible to provide to the BUYER any such Export License as and to the extent required by Korean law, whether now or in the future. 3. Discharge of Obligations: Upon such refund by the BUILDER to the BUYER, all obligations, duties and liabilities of each of the parties hereto to the other under this Contract shall be forthwith completely discharged, without prejudice, however, to any claims either party may have resulting from the other party's breach of any of its obligations under this Contract. (End of Article) ARTICLE XI - BUYER'S DEFAULT 1. Definition of Default: The BUYER shall be deemed to be in default of its performance of obligations under this Contract in the following cases: (a) If the first installment is not paid by the BUYER to the BUILDER within Three(3) banking days in New York after such installment becomes due and payable as provided in Article II hereof; or (b) If the second installment is not paid by the BUYER to the BUILDER in New York at the time such installment becomes due and payable upon delivery of the Vessel as provided in Article II hereof; or (c) If the increased amount in the Contract Price as adjusted due and payable upon delivery of the DRILLSHIP is not paid by the BUYER concurrently with delivery of the DRILLSHIP as provided in Article II hereof; or (d) If the BUYER, when the DRILLSHIP is duly tendered for delivery by the BUILDER in accordance with the provisions of this Contract, fails to accept the DRILLSHIP within Five (5) days from the tendered date without any specific and valid ground thereof under this Contract. 2. Effect of Default on or before Delivery of DRILLSHIP: (a) Should the BUYER make default in payment of any installment of the Contract Price on or before delivery of the DRILLSHIP, the BUYER shall pay the installment(s) in default plus accrued interest thereon at the rate of eight percent (816) per annum. computed from the due date of such installment to the date when the BUILDER receives the payment, and, for the purpose of Paragraph 1 of Article VII hereof, the Delivery Date of the DRILLSHIP shall be automatically extended by a period of continuance of such default by the BUYER. In any event of default by the BUYER, the BUYER shall also pay all charges and expenses incurred to the BUILDER in direct consequence of such default. (b) If any default by the BUYER continues for a period of Ten (10) days, the BUILDER may, at its option, rescind this Contract by giving notice of such effect to the BUYER by telex confirmed in writing. Upon dispatch by the BUILDER of such notice of rescission, this Contract shall be forthwith rescinded and terminated. In the event of such rescission of this Contract, the BUILDER shall be entitled to retain any installment or installments already paid by the BUYER to the BUILDER on account of this Contract and the BUYER's Supplies, if any. 3. Disposal of DRILLSHIP: (a) In the event that this Contract is rescinded by the BUILDER under the provisions of Paragraph 2(b) of this Article, the BUILDER may, at its sole discretion, either complete the DRILLSHIP and sell the same, or sell the DRILLSHIP in its incomplete state, free of any right or claim of the BUYER. Such sale of the DRILLSHIP by the BUILDER shall be either by public auction or private contract at the BUILDER's sole discretion and on such terms and conditions as the BUILDER shall deem fit. (b) In the event of such sale of the DRILLSHIP, the amount of the sale received by the BUILDER shall be applied firstly to all expenses attending such sale or otherwise incurred to the BUILDER as a result of the BUYER's default, secondly to the payment of all costs and expenses of construction of the DRILLSHIP incurred to the BUILDER less BUYER's Supplies and the installments already paid by the BUYER, and then to the compensation to the BUILDER for a reasonable loss of profit due to rescission of this Contract, and finally to the repayment to the BUYER if any balance is obtained. (c) If the proceeds of sale are insufficient to pay such total costs and loss of profit as aforesaid, the BUYER shall promptly pay the deficiency to the BUILDER upon request. 4. Dispute: Any dispute under this Article shall be referred to arbitration in accordance with the provisions of Article XII hereof. (End of Article) ARTICLE XII - ARBITRATION 1. Decision by the Classification Society: If any dispute arises between the parties hereto in regard to the design and/or construction of the DRILLSHIP, its machinery and equipment, and/or in respect of the materials and/or workmanship thereof and/or thereon, and/or in respect of interpretations of this Contract or the Specifications, the parties may by mutual agreement refer the dispute to the Classification Society or to such other expert as may be mutually agreed between the parties hereto, and whose decision shall be final, conclusive and binding upon the parties hereto. 2. Proceedings of Arbitration: In the event that the parties hereto do not agree to settle a dispute according to Paragraph 1 of this Article and/or in the event of any other dispute of any kind whatsoever between the parties and relating to this Contract or its rescission or any stipulation herein, such dispute shall be submitted to arbitration in London. Each party shall appoint an arbitrator and in the event that they cannot agree, the two arbitrators so appointed shall appoint an Umpire. If the two arbitrators are unable to agree upon an Umpire within Twenty (20) days after appointment of the second arbitrator, either of the said two arbitrators may apply to the President for the time being of the London Maritime Arbitrators Association to appoint the Umpire, and the two arbitrators and the Umpire shall constitute the Board of Arbitration. Such arbitration shall be in accordance with and subject to the provisions of the British Arbitration Act 1979, or any statutory modification or re-enactment thereof for the time being in force. Either party may demand arbitration of any such dispute by giving notice to the other party. Any demand for arbitration by either of the parties hereto shall state the name of the arbitrator appointed by such party and shall also state specifically the question or questions as to which such party is demanding arbitration. Within Fourteen (14) days after receipt of notice of such demand for arbitration, the other party shall in turn appoint a second arbitrator and give notice in writing of such appointment to the party demanding arbitration. If a party fails to appoint an arbitrator as aforementioned within Fourteen (14) days following receipt of notice of demand for arbitration by the other party, the party failing to appoint an arbitrator shall be deemed to have accepted and appointed, as its own arbitrator, the arbitrator appointed by the party demanding arbitration and the arbitration shall proceed before this sole arbitrator who alone in such event shall constitute the Arbitration Board. The award of the arbitrators and/or Umpire shall be final and binding on both parties. 3. Notice of Award: The award decision shall immediately be communicated to the BUYER and the BUILDER by facsimile and confirmed in writing. 4. Expenses: The Arbitration Board shall determine which party shall bear the expenses of the arbitration or the portion of such expenses which each party shall bear. 5. Entry in Court: In case of failure by either party to respect the award of the arbitration, the judgement may be entered in any proper court having jurisdiction thereof. 6. Alteration of Delivery Date: In the event of reference to arbitration of any dispute arising out of matters occurring prior to delivery of the DRILLSHIP, the award may include any adjustment of the Delivery Date which the Arbitration Board may deem appropriate. (End of Article) ARTICLE XIII - SUCCESSOR AND ASSIGNS Neither of the parties hereto shall assign this Contract to any other individual or company (other than BUYER assigning this contract to its parent, subsidiary or affiliated company) unless prior consent of the other party is given in writing, such consent not to be unreasonably withheld, provided however, that subsequent to the payment of the f irst installment of the Contract Price, BUYER, upon giving notice in writing to the BUILDER, shall be f reely entitled to assign, in whole or in part, its rights and obligations under this Contract to any person, company or entity whatsoever. The notice given by BUYER of such assignment shall include a reasonable explanation of the purpose of the assignment and shall provide sufficient information so as to allow the BUILDER to advise the BUILDER's Bank regarding any amendment of the name of the beneficiary of the Refund Guarantee provided for in Article X hereof. Upon such assignment, the BUYER shall provide to BUILDER a copy of any assignment made pursuant hereto. In the event of any assignment pursuant to the terms of this Contract, the assignee shall succeed to all of the assigned rights and obligations of the assignor under this Contract and, to the extent assigned, the assignor shall have no further right or obligation hereunder. Should BUYER assign this Contract, any assignee or subsequent assignee of this Contract shall succeed to the rights of the BUYER to further assign this Contract under this Article XIII. (End of Article) ARTICLE XIV - TAXES AND DUTIES 1. Taxes and Duties Incurred in Korea: The BUILDER shall bear and pay all taxes, duties, stamps and fees incurred in Korea in connection with execution and/or performance of this Contract as the BUILDER, and any taxes and duties imposed in Korea upon the BUYER's Supplies resulting from the failure attributable to the BUILDER in taking all appropriate action to have such BUYER's Supplies imported into Korea under bond for ultimate export with the DRILLSHIP following delivery. 2. Taxes and Duties Incurred Outside Korea: The BUYER shall bear and pay all taxes (other than taxes on income imposed on BUILDER) , duties, stamps and fees incurred outside Korea in connection with execution and/or performance of this Contract as the BUYER, except for taxes and duties imposed upon those items (other than BUYER's Supplies) to be procured by or for the BUILDER for construction of the DRILLSHIP which shall be the responsibility of the BUILDER. (End of Article) ARTICLE XV - PATENTS, TRADEMARKS, COPYRIGHTS, ETC. 1. Patents: Except as to BUYER's Supplies, BUILDER agrees to defend, indemnify and hold BUYER harmless from any liability or claims of patent infringement of any nature or kind (including legal fees and expenses) relating to the infringement or claimed infringement of patent rights of any third party with respect to any material, service, process, or apparatus covered by this Contract, or their use for their intended purpose. With regards to the performance of the current Contract, BUYER shall defend, indemnify and hold BUILDER harmless from all claims of infringement of patent rights of any third party related to (i) processes supplied by BUYER or (ii) BUYER's Supplies. Except as otherwise provided for in this Agreement, nothing contained herein shall be construed as transferring any rights in any patents, trademarks or copyrights utilized in the performance of this Contract. 2. General Plans, Specifications and Working Drawings: The BUILDER retains all rights with respect to the Specifications, and plans and working drawings, technical descriptions, calculations, test results and other data, information and documents concerning the design and construction of the DRILLSHIP except for such technical documents which have been provided solely by the BUYER or its agents or servants to the BUILDER in connection with design and construction of the DRILLSHIP, and the BUYER undertakes therefore not to disclose the same or divulge any information contained therein to any third parties, without the prior written consent of the BUILDER (such consent not to be unreasonably withheld) except where such disclosure is necessary for usual operation, repair and maintenance of the DRILLSHIP. ARTICLE XVI - BUYER'S SUPPLIES 1. Responsibility of BUYER: (a) The BUYER shall, at its own risk, cost and expense, supply and deliver to the BUILDER all of the items to be furnished by the BUYER as specified in the Specifications (herein called the BUYER's Supplies) to a first point of arrival (mainly the port of Pusan, Korea or other places as may be agreed between the parties) in Korea in good condition. Once delivered to the first point of arrival in Korea, the BUYER's Supplies will be at the BUILDER's risk. Prior to the transportation of the BUYER's Supplies within Korea, the BUILDER shall make a visual inspection of BUYER's Supplies and report to BUYER any apparent damage to the BUYER's Supplies. BUYER and BUILDER shall inspect the BUYER's Supplies upon arrival thereof at the Shipyard to determine whether the BUYER's Supplies comply with the contractual specifications or have been damaged during the transportation. If as the result of such inspections, (i) any defect to the BUYER's Supplies is found, or (ii) any damage to the BUYER's Supplies occurring prior to arrival at the first point in Korea is found, then all the remedies and replacements thereof are the responsibility of the BUYER. Any delay or direct expenses regarding the construction of the DRILLSHIP resulting solely from BUYER's failure to have the BUYER's Supplies delivered in Korea as agreed herein shall be the BUYER's responsibility. Risk of transportation within Korea to the Shipyard and risk of offloading, uncrating and storage of the BUYER's Supplies upon their arrival at the Shipyard will be with BUILDER. However, the cost for inland transportation, customs clearance, insurance for inland transportation and other costs, if any, for the BUYER's Supplies shall be one point eight percent (1.8%) of the BUYER's Supplies amount on the C.I.F. value basis, which shall be paid by the BUYER to the BUILDER together with the payment of the second installment pursuant to Article II hereof. In case such BUYER's Supplies are delivered directly to the Koje Shipyard by the BUYER, the applicable cost (rate) shall be reduced to zero point zero percent (0.0%) of the BUYER's Supplies amount on the basis of C.I.F. value, except BUYER will pay for customs clearance or any third party costs. BUYER's Supplies sent to ports nearby Koje Shipyard (like Changsengpo and Okpo) will be assessed charges for transportation, customs clearance fee, harbor union fee, pilotage and other costs that are incurred by the BUILDER to facilitate delivery of the BUYER's Supplies to Koje Shipyard. These fees will be charged at actual direct cost. Any loss of or damage to the BUYER's Supplies after they are in the custody of the BUILDER will be for the account of the BUILDER and BUILDER will replace or repair any BUYER's Supplies that may be lost or damaged, and a subsequent delay due to the foregoing and resulting cost impact will be the BUILDER's responsibility. BUILDER agrees and acknowledges that any or all of the BUYER's Supplies may arrive at the Shipyard in individual parts or as component parts to be placed in or made a part of a larger system or module. The BOP is to arrive in not more than four (4) main components. (b) In order to facilitate installation by the BUILDER of the BUYER's Supplies in or on the DRILLSHIP, the BUYER shall furnish the BUILDER with necessary specifications, plans, drawings, instruction books, manuals, test reports and certificates required by the rules and regulations of the Specifications. If so requested by the BUILDER, the BUYER, without any charge to the BUILDER, shall cause the represent- atives of the manufacturers of the BUYER's Supplies to advise the BUILDER in installation thereof in or on the DRILLSHIP. (c) Any and all of the BUYER's Supplies shall be subject to the BUILDER's reasonable right of rejection, as and if they are found to be unsuitable or in improper condition for installation. (d) The Delivery Schedule of the BUYER's Supplies and vendor data shall be mutually agreed, finalized and settled within thirty (30) calendar days from the date of contract signing. The delivery dates agreed to on the Delivery Schedule will be the dates BUYER's Supplies are required at first point in Korea. Should the BUYER fail to deliver any of the BUYER's Supplies within Ten (10) days of the time designated by the Delivery Schedule, the Delivery Date shall be automatically extended for a period not to exceed the actual delay, beyond ten(10) days, incurred by the BUILDER. If no delay in the delivery of the DRILLSHIP is incurred by the BUILDER, the Delivery Date shall not change. (e) If delay in delivery of any of the BUYER's Supplies exceeds thirty(30) days, then, the BUILDER shall be entitled to proceed with construction of the DRILLSHIP without installation thereof in or on the DRILLSHIP as hereinabove provided, and the BUYER shall accept and take delivery of the DRILLSHIP so constructed, unless such delay is caused by Force Majeure in which case the provision Paragraph 1(d) of this Article shall apply. (f) The insurance for the BUYER's Supplies during storage, construction and installation at the Shipyard is covered and handled by the BUILDER at its cost and responsibility. 2. Responsibility of BUILDER: The BUILDER shall be responsible for storing and handling with reasonable care of the BUYER's Supplies after delivery thereof at the Shipyard, and shall, at its Own cost and expense, install them in or on the DRILLSHIP, unless otherwise provided herein or agreed by the Parties hereto, provided, always, that the BUILDER shall not be responsible for quality, efficiency and/or performance of any of the BUYER's Supplies (other than to install same in accordance with the manufacturer's specifications and requirements, copies of which have been provided to BUILDER by BUYER). It will be the BUILDER's responsibility at no cost to BUYER to: (i) assemble the BUYER's Supplies, bulk material and provide modularization and integration engineering, except procurement engineering related to the BUYER's Supplies, at the Shipyard; (ii) test the BUYER's Supplies as necessary or appropriate; (iii) construct modules from the BUYER's Supplies as appropriate; (iv) test and pre-commission the modules containing the BUYER's Supplies and to generally test all of the BUYER's Supplies; (v) install the BUYER's Supplies on the DRILLSHIP, in modules, as required, or otherwise as required, and to integrate the BUYER's Supplies into the overall designed system of the DRILLSHIP; (vi) test and pre-commission the integrated modules and systems; and (vii) complete and test the entire drilling system where practicable (i.e., equipment functional test only, not full operational load test) to insure that it works harmoniously as a part of the drilling process and the DRILLSHIP so as to be able to accomplish its intended purpose. In no event will BUILDER charge any additional cost for any of the above. Pre-commission or pre-commissioning as used in this Contract or the Specifications means the putting into service or the commissioning to be done at the Shipyard prior to delivery and acceptance. Pre-commission or pre- commissioning does not mean commissioning that occurs elsewhere. 3. Title: Title to BUYER's Supplies shall at all times remain with BUYER during the Contract; however, BUILDER shall have the risk of loss of or damage to such BUYER's Supplies from the time set out in subparagraph 1(a) of this Article until delivery of the DRILLSHIP. 4. BUYER's Suppplies Refundment: Notwithstanding anything else contained in this Contract, BUILDER agrees that if for any reason whatsoever the DRILLSHIP is not delivered to BUYER, other than as a result of BUYER's default under Article XI of this Contract, then BUILDER shall remit to BUYER the full value of all BUYER's Supplies which have been delivered to the Shipyard or which BUILDER has taken custody of under this Article XVI. BUILDER shall remit all amounts due under this paragraph 4 upon written demand by BUYER and upon BUILDER's request, BUYER will furnish BUILDER with reasonable documentation showing BUYER's cost of BUYER's Supplies. BUILDER shall remit all amounts due within thirty (30) days of demand. (End of Article) ARTICLE XVII - INSURANCE 1. Extent of Insurance Coverage: From the time of the launching until delivery of the DRILLSHIP, the BUILDER shall, at its own cost and expense, keep the DRILLSHIP and all machinery, materials and equipment delivered to the Shipyard for the DRILLSHIP or built into or installed in or upon the DRILLSHIP (except the BUYER's Supplies) fully insured with first class insurance companies or underwriters in Korea with coverage corresponding to the Institute of London Underwriter's Clauses for Builder's Risks. From the time of the first arrival of the BUYER's Supplies in Korea until delivery of the DRILLSHIP, the BUILDER shall keep the BUYER's Supplies fully insured with the aforementioned insurance companies or underwriters to cover Builder's Risk. The amount of such insurance coverage shall, up to the date of delivery of the DRILLSHIP, be an amount at least equal to, but not limited to, the aggregate of the payments made by the BUYER to the BUILDER plus One Hundred Million United States Dollars (US$ 100,000,000) to cover BUYER's Supplies in the custody of the Shipyard. The policy referred to in this paragraph for the BUYER's Supplies shall be taken out in the name of the BUILDER and BUYER, as their interests may appear, and all losses under such policy shall be payable to the BUILDER and BUYER, as their interests may appear. 2. Application of the Recovered Amounts: In the event that the DRILLSHIP shall be damaged from any insured cause at any time before delivery of the DRILLSHIP, and in the further event that such damage shall not constitute an actual or constructive total loss of the DRILLSHIP, the amount received in respect of the insurance shall be applied by the BUILDER in repair of such damage, satisfactory to the Classification requirements, and the BUYER shall accept the DRILLSHIP under this Contract if completed in accordance with this Contract and the Specifications, however, subject to the extension of delivery time under Article VIII hereof (except in case of negligence of the BUILDER). Should the DRILLSHIP from any cause become an actual or constructive total loss, the BUILDER shall either: (a) Proceed in accordance with the terms of this Contract, in which case the amount received in respect of the insurance shall be applied to the construction and repair of damage of the DRILLSHIP, provided the parties hereto shall have first agreed thereto in writing and to such reasonable extension of delivery time as may be necessary for the completion of such reconstruction and repair; or (b) Refund promptly to the BUYER the full amount of all sums paid by the BUYER to the BUILDER as installments in advance of delivery of the DRILLSHIP, and deliver to the BUYER all BUYER's Supplies (or the insurance proceeds paid with respect thereto), in which case this Contract shall be deemed to be automatically terminated and shall be deemed rescinded for purposes of Article X hereof and all rights, duties, liabilities and obligations of each of the parties to the other shall forthwith cease and terminate. Termination of BUILDER's Obligation to Insure: The BUILDER shall be under no obligation to insure the DRILLSHIP hereunder after delivery of the DRILLSHIP. (End of Article) ARTICLE XVIII - NOTICE Address: Any and all notices and communications in connection with this Contract shall be addressed as follows: To the BUYER: R&B Falcon Drilling Co. Attn: Project Sponsor 901 Threadneedle Houston, Texas 77079-2902 Facsimile No.: (281)589-5189 To the BUILDER: Samsung Heavy Industries Co., Ltd. Dongnam Tower Building 890-25, Daichi-dong, Kangnam-ku, Seoul, Korea Facsimile No. (822) 3458 7503 (822) 3458 7501 or preferably to its Koje Yard: Samsung Heavy Industries Co., Ltd. P.O. Box Gohyun 9 530, Jangpyung-ri, Sinhyun-up, Koje City, Kyungnam, Korea Telex No.: K52213 Facsimile No.: (82558) 632 2160 (Design Department) (82558) 636 2560 (Customer Coordination Team) Language: Any and all notices and communications in connection with this Contract shall be written in the English language. 3. Effective Date of Notice The notice in connection with this Contract shall become effective from the date when such notice is received by the BUYER or by the BUILDER except otherwise described in the Contract. In case any notice is made by facsimile confirmed in writing, the date when the facsimile is received shall govern. (End of Article) ARTICLE XIX - EFFECTIVE DATE OF CONTRACT This Contract shall become effective upon signing by the parties hereto. In the event the refund guarantee has not been issued by November 14, 1998 and the BUYER provided same, the BUYER shall have the right to terminate the Shipbuilding Contract by written notice to BUILDER within five business days thereafter. If the BUYER exercises such option, neither party shall have any liability or obligation to the other under this Contract. (End of Article) ARTICLE XX - INTERPRETATION 1. Laws Applicable: The parties hereto agree that the validity and the interpretation of this Contract and of each Article and part thereof shall be governed by the laws of England. 2. Discrepancies: All general language or requirements embodied in the Specifications are intended to amplify, explain and implement the requirements of this Contract. However, in the event that any language or requirements so embodied permit an interpretation inconsistent with any provision of this Contract, then, in each and every such event, the applicable provisions of this Contract shall prevail and govern. In the event of conflict between the Specifications and Plans, the Specifications shall prevail and govern. 3. Entire Agreement: This Contract contains the entire agreement and understanding between the parties hereto and supersedes all prior negotiations, representations, undertakings and agreements on any subject matter of this Contract. 4. Amendments and Supplements: Any supplement, memorandum of understanding or amendment, whatsoever form it may be relating to this Contract, to be made and signed among parties hereof after signing this Contract, shall be the integral part of this Contract and shall be predominant over the respective corresponding Article and/or Paragraph of this Contract. (End of Article) ARTICLE XXI - CONFIDENTIALITY BUILDER and BUYER agree that the terms and conditions of this Contract shall remain confidential and neither party shall disclose any such terms and conditions of this Contract to any third party without f irst obtaining the prior written consent of the other, provided however, that either party shall be entitled to disclose any or all of the terms and conditions of the Contract to the extent it is necessary to do so to implement, effectuate and comply with the terms of the Contract or to otherwise exercise any right or discharge any obligation that party may have pursuant to this Contract or to comply with any law, rule, regulation of any governmental entity having jurisdiction over a party or of a stock exchange, securities commission and such on which stock of a party or its affiliate is traded. (End of Article) IN WITNESS WHEREOF, the parties hereto have caused this Contract to be duly executed on the day and year first above written. BUYER: BUILDER: R&B FALCON DRILLING CO. SAMSUNG HEAVY INDUSTRIES CO., LTD. By: Andras Bakonyi By: Title: President Title: IN WITNESS WHEREOF, the parties hereto have caused this Contract to be duly executed on the day and year first above written. BUYER: BUILDER: R&B FALCON DRILLING CO. SAMSUNG HEAVY INDUSTRIES CO., LTD. By: Andras Bakonyi By: J.W. Kim Title: President Title: President & C.E.O. EXHIBIT "A" LETTER OF REFUNDMENT GUARANTEE NO. Gentlemen: We hereby open our irrevocable letter of guarantee No. in favour of R&B Falcon Drilling Co. (hereinafter called the "BUYER") for account of Samsung Heavy Industries Co., Ltd. (hereinafter called the "BUILDER"), Seoul, Korea as follows in consideration of the shipbuilding contract dated October 14, 1998 (hereinafter called the "Contract") made by and among the BUYER and the BUILDER for the construction of one (1) drillship composed of hull part and topside part, having BUILDER's Hull No. 1300 (hereinafter called the "DRILLSHIP"). If in connection with the terms of the Contract the BUYER shall become entitled to a refund of the advance payment(s) made to the BUILDER prior to the delivery of the DRILLSHIP, we hereby irrevocably guarantee the repayment of the same to the BUYER immediately on demand Twenty-One Million Nine Hundred and Fifty Thousand Unites States Dollars (Say US$ 21,950,000 only) together with interest thereon at the rate of 8% per cent per annum. from the date following the date of receipt by the BUILDER to the date of remittance by telegraphic transfer of such refund. In case any refund is made to you by the BUILDER or by us under this guarantee, our liability hereunder shall be automatically reduced by the amount of such refund. In the event of rescission of the Contract being based on delays due to force majeure or other causes beyond the control of the BUILDER, as required by Article X of the Contract, interest shall be paid at the rate of four percent (4%) per annum from the date following the date of Builder's receipt of each installment to the date of remittance by telegraphic transfer of the refund. This letter of guarantee is available against BUYER's simple receipt and signed statement certifying that BUYER's demand for refund has been made in conformity with Article X of the Contract and the BUILDER has failed to make the refund within Thirty (30) days after your demand to the BUILDER. Refund shall be made to you by telegraphic transfer in United States Dollars. This letter of guarantee shall expire and become null and void upon receipt by the BUYER of the sum guaranteed hereby or upon acceptance by the BUYER of delivery of the DRILLSHIP in accordance with the terms of the Contract and, in either case, this letter of guarantee shall be returned to us. This guarantee is valid from the date of this letter of guarantee until delivery or in the event of delayed delivery until such time as the DRILLSHIP is delivered by the BUILDER to the BUYER in accordance with the terms of the Contract. Notwithstanding the provisions hereinabove, in case we receive notification from you or the BUILDER confirmed by the Arbitration Board stating that your claim to rescind the Contract or your claim for refundment thereunder has been disputed and referred to Arbitration in accordance with the provisions of the Contract, the period of validity of this guarantee shall be extended until Thirty (30) days after the final award shall be rendered in the Arbitration and a copy thereof acknowledged by the Arbitration Board. In such case, this guarantee shall not be available unless and until such acknowledged copy of the final award in the Arbitration justifying your claim is presented to us. This guarantee shall not be affected by any extension of time or concession granted by the BUYER to the BUILDER or any delay or failure of the BUYER in enforcing its rights under the Contract. The BUYER shall have the right to assign this guarantee and all of its benefits to any assignee to whom the Contract is assigned. This guarantee shall be governed by the laws of England. Very truly yours, "EXHIBIT B" UNIT RATE EXHIBIT B: UNIT RATE In connection with the DRILLSHIP Contract for HULL NO. 1300 agreed and signed on October 14, 1998, the Buyer and the Builder agree to the following consideration for the modifications and variation: 1. Should the variation cost proposed by the Builder is not agreed by the BUYER following calculation formula will be applied: A. Material 107% of FOB cost B. Labour Manhour x Rate C. Engineering and Supervision 11% x (A+B) D. Overhead 10% x (A+B+C) 2. Any other matters not contained and/or implied herein should be referred the Contract. 3. Applied Man-Hour is attached. 4. Rate to be applied = US $45/hour d) Valves (M-H/each) / Insulation (M-H/LINE-M) Application A B C D Diameter(mm) 50 1.7/0.6 2.9/0.8 3.5/0.9 4.5/1.2 100 1.7/0.8 3.0/0.9 3.6/1.2 4.8/1.5 150 1.7/0.9 3.0/1.2 3.6/1.5 4.8/2.0 200 3.0/1.1 4.5/1.2 6.0/1.5 7.5/2.3 300 4.5/1.5 6.8/2.3 9.4/3.0 12.1/3.8 450 6.0/1.4 10.8/2.7 13.8/3.6 17.4/4.5 600 9.0/2.3 16.5/4.1 21.0/5.3 26.1/6.6 e) Cable Installation (M-H/LINE-M) Application A B C D Out diameter(mm) 5-15 0.06 0.08 0.09 0.12 15-30 0.08 0.10 0.12 0.15 30-50 0.09 0.14 0.18 0.23 Greater than 50 0.12 0.20 0.23 0.31 f) Paintwork for Hullside (M-H/square meter) Application In In Dry Dock Paint Outside Inside D/R Inside Cells Hull accommodation Tank Blasting/Priming 0.10 0.2 0.3 0.6 Paint application 0.06 0.13 0.15 0.24 Productivity (TOPSIDE) 1. Unit Manhour applied for the progress of Building: A. PAU pre-fabrication stage in the shop B. PAU Assembly stage on the ground C. PAU Assembly on the vessel of the module inside D. PAU Assembly on the vessel of module outside 2. Major Manhour a) Steelwork (M-H. MT) Application A B C D Drill floor and Sub 52.0 58.5 65.0 74.8 Structure Modules 48.0 63.0 60.0 69.0 Skid Support, 38.5 43.2 48.0 55.2 Bridge/Crane Truss and Riser Rack Miscellaneous steel 60.0 67.6 75.0 86.0 including Handrail, Ladders, Walkways, etc. b) Pipework (M-H/MT) Application A B C D n.e. 1.5" iameter 125 133 166 185 Over 1.5" n.e.6" Diameter 87 92 115 127 Over 6" Diameter 74 79 98 108 c) Cable Trays/Ladders (M-H/meter) Application A B C D n.e. 6" Width 0.42 0.50 0.63 0.70 Over 6" n.e. 12" width 0.54 0.72 0.81 0.90 Over 12" n.e.18" width 0.60 0.80 0.90 1.00 Over 18" n.e.24" width 0.72 0.96 1.08 1.20 Over 24" n.e.30" width 0.90 1.20 1.35 1.50 Over 30" Width 1.14 1.52 1.71 1.90 d) Valves (M-H/each)/ Installation (M-H/meter) Application A B C D Diameter - 3.36 4.20 4.62 n.e.2" 41' - 5.60 7.00 7.70 6" - 7.68 9.60 10.56 8" - 8.40 10.50 11.55 101, - 11.28 14.10 15.51 12" - 13.60 17.00 18.70 16" - 17.84 22.30 24.53 20" - 20.96 26.20 28.82 24" - 26.40 33.00 36.30 e) Cable Installation (M-H/meter) Application A B C D n.e. 4mm2 0.16 0.16 0.16 Over 4mm2 n.e. 10mm2 - 0.16 0.16 0.23 Over 10mm2 n.e. 25mm2 - 0.23 0.30 0.43 Over 25mm 2 n.e. 40mm2 - 0.30 0.43 0.56 Over 70mm2 n.e. 110mm2 - 0.56 0.85 0.98 Over 110mm2 n.e.150mm2 - 0.69 0.98 1.25 Over 150mm2 n.e. 225mm2 - 0.85 1.25 1.41 f) Paintwork (M-Wsquare meter) Application Over 500 n.e.500 Small mm nun piece Depth Depth Inside of tank Blasting/Priming 0.358 0.416 0.708 Paint application 0.057 0.065 0.098 per coat "EXHIBIT 2" BUYER'S SUPPLIES LIST SHI HN1300 (S4M) OFE Primary AFE No. Equipment P8 Vendor P8 PM Eng comment P.O. No. 002- Marine Systems: 002-001.1 Bulk Air Pressure Reducing TBA 255 NDH Stations, 40psi & 60psi 002-002.1 Cascade Air Compressor & SCBA's TBA 257 NDH 002-003.1 Central Hydraulic Unit & Filters TBA 299 SAL 002-003.2 Hydr./Pneu. Power Packs (General Purpose) TBA 299 SAL Purpose) 002-004.1 Deck Crane 40 T, Amclyde 8P011 249 NDH 120' boom (Port Fwd) 002-004.2 Deck Crane 80 T, 120' Amclyde 8PO11 249 NDH boom (Sth Fwd) 002-004.3 Deck Crane 80 T, 140' Amclyde 8P011 249 NDH boom) (Sib Aft) 002-004.4 Deck Crane 80 T, Amclyde 8P011 249 NDH 120'boom (Port Aft) 002-004.5 Deck Crane 40 T, Amclyde 8P011 249 NDH 120'boom (Aft Stem) 002-006.1 Fenders Yokahama TBA 375 NDH 002-007.1 Driller's Intercom Nautronix 8P015 156 JJM 1 002-007.3 Emergency Acoustic Nautronix 8PO15 164 JJM 3,4 BOP Equipment 002-007.5 Position Reference Nautronix 8P015 164 JJM Equipment 002-007.6 Compasses and autopilot Nautronix 8PO15 164 JJM 002-007.7 GPS Receiver Nautronix 8PO15 164 JJM 002-0071 Wi; speed Nautronix 8PO15 173 JJM 002-007.10 Environmental Nautronix 8PO15 173 JJM Sensors 002-007.11 Weather Fax Nautronix 8PO15 173 JJM 002-007-12 Training Simulator Nautronix 8PO15 181 JJM and Software 002-007.13 Engine Control Desk Nautronix 8PO15 181 JJM 1 002-007-14 Bridge Control Desk Nautronix 8PO15 181 JJM 1 002-007-15 Single Operator Nautronix 8PO15 181 JJM Control Console 002-007.16 Dynamic Positioning Nautronix 8PO15 181 JJM 1 System 002-007.17 Peripheral Equipment Nautronix 8PO15 181 JJM 1 002-007.18 Dual Operator Nautronix 8PO15 181 JJM Control Console 002-007.19 Thruster Control Console Nautronix 8P015 181 JJM 002-007.20 Uninterruptible Power Nautronix 8PO15 246 JJM 1 Supplies (UPS) 002-007.21 Radar Plants Nautronix 8P015 345 JJM 002-007.22 Navigation Sounder Nautronix 8P015 346 JJM 002-007.23 Round Robin (part of Nautronix 8PO15 347 JJM auto telephone) 002-007.24 Public address Nautronix 8PO15 347 JJM 1 002-007.25 Automatic Telephone Nautronix 8PO15 347 JJM 1 002-W7.26 Air Band VHF, Radio Nautronix 8PO15 348 JJM Beacon 002-007.27 Radio Life-saving Nautronix 8PO15 348 JJM Equipment 002-007.28 Radio Plant Nautronix 8PO15 349 JJM 002-008.1 Thrusters Aquamaster-Rauma 8POO8 360 JJM from P6 002-008.2 Thruster Nozzles Aquamaster-Rauma 8POO8 360 JJM 002-009.1 Thruster Drives ABB Industry 8P002 360 JJM 002-010.1 Thruster Fittings Aker Mantyluoto 8PO48 360 JJM 1 confirmw/SHl 002-011.1 Thruster Stand-by Aquamaster-Rauma 8PO58 360 JJM Automation System 002-011.2 Thruster Steering Aquamaster-Rauma 8P058 360 JJM Pumps 002-012.1 Thruster Launching Hollming Oy 8PO64 360 JJM Plates & Domes 002-013.1 Thruster AC-DC Aquamaster-Rauma 8P085 360 JJM Converters 002-014.1 Lifeboats & Davits Schat-Harding 8PO49 301 NDH 1 - Eng'n Req'd 2 - BFE 3 - No Effect to SHI 4 - May be Deleted 13 October 1998 ds4m-ofe SHI HN300 (DS4M) OFE Primary AFE No. Equipment P8 Vendor P8 PM Eng Comment P.O. No. 003 - BOP, Diverter, & Choke Systems: 003-0011 High Pressure Shaffer SP014 135 MNA Test Pump for BOP 003-0012 18-3/4 15,0000 Cameron 8PO46 135 MNA 3 WP. 'TL" BOP (P6) Stack System 003-001.3 Lower Riser Cameron 8PO46 135 MNA 3 Package for 18- (P6) 3/4" 15MX WP. 003-001.4 BOP Test Stump & ABB Vetco 8PO56 135 MNA Mandrel Gray 003-001.5 1 BOP Stack ABB Vetco 8PO56 135 MNA 3 Wellhead Gray Connector 003-001-6 Gauge sys. & Houston SP060 135 RLH chart recorder Digital f/BOP test pump 003-001.7 LMRP Test Stump & ABB Vetco 8P078 135 MNA Mandrel Gray 003-001-8 LMRP Connector ABB Vetco 8PO78 135 MNA 3 Gray 003-002.1 Multiplex Subsea ABB Seatec 8P010 139 RLH BOP Control System: 003-002.2 Hot Line Hose Sea" 8P073 139 RLH 003-002.3 -Hot Line Storage Beattie 8P073 139 RLH Reel 003-M.4 Mux cable clamps All-Points 8P079 139 RLH 3 003-002.5 Spare mux cable ABB Seatec 8PO81 139 RLH 3 003-003.1 BOP Cart SMST 8P051 142 SAL 1 003-003.2 Hydraulic SMST 8P051 142 SAL 1 Cylinders 003-003,3 BOP Skid Rails SMST 8PO51 142 SAL 1 003-003.4 BOP Support Pads SMS 8P051 142 SAL 1 003-OW.5 BOP Skidding SMST 8PO51 142 SAL 1 Jacks 003-003.6 BOP Handling SMST 8PO51 142 SAL 1 Cranes 003-003.7 BOP SMST 8PO51 142 SAL 1 Transportation System 003-003.8 Fivdraulic SMST 8PO51 142 SAL 1 Control Console 003-003.9 Cart, Foward SMST 8P051 142 SAL 1 Moonpool Au)dliary 003-M. 10 BOP Handling SMST 8P051 142 SAL 1 Trolleys 003-003-11 Hvdraulic Power SMST 8PO51 142 SAL 1 Unit 003-00112 BOP Bulkhead TBA 142 SAL Guidance 003-004.1 Drilling Choke QOP 8PO43 140 SAL Remote Panel 003-004.2 Choke And Kill OOP 8PO43 140 SAL Manifold 003-005.1 Diverter Control ABB Seatec 8P010 138 DS4 1 System 003-005.2 Diverter Insert Hydril 8PO38 138 DS4 3 003-005.3 Diverter Insert Hydril 8PO38 138 DS4 Storage Base 003-005.4 Diverter Handling Hydril 8PO38 138 DS4 3 Tools Etc. 003-005.5 Diverter Upper Hydril SP038 138 DS4 3 Fle4oint 003-005.6 Diverter Valves Hydril SP038 138 DS4 003-005.7 Diverter Housing Hydril 8PO38 138 DS4 003-005.8 Check Valve Hydril SP084 138 DS4 F/Diverter System 003-005.9 Diverter Selector TBA 138 DS4 / Deflector Valve 1 - Eng'n Req'd 2 - BFIE 3 - No Effect to SHI 4 - May be Deleted 13 October 1998 ds4m-ofe SHI HN1300 (DS4M) OFE Primary AFE No. Equipment PS Vendor PS PM Eng. Comment P.O. No. 004 - Marine Riser System: 004-0011 Riser Hi2h Angle TBA 144 DS4 3 Intermediate Flex Joint 004-001.2 Riser Hangoff Tool Joint TBA 144 DS4 3 004-001.3 Riser Gas Handler TBA 144 DS4 3 004-001.4 Riser Lower Flex TBA 144 DS4 3 Joint 004-001.5 Standard Joints, Vetco SP037 144 DS4 3 Bare ClassF, 1340ft 004-001.6 Standard Joints, Vetco 8PW7 144 DS4 3 Buoyant Class'F, 86x9Oft 004-001.7 Standard Joints, Vetco 8P,03 144 DS4 3 Bare Class'H', 7 l8x90ft 004-001.8 Automatic riser fill-Vetco 8PO37 144 DS4 up valve 004-001.9 Riser Spider and Vetco 8PW7 144 DS4 gimbal 004-001 - Riser Termination Vetoo SP037 144 DS4 3 10 Joint 004-001.11 Joint Telescopic Vetco 8PO37 144 DS4 with Riser Tension Ring, 2 pcs 004-001.12 PupJoi Vetco 8PO37 144 DS4 3 50,40,30,20,i5,iOand 5fts 004-001.13 Riser Adapter Joint vetco 8PW7 144 DS4 3 004-001-14 Riser Crossover Vetco 8PO37 144 DS4 3 Joints 004-001.15 Marine Riser Vetco SP037 144 DS4 3 Handling Tools 004-003.1 Buoyancy for the Emerson 8PO42 144 DS4 3 standard hser joints Cuming 004-004.1 Crown Block Shaffer 8P007 104 DS4 004-004.2 Active Heave System Shaffer 8P007 ill DS4 004-004.3 Pressure Air Naptech Wool 144 DS4 Accumulators 5Ox344 004-004.4 Crown Mounted Heave Shaffer SP007 145 DS4 Motion Compensator 004-004.5 Riser Anti-Recoil Shaffer 8P007 145 DS4 System 004-004.6 Direct Hydraulic Shaffer SP007 145 DS4 Control Console Assembly D04-004.7 Sheaves Shaffer 8P007 145 DS4 004-004.8 Electrically Powered Shaffer 8POO7 145 DS4 Hydraulic Charge Pump 004-004.9 Hydraulic Power Unit Shaffer SPOO7 145 DS4 004-004-10 Remote (System Shaffer 8P007 145 DS4 Master) Junction Box 004-004.11 Riser Tensioners Shaffer 8P007 145 DS4 004-004.12 Main Barrier Panel Shaffer SP007 145 DS4 004-004.13 Riser Tensioner Shaffer 8P007 145 DS4 Control Panels 004-004.14 Operator (Master) Shaffer 8P007 145 DS4 Control Console 004-004.15 Wire Lines For Holloway/ SP035 145 DS4 Tensioners Houston 004-004.16 Tensioner Wire Rope Amclyde 8PO44 145 DS4 Grips 004-W4.17 Air Dryer Hamworthy 8PO25 258 DS4 D04-004.18 High Pressure Hamworthy TBA 259 DS4 Filters 004-004.19 HP Air Compressor Hamworthy W025 259 DS4 004-005.1 Riser Centralizer 150 SAL System 1 - Eng'n Req'd 2 - BFE 3 - No Effect to SHI 4 - May be Deleted 13 October 1998 ds4m-ofe SHI HN1300 (DS4M) OFE Primary AFE No. Equipment P8 Vendor P8 PM Eng. Comment P.O. No. OOS - Hoisting & Rotating System: 005-001,1 Drilling Dernck Dreco 8P005 103 SAL 005-001.2 Drilling Derrick Dreco 8POO5 103 SAL Piping 005-001.3 Drilling Derrick Dreco 8POO5 103 SAL Electrical Wiring 005-002.1 Travelling Block Shaffer 8PO31 105 DS4 005-004.1 Drawwork's Brake Emsco 8P003 338 SAL Water Coating Package 005-004.2 Drawworks Auto Emsco 8P003 108 SAL 1 Block Control System 005-004.3 Rotary Table Emsco 8P003 122 SAL 005-004.4 Drawworks Machinery Emsoo 8P003 108 SAL With El Motors 005-004.5 Dead Line Anchor Emsm SP003 110 SAL 005-004.6 Insert Bowls Emsco 8POO3 124 SAL 3 005-004.7 Insert BovAs For Emsco 8POO3 124 SAL 3 Casings 005-004.8 Mud Pumps With El Emsco 8POO3 212 SAL Motors 005-005.9 Drilling Line Emsco SP034 107 SAL 005-008.1 Kelly Drive TBA 128 DS4 3 Bushings & Spares 005-009.1 Top Drive Retract Varco 8POO6 128 SAL Dolly Assembly 005-0092 Too Drive & Motor Varco 8POO6 128 SAL Assembly 005-009.3 Counterbalance Varco 8P006 128 SAL Assembly 005-009.4 Rotating Hook Varco 8POO6 128 SAL Adapter 005-OD9.5 Pipe Handlers Varco 8POO6 128 SAL 005-M.6 Adaptor Kits, 3 Pcs Varco 8POO6 128 SAL 005-009.7 Top Drive Parking Varco SPOO6 128 SAL System 005-009,8 Service Loops & Varco 8POO6 128 SAL Termination Kit 005-009,9 Control System Less Varco 8POO6 128 SAL Driller'S Console 005-M. 10 Hook Varco 8POO6 106 SAL 3 005-009.11 Retractable Dolly Varco 8POO6 128 SAL And Dolly Guide 005-010.1 Derrickman's Escape Charter 8PO16 211 DS4 Device 005-011.1 Elevator For Emscor 8PO68 268 DS4 Derrick Man Champion 005-011.2 Spares For Derrick Emscor 8PO69 268 DS4 Man's Elevator Champion 005-012A Drill Line Stand TBA 107 SAL 005-013.1 SvAvel (Required W TBA 127 SAL Top Drive) For Park 006 - Downhole Drill String & Tools: 006-001.1 Drill Pipe & Woodhouse 8PO57 271 DS4 3 Acoessories 006-002.1 Pon Collars Technofor 8PO59 273 DS4 3 006-002.2 Hvy. Wate, Drill Technofor 8PO59 273 DS4 3 Pipe 006-OW.3 Drill Collars and Technofor SP059 273 DS4 3 Accessories 006-002.4 Drill Pipe Pup Technofor 8PO59 271 DS4 3 joints 006-003.1 Sub and Lift Plugs GRANT TBA 272 DS4 3 006-OM.2 Lifting subs & Gotco TBA 272 DS4 3 Pump4n subs 006-003.3 Keltv saver subs Waters TBA 125 DS4 3 006-003.4 Subs Smith Int. 8PO61 272 DS4 3 006-004-1 Kelly valves Waters TBA 141 DS4 3 006-004.2 Baker float valves Charter 8PO17 141 DS4 3 and repair kits 006-005.1 Fishing Tools Gotco 8PO53 281 DS4 3 006-005,2 Fishing Tools Gotco 8P054 281 DS4 3 006-005.3 Fishing Tool Spares Gotco 8PO62 281 DS4 3 006-005.4 Fishing Tool Spares Gotco SP063 281 DS4 3 006-M.1 Kel!y Spinner Waters TBA 290 DS4 006-007.1 Bit breakers, R&R 8PO30 141 DS4 3 calipers & inside BOP valves 006-008.1 Casing Scrapers Mid- 8PO29 278 DS4 3 Continent 006-009.1 Kelly 6" Waters TBA 125 DS4 3 1 - Eng'n Req'd 2 - BFE 3 - No Effect to SHI 4 - May be Deleted 13 October 1998 ds4m-ofe SHI HN1300 (DS4M) OFE Primary AFE No. Equipment P8 Vendor P8 PM Eng. Comment P.O. No. OO7 - Hoisting & Rotating System: 005-001,1 Dfillinq Dernck Dreco 8P005 103 SAL 005-W1.2 Drilling Derrick Dreco 8POO5 103 SAL Piping 005-001.3 Drilling Derrick Dreco 8POO5 103 SAL Electrical Wiring 005-002.1 Travelling Block Shaffer 8P031 105 DS4 005-004.1 Drawwork's Brake Emsco 8P003 338 SAL Water Coating Package 005-004.2 Drawworks Auto Block Emsco 8P003 108 SAL 1 Control System 005-004.3 Rotary Table Emsco 8P003 122 SAL 005-004.4 Drawworks Machinery Emsoo 8P003 108 SAL With El Motors 005-004.5 Dead Line Anchor Emsco SP003 110 SAL 005-004.6 Insert Bowls Emsco 8P003 124 SAL 3 005-004.7 Insert BoWs For Emsco 8POO3 124 SAL 3 Casings 005-004.8 Mud Pumps With El Emsco 8POO3 212 SAL Motors 005-005.9 Drilling Line Emsco SP034 107 SAL 005-008.1 Kelly Drive Bushings TBA 128 DS4 3 & Spares 005-009.1 Too Drive Retract Varco 8POO6 128 SAL Dolly Assembly 005-0092 Top Drive & Motor Varco 8POO6 128 SAL Assembly 005-009.3 Counterbalance Varco SPOO6 128 SAL Assembly 005-009.4 Rotating Hook Adapter Varco 8POO6 128 SAL 005-OD9.5 Pipe Handlers Varco 8POO6 128 SAL 005-009.6 Adaptor Kits, 3 Pcs Varco 8POO6 128 SAL D05-009.7 Top 0 Parking System Varco 8POO6 128 SAL 005-009,8 Service Loops & Varco 8POO6 128 SAL Termination Kit 005-009,9 Control System Less Varco 8POO6 128 SAL Driller'S Console 005-M. 10 Hook Varco 8POO6 106 SAL 3 005-009.11 Retractable Dolly Varco 8POO6 128 SAL And Dolly Guide 005-010.1 Derrickman's Escape Charter 8PO16 211 DS4 Device 00"11.1 Elevator For Derrick Emscor 8PO68 268 DS4 Man Champion 005-011.2 Spares For Derrick Emscor 8PO69 268 DS4 Man's Elevator Champion 005-012A Drill Line Stand TBA 107 SAL 005-013.1 Swivel (Required W TBA 127 SAL Top Drive) For Park 006 - Downhole Drill String & Tools: 006-001.1 Drill Pipe & Woodhouse 8PO57 271 DS4 3 Acoessories 006-002.1 Pony Collars Technofor 8P059 273 DS4 3 006-002.2 HvY. Wate Drill Pipe Technofor 8PO59 273 DS4 3 006-002.3 Drill Collars and Technofor SP059 273 DS4 3 Accessories 006-002.4 Drill Pipe Pup Technofor 8PO59 271 DS4 3 joints 006-OW.1 Sub and Lift Plugs GRANT TBA 272 DS4 3 006-003.2 Lifting subs & Gotco TBA 272 DS4 3 Pump4n subs 006-M.3 Kelly saver subs Waters TBA 125 DS4 3 006-W3.4 Subs Smith Int. 8PO61 272 DS4 3 006-004-1 Kelly valves Waters TBA 141 DS4 3 006-004.2 Baker float valves Charter 8PO17 141 DS4 3 and repair kits 006-005.1 Fishing Tools Gotco 8P053 281 DS4 3 006-005,2 Fishing Tools Gotco 8P054 281 DS4 3 006-M.3 Fishing Tool Spares Gotco 8PO62 281 DS4 3 006-005.4 Fishing Tool Spares Gotco SP063 281 DS4 3 006-006.1 Kel!y Spinner Waters TBA 290 DS4 006-007.1 Bit breakers, R&R 8P030 141 DS4 3 calipers & inside BOP valves 006-008.1 Casing Scrapers W- 8P029 278 3 Continent 006-009.1 Kelly 6" Waters TBA 125 DS4 3 1 - Eng'n Req'd 2 - BFE 3 - No Effect to SHI 4 - May be Deleted 13 October 1998 ds4m-ofe SHI HN1300 (DS4M) OFE Primary AFE No. Equipment P8 Vendor P8 PM Eng Comment P.O. No. 007 - Pipe Handling Tools & Equipment: 007-001.1 PowerTongs Va rco 8POO4 292 SAL 1 007-0012 Main Deck Pipe Hoist Varco 8P004 297 SAL 1 / Conveyor 007-001.3 Conveyor for Varco 8POO4 297 SAL 1 Drillpipe 007-001A Easy Torque Varco 8POO4 288 SAL 1 007-001.5 Iron Roughneck Track Varco 8POO4 294 SAL 1 & Turntable 007-001.6 Iron Roughneck Varoo 8POO4 294 SAL 1 007-001.7 Mousehole Spiders Varco 8POO4 286 SAL 1 007-001.8 Pipe Racking System Varco 8POO4 296 SAL 1 Custom Bellyboard 007-001.9 Pipe Racking System Varco 8POO4 296 SAL 1 Custom Fingerboard 007-001.10 Casing Iron Roughneck Varco 8POO4 294 SAL 1 007-001.11 Conveyors for Riser Varoo 8POO4 151 SAL 1 and Casing, 60' and 100' 007-001.12 RBS, Raised Backup Varco 8POO4 296 SAL 1 System 007-001.13 Pipe Racking System, Varco 8POO4 296 SAL 1 PRS-6i, 2 units 007-003.1 Casing Stabbing Board Dreco 8POO5 295 SAL 007-004.1 Crane, Drill Pipe TBA 249 SAL Knuckle Boom 007-004.2 Riser Handling Gantry SMST 8P050 151 SAL 1 Crane - Casing Spreader Bar 007-004.3 Riser Handling Gantry SMST 8PO50 151 SAL 1 Crane 007-004.4 Riser Handling Gantry SMST 8PO50 151 SAL 1 Crane - Riser areader Bar 007-005.1 Mousehole & Rathole TBA 296 SAL 2 007-007.1 Tubing Spider Cavins TBA 286 OS4 007-W7.2 Casing Elevators 30" Gray Eng. 8PO24 285 DS4 3 007-007.3 Casing Elevators 16" Gray Ena- 8P024 285 DS4 3 SO 007-WT4 Spinning Wrench Gray Eng. 8PO24 291 DS4 3 007-007,5 Spinning Wrench Gray Eng- 8PO24 291 DS4 3 Spares 007-007.6 Elevator Links Varco 8PO39 282 DS.4 3 007-0077 Drill Collar Clamps Varco 8PO74 287 DS4 3 007-007.8 Drill Collar Slips Varco 8P074 287 DS4 3 007-007.9 Drill Pipe Slips Varco 8PO74 287 DS4 3 007-007.10 Drill Pipe and Tubing Varco 8PO74 283 DS4 3 Elevators 007-007.11 Sincle Elevators Varoo 8P074 283 DS4 3 007-007.12 Drill Collar Elevator Varco 8P074 283 DS4 3 007-007.13 Casing levators/ Varoo 8P074 286 DS4 3 Spiders 007-007.14 Casing Elevators/ Varco 8PO74 286 DS4 3 Spiders 007-007.15 Slips Varco 8PO74 287 DS4 3 007-007.16 Casing Tongs Varoo 8PO75 292 DS,4 3 007-007.17 Drill Pipe & Drill Varoo 8PO75 289 DS4 3 Collar Rotary Tongs 007-007.18 1000 ton links Varco 8PO76 283 DS4 3 007-007.19 1000 ton elevators Varco 8PO76 283 DS4 3 007-009.1 Air Winches - Industrial 8PO26 261 DS4 Moonpool Air 007-009.2 Air Winches - Decks Industrial SP026 261 DS4 Air 007-009.3 Air Winches - Derrick Industrial -YP- DS4 Fingerboard Air 026 F0-07-009.4 Air Winches - Industrial 8PO26 261 DS4 Drilltor Air A - Eng'n Req'd 2 - BFE 3 - No Effect to SHI 4 - May be Deleted 13 October 1998 ds4m-ofe SHI HN1300 (DS4M) OFE Primary AFE No. Equipment P8 Vendor P8 PM Eng Comment P.O. No. 008 - Circulating System, Mud & Cement: 008-002.1 Stand Pipe Manifold OPR 8PO21 217 NDH 008-003.1 Desander Pumps Halco 8PO41 333 NDH 008-003,2 Desifter Pumps Halco 8PO41 333 NDH 008-003.3 Mud Mixing Pumps Halco, 8PO41 334 NDH 008-003.4 Degasser Pump Halco 8PO41 333 NDH 008-003.5 Hoppers Halco 8PO41 334 NDH 008-003.6 Trip Tank Pump Halco 8PO41 332 NDH 008-003.7 Mud Cleaner gumps Halco 8PO41 333 NDH 008-003.8 Mud Charge Pumps Halco 8PO45 336 NDH 008-003.9 Turboshear Pumps Halco 8PO45 333 NDH 008-003.10 Brine Pump Halco 8PO45 343 NDH 008-00311 Oil Pump For Mud Halco 8PO45 343 NDH (Base Oil) 008-004.1 Mud Buckets DoubleLife 8PO23 228 NDH 3 008-007.1 Low Pressure Mud Brandt 8PO40 215 NDH Guns 008-007.2 Shaker With Brandt 8PO40 224 NDH Desilter Cones 008-007.3 Mud Gas Separator Brandt 8PO40 226 NDH (Poor Boy) 008-007.4 Shaker With Brandt 8PO40 223 NDH Desander Cones ON-007.5 Bug Blowers Brandt 8PO40 235 NDH 008-007.6 Degasser Brandt 8PO40 226 NDH 008-007.7 Shale Shakers Brandt 8PO40 222 NDH 008-007.8 Mud Pit Agitators Brandt 8PO40 215 NDH 008-007.9 Gumbo Box Nu-Tec 8P052 158 NDH 008-ON.1 Flowfine Degasser TBA 226 NDH 008-009.1 High Pressure Specialties 8PO55 229 NDH 1 Flexible Hoses 008-009.2 Moon Pool (C+K) Specialties 8P055 229 NDH 1 Hoses 008-009.3 Moon Pool (gas Specialties 8PO55 229 NDH 1 handler) Hoses 008-009.4 Moon Pool Specialties 8PO55 229 NDH 1 (hydraulic) Hoses 008-009.5 Moon Pool (booster)Specialties 8PO55 229 NDH 1 Hoses 008-009.6 Rotary Hoses (See Specialties 8P055 229 NDH 3 Top Drive Service Loops) 008-009,7 Cement Hoses Specialties 8PO55 229 NDH 3 008-009.8 Clamp, API#6, TBA 229 NDH 3 Cement Hose 008-009.9 Clamp, API#6, TBA 229 NDH 3 Moonpool Drape C&K 008-009.10 Clamp, AP186, TBA 229 NDH 3 Moonpool Drape Gas Handler 008-009.11 Clamp, API#6, TBA 229 NDH 3 Moonpool Drape Mud Boost 008-009.12 Clamp, AP#6, TBA 229 NDH 3 Moonpool Drape Rigid Conduit 008-010.1 Chiksan Joints R&R 8PO32 217 NDH 3 008-011.1 Bulk Tank, 4,000 TBA 214 SAL ftA3 Storage, 10 ea. 008-011.2 Bulk Tank, 1,000 TBA 214 SAL ftA3 Cement Surge, 2 ea. 008-011.3 Bulk Tank, 120 ftA3 TBA 214 SAL Bentonde/Barite Surge, 4 ea. 008-011.4 Bulk Control System TBA 214 SAL 008-012.1 Manifold, Pumproom TBA 217 SAL HP Mud Discharge, 7500 psi 009 - Quarters, Safety, Utilities, & Drilling Support: 009-001.1 Computers (network PC 2000 8PO65 368 JJM 1 PC's) .009-002.1 Onboard-NAPA Na 8PO80 368 NDH 1 Computer System 009-003.1 Safety Equipment, TBA 311 NDH Life Saving & Fire Fighting 009-003.2 Safety Equipment, TBA 311 NDH Hospital & Medical Supplies 009-004.1 Mathey Wireline Charter 8P018 364 DS4 Unit 009-005.1 Forklift Action 8PO19 378 NDH 3 Handling 009-006.1 Welding & Cutting TBA 263 JJM System 009-008.1 Hand tools f/sub sea Snap-On 8P086 396 DS4 3 009-008.2 Hand tools f/sub sea Snap-On SP087 396 DS4 3 009-008.3 Supplies f/sub sea GrainQer 8P088 396 DS4 3 shop 009-008.4 Supplies f/sub sea R&R SP089 396 DS4 3 shop 009-008.5 Lifting Hoists, TBA 396 DS4 3 Chain Fall & Lever 009-009.1 Trash Compactor TBA 370 NDH 1 - Eng'n Req'd 2 - BFE 3 - No Effect to SHI 4 - May be Deleted 13 October 1998 ds4m-ofe SHI HN1300 (DS4M) OFE Primary AFE No. Equipment P8 Vendor P8 PM Eng. Comment P.O. No. 010 - Power Generation & Electrical: 010-002.1 Current Transformers M&I 8P070 237 JJM 1 Electic 010-003-1 Automation Equipment 0MC 8PO83 181 JJM 1 for Diesel Aggregates 010-003.2 11 kV Main 0mC 8PO83 232 JJM Switchboard 010-003.4 460 V Main 0MC 8PO83 232 JJM Switchboard 010-003.6 Thyristor Main 0MC 8PO83 232 JJM Switchboard 600 VAC850 VDC 010-003.12 460 V Emergeney 0MC, 8PO83 233 JJM Switchboard 010-003.13 Group Starters 0MC 8PO83 234 JJM 1 (MCC's) 010-003.15 Main Transformers 0MC 8PO83 237 JJM 010-003.16 Ship Service 0MC 8PO83 237 JJM Transformers 010-004.1 Power Management Nautronix 8PO67 181 JJM 1 System 010-005.1 Diesel Aggregates Wartsila 8P009 201 JJM 1 010-006.2 Generators Wartsila 8POO9 230 JJM 010-006.1 Fuel Oil Separator Wes1falia 8P022 340 JJM 010-006.2 Lube Oil Separators Westfalia 8P022 340 JJM 010-007.1 Heat Recovery Fresh Drexel 8PO20 328 JJM Water Generator 011 - Instrumentation, Communication, & Control Systems: 011-001.1 Acoustic Doppler TBA 173 NDH 4 Current Profiler (ADCP) 011-001.2 ADCP Winch & Running TBA 173 NDH 4 Gear 011-004.1 Driller's Cabins, 2 Hftec SP066 156 JJM 1 each 011-004.2 Interfaces Hitec 8PO66 156 JJM 1 011-004.3 Drilling Control Hitec 8PO66 156 JJM 1 011-004.4 Control Modules (SDI, Hitec OP066 156 JJM 1 Sensors, Chairs) Third Party Supplied Items: 999-999.1 Electric Well Logging Client TBA 380 DS4 1 Equipment Provided 999-999.2 ROV Equipment and Client TBA 382 DS4 1 Systems Provided 999-999.5 Mud Logging Equipment Client TBA 381 DS4 Provided 999-999.6 BumerBoorn Client TBA 383 DS4 1 Provided 999-999.7 Well Testing Client TBA 383 DS4 1 Equipment Provided 999-999.8 Cementing Unit Client TBA 384 DS4 1 Provided I - Eng'n Req'd 2 - BFIE 3 - No Effect to SHI 4 - May be Deleted 13 October 1998 ds4m-ofe "EXHIBIT 3" Builder's Approved Vendor List SAMSUNG CONOCO/R&B Drillship (tk9603.ML2) - ------------------------------------------------------------------------- EQUIPMENT MANUFACTURER - ------------------------------------------------------------------------- Paint HEMPEL Korea JOTUN Korea IPK Korea SIGMA Korea DEVOE Korea I-C.C.P WWI Korea ELECTROCATALYTIC U.S.A. Marine Growth JOTUN Norway Preventer System WWI Korea DEVOE U.S.A. INTERNATIONAL U.S.A. Cargo Oil Pump SHINKO Japan NANIWA Japan Inert Gas Plant KVAERNER MOSS Norway GADE11US Japan MARITIME PROJECTION Norway Cargo Tank Level Gauge SAAB Sweden BERGAN U.S.A. Fire Detecting System SALWICO Sweden AUTRONICA Norway NITTAN Sweden DETCON U.S.A. PYROTRONICS U.S.A. Gas Sampling System SALWICO Sweden VIMEX Norway OMICRON Norway DETCON U.S.A. Gas Detection System OMICRON Norway DETCON U.S.A. TQ ENVIRONMENTAL U.K. Butterfly Valve forAMR1 France C-0-and W.B.System WESTAD Norway KEYSTONE U.S.A. Actuator for SAMGONG DANFOSS Korea Butterfly Valve & SKARPENORD Norway Valve Control System O.D.M.S. SEIL SERES Korea Helideck MARINE ALUMMUM Norway HYDRO ALUNUNMM Norway LIAS Italy Ballast Tank/ F.O.Tank AUTRONICA Norway Level Gauge SAAB Sweden BERGAN U.S.A. C.O.W.Machine GUN CLEAN Sweden POLAR MARINE Sweden TOFTEJORG Denmark DASIC U.K. Portable Hand MMC Japan Dipping, Oil/ TANK SYSTEM Norway Water Interface Detector,Seal Valve GRP AMERON Singapore VETRORESINA Italy Personnel Lift LUTZ Germany DAN ELEVATOR Denmark OTIS U.S.A. Main Generator WARTSILA Finlanc Engine (medium speed) Oil Fired Boiler AALBORG-SUNROD Denmark NOTSUBISFU Japan Exh. gas AALBORG-SUNROD Denmark economizer MITSUBISHI Japan Emergency MAN-LINDENBERG Germany Generator MAN-DEMP Denmark Engine CATERPILLAR U.S.A. Centrifugal Pump TAIKO Japan including Motor NANIWA Japan SHINKO Japan Gear & Screw Pump TAIKO Japan including Motor NANIWA Japan ALWEILLER Norway IMO Sweden Purifier ALFA LAVAL Japan/Sweden WESTFALIA Germany Thrusters KAMEWA (AQUAMASTER) Finland Mooring Winch SAMSUNG - ULSTEIN Korea Windlass SAMSUNG - PUSNES Korea Anchor & Chain CSSC China Watertight Doors SCHENROK Germany WINELL Netherlands Heli. deck SAMSUNG-NORLIFT Korea Service Handling SAMSUNG-BLM Korea Crane Air Handling HI-PRES KOREA Korea unit for Air DIRECT ENGINEERING SERVICE Australia Conditioning Plant Conditioning unit SABROE Denmark for Air CARRIER U.S.A./Australia Conditioning UNITOR U.S.A. Plant Provision Ref. HI-PRES KOREA/SABROE Korea Plant CARRIER U.S.A. UNITOR U.S.A. Package Air con. UNITOR U.S.A. Lifeboat/Davit SCHAT-HARDING Norway Rescue Boat/Davit NORSAFE Norway (MAGNUM 750 JET, YANMAR 4LH - DTE 170 HP) Liferafts VIKING Denmark Fire Extinguishing UNITOR-KOREA Korea System HEIEN LARSEN - FAIN Norway/Korea Accommodation BUIL Korea Panel SHINSUNG Korea Galley/Pantry METOS Finland Equipment ELECTROLUX Sweden Laundry Equipment METOS Finland MAYTAG U.S.A. Window Wipers JUNG-A (Horizontal Type) Korea Lifesaving UNITOR Norway Equipment ALEXANDER INDUSTRIES U.S.A. Sewage Treatment HAMWORTHY U.K. SASAKURA Japan TAIKO Japan Prefabricated Bath BUIL Korea Room Unit SBINSUNG Korea WARTSILA-KOREA Korea Vacuum Toilet EVAC Sweden JETS Norway Air Compressor HATLAPA Germany SAUER & SOHN Germany SPERRE Norway INGERSOLL - RAND U.S.A. Air Compressor ALUP Germany (screw) ATLAS COPCO Sweden INGERSOLL RAND U.S.A Plate Cooler ALFA LAVAL Korea APV Korea SWEP Sweden Tubular Cooler DONG HWA Korea BLOKSMA Netherlands Auto flater BOLL & KIRCH Germany YMON-KANAKAWA Korea Oil Heater DONG HWA Korea VESTA Denmark BLOKSMA Netherlands Bilge Water Separator SASAKURA Japan HAMWORTHY U.K. DETEGASA Spain BLOHM & VOSS Germany F.W. Generator ALFA-LAVAL Sweden SASAKURA Japan GEFICO Spain Integrated Control SIMRAD NORGE Norway and Monitoring System Dynamic SIMRAD NORGE Norway Positioning System Electric ABB Norway Switchboards and Motor Starters (High voltage) Electric K.T. ELECTRIC Korea Switchboards ABB Norway and Motor Starters (Low voltage) ABBNorway Electric Cable LG CABLE (GOLDSTAR) Korea (DUPONT Product shall be used as much as possible.) BIW CABLE SYSTEM U.S.A. EXANE U.S.A. Main Generator ABB Norway Lighting fixtures WISKA Germany AQUA SIGNAL Germany GLAMOX Norway PAULUHN U.S.A. Radar RACAL MARINE U.K. J.R.C. Japan Integrated RACAL MARINE U.K. Navigation System STN ATLAS Germany NORCONTROL Norway Gyro Compass TOKIMEC Japan ANSCHUTZ Germany Radio Plant/ J.R.C. Japan Satellite FURUNO Japan Communication High Voltage ABB Finland/Norway Motors MIP System AUTRONICA Norway ABB-CYLDET Germany Radio MOTOROLA U.S.A. Communication (Oil Movement) CCTV HERNIS Norway JAVELEN U.S.A. IWL COMMUNICATIONS U.S.A FMEA ABS U.S.A. GLOBAL MARITIME U.K. SAMSUNG CONOCO/R&B Drillship (TK9603.ML2) NOTE 1. Selection of supplier from above list to be Builder's option as long as the equipment fulfil the required contract performances. 2. Builder can propose other supplier than above list for Buyer's acceptance. 3. Buyer has the right to select his own preferred one among the suppliers listed herein above subject to additional cost and adjustrnent of delivery involved, if any, bome by Buyer. For this purpose, Builder should inform the selected supplier to Buyer before order, and Buyer should confirm the agreement to Builder's selection or inform the preferred supplier within two(2) weeks. When the Builder does not receive the agreement or information regarding the supplier within two(2) weeks, Budder's selection for supplier is deemed to have been confirmed by the Buyer without comments and the Builder may proceed the work with the supplier. 4. Selection of supplier for the other equipment than the listed herein above to be Builder's option, which need not confirmation from Buyer before order. "EXHIBIT 4" DELIVERY AND CONSTRUCTION SCHEDULE Deep Water Drillship DPDS4M (HN1300) Overall Project Schedule EX-10.212 29 EXHIBIT 10.212 SECOND AMENDMENT TO CREDIT AGREEMENT This SECOND AMENDMENT TO CREDIT AGREEMENT AND RELEASE OF GUARANTY (this "Second Amendment") is entered into as of November 9, 1998 (the "Effective Date"), among DEEPWATER DRILLING II L.L.C., a Delaware limited liability company (the "Company"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent (the "Administrative Agent") for the Banks, and NATIONAL WESTMINSTER BANK PLC, as Documentation Agent (the "Documentation Agent", and together with the Administrative Agent, the "Agents") and the several financial institutions party to this Second Amendment (collectively, the "Banks"; individually, a "Bank"). Capitalized terms which are used herein without definition and which are defined in the Credit Agreement referred to below shall have the meanings ascribed to them in the Credit Agreement. WHEREAS, the Company, the Banks, the Administrative Agent and the Documentation Agent are parties to a certain Credit Agreement dated as of November 10, 1997 as amended by First Amendment and Release of Guaranty dated as of April 24, 1998 (as at any time further amended, modified or supplemented and in effect from time to time, the "Credit Agreement"); and WHEREAS, the Company has requested that the Banks increase their Commitments and extend the Revolving Termination Date; and WHEREAS, subject to the terms and conditions herein contained, the Banks are willing to consent to the above-described requests by executing this Second Amendment; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. Increased Commitments. Schedule A-1 attached hereto sets forth the Commitment, outstanding Revolving Loans and Pro Rata Share of each of the Banks prior to the Effective Date of this Second Amendment. Schedule 2.01 attached hereto sets forth the Commitment and Pro Rata Share of each of the Banks on and after the Effective Date of this Second Amendment. Schedule 2.01 to the Credit Agreement is hereby deleted and replaced with Schedule 2.01 in the form attached hereto. SECTION 2. Amendment to Section 6.12 (Use of Proceeds). Section 6.12 of the Credit Agreement is hereby amended to add the following sentence: "In addition, proceeds of Loans may be used to repay Indebtedness of the Borrower owed to Bank of America NT & SA in the principal amount of $10,000,000 together with interest thereon. The Borrower represents that the proceeds of said Indebtedness were used to fund costs incurred in connection with construction of the Drillship." SECTION 3. Extension of Revolving Termination Date. The definition of "Revolving Termination Date" set forth in Schedule 1.01 of the Credit Agreement is hereby amended by deleting "November 9, 1998" and inserting "January 30, 1999." SECTION 4. Representations and Warranties of the Company. The Company represents and warrants to the Agents and to each of the Banks that: (a) This Second Amendment has been duly authorized, executed and delivered by the Company and the Credit Agreement as amended hereby constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. (b) The representations and warranties set forth in Article V of the Credit Agreement are true and correct in all material respects before and after giving effect to this Second Amendment with the same effect as if made on the date hereof, except to the extent such representations and warranties expressly related to an earlier date, in which case they were true and correct in all material respects on and as of such earlier date. (c) As of the date hereof, at the time of and immediately after giving effect to this Second Amendment, no Default or Event of Default has occurred and is continuing. SECTION 5. Conditions of Effectiveness. The Company shall deliver the following to the Administrative Agent as conditions precedent to the effectiveness of this Second Amendment: (a) This Second Amendment, signed by the Company, the Agents, and each of the Banks, together with each Consent of Guarantor attached hereto, executed by R&B Falcon and by Conoco; (b) Payment by the Company to each Bank of an amendment fee in an amount equal to 15 basis points based on each Bank's Commitment as set forth on Schedule 2.01 attached hereto; (c) A Certificate signed by the members of the Borrower, consenting to the execution and delivery of this Second Amendment and certifying the name and true signature of the representative authorized to sign this Second Amendment; (d) Copies of resolutions of the board of directors of each Guarantor authorizing its guaranty of the increased and extended Commitments, certified as of the Effective Date by the Secretary or an Assistant Secretary of such Guarantor or other evidence of authority; (e) Opinions of counsel to the Borrower substantially in the form attached hereto as Exhibit A; (f) An opinion of counsel to each Guarantor, substantially in the form attached hereto as Exhibit A; and (g) Such other evidence as the Agent or the Majority Banks may request to establish the consummation of the transactions contemplated hereby or the compliance with the conditions set forth herein. SECTION 6. Effect of Amendment. This Second Amendment (i) except as expressly provided herein, shall not be deemed to be a consent to the modification or waiver of any other term or condition of the Credit Agreement or of any of the instruments or agreements referred to therein and (ii) shall not prejudice any right or rights which the Administrative Agent or the Banks may now have under or in connection with the Credit Agreement, as amended by this Second Amendment. Except as otherwise expressly provided by this Second Amendment, all of the terms, conditions and provisions of the Credit Agreement shall remain the same. It is declared and agreed by each of the parties hereto that the Credit Agreement, as amended hereby, shall continue in full force and effect, and that this Second Amendment and such Credit Agreement shall be read and construed as one instrument. SECTION 7. Miscellaneous This Second Amendment shall for all purposes be construed in accordance with and governed by the laws of the State of New York. The captions in this Second Amendment are for convenience of reference only and shall not define or limit the provisions hereof. This Second Amendment may be executed in separate counterparts, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Second Amendment, it shall not be necessary to produce or account for more than one such counterpart. NO ORAL AGREEMENTS. THE CREDIT AGREEMENT (AS AMENDED BY THIS SECOND AMENDMENT) AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. [SIGNATURES BEGIN ON FOLLOWING PAGE] IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed and delivered by their proper and duly authorized representatives or officers as of the date and year first above written. DEEPWATER DRILLING II L.L.C. By:_________________________ Name: Title: [THIS IS A SIGNATURE PAGE TO THE SECOND AMENDMENT TO CREDIT AGREEMENT] BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent and as a Bank By:_________________________ Claire M. Liu Managing Director [THIS IS A SIGNATURE PAGE TO THE SECOND AMENDMENT TO CREDIT AGREEMENT] NATIONAL WESTMINSTER BANK PLC NEW YORK BRANCH, as a Bank By:_________________________ Name: Title: NATIONAL WESTMINSTER BANK PLC NASSAU BRANCH, as a Bank By:________________________ Name: Title: [THIS IS A SIGNATURE PAGE TO THE SECOND AMENDMENT TO CREDIT AGREEMENT] BANCA POPOLARE DI MILANO, NEW YORK BRANCH By:_________________________ Name: Title: By:_________________________ Name: Title: [THIS IS A SIGNATURE PAGE TO THE SECOND AMENDMENT TO CREDIT AGREEMENT] BAYERISCHE HYPO-UND VEREINSBANK AG, NEW YORK BRANCH By:_________________________ Name: Title: By:_________________________ Name: Title: [THIS IS A SIGNATURE PAGE TO THE SECOND AMENDMENT TO CREDIT AGREEMENT] CREDITO ITALIANO By:_________________________ Name: Title: By:_________________________ Name: Title: [THIS IS A SIGNATURE PAGE TO THE SECOND AMENDMENT TO CREDIT AGREEMENT] BANCA MONTE DEI PASCHI DI SIENA S. P. A. By:_________________________ Name: Title: By:_________________________ Name: Title: [THIS IS A SIGNATURE PAGE TO THE SECOND AMENDMENT TO CREDIT AGREEMENT] CONSENT OF GUARANTOR The undersigned Guarantor hereby consents to the provisions of the foregoing Second Amendment to Credit Agreement, and confirms that the Guaranty Agreement dated as of November 10, 1997 executed by it remains in full force and effect in accordance with its terms. CONOCO INC. (formerly Continental Oil Company) By:_________________________ Name: Title: [THIS IS A SIGNATURE PAGE TO THE SECOND AMENDMENT TO CREDIT AGREEMENT] CONSENT OF GUARANTOR The undersigned Guarantor hereby consents to the provisions of the foregoing Second Amendment to Credit Agreement, and confirms that the Guaranty Agreement dated as of April 24, 1998 is in full force and effect in accordance with its terms. R&B FALCON CORPORATION By:__________________________ Name: Title: [THIS IS A SIGNATURE PAGE TO THE SECOND AMENDMENT TO CREDIT AGREEMENT] SCHEDULE A-1 COMMITMENTS, OUTSTANDING LOANS AND PRO RATA SHARE PRIOR TO SECOND AMENDMENT Outstanding Pro Rata Bank Commitment Revolving Loans Share - ---- ---------- --------------- -------- Bank of America NT&SA $ 32,500,000 $ 32,500,000 18.57142857% National Westminster Bank PLC $ 32,500,000 $ 32,500,000 18.57142857% Banca Popolare diMilano, New York Branch $ 25,000,000 $ 25,000,000 14.28571429% Bayerische Hypo-Und Vereinsbank AG, New York Branch $ 25,000,000 $ 25,000,000 14.28571429% Credito Italiano $ 25,000,000 $ 25,000,000 14.28571429% Great-West Life & Annuity Insurance Company $ 20,000,000 $ 20,000,000 11.42857143% Banca Monte dei Paschi di Siena S.p.A., New York Branch $ 15,000,000 $ 15,000,000 8.57142857% ------------ ------------ ------------ $175,000,000 $175,000,000 100.00000000% ============ ============ ============ SCHEDULE 2.01 COMMITMENTS, OUTSTANDING LOANS AND PRO RATA SHARE AFTER SECOND AMENDMENT Pro Rata Bank Commitment Share - ---- ---------- -------- Bank of America NT&SA $102,500,000 45.56% National Westminster Bank PLC $ 32,500,000 14.44% Banca Popolare di Milano, New York Branch $ 25,000,000 11.11% Bayerische Hypo-Und Vereinsbank AG, New York Branch $ 25,000,000 11.11% Credito Italiano $ 25,000,000 11.11% Banca Monte dei Paschi di Siena S.p.A., New York Branch $ 15,000,000 6.67% ------------ ------ $225,000,000 100% ============ ====== EX-10.213 30 EXHIBIT 10.213 ASSIGNMENT AND ACCEPTANCE AGREEMENT This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Agreement") dated as of November 9, 1998 is made between GREAT-WEST & ANNUITY LIFE INSURANCE COMPANY (the "Assignor") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Assignee"). R E C I T A L S WHEREAS, the Assignor is party to that certain Credit Agreement dated as of November 10, 1997, as amended by the First Amendment to Credit Agreement and Release of Guaranty dated as of April 24, 1998 (as the same may be further amended, modified or restated from time to time, the "Credit Agreement"), among DEEPWATER DRILLING II L.L.C. ("Company"), the several financial institutions from time to time party thereto (the "Banks"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent (the "Administrative Agent") for the Banks, and NATIONAL WESTMINSTER BANK PLC, as Documentation Agent (the "Documentation Agent") for the Banks (terms defined in the Credit Agreement are used herein with the same meaning); WHEREAS, as provided in the Credit Agreement, the Banks have committed to extend credit to the Company; WHEREAS, pursuant to Section 10.08 of the Credit Agreement, the Assignor wishes to assign to the Assignee all of the rights and obligations of the Assignor under the Credit Agreement in respect of its Commitment, together with its outstanding Revolving Loans in a total amount equal to Twenty Million Dollars (U.S. $20,000,000.00) (the "Assigned Amount") on the terms and subject to the conditions set forth herein and in the Credit Agreement, and the Assignee wishes to accept assignment of such rights and to assume such obligations from the Assignor on such terms and subject to such conditions; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: 1. Assignment and Assumption. (a) Before giving effect to this Agreement, Assignor's (a) Commitment is $20,000,000.00, (b) aggregate principal amount of its outstanding Revolving Loans is $20,000,000.00, and (c) Pro Rata Share is 11.42857143%. With effect on and after the Effective Date (as defined in Section 4 hereof), the Assignor hereby sells, transfers and assigns to the Assignee, and the Assignee hereby purchases, assumes and undertakes from the Assignor, without recourse, and without representation or warranty (except as provided in this Agreement) the Assigned Amount, which shall be equal to all of Assignee's share of (i) the Commitment, (ii) outstanding Revolving Loans, and (iii) all related rights, benefits, obligations, liabilities and indemnities of the Assignor under and in connection with the Credit Agreement and the other Loan Documents. After giving effect to this Agreement on the Effective Date, the Commitment, outstanding Revolving Loans, and Pro Rata Share of Assignor and Assignee, respectively, are set forth as follows: Outstanding Pro Rata Revolving Share Commitments Loans Assignor $ 0 0% $ 0 Assignee $52,500,000.00 30% $52,500,000.00 (b) It is the intent of the parties hereto that (i) the Commitment of the Assignor shall, as of the Effective Date, be reduced to zero and (ii) the Assignor shall relinquish its rights and be released from its obligations under the Credit Agreement; provided, however, that the Assignor shall not relinquish its rights under Section 10.04 and 10.05 of the Credit Agreement to the extent such rights relate to the time prior to the Effective Date. 2. Payments. (a) As consideration for the sale, assignment and transfer contemplated in Section 1 hereof, the Assignee shall pay to the Assignor on the Effective Date in immediately available funds an amount equal to Twenty Million Dollars ($20,000,000.00), representing the Assignee's Pro Rata Share of the principal amount of all Loans previously made, and currently owned, by the Assignor under the Credit Agreement and outstanding on the Effective Date. (b) To the extent payment to be made by the Assignee pursuant to Section 2(a) hereof is not made when due, the Assignor shall be entitled to recover such amount together with interest thereon at the Federal Funds Rate per annum accruing from the date such amounts were due. 3. Reallocation of Payments. Any interest, fees and other payments accrued to but excluding the Effective Date with respect to the Assignor's Pro Rata Share of the Revolving Loans shall be for the account of the Assignor. Any interest, fees and other payments accrued on and after the Effective Date with respect to the Assigned Amount shall be for the account of the Assignee. Each of the Assignor and the Assignee agree that it will hold in trust for the other party any interest, fees and other amounts which it may receive to which the other party is entitled pursuant to the preceding sentence and pay to the other party any such amounts which it may receive promptly upon receipt. 4. Effective Date; Notices; Notes. (a) The effective date for this Agreement shall be November 9, 1998 (the "Effective Date"); provided that the following conditions precedent have been satisfied on or before the Effective Date: (i) this Agreement shall be executed and delivered by the Assignor and the Assignee; (ii) the consent of each of the Company and of the Administrative Agent shall have been duly obtained and shall be in full force and effect as of the Effective Date; and (iii) the Assignee shall pay to the Assignor all amounts due to the Assignor under this Agreement. (b) Promptly following payment by the Assignee of the consideration as provided in Section 2 hereof, the Assignor shall deliver its promissory note(s) to the Administrative Agent. 5. Representations and Warranties. (a) The Assignor represents and warrants that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any lien, security interest or other adverse claim; (ii) it is duly organized and existing and it has the full power and authority to take, and has taken, all action necessary to execute and deliver this Agreement and any other documents required or permitted to be executed or delivered by it in connection with this Agreement and to fulfill its obligations hereunder. (b) The Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto. The Assignor makes no representation or warranty in connection with, and assumes no responsibility with respect to, the solvency, financial condition or statements of the Company or any guarantor or the performance or observance by the Company or any guarantor of any of its respective obligations under the Credit Agreement or any other instrument or document furnished in connection therewith. (c) The Assignee represents and warrants that (i) it is duly organized and existing and it has full power and authority to take, and has taken, all action necessary to execute and deliver this Agreement and any other documents required or permitted to be executed or delivered by it in connection with this Agreement, and to fulfill its obligations hereunder; (ii) it is eligible under the Credit Agreement to be an assignee in accordance with the terms hereof; and (iii) that it has received a copy of the Credit Agreement and the exhibits and schedules thereto, and has received (or waived the requirement that it receive) copies of each of the documents which were required to be delivered under the Credit Agreement as a condition to the making of the Loans thereunder. 6. Further Assurances. The Assignor and the Assignee each hereby agree to execute and deliver such other instruments, and take such other action, as either party may reasonably request in connection with the transactions contemplated by this Agreement, including, without limitation, the delivery of any notices or other documents or instruments to the Company, the Administrative Agent or any guarantor which may be required in connection with the assignment and assumption contemplated hereby. 7. Miscellaneous. (a) Any amendment or waiver of any provision of this Agreement shall be in writing signed by the parties hereto. No failure or delay by either party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof and any waiver of any breach of the provisions of this Agreement shall be without prejudice to any rights with respect to any other or further breach hereof. (b) All payments made hereunder shall be made without any set- off or counterclaim. (c) Neither the Assignor nor the Assignee shall be responsible to each other for payment of their costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Agreement. (d) The representations and warranties made herein shall survive the consummation of the transactions contemplated hereby. (e) This Agreement may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. (f) This Agreement shall be governed by and construed in accordance with the law of the State of New York (without regard to principles of conflicts of law). The Assignor and the Assignee each irrevocably submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in the Southern District of New York over any suit, action or proceeding arising out of or relating to this Agreement or the Credit Agreement and irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York State or Federal court. Each party to this Agreement hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. (g) This Agreement and any agreement, document or instrument attached hereto or referred to herein integrate all the terms and conditions mentioned herein or incidental hereto, and together with the Credit Agreement constitutes the entire agreement and understanding between the parties hereto and supersedes any and all prior agreements and understandings related to the subject matter hereof. In the event of any conflict between the terms, conditions and provisions of this Agreement and the Credit Agreement, the terms, conditions and provisions of the Credit Agreement shall prevail. [SIGNATURES BEGIN ON THE FOLLOWING PAGE] IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. ASSIGNOR: GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY By_________________________ Name: Title: By_________________________ Name: Title: [THIS IS A SIGNATURE PAGE TO THE ASSIGNMENT AND ACCEPTANCE AGREEMENT] ASSIGNEE: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By_________________________ Claire M. Liu Managing Director BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent, herby grants its consent to the foregoing assignment By_________________________ Claire M. Liu Managing Director [THIS IS A SIGNATURE PAGE TO THE ASSIGNMENT AND ACCEPTANCE AGREEMENT] DEEPWATER DRILLING II L.L.C. hereby grants its consent to the foregong assignment By_________________________ Name: Title: [THIS IS A SIGNATURE PAGE TO THE ASSIGNMENT AND ACCEPTANCE AGREEMENT] EX-10.214 31 EXHIBIT 10.214 THIRD AMENDMENT TO CREDIT AGREEMENT This THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment") is entered into as of January 29, 1999 (the "Effective Date"), among DEEPWATER DRILLING II L.L.C., a Delaware limited liability company (the "Company"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent (the "Administrative Agent") for the Banks, and NATIONAL WESTMINSTER BANK PLC, as Documentation Agent (the "Documentation Agent", and together with the Administrative Agent, the "Agents") and the financial institutions party to this Third Amendment (collectively, the "Banks"; individually, a "Bank"). Capitalized terms which are used herein without definition and which are defined in the Credit Agreement referred to below shall have the meanings ascribed to them in the Credit Agreement. WHEREAS, the Company, the Banks and the Exiting Banks (as herein defined), the Administrative Agent and the Documentation Agent are parties to a certain Credit Agreement dated as of November 10, 1997 as amended by First Amendment and Release of Guaranty dated as of April 24, 1998, as amended by Second Amendment dated as of November 9, 1998 (as at any time further amended, modified or supplemented and in effect from time to time, the "Credit Agreement"); and WHEREAS, immediately prior to the effectiveness of this Third Amendment, seven financial institutions were parties as "Banks" to the Credit Agreement, the aggregate Commitments were $225,000,000 and the Revolving Termination Date was January 30, 1999; and simultaneously with the effectiveness of this Third Amendment, the Commitments of four of said financial institutions (the "Exiting Banks") expire and the Company is repaying outstanding Loans owed to the Exiting Banks; and WHEREAS, the Company has requested that the Banks extend the Revolving Termination Date and permit certain loans from members as herein described; and WHEREAS, subject to the terms and conditions herein contained, the Banks are willing to consent to the above-described requests by executing this Third Amendment; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. (a) Amendment to Section 7.05 (Limitation on Indebtedness). Section 7.05 is hereby amended by deleting the period at the end of clause (c) and adding the following at the end of said Section: "; and (d) Indebtedness consisting of loans from the members of the Company not to exceed the aggregate principal amount of $135,000,000, for the purpose of repaying amounts owed hereunder to the Exiting Banks and funding costs associated with construction of the Drillship." (b) Reference is made to Section 2 of the Consent and Waiver Letter dated effective as of January 21, 1999, which stated that "the Company shall be permitted to incur Indebtedness in an amount not to exceed $45,000,000 in principal amount in order to fund costs associated with construction of the Drillship". The parties agree that such Section 2 of said Consent and Waiver is superseded hereby and therefore is of no further force or effect. SECTION 2. Definition of Applicable Margin. Clause (ii) of the definition of "Applicable Margin" set forth in Schedule 1.01 of the Credit Agreement is hereby amended deleting "0.35%" and inserting "0.50%". SECTION 3. Extension of Revolving Termination Date. The definition of "Revolving Termination Date" set forth in Schedule 1.01 of the Credit Agreement is hereby amended by deleting "January 30, 1999" and inserting "March 31, 1999." SECTION 4. Amended Schedule 2.01; Banks and Commitments. Schedule 2.01 of the Credit Agreement is hereby deleted and replaced with Schedule 2.01 in the form attached hereto. The parties to this Third Amendment hereby acknowledge and agree that from and after the effectiveness of this Third Amendment, the Exiting Banks are no longer "Banks" as defined in the Credit Agreement and are no longer parties to the Credit Agreement. SECTION 5. Additional Commitment Fee. The Company agrees that on March 1, 1999, if the Commitments have not been terminated by the Company pursuant to Section 2.05 of the Credit Agreement by such date (and all Obligations repaid at the time of such termination), then on March 1, 1999 the Company shall pay to each Bank a commitment fee equal to 5 basis points based on such Bank's Commitment in effect at such time. SECTION 6. Representations and Warranties of the Company. The Company represents and warrants to the Agents and to each of the Banks that: (a) This Third Amendment has been duly authorized, executed and delivered by the Company and the Credit Agreement as amended hereby constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. (b) The representations and warranties set forth in Article V of the Credit Agreement are true and correct in all material respects before and after giving effect to this Third Amendment with the same effect as if made on the date hereof, except to the extent such representations and warranties expressly related to an earlier date, in which case they were true and correct in all material respects on and as of such earlier date. (c) As of the date hereof, at the time of and immediately after giving effect to this Third Amendment, no Default or Event of Default has occurred and is continuing. SECTION 7. Conditions of Effectiveness. The Company shall deliver the following to the Administrative Agent as conditions precedent to the effectiveness of this Third Amendment: (a) Payment by the Company of an amount sufficient to repay all outstanding loans made by the Exiting Banks, together with accrued interest thereon and any other amounts owed to the Exiting Banks under the Credit Agreement; (b) This Third Amendment, signed by the Company, the Agents, and each of the Banks, together with each Consent of Guarantor attached hereto, executed by R&B Falcon and by Conoco; (c) Payment by the Company to each Bank of an amendment fee in an amount equal to 5 basis points based on each Bank's Commitment; (d) A Certificate signed by the members of the Borrower, consenting to the execution and delivery of this Third Amendment and certifying the name and true signature of the representative authorized to sign this Third Amendment; (e) Copies of resolutions of the board of directors of each Guarantor authorizing its officer to execute this document, certified as by the Secretary or an Assistant Secretary of such Guarantor, or other evidence of authority; and (f) Such other evidence as the Agent or the Majority Banks may request to establish the consummation of the transactions contemplated hereby or the compliance with the conditions set forth herein. SECTION 8. Effect of Amendment. This Third Amendment (i) except as expressly provided herein, shall not be deemed to be a consent to the modification or waiver of any other term or condition of the Credit Agreement or of any of the instruments or agreements referred to therein and (ii) shall not prejudice any right or rights which the Administrative Agent or the Banks may now have under or in connection with the Credit Agreement, as amended by this Third Amendment. Except as otherwise expressly provided by this Third Amendment, all of the terms, conditions and provisions of the Credit Agreement shall remain the same. It is declared and agreed by each of the parties hereto that the Credit Agreement, as amended hereby, shall continue in full force and effect, and that this Third Amendment and such Credit Agreement shall be read and construed as one instrument. SECTION 9. Miscellaneous This Third Amendment shall for all purposes be construed in accordance with and governed by the laws of the State of New York. The captions in this Third Amendment are for convenience of reference only and shall not define or limit the provisions hereof. This Third Amendment may be executed in separate counterparts, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Third Amendment, it shall not be necessary to produce or account for more than one such counterpart. NO ORAL AGREEMENTS. THE CREDIT AGREEMENT (AS AMENDED BY THIS THIRD AMENDMENT) AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. [SIGNATURES BEGIN ON FOLLOWING PAGE] IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed and delivered by their proper and duly authorized representatives or officers as of the date and year first above written. DEEPWATER DRILLING II L.L.C. By:_________________________ Name: Title: [THIS IS A SIGNATURE PAGE TO THE THIRD AMENDMENT TO CREDIT AGREEMENT] BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent and as a Bank By_________________________ Claire M. Liu Managing Director [THIS IS A SIGNATURE PAGE TO THE THIRD AMENDMENT TO CREDIT AGREEMENT] NATIONAL WESTMINSTER BANK PLC NEW YORK BRANCH, as Documentation Agent and as a Bank By_________________________ Name: Title: NATIONAL WESTMINSTER BANK PLC NASSAU BRANCH, as a Bank By_________________________ Name: Title: [THIS IS A SIGNATURE PAGE TO THE THIRD AMENDMENT TO CREDIT AGREEMENT] RZB FINANCE LLC By_________________________ Name: Title: By_________________________ Name: Title: [THIS IS A SIGNATURE PAGE TO THE THIRD AMENDMENT TO CREDIT AGREEMENT] CONSENT OF GUARANTOR The undersigned Guarantor hereby consents to the provisions of the foregoing Third Amendment to Credit Agreement, and confirms that the Guaranty Agreement dated as of November 10, 1997 executed by it remains in full force and effect in accordance with its terms. CONOCO INC. (formerly Continental Oil Company) By_________________________ Name: Title: [THIS IS A SIGNATURE PAGE TO THE THIRD AMENDMENT TO CREDIT AGREEMENT] CONSENT OF GUARANTOR The undersigned Guarantor hereby consents to the provisions of the foregoing Third Amendment to Credit Agreement, and confirms that the Guaranty Agreement dated as of April 24, 1998 is in full force and effect in accordance with its terms. R&B FALCON CORPORATION By_________________________ Name: Title: [THIS IS A SIGNATURE PAGE TO THE THIRD AMENDMENT TO CREDIT AGREEMENT] SCHEDULE 2.01 COMMITMENTS, OUTSTANDING LOANS AND PRO RATA SHARE AFTER THIRD AMENDMENT Bank Commitment Pro Rata Share - ---- ---------- -------------- Bank of America NT&SA $ 87,500,000 65.00% National Westminster Bank PLC $ 32,500,000 24.00% RZB Finance LLC $ 15,000,000 11.00% $135,000,000 100.00% ============ ====== EX-10.217 32 EXHIBIT 10.217 SECOND AMENDMENT TO CREDIT AGREEMENT SECOND AMENDMENT TO CREDIT AGREEMENT, dated as of October 22, 1998 (this "Amendment"), among R&B FALCON CORPORATION, a Delaware corporation ("Holdings"), RBF DEEPWATER EXPLORATION III INC., a Nevada corporation (f/k/a RB Deepwater Exploration III Inc.) (the "Borrower"), the various lending institutions party to the Credit Agreement referred to below (each, a "Bank" and, collectively, the "Banks"), CREDIT LYONNAIS NEW YORK BRANCH, as Syndication Agent and CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH, as Administrative Agent for the Banks (the "Agent"). All capitalized terms used herein and not otherwise defined shall have the meanings provided such terms in the Credit Agreement. W I T N E S S E T H : WHEREAS, Holdings, the Borrower, the Banks and the Agent are parties to a Credit Agreement, dated as of February 24, 1998 (as amended to date, the "Credit Agreement"); and WHEREAS, the parties thereto and hereto wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: I. Amendments to Credit Agreement. 1. The first Paragraph of the Credit Agreement is hereby amended by (i) deleting the reference therein to "RB DEEPWATER EXPLORATION III INC." and inserting in lieu thereof a reference to "RBF DEEPWATER EXPLORATION III INC. (f/k/a RB Deepwater Exploration III Inc.)". 2. Section 7.01 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (e) thereof, (ii) redesignating clause (f) thereof as clause (g) and (iii) inserting the following new clause (f) immediately following clause (e) thereof: (f) Indebtedness of Cliffs Drilling acquired pursuant to the Cliffs Acquisition in an aggregate principal amount not to exceed $235,000,000, provided that (i) such Indebtedness existed at the time of the consummation of the Cliffs Acquisition and was not created in contemplation thereof (and the provisions thereof were not altered in any material respect in contemplation thereof), (ii) Holdings and the Borrower have no liability with respect to any such Indebtedness and (iii) any Liens securing such Indebtedness apply only to the assets of Cliffs Drilling acquired pursuant to the Cliffs Acquisition (and no additional assets are granted as security following, or in contemplation of, the Cliffs Acquisition); and 3. Section 7.04 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (c) thereof, (ii) redesignating clause (d) thereof as clause (e) and (iii) inserting the following new clause (d) immediately following clause (c) thereof: (d) Holdings and its Subsidiaries may consummate the Cliffs Acquisition in accordance with the Cliffs Acquisition Documents delivered to the Administrative Agent prior to the Second Amendment Effective Date; and 4. Section 7.08 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (iv) thereof and inserting a comma in lieu thereof and (ii) inserting the following new clause (vi) immediately following clause (v) thereof: "and (vi) this Section 7.08 shall not prohibit the restricted payment provisions contained in the Cliffs Indenture and the Cliffs Credit Agreement to the extent such restrictions and any exceptions thereto are not materially altered pursuant to the Cliffs Acquisition or in anticipation thereof in a manner which would be adverse to the Banks" 5. Section 7.12 of the Credit Agreement is hereby amended by inserting the text ",the Cliffs Indenture or the Cliffs Credit Agreement" immediately following the reference to "Indenture" appearing therein. 6. Section 9 of the Credit Agreement is hereby amended by inserting the following new definitions in appropriate alphabetical order: "Cliffs Acquisition" shall mean the acquisition by a Wholly- Owned Subsidiary of Holdings by way of merger of all of the capital stock of Cliffs Drilling in accordance with the Cliffs Acquisition Documents. "Cliffs Acquisition Documents" shall mean the Agreement and Plan of Merger, dated as of August 21, 1998, among Holdings, RBF Cliffs Acquisition Corp. and Cliffs Drilling, and all exhibits, schedules and ancillary documents thereto. "Cliffs Credit Agreement" shall mean the Third Restated Credit Agreement, dated July 29, 1998, among Cliffs Drilling, Cliffs Oil & Gas Company, Cliffs Drilling International, Inc. and ING (U.S.) Capital Corporation, as agent for the lenders named therein, as the same may be amended, modified or supplemented from time to time in accordance therewith and herewith. "Cliffs Drilling" shall mean Cliffs Drilling Company, a Delaware Corporation. "Cliffs Indenture" shall mean the Indenture, dated as of May 15, 1996, among Cliffs Drilling Company, certain of its subsidiaries, and Fleet National Bank, as Trustee, governing Cliffs Drilling's 10.25% Senior Notes due 2003 and each supplemental indenture executed in connection therewith prior to the date hereof. II Miscellaneous Provisions. 1. In order to induce the Banks to enter into this Amendment, the Borrower hereby represents and warrants that: (a) no Default or Event of Default exists as of the Second Amendment Effective Date both before and after giving effect to this Amendment; and (b) all of the representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects on the Second Amendment Effective Date both before and after giving effect to this Amendment, with the same effect as though such representations and warranties had been made on and as of the Second Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). 2. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 3. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Agent. 4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 5. This Amendment shall become effective on the date (the "Second Amendment Effective Date") when each of Holdings, Parent, the Borrower and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Agent at its Notice Office. The Agent will give the Borrower and each Bank prompt notice of the occurrence of the Second Amendment Effective Date. 6. From and after the Second Amendment Effective Date, all references in the Credit Agreement and each of the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby. * * * IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. R&B FALCON CORPORATION By:_________________________ Title: RBF DEEPWATER EXPLORATION III INC. By:_________________________ Title: CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH, Individually and as Agent By:_________________________ Title: By:_________________________ Title: CREDIT LYONNAIS NEW YORK BRANCH, Individually and as Syndication Agent By:_________________________ Title: SKANDINAVISKA ENSKILDA BANKEN AB (Publ.) By:_________________________ Title: By:_________________________ Title: CREDIT AGRICOLE INDOSUEZ By:_________________________ Title: BANK OF NOVA SCOTIA By:_________________________ Title: EX-10.218 33 EXHIBIT 10.218 THIRD AMENDMENT TO CREDIT AGREEMENT THIRD AMENDMENT TO CREDIT AGREEMENT, dated as of December 9, 1998 (this "Amendment"), among R&B FALCON CORPORATION, a Delaware corporation ("Holdings"), RBF DEEPWATER EXPLORATION III INC., a Nevada corporation (f/k/a RB Deepwater Exploration III Inc.) (the "Borrower"), the various lending institutions party to the Credit Agreement referred to below (each, a "Bank" and, collectively, the "Banks"), CREDIT LYONNAIS NEW YORK BRANCH, as Syndication Agent and CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH, as Administrative Agent for the Banks (the "Agent"). All capitalized terms used herein and not otherwise defined shall have the meanings provided such terms in the Credit Agreement. W I T N E S S E T H : WHEREAS, Holdings, the Borrower, the Banks and the Agent are parties to a Credit Agreement, dated as of February 24, 1998 (as amended to date, the "Credit Agreement"); and WHEREAS, the parties thereto and hereto wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: I. Amendments to Credit Agreement. 1. Section 7.01 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (f) thereof, (ii) redesignating clause (g) thereof as clause (h) and (iii) inserting the following new clause (g) immediately following clause (f) thereof: (g) Additional senior Indebtedness of Holdings in an aggregate principal amount not to exceed $400,000,000 and additional subordinated Indebtedness of Holdings in an aggregate principal amount not to exceed $200,000,000; provided that (i) no respective issue of Indebtedness incurred pursuant to this clause (g) shall have any scheduled amortization payments or a final maturity prior to the fourth anniversary of the initial borrowing of such respective issue of Indebtedness and (ii) Holdings shall not make any optional repayments (whether in cash, securities, or other property), including any sinking fund or similar deposit, on account of such Indebtedness; and 2. Section 7.02 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (c) thereof, (ii) deleting the period at the end of clause (d) thereof and inserting a semi- colon in lieu thereof and (iii) inserting the following new clauses (e) and (f) immediately following clause (d) thereof: (e) Holdings and its Subsidiaries may pledge assets in support of Indebtedness permitted by Section 7.01(e), provided that the aggregate principal amount of Indebtedness secured by Liens permitted by this clause (e) shall not at any time exceed 15.0% of Holdings' Consolidated Net Worth (as defined in the Indenture); and (f) Holdings and its Subsidiaries may pledge the rig RBS8M, the contract with Shell Deepwater Development Inc. relating to such rig, the construction contact with respect to such rig and the insurances maintained on such rig in support of Permitted Project Debt described in clause (ii) of the definition of Permitted Project Debt (including any refinancing of such Indebtedness permitted by clause (iii) of the definition of Permitted Project Debt). 3. Section 7.06 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (b) thereof and inserting a comma in lieu thereof and (ii) inserting the following new clause (d) immediately prior to the period at the end of clause (c) thereof: and (d) Arcade Drilling AS may make share capital distributions to its shareholders pro rata according to their respective ownership percentages 4. Section 7.10 of the Credit Agreement is hereby amended by deleting said section in its entirety and inserting the following new Section 7.10 in lieu thereof: 7.10. EBITDA Leverage Ratio. Holdings will not permit its EBITDA Leverage Ratio as of the end of any fiscal quarter of Holdings (calculated quarterly at the end of each fiscal quarter) to be greater than 3.75:1.00. For purposes of this Section 7.10, "EBITDA Leverage Ratio" shall mean the ratio of (i) the difference of Funded Debt minus cash and cash equivalents of Holdings on a consolidated basis to (ii) EBITDA for the four fiscal quarters ending on such date; provided that (A) EBITDA for the period ending on June 30, 1998 shall equal the product of EBITDA for the six-month period ending on such date times 2 and (B) EBITDA for the period ending on September 30, 1998 shall equal the product of EBITDA for the nine-month period ending on such date times 1.33. 5. Section 9 of the Credit Agreement is hereby amended by deleting the definitions of "Eurodollar Margin" and "Permitted Project Debt" appearing therein and inserting the following new definitions, respectively, in lieu thereof: "Eurodollar Margin" shall mean a percentage equal to 1.25% per annum. "Permitted Project Debt" shall mean Indebtedness (including, without limitation, or duplication, the Guarantee of any such Indebtedness by Holdings and, in the case of clause (ii) below, the issuance by Holdings or any of its Subsidiaries of a surety bond in support of any such Indebtedness) incurred in connection with (i) the construction of Deepwater Pathfinder, Deepwater Frontier and Drillship III (including, without limitation, the Loans) by the respective joint venture or Subsidiary owning such vessel not to exceed $375,000,000 in the aggregate, (ii) the construction of the rig RBS8M (formerly RBS6) in an aggregate principal amount not to exceed $250,000,000 and (iii) all extensions, renewals and replacements of any such Indebtedness described in clauses (i) and (ii) above by the primary obligor thereof that do not increase the outstanding principal amount thereof. II Miscellaneous Provisions. 1. In order to induce the Banks to enter into this Amendment, the Borrower hereby represents and warrants that: (a) no Default or Event of Default exists as of the Third Amendment Effective Date both before and after giving effect to this Amendment; and (b) all of the representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects on the Third Amendment Effective Date both before and after giving effect to this Amendment, with the same effect as though such representations and warranties had been made on and as of the Third Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). 2. In order to induce the Banks to enter into this Amendment, Holdings and the Borrower hereby agree that in the event the Borrower takes delivery of the Drillship pursuant to the Construction Contract at any time prior to the Maturity Date, the Borrower shall grant to the Collateral Agent on such date a first preferred ship mortgage on the Drillship, and shall deliver to the Agent such legal opinions and other documentation with respect to such security interest as the Agent may reasonably request, all of which shall be reasonably satisfactory in form and substance to the Agent. 3. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 4. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Agent. 5. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 6. This Amendment shall become effective on the date (the "Third Amendment Effective Date") when (i) each of Holdings, the Borrower and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Agent at its Notice Office and (ii) Holdings and/or the Borrower shall have paid to each Bank an amendment fee equal to 0.15% of such Banks Commitment as in effect on the Third Amendment Effective Date immediately prior to giving effect to this Amendment. The Agent will give the Borrower and each Bank prompt notice of the occurrence of the Third Amendment Effective Date. 7. From and after the Third Amendment Effective Date, all references in the Credit Agreement and each of the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. R&B FALCON CORPORATION By:_________________________ Title: RBF DEEPWATER EXPLORATION III INC. By:_________________________ Title: CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH, Individually and as Agent By:_________________________ Title: By:_________________________ Title: CREDIT LYONNAIS NEW YORK BRANCH, Individually and as Syndication Agent By:_________________________ Title: SKANDINAVISKA ENSKILDA BANKEN AB (Publ.) By:_________________________ Title: By:_________________________ Title: CREDIT AGRICOLE INDOSUEZ By:________________________ Title: BANK OF NOVA SCOTIA By:_________________________ Title: EX-10.219 34 EXHIBIT 10.219 FOURTH CONSENT AND AMENDMENT TO CREDIT AGREEMENT FOURTH AMENDMENT TO CREDIT AGREEMENT, dated as of December 18, 1998 (this "Amendment"), among R&B FALCON CORPORATION, a Delaware corporation ("Holdings"), RBF DEEPWATER EXPLORATION III INC., a Nevada corporation (f/k/a RB Deepwater Exploration III Inc.) (the "Borrower"), the various lending institutions party to the Credit Agreement referred to below (each, a "Bank" and, collectively, the "Banks"), CREDIT LYONNAIS NEW YORK BRANCH, as Syndication Agent and CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH, as Administrative Agent for the Banks (the "Agent"). All capitalized terms used herein and not otherwise defined shall have the meanings provided such terms in the Credit Agreement. W I T N E S S E T H : WHEREAS, Holdings, the Borrower, the Banks and the Agent are parties to a Credit Agreement, dated as of February 24, 1998 (as amended to date, the "Credit Agreement"); and WHEREAS, the parties thereto and hereto agree as follows and wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: I. Consents and Amendments. 1. On and as of the Extension Date (as defined below) and after giving effect to the prepayment and commitment reduction to be made on such date, Section 9 of the Credit Agreement is hereby amended by deleting the definition of "Maturity Date" appearing therein and inserting the following new definition in lieu thereof: "Maturity Date" shall mean June 30, 1999. 2. Notwithstanding anything to the contrary contained in the Credit Agreement (including, without limitation, Sections 2.02, 3.01 and 3.03), and in addition to any other payments or Commitment reductions which may be required or permitted pursuant to the terms of the Credit Agreement, the parties hereto agree that on December 31, 1998 (the "Extension Date") the Borrower may , upon one day's prior notice to the Administrative Agent, make a non-pro rata prepayment (such prepayment, except as expressly provided herein, to be made in accordance with Section 3.03 of the Credit Agreement) of Loans for the account of Bank of Nova Scotia equal to the then outstanding principal amount of Loans made by Bank of Nova Scotia plus accrued but unpaid interest and fees owing to Bank of Nova Scotia on such date; provided that such prepayment of Loans shall be accompanied by a simultaneous non-pro rata permanent reduction to the Total Commitment which shall reduce the Commitment of Bank of Nova Scotia in effect at such time to $0. As of the Extension Date, and after giving effect to the prepayment and commitment reduction to be made on such date, Bank of Nova Scotia shall relinquish its rights and be released from any further obligations under the Credit Agreement, and shall cease to be a Bank for all purposes of the Credit Agreement. 3. Notwithstanding anything to the contrary contained in the Credit Agreement (including, without limitation, Section 7.08), the indenture governing Holdings' $400,000,000 notes offering closing on or about December 22, 1998 shall be permitted to contain such negative covenants with respect to Liens and Restricted Payments as Holdings deems appropriate to effectuate such notes offering, provided that, in no event shall such restrictive covenants prohibit (i) the granting to the Collateral Agent of the Security Agreement Collateral or a mortgage on the Drillship or (ii) the performance by Holdings of its obligations under Section 12 of the Credit Agreement. II. Miscellaneous Provisions. 1. In order to induce the Banks to enter into this Amendment, the Borrower hereby represents and warrants that: (a) no Default or Event of Default exists as of the Fourth Amendment Effective Date both before and after giving effect to this Amendment; and (b) all of the representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects on the Fourth Amendment Effective Date both before and after giving effect to this Amendment, with the same effect as though such representations and warranties had been made on and as of the Fourth Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). 2. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision (or of any provision beyond the specific consents or waivers granted herein) of the Credit Agreement or any other Credit Document. 3. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Agent. 4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 5. This Amendment shall become effective on the date (the "Fourth Amendment Effective Date") when each of Holdings, the Borrower and each of the Banks (other than Bank of Nova Scotia) shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Agent at its Notice Office; provided that, notwithstanding the foregoing, the consent granted pursuant to paragraph I.3. of this Amendment shall be effective upon the execution and delivery of such counterparts by Holdings, the Borrower and the Required Banks. 6. From and after the Fourth Amendment Effective Date, all references in the Credit Agreement and each of the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. R&B FALCON CORPORATION By:_________________________ Title: RBF DEEPWATER EXPLORATION III INC. By:_________________________ Title: CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH, Individually and as Agent By:_________________________ Title: By:_________________________ Title: CREDIT LYONNAIS NEW YORK BRANCH, Individually and as Syndication Agent By:_________________________ Title: SKANDINAVISKA ENSKILDA BANKEN AB (Publ.) By:_________________________ Title: By:_________________________ Title: CREDIT AGRICOLE INDOSUEZ By:_________________________ Title: BANK OF NOVA SCOTIA By:_________________________ Title: EX-10.220 35 EXHIBIT 10.220 FIFTH AMENDMENT TO CREDIT AGREEMENT FIFTH AMENDMENT TO CREDIT AGREEMENT, dated as of January 21, 1999 (this "Amendment"), among R&B FALCON CORPORATION, a Delaware corporation ("Holdings"), RBF DEEPWATER EXPLORATION III INC., a Nevada corporation (f/k/a RB Deepwater Exploration III Inc.) (the "Borrower"), the various lending institutions party to the Credit Agreement referred to below (each, a "Bank" and, collectively, the "Banks"), CREDIT LYONNAIS NEW YORK BRANCH, as Syndication Agent and CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH, as Administrative Agent for the Banks (the "Agent"). All capitalized terms used herein and not otherwise defined shall have the meanings provided such terms in the Credit Agreement. W I T N E S S E T H : WHEREAS, Holdings, the Borrower, the Banks and the Agent are parties to a Credit Agreement, dated as of February 24, 1998 (as amended to date, the "Credit Agreement"); and WHEREAS, the parties thereto and hereto wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: I. Amendments to Credit Agreement. 1. Section 7.01 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (g) thereof, (ii) redesignating clause (h) thereof as clause (i), (iii) inserting the following new clause (h) immediately following clause (g) thereof: (h) Indebtedness of Holdings (including any extensions or refinancing thereof, provided that any such refinancing or extension does not increase the principal amount thereof beyond that outstanding on the date of such extension or refinancing), the proceeds of which are used solely to discharge indebtedness of Cliffs Drilling under the 10.25% senior notes of Cliffs Drilling due 2003, and in an aggregate principal amount not to exceed that necessary to discharge the portion of such notes required to be redeemed pursuant to the offer to repurchase made pursuant to the Cliffs Acquisition; provided that such Indebtedness (or refinancing thereof, as the case may be) shall (i) be unsecured and subordinate to the Loans and (ii) shall have a maturity date not earlier than one year after the Maturity Date (as such term is defined from time to time), except that such maturity may occur earlier if and to the extent such maturity results solely in the conversion of such Indebtedness into, or exchange for, other Indebtedness of the Borrower, in the same aggregate principal amount, which is unsecured and subordinated to the Loans and has a maturity date not earlier than one year after the Maturity Date (as such term is defined from time to time); and , and (iv) deleting clause (f) thereof in its entirety and inserting the following new clause (f) in lieu thereof : (f) Indebtedness of Cliffs Drilling acquired pursuant to the Cliffs Acquisition (including any loans made pursuant to unused revolving commitments) in an aggregate principal amount not to exceed $235,000,000, provided that (i) such Indebtedness (or commitments, as the case may be) existed at the time of the consummation of the Cliffs Acquisition and was not created in contemplation thereof (and the provisions thereof were not altered in any material respect in contemplation thereof), (ii) Holdings and the Borrower have no liability with respect to any such Indebtedness and (iii) any Liens securing such Indebtedness apply only to the assets of Cliffs Drilling acquired pursuant to the Cliffs Acquisition (and no additional assets are granted as security following, or in contemplation of, the Cliffs Acquisition), and any extension or refinancing of such Indebtedness, provided that such extension or refinancing (x) does not increase the principal amount of such Indebtedness above the outstanding amount thereof immediately prior to giving effect to such refinancing, (y) does not have a maturity date prior to one year after the Maturity Date (as defined from time to time) and (z) is not secured by any assets not securing the Indebtedness to be refinanced; and 2. Section 7.06 of the Credit Agreement is hereby amended by (i) deleting the word "and" appearing at the end of clause (c) thereof and inserting a comma in lieu thereof and (ii) inserting the following new clause (e) immediately prior to the period at the end of clause (d) thereof: and (e) so long as no Default or Event of Default then exists or would result immediately after giving effect thereto, Holdings may pay dividends on its preferred stock not to exceed a rate commensurate with a 10% coupon on such preferred stock. 3. Section 7.09 of the Credit Agreement is hereby amended by deleting said section in its entirety and inserting the following new Section 7.09 in lieu thereof: 7.09. Tangible Net Worth. Holdings will not permit at any time its Tangible Net Worth to be less than $600,000,000 plus (i) 50% of its cumulative Consolidated Net Income, if positive, for the period from April 1, 1998 through the date of calculation, plus (ii) 100% of any equity issued by Holdings after the Effective Date; provided that , for purposes of this Section 7.09, the Cliffs Acquisition shall be deemed to constitute the issuance by Holdings of equity in an amount equal to the increase in Holdings' Tangible Net Worth resulting from the Cliffs Acquisition. 4. Section 7 of the Credit Agreement is hereby amended by inserting the following new Section 7.13: Section 7.13 Restriction on Certain Debt Payments. Holdings shall not repay any indebtedness incurred pursuant to Section 7.01(h) except out of net proceeds from the issuance by the Borrower of (i) capital stock permitted to be issued hereunder or (ii) refinancing Indebtedness permitted pursuant to Section 7.01(h); provided that, so long as no Default or Event of Default exists or would result immediately after giving effect to such payment, this Section 7.13 shall not be deemed to prevent Holdings from making regularly scheduled payments of accrued interest on such Indebtedness. 5. Annex 7.01 of the Credit Agreement is hereby amended by adding thereto the following item: "20. Guaranty by R&B dated as of November 28, 1995 in favor of Deep Sea Investors, L.L.C. with respect to the obligations of Reading & Bates Drilling Co. under the Memorandum of Agreement and a charter as of the same date with respect to the semisubmersible drilling unit M.G Hulme." 6. Annex V of the Credit Agreement is hereby amended by adding thereto the following item: "12. Preferred Mortgage on the Jim Cunningham dated November 28, 1995 between Reading & Bates Drilling Co. and Wilmington Trust Company, as Trustee, for the benefit of Deep Sea Investors, L.L.C., in connection with item 20 of Schedule 7.01." II Miscellaneous Provisions. 1. In order to induce the Banks to enter into this Amendment, the Borrower hereby represents and warrants that: (a) no Default or Event of Default exists as of the Fifth Amendment Effective Date both before and after giving effect to this Amendment; and (b) all of the representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects on the Fifth Amendment Effective Date both before and after giving effect to this Amendment, with the same effect as though such representations and warranties had been made on and as of the Fifth Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). 2. In order to induce the Banks to enter into this Amendment, Holdings and the Borrower hereby agree that in the event the Borrower takes delivery of the Drillship pursuant to the Construction Contract at any time prior to the Maturity Date, the Borrower shall grant to the Collateral Agent on such date a first preferred ship mortgage on the Drillship, and shall deliver to the Agent such legal opinions and other documentation with respect to such security interest as the Agent may reasonably request, all of which shall be reasonably satisfactory in form and substance to the Agent. 3. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 4. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Agent. 5. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 6. This Amendment shall become effective on the date (the "Fifth Amendment Effective Date") when (i) each of Holdings, the Borrower and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Agent at its Notice Office and (ii) Holdings and/or the Borrower shall have paid to each Bank that has executed and delivered a counterpart hereof on or before 12:00 Noon (New York time) on January 21, 1999 an amendment fee equal to 0.15% of such Banks Commitment as in effect on the Fifth Amendment Effective Date immediately prior to giving effect to this Amendment. The Agent will give the Borrower and each Bank prompt notice of the occurrence of the Fifth Amendment Effective Date. 7. From and after the Fifth Amendment Effective Date, all references in the Credit Agreement and each of the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. R&B FALCON CORPORATION By:_________________________ Title: RBF DEEPWATER EXPLORATION III INC. By:_________________________ Title: CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH, Individually and as Agent By:_________________________ Title: By:_________________________ Title: CREDIT LYONNAIS NEW YORK BRANCH, Individually and as Syndication Agent By:_________________________ Title: SKANDINAVISKA ENSKILDA BANKEN AB (Publ.) By:_________________________ Title: By:_________________________ Title: CREDIT AGRICOLE INDOSUEZ By:_________________________ Title: By:_________________________ Title: EX-10.221 36 EXHIBIT 10.221 SIXTH AMENDMENT TO CREDIT AGREEMENT SIXTH AMENDMENT TO CREDIT AGREEMENT, dated as of February 22, 1999 (this "Amendment"), among R&B FALCON CORPORATION, a Delaware corporation ("Holdings"), RBF DEEPWATER EXPLORATION III INC., a Nevada corporation (f/k/a RB Deepwater Exploration III Inc.) (the "Borrower"), the various lending institutions party to the Credit Agreement referred to below (each, a "Bank" and, collectively, the "Banks"), CREDIT LYONNAIS NEW YORK BRANCH, as Syndication Agent and CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH, as Administrative Agent for the Banks (the "Agent"). All capitalized terms used herein and not otherwise defined shall have the meanings provided such terms in the Credit Agreement. W I T N E S S E T H : WHEREAS, Holdings, the Borrower, the Banks and the Agent are parties to a Credit Agreement, dated as of February 24, 1998 (as amended to date, the "Credit Agreement"); and WHEREAS, the parties thereto and hereto wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: I. Amendments to Credit Agreement and Consents. 1. Section 7.01 of the Credit Agreement is hereby amended by (i) deleting clause (e) thereof in its entirety and inserting the following new clause (e) in lieu thereof: (e) Indebtedness of Holdings created under the R&B Falcon Credit Agreement in an aggregate principal amount not exceed $200,000,000. , (ii) deleting the word "and" at the end of clause (h) thereof, (ii) redesignating clause (i) thereof as clause (j), and (iii) inserting the following new clause (i) immediately following clause (h) thereof: (i) Senior unsecured Indebtedness of Holdings (including any refinancing thereof, provided that any such refinancing does not increase the principal amount thereof beyond that outstanding on the date of such refinancing) in an aggregate principal amount not to exceed $350,000,000; provided that such Indebtedness (or refinancing thereof, as the case may be) shall at all times (i) be unsecured and (ii) have a maturity date not earlier than one year after the Maturity Date (as such term is defined from time to time) (except for any refinancing which results solely in the conversion of such Indebtedness into, or exchange for, other Indebtedness of Holdings, in an aggregate principal amount not to exceed that outstanding on the date of such refinancing, which is unsecured and has a maturity date not earlier than one year after the Maturity Date (as such term is defined from time to time)); and 2. Section 7.11 of the Credit Agreement is hereby amended by (i) deleting clause (iii) thereof in its entirety and inserting the following new clause (iii) in lieu thereof: and (iii) sales of properties and assets which shall not exceed $50,000,000 in fair market value in the aggregate in any fiscal year of Holdings; provided that in addition to the above permitted asset sales, Holdings and its Subsidiaries shall be permitted to sell Non- Core Assets not exceeding $250,000,000 in fair market value in the aggregate in any fiscal year of Holdings. 3. (a) Section 7.10 of the Credit Agreement is hereby amended by deleting said section in its entirety and inserting the following new Section 7.10 in lieu thereof: 7.10. Interest Coverage Ratio. Holdings will not permit its Interest Coverage Ratio at the end of any fiscal quarter of Holdings (calculated quarterly at the end of each fiscal quarter of Holdings) to be less than 1.50:1.00. For purposes of this Section 7.10, the "Interest Coverage Ratio" shall mean the ratio of (i) EBITDA for the four fiscal quarters of Holdings ending on such date to (ii) Consolidated Interest Expense for the four fiscal quarters of Holdings ending on such date. (b) Notwithstanding the foregoing amendment to Section 7.10 of the Credit Agreement, for purposes of calculating the EDITDA Leverage Ratio of Holdings for the periods ending December 31, 1998, March 31, 1999, June 30, 1999 and September 30, 1999 (in each case to the extent such period ends prior to the Sixth Amendment Effective Date), Consolidated Net Income, interest, taxes, depreciation, depletion and amortization shall be determined on a pro forma basis as if the Cliffs Acquisition had occurred on October 1, 1997 and as if the Cliffs Acquisition had been accounted for as a pooling of interests (but without duplication in the case of months previously consolidated). 4. Section 7.13 of the Credit Agreement is hereby amended by deleting said section in its entirety and inserting the following new Section 7.13 in lieu thereof: Section 7.13 Restriction on Certain Debt Payments. Holdings shall not (i) repay any indebtedness incurred pursuant to Section 7.01(h) except out of net proceeds from the issuance by the Borrower of (x) capital stock permitted to be issued hereunder or (y) refinancing Indebtedness permitted pursuant to Section 7.01(h); provided that, so long as no Default or Event of Default exists or would result immediately after giving effect to such payment, this Section 7.13(i) shall not be deemed to prevent Holdings from making regularly scheduled payments of accrued interest on such Indebtedness or (ii) make any optional or voluntary payment or prepayment on or redemption or acquisition for value of, or any prepayment or redemption as a result of any asset sale, change of control or similar event of any indebtedness incurred pursuant to Section 7.01(i). 5. Section 9 of the Credit Agreement is hereby amended by (i) deleting the definitions of "EBITDA" and "Eurodollar Margin" appearing therein and (ii) inserting the following new definitions in appropriate alphabetical order: "Consolidated Interest Expense" shall mean, for any period, total interest expense (including that attributable to Capital Lease Obligations) of Holdings and its Subsidiaries in accordance with GAAP (provided that, in any event, Consolidated Interest Expense shall not include capitalized interest) on a consolidated basis with respect to all outstanding Indebtedness of Holdings and its Subsidiaries, including, without limitation, all commissions, discounts, and other fees and charges owed with respect to letters of credit and bankers' acceptance financing. "EBITDA" shall mean, for any period, the sum of Consolidated Net Income for such period plus the following expenses or charges to the extent deducted from Consolidated Net Income in such period: interest, dividends on preferred stock, taxes, depreciation, depletion and amortization. Notwithstanding the foregoing, the calculation of EBITDA shall not take into account any extraordinary gains or losses, any non-cash items, or any non-recurring gains or charges. "Eurodollar Margin" shall mean a percentage equal to 2.00% per annum. "Non-Core Assets" shall mean (i) the drilling rigs Seillean, Iolair, Peregrine VI (Hull), Peregrine VIII (Hull) and Rig 82, (ii) Equipment Packages for Peregrine VI and Peregrine VIII and (iii) four supply boats located in West Africa on the Sixth Amendment Effective Date, each as determined on the Sixth Amendment Effective Date. "Sixth Amendment" shall mean the Sixth Amendment to this Agreement, dated as of February 22, 1999. "Sixth Amendment Effective Date" shall mean February 23, 1999. 6. Pursuant to Section 7.12 of the Credit Agreement, the Banks hereby consent to the Fourth Amendment to the R&B Falcon Credit Agreement, and the granting of the collateral contemplated therein, in the form delivered to the Agent prior to the Sixth Amendment Effective Date. II Miscellaneous Provisions. 1. In order to induce the Banks to enter into this Amendment, the Borrower hereby represents and warrants that: (a) no Default or Event of Default exists as of the Sixth Amendment Effective Date both before and after giving effect to this Amendment; and (b) all of the representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects on the Sixth Amendment Effective Date both before and after giving effect to this Amendment, with the same effect as though such representations and warranties had been made on and as of the Sixth Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). 2. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 3. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Agent. 4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 5. This Amendment shall become effective as of 12:01 AM (New York time) on the date (the "Sixth Amendment Effective Date") when (i) each of Holdings, the Borrower and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Agent at its Notice Office, (ii) Holdings shall have consummated an issuance of its convertible preferred stock and received cash proceeds from such issuance of not less than $250,000,000 less fees and commissions and (iii) Holdings and/or the Borrower shall have paid, to each Bank that has executed and delivered a counterpart hereof on or before 5:00 P.M. (New York time) on February 22, 1999, an amendment fee equal to 0.15% of such Bank's Commitment as in effect on the Sixth Amendment Effective Date immediately prior to giving effect to this Amendment. Notwithstanding the foregoing, the consent set forth in paragraph I.3.(b) above shall be effective upon the satisfaction of the condition set forth in clause (i) of this Paragraph II.5 and said consent shall continue in effect whether or not the remaining conditions are satisfied. The Agent will give the Borrower and each Bank prompt notice of the occurrence of the Sixth Amendment Effective Date. 6. From and after the Sixth Amendment Effective Date (or in the case of Paragraph I.3.(b) only, the satisfaction of the conditions set forth in Paragraph II.5.(i)), all references in the Credit Agreement and each of the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. R&B FALCON CORPORATION By:_________________________ Title: RBF DEEPWATER EXPLORATION III INC. By:_________________________ Title: CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH, Individually and as Agent By:_________________________ Title: By:_________________________ Title: CREDIT LYONNAIS NEW YORK BRANCH, Individually and as Syndication Agent By:_________________________ Title: SKANDINAVISKA ENSKILDA BANKEN AB (Publ.) By:_________________________ Title: By:_________________________ Title: CREDIT AGRICOLE INDOSUEZ By:_________________________ Title: By:_________________________ Title: SCHEDULE OF NON-CORE ASSETS EX-10.227 37 EXHIBIT 10.227 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT dated as of November 13, 1998 (this "Amendment") is among: R&B FALCON CORPORATION, the LENDERS party hereto, and THE CHASE MANHATTAN BANK, as Administrative Agent. R E C I T A L S A. The Borrower, the Administrative Agent, and the Lenders (as defined in the Credit Agreement as hereafter defined) have entered into that certain Credit Agreement dated as of April 24, 1998 (the "Credit Agreement"), pursuant to which the Lenders have agreed to make certain loans and extensions of credit to the Borrower upon the terms and conditions as provided therein; B. The Borrower has entered into a merger agreement pursuant to which Cliffs Drilling Company would merge with a wholly owned subsidiary of the Borrower in a stock-for-stock exchange; and C. The Borrower, the Administrative Agent, and the Lenders now desire to make certain amendments to the Credit Agreement in connection with the proposed merger. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration and the mutual benefits, covenants and agreements herein expressed, the parties hereto now agree as follows: 1. All capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement. 2. Section 1.01 of the Credit Agreement is hereby supplemented, where alphabetically appropriate, with the addition of the following definitions: "Cliffs" means Cliffs Drilling Company, a Delaware corporation. "Cliffs Group" means Cliffs and its subsidiaries. "EBITDA" shall mean, for any period, the sum of Consolidated Net Income for such period plus the following expenses or charges to the extent deducted from Consolidated Net Income in such period: interest, taxes, depreciation, depletion and amortization for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP. "First Amendment" means that certain First Amendment to Credit Agreement dated as of November 13, 1998, among the Borrower, the Lenders and the Administrative Agent." "Merger" means the merger of RBF Cliffs Acquisition Corp., a Delaware corporation and a direct wholly owned subsidiary of the Borrower, with and into Cliffs, as a result of which Cliffs would become a direct wholly owned subsidiary of the Borrower. 3. Section 6.01 of the Credit Agreement is hereby amended to add the following clauses (f) and (g): "(f) Indebtedness of Cliffs existing under the 10.25% senior notes of Cliffs due 2003 not to exceed $203,103,000 outstanding, but not any extensions, renewals and replacement of any such Indebtedness." "(g) Indebtedness of Cliffs (and its subsidiaries party thereto) under a revolving credit facility with ING (U.S.) Capital Corporation as the agent not to exceed $35,000,000 outstanding, but not any extensions, renewals and replacement of any such Indebtedness." 4. Section 6.02 of the Credit Agreement is hereby further amended to add the following clause (e): "(e) Liens on any property or assets of the Cliffs Group to secure the Indebtedness permitted by Section 6.01(g)." 5. Section 6.03 of the Credit Agreement is hereby waived for the limited purpose of permitting the Merger on the terms and conditions set forth in the Form S-4 of the Borrower filed with the Securities and Exchange Commission on September 15, 1998. 6. Section 6.03 of the Credit Agreement is hereby amended by adding the following sentence at the end of the section: "Notwithstanding any other provision in this Section 6.03 to the contrary, for so long as any Indebtedness permitted by Sections 6.01(f) and (g) of the Credit Agreement is outstanding (or any commitment for any such Indebtedness is outstanding), no member of the Cliffs Group may merge with or consolidate into the Borrower or any other Subsidiary of the Borrower not in the Cliffs Group." 7. Section 6.04 of the Credit Agreement is hereby amended by adding the following clause (e): "(e) the acquisition by the Borrower of Cliffs pursuant to the Merger." 8. Sections 6.04(b) and (c) of the Credit Agreement are hereby amended to read as follows: "(b) investments by the Borrower or by any Subsidiary in the capital stock of its Subsidiaries; provided that neither the Borrower nor any Subsidiary that is not in the Cliffs Group may invest in any member of the Cliffs Group except for the investment to acquire Cliffs pursuant to the Merger; (c) loans or advances made by the Borrower to any Subsidiary and made by any Subsidiary to the Borrower or any other Subsidiary; provided that neither the Borrower nor any Subsidiary that is not in the Cliffs Group may make loans or advances to any member of the Cliffs Group; and" 9. Section 6.08 of the Credit Agreement is hereby amended by adding the following clause (vi) before the period at the end of the sentence: "and (vi) the foregoing shall not apply to restrictions and conditions existing on the date of the Merger and contained in the instruments evidencing the Indebtedness permitted by Sections 6.01(f) and (g) (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition)." 10. Section 6.09 of the Credit Agreement is hereby amended by adding the following clause before the period at the end of the sentence: ", plus (iii) 100% of any equity issued by the Borrower in connection with the Merger to the extent not included in clause (ii) above." 11. Section 6.10 of the Credit Agreement is hereby supplemented by adding the following sentence at the end of the present Section 6.10 following the graph: "Notwithstanding anything to the contrary herein, for the purposes of determining the EDITBA Leverage Ratio pursuant to this Section 6.10 for the periods ending December 31, 1998, March 31, 1999, June 30, 1999 and September 30, 1999, Consolidated Net Income and interest, taxes, depreciation, depletion and amortization in such ratio shall be determined on a pro forma basis as if the Merger had occurred on October 1, 1997 and as if the Merger had been accounted for as a pooling of interests (except without duplication for months already consolidated) and (ii) such ratio shall be calculated as if the Merger had occurred on October 1, 1997 and been accounted for as a pooling of interests." 12. This Amendment shall become binding on the Lenders when, and only when, the Administrative Agent shall have received each of the following in form and substance satisfactory to the Administrative Agent or its counsel: (a) counterparts of this Amendment executed by the Borrower and the Required Lenders; (b) all conditions precedent to the Merger shall have been waived or satisfied except for the effectiveness of this Amendment and the Merger shall become effective promptly thereafter; and (c) such other documents as it or its counsel may reasonably request. 13. The parties hereto hereby acknowledge and agree that, except as specifically supplemented and amended, changed or modified hereby, the Credit Agreement shall remain in full force and effect in accordance with its terms. 14. The Borrower hereby reaffirms that as of the date of this Amendment, the representations and warranties contained in Article III of the Credit Agreement are true and correct on the date hereof as though made on and as of the date of this Amendment, except as such representations and warranties are expressly limited to an earlier date. 15. THIS AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF. 16. This Amendment may be executed in two or more counterparts, and it shall not be necessary that the signatures of all parties hereto be contained on any one counterpart hereof; each counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. [SIGNATURES BEGIN NEXT PAGE] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written. BORROWER: R&B FALCON CORPORATION By:_____________________________ Robert Fulton Executive Vice President ADMINISTRATIVE AGENT THE CHASE MANHATTAN BANK AND LENDER: By:_____________________________ Name: Title: SYNDICATION AGENT CREDIT SUISSE FIRST BOSTON AND LENDER: By:_____________________________ Name: Title: By:_____________________________ Name: Title: DOCUMENTATION AGENT PARIBAS AND LENDER: By:_____________________________ Name: Title: By:_____________________________ Name: Title: CO-SYNDICATION AGENT CHRISTIANIA BANK OG KREDITKASSE ASA, AND LENDER: NEW YORK BRANCH By:_____________________________ Name: Title: By:_____________________________ Name: Title: MANAGING AGENT THE BANK OF NOVA SCOTIA AND LENDER: By:_____________________________ Name: Title: MANAGING AGENT BANK OF TOKYO-MITSUBISHI, LTD. AND LENDER: By:_____________________________ Name: Title: MANAGING AGENT WELLS FARGO BANK (TEXAS), N.A. AND LENDER: By:_____________________________ Name: Title: OTHER LENDERS: BANK AUSTRIA AKTIENGESELLSCHAFT By:_____________________________ Name: Title: By:_____________________________ Name: Title: By:_____________________________ Name: Title: CREDIT AGRICOLE INDOSUEZ By:_____________________________ Name: Title: By:_____________________________ Name: Title: FIRST NATIONAL BANK OF COMMERCE By:_____________________________ Name: Title: THE SUMITOMO BANK, LIMITED By:_____________________________ Name: Title: SKANDINAVISKA ENSKILDA BANKEN AB (PUBL) By:_____________________________ Name: Title: By:_____________________________ Name: Title: WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By:_____________________________ Name: Title: By:_____________________________ Name: Title: ABN AMRO BANK N.V. By:_____________________________ Name: Title: By:_____________________________ Name: Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By:_____________________________ Name: Title: DG BANK DEUTSCHE GENOSSENSCHAFTSBANK, CAYMAN ISLAND BRANCH By:_____________________________ Name: Title: By:_____________________________ Name: Title: THE DAI-ICHI KANGYO BANK, LIMITED By:_____________________________ Name: Title: THE FUJI BANK, LIMITED By:_____________________________ Name: Title: KREDIETBANK N.V. By:_____________________________ Name: Title: By:_____________________________ Name: Title: NATEXIS BANQUE By:_____________________________ Name: Title: By:_____________________________ Name: Title: EX-10.228 38 EXHIBIT 10.228 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated as of the Second Amendment Effective Date (hereinafter defined) is among: R&B FALCON CORPORATION, and the REQUIRED LENDERS under the hereinafter defined Credit Agreement. R E C I T A L S A. The Borrower and the Lenders (as defined in the Credit Agreement hereafter defined) have entered into that certain Credit Agreement dated as of April 24, 1998 (as amended by First Amendment to Credit Agreement dated as of November 13, 1998, the "Credit Agreement"), pursuant to which the Lenders have agreed to make certain loans and extensions of credit to the Borrower upon the terms and conditions as provided therein; B. The Borrower has requested approval of certain amendments to the Credit Agreement in order to, among other things, permit the Borrower to incur certain additional indebtedness; C. The Chase Manhattan Bank, in it capacity as Administrative Agent under the Credit Agreement, is resigning as Administrative Agent, effective as of the date hereof; D. The Required Lenders, as set forth below, shall select a successor Administrative Agent; E. The Borrower and the Lenders now desire to make certain amendments to the Credit Agreement to effectuate the foregoing. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration and the mutual benefits, covenants and agreements herein expressed, the parties hereto now agree as follows: 1. All capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement. 2. The following terms, defined in Section 1.01 of the Credit Agreement, are hereby amended as follows: (a) The term "Administrative Agent" is hereby amended to read in its entirety as follows: "Administrative Agent" means Paribas, in its capacity as administrative agent for the Lenders hereunder. (b) The chart contained in the definition of "Applicable Margin" is hereby amended to read in its entirety as follows: ABR Eurodollar Facility Fee Index Debt Ratings: Spread Spread Rate ------ Tranche A Tranche B ------------ Loans Loans --------- --------- Category 1 0.0 0.45 1.075 0.175 Category 2 0.0 0.55 1.175 0.200 Category 3 0.0 0.65 1.275 0.225 Category 4 0.0 0.75 1.375 0.250 Category 5 0.0 1.00 1.625 0.250 (c) The term "Commitment" is hereby amended to read in its entirety as follows: "Commitment" means, with respect to each Lender, the commitment of such Lender to make Revolving Loans and to acquire participations in Letters of Credit hereunder, expressed as an amount representing the maximum aggregate amount that such Lender's Revolving Credit Exposure could be hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Commitment is set forth on Schedule 2.01 attached to and made a part of the Second Amendment, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. The initial aggregate amount of the Lenders' Commitments is $350,000,000. "Commitment", with respect to each Lender, shall equal the sum of its Tranche A Commitment and Tranche B Commitment, as set forth on Schedule 2.01 attached to the Second Amendment. (d) The term "Issuing Bank" is hereby amended to read in its entirety as follows: "Issuing Bank" means Paribas, in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.04(i). The Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate. (e) The term "Maturity Date" is hereby amended to read in its entirety as follows: "Maturity Date" means January 24, 2002, or such later date as such date may be extended pursuant to Section 2.07(d). (f) The term "Permitted Encumbrances" is hereby amended by (i) deleting the word "and" at the end of clause (f) thereof, (ii) adding the word "and" at the end of clause (g) thereof, (iii) deleting the proviso at the end thereof, and (iv) adding the following clause "(h)": "(h) Liens securing the payment of all or any portion of the Indebtedness created hereunder; provided that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness other than the Indebtedness created hereunder." (g) The term "Permitted Investments" is hereby amended by adding the word "Paribas" after the "comma (,)" and before the word "any" found in the third line thereof. (h) The term "Permitted Project Debt" is hereby amended to read in its entirety as follows: "Permitted Project Debt" means Indebtedness (including, without limitation or duplication, the Guarantee of any such Indebtedness by the Borrower) incurred in connection with the construction of Deepwater Pathfinder, Deepwater Frontier, Drillship III and the semi-submersible rig RBS8M (formerly known as the RBS6), by the respective joint venture or Subsidiary owning such vessel, and all extensions, renewals and replacements of any such Indebtedness by the primary obligor thereof that do not increase the outstanding principal amount thereof; provided, however, that such Indebtedness shall not exceed $625,000,000 in the aggregate; and provided further, however, that all such Indebtedness relating to the rig RBS8M shall be nonrecourse upon the acceptance and delivery of such rig. 3. Section 1.01 of the Credit Agreement is hereby supplemented, where alphabetically appropriate, with the addition of the following definitions: "Drilling Inc." shall mean R&B Falcon Drilling (International & Deepwater) Inc., a Delaware corporation. "Notes Offering" means that certain $400,000,000 Notes Offering by the Borrower anticipated to close prior to January 15, 1999. "Notes Offering Closing Date" means the date the proceeds are received by the Borrower pursuant to the Notes Offering. "Second Amendment" means that certain Second Amendment to Credit Agreement dated as of the Second Amendment Effective Date, among the Borrower and the Required Lenders. "Second Amendment Effective Date" shall mean the day on which the last of the events set forth in Paragraph 15 of the Second Amendment as conditions shall have occurred. "Tranche A Commitment" means in the aggregate the first $100,000,000 principal amount of the Commitment. "Tranche B Commitment" means in the aggregate the principal amount of the Commitment in excess of the Tranche A Commitment. 4(a) Pursuant to and subject to all of the provisions contained in Section 2.07 of the Credit Agreement, the Borrower hereby voluntarily reduces (and the Lenders hereby accept the reduction of) the aggregate amount of the Lenders' Commitments under the Credit Agreement to $350,000,000, such reduction to be made pro rata among the Lenders in accordance with their Commitment. (b) Section 2.07 of the Credit Agreement is hereby amended by adding thereto a new subsection, to be Subsection 2.07(e), to read in its entirety as follows: "(e) The aggregate amount of the Tranche B Commitments in effect on March 31, 2001, shall be reduced by an amount equal to $15,000,000, commencing March 31, 2001 and on the last day of each calendar quarter thereafter until the Maturity Date." 5. Section 2.09 of the Credit Agreement is hereby amended by adding thereto two new subsections, to be Subsections 2.09(c) and 2.09(d), to read in their entirety as follows: "(c) If, following any reduction in the Tranche B Commitments pursuant to Section 2.07(e) hereof, the sum of the outstanding aggregate principal amount of the Loans attributable to the Tranche B Commitments exceed the then current Tranche B Commitments, the Borrower shall pay or prepay the amount of such excess amount together with accrued interest to the extent required by Section 2.11 and subject to the provisions of Section 2.14 for break funding payments." (d) All payments of principal and interest by Borrower shall be applied first in the reduction of Indebtedness incurred under the Tranche B Commitment." 6. Section 6.01 of the Credit Agreement is hereby amended to add the following clause (h): "(h) additional Indebtedness of the Borrower not to exceed $600,000,000 at any time outstanding; provided, however (i) no such additional Indebtedness shall be senior to the Indebtedness created under this Agreement, (ii) not more than $400,000,000 of such additional Indebtedness shall be pari pasu with the Indebtedness created under the Tranche B Commitment, and (iii) no such additional Indebtedness shall have a maturity of less than four (4) years." 7. Section 6.02(c) of the Credit Agreement is hereby amended in its entirety to read as follows: "(c) any Lien on the Deepwater Pathfinder, Deepwater Frontier, RBS8M and Drillship III and on the equity of the entity that owns such vessel to secure the respective Permitted Project Debt incurred to construct such vessel, and any related drilling or other contract to secure the respective Permitted Project Debt incurred in connection with the financing of such vessel;" 8. Section 6.06 of the Credit Agreement is hereby amended in its entirety to read as follows: "Section 6.06. Restricted Payments. The Borrower will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except (a) the Borrower may declare and pay dividends with respect to its capital stock payable solely in additional shares of its common stock, (b) Subsidiaries may declare and pay dividends ratably with respect to their capital stock, (c) the Borrower may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries, and (d) Arcade Drilling A/S (a 74.4% owned Subsidiary of the Borrower) may make share capital reduction distributions pro rata to its shareholders (including the Borrower)." 9. Section 6.10 of the Credit Agreement is hereby amended and supplemented by deleting the graph found therein and substituting therefor the following: Period EBITDA Leverage Ratio ------ --------------------- 9/1/98 through 12/31/99 3.75X 1/1/00 through 12/31/00 3.25X 1/1/01 and thereafter 2.75X 10. Notwithstanding the provisions of Section 6.12 of the Credit Agreement, the Borrower may amend, modify or supplement the Indenture in such manner as it deems appropriate to effectuate the Notes Offering. 11. Article VI of the Credit Agreement is hereby amended by adding thereto the following three (3) new sections, to be Sections 6.13, 6.14 and 6.15, to read in their entirety as follows: "Section 6.13. Fundamental Changes With Respect to Drilling Inc. Notwithstanding anything to the contrary contained in Section 6.03 hereof, with respect to Drilling Inc. and its subsidiaries, neither Drilling Inc. nor any of its subsidiaries shall merge into or consolidate with any other Person, nor permit any Person to merge into or consolidate with it, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) any subsidiary of Drilling Inc. may merge into Drilling Inc. in a transaction in which Drilling Inc. is the surviving corporation, and (ii) any subsidiary of Drilling Inc. may merge into any other subsidiary of Drilling Inc. in a transaction in which the surviving entity is a subsidiary of Drilling Inc." "Section 6.14. Investments, Loans, Advances, Guarantees and Acquisitions with Respect to Drilling Inc. Notwithstanding anything to the contrary contained in Section 6.04 hereof, with respect to Drilling Inc. and its subsidiaries, neither Drilling Inc. nor any of its subsidiaries shall Guarantee any obligations of any other Person, or purchase, hold or acquire any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) or make or permit any loans or advances to , or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing, the following shall be permitted: (a) investments by Drilling Inc. or by any of its subsidiaries in the capital stock of Drilling Inc.'s subsidiaries; (b) loans or advances made by Drilling Inc. to any of its subsidiaries and made by any of Drilling Inc.'s subsidiaries to Drilling Inc. or any other subsidiary of Drilling Inc.; and (c) purchases and acquisitions on an arms- length basis in the ordinary course of business; (d) guarantees of obligations of Drilling Inc. and its subsidiaries; and (e) other investments, loans and advances consistent with prior practices of the Borrower and its Subsidiaries reflected in the regularly maintained financial records of the Borrower and its Subsidiaries." "Section 6.15. Restricted Payments with Respect to Drilling Inc. Notwithstanding anything to the contrary contained in Section 6.06, with respect to Drilling Inc. and its subsidiaries, neither Drilling Inc. nor any of its subsidiaries shall declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except, if at the time thereof and immediately after giving effect thereto no Default shall occurred and be continuing (a) any subsidiary of Drilling Inc. may declare and pay dividends to Drilling Inc. or to another subsidiary of Drilling Inc., and (b) Drilling Inc. or any of its subsidiaries may declare and pay dividends consistent with prior practices of the Borrower and its Subsidiaries reflected in the regularly maintained financial records of the Borrower and its Subsidiaries. 12. The Borrower and the Required Lenders hereby select and appoint Paribas as successor Administrative Agent for the Lenders under the Credit Agreement, as amended hereby, effective upon the resignation of The Chase Manhattan Bank as Administrative Agent, and Paribas hereby accepts such appointment and agrees to act as Administrative Agent for the Lenders under the Credit Agreement, as amended hereby, effective upon the resignation of The Chase Manhattan Bank, as Administrative Agent. 13. Section 9.01 is hereby amended in its entirety to read as follows: "Section 9.01. Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Borrower, to R&B Falcon Corporation 901 Threadneedle Houston, Texas 77079 Attention of Chief Financial Officer Telecopy No.: (281) 496-0285; (b) if to the Administrative Agent, to: Paribas 1200 Smith Street, Suite 3100 Houston, Texas 77002 Attention: Mr. Brian Malone Phone No.: (713) 659-4811 Telecopy No.: (713) 659-6915 with respect, Eurodollar Lending Office, to: Paribas _______________________ _______________________ Attention: _______________ Phone No.: ______________ Telecopy No.: ____________ (c) if to the Issuing Bank, to: Paribas 1200 Smith Street, Suite 3100 Houston, Texas 77002 Attention: Ms. Cheryl Johnson Phone No.: _______________ Telecopy No.: ____________; and (d) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. 14. The Borrower hereby agrees to pledge, as security for all amounts owing in connection with the Tranche A Commitment, all of the issued and outstanding capital stock of Drilling Inc. pursuant to a security agreement, financing statements and stock powers, satisfactory to Paribas. 15. In addition to all other applicable conditions precedent contained in the Credit Agreement, the obligation of the Lenders under this Amendment and to their agreement and consent to the matters set forth herein, shall be conditioned upon the following: (a) Paribas shall have received a copy of this Amendment, duly completed and executed by the Borrower and the Required Lenders; (b) Paribas shall have received a legal opinion of Leighton E. Moss, Esq., counsel to the Borrower with respect to this Amendment and the matters addressed herein, non-contravention and such other matters as Paribas reasonably request, all in form and substance satisfactory to Paribas; (c) The Notes Offering shall have been completed, and the net proceeds received by the Borrower from the Notes Offering shall be delivered to Paribas or the Administrative Agent, for the benefit of the Lenders, to be applied as a principal reduction of the Indebtedness created under the Credit Agreement, as amended hereby; (d) Paribas shall have received a Security Agreement (Stock) duly completed and executed by the Borrower, pledging all of the capital stock of Drilling Inc., as security for all amounts owing in connection with the Tranche A Commitment, together with an Assignment Separate from Stock Certificate duly executed in blank by the Borrower, the original stock certificate representing such capital stock and appropriate Uniform Commercial Code financing statement relating thereto. (e) Paribas shall have received such other information, documents or instruments as it or its counsel may reasonably request; 16. All provisions of this Amendment except for Section 12 shall be deemed effective at 12:01 a.m. Houston, Texas time on the date that the conditions set forth in Section 15 have been met. The provisions of Paragraph 12 shall be effective upon the last to occur of (i) the resignation of The Chase Manhattan Bank as Administrative Agent and (ii) the execution of this Amendment by Borrower and the Required Lenders. 17. Pursuant to Section 2.04(i) of the Credit Agreement, The Chase Manhattan Bank is hereby replaced as Issuing Bank by Paribas. This Paragraph 13 shall satisfy the written agreement and notification requirements of Section 2.04(i). 18. The Borrower shall pay to each Lender which executes this Amendment and delivers its signature pages to Paribas or the Administrative Agent (or its counsel) on or before 2:00 p.m., Houston, Texas time, December 16, 1998, an amendment fee equal to 25 basis points on such Lender's then current Commitment (based upon $350,000,000 of total Commitments), which shall be due and payable on or before the third Business Day after the Notes Offering Closing Date. 19. The parties hereto hereby acknowledge and agree that, except as specifically supplemented and amended, changed or modified hereby, the Credit Agreement shall remain in full force and effect in accordance with its terms. 20. The Borrower hereby reaffirms that as of the date of this Amendment, the representations and warranties contained in Article III of the Credit Agreement are true and correct on the date hereof as though made on and as of the date of this Amendment, except as such representations and warranties are expressly limited to an earlier date; provided, for purposes of this paragraph, Section 3.04(b) shall read: "(b) Except as disclosed in reports filed by the Company under the Securities Exchange Act of 1934, since December 31, 1997, there has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and its subsidiaries, taken as a whole." 20. THIS AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF. 21. This Amendment may be executed in two or more counterparts, and it shall not be necessary that the signatures of all parties hereto be contained on any one counterpart hereof; each counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. NOTICE. THIS WRITTEN AMENDMENT, THE CREDIT AGREEMENT, AS AMENDED HEREBY AND THE NOTES REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. [SIGNATURES BEGIN NEXT PAGE] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written. BORROWER: R&B FALCON CORPORATION By:_____________________________ Robert Fulton Executive Vice President RESIGNING ADMINISTRATIVE THE CHASE MANHATTAN BANK AGENT AND LENDER: By:_____________________________ Name: Title: SYNDICATION AGENT CREDIT SUISSE FIRST BOSTON AND LENDER: By:_____________________________ Name: Title: By:_____________________________ Name: Title: SUCCESSOR ADMINISTRATIVE PARIBAS AGENT; DOCUMENTATION AGENT AND LENDER: By:_____________________________ Name: Title: By:_____________________________ Name: Title: CO-SYNDICATION AGENT CHRISTIANIA BANK OG KREDITKASSE ASA, AND LENDER: NEW YORK BRANCH By:_____________________________ Name: Title: By:_____________________________ Name: Title: MANAGING AGENT THE BANK OF NOVA SCOTIA AND LENDER: By:_____________________________ Name: Title: MANAGING AGENT BANK OF TOKYO-MITSUBISHI, LTD. AND LENDER: By:_____________________________ Name: Title: MANAGING AGENT WELLS FARGO BANK (TEXAS), N.A. AND LENDER: By:_____________________________ Name: Title: OTHER LENDERS: BANK AUSTRIA AKTIENGESELLSCHAFT By:_____________________________ Name: Title: By:_____________________________ Name: Title: By:_____________________________ Name: Title: CREDIT AGRICOLE INDOSUEZ By:_____________________________ Name: Title: By:_____________________________ Name: Title: BANK ONE, LOUISIANA, NA, as successor to First National Bank of Commerce By:_____________________________ Name: Title: THE SUMITOMO BANK, LIMITED By:_____________________________ Name: Title: SKANDINAVISKA ENSKILDA BANKEN AB (PUBL) By:_____________________________ Name: Title: By:_____________________________ Name: Title: WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By:_____________________________ Name: Title: By:_____________________________ Name: Title: ABN AMRO BANK N.V. By:_____________________________ Name: Title: By:_____________________________ Name: Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By:_____________________________ Name: Title: DG BANK DEUTSCHE GENOSSENSCHAFTSBANK, CAYMAN ISLAND BRANCH By:_____________________________ Name: Title: By:_____________________________ Name: Title: THE DAI-ICHI KANGYO BANK, LIMITED By:_____________________________ Name: Title: THE FUJI BANK, LIMITED By:_____________________________ Name: Title: KREDIETBANK N.V. By:_____________________________ Name: Title: By:_____________________________ Name: Title: NATEXIS BANQUE By:_____________________________ Name: Title: By:_____________________________ Name: Title: EX-10.229 39 EXHIBIT 10.229 THIRD AMENDMENT TO CREDIT AGREEMENT THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated as of January 19, 1999 is among: R&B FALCON CORPORATION, and the REQUIRED LENDERS under the hereinafter defined Credit Agreement. R E C I T A L S A. The Borrower and the Lenders (as defined in the Credit Agreement hereafter defined) have entered into that certain Credit Agreement dated as of April 24, 1998 (as the same has been heretofore amended, the "Credit Agreement"), pursuant to which the Lenders have agreed to make certain loans and extensions of credit to the Borrower upon the terms and conditions as provided therein; B. The Borrower has requested approval of certain amendments to the Credit Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration and the mutual benefits, covenants and agreements herein expressed, the parties hereto now agree as follows: 1. (a) All capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement. (b) "Cliffs Senior Debt" shall mean the indebtedness of Cliffs Drilling Company under its 10.25% senior notes due 2003 not to exceed $200,000,000 face principal amount outstanding, and any extensions, renewals, replacements and refinancings (but not increases) thereof, provided the maturity is not prior to May 15, 2003. 2. Section 6.01 (f) of the Credit Agreement is amended to read as follows: "(f) Cliffs Senior Debt;" 1. Section 6.01 of the Credit Agreement is amended by adding thereto a clause (i) as follows: "(i) Indebtedness of the Borrower (including renewals, extensions, and replacements thereof), the proceeds of which are used solely to discharge Cliffs Senior Debt; provided (i) such Indebtedness is unsecured and subordinate to the Loans, and (ii) the maturity of such Indebtedness is not prior to one year after the Maturity Date, except for maturities that result in such Indebtedness being converted into or exchanged for Indebtedness that is unsecured and subordinate to the Loans and has a maturity not prior to one year after the Maturity Date. A guaranty by Borrower of Cliffs Senior Debt shall be considered Indebtedness of the Borrower within the meaning of this clause, provided such guaranty obligation is unsecured, subordinate to the Loans, and has a maturity not prior to one year after the Maturity Date." 4. Sections 6.04(b) and (c) of the Credit Agreement are amended to read as follows: "(b) investments by the Borrower or any Subsidiary in the capital stock of its Subsidiaries; provided, neither the Borrower nor any Subsidiary that is not in the Cliffs Group may invest in any member of the Cliffs Group except for the investment to acquire Cliffs pursuant to the Merger and except as otherwise permitted by clause (f) of this Section; (c) loans or advances made by the Borrower to any Subsidiary or made by any Subsidiary to the Borrower or any other Subsidiary; provided, neither the Borrower nor any Subsidiary that is not in the Cliffs Group may make loans or advances to any member of the Cliffs Group except as otherwise permitted by clause (f) of this Section;" 5. Section 6.04 of the Credit Agreement is amended by adding thereto the following clause (f): "(f) loans to Cliffs and investments in Cliffs, provided (i) the aggregate amount thereof does not exceed the aggregate net proceeds received by Borrower and its Subsidiaries after the date hereof from the issuance of (A) capital stock and/or (B) Indebtedness that is subordinate to the Loans, and (ii) all amounts so loaned or invested are used to repay Cliffs Senior Debt." 6. Section 6.06 of the Credit Agreement is amended by adding at the end thereof the following: "and (e) Borrower may pay dividends on preferred stock; provided (i) at the time of the payment of such dividend, no Event of Default shall be existing, (ii) the payment of such dividend would not result in an Event of Default immediately thereupon, and (iii) aggregate cash dividends paid on preferred stock shall not at any time exceed 10% per annum of the price at which the Company sold such preferred stock, computed from the date of sale of such preferred stock." 2. Section 6.07 of the Credit Agreement is amended by adding at the end thereof the following: "and any investments and loans permitted by Section 6.04." 8. Section 6.09 of the Credit Agreement is amended in its entirety to read as follows: "SECTION 6.09 Tangible Net Worth. The Borrower will not permit at any time its Tangible Net Worth to be less than $600,000,000 plus (i) 50% of its cumulative Consolidated Net Income, if positive, for the period from April 1, 1998 through the date of calculation, plus (ii) 100% of any equity issued by the Borrower after the date of this Agreement; provided, for purposes of this Section, the Merger shall be deemed to be the issuance by the Borrower of equity in an amount equal to the increase in the Borrower=s Tangible Net Worth resulting from the Merger." 9. There is added to the Credit Agreement a Section 6.16 as follows: "Section 6.16 Restriction on Certain Debt Payments. The Borrower shall not repay any Indebtedness incurred pursuant to Section 6.01(i) except out of the net proceeds of the issuance by the Borrower of (i) capital stock or (ii) Indebtedness which is subordinate to the Loans and has a maturity which is not prior to one year after the Maturity Date; provided, Borrower may in any event pay accrued interest on such Indebtedness as long as no Event of Default has occurred and is continuing. 10. Schedule 6.01 is amended by adding thereto the following, which was inadvertently omitted when such Exhibit was prepared: "21. Guaranty by R&B dated as of November 28, 1995 in favor of Deep Sea Investors, L.L.C. with respect to the obligations Reading & Bates Drilling Co. under a Memorandum of Agreement and a Charter as of the same date with respect to the semisubmersible drilling unit M. G. Hulme." 11. Schedule 6.02 is amended by adding thereto the following, which was inadvertently omitted when such Exhibit was prepared: "12. Preferred Mortgage on the Jim Cunningham dated November 28, 1995 between Reading & Bates Drilling Co. and Wilmington Trust Company, as Trustee for the benefit of Deep Sea Investors, L.L.C., in connection with item 21 of Schedule 6.01." 12. The parties hereto hereby acknowledge and agree that, except as specifically supplemented and amended, changed or modified hereby, the Credit Agreement shall remain in full force and effect in accordance with its terms. 13. THIS AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF. 14. This Amendment may be executed in two or more counterparts, and it shall not be necessary that the signatures of all parties hereto be contained on any one counterpart hereof; each counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. This amendment shall become effective when executed by the Required Lenders and the Borrower. Within three business days after the effective date of this amendment, Borrower shall pay to each Lender who has executed and returned a counterpart hereof to the Administrative Agent prior to 5:00 p.m. Houston, Texas time on January 22, 1999, a fee equal to 0.15% times such Lender=s Commitment. 15. On the date that this amendment becomes effective, the Facility Fee Rate set forth in the chart contained in the definition of "Applicable Rate" shall be increased by 0.10%. NOTICE. THIS WRITTEN AMENDMENT, THE CREDIT AGREEMENT, AS AMENDED HEREBY AND THE NOTES REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. [SIGNATURES BEGIN NEXT PAGE] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written. R&B FALCON CORPORATION By: /s/ Leighton E. Moss --------------------- Name: Leighton E. Moss Title: Senior Vice President CREDIT SUISSE FIRST BOSTON By: /s/ James P. Moran By: /s/Douglas E. Maher -------------------- ----------------------- Name: James P. Moran Name: Douglas E. Maher Title: Director Title: Vice President PARIBAS By: /s/ Marian Livingston By: /s/ Michael H. Fiuzat ---------------------- ----------------------- Name: Marian Livingston Name: Michael H. Fiuzat Title: Vice President Title: Vice President CHRISTIANIA BANK OG KREDITKASSE ASA, NEW YORK BRANCH By: /s/ Angela Dogancay By: /s/ William S. Phillips --------------------- ------------------------ Name: Angela Dogancay Name: William S. Phillips Title: Vice President Title: First Vice President THE BANK OF NOVA SCOTIA By: /s/ F.C.H. Ashby ---------------------- Name: F.C.H. Ashby Title: Senior Manager Loan Operations BANK OF TOKYO-MITSUBISHI, LTD. By: /s/ Michael G. Meiss ------------------------ Name: Michael G. Meiss Title: VP & Manager WELLS FARGO BANK (TEXAS), N.A. By: /s/ Frank Schagemann ------------------------ Name: Frank Schagemann Title: Vice President BANK AUSTRIA AKTIENGESELLSCHAFT By: /s/ Christine A. Renard By: /s/R. Tentlave ------------------------- ----------------- Name: Christine A. Renard Name: R. Tentlave Title: Vice President Title: Senior Vice President CREDIT AGRICOLE INDOSUEZ By: /s/ Isabelle Billecocq By: /s/Jean-Yves Gueritaud ------------------------- ----------------------- Name: Isabelle Billecocq Name: Jean-Yves Gueritaud Title: Account Manager Title: First Vice President BANK ONE, LOUISIANA, NA, as successor to First National Bank of Commerce By: /s/ J. Charles Freel, Jr. -------------------------- Name: J. Charles Freel, Jr. Title: Senior Vice President THE SUMITOMO BANK, LIMITED By: /s/ William R. McKown, III --------------------------- Name: William R. McKown, III Title: Vice President & Manager SKANDINAVISKA ENSKILDA BANKEN AB (PUBL) By: /s/Jan Sjolte By:_______________________ ----------------- Name: Jan Sjolte Name: Title: Senior Client Executive Title: WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By: /s/ Kenneth R. Crespo By: /s/ Richard R. Newman ----------------------- ------------------------- Name: Kenneth R. Crespo Name: Richard R. Newman Title: Vice President Title: Director ABN AMRO BANK N.V. By: /s/ Stuart Murray By: /s/ Charles W. Randall --------------------- ------------------------- Name: Stuart Murray Name: Charles W. Randall Title: Vice President Title: Senior Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Claire M. Liu ---------------------- Name: Claire M. Liu Title: Managing Director DG BANK DEUTSCHE GENOSSENSCHAFTSBANK, CAYMAN ISLAND BRANCH By: /s/ Mark Connely By: /s/ Wolfgang Bollmann ------------------- ------------------------ Name: Mark Connely Name: Wolfgang Bollmann Title: Vice President Title: Senior Vice President THE DAI-ICHI KANGYO BANK, LIMITED By: /s/ Matthew Murphy --------------------- Name: Matthew Murphy Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ C. Alec Dana ------------------- Name: C. Alec Dana Title: Associate KBC BANK N.V. By: /s/ Marcel Claes By: /s/ Robert Snauffer ------------------- ----------------------- Name: Marcel Claes Name: Robert Snauffer Title: Deputy General Manager Title: First Vice President NATEXIS BANQUE By:_________________________ By:________________________ Name: Name: Title: Title: EX-21 40 EXHIBIT 21 R&B FALCON CORPORATION AND SUBSIDIARIES SCHEDULE OF CONSOLIDATED SUBSIDIARIES OF THE COMPANY AS OF DECEMBER 31, 1998 The following table and text sets forth the subsidiaries of the Company and of such subsidiaries: State or Jurisdiction of Name Incorporation ---- ------------- R&B Falcon Holdings, Inc. Delaware [formerly R&B Falcon Drilling (U.S.), Inc.] R&B Falcon Drilling Delaware (International & Deepwater) Inc. Cliffs Drilling Company Delaware SUBSIDIARIES OWNED BY R&B FALCON HOLDINGS, INC. BSI Drilling & Workover, Inc. Louisiana Caribe USA, Inc. Louisiana Double Eagle Marine, Inc. Louisiana Eilert-Olsen Investments, Inc. Texas Falcon Atlantic Ltd. Cayman Islands Falcon Drilling De Venezuela, Inc. Delaware Falcon Drilling Do Brasil, Ltda. Brazil Falcon Offshore, Inc. Delaware Falcon Services Company, Inc. Delaware (also d/b/a as Falcon Drilling Company) Falgout Brothers, Inc. Louisiana Falgout Marine, Inc. Louisiana G&B Marine Tugs, Inc. Louisiana Knots Marine Inc. Louisiana Perforaciones Falrig De Venezuela C.A. Venezuela Raptor Exploration Co., Inc. Delaware R&B Falcon Drilling (S.E.A.) Pte. Ltd. Singapore R&B Falcon Drilling U.S.A. Inc. Delaware SUBSIDIARIES OWNED BY R&B FALCON DRILLING (INTERNATIONAL & DEEPWATER) INC. Arcade Drilling AS Norway [R&B Falcon Drilling (International & Deepwater) Inc. owns approximately 74.4% of Arcade Drilling AS] R&B Falcon Drilling Co. Oklahoma RBF Holding Corporation Delaware RBF Management Services, Inc. Delaware Reading & Bates Coal Co. Nevada Reading & Bates Development Co. Delaware Reading & Bates Petroleum Co. Texas SUBSIDIARIES OWNED BY CLIFFS DRILLING COMPANY Cliffs Drilling International, Inc. Delaware Cliffs Oil and Gas Company Delaware Cliffs Drilling Venezuela, Inc. Delaware Cliffs Drilling de Venezuela, S.A. Venezuela Cliffs Drilling do Brasil Servicos de Petroleo S/C Ltda. Brazil [Owned 90% by Cliffs Drilling Company and 10% by a third party as nominee for the benefit of Cliffs Drilling Company] Cliffs Drilling Trinidad L.L.C. Delaware Cliffs Drilling (Barbados) Holdings SRL Barbados [Owned 99.99% by Cliffs Drilling Company and .01% by Cliffs Drilling Trinidad L.L.C.] Servicios Integrados Petroleros C.C.I., S.A. [A joint venture among Cliffs Drilling Company (which owns 33 1/3%), Inelectra S.A. and Cementaciones Petroleras Venezolanas C.A.] SUBSIDIARIES OWNED BY R&B FALCON DRILLING CO. Onshore Services, Inc. Texas R&B Falcon Borneo Drilling Co., Ltd. Oklahoma R&B Falcon Deepwater Development Inc. Nevada R&B Falcon Drilling Limited Oklahoma R&B Falcon Exploration Co. Oklahoma R&B Falcon Enterprises Co. Texas R&B Falcon, Inc. Oklahoma R&B Falcon International Energy Services B.V. Netherlands R&B Falcon (Ireland) Limited Ireland R&B Falcon Offshore, Limited Oklahoma R&B Falcon (U.K.) Limited England RBF Deepwater Exploration Inc. Nevada RBF Deepwater Exploration II Inc. Nevada RBF Deepwater Exploration III Inc. Nevada RBF Drilling Co. Oklahoma RBF Drilling Services, Inc. Oklahoma RBF Exploration Co. Nevada RBF Offshore, Inc. Nevada RBF Rig Corporation Oklahoma Rig Logistics, Inc. Nevada R&B Falcon Drilling Co. and R&B Falcon Enterprises Co. together own 100% of Reading & Bates-Demaga Perfuracoes Ltda., a civil society with shares of limited responsibility organized under the laws of the Federative Republic of Brazil SUBSIDIARIES OWNED BY READING & BATES DEVELOPMENT CO. RB Gabon Inc. Oklahoma RB International Ltd. Cayman Islands RB Mediterranean Ltd. Cayman Islands Total Offshore Production Systems Texas Reading & Bates Development owns 75% of Total Offshore Production Systems, a joint venture organized under the laws of the State of Texas SUBSIDIARIES OWNED BY READING & BATES COAL CO. Appalachian Permit Co. Kentucky Bismarck Coal Inc. Kentucky Caymen Coal Inc. West Virginia SUBSIDIARIES OWNED BY RBF HOLDING CORPORATION RBF Subsidiary Corporation Delaware SUBSIDIARIES OWNED BY R&B FALCON BORNEO DRILLING CO., LTD. R&B Falcon Borneo Drilling Co., Ltd. owns 49.99% of R&B Falcon (M) Sdn. Berhad, incorporated in Malaysia SUBSIDIARIES OWNED BY R&B FALCON ENTERPRISES CO. Shore Services, Inc. Texas R&B Falcon Drilling Co. and R&B Falcon Enterprises Co. together own 100% of Reading & Bates-Demaga Perfuracoes Ltda., a civil society with shares of limited responsibility organized under the laws of the Federative Republic of Brazil SUBSIDIARIES OWNED BY R&B FALCON EXPLORATION CO. R&B Falcon (A) Pty Ltd Australia SUBSIDIARIES OWNED BY R&B FALCON INTERNATIONAL ENERGY SERVICES B.V. R&B Falcon B.V. Netherlands SUBSIDIARIES OWNED BY R&B FALCON (U.K.) LIMITED R&B Falcon (Caledonia) Limited England SUBSIDIARY OWNED BY RBF DEEPWATER EXPLORATION INC. RBF Deepwater Exploration Inc. owns 50% of Deepwater Drilling L.L.C., a limited liability company organized under the laws of the State of Delaware SUBSIDIARY OWNED BY RBF DEEPWATER EXPLORATION II INC. RBF Deepwater Exploration II Inc. owns 60% of Deepwater Drilling L.L.C., a limited liability company organized under the laws of the State of Delaware SUBSIDIARIES OWNED BY RBF DRILLING SERVICES, INC. RBF Drilling Services, Inc. owns 60% of NRB Drilling Services Limited incorporated in Nigeria RBF Drilling Services, Inc. and Onshore Services, Inc. together own 100% of RBF (Nigeria) Limited, a company limited by shares and organized under the laws of the Federal Republic of Nigeria SUBSIDIARIES OWNED BY BISMARCK COAL INC. Certicoals, Inc. West Virginia SUBSIDIARIES OWNED BY RB INTERNATIONAL LTD. RB Anton Ltd. Cayman Islands RB Astrid Ltd. Cayman Islands SUBSIDIARIES OWNED BY CLIFFS DRILLING INTERNATIONAL, INC. Cliffs Drilling de Mexico, S.A. de C.V. Mexico Cliffs Central Drilling International [A joint venture among Cliffs Drilling International, Inc. (which owns 50%) and Perfordora Central, S.A. de C.V.] Cliffs Neddrill Central Turnkey International [A joint venture among Cliffs Drilling International, Inc. (which owns 33 1/3%), Neddrill Turnkey Drilling B.V. and Perforadora Central, S.A. de C.V.] SUBSIDIARIES OWNED BY CLIFFS DRILLING (BARBADOS) HOLDINGS SRL Cliffs Drilling (Barbados) SRL Barbados [Owned 99.99% by Cliffs Drilling (Barbados)Holdings SRL and .01% by Cliffs Drilling Trinidad L.L.C.] SUBSIDIARIES OWNED BY CLIFFS DRILLING (BARBADOS) SRL Cliffs Drilling Trinidad Offshore Limited Trinidad EX-23 41 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated March 26, 1999 included in Registration Statement File Nos. 333-43475, 333-56821, 333- 63471, 333-67755, 333-67757 and 333-68101. It should be noted that we have not audited any financial statements of the Company subsequent to December 31, 1998 or performed any audit procedures subsequent to the date of our report. /s/Arthur Andersen LLP Houston, Texas March 30, 1999 EX-27 42
5 This schedule contains summary financial information extracted from the financial statements of R&B Falcon Corporation as restated to reflect the recontinuance of the oil and gas operations for the three years ended December 31, 1998 and is qualified in its entirety by reference to such financial statements. 1,000,000 YEAR YEAR YEAR DEC-31-1998 DEC-31-1997 DEC-31-1996 JAN-01-1998 JAN-01-1997 JAN-01-1996 DEC-31-1998 DEC-31-1997 DEC-31-1996 177 101 144 0 0 0 271 197 147 12 7 3 36 15 13 527 321 307 3,550 2,009 1,427 519 426 355 3,709 1,933 1,456 352 336 111 1,697 0 0 0 0 0 0 0 0 2 2 2 1,248 726 715 3,709 1,933 1,456 0 0 0 1,033 933 610 0 0 0 817 773 431 0 0 0 0 0 0 64 42 41 161 124 140 59 85 27 91 30 106 36 (36) 0 (24) 0 0 0 0 0 103 (6) 103 .61 (.04) .70 .61 (.04) .67
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