-----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, HeN3yH5Zrr9Z+/lumAAzVcnlBKFUpeKskAxpa94KhsThn3GFv6OulW+VEIiZpSaf jgzB4ew7BTwZujwCFSq0KQ== 0000950129-97-001330.txt : 19970329 0000950129-97-001330.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950129-97-001330 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOBLE DRILLING CORP CENTRAL INDEX KEY: 0000777201 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 730374541 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-11669 FILM NUMBER: 97567486 BUSINESS ADDRESS: STREET 1: 10370 RICHMOND AVE STE 400 CITY: HOUSTON STATE: TX ZIP: 77042 BUSINESS PHONE: 7139743131 MAIL ADDRESS: STREET 1: 10370 RICHMOND AVE STREET 2: STE 400 CITY: HOUSTON STATE: TX ZIP: 77042 10-K405 1 NOBLE DRILLING CORPORATION - 12/31/96 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [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, 1996 [ ] 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 number: 0-13857 NOBLE DRILLING CORPORATION ---------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 73-0374541 - ----------------------------------- -------------------------------------- (State of incorporation) (I.R.S. employer identification number) 10370 Richmond Avenue, Suite 400, Houston, Texas 77042 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 974-3131 - ------------------------------------------------------------------------------- Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.10 per share New York Stock Exchange 9 1/8% Senior Notes due 2006 New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange - -------------------------------------- ----------------------------------------- Title of each class Name of each exchange on which registered 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. [X] Aggregate market value of Common Stock held by nonaffiliates as of March 12, 1997: $2,365,000,000 Number of shares of Common Stock outstanding as of March 12, 1997: 132,313,617 DOCUMENTS INCORPORATED BY REFERENCE Listed below are documents parts of which are incorporated herein by reference and the part of this report into which the document is incorporated: (1) Proxy statement for the 1997 annual meeting of stockholders - Part III 2 TABLE OF CONTENTS
PAGE ---- ====================================================================================================================== PART ITEM 1. BUSINESS.......................................................................................1 I General........................................................................................1 Business Strategy..............................................................................1 Recent Development.............................................................................1 Development Of Business During 1996............................................................1 Neddrill Acquisition......................................................................1 1996 Rig Acquisitions.....................................................................2 Modifications and Upgrades................................................................2 Redeployments.............................................................................2 Asset Rationalization Program.............................................................2 EVA-4000 Letter of Intent.................................................................3 Drilling Contracts.............................................................................3 Offshore Drilling Operations...................................................................4 International Contract Drilling...........................................................4 Domestic Contract Drilling................................................................4 Labor Contracts...........................................................................5 Turnkey Drilling and Engineering Services......................................................5 Competition and Risks..........................................................................5 Governmental Regulation and Environmental Matters..............................................7 Employees......................................................................................7 Financial Information About Foreign and Domestic Operations....................................7 ITEM 2. PROPERTIES.....................................................................................8 Drilling Fleet.................................................................................8 Jackup Rigs...............................................................................8 Submersible Rigs..........................................................................8 Drillships................................................................................8 Semisubmersible Rigs......................................................................9 Drilling Fleet................................................................................10 Facilities....................................................................................12 ITEM 3. LEGAL PROCEEDINGS.............................................................................12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................................12 EXECUTIVE OFFICERS OF THE REGISTRANT..................................................................12 ====================================================================================================================== PART ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED II STOCKHOLDER MATTERS...........................................................................13 ITEM 6. SELECTED FINANCIAL DATA.......................................................................14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................................................15 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................................23 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...........................................................48 ====================================================================================================================== PART ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................48 III ITEM 11 EXECUTIVE COMPENSATION........................................................................48 ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................................................... 48 ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................48 ====================================================================================================================== PART ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON IV FORM 8-K..................................................................................... 48 SIGNATURES........................................................................................... 49
(i) 3 PART I ITEM 1. BUSINESS GENERAL Noble Drilling Corporation is a leading provider of diversified services for the oil and gas industry worldwide. The Company's activities include offshore drilling services, turnkey drilling services and engineering and production management services. The Company's drilling fleet is broadly diversified, allowing it to work in a variety of operating conditions. Noble Drilling Corporation ("Noble Drilling") was organized as a Delaware corporation in 1939. Noble Drilling and its predecessors have been engaged in the contract drilling of oil and gas wells for others domestically since 1921 and internationally during various periods since 1939. As used herein, unless otherwise required by the context, the term "Noble Drilling" refers to Noble Drilling Corporation and the term "Company" refers to Noble Drilling and its consolidated subsidiaries. BUSINESS STRATEGY The Company's business strategy has been to actively expand its international and offshore capabilities through acquisitions, rig upgrades and modifications, and by redeploying assets in important geological areas. In recent years the Company has included within its strategic objectives a focus on increasing the number of rigs in its fleet capable of drilling in deeper water depths. The offshore contract drilling industry has, in recent years, experienced a series of asset sales and consolidations among drilling contractors, and the Company expects this trend to continue as drilling contractors position themselves strategically in the market. The Company, from time to time, has discussions with third parties regarding asset acquisitions or business combinations and intends to continue to consider business opportunities that it believes promote this business strategy. RECENT DEVELOPMENT On February 19, 1997, the Company signed a definitive agreement to sell 12 mat supported jackup rigs to Pride Petroleum Services, Inc. ("Pride"). The sale will also include the hull of one former mat supported jackup rig (Linn Richardson) which has had all drilling machinery and equipment removed. The sales price is $265,000,000 in cash. The closing of the transaction, which is subject to receipt of financing by Pride, satisfaction of Hart-Scott-Rodino Antitrust Improvements Act governmental clearance and routine closing conditions, is scheduled to occur on June 3, 1997. Pride has deposited $20,000,000 of the purchase price into an escrow account which is payable to the Company in the event Pride does not obtain its financing or is unable to complete the acquisition by June 30, 1997. DEVELOPMENT OF BUSINESS DURING 1996 NEDDRILL ACQUISITION On July 1, 1996, the Company completed the acquisition from Royal Nedlloyd N.V. ("Nedlloyd") and its wholly owned subsidiary, Neddrill Holding B.V., of the assets, including approximately $28,000,000 in net working capital, of Nedlloyd's offshore drilling division, Neddrill ("Neddrill"). The purchase price was $300,000,000 in cash plus 5,000,000 shares of Noble Drilling common stock. The cash portion of the purchase price was financed by the Company's issuance and sale of 21,850,000 shares of its common stock and $125,000,000 principal amount of 9 1/8% Senior Notes due 2006. The Neddrill acquisition promoted the Company's strategic goals of expanding its international presence and enhancing its deepwater drilling capabilities. The Neddrill acquisition added deepwater and harsh environment capabilities to the Company's fleet, diversified the fleet to include drillships and a semisubmersible rig and increased the Company's geographic diversification by providing entry into the Brazilian offshore market and expanding its presence in the North Sea. See "Item 2. Properties - Drilling Fleet" for additional information on the Neddrill fleet. Neddrill's operations are managed from its headquarters in Rotterdam, The Netherlands. Neddrill maintains shorebase facilities in Brazil, Denmark, the United Kingdom and The Netherlands. At December 31, 1996, Neddrill had approximately 730 personnel in offshore/field positions and 55 personnel in administrative positions. 1 4 1996 RIG ACQUISITIONS The Company purchased the Shelf 4, a Friede & Goldman 9500 Enhanced Pacesetter semisubmersible rig, on December 30, 1996 for $6,000,000 in cash. The rig is stacked in the United Kingdom, and substantial capital expenditures are required to return the rig to operational status. On December 24, 1996, the Company purchased the Noble Jimmy Puckett (formerly the Essar Explorer), a 300-foot Friede & Goldman L-780 Mod II independent leg cantilevered unit built in 1982, for $35,400,000 in cash. The Company chartered the rig back to the seller for the duration of the seller's current contract with the Oil and Natural Gas Corporation Ltd. of India, which expires in October 1997. On September 4, 1996, the Company purchased the Noble Kenneth Delaney (formerly the Miss Kitty), a Friede & Goldman L-780 Mod II independent leg cantilevered unit rated for a water depth of 300 feet, for $26,250,000 in cash. The rig is currently working offshore India under a bareboat charter arrangement that expires in September 1997. The Company purchased the Noble Chuck Syring (formerly the Dana), a Marathon LeTourneau 82-C independent leg cantilevered rig capable of drilling in 250 feet of water, on March 20, 1996, for $15,800,000 in cash. The rig is currently operating under a long-term contract through October 1999 for Qatar General Petroleum Corporation in Qatar. On February 26, 1996, the Company purchased the Gus Androes (formerly the Odin Explorer), a Levingston 111-C independent leg cantilevered unit rated for a water depth of 300 feet, for $15,300,000 in cash. The rig has been refurbished and is under contract offshore Qatar with an international oil and gas company through October 1997, plus two one-year options. MODIFICATIONS AND UPGRADES The Company has pursued an extensive rig modification, refurbishment and upgrade program in recent years which continues to date. The Gene Rosser, Roy Butler, Noble Chuck Syring and Gus Androes rigs were upgraded in 1996. The Gene Rosser was converted to a cantilevered rig with a top drive drilling system and cascading mud system. The Roy Butler's legs were extended to increase its water depth capability from 125 to 250 feet. The Noble Chuck Syring received an enhanced strengthened cantilever, a top drive drilling system, new solids control equipment, an enlarged mud system, a jacking system overhaul and refurbished crew quarters. The Gus Androes received an extended cantilever and was equipped with a top drive drilling system. The total cost of these projects was approximately $32,600,000. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources" for a discussion of capital expenditures. REDEPLOYMENTS From time to time, the Company has strategically redeployed certain drilling units in its fleet, primarily from the Gulf of Mexico to other drilling markets worldwide, in order to position assets in important geological areas. During 1996, the Company transferred one jackup rig from the U.S. Gulf of Mexico to the Bay of Campeche and one drillship from West Africa to Brazil. Additionally, the Company is currently deploying the Neddrill Muravlenko to Brazil. The Neddrill Trigon was recently redeployed from Argentina to the North Sea. ASSET RATIONALIZATION PROGRAM Consistent with the Company's focus on enhancing the deepwater capability of its fleet, the Company sold its four posted barge rigs in 1996. On December 13, 1996, the Company completed the sale of its land drilling assets for $60,000,000 in cash to Nabors Industries, Inc. The assets sold consisted principally of (i) 19 marketed land drilling rigs and 28 mothballed land drilling rigs, (ii) certain inventory related to the maintenance and operation of the rigs, (iii) leasehold interests and real property interests related to the maintenance and operation of the rigs and (iv) drilling contracts in existence on the closing date for the employment of the rigs. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Significant 1996 Events." 2 5 EVA-4000 LETTER OF INTENT In December 1996, the Company announced that it had entered into a letter of intent with Shell Deepwater Development Inc. ("SDDI"), an affiliate of Shell Oil Company, for a drilling contract for a Noble Drilling designed Economic Value Advantage ("EVA-4000") semisubmersible unit. The semisubmersible rig for SDDI, the Paul Romano, will be Noble Drilling's initial conversion project since the Company's announcement that it had conducted, over an 11-month period, engineering feasibility studies regarding conversion of a submersible drilling unit into a deepwater semisubmersible drilling unit. The conversion will result in a rig designed for and capable of performing drilling operations in water depths of up to 6,000 feet. The initial term of the drilling contract will be four years, with an option to SDDI to extend the contract for a fifth year at predetermined dayrates. The Company anticipates that delivery of the EVA-4000 semisubmersible rig to SDDI will occur late in the first quarter of 1998. The letter of intent is subject to the execution of a mutually agreed upon Marine Drilling Order (drilling contract). The Company expects the conversion to cost approximately $90,000,000 to $100,000,000. DRILLING CONTRACTS Each of the Company's drilling units is employed under an individual contract. Although the final terms of such contracts are the result of negotiations between the Company and its customers, many contracts are awarded based upon competitive bidding. The Company's drilling contracts generally contain the following terms: o a term extending over a specific period of time or the period necessary to drill one or more wells (in general, the Company seeks to have a reasonable balance of short- and long-term contracts to minimize the downside impact of a decline in the market, while obtaining the benefit of increasing market prices in a rising market); o early termination by the customer without cause and extension options to drill additional wells, in each case, generally exercisable by the customer upon advance notice to the Company; o early termination by the customer if the unit is lost or destroyed, if operations are suspended for a specified period of time due to breakdown of major equipment or if operations are suspended for a specified period of time due to "force majeure" events beyond the control of the Company and the customer; o payment of compensation to the Company (generally in U.S. dollars) on a "daywork" basis, under which the Company receives a fixed amount per day that the drilling unit is operating under contract, with lower rates or no compensation payable during periods of equipment breakdown and repair, adverse weather or in the event operations are interrupted by other conditions, some of which may be beyond the Company's control; and o payment by the Company of the operating expenses of the drilling unit, including labor costs and the cost of incidental supplies. Most contracts allow the Company to recover its mobilization and demobilization costs associated with moving a drilling unit from one location to another. If market conditions required the Company to bear these costs, the Company's operating margins would be reduced. Market conditions prevailing in 1996 and year to date in 1997 have permitted the Company to recover its mobilization and demobilization costs to move a unit long distances between operating areas. For shorter moves such as "field moves", the Company's customers have generally agreed to pay or reimburse the Company for the costs of moving the unit and pay to the Company a reduced dayrate or "move rate" while the unit is being moved. The Company, through Triton Engineering Services Company and its subsidiaries, also participates in "turnkey" contracts (see "Item 1. Business - Turnkey Drilling and Engineering Services"). The risk of loss to the Company is generally higher with respect to the Company's turnkey drilling operations than it is for daywork contract drilling operations. 3 6 OFFSHORE DRILLING OPERATIONS The Company's offshore contract drilling operations are conducted worldwide. The Company's offshore drilling fleet consisted of 57 units at January 31, 1997. See "Item 2. Properties - Drilling Fleet." The Company's principal regions of offshore contract drilling operations include the North Sea, the Gulf of Mexico, Africa, South America, the Middle East and India. In 1996 there were no customers who accounted for more than 10 percent of the Company's total operating revenues. INTERNATIONAL CONTRACT DRILLING The Company's international offshore contract drilling operations are conducted in the North Sea, Mexico, Africa, South America, the Middle East and India. Offshore contract drilling services from international sources accounted for approximately 62 percent and 55 percent of the Company's total offshore contract drilling services revenues for the years ended December 31, 1996 and 1995, respectively. In 1996, approximately 62 percent of the Company's international offshore contract drilling services revenues was derived from contracts with major oil and gas companies, 35 percent from contracts with government-owned companies and the balance from contracts with independent operators. The Company's international contract drilling fleet consisted of 30 rigs at January 31, 1997, of which 26 were working under contract, three were being upgraded, modified and/or refurbished and one was being held pending evaluation of the economics of re-entering the market. Substantial capital expenditures would be required to return the latter rig to operational status. The Company has seven jackup rigs located along the west coast of Africa. Six of the jackup rigs are under contracts extending through dates ranging from March 1997 to December 1998, with major oil companies. The seventh jackup rig (which is under contract to be sold (see "Item 1. Business - Recent Development")) is under a short-term turnkey contract to complete two wells, with an option for one further well. The Company has four jackup rigs located in Venezuela. One of these rigs is under a long-term contract terminating in the year 2000, and contracts for the other three rigs are expected to be renewed for periods of 12 months or longer when they expire in the second half of 1997. The Company has three jackup rigs located in Qatar under contracts extending through dates ranging from October 1997 to October 1999. The Company has three jackup rigs working in India. Two of these rigs are under bareboat charter agreements that expire in October 1997. The third rig is under contract until September 1997. Neddrill's one semisubmersible and six of its jackup rigs are currently under contract, with commitments extending through dates ranging from April 1997 to 2001, depending on the rig. One of its jackup rigs is currently being upgraded, modified and/or refurbished. Neddrill's three drillships are committed under five to six year contracts to work for Petroleo Brasileiro S.A. (Petrobras), offshore Brazil. One of the two drillships currently on location in Brazil recently completed an upgrade. The third drillship, in the course of its mobilization to Brazil, has entered a U.S. Gulf of Mexico shipyard for additional repair and upgrade. It is scheduled to arrive offshore Brazil in April 1997. DOMESTIC CONTRACT DRILLING The Company's domestic offshore contract drilling fleet consisted of 27 rigs at January 31, 1997, of which 17 were working under contract, six were being upgraded, modified and/or refurbished and four were being held in various stages of readiness to enter the marketplace. The Company continually evaluates the economics of re-entering the market with these rigs and expects to do so when conditions warrant. In 1996, approximately 66 percent of the Company's domestic offshore contract drilling revenues was derived from contracts with major oil and gas companies and the remaining 34 percent was derived from contracts with independent operators. 4 7 LABOR CONTRACTS The Company's offshore operations also include labor contracts for drilling and workover activities covering 14 rigs operating in the U.K. North Sea. These rigs are not owned or leased by the Company. Under its labor contracts, the Company provides the personnel necessary to manage and perform the drilling operations from drilling platforms owned by the operator. The contracts are generally renewable no more frequently than on an annual basis. After drilling operations are completed, workover operations usually become an important element of each platform's activity. Thus, drilling contractor crews usually remain on the platform until a field is depleted by production. The Company was awarded a contract in 1994 by Hibernia Management and Development Company Ltd. ("Hibernia") for offshore production drilling and related services. The contract calls for the Company to commission, operate and maintain two state-of-the-art platform rigs to be installed on the concrete gravity-based structure that will be used to develop the Hibernia field off the coast of Newfoundland, Canada. The Company established an office in St. Johns, Newfoundland in late 1994. There are 75 employees in St. Johns who are presently participating in the preparation of operating, equipment maintenance and procedures manuals, and the procurement of equipment. Commissioning of the drilling and related equipment occurred in May 1996 through November 1996. The gravity-based structure is scheduled for tow out to location in May 1997, with commencement of the first well scheduled to occur in early September 1997. The Company's five-year contract with Hibernia extends through August 2002 with an option to Hibernia for a five-year extension. It is anticipated that the Company will have approximately 120 employees assigned to this project at its peak in 1997. TURNKEY DRILLING AND ENGINEERING SERVICES Through its wholly owned subsidiary, Triton Engineering Services Company ("Triton"), the Company provides turnkey drilling, drilling project management, drilling and completion planning and design, specialized drilling tools and services, and contract engineering and consulting manpower. Turnkey drilling, Triton's major service, involves the coordination of all equipment, materials, services and management to drill a well to a specified depth, for a fixed price. Under turnkey drilling contracts, Triton bears the financial risk of delays in the completion of the well. In providing its services, Triton can use drilling rigs owned either by the Company or by a third party, depending on availability. The drilling of a turnkey well is generally completed within 30 to 50 days. Triton completed 28 wells in 1996 compared to 27 wells in 1995. Revenues from turnkey drilling services represented 22 percent of consolidated operating revenues in each of the years ended December 31, 1996 and 1995. The Company provides engineering services relating primarily to the design of drilling equipment for offshore development and production services and to the recertification of oilfield equipment. The Company works, on a contract basis, with operators and prime construction contractors of drilling and production platforms in the design of drilling equipment configurations aimed at optimizing the operational efficiency of developmental drilling by maximizing platform space utilization and load capability. COMPETITION AND RISKS The contract drilling industry is a highly competitive and cyclical business characterized by high capital and maintenance costs. Various independent drilling contractors in recent years have sought protection from creditors under bankruptcy laws or have combined with other companies as a result of the depressed conditions then existing in the contract drilling industry. Although this has reduced the total number of competitors, management of the Company believes that competition for drilling contracts will continue to be intense for the foreseeable future. It is impracticable to estimate the number of competitors of the Company. Certain competitors may have access to greater financial resources than the Company. Competition in contract drilling involves numerous factors, including price, the experience of the workforce, rig availability and suitability, efficiency, condition of equipment, operating integrity, reputation, industry standing and customer relations. Price is the major consideration in most markets, especially with respect to domestic drilling. The Company believes it competes favorably with respect to all these factors. Competition is primarily on a regional basis and may vary significantly by region at a particular time. Demand for offshore drilling equipment is also dependent on the exploration and development programs of oil and gas producers, which are in turn influenced by the financial condition of such producers, by general economic conditions and prices of oil and gas, and, from time to time, by political considerations and policies. 5 8 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, such as drill pipe, have occurred from time to time in the past, and such shortages could occur again. The offshore contract drilling industry has experienced a series of consolidations and acquisitions among drilling contractors as such contractors have positioned themselves strategically in the market. The Company, from time to time, has discussions with third parties regarding asset acquisitions or business combinations and intends to continue to consider business opportunities that it believes promote its business strategy. The Company's operations are materially dependent upon the levels of activity in offshore world oil and U.S. natural gas exploration, development and production. Such activity levels are affected by both short-term and long-term trends in oil and natural gas prices. In recent years, oil and natural gas prices, the expenditures by oil and gas companies for exploration and production, and the availability of drilling rigs, and therefore the level of offshore drilling and exploration activity, have been extremely volatile. For a number of years, depressed oil and natural gas prices and an oversupply of rigs have adversely affected the offshore drilling market, particularly in the Gulf of Mexico, where the prolonged weakness and uncertainty in the demand for and price of natural gas resulted in a significant decline in exploration and production activities. Demand for drilling services outside the United States, excluding the North Sea, has been less volatile in recent years, but remains dependent on a variety of political and economic factors beyond the Company's control, including worldwide demand for oil and natural gas, the ability of the Organization of Petroleum Exporting Countries ("OPEC") to set and maintain production levels and pricing, the level of production of non-OPEC countries and the policies of the various governments regarding exploration and development of their oil and natural gas reserves. If the domestic price of natural gas decreases, the Company's dayrates on new contracts and utilization rates in the U.S. Gulf of Mexico ("U.S. Gulf") could be adversely affected. Similarly, if the price of natural gas decreases in the North Sea market, the Company's dayrates there could be adversely affected. The Company can predict neither the future level of demand for its drilling services nor the future conditions in the offshore contract drilling industry. The Company's operations are subject to the many hazards inherent in the drilling business, including blowouts, cratering, fires, and collisions or groundings of offshore equipment, which could cause substantial damage to the environment. In addition, the Company's operations are subject to damage or loss from adverse weather and seas. These hazards could cause personal injury and loss of life, suspend drilling operations or seriously damage or destroy the property and equipment involved and, in addition to environmental damage, could cause substantial damage to producing formations and surrounding areas. Although the Company maintains insurance against many of these hazards, such insurance is subject to substantial deductibles and provides for premium adjustments based on claims. It also excludes certain matters from coverage, such as loss of earnings on certain rigs. Also, while the Company generally obtains indemnification from its customers for environmental damage with respect to offshore drilling, such indemnification is generally only in excess of a specified amount, which typically ranges from $100,000 to $250,000. In the case of turnkey drilling operations, the Company maintains insurance against pollution and environmental damage in amounts ranging from $5,000,000 to $50,000,000 depending on location, subject to self-insured retentions of $25,000 to $1,000,000. Under turnkey drilling contracts, Triton generally assumes the risk of pollution and environmental damage, but on occasion receives indemnification from the customer for environmental and pollution liabilities in excess of Triton's pollution insurance coverage. Further, Triton is not insured against certain drilling risks that could result in delays or nonperformance of a turnkey drilling contract, although it generally maintains insurance against delays related to loss of well control. Triton typically obtains contractual indemnification from the drilling contractors that provide the rigs for Triton's turnkey drilling operations for pollution arising from certain acts of such contractors. The Company's international operations are also subject to certain political, economic and other uncertainties including, among others, risks of war and civil disturbances, expropriation, nationalization, renegotiation or modification of existing contracts, taxation policies, foreign exchange restrictions, international monetary fluctuations and other hazards arising out of foreign governmental sovereignty over certain areas in which the Company conducts operations. The Company has sought to obtain, where economic, insurance against certain political risks. However, there can be no assurance that such insurance would be available to the Company or, if available, would cover all losses that the Company may incur in respect of foreign operations. 6 9 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 governmental regulations that may relate directly or indirectly to the contract drilling industry. The regulations applicable to the Company's operations include certain provisions that regulate the discharge of materials into the environment or require remediation of contamination, under certain circumstances. Usually these environmental laws and regulations impose "strict liability," rendering a person liable without regard to negligence or fault on the part of such person. Such environmental 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 U.S. Oil Pollution Act of 1990 ("OPA `90") and the regulations promulgated pursuant thereto impose certain additional operational requirements on the Company's domestic offshore rigs and govern liability for leaks, spills and blowouts. Regulations under OPA `90 may increase the level of financial assurance required of owners and operators of rigs in the waters of the United States. The Company has monitored these regulations and does not believe that they are likely to have a material adverse effect on the Company's financial condition or results of operations. The Company has made and will continue to make expenditures to comply with environmental requirements. The Company has not to date expended material amounts in connection with such activities and does not believe that compliance with such requirements will have a material adverse effect upon its capital expenditures, results of operations or competitive position. Although such requirements do have a substantial impact upon the energy and energy services industries, generally they do not appear to affect the Company any differently or to any greater or lesser extent than other companies in the energy services industry. The modification of existing laws or regulations or the adoption of new laws or regulations curtailing exploratory or development drilling for oil and gas for economic, environmental or other reasons could materially and adversely affect the Company's operations by limiting drilling opportunities. EMPLOYEES At December 31, 1996, the Company had approximately 3,173 employees, of which 58 percent were engaged in international operations and 42 percent were engaged in domestic operations. Over many years, the Company has developed and maintained a well-trained and experienced workforce. Depending on location, some employees of Neddrill are covered by a labor agreement or are represented by labor unions. The Company is not a party to any collective bargaining agreements that are material to the Company. The Company considers its employee relations to be satisfactory. Shortages of supplies and equipment in the drilling industry, and of qualified personnel for rig crews, have occurred from time to time in the past. A continued increase in demand for oilfield services could make it more difficult to retain and recruit qualified rig crew members without significant increases in compensation. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS Information regarding operating revenues, operating income and loss, and identifiable assets attributable to each of the Company's geographic areas of operations for the last three fiscal years is presented in Note 14 of Notes to Consolidated Financial Statements included elsewhere herein. 7 10 ITEM 2. PROPERTIES DRILLING FLEET The Company's offshore drilling rig fleet at January 31, 1997 consisted of 57 units comprising 44 jackup rigs, seven submersible rigs, three semisubmersible rigs (including one submersible that is currently undergoing conversion to an EVA-4000 semisubmersible unit) and three dynamically positioned drillships. The rig counts include one drillship in which the Company has a 41 percent interest through a joint venture arrangement, one jackup rig owned by a limited partnership of which Noble Drilling is the general partner and one jackup rig over which the Company has operating control under a long-term bareboat charter from the owner. Each type of rig is described further below. There are several factors that determine the type of rig most suitable for a particular job, the more significant of which include the water depth and bottom conditions at the proposed drilling location, whether the drilling is being done over a platform or other structure, and the intended well depth. The Company recently agreed to sell its 12 mat supported jackup rigs (see "Item 1. Business - Recent Development"). Twenty-eight of the Company's 57 rigs have a top drive unit, which is a technologically-advanced drilling tool used in many drilling applications both offshore and on land. In addition, 14 of the Company's 57 rigs are equipped with zero discharge capability. JACKUP RIGS The Company had 44 jackup rigs in the fleet at January 31, 1997. Jackup 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. The rig hull includes the drilling rig, jacking system, crew quarters, loading and unloading facilities, storage areas for bulk and liquid materials, a helicopter landing deck and other related equipment. The rig legs may operate independently or have a mat attached to the bottom of them in order to provide a more stable foundation in soft bottom areas. Thirty-two of the Company's jackup rigs are independent leg rigs and 12 are mat supported rigs. Moving a rig to the drill site involves jacking up its legs until the hull is floating on the surface of the water. The hull is then towed to the drill site by tugs and the legs are jacked down to the ocean floor. The jacking operation continues until the hull is raised out of the water and drilling operations are conducted with the hull in its raised position. A cantilevered jackup has a feature that permits the drilling platform to be extended out from the hull, allowing it to perform drilling or workover operations over pre-existing platforms or structures. The Company's jackup rigs are capable of drilling to a maximum depth of 25,000 feet in water depths ranging between 8 and 390 feet, depending on the jackup rig. SUBMERSIBLE RIGS The Company had seven submersibles in the fleet at January 31, 1997. Submersible rigs are mobile drilling platforms which are towed to the drill site and submerged to drilling position by flooding the lower hull until it rests on the sea floor, with the upper deck above the water surface. The Company's submersible rigs are capable of drilling to a maximum depth of 30,000 feet in water depths ranging between 12 and 100 feet, depending on the submersible rig. The Company believes that four of these seven submersibles are candidates for conversion to a Noble Drilling EVA-4000 semisubmersible rig. See "Item 1. Business - Development of Business During 1996 - EVA-4000 Letter of Intent" and "Item 2. Properties - Drilling Fleet - Semisubmersible Rigs." DRILLSHIPS The Company had three drillships in the fleet at January 31, 1997, including one drillship in which the Company owns a 41 percent interest through a joint venture arrangement. Drillships are ships that are equipped for drilling and are typically self-propelled and move from one location to another under their own power. Drillships are positioned over the well through use of either an anchoring system or a computer controlled thruster system (dynamic positioning). The Company's two wholly owned drillships, the Neddrill 1 and Neddrill 2, are capable of drilling in water depths of up to 4,500 feet and 6,000 feet, respectively. The Neddrill Muravlenko is capable of drilling in water depths of up to 4,000 feet. Drillships are typically more expensive to construct and operate than jackup rigs. 8 11 SEMISUBMERSIBLE RIGS The Company had three semisubmersible rigs (including a submersible that is currently undergoing conversion to an EVA-4000 semisubmersible unit) in the fleet at January 31, 1997. Semisubmersible rigs are floating platforms which, by means of a water ballasting system, can be submerged to a predetermined depth so that a substantial portion of the hull is below the water surface during drilling operations. The Neddrill 6 maintains its position over the well through the use of a mooring system, is designed to work in water depths of up to 1,500 feet and can drill in many areas where the Company's jackup rigs can also drill. However, semisubmersible rigs normally require water depth of at least 200 feet in order to conduct operations. Semisubmersible rigs are typically more expensive to construct and operate than jackup rigs. The following table sets forth certain information concerning the Company's drilling rig fleet, including the 12 mat supported jackup rigs which the Company has agreed to sell, at January 31, 1997. The table does not include 14 rigs owned by operators for which the Company had labor contracts as of January 31, 1997. Unless otherwise indicated, the Company owns and operates the rigs included in the table. 9 12 DRILLING FLEET
YEAR WATER MAXIMUM BUILT OR DEPTH DRILLING NAME MAKE TYPE (1) REBUILT (2) RATING DEPTH LOCATION STATUS (3) ---- ---- -------- ----------- ------ ----- -------- ---------- (FEET) (FEET) JACKUP RIGS - 44 Eddie Paul (4) MLT 84 - E.R.C. IC 1995 R 390 25,000 U.S. Gulf Active Noble Bill Jennings (4) MLT 84 - E.R.C. IC 1997 R 390 25,000 U.S. Gulf Shipyard Noble Leonard Jones (4) MLT 53 - E.R.C. IC 1997 R 390 25,000 U.S. Gulf Shipyard Noble Chuck Syring (4) MLT Class 82-C IC 1996 R 250 20,000 Qata r Active Carl Norberg MLT Class 82-C IC 1976 250 20,000 Venezuela Active Charles Copeland (4) MLT Class 82-SD-C IC 1995 R 250 20,000 Venezuela Active Earl Frederickson MLT Class 82-SD-C IC 1979 R 250 20,000 Venezuela Active Ed Noble (4) MLT Class 82-SD-C IC 1990 R 250 20,000 Nigeria Active Lloyd Noble (4) MLT Class 82-SD-C IC 1990 R 250 20,000 Nigeria Active Tom Jobe (4) MLT Class 82-SD-C IC 1982 250 25,000 U.S. Gulf Active Gene Rosser (4) Levingston 111-C IC 1996 R 300 20,000 Bay of Campeche Active Ed Holt (5) Levingston 111-C IC 1994 R 300 25,000 India Active John Sandifer (4) Levingston 111-C IC 1995 R 300 25,000 U.S. Gulf Active Noble Lewis Dugger (4) Levingston 111-C IC 1997 R 300 20,000 U.S. Gulf Shipyard Gus Androes (4) Levingston 111-C IC 1996 R 300 25,000 Qatar Active Sam Noble (4) Levingston 111-C IC 1982 300 25,000 U.S. Gulf Shipyard George McLeod (4) F&G L-780 MOD II IC 1995 R 300 25,000 Qatar Active Percy Johns (4) F&G L-780 MOD II IC 1995 R 300 25,000 Nigeria Active Tommy Craighead (4) F&G L-780 MOD II IC 1990 R 300 25,000 Nigeria Active Noble Kenneth Delaney F&G L-780 MOD II IC 1982 300 25,000 India Active Noble Jimmy Puckett F&G L-780 MOD II IC 1982 300 25,000 India Active Roy Butler (4)(6) F&G L-780 MOD II IC 1996 R 300 25,000 Zaire Active Johnnie Hoffman (4) Baker Marine BMC 300 IC 1993 R 300 25,000 U.S. Gulf Active Dick Favor Baker Marine BMC 150 IC 1993 R 150 20,000 Venezuela Active Don Walker (4) Baker Marine BMC 150 IC 1992 R 150 20,000 Nigeria Active Neddrill Trigon (4)(7) CFEM T-2005C IC 1997 R 360 25,000 Netherlands Shipyard Neddrill 10 (4)(7) CFEM T-2005C IC 1982 300 25,000 Denmark Active Neddrill Kolskaya (7)(8) Gusto Engineering IC 1983 330 N/A Denmark Active Neddrill 3 (4)(7) Marine Structure CJ-46 IC 1982 250 25,000 Netherlands Active Neddrill 9 (4)(7)(9) Marine Structure CJ-46 IC 1982 230 25,000 Netherlands Active Neddrill 7 (4)(7)(9) Marine Structure CJ-46 IC 1981 205 25,000 Netherlands Active Neddrill 4 (4) Neddrill IC 1982 330 20,000 Netherlands Active Marvin Winters Bethlehem JU-250 MC 1982 250 20,000 U.S. Gulf Active Duke Hinds Bethlehem JU-200 MC 1990 R 200 25,000 U.S. Gulf Active Frank Lamaison Bethlehem JU-200 MC 1982 200 20,000 U.S. Gulf Active Mac McCoy Bethlehem JU-200 MC 1982 200 20,000 U.S. Gulf Active Red McCarty Bethlehem JU-200 MC 1982 200 25,000 U.S. Gulf Active W.T. Johnson Bethlehem JU-200 MC 1982 200 20,000 U.S. Gulf Active Cecil Forbes Bethlehem JU-300 MS 1974 300 20,000 U.S. Gulf Stacked Cliff Matthews Bethlehem JU-250 MS 1976 250 20,000 U.S. Gulf Active Frank Reiger Bethlehem JU-250 MS 1975 250 20,000 U.S. Gulf Shipyard Jack Clark Bethlehem JU-250 MS 1996 R 250 20,000 U.S. Gulf Active Jim Bawcom Bethlehem JU-250 MS 1981 250 25,000 U.S. Gulf Active NN-1 (10) Bethlehem JU-45 MS 1990 R 45 20,000 Nigeria Active SUBMERSIBLE RIGS - 7 Amos Runner (4) Column Stabilized 1982 100 25,000 U.S. Gulf Active Jim Thompson Column Stabilized 1993 R 100 25,000 U.S. Gulf Active Max Smith Column Stabilized 1996 R 100 25,000 U.S. Gulf Active Joe Alford Column Stabilized 1982 85 25,000 U.S. Gulf Shipyard Lester Pettus Column Stabilized 1982 85 25,000 U.S. Gulf Shipyard Fri Rodli Column Stabilized 1979 70 25,000 U.S. Gulf Shipyard Paul Wolff Column Stabilized 1981 100 30,000 U.S. Gulf Active DYNAMICALLY POSITIONED DRILLSHIPS - 3 Neddrill 1 Gusto Engineering 1996 R 4,500 20,000 Brazil Active Pelican Class (enhanced) Neddrill Muravlenko (11) Gusto Engineering 1996 R 4,000 21,000 Brazil Shipyard Pelican Class (Mobilizing) Neddrill 2 Neddrill 1997 R 6,000 25,000 Brazil Shipyard SEMISUBMERSIBLES - 3 Neddrill 6 (4)(7) Offshore Co. SCP III 1991 R 1,500 25,000 U.K. Active Shelf 4 (12) Friede & Goldman 9500 1985 650 20,000 U.K. Stacked Enhanced Pacesetter Paul Romano (4)(13) Noble 4th Generation 1997/1998R 6,000 30,000 U.S. Gulf Shipyard
(See footnotes on following page.) 10 13 (1) Type codes are defined as follows: IC......Independent Leg Cantilevered jackup rig MC......Mat Supported Cantilevered jackup rig MS......Mat Supported Slot jackup rig (2) Rigs designated with an "R" were modified, refurbished or otherwise upgraded in the year indicated by capital expenditures in an amount material to the net book value of such rig. (3) Rigs listed as "active" were operating under contract. Rigs listed as "stacked" were not operating under contract and were either in need of expenditures to reactivate or not being actively marketed at such date. Rigs listed as "shipyard" are in a shipyard for repair, refurbishment or upgrade. Shipyard work is scheduled to be completed during 1997 except for the Paul Romano which is scheduled to be completed in early 1998. Since January 31, 1997, the Sam Noble, Neddrill Trigon and Neddrill 2 have returned to "active" status. (4) Equipped with a top drive unit. (5) Bareboat chartered to a third party under which the Company maintains operating control of the rig. (6) Although designed to drill in up to 300 feet of water, the rig is currently equipped with legs adequate to drill in approximately 250 feet of water. The Company owns the additional legs required to extend the drilling depth capability to 300 feet of water. (7) Harsh environment capability. (8) The Company has operating control of the unit under a long-term bareboat charter from the owner. The Company currently is using the unit in offshore hotel accommodation mode (at a capacity of 250 bunks) instead of drilling mode under an agreement which expires in April 1997. At that time, the Company will convert the unit to drilling mode with a maximum drilling depth of 25,000 feet. (9) Legs to be extended to operate in 250 feet of water in the North Sea. (10) Owned by NN-1 Limited Partnership, of which Noble Drilling is the general partner and in which it has a majority interest. The rig is mortgaged under a first preferred ship mortgage in favor of the United States government to secure repayment of the U.S. Government Guaranteed Ship Financing Sinking Fund Bonds issued in 1978 by the predecessor of the partnership in connection with the construction and purchase of the rig. As the general partner of the NN-1 Limited Partnership, Noble Drilling has called the bonds for redemption on March 31, 1997. (11) Neddrill owns a 41 percent interest in the drillship through a joint venture arrangement. (12) Substantial capital expenditures would be required to return the rig to operational status. (13) Currently undergoing conversion to an EVA-4000 semisubmersible unit. 11 14 FACILITIES The Company's principal executive offices are located in Houston, Texas, and leased through the year 2000. The Company also leases administrative and marketing offices, and sites used primarily for storage, maintenance and repairs for drilling rigs and equipment in New Orleans and Lafitte, Louisiana; Leduc and St. Johns, Canada; Warri, Lagos and Port Harcourt, Nigeria; Aberdeen, Scotland; Maracaibo and Cuidad Ojeda, Venezuela; Doha, Qatar; Rotterdam and Beverwijk, The Netherlands; Macae, Brazil; and Esjberg, Denmark. The Company owns certain tracts of land, including office and administrative buildings, warehouse facilities and a manufacturing facility, in Harris and Waller Counties, Texas; Lafayette and Bayou Black, Louisiana; and Aberdeen, Scotland. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company is a party or of which certain of its property is the subject. The Company is involved in certain routine litigation incidental to the business of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information as of March 12, 1997 with respect to the executive officers of Noble Drilling.
NAME AGE POSITION ---- ----- -------- James C. Day 53 Chairman, President and Chief Executive Officer and Director Byron L. Welliver 51 Senior Vice President - Finance, Treasurer and Controller Julie J. Robertson 41 Vice President - Administration and Corporate Secretary
James C. Day has served as Chairman of Noble Drilling since October 22, 1992, and as President and Chief Executive Officer since January 1, 1984. From January 1983 until his election as President and Chief Executive Officer, Mr. Day served as Vice President of Noble Drilling. Prior to 1983, Mr. Day served as Vice President and Assistant Secretary of Noble Affiliates, Inc. He has been a director of Noble Drilling since 1984. Mr. Day is also a director of Global Industries Limited, Noble Affiliates, Inc., and Phillips University. Byron L. Welliver has served as Senior Vice President - Finance of Noble Drilling since April 1989, as Treasurer of Noble Drilling since July 1986, and as Controller of Noble Drilling since September 1994. Mr. Welliver had served as Controller from April 1989 to April 1991. From July 1986 to April 1989, he also served as Vice President - Finance for Noble Drilling. He joined Noble Drilling in October 1985, as Controller. Prior to joining Noble Drilling, Mr. Welliver served consecutively as Tax Manager, Controller and Treasurer of Noble Affiliates, Inc. beginning in March 1981. Julie J. Robertson has served as Vice President - Administration of Noble Drilling since April 1996 and as Corporate Secretary of Noble Drilling since December 1993. From January 1989 to September 1994, Ms. Robertson served consecutively as Manager of Benefits and Director of Human Resources at which time she became Vice President - Administration of Noble Drilling Services Inc. Prior to 1989, she served in the capacities of Risk and Benefits Manager and Marketing Services Coordinator for Bawden Drilling Inc. Ms. Robertson joined Bawden Drilling Inc. in 1979. 12 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Noble Drilling's Common Stock, par value $.10 per share ("Common Stock"), has been listed and traded on the New York Stock Exchange since March 29, 1996, under the symbol "NE." Prior to that date, the Common Stock was traded through the Nasdaq National Market. The following table sets forth for the periods indicated the high and low sales prices of the Common Stock.
HIGH LOW --------- -------- 1996 First quarter................................. $ 13 $ 8 Second quarter................................ 16 3/8 11 3/4 Third quarter................................. 16 3/4 13 1/4 Fourth quarter................................ 22 14 7/8 1995 First quarter................................. $ 6 1/2 $ 5 Second quarter................................ 7 7/8 5 7/8 Third quarter................................. 8 3/8 6 5/16 Fourth quarter................................ 9 1/8 6 1/2
The Company has not paid any cash dividends on the Common Stock since becoming a publicly held corporation in October 1985, and does not anticipate paying dividends on the Common Stock at any time in the foreseeable future. Certain provisions of the indentures governing the Company's 9 1/4% Senior Notes Due 2003 issued in 1993 and its 9 1/8% Senior Notes due 2006 issued in 1996 restrict the Company's ability to pay cash dividends on the Common Stock. At March 12, 1997, there were 2,314 record holders of Common Stock. 13 16 ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- --------- --------- ---------- --------- (In thousands, except per share amounts) STATEMENT OF OPERATIONS DATA (1) Operating revenues.......................... $ 514,253 $ 327,968 $ 351,988 $ 264,531 $ 184,166 Operating costs (2)......................... 331,582 240,102 243,208 178,684 135,252 Depreciation and amortization (3)........... 52,159 36,492 39,519 28,886 27,248 Selling, general and administrative......... 54,504 40,139 47,606 28,284 30,716 Gains on sales of property and equipment, net of impairments (4)................... (36,115) (829) (8,858) - - Minority interest (5)....................... (428) (214) (169) (232) 89 Restructuring charges (6)................... - - 3,661 - 21,120 ---------- --------- --------- ---------- --------- Operating income (loss)..................... 112,551 12,278 27,021 28,909 (30,259) Interest expense............................ (18,758) (12,156) (12,351) (8,038) (13,274) Interest income............................. 6,409 5,323 5,640 2,497 3,276 Other income, net........................... 1,757 (579) 6,885 1,047 3,675 ---------- --------- --------- ---------- --------- Income (loss) from continuing operations before income taxes and extraordinary charge.................................... 101,959 4,866 27,195 24,415 (36,582) Income tax provision........................ (22,662) (3,272) (5,672) (3,333) (3,396) ---------- --------- --------- ---------- --------- Income (loss) from continuing operations.... 79,297 1,594 21,523 21,082 (39,978) Discontinued operations..................... - - - - (3,372) Extraordinary charge, net of tax (7)........ (660) - - 1,770 - ---------- --------- --------- ---------- --------- Net income (loss)........................... 78,637 1,594 21,523 22,852 (43,350) Preferred stock dividends................... (6,040) (7,199) (12,764) (7,936) (6,728) ---------- --------- --------- ---------- --------- Net income (loss) applicable to common shares $ 72,597 $ (5,605) $ 8,759 $ 14,916 $ (50,078) ========== ========= ========= ========== ========= Net income (loss) applicable to common shares per share (8)(9)................... $ 0.66 $ (0.08) $ 0.11 $ 0.22 $ (1.05) Weighted average common shares outstanding.. 110,252 89,736 77,576 66,923 47,762 BALANCE SHEET DATA (AT END OF PERIOD) (1) Working capital............................. $ 236,977 $ 101,623 $ 157,885 $ 150,535 $ 42,993 Property and equipment, net................. $ 957,034 $ 542,978 $ 493,322 $ 482,029 $ 338,382 Total assets................................ $1,367,407 $ 742,530 $ 739,889 $ 696,553 $ 456,529 Long-term debt.............................. $ 239,506 $ 129,923 $ 126,546 $ 127,144 $ 87,280 Total debt (10)............................. $ 243,128 $ 142,133 $ 132,790 $ 127,690 $ 114,477 Shareholders' equity........................ $ 925,249 $ 523,493 $ 527,611 $ 516,770 $ 301,634 OTHER DATA (1).............................. Cash dividends per common share............. $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 Capital expenditures........................ $ 216,887 $ 91,202 $ 55,834 $ 173,501 $ 5,997
(1) The Selected Financial Data present the restatement of the Company's historical financial statements for 1994 and prior periods to reflect the 1994 merger of Chiles Offshore Corporation ("Chiles") into Noble Offshore Corporation ("NOC"), a wholly owned subsidiary of the Company, which was accounted for as a pooling of interests. The Selected Financial Data also include the July 1996 acquisition of Neddrill, the acquisition of Triton in April 1994 and the October 1993 acquisition of nine offshore rigs and associated assets from The Western Company of North America, all of which were accounted for under the purchase method. (2) Consists of operating costs and expenses other than depreciation and amortization, selling, general and administrative, gains on sales of property and equipment, net of impairments, minority interest and restructuring charges. (3) Effective January 1, 1995, the Company revised its estimates of salvage values and remaining depreciable lives of certain rigs. The effect of this change in estimate was a decrease to depreciation and amortization of $6,160,000, or $0.07 per common share, for the year ended December 31, 1995. (4) The amount for 1996 includes $45,414,000 and $7,527,000 related to gains on the sales of land drilling assets and posted barge rigs, respectively, partially offset by impairment charges of $17,800,000. The amount for 1994 includes a gain of $8,000,000 related to the sale of a drilling rig. (5) The amount for 1996 includes ($289,000) relating to an impairment charge of $10,200,000. (6) Consists of provisions resulting from write-downs of certain assets, facility consolidation costs and, to a lesser extent, severance costs. (7) Consists of a loss on extinguishment of debt in 1996 and a gain on extinguishment of debt in 1993. (footnotes continued on following page.) 14 17 (8) Net income applicable to common shares per share before extraordinary item was $0.20 for the year ended December 31, 1993. Loss applicable to common shares per share from discontinued operations was $ (0.07) for the year ended December 31, 1992. (9) Includes the $0.02 per share effect of the March 1995 preferred conversion payment related to the conversion of 923,862 shares of Noble Drilling's $2.25 Convertible Exchangeable Preferred Stock. The payment of $1,524,000 was accounted for as a reduction of net earnings applicable to common shares when calculating the net loss per common share. (10) Consists of short-term debt and current installments of long-term debt and long-term debt. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS This report on Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this Form 10-K, including, without limitation, statements contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financial position, business strategy, plans and objectives of management of the Company for future operations, industry conditions, and indebtedness covenant compliance, are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations include, but are not limited to, intense competition in the drilling industry, volatility of oil and gas prices, political and economic conditions in international markets (including Brazil, Nigeria, the North Sea and Venezuela), potential for decrease in demand for drilling services in the U.S. Gulf where the Company has a concentration of drilling rigs, risks associated with turnkey drilling contracts, early termination provisions generally found in the Company's offshore drilling contracts, operational risks (such as blowouts, fires and loss of production), insurance coverage limitations, and requirements and potential liability imposed by governmental regulation of the drilling industry (including environmental regulation). The following discussion is intended to assist in understanding the Company's financial position as of December 31, 1996 and 1995, and its results of operations for each of the three years in the period ended December 31, 1996. Reference is also made to the Consolidated Financial Statements and the Notes thereto, included elsewhere herein, which should be read in conjunction with this discussion. OUTLOOK The Company's operating strategy has been to pursue drilling opportunities in the U.S. and various international markets. Worldwide drilling conditions vary substantially from region to region; however, the Company operates in many markets where there is a demand for offshore rigs. During late 1992, U.S. natural gas prices improved, resulting in greater demand and higher dayrates for drilling rigs. Increasing U.S. natural gas prices resulted in significant improvements in the U.S. Gulf rig demand and dayrates during the second half of 1993. Declining world oil prices during this period reduced rig demand outside the U.S. Gulf. As a result of declining international rig demand and improved market conditions in the U.S. Gulf, many contractors mobilized rigs from international markets to the U.S. Gulf in late 1993 and early 1994. The increased supply of drilling rigs in the U.S. Gulf more than offset the increased level of U.S. Gulf rig demand during 1994 and the first half of 1995, causing increased pressure on dayrates. By mid-year 1995, rig demand in the international arena began to strengthen. Improved political stability and strengthened world oil prices caused more favorable market conditions which led the Company to mobilize rigs out of the U.S. Gulf to international markets. Simultaneously, the U.S. Gulf market strengthened due to improved gas prices, subsalt drilling and deepwater drilling. In 1996, offshore rig utilization levels in the industry reached their highest point since 1982. 15 18 The Company anticipates that the U.S. Gulf market will continue to experience significant activity levels in 1997, notwithstanding the recent softening in the domestic price of natural gas. The international market is anticipated to remain strong in 1997, assuming oil prices remain at current levels and the political environment remains stable. If the domestic price of natural gas decreases materially in the near future, the Company's dayrates on new contracts and utilization rates in the U.S. Gulf could be adversely affected. The Company can predict neither the future level of demand for its drilling services nor the future conditions in the offshore contract drilling industry. Although turnkey drilling gross margin for 1997 is budgeted to increase over 1996, turnkey drilling results for the first quarter of 1997 will be negatively affected from a well which experienced drilling difficulties. As a result, Triton's first quarter 1997 operating results may not exceed a breakeven level. RESULTS OF OPERATIONS SIGNIFICANT 1996 EVENTS The consolidated results of operations for the year ended December 31, 1996 reflect several significant transactions and events. Management believes that these events reflect the Company's efforts to enhance its position within the offshore contract drilling services industry by focusing on the deepwater capabilities of its rig fleet. On July 1, 1996, the Company acquired Neddrill for $300,000,000 in cash plus 5,000,000 shares of Noble Drilling common stock. The cash portion of the purchase price was financed by the Company's issuance and sale of 21,850,000 shares of its common stock and $125,000,000 principal amount of 9 1/8% Senior Notes due 2006 (the "9 1/8% Senior Notes"). The net proceeds from the public offerings of common stock and debt in excess of the $300,000,000 cash portion of the purchase price were added to the Company's working capital. The Company sold two of its posted barge rigs during the first quarter of 1996. The Gus Androes, located in the U.S. Gulf, was sold for $6,000,000. The Gene Rosser, located offshore Nigeria, was sold for $13,000,000. The Company recorded pre-tax gains of $4,815,000 and $2,712,000, respectively, related to the sales of these posted barge rigs. The Lewis Dugger and Chuck Syring posted barge rigs, which were also located offshore Nigeria, were sold in August 1996 for $24,500,000 in cash and $7,500,000 in drill pipe credit. These two barges had been written down at March 31, 1996 to their estimated net realizable values based on then recent offers received for these assets from third parties, resulting in a pre-tax charge to earnings of $7,600,000. The gains on the sales of the Gus Androes and Gene Rosser barge rigs net of the write-downs are included in "Gains on sales of property and equipment, net of impairments" in the accompanying Consolidated Statement of Operations for the year ended December 31, 1996. In December 1996, the Company sold its land drilling assets to Nabors Industries, Inc. for $60,000,000 in cash, resulting in a pre-tax gain of $45,414,000, which is included in "Gains on sales of property and equipment, net of impairments" in the accompanying Consolidated Statement of Operations for the year ended December 31, 1996. Revenues, gross margin and operating income generated from the land drilling assets were $24,743,000, $6,756,000 and $3,048,000, respectively, for the year ended December 31, 1996. As a result of the Company's asset rationalization program and the acquisition of Neddrill, the Company finalized its review of the status of worldwide inventories and long-term assets in the fourth quarter of 1996 and determined that certain adjustments were appropriate to properly reflect the estimated net realizable values of these assets. These adjustments consisted primarily of write-downs for inventory obsolescence totaling approximately $14,808,000, an impairment charge of $10,200,000 (excluding a $289,000 reduction for minority interest) and adjustments to depreciation for assets which were determined to have shorter economic lives than originally estimated, totaling approximately $3,350,000. The impairment charge is included in "Gains on sales of property and equipment, net of impairments" and the inventory write-down is included in "Contract drilling services" expense in the accompanying Consolidated Statement of Operations for the year ended December 31, 1996. Results for 1996 also included an extraordinary charge of $660,000, net of taxes of $355,000, related to the Company's purchase of $11,000,000 principal amount of its 9 1/4% Senior Notes Due 2003. The extraordinary charge represents the difference between the acquisition price and the net carrying value of the notes, including unamortized debt issuance costs. 16 19 RECENT DEVELOPMENT On February 19, 1997, the Company signed a definitive agreement to sell 12 mat supported jackup rigs to Pride. The sale will also include the hull of one former mat supported jackup rig (Linn Richardson) which has had all drilling machinery and equipment removed. The sales price is $265,000,000 in cash. The closing of the transaction, which is subject to receipt of financing by Pride, satisfaction of Hart-Scott-Rodino Antitrust Improvements Act governmental clearance and routine closing conditions, is scheduled to occur on June 3, 1997. Pride has deposited $20,000,000 of the purchase price into an escrow account which is payable to the Company in the event Pride does not obtain its financing or is unable to complete the acquisition by June 30, 1997. Revenues, gross margin and operating income generated from the 12 mat supported jackup rigs were $68,747,000, $31,026,000 and $16,674,000, respectively, for the year ended December 31, 1996. Assuming the closing of the sale occurs on schedule, the Company's 1997 financial results will reflect only five months of operations of the sold mat supported jackup rigs. 1996 COMPARED TO 1995 GENERAL For the year ended December 31, 1996, net income applicable to common shares was $72,597,000, or $0.66 per share, on operating revenues of $514,253,000 compared to a net loss applicable to common shares of $5,605,000, or $0.08 per share, on operating revenues of $327,968,000 for the year ended December 31, 1995. For the year ended December 31, 1996, operating income, excluding non-recurring items, increased to $95,279,000 from operating income of $12,278,000 in 1995. The increases in operating revenues and net income were due principally to increased rig utilization rates, improved dayrates in the U.S. Gulf and the contribution of Neddrill, which was acquired on July 1, 1996. RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATE The following table sets forth the average rig utilization rates, operating days and average dayrate for the Company's rig fleet for the years ended December 31, 1996 and 1995:
AVERAGE RIG UTILIZATION RATES (1) OPERATING DAYS AVERAGE DAYRATE -------------------- ----------------- ------------------ 1996 (2) 1995 1996 (2) 1995 1996 (2) 1995 -------- ---- -------- ---- -------- ---- OFFSHORE International......................... 95% 75% 7,372 4,442 $ 27,207 $ 22,104 Domestic.............................. 96% 84% 5,349 4,949 $ 23,332 $ 16,376 LAND International......................... 39% 53% 1,228 1,746 $ 8,174 $ 7,923 Domestic.............................. 75% 69% 2,577 2,175 $ 5,666 $ 5,538
- ------------------ (1) Information reflects the policy of the Company to report utilization rates based on the number of actively marketed rigs owned in the fleet. During the periods presented, the Company purchased and sold certain drilling rigs. Utilization rates for the periods prior to sales and purchases of such rigs have not been adjusted. (2) Includes the results of Neddrill from July 1, 1996. 17 20 INTERNATIONAL OPERATIONS The following table sets forth the revenues and gross margin (excluding non-recurring items) for the Company's international operations for the years ended December 31, 1996 and 1995:
REVENUES GROSS MARGIN ------------------------ ----------------------- 1996 1995 1996 1995 ----------- ---------- ---------- --------- (In thousands) Contract drilling services Offshore..................................................... $ 200,566 $ 98,187 $ 81,916(1) $ 36,584 Land......................................................... 10,037 13,833 3,178 4,937 ----------- ---------- ------------ --------- Total contract drilling services............................... 210,603 112,020 85,094 41,521 Labor contract drilling services............................... 33,425 35,136 9,299(2) 8,596 Engineering and consulting services............................ 2,509 4,001 611 2,313 Other revenue.................................................. 5,675 3,805 4,060 1,914 ----------- ---------- ------------ --------- Total.......................................................... $ 252,212 $ 154,962 $ 99,064 $ 54,344 =========== ========== ========== =========
- ------------------ (1) Excludes $13,624,000 of non-recurring inventory charges. (2) Excludes $1,184,000 of non-recurring inventory charges. OPERATING REVENUES. Offshore contract drilling services revenues increased $102,379,000 in 1996 as compared to 1995. The increase is primarily attributable to the July 1, 1996 acquisition of Neddrill. Neddrill contributed $70,015,000 in contract drilling services revenues in 1996. The drilling operations in India and Qatar, which benefited from the addition of the Gus Androes, Noble Chuck Syring and Noble Kenneth Delaney jackup rigs in 1996, contributed $20,903,000 of contract drilling services revenues in 1996 as compared to $4,495,000 in 1995. The remaining increase is attributable to higher utilization rates and average dayrates in 1996 as compared to 1995. GROSS MARGIN. Offshore contract drilling services gross margin (excluding non-recurring items) increased $45,332,000 in 1996 as compared to 1995. The increase in gross margin is primarily attributable to the July 1, 1996 acquisition of Neddrill, which contributed gross margin of $28,756,000 in 1996. Increased operations in India and Qatar, resulting from the addition of the Gus Androes, Noble Chuck Syring and Noble Kenneth Delaney jackup rigs, contributed gross margin of $4,072,000 in 1996 compared to a loss of $143,000 in 1995. The remaining increase is attributable primarily to higher utilization rates and average dayrates in 1996 as compared to 1995. DOMESTIC OPERATIONS The following table sets forth the operating revenues and gross margin for the Company's domestic operations for the years ended December 31, 1996 and 1995:
REVENUES GROSS MARGIN ------------------------ ------------------------ 1996 1995 1996 1995 ----------- ---------- ---------- ----------- (In thousands) Contract drilling services Offshore..................................................... $ 124,805 $ 81,045 $ 58,386 $ 22,751 Land......................................................... 14,600 12,045 3,555 2,498 ----------- ---------- ---------- ----------- Total contract drilling services............................... 139,405 93,090 61,941 25,249 Turnkey contract drilling services............................. 114,948 71,273 34,171 6,802 Engineering and consulting services............................ 2,445 7,263 956 1,640 Other revenue.................................................. 5,243 1,380 1,347 (169) ----------- ---------- ---------- ----------- Total.......................................................... $ 262,041 $ 173,006 $ 98,415 $ 33,522 =========== ========== ========== ===========
OPERATING REVENUES. Offshore contract drilling services revenues increased $43,760,000 in 1996 as compared to 1995 due to significantly higher utilization rates and higher average dayrates. The increases were attributable to overall increased drilling activity in the U.S. Gulf in 1996 as compared to 1995. Turnkey contract drilling services revenues increased $43,675,000 in 1996 as compared to 1995. There were 28 well completions in 1996 as compared to 27 in 1995, combined with contracts of longer duration and increased prices caused by growing demand for equipment and services in the U.S. Gulf. 18 21 GROSS MARGIN. Offshore contract drilling services gross margin increased $35,635,000 in 1996 as compared to 1995 due to higher average dayrates. The average dayrate in 1996 was $23,332 compared to $16,376 in 1995. Turnkey drilling services gross margin increased $27,369,000 in 1996 as compared to 1995 due to an improved success rate on turnkey wells and increased turnkey activity. The turnkey success ratio was low in 1995, primarily because of significant operational problems on two wells which resulted in aggregate losses of $7,293,000. OTHER OPERATING ITEMS DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense increased $12,317,000 (excluding non-recurring depreciation of $3,350,000) in 1996 as compared to 1995. Of this amount, $10,142,000 is attributable to the July 1, 1996 acquisition of Neddrill. The remaining increase is primarily attributable to increases resulting from rig acquisitions and refurbishments during late 1995 and 1996. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative ("SG&A") expenses were $54,504,000 in 1996 as compared to $40,139,000 in 1995. The increase is primarily attributable to the July 1, 1996 acquisition of Neddrill combined with other general increases resulting from the higher activity levels for 1996. GAINS ON SALES OF PROPERTY AND EQUIPMENT, NET OF IMPAIRMENTS. In 1996, the Company sold its land drilling assets and the Gus Androes and Gene Rosser posted barge rigs, resulting in pre-tax gains of $45,414,000, $4,815,000 and $2,712,000, respectively, which have been partially offset by the recognition of impairment charges totaling $17,800,000. See "Results of Operations - Significant 1996 Events." INTEREST EXPENSE. Interest expense increased to $18,758,000 in 1996 from $12,156,000 in 1995 due to the July 1, 1996 issuance of $125,000,000 principal amount of 9 1/8% Senior Notes due 2006. The proceeds from the issuance of the 9 1/8% Senior Notes were used to finance the Neddrill acquisition. OTHER, NET. Other, net increased by $2,336,000 in 1996 as compared to 1995 due primarily to an increase in net realized gains on marketable investments and unrealized gains on marketable equity investments. INCOME TAX PROVISION. Provisions for income taxes of $22,662,000 and $3,272,000 were recorded in 1996 and 1995, respectively. The increase is due primarily to taxes of $16,259,000 recorded for 1996 in connection with the gain on the sale of land drilling assets. At December 31, 1996, the Company had approximately $4,122,000 in withholding tax receivables related to withholding taxes in Nigeria. Management believes that this amount will be realized by obtaining the required tax certificates from the related operators. 1995 COMPARED TO 1994 RIG UTILIZATION, OPERATING DAYS AND AVERAGE DAYRATES The following table sets forth the average rig utilization rates, operating days and average dayrate for the Company's rig fleet for the years ended December 31, 1995 and 1994:
AVERAGE RIG UTILIZATION RATES (1) OPERATING DAYS AVERAGE DAYRATE -------------------- --------------- --------------- 1995 1994 1995 1994 1995 1994 ------- ------- ---- ---- ---- ---- OFFSHORE International................................. 75% 82% 4,442 4,549 $ 22,104 $ 22,979 Domestic...................................... 84% 82% 4,949 6,464 $ 16,376 $ 17,945 LAND International................................. 53% 77% 1,746 2,642 $ 7,923 $ 7,457 Domestic...................................... 69% 51% 2,175 1,690 $ 5,538 $ 5,677
- ------------------ (1) Information reflects the policy of the Company to report utilization rates based on the number of actively marketed rigs owned in the fleet. During the periods presented, the Company purchased and sold certain drilling rigs. Utilization rates for the periods prior to sales and purchases of such rigs have not been adjusted. 19 22 INTERNATIONAL OPERATIONS The following table sets forth the operating revenues and gross margin for the Company's international operations for the years ended December 31, 1995 and 1994:
REVENUES GROSS MARGIN -------------------------- -------------------------- 1995 1994 1995 1994 ------------ ----------- ------------ ----------- (In thousands) Contract drilling services Offshore................................................. $ 98,187 $ 104,530 $ 36,584 $ 45,263 Land..................................................... 13,833 19,702 4,937 6,334 ------------ ----------- ------------ ----------- Total contract drilling services........................... 112,020 124,232 41,521 51,597 Labor contract drilling services........................... 35,136 36,203 8,596 7,848 Engineering and consulting services........................ 4,001 1,111 2,313 34 Other revenue.............................................. 3,805 3,684 1,914 2,132 ------------ ----------- ------------ ----------- Total...................................................... $ 154,962 $ 165,230 $ 54,344 $ 61,611 ============ =========== ============ ===========
OPERATING REVENUES. Total contract drilling services revenues decreased $12,212,000 in 1995 as compared to 1994 due primarily to softer market conditions. Labor contract drilling services revenue decreased by $1,067,000 in 1995 due to a decrease in labor contracts and fewer operating days in the U.K. Engineering and consulting revenues increased to $4,001,000 in 1995 from $1,111,000 in 1994 due to bonus revenues generated from the alliance program between the Company and Lagoven, a subsidiary of the government-owned oil company in Venezuela. GROSS MARGIN. Contract drilling services gross margin decreased by $10,076,000 in 1995 as compared to 1994 due primarily to softer market conditions in 1995, which resulted in overall decreased drilling activity. DOMESTIC OPERATIONS The following table sets forth the revenues and gross margin for the Company's domestic operations for the years ended December 31, 1995 and 1994:
REVENUES GROSS MARGIN -------------------------- -------------------------- 1995 1994 1995 1994 ------------ ----------- ------------ ----------- (In thousands) Contract drilling services Offshore................................................. $ 81,045 $ 115,994 $ 22,751 $ 36,865 Land..................................................... 12,045 9,594 2,498 1,249 ------------ ----------- ------------ ----------- Total contract drilling services........................... 93,090 125,588 25,249 38,114 Turnkey contract drilling services......................... 71,273 56,380 6,802 9,494 Engineering and consulting services........................ 7,263 2,685 1,640 804 Other revenue.............................................. 1,380 2,105 (169) (1,243) ------------ ----------- ------------ ----------- Total...................................................... $ 173,006 $ 186,758 $ 33,522 $ 47,169 ============ =========== ============ ===========
OPERATING REVENUES. The decrease of $32,498,000 in total contract drilling services revenues in 1995 as compared to 1994 was due primarily to a softening of market conditions in the U.S. Gulf during 1995. This decrease was partially offset by increased turnkey engineering and consulting services revenues. Turnkey contract drilling services revenues increased by $14,893,000 in 1995 as compared to 1994. Twenty-seven wells were completed in 1995, compared to 28 in 1994. The increase in turnkey revenues was due to completion of turnkey wells of longer duration in 1995. In 1995, the average turnkey well was drilled in 50 days compared to the 1994 average of 30 days. GROSS MARGIN. Contract drilling services gross margin decreased $12,865,000 in 1995 as compared to 1994 as a result of reduced activity levels. Triton's average turnkey well drilling time increased in 1995, partially due to operational issues on certain domestic wells. These operational issues were also the primary cause of the decline in turnkey profit margins to 10 percent in 1995 compared to 17 percent in 1994. 20 23 OTHER OPERATING ITEMS DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expenses were $36,492,000 in 1995 compared to $39,519,000 in 1994. The decrease of $3,027,000 was primarily due to a change in accounting estimates partially offset by the effects of 1995 capital spending. Effective January 1, 1995, the estimated salvage values and remaining depreciable lives of certain rigs were adjusted to better reflect their economic lives and to be consistent with other similar assets owned by the Company. The effect of this change in estimate was a decrease in depreciation and amortization of $6,160,000, or $0.07 per share. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $40,139,000 during 1995 as compared to $47,606,000 in 1994. The decrease of $7,467,000 was due in part to reductions in overhead achieved as a result of restructuring and consolidation efforts. The 1994 SG&A expenses included approximately $5,300,000 in pooling expenses related to the Chiles Merger. GAINS ON SALES OF PROPERTY AND EQUIPMENT, NET OF IMPAIRMENTS. In 1994, the Company recognized a gain of $8,000,000 related to the sale of a drilling rig. RESTRUCTURING CHARGES. A restructuring charge of $3,661,000 related to the Chiles Merger was recorded in 1994 as a result of facility consolidation, including the write-down of certain of the Company's owned properties and, to a lesser extent, severance costs. OTHER, NET. Other, net was $(579,000) during 1995 compared to $6,885,000 during 1994. This decrease was principally due to net unrealized gains of $4,162,000 on marketable equity investments and a gain of $1,530,000 on the recovery of a previously written-off note receivable, offset by realized losses on marketable debt securities of $2,199,000. INCOME TAX PROVISION. Provisions for income taxes of $3,272,000 and $5,672,000 were recorded in 1995 and 1994, respectively. This decrease was primarily due to a $2,100,000 U.S. separate return year loss carryback benefit recorded by Triton. At December 31, 1995, the Company had approximately $6,000,000 in withholding tax receivables related to withholding taxes in Nigeria. LIQUIDITY AND CAPITAL RESOURCES OVERVIEW The Company had working capital of $236,977,000 and $101,623,000 as of December 31, 1996 and 1995, respectively. The increase in working capital was primarily due to an increase in cash, cash equivalents and marketable debt securities and the effect of Neddrill's working capital components obtained through the acquisition. The increase in cash, cash equivalents and marketable debt securities was due primarily to excess proceeds from the Company's public offerings of securities in 1996 related to the Neddrill acquisition. Long-term debt as a percentage of long-term debt plus shareholders' equity was 21 percent at December 31, 1996 compared to 20 percent at December 31, 1995. At December 31, 1996, the Company had cash, cash equivalents, and investments in marketable debt securities of $168,970,000 and had $19,184,000 of funds available under its lines of credit. The Company expects to generate positive cash flow from operations for 1997, assuming no material decrease in demand for contract drilling and turnkey drilling services. The Company will continue to have cash requirements for debt principal and interest payments. For 1997, required debt principal and interest payments for currently outstanding debt are estimated to be approximately $25,843,000. The Company expects to fund these obligations out of cash and short-term investments as well as cash expected to be provided by operations. Capital expenditures totaled $216,887,000 for the year ended December 31, 1996 compared to $91,202,000 for the year ended December 31, 1995. Included in the amount for 1996 is $98,750,000 related to rig purchases. The Company also pursued an extensive rig modification, refurbishment and upgrade program in 1996 which continues to date. The Gene Rosser, Roy Butler, Noble Chuck Syring and Gus Androes rigs were upgraded in 1996. The total cost of these projects was approximately $32,600,000. Two of the Company's independent leg rigs, the Eddie Paul and John Sandifer, completed refurbishment projects in 1995. The total cost of these two projects was approximately $35,100,000. 21 24 Capital expenditures for 1997 are expected to aggregate approximately $330,000,000, of which the majority are discretionary and relate to upgrades of equipment. Management considers such upgrades desirable to improve the marketability of the fleet, but the upgrades could be deferred if necessary. The amount for 1997 includes $90,000,000 for the conversion of the Paul Romano to an EVA-4000 semisubmersible unit in 1997 and $71,000,000 for the conversion of two additional submersible rigs to EVA-4000 semisubmersible units. The conversion of these latter two rigs would not be completed until 1998. These capital expenditures will be funded from operating cash flows, existing cash balances, available lines of credit and/or net proceeds expected from the sale of the 12 mat supported jackup rigs. The Company is currently reviewing proposals from several financial institutions to provide project financing for the EVA-4000 semisubmersible rig conversions. Certain projects currently being considered by the Company could require, if they materialize, capital expenditures or other cash requirements not included in the above estimate. In addition, the Company will continue to evaluate acquisitions of drilling units from time to time. CREDIT FACILITIES AND LONG-TERM DEBT In conjunction with the closing of the Neddrill acquisition on July 1, 1996, the Company issued $125,000,000 aggregate principal amount of 9 1/8% Senior Notes. The 9 1/8% Senior Notes will mature on July 1, 2006. Interest on the 9 1/8% Senior Notes is payable semiannually on January 1 and July 1 of each year. The 9 1/8% Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on or after July 1, 2001 initially at 104.563 percent of principal amount, declining ratably to par on or after July 1, 2004, plus accrued interest. The indenture governing the 9 1/8% Senior Notes contains certain restrictive covenants, including limitations on additional indebtedness and the ability to secure such indebtedness; restrictions on dividends and certain investments; and limitations on sales of assets, sales and leasebacks, transactions with affiliates, and mergers or consolidations. At December 31, 1996, the Company had lines of credit totaling $25,000,000, of which $15,000,000 was available to support letters of credit, and letter of credit facilities totaling $5,000,000, subject to the Company's maintenance of certain levels of collateral. At December 31, 1996, $10,186,000 had been used to support outstanding letters of credit. At December 31, 1996, borrowings of $19,184,000 were available under the lines of credit, including $9,184,000 to support letters of credit. The Company entered into a financing agreement in November 1995 with Transamerica Insurance Finance for a period of 18 months related to the renewal of its Marine Package, Protection and Indemnity, and Excess Liability insurance policies. The amount financed totaled $16,561,000 at a fixed interest rate of 6.23 percent per annum, repayable in 18 equal payments. The amount outstanding at December 31, 1996 totaled $3,102,000. In November 1996, the Company acquired $11,000,000 principal amount of its 9 1/4% Senior Notes Due 2003 (the "9 1/4% Senior Notes"), resulting in $114,000,000 principal amount of 9 1/4% Senior Notes outstanding at December 31, 1996. The 9 1/4% Senior Notes will mature on October 1, 2003. Interest on the 9 1/4% Senior Notes is payable semiannually on April 1 and October 1 of each year. The 9 1/4% Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on or after October 1, 1998 initially at 103.47 percent of principal amount, declining ratably to par on or after October 1, 2001, plus accrued interest. Mandatory sinking fund payments of 25 percent of the original principal amount of the 9 1/4% Senior Notes at par plus accrued interest will be required on October 1, 2001 and 2002. The indenture governing the 9 1/4% Senior Notes contains certain restrictive covenants, including limitations on additional indebtedness and the ability to secure such indebtedness; restrictions on dividends and certain investments; and limitations on sales of assets, sales and leasebacks, transactions with affiliates, and mergers or consolidations. The Company has acquired an additional $27,800,000 principal amount of 9 1/4% Senior Notes since December 31, 1996. In connection with the initial construction of the NN-1, the predecessor of NN-1 Limited Partnership issued U.S. Government Guaranteed Ship Financing Sinking Fund Bonds, of which $1,026,000 was outstanding at December 31, 1996. Interest and principal are payable semiannually on June 15 and December 15 of each year with interest at 8.95 percent per annum, and the bonds mature in 1998. The bonds are secured by the NN-1, and the applicable security agreement contains certain restrictions, among others, on distributions to partners, dispositions of assets, and the provision of services to related parties. In addition, there are minimum working capital, net worth and long-term debt to net worth requirements applicable to NN-1 Limited Partnership. The Company's sharing percentage in NN-1 Limited Partnership's distributions from operations is generally 90 percent. As the general partner of NN-1 Limited Partnership, Noble Drilling has called the bonds for redemption on March 31, 1997. Minimum principal payments on the long-term debt as described above are $3,622,000 due in 1997, $506,000 due in 1998, $31,250,000 due in each of the years 2001 and 2002, $51,500,000 due in 2003 and $125,000,000 due in 2006. 22 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements are filed in this Item 8: Report of Independent Accountants Consolidated Balance Sheets at December 31, 1996 and 1995 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1996 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1996 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1996 Notes to Consolidated Financial Statements 23 26 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Noble Drilling Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of changes in shareholders' equity present fairly, in all material respects, the financial position of Noble Drilling Corporation and its subsidiaries (the "Company") at December 31, 1996 and 1995, and the results of their operations and their cash flows for the three years ended December 31, 1996, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Houston, Texas January 30, 1997, except as to Note 15, which is as of February 19, 1997 24 27 NOBLE DRILLING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except par value amounts)
December 31, ------------------------ 1996 1995 ---------- --------- ASSETS CURRENT ASSETS Cash and cash equivalents............................................................. $ 149,632 $ 41,307 Restricted cash....................................................................... 2,000 - Investment in marketable equity securities............................................ 2,533 6,131 Investment in marketable debt securities.............................................. 19,296 17,031 Accounts receivable (net allowance of $1,494 and $1,280).............................. 101,619 60,251 Costs of uncompleted contracts in excess of billings.................................. 18,505 6,646 Inventories........................................................................... 3,287 19,795 Deferred income taxes................................................................. 39,248 - Prepaid expenses...................................................................... 19,572 15,364 Other current assets.................................................................. 32,785 21,487 ---------- --------- Total current assets.................................................................... 388,477 188,012 ---------- --------- PROPERTY AND EQUIPMENT Drilling equipment and facilities..................................................... 1,176,145 871,539 Other................................................................................. 27,924 23,891 ---------- --------- 1,204,069 895,430 Accumulated depreciation.............................................................. (247,035) (352,452) ---------- --------- 957,034 542,978 ---------- --------- DEFERRED INCOME TAXES................................................................... 2,296 - OTHER ASSETS............................................................................ 19,600 11,540 ---------- --------- $1,367,407 $ 742,530 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current installments of long-term debt................................................ $ 3,622 $ 12,210 Accounts payable...................................................................... 66,906 30,782 Accrued payroll and related costs..................................................... 28,475 13,674 Taxes payable......................................................................... 20,304 12,953 Interest payable...................................................................... 8,557 2,860 Deferred income taxes................................................................. 285 - Other current liabilities............................................................. 23,351 13,910 ---------- --------- Total current liabilities............................................................... 151,500 86,389 LONG-TERM DEBT.......................................................................... 239,506 129,923 DEFERRED INCOME TAXES................................................................... 50,331 2,476 OTHER LIABILITIES....................................................................... 245 - MINORITY INTEREST....................................................................... 576 249 ---------- --------- 442,158 219,037 ---------- --------- SHAREHOLDERS' EQUITY $1.50 Preferred stock-par value $1; convertible; cumulative; redeemable at the option of the Company; aggregate liquidation preference of $100,625; 15,000 shares authorized; 4,025 issued and outstanding in 1995.................................... - 4,025 Common stock-par value $0.10; 200,000 shares authorized; 132,189 issued and 131,980 outstanding in 1996; 94,548 issued and 94,483 outstanding in 1995................... 13,219 9,455 Capital in excess of par value........................................................ 916,004 589,866 Unrealized losses on marketable debt securities....................................... (35) (115) Minimum pension liability............................................................. - (3,403) Cumulative translation adjustment..................................................... (882) (2,081) Accumulated deficit................................................................... (1,205) (73,802) Treasury stock, at cost............................................................... (1,852) (452) ---------- --------- 925,249 523,493 ---------- --------- COMMITMENTS AND CONTINGENCIES........................................................... - - $1,367,407 $ 742,530 ========== =========
See accompanying notes to consolidated financial statements. 25 28 NOBLE DRILLING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
YEAR ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 --------- ---------- --------- OPERATING REVENUES Contract drilling services.............................................. $ 350,008 $ 205,110 $ 249,820 Labor contract drilling services........................................ 33,425 35,136 36,203 Turnkey drilling services............................................... 114,948 71,273 56,380 Engineering and consulting services..................................... 4,954 11,264 3,796 Other revenue........................................................... 10,918 5,185 5,789 --------- ---------- --------- 514,253 327,968 351,988 --------- ---------- --------- OPERATING COSTS AND EXPENSES Contract drilling services.............................................. 216,597 138,340 160,109 Labor contract drilling services........................................ 25,310 26,540 28,355 Turnkey drilling services............................................... 80,777 64,471 46,886 Engineering and consulting services..................................... 3,387 7,311 2,958 Other expense........................................................... 5,511 3,440 4,900 Depreciation and amortization........................................... 52,159 36,492 39,519 Selling, general and administrative..................................... 54,504 40,139 47,606 Gains on sales of property and equipment, net of impairments............ (36,115) (829) (8,858) Minority interest....................................................... (428) (214) (169) Restructuring charges................................................... - - 3,661 --------- ---------- --------- 401,702 315,690 324,967 --------- ---------- --------- OPERATING INCOME.......................................................... 112,551 12,278 27,021 OTHER INCOME (EXPENSE) Interest expense........................................................ (18,758) (12,156) (12,351) Interest income......................................................... 6,409 5,323 5,640 Other, net.............................................................. 1,757 (579) 6,885 --------- ---------- --------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY CHARGE....................... 101,959 4,866 27,195 INCOME TAX PROVISION...................................................... (22,662) (3,272) (5,672) --------- ---------- --------- INCOME BEFORE EXTRAORDINARY CHARGE........................................ 79,297 1,594 21,523 EXTRAORDINARY CHARGE, NET OF TAX.......................................... (660) - - --------- ---------- --------- NET INCOME................................................................ 78,637 1,594 21,523 PREFERRED STOCK DIVIDENDS................................................. (6,040) (7,199) (12,764) --------- ---------- --------- NET INCOME (LOSS) APPLICABLE TO COMMON SHARES............................. $ 72,597 $ (5,605) $ 8,759 ========= ========== ========= NET INCOME (LOSS) APPLICABLE TO COMMON SHARES PER SHARE................... $ 0.66 $ (0.08) $ 0.11 ========= ========== ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING................................ 110,252 89,736 77,576
See accompanying notes to consolidated financial statements. 26 29 NOBLE DRILLING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
YEAR ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 --------- ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income.............................................................. $ 78,637 $ 1,594 $ 21,523 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization........................................... 52,159 36,492 39,519 Gains on sales of property and equipment................................ (53,915) (829) (8,858) Gains on marketable securities.......................................... (2,010) (300) (1,963) Inventory charge........................................................ 14,808 - - Impairment charge....................................................... 17,511 - - (Gain) loss on foreign exchange......................................... (310) (206) 76 Deferred income tax provision (benefit)................................. 6,596 (449) 3,433 Restructuring charges................................................... - - 3,661 Extraordinary charge, net of tax........................................ 660 - - Other................................................................... 969 132 (6,009) Changes in current assets and liabilities: Accounts receivable.................................................. (18,752) (8,480) 20,208 Proceeds from sale of marketable equity securities, net.............. 5,615 3,398 - Other assets......................................................... (6,783) (17,061) 22,066 Accounts payable..................................................... 16,178 11,356 (2,635) Other liabilities.................................................... 27,016 3,836 (12,365) --------- ---------- --------- Net cash provided by operating activities............................ 138,379 29,483 78,656 --------- ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment...................................... (216,887) (91,202) (55,834) Acquisition of Neddrill, net of cash acquired........................... (284,726) - - Proceeds from Triton acquisition, net of negative noncash working capital of $3,532 acquired.................................................... - - 13,600 Proceeds from sale of property and equipment............................ 103,500 1,879 13,792 Proceeds from sale of (investment in) marketable debt securities........ (2,192) 24,374 (2,069) Proceeds from insurance settlement...................................... 14,142 - - Investment in unconsolidated affiliate.................................. (410) - (342) Payments to minority interest holders, net.............................. - - (4,478) --------- ---------- --------- Net cash used by investing activities................................ (386,573) (64,949) (35,331) --------- ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Preferred stock conversion costs........................................ (31) (2,406) - Proceeds from long-term debt, net....................................... 121,470 - - Payment of long-term debt............................................... (26,130) (520) (598) Proceeds from issuance of common stock, net............................. 271,312 356 2,604 Dividends paid on preferred stock....................................... (7,549) (8,881) (12,764) Purchase of shares returned to treasury stock........................... (2,250) - - Payment of short-term debt.............................................. - (6,698) (7,500) Other................................................................... - 898 1,211 --------- ---------- --------- Net cash provided (used) by financing activities..................... 356,822 (17,251) (17,047) --------- ---------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH................................... (303) (1,139) (292) --------- ---------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................... 108,325 (53,856) 25,986 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.............................. 41,307 95,163 69,177 --------- ---------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR.................................... $ 149,632 $ 41,307 $ 95,163 ========= ========== =========
See accompanying notes to consolidated financial statements. 27 30 NOBLE DRILLING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands)
$2.25 PREFERRED STOCK $1.50 PREFERRED STOCK COMMON STOCK ----------------------- ------------------------ ----------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT -------- ---------- --------- --------- --------- --------- JANUARY 1, 1994............... 2,990 $ 2,990 4,025 $ 4,025 76,371 $ 7,637 Net income.................... - - - - - - Issuance of stock: Purchase of Triton.......... - - - - 752 75 Exercise of stock options... - - - - 197 20 Contribution to benefit plans - - - - 271 27 Exchange of Chiles options.. - - - - 480 48 Stock options granted at discount - - - - - - Conversion of preferred stock. (1) (1) - - 5 1 Dividends on preferred stock.. - - - - - - Net unrealized losses on marketable securities....... - - - - - - Minimum pension liability..... - - - - - - Translation adjustment........ - - - - - - -------- ---------- --------- --------- --------- --------- DECEMBER 31, 1994............. 2,989 2,989 4,025 4,025 78,076 7,808 Net income.................... - - - - - - Conversion/redemption of preferred stock............. (2,989) (2,989) - - 16,199 1,620 Preferred stock conversion costs - - - - - - Net unrealized losses on marketable securities....... - - - - - - Minimum pension liability..... - - - - - - Translation adjustment........ - - - - - - Dividends on preferred stock.. - - - - - - Issuance of stock: Exercise of stock options... - - - - 109 11 Contribution to benefit plans - - - - 164 16 Contribution of treasury stock to restricted stock plan.. - - - - - - Restricted stock plan shares returned to treasury...... - - - - - - -------- ---------- --------- --------- --------- --------- DECEMBER 31, 1995............. - - 4,025 4,025 94,548 9,455 Net income.................... - - - - - - Conversion/redemption of preferred stock........... - - (4,025) (4,025) 9,836 984 Net unrealized losses on marketable securities....... - - - - - - Minimum pension liability..... - - - - - - Translation adjustment........ - - - - - - Dividends on preferred stock.. - - - - - - Issuance of stock: Sale of common stock........ - - - - 21,850 2,185 Purchase of Neddrill........ - - - - 5,000 500 Settlement of Triton purchase contingency............... - - - - 67 7 Exercise of stock options... - - - - 602 60 Contribution to benefit plans - - - - 286 28 Contribution of treasury stock to restricted stock plan.. - - - - - - Restricted stock plan shares returned to treasury...... - - - - - - -------- ---------- --------- --------- --------- --------- DECEMBER 31, 1996............. - $ - - $ - 132,189 $ 13,219 ======== ========== ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 28 31 NOBLE DRILLING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED) (In thousands)
UNREALIZED CAPITAL LOSSES ON MINIMUM CUMULATIVE TREASURY STOCK IN EXCESS OF MARKETABLE DEBT PENSION TRANSLATION ACCUMULATED --------------------------- PAR VALUE SECURITIES LIABILITY ADJUSTMENT DEFICIT SHARES AMOUNT - ------------- --------------- ------------ ----------- ------------ ---------- ------------ $ 583,110 - - $ (2,286) $ (76,956) 250 $ (1,750) - - - - 21,523 - - 5,094 - - - - - - 1,208 - - - - - - 1,781 - - - - - - (480) - - - - - - 20 - - - - - - - - - - - - - - - - - (12,764) - - - $ (1,847) - - - - - - - $ (3,825) - - - - - - - (39) - - - - ------------ ------------ ------------ ----------- ------------ ---------- ------------ 590,733 (1,847) (3,825) (2,325) (68,197) 250 (1,750) - - - - 1,594 - - 1,369 - - - - - - (2,406) - - - - - - - 1,732 - - - - - - - 422 - - - - - - - 244 - - - - - - - (7,199) - - 345 - - - - - - 1,123 - - - - - - (1,480) - - - - (211) 1,480 182 - - - - 26 (182) - ------------ ------------ ------------ ----------- ------------ ---------- ------------ 589,866 (115) (3,403) (2,081) (73,802) 65 (452) - - - - 78,637 - - 3,012 - - - - - - - 80 - - - - - - - 3,403 - - - - - - - 1,199 - - - - - - - (6,040) - - 266,261 - - - - - - 49,500 - - - - - - 1,003 - - - - - - 2,806 - - - - - - 4,406 - - - - - - (850) - - - - (109) 850 - - - - - 253 (2,250) - ------------ ------------ ------------ ----------- ------------ ---------- ------------ $ 916,004 $ (35) $ - $ (882) $ (1,205) 209 $ (1,852) ============ ============ ============ =========== ============ ========== ============
See accompanying notes to consolidated financial statements. 29 32 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BUSINESS Noble Drilling Corporation ("Noble Drilling" or, together with its consolidated subsidiaries, unless the context requires otherwise, the "Company") is primarily engaged in domestic and international contract oil and gas drilling and workover operations. The Company's international operations are conducted in the North Sea, Mexico, Africa, South America, the Middle East and India. Results of operations and financial condition of the Company should be considered in light of the potentially significant fluctuations in demand for the Company's services as rapid changes in oil and gas producers' expectations, budgets and drilling plans occur. These fluctuations can rapidly impact the Company's results of operations and financial condition as supply and demand factors directly affect utilization and dayrates, which are the primary determinants of cash flow from operations. CONSOLIDATION The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and the Company's share of the assets, liabilities and operations of Perforadora Faja de Oro, S.A. de C.V. ("Faja Joint Venture") and NN-1 Limited Partnership, of which the Company is the general partner. The minority interest in Faja Joint Venture (10 percent) and NN-1 Limited Partnership (approximately 10 percent) is included in the balance sheets and the statements of operations as minority interest. In 1994, the Company made distributions of approximately $4,500,000 to its partner in Faja Joint Venture. All significant intercompany accounts and transactions have been eliminated in consolidation. The equity method of accounting is used for investments in affiliates. Certain reclassifications have been made in prior year consolidated financial statements to conform to the classifications used in the 1996 consolidated financial statements. These reclassifications have no impact on net income or loss. FOREIGN CURRENCY TRANSLATION The Company follows a translation policy in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, Foreign Currency Translation. The U.S. dollar has been designated as the functional currency where appropriate, based on an evaluation of such factors as the markets in which the subsidiary operates, generation of cash flow, financing activities and intercompany arrangements. For the Company's subsidiaries in the United Kingdom and Canada, the local currency is the functional currency. Assets and liabilities are translated at the rates of exchange on the balance sheet date. Income and expense items are translated at average rates of exchange. The resulting gains or losses arising from the translation of accounts from the functional currency to the U.S. dollar are included as a separate component of shareholders' equity designated as cumulative translation adjustment. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, demand deposits with banks and all highly liquid investments with original maturities of three months or less. In accordance with SFAS No. 95, Statement of Cash Flows, cash flows from the Company's operations in the United Kingdom and Canada are calculated based on their functional currency. As a result, amounts related to assets and liabilities reported on the Consolidated Statements of Cash Flows will not necessarily agree with changes in the corresponding balances on the Consolidated Balance Sheets. The effect of exchange rate changes on cash balances held in foreign currencies is reported on a separate line below net cash provided (used) by financing activities. Of the cash on hand at December 31, 1996, $2,000,000 was restricted as a result of cash collateral requirements for letters of credit which expire in 1997. 30 33 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) INVENTORIES Inventories are stated principally at average cost. As a result of the Company's asset rationalization program and the acquisition of Neddrill (see Note 2), the Company finalized its review of the status of worldwide inventories in the fourth quarter of 1996 and determined certain adjustments were appropriate to properly reflect the estimated net realizable value of these assets. These adjustments consisted primarily of write-downs for inventory obsolescence totaling approximately $14,808,000 and reclassifications of approximately $16,555,000 to property and equipment to better reflect their economic lives and to be consistent with other assets owned by the Company. The inventory write-down is included in "Contract drilling services" expense in the Consolidated Statement of Operations for the year ended December 31, 1996. PROPERTY AND EQUIPMENT Property and equipment is stated at cost, reduced by provisions to recognize economic impairment in value when management determines that such impairment has occurred. Drilling equipment and facilities are depreciated using the straight-line method over estimated remaining useful lives ranging from three to twenty-five years from the date of construction or major refurbishment. All other property and equipment is depreciated using the straight-line method over useful lives ranging from three to twenty years. Effective January 1, 1995, the Company revised its estimates of salvage values and remaining depreciable lives of certain rigs to better reflect their economic lives and to be consistent with other similar assets owned by the Company. The effect of this change in estimates was a reduction in the net loss applicable to common shares of $6,160,000, or $0.07 per common share, for the year ended December 31, 1995. In March 1995, SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, was issued. This statement requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company adopted this standard effective January 1, 1996. Consistent with the Company's strategic objective to focus on the deepwater capabilities of its fleet, the Company formalized a plan to dispose of its two remaining posted barges, the Lewis Dugger and the Chuck Syring during the first quarter of 1996. The two barges were written down at March 31, 1996 to their estimated net realizable values based on then recent offers received for these assets from third parties, resulting in a pre-tax charge to earnings of $7,600,000. See Note 2. In the fourth quarter of 1996, the Company reviewed the status of the NN-1. As of December 31, 1996, the NN-1 had not been under contract since March of 1993. Given the strength of the international markets in 1996 and the expected continued strength in 1997, coupled with the Company's unsuccessful marketing efforts with respect to the NN-1, recoverability of the NN-1 was considered doubtful. The Company considered expected future cash flows over the remaining life of the rig and determined that the NN-1 was impaired. Accordingly, an impairment charge of $10,200,000 (excluding a $289,000 reduction for minority interest) was recorded in the fourth quarter of 1996. The net book value of the NN-1 was $1,022,000 at December 31, 1996. The impairment charge is included in "Gains on sales of property and equipment, net of impairments" in the Consolidated Statement of Operations for the year ended December 31, 1996. Maintenance and repairs on drilling equipment are charged to expense as incurred. Total maintenance and repair expenses for the years ended December 31, 1996, 1995 and 1994, were approximately $41,759,000, $26,189,000 and $33,700,000, respectively. When assets are sold, retired or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and the gain or loss is recognized. In 1995, a jackup rig lost two legs during mobilization to West Africa. The third leg of the rig was removed prior to tow to the U.S. Gulf of Mexico for a complete damage evaluation. A charge of $1,778,000 related to the cost of mobilization was recorded in the fourth quarter of 1995. After evaluation of the rig, the Company negotiated a constructive total loss with its insurance underwriters and received $14,142,000 in net proceeds for the insurance settlement. There was no material gain or loss recorded as a result of the insurance settlement. 31 34 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) On September 15, 1994, Chiles Offshore Corporation ("Chiles") merged with Noble Offshore Corporation ("NOC"), a wholly owned subsidiary of Noble Drilling (the "Chiles Merger"). See Note 2. A restructuring charge of $3,661,000 related to the Chiles Merger was recorded in 1994 as a result of facility consolidation, including the write-down of certain of the Company's owned properties, and to a lesser extent severance costs. This restructuring plan was developed in the fourth quarter of 1994 and approved by the Company's board of directors. OTHER ASSETS The excess of cost over the fair value of net tangible assets acquired in the acquisition of Triton Engineering Services Company ("Triton") is being amortized over seventeen years. Prepaid insurance is amortized over the term of the insurance policy. Deferred debt issuance costs, which totalled $5,933,000 at December 31, 1996, are being amortized over the life of the debt securities. Amortization related to debt issuance costs was $526,000, $404,000 and $404,000 for the years ended December 31, 1996, 1995 and 1994, respectively. REVENUE RECOGNITION Revenues generated from the Company's dayrate-basis drilling contracts are recognized as services are performed. The Company's turnkey drilling contracts are of a short-term, fixed fee nature, and accordingly, revenues and expenses are recognized using the completed contract method. When estimates of projected revenues and costs indicate a loss, the total estimated loss is accrued. CONCENTRATION OF CREDIT RISK The primary market for the Company's services is the offshore oil and gas industry, and the Company's customers consist primarily of major oil companies, independent oil and gas producers and government-owned oil companies. The Company performs ongoing credit evaluations of its customers and generally does not require material collateral. The Company provides allowances for potential credit losses when necessary. NET INCOME (LOSS) APPLICABLE TO COMMON SHARES PER SHARE Net income (loss) applicable to common shares per share has been computed on the basis of the weighted average number of common shares and, where dilutive, common share equivalents, outstanding during the indicated periods. Each outstanding share of the $1.50 Convertible Preferred Stock ("$1.50 Preferred Stock") was assumed to be converted, at January 1, 1996, into 2.4446 shares of common stock for purposes of calculating fully diluted earnings per share. The calculation of net income (loss) applicable to common shares per share assuming full dilution was antidilutive; therefore, fully diluted amounts are not presented. The Preferred Conversion Payment of approximately $1,524,000 in March 1995 (see Note 7) was accounted for as a reduction of net earnings applicable to common shares for purposes of calculating the net loss applicable to common shares per share. This accounting treatment increased the net loss applicable to common shares per share from $0.06 to $0.08 for the year ended December 31, 1995. See Note 12. 32 35 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) SUPPLEMENTAL CASH FLOW INFORMATION
DECEMBER 31, ---------------------------------------- 1996 1995 1994 ----------- ---------- ----------- Cash paid during the period for: Interest................................................................ $ 13,061 $ 11,738 $ 11,947 Income taxes............................................................ $ 6,471 $ 3,946 $ 6,254 Noncash investing and financing activities: Neddrill acquisition with common stock.................................. $ 50,000 $ - $ - Insurance financing agreement........................................... $ 1,214 $ 14,838 $ - Triton acquisition with common stock.................................... $ - $ - $ 5,169 Triton acquisition with notes payable................................... $ - $ - $ 4,000 Triton acquisition, minority interest assumed........................... $ - $ - $ 5,392
CERTAIN SIGNIFICANT 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 -- ACQUISITIONS, MERGERS AND DISPOSITIONS On July 1, 1996, the Company completed the agreement of sale and purchase with Royal Nedlloyd N.V. ("Nedlloyd") and its wholly owned subsidiary, Neddrill Holding B.V., to acquire the assets utilized in the offshore contract drilling, accommodation and other gas exploration and production related service businesses of Nedlloyd's offshore drilling division ("Neddrill"), including the acquisition of approximately $28,000,000 in net working capital, and the personnel employed by Neddrill. The purchase price was $300,000,000 in cash plus 5,000,000 shares of Noble Drilling common stock. The cash portion of the purchase price was financed by the issuance and sale of 21,850,000 shares of Noble Drilling common stock and $125,000,000 principal amount of 9 1/8% Senior Notes due 2006 (the "9 1/8% Senior Notes"). The net proceeds from the public offerings of common stock and debt in excess of the $300,000,000 cash portion of the purchase price were added to the Company's working capital. The Neddrill acquisition was accounted for using the purchase method of accounting and Neddrill's results of operations are included in the Consolidated Statements of Operations from the date of the acquisition. The respective assets and liabilities have been recorded at their estimated fair values at the date of acquisition, and the allocation of the purchase price is based on the best estimates of the Company using information currently available. Certain adjustments relating to this acquisition are subject to change based upon final appraisals and determination of the fair values of the net assets acquired and liabilities assumed. The Chiles Merger was consummated on September 15, 1994 through the exchange of 28,598,777 shares of Noble Drilling common stock for all the outstanding common stock of Chiles and the exchange of 4,025,000 shares of Noble Drilling $1.50 convertible preferred stock ("$1.50 Preferred Stock") (liquidation preference $25.00 per share), par value $1.00 per share, for all the outstanding shares of Chiles $1.50 convertible preferred stock. The Chiles Merger was accounted for as a pooling of interests and all financial information for the year of the transaction and prior periods has been restated to reflect this merger. In addition, Noble Drilling issued an additional 480,000 shares of its common stock in exchange for the cancellation of outstanding Chiles stock options. On April 22, 1994, the Company acquired all of the issued and outstanding shares of common stock (the "Shares") of Triton Engineering Services Company ("Triton") pursuant to the terms of the Stock Purchase Agreement dated April 22, 1994. In consideration for the Shares, the Company paid approximately $4,085,000 in cash, issued promissory notes in the aggregate amount of $4,000,000, which were paid by the Company on October 21, 1994, and issued 751,864 shares of Noble Drilling common stock valued at $5,169,000. In 1996, the Company issued 67,332 shares of Noble Drilling common stock and paid $20,000 as additional consideration pursuant to the Stock Purchase Agreement. The acquisition of Triton has been accounted for under the purchase method, and accordingly, Triton's operating results have been included in the Consolidated Statements of Operations since the date of acquisition. 33 36 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) The following table provides selected consolidated financial information for the Company on a pro forma basis assuming that the Neddrill acquisition, the issuance of 21,850,000 shares of common stock and $125,000,000 principal amount of the 9 1/8% Senior Notes and the application of the net proceeds therefrom had occurred on January 1, 1995. The pro forma information set forth below is not necessarily indicative of what the Company's results of operations would have been had the transactions been consummated as of January 1, 1995, nor is such information necessarily indicative of the Company's future results of operations.
DECEMBER 31, -------------------------- 1996 1995 ------------ ----------- Operating revenues................................. $ 596,090 $ 449,493 Net income applicable to common shares............. $ 83,705 $ 2,524 Net income applicable to common shares per share... $ 0.68 $ 0.01
The Company purchased the Shelf 4, a Friede & Goldman 9500 Enhanced Pacesetter semisubmersible rig, on December 30, 1996 for $6,000,000 in cash. The rig is stacked in the United Kingdom, and substantial capital expenditures are required to return the rig to operational status. On December 24, 1996, the Company purchased the Noble Jimmy Puckett (formerly the Essar Explorer), a 300-foot Friede & Goldman L-780 Mod II independent leg cantilevered unit built in 1982, for $35,400,000 in cash. The Company chartered the rig back to the seller for the duration of the seller's current contract with the Oil and Natural Gas Corporation Ltd. of India, which expires in October 1997. On September 4, 1996, the Company purchased the Noble Kenneth Delaney (formerly the Miss Kitty), a Friede & Goldman L-780 Mod II independent leg cantilevered unit rated for a water depth of 300 feet, for $26,250,000 in cash. The rig is currently working offshore India under a bareboat charter arrangement that expires in September 1997. The Company purchased the Noble Chuck Syring (formerly the Dana), a Marathon LeTourneau 82-C independent leg cantilevered rig capable of drilling in 250 feet of water, on March 20, 1996, for $15,800,000 in cash. The rig is currently operating under a long-term contract through October 1999 for Qatar General Petroleum Corporation in Qatar. On February 26, 1996, the Company purchased the Gus Androes (formerly the Odin Explorer), a Levingston 111-C independent leg cantilevered unit rated for a water depth of 300 feet, for $15,300,000 in cash. The rig has been refurbished and is under contract offshore Qatar with an international oil and gas company through October 1997, plus two one-year options. On December 13, 1996, the Company completed the sale of its land drilling assets for $60,000,000 in cash to Nabors Industries, Inc. The assets sold consisted principally of (i) 19 marketed land drilling rigs and 28 mothballed land drilling rigs, (ii) certain inventory related to the maintenance and operation of the rigs, (iii) leasehold interest and real property interest related to the maintenance and operation of the rigs and (iv) drilling contracts for the employment of the rigs in existence on the closing date. The Company recognized a pre-tax gain of $45,414,000 in connection with the sale which has been included in "Gains on sales of property and equipment, net of impairments" in the Consolidated Statement of Operations for the year ended December 31, 1996. Revenues, gross margin and operating income generated from the land drilling assets were $24,743,000, $6,756,000 and $3,048,000, respectively, for the year ended December 31, 1996. The Company sold two of its posted barge rigs during the first quarter of 1996. The Gus Androes, located in the U.S. Gulf, was sold for $6,000,000. The Gene Rosser, located offshore Nigeria, was sold for $13,000,000. The Company recorded pre-tax gains of $4,815,000 and $2,712,000, respectively, related to the sales of these posted barge rigs. The Lewis Dugger and Chuck Syring posted barge rigs, which were located offshore Nigeria, were sold on August 22, 1996, for $24,500,000 in cash and $7,500,000 in drill pipe credit. These two barges had been written down at March 31, 1996 to their estimated net realizable values based on then recent offers received for these assets 34 37 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) from third parties, resulting in a pre-tax charge to earnings of $7,600,000. The gains on the sales of the Gus Androes and Gene Rosser barge rigs net of the write-downs are included in "Gains on sales of property and equipment, net of impairments" in the Consolidated Statement of Operations for the year ended December 31, 1996. NOTE 3 -- MARKETABLE SECURITIES As of December 31, 1996, the Company classified all of its debt securities with original maturities of more than three months as available for sale. These investments are classified as marketable securities within current assets on the Consolidated Balance Sheets. The following table highlights information applicable to the Company's debt securities classified as available for sale as of December 31, 1996 and 1995:
DECEMBER 31, 1996 -------------------------------------------- AMORTIZED FAIR NET UNREALIZED DEBT SECURITY/MATURITY COST VALUE GAINS (LOSSES) - ----------------------------------------------------------------------- ----------- ------------ -------------- Corporate Obligations Mature within 1 year................................................. $ 3,067 $ 3,069 $ 2 U.S. Government Obligations Mature within 1 year................................................. 16,264 16,227 (37) ----------- ------------ -------------- Total.................................................................. $ 19,331 $ 19,296 $ (35) =========== ============ ============== DECEMBER 31, 1995 ------------------------------------------- AMORTIZED FAIR NET UNREALIZED DEBT SECURITY/MATURITY COST VALUE LOSSES - ----------------------------------------------------------------------- ----------- ------------ -------------- Corporate Obligations Mature within 1 year................................................. $ 1,520 $ 1,520 $ - Mature after 1 year through 5 years.................................. 7,258 7,214 (44) ----------- ------------ -------------- 8,778 8,734 (44) U.S. Government Obligations Mature after 1 year through 5 years.................................. 8,368 8,297 (71) ----------- ------------ -------------- Total.................................................................. $ 17,146 $ 17,031 $ (115) =========== ============ ==============
The net unrealized losses on debt securities of $35,000 and $115,000 as of December 31, 1996 and 1995, respectively, are included as a reduction of shareholders' equity in accordance with SFAS No. 115. Total realized losses related to sales of debt securities for the years ended December 31, 1996 and 1995 were $7,000 and $15,000, respectively. The Company categorizes its investments in marketable equity securities as trading securities. These investments are classified as current assets and were recorded at a fair value of $2,533,000 at December 31, 1996. Total proceeds from the sales of marketable equity securities were $5,615,000 and $3,670,000 for the years ended December 31, 1996 and 1995, respectively. Total realized gains on marketable equity securities, computed on a specific identification basis as the difference between proceeds received and carrying value, for the years ended December 31, 1996 and 1995 were $669,000 and $371,000, respectively. Total net unrealized gains (losses) related to marketable equity securities for the years ended December 31, 1996 and 1995, were $1,348,000 and $(56,000), respectively. NOTE 4 -- INVESTMENTS IN AFFILIATES The Company acquired a 41 percent interest in Arktik Drilling Ltd., Inc. ("Arktik") in connection with the July 1, 1996 acquisition of Neddrill and accounts for this investment using the equity method. Arktik is a Bahamian joint venture company that owns and operates the drillship Neddrill Muravlenko. The investment balance at December 31, 1996 was $410,000 and equity in earnings was not material for the year ended December 31, 1996. There were no distributions or dividends received during the year ended December 31, 1996. 35 38 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) NOTE 5 -- DEBT On July 1, 1996, in connection with the Neddrill acquisition and the issuance of 21,850,000 shares of Noble Drilling common stock in an underwritten public offering (the "1996 Stock Offering") (see Note 7), the Company issued $125,000,000 principal amount 9 1/8% Senior Notes due July 1, 2006 (the "9 1/8% Senior Notes") (the 1996 Stock Offering and the issuance of the 9 1/8% Senior Notes are collectively referred to as the "1996 Public Offerings"). Interest on the 9 1/8% Senior Notes is payable semi-annually on January 1 and July 1 of each year. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on or after July 1, 2001 at 104.56 percent of principal amount, declining ratably to par on or after July 1, 2004, plus accrued interest. The indenture governing the 9 1/8% Senior Notes contains certain restrictive covenants, including limitations on additional indebtedness, restrictions on dividends and certain investments and limitations on additional indebtedness, restrictions on dividend and certain investments and limitations on certain sale and lease-back transactions, disposals of assets, transactions with affiliates, and mergers or consolidations. On November 3, 1995, the Company entered into a financing agreement with Transamerica Insurance Finance for a period of 18 months related to the renewal of its Marine Package, Protection and Indemnity, and Excess Liability insurance policies. The amount financed totaled $16,561,000 at a fixed interest rate of 6.23 percent per annum. The amount outstanding at December 31, 1996 totaled $3,102,000. On October 7, 1993, the Company issued $125,000,000 principal amount of 9 1/4% Senior Notes Due October 1, 2003 (the "9 1/4% Senior Notes"). Interest on the 9 1/4% Senior Notes is payable semi-annually on April 1 and October 1 of each year. The 9 1/4% Senior Notes are redeemable at the option of the Company, in whole or in part, on or after October 1, 1998 at 103.47 percent of principal amount, declining ratably to par on or after October 1, 2001, plus accrued interest. Mandatory sinking fund payments of 25 percent of the original principal amount of the 9 1/4% Senior Notes at par plus accrued interest will be required on October 1, 2001 and October 1, 2002. The indenture governing the 9 1/4% Senior Notes contains certain restrictive covenants, including limitations on additional indebtedness and the ability to secure such indebtedness, restrictions on dividends and certain investments and limitations on sales of assets, sales and leaseback, transactions with affiliates, and mergers or consolidations. In November 1996, the Company purchased $11,000,000 principal amount of its 9 1/4% Senior Notes, which resulted in an extraordinary charge of $660,000, net of taxes of $355,000. The extraordinary charge represents the difference between the acquisition price and the net carrying value of the notes, including unamortized debt issuance costs. After giving effect to the purchase, the Company had $114,000,000 principal amount of 9 1/4% Senior Notes outstanding at December 31, 1996. In connection with the initial construction of the jackup rig, NN-1, the predecessor of NN-1 Limited Partnership issued U.S. Government Guaranteed Ship Financing Sinking Fund Bonds, of which $1,026,000 principal amount was outstanding at December 31, 1996. The bonds mature in 1998, and bear interest at the rate of 8.95 percent per annum, payable semi-annually on June 15 and December 15 each year. The bonds are secured by the NN-1, and the applicable security agreement contains certain restrictions, among others, on distributions to partners, dispositions of assets and services to related parties. In addition, there are minimum working capital, net worth and long-term debt to net worth requirements applicable to NN-1 Limited Partnership. As the general partner of NN-1 Limited Partnership, Noble Drilling has called the bonds for redemption on March 31, 1997. The Company's sharing percentage in NN-1 Limited Partnership's distributions from operations is generally 90 percent. See Note 1. Annual maturities of long-term debt are $3,622,000 due in 1997, $506,000 due in 1998, $31,250,000 due in each of the years 2001 and 2002, $51,500,000 due in 2003 and $125,000,000 due in 2006. 36 39 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) The following table summarizes the Company's long-term debt:
DECEMBER 31, -------------------------- 1996 1995 ------------ ----------- 9 1/4% Senior Notes Due 2003.............................................. $ 114,000 $ 125,000 9 1/8% Senior Notes due 2006.............................................. 125,000 - U.S. Government Guaranteed Ship Financing Sinking Fund Bonds.............. 1,026 1,546 Insurance financing....................................................... 3,102 15,587 ------------ ----------- 243,128 142,133 Current installments...................................................... (3,622) (12,210) ------------ ----------- $ 239,506 $ 129,923 ============ ===========
The fair value of the Company's long-term debt at December 31, 1996, estimated based on the quoted market prices for similar issues or on the current rates offered to the Company for debt of similar remaining maturities, was approximately $255,700,000. NOTE 6 -- CREDIT FACILITIES The Company has an unsecured credit agreement with First Interstate Bank of Texas, N.A., which provided for a $25,000,000 revolving credit line facility, of which $15,000,000 was available to support letters of credit, and a $5,000,000 letter of credit facility at December 31, 1996. The Company pays a quarterly commitment fee on the unused portion of the facility. The agreement contains certain restrictive and financial covenants, including those related to indebtedness, net worth and fixed charges, and provides for guarantees of the indebtedness by certain subsidiaries of Noble Drilling. At December 31, 1996, $10,816,000 had been used to support outstanding letters of credit. At December 31, 1996, borrowings of $19,184,000 were available under the lines of credit, including $9,184,000 to support letters of credit. NOTE 7 -- SHAREHOLDERS' EQUITY On July 1, 1996, the Company issued and sold 21,850,000 shares of common stock in the 1996 Stock Offering (see Note 5) at an initial price to the public of $13.00 per share. This resulted in net proceeds of $272,033,000, after deducting the underwriting discount and other related costs. The net proceeds of the 1996 Public Offerings (see Note 5) were used to purchase Neddrill as discussed previously in Note 2, with the balance of the proceeds, approximately $89,916,000, used for general corporate purposes. In the Chiles Merger, 4,025,000 shares of $1.50 convertible preferred stock of Chiles were converted into and exchanged for an equivalent number of shares of $1.50 Preferred Stock of the Company having substantially the same rights, privileges, preferences and voting power as the Chiles preferred stock. Holders of the $1.50 Preferred Stock received a cash dividend at an annual rate of $1.50 per share. In December 1996, 4,023,779 shares of $1.50 Preferred Stock were converted into 9,836,475 shares of Noble Drilling common stock. The remaining 1,221 shares of $1.50 Preferred Stock were redeemed at $26.05 per share, plus accrued dividends. In 1991, the Company issued and sold 2,990,000 shares of a new series of $2.25 Convertible Exchangeable Preferred Stock ("$2.25 Preferred Stock"), par value $1.00 per share. Holders of the $2.25 Preferred Stock received a cash dividend at an annual rate of $2.25 per share. In March 1995, an aggregate of 923,862 shares of $2.25 Preferred Stock were converted into 5,006,830 shares of Noble Drilling common stock. The Company paid an aggregate of approximately $1,524,000 in cash ("Preferred Conversion Payment") in the first quarter of 1995 in connection with this conversion. In the second quarter of 1995, the Company called for the redemption of all remaining outstanding shares of the $2.25 Preferred Stock. Of the 2,065,238 shares then outstanding, 2,062,537 were surrendered for conversion and 2,701 were redeemed by the Company, resulting in the Company's issuance of 11,192,359 shares of common stock (including 14,637 shares sold to a standby underwriter). 37 40 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) NOTE 8 -- STOCK-BASED COMPENSATION PLANS The Company has several stock-based compensation plans, which are described below. The Company applies APB Opinion 25 and related Interpretations in accounting for its stock-based compensation plans. In 1995, the FASB issued FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") which, if fully adopted by the Company, would change the methods the Company applies in recognizing the cost of its stock-based compensation plans. Adoption of the cost recognition provisions of SFAS 123 is optional and the Company has decided not to elect these provisions of SFAS 123. However, pro forma disclosures as if the Company adopted the cost recognition provisions of SFAS 123 in 1995 are required by SFAS 123 and are presented below. NONQUALIFIED STOCK OPTIONS 1991 STOCK OPTION AND RESTRICTED STOCK PLAN The Company's 1991 Stock Option and Restricted Stock Plan, as amended (the "1991 Plan"), provides for the granting of options to purchase the Company's common stock, with or without stock appreciation rights ("SARs"), and the awarding of shares of restricted stock to selected employees. A maximum of 5,200,000 shares is available under the 1991 Plan. Options may be either incentive stock options (intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended) or nonqualified stock options. The 1991 Plan provides that the exercise price of any nonqualified stock option may not be less than 50 percent of the fair market value of the common stock on the date of grant and the exercise price of any incentive stock option may not be less than the fair market value of the common stock on the date of grant. At December 31, 1996, 1,022,437 shares were available for grant under the 1991 Plan. In 1995 and 1996, the Company granted only nonqualified stock options under the 1991 Plan. All such options have a term of 10 years and an exercise price equal to the fair market value of the common stock on the date of grant and vest at the rate of 33 1/3 percent on each anniversary of the date of grant, commencing on the first anniversary of the date of grant. The Company granted options on 1,240,400 shares in 1995 and 1,358,600 shares in 1996. In accordance with APB 25, the Company has not recognized any compensation cost for the options granted in 1995 and 1996 under the 1991 Plan. OTHER PLANS AND AGREEMENTS In 1987 the Company granted nonqualified stock options on 300,000 shares of common stock to certain non-employee directors of the Company pursuant to stock option agreements which were approved by stockholders. The exercise price of these options was the fair market value of the common stock on the date of grant. Under these agreements, options to purchase 60,000 shares were outstanding and exercisable at December 31, 1996. The Company's 1992 Nonqualified Stock Option Plan for Non-Employee Directors (the "1992 Plan") provides for the granting of nonqualified stock options to non-employee directors. Under the 1992 Plan, non-employee directors of the Company receive an annual grant of an option to purchase 3,500 shares of common stock. New non-employee directors receive a one-time grant of an option to purchase 10,000 shares of common stock immediately after the date of their first annual meeting of stockholders. The options are granted at fair market value on the grant date and are exercisable from time to time over a period commencing one year from the grant date and ending on the expiration of ten years from the grant date, unless terminated sooner as described in the 1992 Plan. Under the 1992 Plan, options to purchase 118,500 shares were outstanding and exercisable at December 31, 1996. 38 41 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) A summary of the status of the Company's stock options as of December 31, 1996 and 1995 and the changes during the year ended on those dates is presented below:
1996 1995 ------------------------ ------------------------ NUMBER OF WEIGHTED NUMBER OF WEIGHTED SHARES AVERAGE SHARES AVERAGE UNDERLYING EXERCISE UNDERLYING EXERCISE OPTIONS PRICE OPTIONS PRICE --------- --------- --------- --------- Outstanding at beginning of the year....................... 2,799,747 $ 5.38 1,810,472 $ 5.45 Granted.................................................... 1,358,600 9.91 1,240,400 5.19 Exercised.................................................. (515,281) 5.05 (109,150) 3.25 Forfeited.................................................. (158,163) 7.36 (141,975) 6.30 --------- --------- --------- --------- Outstanding at end of year................................. 3,484,903 $ 7.11 2,799,747 $ 5.38 ========= ========= ========= ========= Exercisable at end of year................................. 1,432,250 $ 5.56 1,273,505 $ 3.33 ========= ========= ========= ========= Weighted average fair value per share of the options granted during the year.......................................... $ 3.97 $ 2.28 ========= =========
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for grants in 1995 and 1996, respectively: dividend yield of 0.0 percent for both years; expected volatility of 35.45 percent for both years; risk-free interest rates are different for each grant and range from 5.27 percent to 7.59 percent; and the expected life of the options is five years for both years. The following table summarizes information about stock options outstanding at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------- ------------------------------- NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE RANGE OF EXERCISE PRICES AT 12/31/96 REMAINING LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE - ------------------------------ ----------- -------------- -------------- ------------ -------------- $ 1.72 to $ 7.00 1,605,141 6.81 $ 4.74 872,724 $ 4.36 7.00 to 10.00 1,848,762 8.59 9.04 559,526 7.43 10.00 to 14.00 31,000 9.56 14.00 - 14.00 - ------------------------------ ----------- -------------- -------------- ------------ ----------------- $ 1.72 to $ 14.00 3,484,903 7.53 $ 7.11 1,432,250 $ 5.56 =========== ============== ============== ============ =================
SHARE APPRECIATION RIGHTS Effective as of July 25, 1996, a subsidiary of Noble Drilling granted share appreciation rights covering 309,500 shares of Noble Drilling common stock. The share appreciation rights, which are payable solely in cash, have a term of five years and an exercise price of fair market value on the date of grant and vest fully on the first anniversary of the date of grant. As of December 31, 1996, these share appreciation rights had an intrinsic aggregate value of $1,779,625. In accordance with APB 25, the Company recognized an expense in the year ended December 31, 1996 in the amount of $776,000 associated with these awards. RESTRICTED STOCK The Company has awarded restricted (i.e., nonvested) shares of Noble Drilling common stock pursuant to the 1991 Plan. A total of 58,863 shares of restricted common stock were awarded in July 1996 ("July 1996 Award") to selected employees. These shares will vest (subject only to future employment) 50 percent each year on a cumulative basis commencing one year from the date of award. Additionally, in December 1994 and January 1996, the Company awarded 185,500 and 105,250 performance restricted shares, respectively. The vesting of these shares is dependent, among other things, on the achievement of certain specified corporate performance criteria. For the performance restricted shares awarded in 1994, the level of actual performance will be determined as of December 31, 1997 relative to the specified criteria, and the number of the performance restricted shares available for vesting will be determined under a schedule relating vesting to performance. The number of shares as so determined will then vest (subject only to future employment) at the rate of 33 1/3 percent thereof on March 31, 1998, March 31, 1999 and March 31, 2000. Nonvested shares will be forfeited. 39 42 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) The vesting of the performance restricted shares awarded in 1996 will be determined in a similar manner, substituting December 31, 1998 as the performance evaluation date and March 31, 1999 as the first vesting date. In accordance with APB 25, the Company recognized a compensation cost relating to the shares of the July 1996 Award in the amount of $161,000 for the year ended December 31, 1996. The share price at date of grant for such 58,863 restricted shares was $14.13. It is not possible for the Company to determine the estimated amount of compensation cost relating to the shares of restricted common stock discussed in the immediately preceding paragraph because of the performance criteria that must be achieved and assessed at December 31, 1997 at the earliest; accordingly, the Company recognized no compensation cost relating thereto in 1995 or 1996. PRO FORMA NET INCOME AND NET INCOME PER COMMON SHARE Pursuant to APB 25, the Company recognized a charge of $937,000 as compensation expense for equity-based compensation awarded in 1996. Had the compensation cost for the Company's stock-based compensation plans been determined consistent with SFAS 123, the Company would have recognized $825,000 in 1995 and $3,117,000 in 1996 as compensation expense. The Company's net income (loss) applicable to common shares and net income (loss) applicable to common shares per share for 1995 and 1996 would have approximated the pro forma amounts below (in millions except per share data):
AS REPORTED PRO FORMA AS REPORTED PRO FORMA 12/31/96 12/31/96 12/31/95 12/31/95 ------------ ----------- ------------ ----------- Net Income (Loss) Applicable to Common Shares.............. $ 72,597 $ 71,180 $ (5,605) $ (6,141) Net Income (Loss) Applicable to Common Shares per Share... $ 0.66 $ 0.65 $ (0.08) $ (0.09)
The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. SFAS 123 does not apply to awards prior to 1995, and the Company anticipates making awards in the future under its stock-based compensation plans. STOCKHOLDER RIGHTS PLAN The Company adopted a stockholder rights plan on June 28, 1995, designed to assure that the Company's stockholders receive fair and equal treatment in the event of any proposed takeover of the Company and to guard against partial tender offers and other abusive takeover tactics to gain control of the Company without paying all stockholders a fair price. The rights plan was not adopted in response to any specific takeover proposal. Under the rights plan, the Company declared a dividend of one right ("Right") on each share of Noble Drilling common stock. Each Right will entitle the holder to purchase one one-hundredth of a share of a new Series A Junior Participating Preferred Stock, par value $1.00 per share, at an exercise price of $35.00. The Rights are not currently exercisable and will become exercisable only in the event a person or group acquires beneficial ownership of 15 percent or more of Noble Drilling common stock. The dividend distribution was made on July 10, 1995 to stockholders of record at the close of business on that date. The Rights will expire on July 10, 2005. 40 43 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) NOTE 9 -- INCOME TAXES The Company follows SFAS No. 109, Accounting for Income Taxes, which requires the use of the liability method of accounting for deferred income taxes. Under SFAS No. 109, deferred tax assets and liabilities are recognized based upon differences between the financial statement and tax bases of assets and liabilities using presently enacted tax rates. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. Amounts of deferred tax assets and liabilities are as follows at:
DECEMBER 31, ----------------------- 1996 1995 ---------- -------- Deferred tax assets, net of valuation allowance of $0 in 1996 and $22,243 in 1995....... $ 41,544 $ 57,443 Deferred tax liabilities................................................................ (50,616) (59,919) ---------- --------- Net deferred tax liabilities............................................................ $ (9,072) $ (2,476) ========== =========
The components of and changes in the net deferred taxes were as follows:
DEFERRED DECEMBER 31, EXPENSE DECEMBER 31, 1995 (CREDIT) 1996 --------- ---------- --------- Deferred tax assets: Domestic Net operating loss carryforwards...................................... $ 74,780 $ (41,791) $ 32,989 Investment tax credit carryforward.................................... 1,457 (758) 699 Other ................................................................ 149 2,779 2,928 Book basis of assets in excess of tax basis........................... - 2,241 2,241 International Net operating loss carryforwards...................................... 2,651 (1,279) 1,372 Tax basis of assets in excess of book basis........................... 649 666 1,315 --------- ---------- --------- Total..................................................................... 79,686 (38,142) 41,544 Valuation allowance ...................................................... (22,243) 22,243 - --------- ---------- --------- Net deferred tax assets .................................................. $ 57,443 $ (15,899) $ 41,544 ========= ========== ========= Deferred tax liabilities: Domestic Excess of net book basis over remaining tax basis..................... $ (56,794) $ 11,998 $ (44,796) International Excess of net book basis over remaining tax basis..................... (3,125) (2,695) (5,820) --------- ---------- --------- Deferred tax liabilities.................................................. $ (59,919) $ 9,303 $ (50,616) ========= ========== =========
Income before income taxes and extraordinary items consisted of the following:
YEAR ENDED DECEMBER 31, ------------------------------------- 1996 1995 1994 --------- ---------- -------- Domestic.................................................................. $ 94,096 $ (9,578) $ 7,024 International............................................................. 7,863 14,444 20,171 --------- ---------- --------- Total..................................................................... $ 101,959 $ 4,866 $ 27,195 ========= ========== =========
The income tax provision consisted of the following:
YEAR ENDED DECEMBER 31, ------------------------------------- 1996 1995 1994 --------- ---------- -------- Current - domestic........................................................ $ 2,322 $ (2,093) $ - Current - international................................................... 13,744 6,282 2,599 Deferred - domestic....................................................... 3,288 - - Deferred - international.................................................. 3,308 (917) 3,073 --------- ---------- -------- Total .................................................................... $ 22,662 $ 3,272 $ 5,672 ========= ========== =========
41 44 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) Included in the current domestic tax benefit for the year ended December 31, 1995, is $2,100,000 related to a separate return year loss carryback benefit recorded by Triton. A reconciliation of Federal statutory and effective income tax rates is shown below:
YEAR ENDED DECEMBER 31, ---------------------------------- 1996 1995 1994 ----- ----- ---- Statutory rate............................................................ 35.0% 35.0% 35.0% Effect of: U.S. operating loss generating no current tax benefit................... - 68.9 - U.S. operating loss carryforward/ carryback benefit..................... (29.1) (43.1) (9.0) Canadian operating loss carryforward benefit............................ (0.7) - - International tax rates which are different than the U.S. rate.......... 14.7 6.4 (5.8) Other................................................................... 2.3 - 0.7 ----- ----- ---- Effective rate............................................................ 22.2% 67.2% 20.9% ===== ===== ====
The Company had available at December 31, 1996, unused investment tax credits, which may be used to offset future U.S. taxes payable, of $669,367 expiring in various years from 1998 to 2001. In addition, Noble Drilling had net operating loss carryforwards ("NOLs") for tax purposes of approximately $26,497,000 at December 31, 1996, which expire in the years 2000 through 2010, and NOC has NOLs for tax purposes of approximately $67,756,000 which expire in the years 2004 through 2009. The Chiles Merger qualifies as a tax-free reorganization. NOC, as the surviving entity, inherited all of Chiles' tax attributes, including NOL carryforwards. In accordance with the "Separate Return Limitation Year" rules of the Internal Revenue Code of 1986, as amended (the "Code"), Chiles' NOL carryforwards may only be used to reduce Noble Drilling's future taxable income to the extent of NOC's taxable income. If a corporation undergoes an "ownership change" within the meaning of Section 382 of the Code, the corporation's right to use its then existing NOLs (and certain other tax attributes) is limited during each future year to a percentage of the fair market value of such corporation's stock immediately before the ownership change (the "Section 382 Limitation"). In general, there is an "ownership change" under Section 382 if over a three-year period certain shareholders increase their percentage ownership of a corporation by more than 50 percent. To the extent the amount of the NOLs existing at the time of an ownership change that are used in any subsequent year is less than the annual Section 382 Limitation, the otherwise available Section 382 Limitation is correspondingly increased for future years. An ownership change for purposes of Section 382 took place on September 15, 1994, as a result of the Chiles Merger. The cumulative Section 382 Limitation attributable to the Noble Drilling pre-merger carryforwards is $47,231,000. The cumulative Section 382 Limitation attributable to NOC is $22,185,000. Applicable U.S. income and foreign withholding taxes have not been provided on undistributed earnings of the Company's international subsidiaries. Management does not intend to repatriate such undistributed earnings for the foreseeable future except for distributions upon which incremental income taxes would not be material. 42 45 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) NOTE 10 -- EMPLOYEE BENEFIT PLANS The Company has a noncontributory defined benefit plan which covers substantially all salaried employees and a noncontributory defined benefit pension plan which covers certain field employees. The benefits from these plans are based primarily on years of service and employees' compensation near retirement. The Company's funding policy is consistent with funding requirements of applicable laws and regulations. The assets of these plans consist of corporate equity securities, municipal and government bonds, and cash equivalents. The Company, when required, makes contributions to the domestic plan in the form of Noble Drilling common stock. As of September 30, 1996, the domestic plan assets included $3,700,000 of Noble Drilling's common stock valued at fair value at that date. The Company changed the measurement date of the plan to September 30 beginning in 1995. This change did not have a material impact to the financial results of the Company. Noble Drilling (U.K.) Limited, a wholly owned subsidiary of Noble Drilling, maintains a pension plan which covers all of its salaried, nonunion employees. Benefits are based on credited service and the average of the highest three years of qualified salary within the past ten years of participation. In connection with the acquisition of Neddrill, approximately 55 salaried administrative employees and 730 offshore/field personnel became employees of the Company. At July 1, 1996, the accumulated benefit obligations relating to these employees were fully funded pursuant to the terms of the Neddrill purchase agreement. Pension cost includes the following components:
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------------- 1996 1995 1994 ------------------------ ------------------------ ------------------------ INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC ------------- ---------- ------------- --------- ------------- --------- Service costs (benefits earned during the year)............ $ 523 $ 1,589 $ 581 $ 1,201 $ 544 $ 758 Interest cost on projected benefit obligation.......... 726 2,023 702 1,890 607 1,698 Actual return on assets....... (928) (4,500) (870) (2,439) (787) 1,806 Amortization of net (gain) loss at January 1........... (55) 2,607 (44) 757 (77) (3,758) --------- ---------- --------- --------- ---------- --------- Net pension expense........... $ 266 $ 1,719 $ 369 $ 1,409 $ 287 $ 504 ========= ========== ========= ========= ========== =========
The funded status of the plans is as follows:
DECEMBER 31, ------------------------------------------------------ 1996 1995 ------------------------ ------------------------- INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC ------------- -------- ------------- -------- Actuarial present value of benefit obligations Vested benefits.......................................... $ (8,756) $ (21,869) $ (7,449) $ (21,359) Nonvested benefits....................................... - (988) - (780) --------- --------- ---------- --------- Accumulated benefits..................................... (8,756) (22,857) (7,449) (22,139) Effect of projected future compensation levels........... (1,389) (4,269) (1,114) (3,982) --------- --------- ---------- --------- Projected benefits......................................... (10,145) (27,126) (8,563) (26,121) Plan assets at fair value.................................. 11,880 27,856 9,725 21,274 --------- --------- ---------- --------- Plan assets in excess (shortfall) of projected benefit obligations.............................................. 1,735 730 1,162 (4,847) Unrecognized net (loss) gain............................... (2,169) 5,431 (1,831) 9,708 Unrecognized prior service cost............................ - (59) - (69) Unrecognized transition obligation (asset)................. 95 (1,053) 107 (1,509) Additional liability....................................... - - - (3,403) --------- --------- ---------- --------- (Accrued liability) prepaid asset ......................... $ (339) $ 5,049 $ (562) $ (120) ========= ========= ========== =========
In accordance with SFAS No. 87, Employers' Accounting for Pensions, the Company recorded an additional minimum liability of $3,403,000 at December 31, 1995. This liability represents the excess of the accumulated benefit obligations over the fair value of plan assets and accrued pension liabilities of the domestic salaried pension plan. This additional minimum pension liability is reported as a separate reduction of shareholders' equity. 43 46 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) The projected benefit obligations for the international and domestic plans were determined using an assumed discount rate of 8.25 percent and 7.5 percent, respectively, in 1996, 8.5 percent and 7.5 percent, respectively, in 1995 and 9.0 percent and 8.5 percent, respectively, in 1994. Assumed long-term rate of return on international plan assets was 9.0 percent, 9.25 percent and 9.75 percent in 1996, 1995 and 1994, respectively. Assumed long-term rate of return on domestic plan assets was 9.0 percent in each of the years presented. The projected benefit obligations for the international plan assume a compensation increase of 6.0 percent, 6.25 percent and 6.75 percent in 1996, 1995 and 1994, respectively, and 6.0 percent per annum for the domestic plan in each of the years presented. The Company presently sponsors medical and other plans for the benefit of its employees. The cost of maintaining these plans aggregated $8,912,000, $6,628,000 and $5,500,000 in 1996, 1995 and 1994, respectively. The Company does not provide post-retirement benefits (other than pensions) or any post-employment benefits to its employees. NOTE 11 -- COMMITMENTS, CONTINGENCIES AND OBLIGATIONS On October 25, 1993, the Company purchased two submersible offshore drilling rigs from Portal Rig Corporation ("Portal") for 626,410 shares of Noble Drilling common stock. The Company acquired the rigs subject to certain federal income tax "safe harbor leases" and a related preferred ship mortgage relating to a tax benefit transaction entered into in 1982 by a predecessor of Portal. Portal has agreed to indemnify the Company for any potential liabilities as a result of this earlier tax benefit transaction. The Company is involved in certain claims and litigation resulting from personal injury, and from time to time, performance of contract services and property damage. The Company has accrued for the anticipated cost of settlement of these claims. In the opinion of management, uninsured losses, if any, will not be material to the Company's financial position or results of operations. At December 31, 1996, the Company had certain noncancellable long-term operating leases, principally for office space and facilities, with various expiration dates. Total lease expense incurred under noncancellable operating leases was approximately $4,377,000, $1,918,000 and $1,200,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Future minimum rentals under sub-leases aggregate $5,583,000 for 1997, $5,456,000 for 1998, $5,350,000 for 1999, $5,318,000 for each of the years 2000 and 2001, and $29,054,000 thereafter. NOTE 12 -- SUPPLEMENTAL LOSS PER SHARE DISCLOSURE Assuming that all shares of $2.25 Preferred Stock had been converted on January 1, 1995, the supplemental primary net loss applicable to common shares per share for the year ended December 31, 1995 would have changed from $0.08 to $0.06. Supplemental fully diluted net loss applicable to common shares per share for the year ended December 31, 1995 is the same as supplemental primary net loss applicable to common shares per share since the effect of the conversion is anti-dilutive. 44 47 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) NOTE 13 -- UNAUDITED INTERIM FINANCIAL DATA Unaudited interim financial information for the years ended December 31, 1996 and 1995 is as follows:
QUARTER ENDED ------------------------------------------------------- 1996 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 ------------ ----------- ------------ ----------- Operating revenues......................................... $ 104,757 $ 109,686 $ 158,072 $ 141,738 Operating income (1)(2).................................... $ 14,097 $ 20,413 $ 30,549 $ 47,492 Income before extraordinary charge......................... $ 10,726 $ 16,253 $ 25,221 $ 27,097 Extraordinary charge, net of tax (3)....................... - - - $ (660) Net income (4)............................................. $ 10,726 $ 16,253 $ 25,221 $ 26,437 Preferred stock dividends.................................. $ (1,511) $ (1,509) $ (1,509) $ (1,511) Net income applicable to common shares .................... $ 9,215 $ 14,744 $ 23,712 $ 24,926 Net income applicable to common shares per share (1)(2)(3)(4).................................. $ 0.10 $ 0.15 $ 0.19 $ 0.20 QUARTER ENDED ------------------------------------------------------- 1995 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 ------------ ----------- ------------ ----------- Operating revenues......................................... $ 85,096 $ 73,985 $ 84,652 $ 84,235 Operating income (loss) (5)................................ $ 2,013 $ (2,303) $ 3,240 $ 9,328 Net income (6)............................................. $ (661) $ (4,338) $ 2,315 $ 4,278 Preferred stock dividends.................................. $ (2,670) $ (1,509) $ (1,509) $ (1,511) Net (loss) income applicable to common shares ............. $ (3,331) $ (5,847) $ 806 $ 2,767 Net (loss) income applicable to common shares per share (5)(6)(7)..................................... $ (0.06) $ (0.07) $ 0.01 $ 0.03
- ------------------ (1) Included in the quarter ended March 31, 1996, were non-recurring items consisting of $7,600,000 ($0.08 per share) of impairment charges and $7,527,000 ($0.08 per share) of gains on sales of posted barge rigs. (2) Included in the quarter ended December 31, 1996, were non-recurring items consisting of $45,414,000 ($0.36 per share) of gain on the sale of the land drilling assets partially offset by $10,200,000 ($0.08 per share) of impairment charges, excluding a reduction of $289,000 relating to minority interest, $14,808,000 ($0.12 per share) of inventory charges and $3,350,000 ($0.03 per share) of adjustments to depreciation. (3) Included in the quarter ended December 31, 1996, is an extraordinary charge of $660,000, net of taxes of $355,000, related to the purchase of $11,000,000 principal amount of the Company's 9 1/4% Senior Notes. See Note 5. (4) Included in the quarter ended December 31, 1996, were taxes of $16,259,000 ($0.13 per share) related to the gain on the sale of the land drilling assets. (5) Included in the quarters ended March 31, June 30, September 30 and December 31, 1995 were $1,116,000 ($0.01 per share), $1,116,000 ($0.01 per share), $1,116,000 ($0.01 per share) and $2,812,000 ($0.03 per share), respectively, related to the effect of change in estimates of salvage values and remaining depreciable lives. See Note 1. (6) Included in the quarters ended September 30, 1995 and December 31, 1995 were $800,000 ($0.01 per share) and $1,300,000 ($0.01 per share), respectively, of separate return year loss carryback benefit related to Triton. See Note 9. Included in the quarter ended December 31, 1995 is a credit of $1,078,000 ($0.01 per share) related to the adjustment of the Triton acquisition contingency. Included in the quarter ended December 31, 1995 is a charge of $1,778,000 ($0.02 per share) related to the mobilization of a jackup rig to west Africa. See Note 1. (7) Included in the quarter ended March 31, 1995 is the $0.02 per share impact of the $1,524,000 Preferred Conversion Payment made in conjunction with the conversion of 923,862 shares of $2.25 Preferred Stock into common stock. See Note 7. 45 48 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) NOTE 14 -- GEOGRAPHICAL INFORMATION
YEAR ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 --------- ---------- --------- Operating revenues Domestic................................................................ $ 259,745 $ 165,391 $ 181,950 International Argentina............................................................. 4,617 - - Brazil................................................................ 8,722 - - Canada................................................................ 10,107 13,929 20,059 Congo................................................................. 2,353 - - Denmark............................................................... 11,414 - - India ................................................................ 5,443 3,771 2,041 Mexico................................................................ 9,807 9,398 21,269 Nigeria............................................................... 57,158 45,860 44,195 Qatar................................................................. 15,825 2,452 - The Netherlands....................................................... 29,350 - - United Kingdom........................................................ 52,297 37,891 39,939 Venezuela............................................................. 38,723 40,223 34,155 Zaire................................................................. 8,692 8,860 7,781 Other................................................................. - 193 599 --------- ---------- --------- Total..................................................................... $ 514,253 $ 327,968 $ 351,988 ========= ========== ========= YEAR ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 --------- ---------- --------- Operating income (loss) Domestic................................................................ $ 90,413 $ (5,239) $ 5,006 International Argentina............................................................. (1,755) - - Brazil................................................................ (1,183) - - Canada................................................................ 9,899 2,521 4,549 Congo................................................................. (835) - - Denmark............................................................... 1,831 - - India................................................................. 882 283 (676) Mexico................................................................ 1,894 94 5,434 Nigeria............................................................... (6,703) 3,597 1,727 Qatar................................................................. (6,756) (2,455) - The Netherlands....................................................... 8,313 - - United Kingdom ....................................................... 12,132 4,766 3,505 Venezuela............................................................. 5,819 7,178 6,289 Zaire ................................................................ 68 2,139 1,613 Other ................................................................ (1,468) (606) (426) --------- ---------- --------- Total..................................................................... $ 112,551 $ 12,278 $ 27,021 ========= ========== ========= DECEMBER 31, -------------------------------------- 1996 1995 1994 --------- ---------- --------- Identifiable assets Domestic................................................................ $ 515,810 $ 313,237 $ 404,010 International Argentina............................................................. 48,936 - - Brazil................................................................ 57,833 - - Canada................................................................ 8,077 13,206 12,421 Congo................................................................. 40,038 - - Denmark............................................................... 43,375 - - India................................................................. 81,749 21,104 20,912 Mexico................................................................ 30,817 32,328 51,167 Nigeria............................................................... 110,357 179,934 138,716 Qatar................................................................. 85,358 37,506 - The Netherlands....................................................... 153,479 - - United Kingdom........................................................ 70,565 15,051 14,147 Venezuela............................................................. 85,988 84,042 73,977 Zaire................................................................. 25,571 25,023 22,833 Other................................................................. 9,454 21,099 1,706 --------- ---------- --------- Total..................................................................... $1,367,407 $ 742,530 $ 739,889 ========== ========== =========
46 49 NOBLE DRILLING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unless otherwise indicated, dollar amounts in tables are in thousands, except per share amounts) There were no customers who accounted for more than 10 percent of the Company's consolidated operating revenues during 1996. Customer A accounted for approximately 11 percent of the Company's consolidated operating revenues during 1995. Customer B accounted for approximately 11 percent of the Company's consolidated operating revenues during 1994. NOTE 15 -- SUBSEQUENT EVENT On February 19, 1997, the Company signed a definitive agreement to sell 12 mat supported jackup rigs to Pride Petroleum Services, Inc. ("Pride"). The sale will also include the hull of one former mat supported jackup rig (Linn Richardson) which has had all drilling machinery and equipment removed. The sales price is $265,000,000 in cash. The closing of the transaction, which is subject to receipt of financing by Pride, satisfaction of Hart-Scott-Rodino Antitrust Improvements Act governmental clearance and routine closing conditions, is scheduled to occur on June 3, 1997. Pride has deposited $20,000,000 of the purchase price into an escrow account which is payable to the Company in the event Pride does not obtain its financing or is unable to complete the acquisition by June 30, 1997. 47 50 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" appearing in Noble Drilling's proxy statement for the annual meeting of stockholders to be held on April 24, 1997 (the "1997 Proxy Statement"), set forth certain information with respect to the directors of Noble Drilling and with respect to reporting under Section 16(a) of the Securities Exchange Act of 1934, and are incorporated herein by reference. Certain information with respect to the executive officers of Noble Drilling is set forth under the caption "Executive Officers of the Registrant" in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation" appearing in the 1997 Proxy Statement sets forth certain information with respect to the compensation of management of Noble Drilling, and, except for the report of the compensation committee of the board of directors of Noble Drilling on executive compensation and the information therein under "Performance Graph," is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The sections entitled "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" appearing in the 1997 Proxy Statement set forth certain information with respect to the ownership of voting securities and equity securities of Noble Drilling, and are incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) A list of the financial statements filed as a part of this report is set forth in Item 8 on page 23 and is incorporated herein by reference. (2) Financial Statement Schedules: All schedules are omitted because they are either not applicable or the required information is shown in the financial statements or notes thereto. (3) Exhibits: The information required by this Item 14(a)(3) is set forth in the Index to Exhibits accompanying this Annual Report on Form 10-K. (4) Financial Statements required by Form 11-K for the fiscal year ended December 31, 1996, with respect to the Noble Drilling Corporation Thrift Plan (to be filed by amendment). (b) One report on Form 8-K/A was filed by the Company during the quarter ended December 31, 1996. A report on Form 8-K/A dated December 30, 1996, which reported the sale of the land drilling assets to Nabors Industries, Inc., was filed on the date thereof. 48 51 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. NOBLE DRILLING CORPORATION Date: March 27, 1997 By: JAMES C. DAY ------------------------------- James C. Day, Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following individuals on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY IN WHICH SIGNED DATE - -------------------- ------------------------------------------------------- ------------- JAMES C. DAY Chairman, President and Chief March 27, 1997 - -------------------- Executive Officer and Director James C. Day BYRON L. WELLIVER Senior Vice President - Finance, Treasurer and March 27, 1997 - -------------------- Controller (Principal Financial and Accounting Officer) Byron L. Welliver MICHAEL A. CAWLEY Director March 27, 1997 - -------------------- Michael A. Cawley LAWRENCE J. CHAZEN Director March 27, 1997 - -------------------- Lawrence J. Chazen TOMMY C. CRAIGHEAD Director March 27, 1997 - -------------------- Tommy C. Craighead JAMES L. FISHEL Director March 27, 1997 - -------------------- James L. Fishel MARC E. LELAND Director March 27, 1997 - -------------------- Marc E. Leland BILL M. THOMPSON Director March 27, 1997 - -------------------- Bill M. Thompson
49 52 INDEX TO EXHIBITS EXHIBIT NUMBER EXHIBIT ------ ------------------------------------------------------------------- 2.1 Assets Purchase Agreement dated as of August 20, 1993 (the "Western Assets Purchase Agreement"), between the Registrant and The Western Company of North America (filed as Exhibit 2.1 to the Registrant's Registration Statement on Form S-3 (No. 33-67130) and incorporated herein by reference). 2.2 Agreement dated as of October 7, 1993, among the Registrant, Noble Drilling (U.S.) Inc., Noble International Limited, The Western Company of North America and Offshore International Ltd., amending the Western Assets Purchase Agreement (filed as Exhibit 2.2 to the Registrant's Form 8-K dated October 15, 1993 and incorporated herein by reference). 2.3 Assets Purchase Agreement dated as of August 20, 1993 (the "Portal Assets Purchase Agreement"), between the Registrant and Portal Rig Corporation (filed as Exhibit 2.3 to the Registrant's Registration Statement on Form S-3 (No. 33-67130) and incorporated herein by reference). 2.4 Agreement dated as of October 25, 1993, among the Registrant, Noble (Gulf of Mexico) Inc. and Portal Rig Corporation, amending the Portal Assets Purchase Agreement (filed as Exhibit 2.5 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended September 30, 1993 and incorporated herein by reference). 2.5 Stock Purchase Agreement dated April 22, 1994 among Joseph E. Beall, George H. Bruce, Triton Engineering Services Company and the Registrant (filed as Exhibit 2.1 to the Registrant's Form 8-K dated May 6, 1994 and incorporated herein by reference). 2.6 Agreement and Plan of Merger dated June 13, 1994 among the Registrant, Chiles Offshore Corporation and Noble Offshore Corporation (filed as Appendix I to the joint proxy statement/prospectus of the Registrant and Chiles Offshore Corporation dated August 12, 1994 constituting Part I of the Registration Statement on Form S-4 (No. 33-54495) and incorporated herein by reference). 2.7 Agreement of Sale and Purchase dated as of April 25, 1996 between the Registrant and Royal Nedlloyd N.V. and Neddrill Holding B.V. (filed as Exhibit 2.1 to the Registrant's Registration Statement on Form S-3 (No. 333-2927) and incorporated herein by reference). 2.8 Asset Purchase Agreement dated November 15, 1996 by and between the Registrant, Noble Properties, Inc. and Noble Drilling (Canada) Ltd. and Nabors Industries, Inc. (filed as Exhibit 2.1 to the Registrant's Form 8-K/A dated December 13, 1996 and incorporated herein by reference). 2.9 Agreement dated December 13, 1996 by and among the Registrant, Noble Properties, Inc., Noble Drilling (Canada) Ltd., Noble Drilling (U.S.) Inc., and Noble Drilling Land Limited and Nabors Industries, Inc., Nabors Drilling USA, Inc. and Nabors Drilling Limited (filed as Exhibit 2.2 to the Registrant's Form 8-K dated December 13, 1996 and incorporated herein by reference). 50 53 2.10 Asset Purchase Agreement dated as of February 19, 1997 between the Registrant, Noble Drilling (U.S.) Inc., Noble Offshore Corporation, Noble Drilling (Mexico) Inc. and NN-1 Limited Partnership and Pride Petroleum Services, Inc. 3.1 Restated Certificate of Incorporation of the Registrant dated August 29, 1985 (filed as Exhibit 3.7 to the Registrant's Registration Statement on Form 10 (No. 0-13857) and incorporated herein by reference). 3.2 Certificate of Amendment of Restated Certificate of Incorporation of the Registrant dated May 5, 1987 (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-3 (No. 33-67130) and incorporated herein by reference). 3.3 Certificate of Amendment of Certificate of Incorporation of the Registrant dated July 31, 1991 (filed as Exhibit 3.16 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference). 3.4 Certificate of Designations of $1.50 Convertible Preferred Stock, par value of $1.00 per share, of the Registrant, dated as of September 15, 1994 (filed as Exhibit 3.8 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 3.5 Certificate of Amendment of Certificate of Incorporation of the Registrant dated September 15, 1994 (filed as Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended March 31, 1995 and incorporated herein by reference). 3.6 Certificate of Designations of Series A Junior Participating Preferred Stock, par value $1.00 per share, of the Registrant dated as of June 29, 1995 (filed as Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended June 30, 1995 and incorporated herein by reference). 3.7 Certificate of Elimination of shares of $1.50 Convertible Preferred Stock of the Registrant dated March 21, 1997. 3.8 Composite copy of the Bylaws of the Registrant as currently in effect (filed as Exhibit 3.4 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended June 30, 1995 and incorporated herein by reference). 4.1 Indenture governing the 9 1/4% Senior Notes Due 2003 (including form of Note)(filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended September 30, 1993 and incorporated herein by reference). 4.2 Rights Agreement dated as of June 28, 1995 between the Registrant and Liberty Bank and Trust Company of Oklahoma City, N.A. (filed as Exhibit 4 to the Registrant's Form 8-K dated June 30, 1995 and incorporated herein by reference). 51 54 4.3 Indenture dated as of July 1, 1996 governing the 9 1/8% Senior Notes due 2006 (including form of Note) (filed as Exhibit 4.1 to the Registrant's Form 8-K dated July 1, 1996 and incorporated herein by reference). 10.1 Limited Partnership Agreement between the Registrant and National Enerdrill Corporation dated as of January 16, 1992 (filed as Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference). 10.2* Noble Drilling Corporation 1991 Stock Option and Restricted Stock Plan (as amended and restated on January 30, 1997, subject to the approval of stockholders except for Section 9(a)(i)(x)). 10.3* Noble Drilling Corporation 1987 Stock Option Plan (filed as Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1986, as amended, and incorporated herein by reference). 10.4* Directors' Option Agreement dated October 29, 1987, between the Registrant and Michael A. Cawley (filed as Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988 and incorporated herein by reference). 10.5 Amended and Restated Letter of Credit Agreement, dated as of October 25, 1993, among Portal Rig Corporation, Noble (Gulf of Mexico) Inc., NationsBank of Texas, N.A., as agent and as one of the "Banks" thereunder, and Marine Midland Bank, N.A., Bank of America National Trust and Savings Association, and Norwest Bank Minnesota, National Association (collectively, the "Banks") (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended September 30, 1993 and incorporated herein by reference). 10.6 Assignment, Assumption and Amended and Restated Preferred Ship Mortgage, dated October 25, 1993, by Noble (Gulf of Mexico) Inc. to the Banks (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended September 30, 1993 and incorporated herein by reference). 10.7 Security Agreement and Assignment, dated October 25, 1993, by Noble (Gulf of Mexico) Inc. to the Banks (filed as Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended September 30, 1993 and incorporated herein by reference). 10.8 Noble Support Agreement, dated October 25, 1993, among the Registrant and the Banks (filed as Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended September 30, 1993 and incorporated herein by reference). 10.9* Noble Drilling Corporation 1992 Nonqualified Stock Option Plan for Non-Employee Directors (filed as Exhibit 4.1 to the Registrant's Registration Statement on Form S-8 (No. 33-62394) and incorporated herein by reference). 10.10 Registration Agreement dated April 22, 1994 between the Registrant and Joseph E. Beall (filed as Exhibit 10.1 to the Registrant's Form 8-K dated May 6, 1994 and incorporated herein by reference). 52 55 10.11 Employment Agreement dated April 22, 1994 between Triton Engineering Services Company and Joseph E. Beall (filed as Exhibit 10.2 to the Registrant's Form 8-K dated May 6, 1994 and incorporated herein by reference). 10.12 Credit Agreement dated as of June 16, 1994 among the Registrant, First Interstate Bank of Texas, N.A., in its individual capacity and as agent, and Credit Lyonnais Cayman Island Branch (filed as Exhibit 10.1 to the Registrant's Registration Statement on Form S-4 (No. 33-54495) and incorporated herein by reference). 10.13 Revolving Credit Note dated June 16, 1994 of the Registrant in the amount of $12,500,000 in favor of Credit Lyonnais Cayman Island Branch (filed as Exhibit 10.2 to the Registrant's Registration Statement on Form S-4 (No. 33-54495) and incorporated herein by reference). 10.14 Revolving Credit Note dated June 16, 1994 of the Registrant in the amount of $12,500,000 in favor of First Interstate Bank of Texas, N.A. (filed as Exhibit 10.3 to the Registrant's Registration Statement on Form S-4 (No. 33-54495) and incorporated herein by reference). 10.15 Guaranty Agreement dated as of June 16, 1994 by and among Noble Drilling (U.S.) Inc., Noble Drilling (West Africa) Inc. and Noble Drilling (Mexico) Inc. (filed as Exhibit 10.4 to the Registrant's Registration Statement on Form S-4 (No. 33-54495) and incorporated herein by reference). 10.16 Registration Rights Agreement dated as of September 15, 1994 between the Registrant and P.A.J.W. Corporation (filed as Exhibit 10.1 to the Registrant's Form 10-Q for the three month period ended September 30, 1994 and incorporated herein by reference). 10.17* Amendment No. 1 to the Noble Drilling Corporation 1992 Nonqualified Stock Option Plan for Non-Employee Directors dated as of July 28, 1994 (filed as Exhibit 10.44 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 10.18 Guarantee dated August 26, 1994 between the Registrant and Hibernia Management and Development Company Ltd. (filed as Exhibit 10.45 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 10.19* Noble Drilling Corporation Amended and Restated Thrift Restoration Plan (filed as Exhibit 10.46 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). 10.20* Noble Drilling Corporation Retirement Restoration Plan dated April 27, 1995 (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended March 31, 1995 and incorporated herein by reference). 10.21* Noble Drilling Corporation Short-Term Incentive Plan (revised April 1996). 53 56 10.22 First Amendment dated as of June 30, 1995 to Credit Agreement dated as of June 16, 1994 among the Registrant, First Interstate Bank of Texas, N.A., in its individual capacity and as Agent, and Credit Lyonnais Cayman Island Branch (filed as Exhibit 10.44 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference). 10.23 Second Amendment dated as of February 28, 1996 to Credit Agreement dated as of June 16, 1994 among the Registrant, First Interstate Bank of Texas, N.A., in its individual capacity and as Agent, and Credit Lyonnais Cayman Island Branch (filed as Exhibit 10.45 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference). 10.24* Form of Indemnity Agreement entered into between the Registrant and each of the Registrant's directors and bylaw officers (filed as Exhibit 10.46 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference). 10.25 Registration Rights Agreement dated as of July 1, 1996 between the Registrant and Royal Nedlloyd N.V. 10.26* Noble Drilling Corporation Equity Compensation Plan for Non-Employee Directors (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the three-month period ended September 30, 1996 and incorporated herein by reference). 21.1 Subsidiaries of the Registrant. 23.1 Consent of Price Waterhouse LLP. 27 Financial Data Schedule. - --------- * Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. 54 EX-2.10 2 ASSET PURCHASE AGREEMENT DATED - 2/19/97 1 EXHIBIT 2.10 ================================================================================ ASSET PURCHASE AGREEMENT by and between Noble Drilling Corporation, Noble Drilling (U.S.) Inc., Noble Offshore Corporation, Noble Drilling (Mexico) Inc. and NN-1 Limited Partnership and Pride Petroleum Services, Inc. February 19, 1997 ================================================================================ 2 TABLE OF CONTENTS
Page PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I -- CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II -- PURCHASE AND SALE OF ASSETS . . . . . . . . . . . . . . . . . 4 2.1 Assets to be Purchased . . . . . . . . . . . . . . . . . . . 4 2.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . 5 2.3 Assumed Liabilities . . . . . . . . . . . . . . . . . . . . 5 2.4 Limitation on Assignments . . . . . . . . . . . . . . . . . 6 2.5 Delivery of Records . . . . . . . . . . . . . . . . . . . . 6 ARTICLE III -- PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . 7 3.1 Consideration for the Purchased Assets . . . . . . . . . . . 7 3.2 Buyer's Default . . . . . . . . . . . . . . . . . . . . . . 7 3.3 Return of Deposit . . . . . . . . . . . . . . . . . . . . . 8 3.4 Allocation of Purchase Price . . . . . . . . . . . . . . . . 8 ARTICLE IV -- THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.1 Time and Place of Closing . . . . . . . . . . . . . . . . . 8 4.2 Deliveries by Parent and Sellers . . . . . . . . . . . . . . 8 4.3 Deliveries by Buyer . . . . . . . . . . . . . . . . . . . . 9 ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF SELLERS . . . . . . . . . . 9 5.1 Organization and Existence . . . . . . . . . . . . . . . . . 9 5.2 Authority; Etc . . . . . . . . . . . . . . . . . . . . . . . 9 5.3 No Violations . . . . . . . . . . . . . . . . . . . . . . . 10 5.4 Ownership of Rigs . . . . . . . . . . . . . . . . . . . . . 10 5.5 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.6 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.8 Governmental Approval . . . . . . . . . . . . . . . . . . . 12 5.9 Compliance With Laws . . . . . . . . . . . . . . . . . . . . 12 5.10 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.11 Rig Classifications and Certifications . . . . . . . . . . . 12 5.12 Environmental Matters . . . . . . . . . . . . . . . . . . . 12 5.13 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.14 Decrees, etc. . . . . . . . . . . . . . . . . . . . . . . . 13 5.15 Performance Bonds; Letters of Credit . . . . . . . . . . . . 13 ARTICLE VI -- REPRESENTATIONS AND WARRANTIES OF PARENT . . . . . . . . . . 13 6.1 Organization and Existence . . . . . . . . . . . . . . . . . 13
i 3 6.2 Authority; Etc . . . . . . . . . . . . . . . . . . . . . . . 14 6.3 No Violations . . . . . . . . . . . . . . . . . . . . . . . 14 6.4 Governmental Approval . . . . . . . . . . . . . . . . . . . 14 6.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.6 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.7 Employees and Related Matters . . . . . . . . . . . . . . . 15 ARTICLE VII -- REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . 15 7.1 Organization and Existence . . . . . . . . . . . . . . . . . 15 7.2 Authority; Etc . . . . . . . . . . . . . . . . . . . . . . . 15 7.3 No Violations . . . . . . . . . . . . . . . . . . . . . . . 16 7.4 Inspections . . . . . . . . . . . . . . . . . . . . . . . . 16 7.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 16 7.6 Governmental Approval . . . . . . . . . . . . . . . . . . . 17 7.7 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.8 Certain Knowledge Regarding Assignment of Contracts . . . . 17 7.9 Registration Statement . . . . . . . . . . . . . . . . . . . 17 ARTICLE VIII -- CONDITIONS TO THE OBLIGATIONS OF PARENT AND SELLERS . . . . . . . . . . . . . . . . . . 17 8.1 Accuracy of Representations and Warranties . . . . . . . . . 17 8.2 Covenants and Agreements Performed . . . . . . . . . . . . . 17 8.3 Officer's Certificate . . . . . . . . . . . . . . . . . . . 17 8.4 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . 18 8.5 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE IX -- CONDITIONS TO THE OBLIGATIONS OF BUYER . . . . . . . . . . . 18 9.1 Accuracy of Representations and Warranties . . . . . . . . . 18 9.2 Covenants and Agreements Performed . . . . . . . . . . . . . 18 9.3 Officer's Certificate . . . . . . . . . . . . . . . . . . . 18 9.4 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . 19 9.5 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . 19 9.6 Financing by Buyer . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE X -- COVENANTS AND AGREEMENTS OF THE PARTIES BEFORE, RELATING TO AND SUBSEQUENT TO THE CLOSING . . . . . . . . 19 10.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 19 10.2 HSR Act Compliance . . . . . . . . . . . . . . . . . . . . . 19 10.3 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 10.4 Conduct of Business and Preservation of Assets . . . . . . . 20 10.5 Transition of Business Operations . . . . . . . . . . . . . 20 10.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 20 10.7 Certain Taxes . . . . . . . . . . . . . . . . . . . . . . . 21 10.8 Actions with Respect to Closing . . . . . . . . . . . . . . 21 10.9 Public Statements . . . . . . . . . . . . . . . . . . . . . 21 10.10 Books and Records . . . . . . . . . . . . . . . . . . . . . 21
ii 4 10.11 Rig Loss . . . . . . . . . . . . . . . . . . . . . . . . . . 22 10.12 Use of Names . . . . . . . . . . . . . . . . . . . . . . . . 22 10.13 Continued Effectiveness of Representations and Warranties . 22 10.14 Post-Closing Collection, Payment and Administrative Procedures 22 10.15 Action of Buyer Regarding Financing . . . . . . . . . . . . 23 10.16 Certain Financial Statements . . . . . . . . . . . . . . . . 23 10.17 Import Duties; Performance Bonds . . . . . . . . . . . . . . 23 10.18 Availability of Rigs to Triton Engineering Services Company 24 10.19 Acquisition Proposal . . . . . . . . . . . . . . . . . . . . 24 ARTICLE XI -- EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . 25 11.1 Employees . . . . . . . . . . . . . . . . . . . . . . . . . 25 11.2 Non-Solicitation of Certain Employees . . . . . . . . . . . 26 ARTICLE XII -- TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 26 12.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . 26 12.2 Effect of Termination . . . . . . . . . . . . . . . . . . . 27 ARTICLE XIII -- EXTENT AND SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS . . . . . . . . . 28 13.1 Scope of Representations of Sellers . . . . . . . . . . . . 28 13.2 Indemnification by Parent . . . . . . . . . . . . . . . . . 28 13.3 Indemnification by Buyer . . . . . . . . . . . . . . . . . . 29 13.4 Indemnification Procedure . . . . . . . . . . . . . . . . . 29 13.5 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 30 13.6 Tax Benefits; Insurance Proceeds . . . . . . . . . . . . . . 30 13.7 Applicability of Indemnification Obligation . . . . . . . . 30 ARTICLE XIV -- PARENT GUARANTEE . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE XV -- MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 31 15.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 31 15.2 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 32 15.3 Amendments and Waiver; Rights and Remedies . . . . . . . . . 32 15.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 32 15.5 Binding Effect; Assignment . . . . . . . . . . . . . . . . . 32 15.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 33 15.7 References . . . . . . . . . . . . . . . . . . . . . . . . . 33 15.8 Severability of Provisions . . . . . . . . . . . . . . . . . 33 15.9 Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 15.10 Descriptive Headings . . . . . . . . . . . . . . . . . . . . 33
iii 5 ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of February 19, 1997, is by and between Pride Petroleum Services, Inc., a Louisiana corporation ("Buyer"), and Noble Drilling Corporation, a Delaware corporation ("Parent"), Noble Drilling (U.S.) Inc., a Delaware corporation ("NDUS"), Noble Offshore Corporation, a Delaware corporation ("NOC"), Noble Drilling (Mexico) Inc., a Delaware corporation ("NDMEX"), and NN-1 Limited Partnership, a Texas limited partnership ("NN-1") (NDUS, NOC, NDMEX and NN-1 are sometimes referred to herein, collectively, as "Sellers" and, individually, as a "Seller"); W I T N E S S E T H: WHEREAS, Buyer desires to purchase the Purchased Assets (as hereinafter defined) from Sellers; and WHEREAS, Sellers desire to sell the Purchased Assets to Buyer in exchange for the payment by Buyer of the Purchase Price (as hereinafter defined) and the assumption by Buyer of the Assumed Liabilities (as hereinafter defined); and WHEREAS, Parent desires to take such actions as are necessary or appropriate to cause Sellers to effect the transactions above described in this preamble and, in connection therewith, to guarantee the agreements and obligations of Sellers in and under this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual terms, covenants and conditions herein contained, and intending to be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE I CERTAIN DEFINITIONS As used in this Agreement, the following terms have the following respective meanings: "Acquisition Proposal" has the meaning specified in Section 10.19. "Affiliate" means, as to the person specified, any person controlling, controlled by or under common control with such person, 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. "Agreement" has the meaning specified in the preamble. "Applicable Environmental Laws" has the meaning specified in Section 5.12(b). "Applicable Laws" has the meaning specified in Section 5.9. "Assumed Liabilities" has the meaning specified in Section 2.3. 1 6 "Best Efforts" means a party's best efforts in accordance with reasonable commercial practice and without the incurrence of unreasonable expense. "Business Day" means a day on which national banks are generally open for the transaction of business in Houston, Texas. "Buyer" has the meaning specified in the preamble. "Buyer Basket" has the meaning specified in Section 13.2. "Buyer Designee" has the meaning specified in Section 15.5(b)(ii). "Claims" has the meaning specified in Section 13.2. "Closing" means the consummation of the transactions contemplated by Article II of this Agreement in accordance with the terms and upon the conditions set forth in Article II. "Closing Date" has the meaning specified in Section 4.1. "Code" means the Internal Revenue Code of 1986, as amended. "Consent Required Contract" has the meaning specified in Section 2.4. "Deposit" has the meaning specified in Section 3.1(a). "Drilling Contracts" has the meaning specified in Section 2.1(e)(i). "Employer" and "Employers" have the meanings specified in Section 11.1(c). "Employment Arrangements" has the meaning specified in Section 11.1(d). "Encumbrances" means liens, charges, pledges, options, mortgages, security interests, claims, title defects and other encumbrances of every type and description, whether imposed by law, agreement, understanding or otherwise. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" has the meaning specified in Section 6.7. "Escrow Agent" has the meaning specified in Section 3.1(a). "Escrow Agreement" has the meaning specified in Section 3.1(a). "Escrow Funds" has the meaning specified in Section 3.1(a). "Excluded Assets" has the meaning specified in Section 2.2. 2 7 "General Assignment" has the meaning specified in Section 4.2(a). "Governmental Entity" means any court or tribunal in any jurisdiction (domestic or foreign) or any public, governmental or regulatory body, agency, department, commission, board, bureau or other authority or instrumentality (domestic or foreign). "hazardous material" has the meaning specified in Section 5.12(b). "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "Indemnified Party" has the meaning specified in Section 13.4. "Indemnifying Party" has the meaning specified in Section 13.4. "Inventory" has the meaning specified in Section 2.1(c). "NDMEX" has the meaning specified in the preamble. "NDUS" has the meaning specified in the preamble. "NN-1" has the meaning specified in the preamble. "NN-1 Partner's Consent" has the meaning specified in Section 5.2. "NOC" has the meaning specified in the preamble. "Nonassigned Contract" has the meaning specified in Section 2.4. "Other Contracts" has the meaning specified in Section 2.1(e)(ii). "Parent" has the meaning specified in the preamble. "PEMEX Contracts" has the meaning specified in Section 10.18(a). "Permits" has the meaning specified in Section 2.1(d)(ii). "Permitted Encumbrances" means (i) Encumbrances for taxes, assessments and governmental charges not yet due and payable or the validity of which are being contested in good faith by appropriate proceedings; (ii) statutory liens arising in the ordinary course of business relating to obligations as to which there is no default on the part of Parent or Sellers, excluding any mortgage; (iii) the Drilling Contracts and Other Contracts; (iv) outstanding recommendations to class against any of the Rigs; and (v) any other Encumbrances which in the aggregate do not exceed $200,000; provided, however, that at the Closing "Permitted Encumbrances" shall not include any Encumbrances for taxes, assessments or governmental charges filed of record against the Purchased Assets, or statutory liens filed of record against 3 8 the Purchased Assets, unless any such Encumbrances are being diligently contested in good faith by appropriate proceedings. "Proceedings" means all proceedings, actions, claims, suits, investigations and inquiries by or before any arbitrator or Governmental Entity. "Purchased Assets" has the meaning specified in Section 2.1. "Purchase Price" shall mean $265,000,000. "Registration Statement" has the meaning specified in Section 7.9. "Retained Employees" has the meaning specified in Section 11.1(b). "Richardson Hull" has the meaning specified in Section 2.1(b). "Rigs" has the meaning specified in Section 2.1(b). "Securities Act" has the meaning specified in Section 7.9. "Seller Basket" has the meaning specified in Section 13.3. "Seller Designee" has the meaning specified in Section 15.5(b)(i). "Seller" and "Sellers" have the meanings specified in the preamble. "Taxes" has the meaning specified in Section 10.7. "Triton" has the meaning specified in Section 10.18(a). "Triton Contracts" has the meaning specified in Section 10.18(a). ARTICLE II PURCHASE AND SALE OF ASSETS 2.1 Assets to be Purchased. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Sellers agree to sell, assign, transfer, deliver and convey to Buyer, and Buyer agrees to purchase, the following (collectively, the "Purchased Assets"): (a) the 12 mat supported jackup drilling rigs described on Schedule 2.1(a), of which the Cecil Forbes is "cold-stacked"; (b) the hull from the former mat supported jackup drilling rig, Linn Richardson, which has become a constructive total loss and no longer has any drilling machinery or other equipment onboard or associated therewith (the "Richardson Hull", and, together with the mat supported jackup drilling rigs described in Section 2.1(a), collectively referred to herein as the "Rigs"); 4 9 (c) the stocks owned by Sellers or any of their Affiliates described on Schedule 2.1(c) (collectively, "Inventory"), as such Inventory may be reduced through consumption thereof, or increased through replacement thereof or addition thereto, in the ordinary course of the maintenance and operation of the Rigs through the Closing Date; (d) the following tangible and intangible assets used or held for use in connection with the ownership, maintenance and operation of the Rigs, to the extent assignable by law and Sellers or their Affiliates have the right to assign and transfer such assets: (i) all records to be delivered to Buyer pursuant to Section 2.5; and (ii) the certificates, licenses, permits, consents, operating authorities, orders, exemptions, franchises, approvals, registrations and other authorizations and applications therefor specifically associated with the maintenance and operation of a Rig and listed on Schedule 2.1(d)(ii) hereto ("Permits"); and (e) the benefit and burden subsequent to the Closing Date of: (i) all drilling contracts and any amendments thereto for the employment of the Rigs in effect on the Closing Date (the "Drilling Contracts"), including without limitation the Drilling Contracts identified on Schedule 2.1(e)(i) hereto in effect on the Closing Date; and (ii) all other contracts to which Sellers or any of their Affiliates is a party relating to the ownership, maintenance and operation of the Rigs in effect on the Closing Date and described on Schedule 2.1(e)(ii) (the "Other Contracts"). 2.2 Excluded Assets. The Purchased Assets to be transferred by Sellers to Buyer hereunder shall include only those described or referred to in Section 2.1, and no other assets or properties of Sellers shall be transferred to Buyer hereunder. Without limiting the generality of the preceding sentence, the Purchased Assets shall not include (i) Parent's subsidiaries, (ii) cash, accounts receivable, prepaid expenses and deposits, (iii) the blowout preventer (and related BOP handling equipment) currently installed on the NN-1, it being understood that the blowout preventer shown on Schedule 2.1(a) for the NN-1 will be installed therefor, (iv) equipment and stores owned by third-party suppliers (such as catering consumables, cement units or logging equipment) or (v) claims and rights under contracts not assigned to and assumed by Buyer hereunder and, in the case of contracts that are assigned to and assumed by Buyer, claims and rights thereunder to the extent, but only to the extent, that such claims and rights relate to the ownership or operation of the Purchased Assets prior to the Closing, including, without limitation, claims for reimbursements, day, footage or turnkey rates, lost equipment, indemnity or escalation of fees that relate to periods prior to the Closing Date, whether or not billed on or before the Closing Date (collectively, the "Excluded Assets"). 2.3 Assumed Liabilities. As of the Closing Date, Buyer shall not assume or otherwise be obligated for any obligations of Parent or Sellers or their Affiliates except for all obligations under the Drilling Contracts and Other Contracts being assumed by Buyer to the extent, but only to the extent, that such obligations relate to the conduct of the ownership or operation of the 5 10 Purchased Assets after the Closing, but, excluding accounts payable and accrued liabilities for property received by Parent or any Seller or for services performed, on or prior to the Closing (collectively, the "Assumed Liabilities"), which Drilling Contracts and Other Contracts Buyer shall assume and thereafter perform. 2.4 Limitation on Assignments. Notwithstanding any other provision hereof, this Agreement shall not constitute nor require an assignment to Buyer of any Drilling Contract, Other Contract or Permit if an attempted assignment of the same without the consent of any party would constitute a breach thereof or a violation of any law or any judgment, decree, order, writ, injunction, rule or regulation of any Governmental Entity unless and until such consent shall have been obtained. In the case of any such Drilling Contract, Other Contract or Permit that cannot be effectively transferred to Buyer without such consent (a "Consent Required Contract"), Sellers agree that between the date hereof and the Closing Date they will use their Best Efforts to obtain or cause to be obtained the necessary consents to the transfer of any Consent Required Contract. Buyer agrees to cooperate and to cause any Buyer Designee to cooperate with Sellers in obtaining such consents and to enter into such arrangement of assumption as may be reasonably requested by Sellers or the other contracting party under a Consent Required Contract. In the event that Sellers shall have failed prior to the Closing Date to obtain consents to the transfer of any Consent Required Contract, the terms of this Section 2.4 shall govern the transfer of the benefits of each such contract. Sellers and Buyer shall use their Best Efforts after the Closing Date to obtain any required consent to the assignment to, and assumption by, Buyer of each Consent Required Contract that is not transferred to Buyer at the Closing (a "Nonassigned Contract"). Sellers, or a Seller Designee, and Buyer, or a Buyer Designee, shall enter into an agreement substantially in the form of that attached hereto as Exhibit 2.4 on the Closing Date with respect to each Nonassigned Contract providing that until the rights and obligations of Sellers thereunder are transferred to or assumed by Buyer, or, if earlier, until termination of such Nonassigned Contract, Sellers shall continue to perform their obligations thereunder and Buyer shall provide such assistance, at the sole expense of Buyer, as Sellers may reasonably request for such purpose, including, without limitation, the use of personnel and assets (by lease or otherwise) of Buyer and its Affiliates of the type and quantity that Sellers would have used to perform such Nonassigned Contract had the transactions contemplated by this Agreement not been consummated. Such agreement shall also provide that in consideration of the provision of such assistance, Sellers shall, promptly after payment of any amounts to Sellers by the other party to a Nonassigned Contract, pay such amounts to Buyer after subtracting therefrom the costs and expenses incurred by Sellers as a result of Sellers' performance of the Nonassigned Contract. 2.5 Delivery of Records. (a) Buyer shall be entitled to the records physically located on the Rigs on the Closing Date and relevant to the Rigs. (b) As promptly following the Closing as practicable, Sellers shall deliver or cause to be delivered to Buyer at the offices where such records are located or such other location as mutually agreed, a copy of the technical records described on Schedule 2.5(b) in the possession of Sellers or their Affiliates related to the Rigs or the Inventory, and that are not physically located on the Rigs. 6 11 (c) Each Seller shall be entitled to retain all originals of its corporate, financial, accounting, legal, tax and audit records. ARTICLE III PURCHASE PRICE 3.1 Consideration for the Purchased Assets. (a) Concurrently with the execution and delivery of this Agreement, Buyer, Parent and Southwest Bank of Texas, N.A. (the "Escrow Agent") have executed and delivered the escrow agreement among Buyer, Parent and the Escrow Agent (the "Escrow Agreement"), a copy of which is attached as Exhibit 3.1(a), and Buyer has delivered to the Escrow Agent an amount in cash equal to $10,000,000. Buyer shall deliver an additional $10,000,000 to the Escrow Agent by no later than February 21, 1997 (such $10,000,000, together with the $10,000,000 delivered concurrently with the execution and delivery of this Agreement, is referred to herein as the "Escrow Funds"). Buyer, Parent and Sellers agree that the Escrow Agent shall hold and deliver the Escrow Funds in accordance with the terms and conditions set forth in the Escrow Agreement. Buyer shall have the right at any time to substitute on a dollar for dollar basis an irrevocable letter of credit in favor of Parent (drawn on a bank and containing terms and conditions satisfactory to Parent) for all or a part of the Escrow Funds. For purposes of this Agreement, any such letter of credit, together with the Escrow Funds, if any, held by the Escrow Agent shall be referred to herein as the "Deposit". (b) At the Closing, (i) Buyer shall pay to Parent and Sellers the Purchase Price by delivering to Sellers the amount of $265,000,000 in immediately available funds by confirmed wire transfer to a bank account or accounts to be designated by Parent (such designation to occur no later than the second business day prior to the Closing Date), and (ii) Parent shall cooperate with Buyer to (y) cause the Escrow Agent to deliver the Escrow Funds to Buyer, in accordance with the Escrow Agreement, and (z) release any letter of credit constituting part of the Deposit. (c) As additional consideration for the Purchased Assets, the Buyer shall assume at Closing and shall thereafter perform the Assumed Liabilities. 3.2 Buyer's Default. Parent shall be entitled to receive the Deposit, as liquidated damages and not as a penalty, without right on the part of Buyer to a return of any part thereof if the Closing (i) does not occur on the Closing Date by reason of Buyer's default under the terms of this Agreement; or (ii) does not occur by June 30, 1997 and Parent and Sellers have performed their covenants set forth in Section 10.2, unless Buyer has performed its covenants set forth in Section 10.2 and the sole reason the Closing has not occurred by such date is that the conditions in Sections 8.5 and 9.5 have not been satisfied; provided, however, that Parent and Sellers must show themselves then able and willing to satisfy the conditions set forth in Section 9.1, 9.2, 9.3 and 9.4. 7 12 Buyer shall be deemed in default for the purpose of this Section 3.2 if Buyer (i) shall have been unable to satisfy any of the conditions set forth in Sections 8.1, 8.2, 8.3, 8.4 or 9.6, or (ii) shall have failed to perform any of Buyer's material covenants of this Agreement or have been in material and willful breach of this Agreement, including by not delivering or having insufficient funds to deliver the Purchase Price. Notwithstanding anything to the contrary contained in this Agreement, if the Closing does not occur on the Closing Date or there is no Closing by June 30, 1997 by reason of Buyer's default under the terms of the immediately preceding sentence, Parent and Sellers' sole and exclusive remedy against Buyer and its Affiliates shall be to receive the Deposit, which the parties stipulate shall be liquidated damages and not a penalty. 3.3 Return of Deposit. In the event the Closing shall not occur and Parent is not entitled to receive the Deposit pursuant to Section 3.2, the Escrow Funds shall be returned to Buyer in the manner specified in the Escrow Agreement and the letter of credit, if any, constituting part of the Deposit shall be released to Buyer. 3.4 Allocation of Purchase Price. The Purchase Price shall be allocated among the Purchased Assets in the manner set forth on Schedule 3.4. After the Closing, Parent and Buyer shall cooperate with each other in the preparation, execution and filing of (i) all information returns and supplements thereto required to be filed with the Internal Revenue Service by the parties under Section 1060 of the Code and the Treasury Regulations promulgated thereunder relating to the allocation of the Purchase Price and (ii) all similar filings required to be filed with respect to the transactions contemplated by this Agreement with the Internal Revenue Service and other appropriate taxing authorities. ARTICLE IV THE CLOSING 4.1 Time and Place of Closing. The Closing shall take place (i) at the offices of Thompson & Knight, P.C., 1700 Texas Commerce Tower, 600 Travis Street, Houston, Texas 77002, at 9:00 a.m., local time, on the later of (y) June 3, 1997 or (z) the third Business Day following the satisfaction of the conditions to the obligations of the parties set forth in Sections 8.5 and 9.5, or (ii) at such other place, date or time as the parties may agree in writing. The date on which the Closing is required to take place is herein referred to as the "Closing Date." 4.2 Deliveries by Parent and Sellers. At the Closing, Parent and Sellers shall deliver the following to Buyer: (a) a duly executed General Conveyance, Assignment and Bill of Sale and Transfer and Assumption of Liabilities (the "General Assignment") in the form of Exhibit 4.2(a), together with such other bills of sale, assignments and other instruments of transfer, assignment and conveyance as Buyer shall reasonably request to vest in Buyer or a Buyer Designee good and marketable title to the Purchased Assets; (b) instructions in accordance with the Escrow Agreement; (c) copies of any consents obtained as contemplated by Section 2.4; and 8 13 (d) the officer's certificates and opinion of counsel contemplated by Sections 9.3 and 9.4, respectively. 4.3 Deliveries by Buyer. At the Closing, Buyer shall deliver the following to Parent and Sellers: (a) the Purchase Price; (b) a duly executed General Assignment and such other instruments of transfer and assumption as Parent shall reasonably request in order to cause an effective assignment to and assumption by Buyer of the Drilling Contracts and Other Contracts; (c) instructions in accordance with the Escrow Agreement; (d) the officer's certificate and opinion of counsel contemplated by Sections 8.3 and 8.4, respectively; and (e) the Triton Contracts, duly executed. ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLERS Each Seller hereby represents and warrants, with respect to itself and the Purchased Assets owned by it, to Buyer as follows: 5.1 Organization and Existence. (a) Seller, if a corporation, is duly incorporated, validly existing and in good standing under the laws of the state of its incorporation, with all necessary corporate power and authority to own the Purchased Assets and to carry on its business as such business is currently conducted. (b) Seller, if a partnership, is duly formed, validly existing and in good standing under the laws of the state of its formation, with all necessary partnership power and authority to own the Purchased Assets and to carry on its business as such business is currently conducted. (c) Seller is duly qualified or licensed to transact business as a foreign corporation or partnership, as the case may be, and is in good standing in all jurisdictions in which the character of the Purchased Assets or the nature of the business currently conducted by it requires it so to be qualified or licensed unless the failure so to qualify or be licensed would not reasonably be expected to have a material adverse effect on the business of Parent and Sellers taken as a whole or create an Encumbrance on any of the Purchased Assets, except for a Permitted Encumbrance. 5.2 Authority; Etc. Seller has all necessary corporate or partnership, as the case may be, power and authority to execute and deliver this Agreement and all agreements, instruments and documents to be executed and delivered hereunder by Seller, to consummate the transactions 9 14 contemplated hereby and to perform all terms and conditions hereof to be performed by it, except that Parent, as general partner of NN-1, must obtain the consent of the sole limited partner in NN-1 to the sale of the Rig, NN-1 (the "NN-1 Partner's Consent"). The execution and delivery of this Agreement by Seller and all agreements, instruments and documents to be executed and delivered by Seller hereunder, the performance by Seller of all the terms and conditions hereof to be performed by it and the consummation of the transactions contemplated hereby have been duly authorized and approved by all necessary corporate or partnership proceedings of Seller, and no other corporate or partnership proceedings of Seller are necessary with respect thereto, except that (i) stockholder approval may be necessary in the case of NDUS, NOC and NDMEX and (ii) Parent must obtain the NN-1 Partner's Consent, which approvals and consent will be obtained, if necessary, prior to the Closing Date. All persons who have executed and delivered this Agreement, and all persons who will execute and deliver the other agreements, documents and instruments to be executed and delivered by Seller hereunder, have been duly authorized to do so by all necessary actions on the part of Seller. This Agreement constitutes, and each other agreement or instrument to be executed by Seller hereunder, when executed and delivered by Seller, will constitute, the legal, valid and binding obligation of Seller, enforceable against it in accordance with its terms, except to the extent the enforceability hereof and thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or other laws relating to or affecting creditors' rights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.3 No Violations. The execution and delivery of this Agreement by Seller, the fulfillment of and compliance by it with the terms and conditions hereof and the consummation by it of the transactions contemplated hereby will not: (a) violate any of the terms of the certificate of incorporation or bylaws (or the equivalent), or partnership agreement, as appropriate, of Seller; (b) (i) except for the consents to assignment referred to in Section 2.4, result in a breach of or constitute a default under (whether with notice or the lapse of time or both) any note, bond, mortgage, loan agreement, indenture or other instrument evidencing borrowed money to which Seller is a party or by which Seller is bound or to which any of the Purchased Assets is subject which breach or default would reasonably be expected to have a material adverse effect on the ownership or operation of the Purchased Assets, or (ii) result in the creation of any Encumbrance on any of the Purchased Assets, or otherwise give any person the right to terminate any Drilling Contract, Permit or Other Contract assumed by Buyer; or (c) to Seller's knowledge, violate any provision of any law, statute, rule or administrative regulation or any judgment, order, injunction or decree of any Governmental Entity applicable to or binding upon Seller, or its assets, except that no representation is made as to the application of any United States antitrust law or regulation to the transactions contemplated by this Agreement, which violation with respect to the matters specified in clauses (b) and (c) of this Section 5.3 would reasonably be expected to have a material adverse effect on the ownership or operation of the Purchased Assets taken as a whole. 5.4 Ownership of Rigs. Seller (other than NN-1) owns and, upon the execution and delivery of the General Assignment at Closing by each Seller (including NN-1), Buyer will own, 10 15 good and marketable title to the Rigs, free and clear of all Encumbrances except for Permitted Encumbrances. 5.5 Inventory. Seller owns, and upon Seller's execution and delivery of the General Assignment, Buyer will own, good and marketable title to the Inventory reflected on Schedule 2.1(c), as such Inventory may be reduced through the consumption thereof, or increased through replacement thereof or additions thereto, in the ordinary course of the maintenance and operation of the Rigs through the Closing Date, free and clear of all Encumbrances except for Permitted Encumbrances. 5.6 Contracts. Seller has made available to Buyer for review complete and correct copies of all the Drilling Contracts and Other Contracts. Except as separately identified on Schedule 2.1(f)(i) or 2.1(f)(ii), each of the Drilling Contracts and Other Contracts may be transferred to Buyer without the consent of any person. All the Drilling Contracts and Other Contracts are valid, binding and in full force and effect against Seller or its Affiliates, as the case may be, and, to Seller's knowledge, are valid, binding and in full force and effect against the other parties thereto. Except as set forth on Schedule 5.6, neither Seller nor any of its Affiliates is in default in any material respect, and no notice of alleged default has been received by Seller or any of its Affiliates, under any of the Drilling Contracts and Other Contracts, no other party thereto is, to the knowledge of Seller or its Affiliates, in default thereunder in any material respect, and, to the knowledge of Seller or its Affiliates, there exists no condition or event which, with or without notice or lapse of time or both, would constitute a material default under any of the Drilling Contracts and Other Contracts by Seller, any of its Affiliates or any other party thereto. 5.7 Litigation. (a) Except for litigation adequately covered by insurance or otherwise described on Schedule 5.7(a), there is no litigation and there are no Proceedings, suits or investigations pending, instituted or, to the knowledge of Seller, overtly threatened against any of the Purchased Assets or against Seller or any of its Affiliates and relating to the ownership and operation of the Purchased Assets before any Governmental Entity applicable to or binding upon Seller or any of the Purchased Assets that (i) seeks permanent injunctive relief, (ii) if adversely determined would delay or prevent the consummation of the transactions contemplated by this Agreement or (iii) would reasonably be expected to have a material adverse effect on the ownership, maintenance or operation of the Purchased Assets taken as a whole. (b) Except for matters described on Schedule 5.7(b), neither Seller nor any of its properties or assets is subject to any judicial or administrative judgment, order, decree or restraint currently affecting the ownership, maintenance and operation of the Purchased Assets in a manner that is material and adverse to the ownership, maintenance and operation of the Purchased Assets taken as a whole. Except as referred to on Schedule 5.7(b), Seller has not received any notifications or charges in writing from any Governmental Entity involving alleged violations of or alleged obligations to remediate under occupational safety and health or water quality or other environmental matters that materially and adversely affect the conduct by Seller of the ownership, maintenance and operation of the Purchased Assets taken as a whole or that have not been finally dismissed or otherwise disposed of. 11 16 5.8 Governmental Approval. Except for required filings under the HSR Act and as set forth on Schedule 5.8, no consent, approval, waiver, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required to be obtained or made in connection with the execution and delivery of this Agreement by Seller or the consummation by Seller of the transactions contemplated hereby, the failure of which to obtain would have a material adverse effect on the ownership, maintenance and operation of the Purchased Assets taken as a whole. 5.9 Compliance With Laws. Except as set forth on Schedule 5.9, Seller is not to its knowledge in violation of or in default under any applicable law, rule, regulation, code, governmental determination, order, governmental certification requirement or other public limitation, other than Applicable Environmental Laws (collectively, "Applicable Laws"), relating to the ownership, maintenance or operation of the Purchased Assets, which violation or default materially and adversely affects Seller's ownership, maintenance or operation (as presently conducted) of the Purchased Assets, and no claim is pending or, to Seller's knowledge, overtly threatened with respect to any such matters which if determined adversely to Seller would have such effect. 5.10 Reserved. 5.11 Rig Classifications and Certifications. (a) The classification of each Rig and the flag, if any, under which it is documented are set forth on Schedule 1(a). (b) Set forth on Schedule 5.11(b) is a summary of the outstanding recommendations to class against each of the Rigs based on the most recent survey received by Seller for such Rig as of the date of this Agreement, as well as a listing of certifications (including American Bureau of Shipping and United States Coast Guard certifications) maintained by Seller for the present operation of such and the expiration date of each such certification. (c) Except as set forth on Schedule 5.11(c), to the knowledge of Seller, no Rig has suffered any material damage to its condition (ordinary wear and tear excepted) since February 10, 1997, the date of completion of Buyer's inspection of the Rigs. 5.12 Environmental Matters. (a) Seller has received no written notice of any investigation or inquiry by any Governmental Entity under any Applicable Environmental Laws (as defined below) relating to the ownership or operation of the Purchased Assets. To the actual current knowledge of Seller, Seller has not disposed of any hazardous material (as defined below) on any of the Purchased Assets and no condition exists on any of the Purchased Assets which would subject Seller or the Purchased Assets to any remedial obligations under any Applicable Environmental Laws. (b) For purposes of this Agreement, "Applicable Environmental Laws" means any and all Applicable Laws pertaining to health, safety, or the environment in effect in any and all jurisdictions in which the Purchased Assets are located or in which Seller has conducted 12 17 operations using any of the Purchase Assets, including, without limitation, the Clear Air Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Rivers and Harbors Act of 1899, as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976, as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection laws. For purposes of this Agreement, the term "hazardous material" means (i) any substance which is listed or defined as a hazardous substance, hazardous constituent, or solid waste pursuant to any Applicable Environmental Laws and (ii) petroleum (including crude oil and any fraction thereof), natural gas and natural gas liquids. 5.13 No Brokers. Seller has not employed or authorized anyone to represent it as a broker or finder in connection with the transactions contemplated by this Agreement, and no broker or other person is entitled to any commission or finder's fee from Seller in connection with such transactions. Seller agrees to indemnify and hold harmless Buyer from and against any and all losses, claims, demands, damages, costs and expenses, including, without limitation, reasonable attorneys' fees and expenses, Buyer may sustain or incur as a result of any claim for a commission or fee by a broker or finder acting on behalf of Seller. 5.14 Decrees, etc. No order, writ, injunction, decree, judgment, award or determination of any court or Governmental Entity has been issued or entered against Seller or any of its Affiliates which continues to be in effect and affects the ownership or operation of the Purchased Assets. 5.15 Performance Bonds; Letters of Credit. Set forth on Schedule 5.15 is a listing of all performance and similar bonds and letters of credit currently posted by, or any certificate of financial responsibility or similar evidence of financial accountability obtained or procured by, Seller or any of its Affiliates for the purpose of operating the Rigs. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PARENT Parent hereby represents and warrants to Buyer as follows: 6.1 Organization and Existence. Parent is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation, with all necessary corporate power and authority to own and lease the assets it currently owns and leases and to carry on its business as such business is currently conducted. Parent is duly qualified or licensed to transact business as a foreign corporation and is in good standing in all jurisdictions in which the character of the assets currently owned or leased by it or the nature of the business currently conducted by it requires it so to be qualified or licensed unless the failure so to qualify or be licensed would not reasonably be expected to have a material adverse effect on the business or financial condition of Parent and its subsidiaries taken as a whole. 13 18 6.2 Authority; Etc. Parent has all necessary corporate power and authority to execute and deliver this Agreement and all agreements, instruments and documents to be executed and delivered hereunder by Parent, to consummate the transactions contemplated hereby and to perform all terms and conditions hereof to be performed by it. The execution and delivery of this Agreement by Parent and all agreements, instruments and documents to be executed and delivered by Parent hereunder, the performance by Parent of all the terms and conditions hereof to be performed by it and the consummation of the transactions contemplated hereby have been duly authorized and approved by the board of directors of Parent, and no other corporate proceedings of Parent are necessary with respect thereto. All persons who have executed and delivered this Agreement, and all persons who will execute and deliver the other agreements, documents and instruments to be executed and delivered by Parent hereunder, have been duly authorized to do so by all necessary actions on the part of Parent. This Agreement constitutes, and each other agreement or instrument to be executed by Parent hereunder, when executed and delivered by Parent, will constitute, the legal, valid and binding obligation of Parent, enforceable against it in accordance with its terms, except to the extent the enforceability hereof and thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or other laws relating to or affecting creditors' rights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 6.3 No Violations. The execution and delivery of this Agreement by Parent, the fulfillment of and compliance by it with the terms and conditions hereof and the consummation by it of the transactions contemplated hereby will not: (a) violate any of the terms of the certificate of incorporation or bylaws of Parent; (b) result in a breach of or constitute a default under (whether with notice or the lapse of time or both) any note, bond, mortgage, loan agreement, indenture or other instrument evidencing borrowed money to which Parent is a party or by which Parent is bound or to which any of its assets is subject or result in the creation of any Encumbrance on any of its assets, which breach or default would reasonably be expected to have a material adverse effect on its ability to perform its obligations hereunder; or (c) to Parent's knowledge, violate any provision of any law, statute, rule or administrative regulation or any judgment, order, injunction or decree of any Governmental Entity applicable to or binding upon Parent or any of its subsidiaries, except that no representation is made as to the application of any United States antitrust law or regulation to the transactions contemplated by this Agreement, which violation with respect to the matters specified in clauses (b) and (c) of this Section 6.3 would reasonably be expected to have a material adverse effect on its ability to perform its obligations hereunder. 6.4 Governmental Approval. Except for required filings under the HSR Act and as contemplated by Section 10.2 or set forth on Schedule 6.4, no consent, approval, waiver, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required to be obtained or made in connection with the execution and delivery of this Agreement by Parent or the consummation by Parent of the transactions contemplated hereby, the failure of which to obtain would delay or prevent the consummation of the transactions contemplated by this Agreement. 14 19 6.5 Litigation. There is no litigation and there are no Proceedings, suits or investigations pending, instituted or, to the knowledge of Parent overtly threatened against Parent or its subsidiaries that could reasonably be expected to delay or prevent the consummation of the transactions contemplated by this Agreement. 6.6 No Brokers. Except for Schroder Wertheim & Co. Incorporated (whose fee in respect of the transactions contemplated hereby shall be paid solely by Parent), Parent has not employed or authorized anyone to represent it as a broker or finder in connection with the transactions contemplated by this Agreement, and no broker or other person is entitled to any commission or finder's fee from Parent in connection with such transactions. Parent will indemnify and hold harmless Buyer from and against any and all losses, claims, demands, damages, costs and expenses, including, without limitation, reasonable attorneys' fees and expenses, Buyer may sustain or incur as a result of any claim for a commission or fee by a broker or finder acting on behalf of Parent. 6.7 Employees and Related Matters. To Parent's knowledge, all of the employee benefit plans (as defined in Section 3(3) of ERISA) which are or have been maintained or contributed to by Parent or any incorporated or unincorporated trade or business (an "ERISA Affiliate") which together with Parent would be treated as a single employer under Section 414 of the Code have been maintained and contributed to in compliance with the requirements of ERISA, the Code and other applicable law; and to Parent's knowledge, Parent and its ERISA Affiliates have paid and discharged when due all obligations and liabilities arising under such plans, ERISA, the Code and other Applicable Law of a character which, if not paid or discharged, are likely to result in the imposition of an Encumbrance or the assertion of a liability enforceable against the Purchased Assets. There are no labor agreements between Parent or any Affiliate of Parent and any collective bargaining representative who represents employees employed by Parent or any of its Affiliates which relate to or affect the ownership, maintenance or operation of the Purchased Assets. ARTICLE VII REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Parent and each of the Sellers as follows: 7.1 Organization and Existence. Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation, with all necessary corporate power and authority to own and lease the assets it currently owns and leases and to carry on its business as such business is currently conducted. Buyer is duly qualified or licensed to transact business as a foreign corporation and is in good standing in all jurisdictions in which the character of the assets currently owned or leased by it or the nature of the business currently conducted by it requires it so to be qualified or licensed unless the failure so to qualify or be licensed would not reasonably be expected to have a material adverse effect on the business or financial condition of Buyer and its subsidiaries taken as a whole. 7.2 Authority; Etc. Buyer has all necessary corporate power and authority to execute and deliver this Agreement and all agreements, instruments and documents to be executed and 15 20 delivered hereunder by Buyer, to consummate the transactions contemplated hereby and to perform all terms and conditions hereof to be performed by it. The execution and delivery of this Agreement by Buyer and all agreements, instruments and documents to be executed and delivered by Buyer hereunder, the performance by Buyer of all the terms and conditions hereof to be performed by it and the consummation of the transactions contemplated hereby have been duly authorized and approved by the board of directors of Buyer, and no other corporate proceedings of Buyer are necessary with respect thereto. All persons who have executed and delivered this Agreement, and all persons who will execute and deliver the other agreements, documents and instruments to be executed and delivered by Buyer hereunder, have been duly authorized to do so by all necessary actions on the part of Buyer. This Agreement constitutes, and each other agreement or instrument to be executed by Buyer hereunder, when executed and delivered by Buyer, will constitute, the legal, valid and binding obligation of Buyer, enforceable against it in accordance with its terms, except to the extent the enforceability hereof and thereof may be limited by bankruptcy, insolvency, moratorium, reorganization or other laws relating to or affecting creditors' rights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 7.3 No Violations. The execution and delivery of this Agreement by Buyer, the fulfillment of and compliance by it with the terms and conditions hereof and the consummation by it of the transactions contemplated hereby will not: (a) violate any of the terms of the certificate of incorporation or bylaws of Buyer; (b) result in a breach of or constitute a default under (whether with notice or the lapse of time or both) any note, bond, mortgage, loan agreement, indenture or other instrument evidencing borrowed money to which Buyer is a party or by which Buyer is bound or to which any of its assets is subject or result in the creation of any Encumbrance on any of its assets, which breach or default would reasonably be expected to have a material adverse effect on its ability to perform its obligations hereunder; or (c) to Buyer's knowledge, violate any provision of any law, statute, rule or administrative regulation or any judgment, order, injunction or decree of any Governmental Entity applicable to or binding upon Buyer or any of its subsidiaries, except that no representation is made as to the application of any United States antitrust law or regulation to the transactions contemplated by this Agreement, which violation with respect to the matters specified in clauses (b) and (c) of this Section 7.3 would reasonably be expected to have a material adverse effect on its ability to perform its obligations hereunder. 7.4 Inspections. Buyer has made its own inspection of each of the Rigs except the NN-1 and the Richardson Hull. 7.5 Litigation. There is no litigation and there are no Proceedings, suits or investigations pending, instituted or, to the knowledge of Buyer overtly threatened against Buyer or its subsidiaries that could reasonably be expected to delay or prevent the consummation of the transactions contemplated by this Agreement. 16 21 7.6 Governmental Approval. Except for required filings under the HSR Act and as contemplated by Section 10.2 or set forth on Schedule 7.6, no consent, approval, waiver, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required to be obtained or made in connection with the execution and delivery of this Agreement by Buyer or the consummation by Buyer of the transactions contemplated hereby, the failure of which to obtain would delay or prevent the consummation of the transactions contemplated by this Agreement. 7.7 No Brokers. Buyer has not employed or authorized anyone to represent it as a broker or finder in connection with the transactions contemplated by this Agreement, and no broker or other person is entitled to any commission or finder's fee from Buyer in connection with such transactions. Buyer will indemnify and hold harmless Parent and Sellers from and against any and all losses, claims, demands, damages, costs and expenses, including, without limitation, reasonable attorneys' fees and expenses, Parent and/or any Seller may sustain or incur as a result of any claim for a commission or fee by a broker or finder acting on behalf of Buyer. 7.8 Certain Knowledge Regarding Assignment of Contracts. To the knowledge of Buyer, no condition or circumstance exists that would prevent the obtainment of any necessary consents to the effective assignment to and assumption by Buyer of the Drilling Contracts or Other Contracts. 7.9 Registration Statement. On February 7, 1997, Buyer filed a registration statement on Form S-3 (file no. 333-21385) (the "Registration Statement") with the SEC under the Securities Act of 1933, as amended (the "Securities Act"), covering a maximum aggregate offering of $500,000,000 of Buyer's debt securities and common stock. ARTICLE VIII CONDITIONS TO THE OBLIGATIONS OF PARENT AND SELLERS The obligations of Parent and Sellers to proceed with the Closing contemplated by this Agreement are subject to the satisfaction, on or before the Closing Date, of all the following conditions, any one or more of which may be waived, in whole or in part, by Parent: 8.1 Accuracy of Representations and Warranties. Each representation and warranty of Buyer contained in this Agreement shall be true and correct in all material respects as of the Closing Date with the same effect as though made on the Closing Date, except as otherwise specifically contemplated by this Agreement. 8.2 Covenants and Agreements Performed. Buyer shall have complied on or before the Closing Date in all material respects with each of its covenants or agreements contained in this Agreement to be performed on or before the Closing Date. 8.3 Officer's Certificate. Parent and Sellers shall have received a certificate in the form of Exhibit 8.3 hereto, dated as of the Closing Date, of the President or a Vice President of Buyer certifying as to the matters specified in Sections 8.1 and 8.2. 17 22 8.4 Legal Opinion. Parent and Sellers shall have received from Robert W. Randall, Esq., Vice President, General Counsel and Secretary of Buyer, an opinion dated the Closing Date, substantially in the form of Exhibit 8.4 hereto. 8.5 HSR Act. All required filings under the HSR Act shall have been made as required and the waiting period (and any extension thereof) under the HSR Act relating to the transactions contemplated hereby shall have expired or been terminated without governmental objection thereto. ARTICLE IX CONDITIONS TO THE OBLIGATIONS OF BUYER The obligations of Buyer to proceed with the Closing contemplated by this Agreement are subject to the satisfaction, on or before the Closing Date, of all the following conditions, any one or more of which may be waived, in whole or in part, by Buyer: 9.1 Accuracy of Representations and Warranties. (a) Each representation and warranty of Sellers contained in this Agreement shall be true and correct in all material respects as of the Closing Date with the same effect as though made on the Closing Date, except as otherwise specifically contemplated by this Agreement. (b) Each representation and warranty of Parent contained in this Agreement shall be true and correct in all material respects as of the Closing Date with the same effect as though made on the Closing Date, except as otherwise specifically contemplated by this Agreement. 9.2 Covenants and Agreements Performed. (a) Sellers shall have complied on or before the Closing Date in all material respects with each of the covenants or agreements of Sellers contained in this Agreement to be performed on or before the Closing Date. (b) Parent shall have complied on or before the Closing Date in all material respects with each of the covenants or agreements of Parent contained in this Agreement to be performed on or before the Closing Date. 9.3 Officer's Certificate. (a) Buyer shall have received a certificate in the form of Exhibit 9.3(a) hereto, dated as of the Closing Date, of the President or a Vice President, or the general partner of each Seller certifying as to the matters specified in Sections 9.1(a) and 9.2(a). (b) Buyer shall have received a certificate in the form of Exhibit 9.3(b) hereto, dated as of the Closing Date, of the President or a Vice President of Parent certifying as to the matters specified in Sections 9.1(b) and 9.2(b). 18 23 9.4 Legal Opinion. Buyer shall have received from Thompson & Knight, P.C., counsel for Parent and Sellers, an opinion dated the Closing Date, substantially in the form of Exhibit 9.4 hereto. 9.5 HSR Act. All required filings under the HSR Act shall have been made as required and the waiting period (and any extension thereof) under the HSR Act relating to the transactions contemplated hereby shall have expired or been terminated without governmental objection thereto. 9.6 Financing by Buyer. Buyer shall have obtained financing for the Purchased Assets in an amount no less than the Purchase Price. ARTICLE X COVENANTS AND AGREEMENTS OF THE PARTIES BEFORE, RELATING TO AND SUBSEQUENT TO THE CLOSING Parent, Sellers and Buyer hereby covenant and agree as follows: 10.1 Expenses. Except as otherwise expressly provided in this Agreement, each of the parties hereto shall assume and bear all expenses, costs and fees incurred or assumed by such party in the preparation and execution of this Agreement and in compliance with and performance of the agreements and covenants contained in this Agreement, regardless of whether the transactions contemplated hereby are consummated. 10.2 HSR Act Compliance. The parties shall comply with all provisions of the HSR Act. Parent, Sellers and Buyer agree to cooperate with each other and furnish all information to the other party that is necessary in connection with the HSR Act filings required to be made by the parties hereto. Buyer and Parent each agree to request early termination of any applicable waiting period under the HSR Act. 10.3 Access. Until the Closing, Parent and Sellers shall give the officers, employees and attorneys of Buyer reasonable access, subject to Applicable Laws, during normal business hours upon Buyer's reasonable prior notice to Parent, to the Purchased Assets and the records of Sellers specifically relating thereto. Parent and Sellers will cooperate fully with such representatives of Buyer in connection with such review. Buyer will hold in strict confidence and not use for purposes other than those contemplated by this Agreement any documents or information furnished concerning Parent, Sellers or the Purchased Assets. Such confidence shall be maintained for at least two years after the date of this Agreement. If the transactions contemplated by this Agreement shall not be consummated, all such documents and all copies thereof shall immediately thereafter be returned to Parent, and all documents prepared by Buyer or any of its Affiliates or their representatives shall be destroyed. The confidentiality obligations set forth in the preceding sentence shall not apply to information (i) in the public domain, (ii) obtained by Buyer from a third party source with the right to disclose such information or (iii) with respect to which disclosure is required by law in the opinion of counsel to Buyer reasonably acceptable to Parent. Buyer agrees to assume the risk of personal injury to its representatives or loss of or damage to its and its representatives' property occurring during the course of investigating the Purchased Assets, Parent and Sellers, regardless of any fault 19 24 (including the negligence) of any of Parent, Sellers or their Affiliates, and Buyer will indemnify and hold harmless Parent, Sellers and their Affiliates from and against any and all losses, claims, demands, damages, costs and expenses, including, without limitation, reasonable attorneys' fees and expenses, Parent, any Seller and/or any of their Affiliates may sustain or incur as a result of any such personal injury or loss of or damage to property. 10.4 Conduct of Business and Preservation of Assets. (a) Until the Closing, Buyer and Sellers agree to cooperate with each other to effect an orderly transition of the ongoing operation of the Purchased Assets and Sellers shall use their respective Best Efforts to preserve, maintain and protect the Purchased Assets. From and after the date of this Agreement and until the Closing Date, without the prior express written consent of Buyer, which consent shall not be unreasonably withheld or delayed, Sellers will not, and Parent will not permit any of its Affiliates to, (i) make any material change in the conduct of the ongoing operation of the Rigs taken as a whole, (ii) enter into any new drilling contracts with respect to the Rigs or any other contracts or agreements with respect to the Rigs other than the PEMEX Contracts and other contracts entered into in the ordinary course of business that are not expected to extend beyond 180 days, or amend, in any respect adverse to Sellers or Buyer, any Drilling Contract or Other Contract or (iii) commit itself to do any of the foregoing. (b) Buyer, Parent and Sellers acknowledge that the Frank Reiger is currently undergoing refurbishment at Texas Drydock, Inc., in Port Arthur, Texas. NDUS agrees, at its expense, to complete the refurbishment contemplated under its shipyard contract for such refurbishment work, and upon completion of such refurbishment, to obtain such certifications from Governmental Entities as are necessary to permit the Frank Reiger to engage in offshore oil and gas drilling and workover operations in the U.S. Gulf of Mexico. 10.5 Transition of Business Operations. Buyer will use its Best Efforts to obtain and to cause any Buyer Designee to obtain prior to the Closing Date all requisite qualifications or licenses to transact business as a foreign corporation in each jurisdiction in which the consummation of the transactions contemplated hereby or the nature of the business to be conducted by it after the Closing requires it so to be qualified or licensed. If Buyer or any Buyer Designee is not so duly qualified or licensed on the Closing Date, then (i) Buyer agrees to use its Best Efforts to become or to cause each Buyer Designee to become so qualified or licensed at the earliest practicable date and (ii) Sellers agree to cooperate with Buyer to effect the consummation of the transactions contemplated by this Agreement, provided same can be effected without violation of law in the jurisdiction involved and any additional expense associated with same is borne by Buyer. 10.6 Litigation. Until the Closing, Parent will promptly notify Buyer of any action, suit, proceeding, claim or investigation which is overtly threatened or commenced against a Seller which is not fully insured against (except standard deductible or self-retention amounts) and which relates to or affects the Purchased Assets or this Agreement or the transactions contemplated hereby, and Buyer will promptly notify Parent of any action, suit, proceeding, claim or investigation which is overtly threatened or commenced against Buyer which is not fully insured against (except standard deductible or self- retention amounts) and which relates to and 20 25 materially and adversely affects Buyer or its business or affects this Agreement or the transactions contemplated hereby. 10.7 Certain Taxes. Buyer shall be liable for and shall pay all applicable duties, sales, use, transfer, stamp, recording, value added or similar taxes and assessments payable as a result of the consummation of the transactions contemplated hereby, and Buyer and Sellers agree to cooperate to obtain all available exemptions from such taxes. All ad valorem taxes, utility and other service charges and other taxes, fees and expenses relating to the Purchased Assets (collectively, "Taxes"), for all periods up to and including the Closing Date shall be the obligations of Sellers and for all periods following the Closing Date shall be the obligation of Buyer. All Taxes relating to periods prior to the Closing that have been assessed prior to Closing and that are not then being diligently contested in good faith by appropriate proceedings shall be paid by a Seller prior to the Closing. Each Seller shall promptly pay from time to time such Seller's prorated share of all Taxes to Buyer upon Buyer's request accompanied by appropriate documentation that such Taxes are due and payable. Buyer agrees to pay such amounts on behalf of such Seller and to indemnify such Seller with respect to any Claims (as defined in Section 13.2) for such Taxes if a Seller shall have paid to Buyer such Seller's pro rata share thereof, if any. Sellers and Buyer agree to cooperate with each other in order to reduce the amount of taxes or other assessments imposed on or charged to any Seller or Buyer as a result of the consummation of the transactions contemplated by this Agreement, including, without limitation, by (i) accommodating a tax-deferred exchange by one or more Sellers under Section 1031 of the Code or (ii) effectively transferring ownership of Purchased Assets to Buyer by transferring to Buyer all of the outstanding ownership interest in the entity that owns such Purchased Assets; provided, that none of Parent, any Seller nor Buyer shall be obligated to take any action that it determines in its sole discretion may subject it to additional taxes, liabilities or expenses. 10.8 Actions with Respect to Closing. Each of Parent and each Seller will use its Best Efforts to obtain and to cause any Seller Designee to obtain the satisfaction of the conditions to Closing applicable to Parent and Sellers set forth in Article IX as soon as practicable. Buyer will use its Best Efforts to obtain and to cause each Buyer Designee to obtain the satisfaction of the conditions to Closing applicable to Buyer set forth in Article VIII as soon as practicable. 10.9 Public Statements. Prior to making any news release or other announcement concerning the transactions contemplated hereby, Buyer and Parent shall consult with each other regarding the proposed contents thereof (but no approval thereof shall be required). 10.10 Books and Records. Parent and Sellers shall have the right, at their own expense, at any time or from time to time within five years after the Closing Date during reasonable business hours upon reasonable notice to Buyer to inspect, and make copies of or extracts from, any of the records delivered to Buyer at the Closing that are in the possession of Buyer or its Affiliates. None of the records in the possession of Buyer or its Affiliates shall be destroyed prior to December 31, 2002 or five years after generated, whichever is earlier, without the consent of Parent, unless first reproduced by microfilm or any other similar process. In the event that Buyer shall wish to destroy any of such records at any time or from time to time after the Closing Date, Buyer shall give not less than 60 days' notice to Parent and Parent shall have 21 26 the right, at its own expense, during reasonable business hours to remove such records and to keep possession of the same. 10.11 Rig Loss. Notwithstanding any other provision of this Agreement: (a) If any Rig (other than the Richardson Hull) shall become an actual or constructive total loss (as determined by Parent's insurance underwriter's marine surveyor) prior to the Closing Date: (i) Buyer shall not be required to purchase such Rig, (ii) the Purchase Price shall be reduced by the amount allocated to such Rig pursuant to Schedule 3.4, (iii) the term "Purchased Assets" shall be deemed not to include such Rig and (iv) the other provisions of this Agreement shall continue to be in effect and the Closing shall take place in the manner contemplated herein. (b) Without limiting the obligations of any Seller or Parent under Section 10.4(a), if a Rig sustains damage not amounting to an actual or constructive total loss prior to the Closing Date, either (i) the Seller owning such Rig shall repair or cause to be repaired the damage to the Rig at such Seller's own expense or (ii) in the case of damage to a Rig in respect of which insurance proceeds are available, Buyer, at its option, may require the Seller to assign to Buyer at the Closing the rights the Seller has to receive insurance proceeds in respect of such loss or damage and pay to Buyer the amount by which any such insurance proceeds otherwise payable to Buyer are reduced by any deductible or deductibles under the terms of the relevant policy or policies (offset by any amounts paid through the Closing Date by the Seller for such repair), and, in the case of either (i) or (ii) above, Buyer shall remain obligated to purchase the Purchased Assets on the Closing Date and the Purchase Price shall not be reduced. If, pursuant to this subsection (b), Buyer is to conduct or cause to be conducted repairs to a damaged Rig subsequent to Closing, then Parent and Buyer shall agree on a plan for the manner of conduct and the scope of such repairs, and neither Parent nor any Seller shall be obligated to pay costs resulting from any deviation from such plan. 10.12 Use of Names. Buyer agrees that (i) it will not use the name "Noble" or "Noble Drilling" or any derivative thereof, (ii) it will within 90 days of the Closing Date, change the name of each Rig to other than the name of a current or former personnel or associate of Parent, and (iii) it will within 90 days from the Closing Date, remove from the Purchased Assets or paint over such name and any logos, symbols or trademarks relating thereto. 10.13 Continued Effectiveness of Representations and Warranties. Each of Parent, each Seller and Buyer shall use its Best Efforts to cause the representations and warranties made by it herein to continue to be true and correct on and as of the Closing Date as if made on and as of the Closing Date. Nothing contained in this Section 10.13 shall be construed as being inconsistent with or in derogation of Section 13.1 or 13.5. 10.14 Post-Closing Collection, Payment and Administrative Procedures. Subsequent to Closing, (i) Buyer agrees to deliver to Parent, within three Business Days of receipt of same, any and all (A) monies paid to or received by Buyer or its Affiliates in respect of amounts due Sellers or their Affiliates, including, but not limited to, payment of receivables, refunds, rebates, release of performance or similar bonds or letters of credit, and (B) inquiries, correspondence or documents received by Buyer or its Affiliates related to such amounts; and (ii) Sellers and 22 27 Parent agree to deliver to Buyer, within three Business Days of receipt of same, any and all (A) monies paid to or received by Sellers or their Affiliates in respect of amounts due Buyer or its Affiliates, including, but not limited to, payment of receivables, refunds, rebates, release of performance or similar bonds or letters of credit, and (B) inquiries, correspondence or documents received by Sellers or their Affiliates related to such amounts. 10.15 Action of Buyer Regarding Financing. (a) Buyer shall promptly after the date of this Agreement initiate and diligently pursue action to obtain financing in an amount not less than the Purchase Price. In such connection, Buyer agrees to amend the Registration Statement or supplement to the prospectus forming a part thereof to provide for the firm commitment underwritten offer and sale of its debt securities and/or common stock and/or arrange for bank financing in an amount not less than the Purchase Price. Buyer shall consult with Parent, and Parent shall cooperate with and assist Buyer, in preparing any amendment to the Registration Statement or supplement to the prospectus forming a part thereof, particularly with respect to the information therein relating to Parent or Sellers. Buyer agrees to use its Best Efforts to cause the Registration Statement to become effective under the Securities Act as soon as practicable. (b) Buyer shall keep Parent informed at all times with respect to the status of the financing contemplated by subsection (a) of this Section 10.15 and in any event shall inform Parent (i) of notice from the SEC of the effectiveness of the Registration Statement under the Securities Act, (ii) upon pricing of the securities under the Registration Statement or (iii) upon receipt by Buyer of notice from the SEC of the issuance of a stop order with respect to the Registration Statement. 10.16 Certain Financial Statements. Parent agrees to prepare, or cause the preparation of, and to deliver to Buyer as soon as practicable following the date of this Agreement for inclusion in the Registration Statement or otherwise in connection with the financing contemplated by Section 10.15 or in any Form 8-K or other form of Buyer relating to the transactions contemplated hereby required, if any, to be filed with the SEC, such financial statements relating to Sellers or the Purchased Assets as Buyer may be required by Applicable Law to include therein. Buyer shall pay the fees of Price Waterhouse LLP, independent accountants for Parent and Sellers, relating to the preparation and audit of such financial statements and the participation, if any, of Price Waterhouse LLP in the preparation of an amendment to the Registration Statement or other documents filed by Buyer with the SEC or otherwise in connection with the financing contemplated by Section 10.15. 10.17 Import Duties; Performance Bonds. If any Seller or any subsidiary of any Seller has posted a performance or other similar bond or letter of credit or procured any certificate of financial responsibility or similar evidence of financial accountability in connection with any Seller's or any such subsidiary's ownership or operation of any of the Rigs or the performance by any Seller or any such subsidiary under a Drilling Contract or Other Contract, Buyer and Sellers shall cooperate in order (i) for Sellers or any of Sellers' subsidiaries to obtain the release of any such bond, letter of credit or certificate and (ii) to the extent required, for Buyer to obtain a substitute bond, letter of credit or certificate or to assume the existing bond, letter of credit or certificate of any Seller or any subsidiary of any Seller. Sellers and Buyer agree to cooperate 23 28 with each other in order to reduce import duties assessed against any Seller or any subsidiary of any Seller, or Buyer as a result of the consummation of the transactions contemplated by this Agreement, including by postponing the date of transfer of legal title to any Rig operating in foreign waters until completion of the Drilling Contract under which such a Rig is operating on the Closing Date; provided, that neither Sellers, any subsidiary of any Seller nor Buyer shall be obligated to take any action that it determines in its sole discretion may subject it to additional import duties, liabilities or expenses. Buyer shall reimburse Sellers or any subsidiary of any Seller for all out-of- pocket costs incurred by any Seller or any such subsidiary as a result of their leaving a performance or similar bond, letter of credit or certificate in place after the Closing Date in order to permit Buyer to operate the Purchased Assets after the Closing Date. 10.18 Availability of Rigs to Triton Engineering Services Company. (a) On or before the Closing Date and subject to the occurrence of the Closing, Buyer and Triton Engineering Services Company or one or more of its subsidiaries ("Triton") shall enter into a drilling contract for each of four of the Rigs, pursuant to which, effective as of the termination of the drilling contract for such Rig in existence on the Closing Date, Buyer will agree to contract each of such Rigs to Triton for drilling and workover operations. Parent shall designate the four Rigs prior to the Closing Date. Each of such drilling contracts (the "Triton Contracts") shall be substantially in the form of Exhibit 10.18. Anything in this Section 10.18(a) to the contrary notwithstanding, if prior to the Closing Date a Seller has entered into a contract with Triton to provide one or two of the Rigs to Triton for operations in the Mexican Gulf of Mexico on behalf of PEMEX for terms exceeding the one-year anniversary of the Closing Date and containing operating day rates (fixed for the term of such contracts) of at least $32,000 per day and such other terms as are acceptable to Buyer ("PEMEX Contracts"), then Buyer shall assume at Closing and agree to perform thereafter such PEMEX Contracts in accordance with the terms thereof and the number of Rigs which shall become subject to Triton Contracts under this Section 10.18(a) shall be reduced by the number of such Rigs that are subject to the PEMEX Contracts as of the Closing Date. (b) Parent shall have the option, exercisable within one year after the Closing Date, to cause Buyer to contract to Triton up to three additional Rigs (other than the Richardson Hull and the Cecil Forbes) on contracts containing the same terms and conditions as specified in Section 10.18(a) except that the term of any such contract will be one year from the effective date of such contract. During the one-year term of such option, Buyer shall give Parent 30 days advance notice of the expected date of completion of any drilling contract with respect to a Rig other than the Rigs referred to in Subsection 10.18(a). Parent shall have until the later of 15 days after receipt of Buyer's notice and 30 days prior to such date of completion of such contract to notify Buyer of Parent's election to cause Buyer to contract such Rig to Triton. Any drilling contracts entered into pursuant to this Section 10.18(b) shall also be referred to herein as a "Triton Contract". 10.19 Acquisition Proposal. Seller shall immediately cease or cause to be terminated any existing activities, discussions or negotiations with any persons conducted heretofore with respect to any Acquisition Proposal. Parent and Sellers hereby agree that, without the prior express written consent of Buyer, which consent shall not be unreasonably withheld or delayed, neither Parent nor Sellers nor any director, officer, employee, representative or advisor of Parent 24 29 or Sellers will, directly or indirectly, (i) solicit, initiate or pursue any Acquisition Proposal (as defined below) or (ii) except to the extent the Board of Directors of Parent determines, upon advice of counsel, that it is otherwise legally required by its fiduciary duties, engage in discussions or negotiations with, or disclose any nonpublic information relating to Parent or Sellers or afford access to the properties, books or records of Parent or Sellers to, any person that may be considering making or has made an Acquisition Proposal. Should Parent or Sellers receive an Acquisition Proposal, Parent will immediately notify Buyer of such proposal. Subject to payment of the $15,000,000 liquidated damages amount provided for in Section 12.2, nothing contained in this Agreement shall prevent the Board of Directors of Parent from approving any unsolicited Acquisition Proposal if required in the exercise of its fiduciary duties, as determined by the Board of Directors of Parent after consultation with legal counsel. The term "Acquisition Proposal," as used herein, means any offer or proposal for, or any indication of interest in the acquisition of any two or more of the Rigs (other than the transactions contemplated by this Agreement). The provisions of this Section 10.19 shall remain in effect until the earlier of the termination of this Agreement pursuant to Section 12.1 or the Closing. ARTICLE XI EMPLOYEES 11.1 Employees. (a) The employment of all employees of Sellers or any of their Affiliates who work on any of the Rigs, other than the Retained Employees, shall be terminated effective as of the Closing Date. Buyer may, but is not in any way obligated to, offer employment to some or all of the terminated employees upon such terms and conditions as Buyer shall determine. (b) For the purposes of this Agreement, "Retained Employees" shall mean the employees of Sellers or any of their Affiliates identified by Parent in a schedule delivered by Parent to Buyer at least five days prior to the Closing Date. Such schedule shall set forth a list of the names, positions and salaries or hourly rates, as applicable, of the Retained Employees as of the date thereof. At the Closing, Parent shall deliver to Buyer, if necessary, a revised schedule updating such information as of the Closing Date. Parent shall have the right to identify on such schedule a number of Retained Employees sufficient to crew not more than five of the Rigs. (c) Neither Sellers nor Parent, nor any of their Affiliates, shall be required to terminate the employment of the Retained Employees in connection with the consummation of the transactions contemplated hereby. Each Seller and any Affiliate of such Seller that employs a Retained Employee (an "Employer" and collectively, "Employers") shall enter into an Employee Leasing Agreement with Buyer pursuant to which such Employer shall agree to provide to Buyer the services of the Retained Employees for purposes of manning one or more of the Rigs. Such agreement shall provide, among other things, that (i) the term of such agreement shall be for up to one year after the Closing Date, (ii) Buyer shall bear all salary, insurance and benefit costs incurred by an Employer in respect of any Retained Employee during the period such agreement is in effect as to such Retained Employee, (iii) it is understood that Parent has made such arrangement available to Buyer to provide an orderly transition, and Buyer shall use its Best Efforts to engage its own personnel to replace Retained Employees, from time 25 30 to time, as soon as reasonably practicable and (iv) Buyer shall indemnify and hold harmless Parent and its Affiliates from and against any Claims arising in favor of Buyer, any of its Affiliates or any of its employees and Parent shall indemnify and hold harmless Buyer and its Affiliates from and against any Claims arising in favor of any Retained Employee. The parties shall agree to a form of Employee Leasing Agreement as soon as practicable after the date hereof and in any event at least 10 days before the Closing Date. (d) Buyer is not hereby, and at no time hereafter will be, adopting, accepting or assuming any employee benefit plan or collective bargaining agreement of Parent or any Employer relating to any of their employees or any other agreement, trust, plan, fund or other arrangement of Parent or any Employer that provides for employee benefits or perquisites (collectively, "Employment Arrangements"), and Buyer shall have no liability or obligation whatsoever under any Employment Arrangement to Parent or any Employer or to any employees of Parent or any Employer, whether or not any of such employees are offered employment by or become employees of Buyer. Buyer is not obligated to replace any of the Employment Arrangements for any employee of any Employer who becomes an employee of Buyer, nor is Buyer obligated to provide any such person with any similar agreements, plans or arrangements. 11.2 Non-Solicitation of Certain Employees. (a) Buyer agrees that, for a period of two years from and after the Closing Date, neither Buyer nor any of its Affiliates will, directly or indirectly, solicit to employ (as an employee, consultant, independent contractor or otherwise) any Retained Employee or any drilling superintendent or rig manager of Parent or any Seller or any of their respective Affiliates, or otherwise induce or attempt to persuade any such Retained Employee or drilling superintendent or rig manager to leave such employment. (b) Parent and Sellers agree that, for a period of two years after the Closing Date, neither Parent nor Sellers, nor any of their Affiliates, will, directly or indirectly, solicit to employ (as an employee, consultant, independent contractor or otherwise) any employee of Buyer or any of its Affiliates that has become an employee of Buyer or any of its Affiliates in connection with the acquisition of the Rigs from Sellers, or any drilling superintendent or rig manger of Buyer or any of its Affiliates, or otherwise induce or attempt to persuade any such employee, drilling superintendent or rig manager to leave such employment. ARTICLE XII TERMINATION 12.1 Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing: (a) by mutual written consent of Buyer and Parent; (b) by either Buyer or Parent, if there shall be any statute, rule or regulation that makes consummation of the transactions contemplated hereby illegal or otherwise prohibited or a Governmental Entity shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the consummation of the transactions 26 31 contemplated hereby, and such order, decree, ruling or other action shall have become final and nonappealable; (c) by Buyer, if (i) the Closing shall not have occurred by June 30, 1997 (provided that the right to terminate this Agreement under this clause (i) shall not be available to Buyer if Buyer's failure to fulfill any of its obligations under this Agreement or its misrepresentation or breach of warranty hereunder has been the sole cause thereof); or (ii) there has been a material breach by any Seller of any covenant or agreement, or a material inaccuracy of any representation or warranty of any Seller, contained in this Agreement which has rendered the satisfaction of any condition to the obligations of Buyer impossible and such breach or inaccuracy has not been cured by any Seller within five Business Days after Parent's receipt of notice thereof from Buyer, or waived by Buyer. (d) by Parent, if (i) the Closing shall not have occurred by June 30, 1997 (provided that the right to terminate this Agreement under this clause (i) shall not be available to Parent if Sellers' failure to fulfill any of their obligations under this Agreement or their misrepresentation or breach of warranty hereunder has been the sole cause thereof); or (ii) there has been a material breach by Buyer of any covenant or agreement, or a material inaccuracy of any representation or warranty of Buyer, contained in this Agreement which has rendered the satisfaction of any condition to the obligations of Sellers impossible and such breach or inaccuracy has not been cured by Buyer within five Business Days after Buyer's receipt of notice thereof from any Seller, or waived by Parent; or (iii) the Board of Directors of Parent shall have determined to approve an Acquisition Proposal. 12.2 Effect of Termination. In the event of the termination of this Agreement pursuant to Section 12.1 by Buyer or Parent, written notice thereof shall forthwith be given to the other party specifying the provision hereof pursuant to which such termination is made, and this Agreement shall become void and have no effect, and there shall be no liability hereunder on the part of Buyer, Parent or Sellers or any of their respective directors, officers, employees, stockholders or representatives, except that (i) the agreements contained in this Section 12.2 and in Article XIII and Sections 5.13, 6.6, 7.7, 10.1 and 10.3 shall survive the termination hereof; (ii) Parent shall have the right to receive the Deposit to the extent permitted under Section 3.2, as liquidated damages and not as a penalty; and (iii) in the event of termination by Parent under Section 12.1(d)(iii) and an Acquisition Proposal is consummated within one year after the date of this Agreement, then Parent shall promptly pay to Buyer $15,000,000 as liquidated damages and not as a penalty. Nothing contained in this Section 12.2 shall relieve any party from liability for damages actually incurred (excluding consequential damages) for breach of any 27 32 covenant or agreement, or for the inaccuracy of any representation or warranty, contained herein, except that a party receiving liquidated damages under this agreement pursuant to Section 3.2 or the preceding sentence shall not be entitled to recover any additional damages for any breach of this Agreement. ARTICLE XIII EXTENT AND SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS 13.1 Scope of Representations of Sellers. (a) BUYER UNDERSTANDS AND AGREES THAT, OTHER THAN REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS SET FORTH HEREIN AND ANY WARRANTIES OF OR CONCERNING TITLE SET FORTH HEREIN OR IN ANY INSTRUMENT OF CONVEYANCE TO BE EXECUTED AND DELIVERED PURSUANT TO THIS AGREEMENT, NEITHER PARENT NOT SELLERS NOR ANYONE ACTING ON THEIR BEHALF, MAKE ANY EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ASSUMED LIABILITIES, THE RIGS, OR THE OTHER PURCHASED ASSETS (CURRENT, FIXED, PERSONAL, REAL, TANGIBLE AND INTANGIBLE) REFERRED TO HEREIN, INCLUDING BUT NOT LIMITED TO SEAWORTHINESS, CONDITION OR WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, CAPACITY, SUITABILITY, UTILITY, SALABILITY, AVAILABILITY, COLLECTIBILITY, OPERATIONS, CONDITION, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND BUYER ACCEPTS SAID RIGS AND PURCHASED ASSETS ON AN "AS IS, WHERE IS, WITH ALL FAULTS" BASIS. (b) Parent and Sellers expressly disclaim, and Buyer accepts such disclaimer, with respect to any and all obligations or liabilities for representations and warranties, express or implied, contained in, or from omissions from, any written or oral communications furnished by or on behalf of Parent or Sellers (including without limitation, any representations or warranties contained in or omissions from the confidential selling memorandum furnished by Schroder Wertheim & Co. Incorporated dated November 20, 1996, relating to "Selected Mat Supported Jackup Rigs of Noble Drilling Corporation"), other than those set forth in this Agreement or in any document, certificate or other writing required to be furnished by Parent or Sellers pursuant hereto. Buyer acknowledges and affirms that it will have had the opportunity to complete its own independent investigation, inspection, analysis and evaluation of the Purchased Assets, and that in making its decision to enter into this Agreement and to consummate the transactions contemplated hereby it has relied solely on its own independent investigation, inspection, analysis and evaluation of the Purchased Assets and on the express representations and warranties by Parent and Sellers made in Articles V and VI hereof as a basis for entering into this Agreement, and that it has made all such reviews and inspections of the foregoing as it has deemed necessary or appropriate. 13.2 Indemnification by Parent. With respect only to the representations, warranties, covenants and agreements made herein that, pursuant to Section 13.5, shall survive after the Closing Date, Parent agrees to indemnify, defend and hold Buyer and its Affiliates harmless 28 33 from, any losses, liabilities, claims, demands, damages (excluding consequential damages), costs or expenses (including reasonable attorneys' fees) of every kind, nature and description (collectively, "Claims") arising out of or resulting from (i) any inaccuracy in or breach of any of the representations, warranties, covenants or agreements made by Sellers herein; (ii) the operation, ownership or use of the Purchased Assets prior to the Closing; (iii) any Proceedings relating solely to facts that existed before the Closing, which affect the ownership or operation by the Buyer or its Affiliates of the Purchased Assets or results in any change in the Assumed Liabilities; (iv) any Claim by any person who is an employee of the Parent or any of its Affiliates on the date of this Agreement that relates solely to any employment of such employee by Parent or any of its Affiliates prior to the Closing; or (v) any Claim related to any of the matters set forth on Schedules 5.7(a) or 5.9; provided, however, that Parent shall have no liability pursuant to this Section 13.2 for the first $200,000 of aggregate Claims incurred by Buyer (the "Buyer Basket") and Parent shall be responsible only for such amounts or such Claims as exceed the Buyer Basket; and provided further, however, that the aggregate of all Claims for which Buyer is entitled to reimbursement hereunder shall not exceed the Purchase Price. 13.3 Indemnification by Buyer. Subject to Section 13.5, Buyer hereby agrees to indemnify, defend and hold Parent and Sellers and their Affiliates harmless from any Claims arising out of or resulting from (i) any inaccuracy in or breach of any of the representations, warranties, covenants or agreements made by Buyer herein; or (ii) the operation, ownership or use of the Purchased Assets after the Closing; provided, however, that Buyer shall have no liability pursuant to this Section 13.3 for the first $200,000 of aggregate Claims incurred by Parent and Sellers (the "Seller Basket") and Buyer shall be responsible only for such amounts of such Claims as exceed the Seller Basket; and provided further, however, that the aggregate of all Claims for which Parent and Sellers are entitled to reimbursement hereunder shall not exceed the Purchase Price. 13.4 Indemnification Procedure. Any party seeking information or reimbursement for Claims hereunder (the "Indemnified Party") shall notify the party from which such indemnification is sought (the "Indemnifying Party") within 45 Business Days of the assertion of any Claim or discovery of any fact (which fact has been brought to the attention of a responsible executive officer of the Indemnified Party) upon which the Indemnified Party intends to base a claim for indemnification or reimbursement hereunder. The failure of the Indemnified Party so to notify the Indemnifying Party shall relieve the Indemnifying Party from any liability under this Agreement to the Indemnifying Party with respect to such claim for indemnification or reimbursement. In the event of any claims for indemnification or reimbursement, the Indemnifying Party, at its option, may assume (with legal counsel reasonably acceptable to the Indemnified Party) the defense of any claim, demand, lawsuit or other proceeding brought against the Indemnified Party, which claim, demand, lawsuit or other proceeding may give rise to the indemnity or reimbursement obligation of the Indemnifying Party hereunder, and may assert any defense of any party; provided, however, that the Indemnified Party shall have the right at its own expense to participate jointly with the Indemnifying Party in the defense of any claim, demand, lawsuit or other proceeding in connection with which the Indemnified Party claims indemnification or reimbursement hereunder. Notwithstanding the right of the Indemnified Party so to participate, the Indemnifying Party shall have the sole right to settle or otherwise dispose of such claim, demand, lawsuit or other proceeding on such terms as the 29 34 Indemnifying Party, in its sole discretion, shall deem appropriate with respect to any issue involved in such claim, demand, lawsuit or other proceeding as to which (i) the Indemnifying Party shall have acknowledged the obligation to indemnify the Indemnified Party hereunder, or (ii) the Indemnified Party shall have declined so to participate; provided, however, that no such Claim shall be settled by the Indemnifying Party in any manner that could reasonably be expected to have a material adverse effect on the business of the Indemnified Party and its subsidiaries, taken as a whole, without the prior written consent of the Indemnifying Party. 13.5 Survival. The representations, warranties, covenants and agreements set forth in this Agreement and in any certificate or instrument delivered in connection herewith shall terminate upon Closing, following which no party may bring any action or present any claim for the inaccuracy or breach of such representations, warranties, covenants or agreements, except that the representations, warranties, covenants and agreements set forth in Sections 3.2, 3.4, 5.1, 5.2, 5.13, 6.1, 6.2, 6.6, 7.1, 7.2, 7.7, 10.1, 10.3 (last sentence only), 10.4 (last sentence only), 10.5, 10.7, 10.9, 10.10, 10.11(b), 10.12, 10.14, 10.16, 10.17, 10.18 and 12.2 and Articles II, XI, XIII, XIV and XV and in the General Assignment shall survive the Closing Date. 13.6 Tax Benefits; Insurance Proceeds. In determining the amount of any Claim, for which any party is entitled to reimbursement under Article XIII of this Agreement, the gross amount thereof will be reduced by any correlative net tax benefit or insurance proceeds realized or to be realized by such party and such correlative insurance benefit shall be net of any insurance premium that becomes due as a result of such claim. 13.7 Applicability of Indemnification Obligation. EACH OF THE AGREEMENTS TO INDEMNIFY, DEFEND OR HOLD HARMLESS CONTAINED IN SECTION 13.2 OR 13.3 SHALL APPLY IRRESPECTIVE OF WHETHER THE SUBJECT CLAIM IS BASED IN WHOLE OR IN PART UPON THE SOLE OR CONTRIBUTORY NEGLIGENCE (WHETHER ACTIVE, PASSIVE OR GROSS), BREACH OF WARRANTY, OR BREACH OR VIOLATION OF ANY DUTY IMPOSED BY ANY LAW OR REGULATION, ON THE PART OF THE BENEFICIARY OF THE AGREEMENT, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT. ARTICLE XIV PARENT GUARANTEE Parent irrevocably and unconditionally guarantees as primary obligor the due and punctual performance by Sellers of the agreements and obligations of Sellers and the completeness and accuracy of the representations and warranties made by Sellers, under this Agreement and all agreements and instruments to be executed by Sellers hereunder, including, without limitation, Article XIII INDEMNIFICATION, and the instruments of conveyance referred to in Section 4.3(b). This guaranty shall survive the Closing and any liquidation of any Seller. 30 35 ARTICLE XV MISCELLANEOUS 15.1 Notices. All notices and other communications required or permitted to be given or made hereunder by either party hereto shall be in writing and shall be deemed to have been duly given if delivered personally or transmitted by first class registered or certified mail, postage prepaid, return receipt requested, or sent by prepaid overnight delivery service, or sent by cable, telegram, telefax or telex, to the parties at the following addresses (or at such other addresses as shall be specified by the parties by like notice): If to Buyer: Pride Petroleum Services, Inc. 1500 City West Boulevard Suite 400 Houston, Texas 77042 Attention: Ray H. Tolson, Chairman and Chief Executive Officer Telephone: 713-789-1400 Facsimile: 713-789-1450 If to Parent or any Seller: Noble Drilling Corporation 10370 Richmond Avenue Suite 400 Houston, Texas 77042 Attention: James C. Day, Chairman, President and Chief Executive Officer Telephone: (713) 974-3131 Facsimile: (713) 953-1126 with a copy to: Thompson & Knight, P.C. 1700 Pacific Avenue Suite 3300 Dallas, Texas 75201 Attention: Robert D. Campbell Telephone: (214) 969-1353 Facsimile: (214) 969-1751 Such notices, demands and other communications shall be effective (i) if delivered personally or sent by courier service, upon actual receipt by the intended receipt, (ii) if mailed, upon the earlier of five days after deposit in the mail or the date of delivery as shown by the return receipt therefor, or (iii) if sent by telecopy or facsimile transmission, when confirmation of receipt is received. 31 36 15.2 Entire Agreement. This Agreement, including the Schedules, Exhibits, Annexes and other writings referred to herein or delivered pursuant hereto, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. 15.3 Amendments and Waiver; Rights and Remedies. This Agreement may be amended, superseded, cancelled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of either party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of either party of any such right, power or privilege, or any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity. The rights and remedies of either party based upon, arising out of or otherwise in respect of any inaccuracy in or breach of any representation, warranty, covenant or agreement contained in this Agreement shall in no way be limited by the fact that the act, omission, occurrence or other state of facts upon which any claim of any such inaccuracy or breach is based may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or in any other agreement between the parties) as to which there is no inaccuracy or breach. 15.4 Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Texas, without regard to the principles of conflicts of laws thereof. 15.5 Binding Effect; Assignment. (a) This Agreement and all the provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns; provided, however, that neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties hereto (by operation of law or otherwise) without the prior written consent of the other party, except as provided in subsection (b) below. (b) (i) Parent and Sellers may upon notice to Buyer cause one or more of Parent's wholly owned subsidiaries (direct or indirect) (a "Seller Designee") to purchase any or all of the Purchased Assets from a Seller in order to allow such Seller Designee to become a transferor of such Purchased Assets hereunder; provided, however, that (y) each Seller Designee shall be made a party to this Agreement at or prior to the Closing and (z) no such designation shall relieve Parent or any Seller of any of its duties, liabilities or obligations hereunder. (ii) Buyer may upon notice to Parent and Sellers direct that title to all or part of the Purchased Assets be taken in one or more of Buyer's wholly owned subsidiaries (direct or indirect) (a "Buyer Designee"); provided, however, that (y) each Buyer Designee shall be made a party to this Agreement at or prior to the Closing and (z) no 32 37 such designation shall relieve Buyer of any of its duties, liabilities or obligations hereunder. 15.6 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. 15.7 References. All references in this Agreement to Articles, Sections and other subdivisions refer to the Articles, Sections and other subdivisions of this Agreement unless expressly provided otherwise. The words "this Agreement," "herein," "hereof," "hereby," "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. 15.8 Severability of Provisions. If any provision of this Agreement is held to be unenforceable, this Agreement shall be considered divisible and such provision shall be deemed inoperative to the extent it is deemed unenforceable, and in all other respects this Agreement shall remain in full force and effect; provided, however, that if any such provision may be made enforceable by limitation thereof, then such provision shall be deemed to be so limited and shall be enforceable to the maximum extent permitted by applicable law. 15.9 Gender. Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. 15.10 Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only, do not constitute a part of this Agreement, and shall not affect in any manner the meaning or interpretation of this Agreement. [Remainder of Page Intentionally Left Blank] 33 38 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers hereunto duly authorized as of the date first above written. PRIDE PETROLEUM SERVICES, INC. By: /s/ RAY H. TOLSON ----------------------------------- Ray H. Tolson, Chairman and Chief Executive Officer NOBLE DRILLING CORPORATION By: /s/ JAMES C. DAY ----------------------------------- James C. Day, Chairman, President and Chief Executive Officer NOBLE DRILLING (U.S.) INC. By: /s/ BYRON L. WELLIVER ----------------------------------- Byron L. Welliver, President NOBLE OFFSHORE CORPORATION By: /s/ JAMES C. DAY ----------------------------------- James C. Day, President NOBLE DRILLING (MEXICO) INC. By: /s/ JAMES C. DAY ----------------------------------- James C. Day, President NN-1 LIMITED PARTNERSHIP By Noble Drilling Corporation, General Partner By: /s/ JAMES C. DAY ----------------------------------- James C. Day, Chairman, President and Chief Executive Officer 34 39 INDEX TO SCHEDULES AND EXHIBITS
Schedule Number Description - -------- ----------------------------------------------------------- 2.1(a) Rigs (excluding the Richardson Hull) 2.1(c) Inventory 2.1(d)(ii) Permits 2.1(e)(i) Drilling Contracts 2.1(e)(ii) Other Contracts 2.5(b) Technical Records 3.4 Allocation of Purchase Price 5.6 Sellers' Defaults 5.7(a) Sellers' Litigation 5.7(b) Sellers' Governmental Notifications 5.8 Sellers' Governmental Approvals 5.9 Sellers' Compliance with Laws 5.11(b) Rig Class Recommendation 5.11(c) Rig Damage 5.15 Sellers' Performance Bonds; Letters of Credit 6.4 Parent's Governmental Approvals 7.6 Buyer's Governmental Approvals Exhibit Number - ------ 2.4 Form of Agreement Regarding Nonassigned Contracts 3.1(a) Form of Escrow Agreement 4.2(a) Form of General Assignment 8.3 Form of Buyer's Officer's Certificate 8.4 Buyer's Opinion of Counsel 9.3(a) Form of Sellers' Officer's Certificate 9.3(b) Form of Parent's Officer's Certificate 9.4 Parent's and Sellers' Opinion of Counsel 10.18 Form of Triton Contract
35 EX-3.7 3 CERTIFICATE OF ELIMINATION OF SHARES 1 EXHIBIT 3.7 STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF DESIGNATION OF "NOBLE DRILLING CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-FIRST DAY OF MARCH, A.D. 1997, AT 10:30 O'CLOCK A.M. A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING. [SEAL] /s/ EDWARD J. FREEL ----------------------------------- Edward J. Freel, Secretary of State AUTHENTICATION: 0372723 8100 8384162 DATE: 971092496 03-24-97 2 CERTIFICATE OF ELIMINATION OF SHARES OF $1.50 CONVERTIBLE PREFERRED STOCK OF NOBLE DRILLING CORPORATION Noble Drilling Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware, Does hereby certify: FIRST: That the total number of shares which said corporation has authority to issue is 200,000,000 shares of Common Stock of the par value of $.10 each and 15,000,000 shares of Preferred Stock of the par value of $1.00 each. SECOND: That pursuant to the provisions of the Certificate of Designations filed by the corporation with the Delaware Secretary of State on September 15, 1994 (the "Certificate of Designations"), the corporation created a series of the class of authorized Preferred Stock designated as "$1.50 Convertible Preferred Stock." THIRD: That pursuant to the provisions of the Certificate of Designations, 4,023,779 shares of $1.50 Convertible Preferred Stock have been surrendered to the corporation for conversion into shares of its Common Stock, and 1,221 shares of $1.50 Convertible Preferred Stock have been redeemed. FOURTH: That the 4,023,779 shares of $1.50 Convertible Preferred Stock so surrendered for conversion and the 1,221 shares of $1.50 Convertible Preferred Stock so redeemed, in the aggregate constitute all the outstanding shares of said $1.50 Convertible Preferred Stock; and that pursuant to Section 6 of the Certificate of Designations, said shares of $1.50 Convertible Preferred Stock when so redeemed or surrendered for conversion were restored to the status of authorized and unissued shares of Preferred Stock, without designation as to series, and may thereafter be issued, but not as shares of $1.50 Convertible Preferred Stock. IN WITNESS WHEREOF, Noble Drilling Corporation has caused this certificate to be signed by James C. Day, its Chairman, President and Chief Executive Officer on this 20th day of March, 1997. NOBLE DRILLING CORPORATION By: /s/ JAMES C. DAY -------------------------------- James C. Day, Chairman, President and Chief Executive Officer EX-10.2 4 1991 STOCK OPTION & RESTRICTED STOCK PLAN 1 EXHIBIT 10.2 NOBLE DRILLING CORPORATION 1991 STOCK OPTION AND RESTRICTED STOCK PLAN AS AMENDED AND RESTATED THROUGH SEPTEMBER 15, 1994 AND AS AMENDED AND RESTATED ON JANUARY 30, 1997, SUBJECT TO THE APPROVAL OF STOCKHOLDERS EXCEPT FOR SECTION 9(a)(i)(x) SECTION 1. PURPOSE The purpose of this Plan is to assist Noble Drilling Corporation, a Delaware corporation, in attracting and retaining, as officers and key employees of the Company and its Affiliates, persons of training, experience and ability and to furnish additional incentive to such persons by encouraging them to become owners of Shares of the Company's capital stock, by granting to such persons Incentive Options, Nonqualified Options, Restricted Stock, or any combination of the foregoing. SECTION 2. DEFINITIONS Unless the context otherwise requires, the following words as used herein shall have the following meanings: (a) "Affiliate" means any corporation (other than the Company) in any unbroken chain of corporations (i) beginning with the Company if, at the time of the granting of the Option or award of Restricted Stock, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain, or (ii) ending with the Company if, at the time of the granting of the Option or award of Restricted Stock, each of the corporations, other than the Company, owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (b) "Agreement" means the written agreement (i) between the Company and the Optionee evidencing the Option and any SARs that relate to such Option granted by the Company and the understanding of the parties with respect thereto or (ii) between the Company and a recipient of Restricted Stock evidencing the restrictions, terms and conditions applicable to such award of Restricted Stock and the understanding of the parties with respect thereto. (c) "Board" means the Board of Directors of the Company as the same may be constituted from time to time. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means the Committee provided for in Section 3 of the Plan as the same may be constituted from time to time. (f) "Company" means Noble Drilling Corporation, a Delaware corporation. (g) "Corporate Transaction" shall have the meaning as defined in Section 8 of the Plan. (h) "Disability" means any termination of employment with the Company or an Affiliate because of a long-term or total disability, as determined by the Committee in its sole discretion. (i) "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2 (j) "Fair Market Value" means the fair market value per Share as determined by the Committee in good faith; provided, however, that if a Share is listed or admitted to trading on a securities exchange registered under the Exchange Act, the Fair Market Value per Share shall be the average of the reported high and low sales price on the date in question (or if there was no reported sale on such date, on the last preceding date on which any reported sale occurred) on the principal securities exchange on which such Share is listed or admitted to trading, or if a Share is not listed or admitted to trading on any such exchange but is listed as a national market security on the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or any similar system then in use, the Fair Market Value per Share shall be the average of the reported high and low sales price on the date in question (or if there was no reported sale on such date, on the last preceding date on which any reported sale occurred) on such system, or if a Share is not listed or admitted to trading on any such exchange and is not listed as a national market security on NASDAQ but is quoted on NASDAQ or any similar system then in use, the Fair Market Value per Share shall be the average of the closing high bid and low asked quotations on such system for such Share on the date in question. For purposes of valuing Shares to be made subject to Incentive Options, the Fair Market Value per Share shall be determined without regard to any restriction other than one which, by its terms, will never lapse. (k) "Incentive Option" means an Option that is intended to satisfy the requirements of Section 422(b) of the Code and Section 17 of the Plan. (l) "Non-Employee Director" means a director of the Company who satisfies the definition thereof under Rule 16b-3 promulgated under the Exchange Act. (m) "Nonqualified Option" means an Option that does not qualify as a statutory stock option under Section 422 or 423 of the Code. (n) "Option" means an option to purchase one or more Shares granted under and pursuant to the Plan. Such Option may be either an Incentive Option or a Nonqualified Option. (o) "Optionee" means a person who has been granted an Option and who has executed an Agreement with the Company. (p) "Outside Director" means a director of the Company who is an outside director within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. (q) "Plan" means this Noble Drilling Corporation 1991 Stock Option and Restricted Stock Plan, as amended. (r) "Restricted Stock" means Shares issued or transferred pursuant to Section 20 of the Plan. (s) "Retirement" means a termination of employment with the Company or an Affiliate either (i) on a voluntary basis by a person who is at least 55 years of age and has at least five years of continuous service with the Company or one or more Affiliates immediately prior to such termination of employment or (ii) otherwise with the written consent of the Committee in its sole discretion. (t) "SARs" means stock appreciation rights granted pursuant to Section 7 of the Plan. (u) "Securities Act" means the Securities Act of 1933, as amended. (v) "Share" means a share of the Company's present common stock, par value $.10 per share, and any share or shares of capital stock or other securities of the Company hereafter issued or issuable in respect of or in substitution or exchange for each such present share. Such Shares may be unissued or reacquired Shares, as the Board, in its sole and absolute discretion, shall from time to time determine. 2 3 SECTION 3. ADMINISTRATION The Plan shall be administered by, and the decisions concerning the Plan shall be made solely by, a Committee of two or more directors of the Company, all of whom are (a) Non-Employee Directors and (b) beginning immediately after the first meeting of stockholders of the Company at which directors are to be elected that occurs after December 31, 1994, Outside Directors. Each member of the Committee shall be appointed by and shall serve at the pleasure of the Board. The Board shall have the sole continuing authority to appoint members of the Committee. In making grants or awards, the Committee shall take into consideration the contribution the person has made or may make to the success of the Company or its Affiliates and such other considerations as the Board may from time to time specify. The Committee shall elect one of its members as its chairman and shall hold its meetings at such times and places as it may determine. A majority of the members of the Committee shall constitute a quorum. All decisions and determinations of the Committee shall be made by the majority vote or decision of the members present at any meeting at which a quorum is present; provided, however, that any decision or determination reduced to writing and signed by all members of the Committee shall be as fully effective as if it had been made by a majority vote or decision at a meeting duly called and held. The Committee may appoint a secretary (who need not be a member of the Committee) who shall keep minutes of its meetings. The Committee may make any rules and regulations for the conduct of its business that are not inconsistent with the express provisions of the Plan, the bylaws or certificate of incorporation of the Company or any resolutions of the Board. All questions of interpretation or application of the Plan, or of a grant of an Option and any SARs that relate to such Option or an award of Restricted Stock, including questions of interpretation or application of an Agreement, shall be subject to the determination of the Committee, which determination shall be final and binding upon all parties. Subject to the express provisions of the Plan, the Committee shall have the authority, in its sole and absolute discretion, (a) to adopt, amend or rescind administrative and interpretive rules and regulations relating to the Plan; (b) to construe the Plan; (c) to make all other determinations necessary or advisable for administering the Plan; (d) to determine the terms and provisions of the respective Agreements (which need not be identical), including provisions defining or otherwise relating to (i) the term and the period or periods and extent of exercisability of the Options, (ii) the extent to which the transferability of Shares issued upon exercise of Options or any SARs that relate to such Options is restricted, (iii) the effect of termination of employment upon the exercisability of the Options, and (iv) the effect of approved leaves of absence (consistent with any applicable regulations of the Internal Revenue Service) upon the exercisability of such Options; (e) subject to Sections 9 and 11 of the Plan, to accelerate, for any reason, regardless of whether the Agreement so provides, the time of exercisability of any Option and any SARs that relate to such Option that have been granted or the time of the lapsing of restrictions on Restricted Stock; (f) to construe the respective Agreements; and (g) to exercise the powers conferred on the Committee under the Plan. The Board may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent it shall deem expedient to carry it into effect, and it shall be the sole and final judge of such expediency. The determinations of the Committee or Board, as the case may be, on the matters referred to in this Section 3 shall be final and conclusive. SECTION 4. SHARES SUBJECT TO THE PLAN (a) The total number of Shares that may be purchased pursuant to Options, issued or transferred pursuant to the exercise of SARs or awarded as Restricted Stock shall not exceed 10,700,000 in the aggregate, and the total number of shares for which Options and SARs may be granted, and which may be awarded as Restricted Stock, to any one person during any continuous five-year period shall not exceed 1,500,000 in the aggregate; provided that each such maximum number of shares shall be increased or decreased as provided in Section 13 of the Plan. (b) At any time and from time to time after the Plan takes effect, the Committee, pursuant to the provisions herein set forth, may grant Options and any SARs that relate to such Options and award Restricted 3 4 Stock until the maximum number of Shares shall be exhausted or the Plan shall be sooner terminated; provided, however, that no Incentive Option and any SARs that relate to such Option shall be granted after January 29, 2007. (c) Shares subject to an Option that expires or terminates prior to exercise and Shares that had been previously awarded as Restricted Stock that have since been forfeited shall be available for further grant of Options or award as Restricted Stock. No Option shall be granted and no Restricted Stock shall be awarded if the number of Shares for which Options have been granted and which pursuant to this Section are not again available for Option grant, plus the number of Shares that have been awarded as Restricted Stock, would, if such Option were granted or such Restricted Stock were awarded, exceed 10,700,000. (d) Any Shares withheld pursuant to Section 19(c) of the Plan shall not be available after such withholding for being optioned or awarded pursuant to the provisions hereof. (e) Unless the Shares awarded as Restricted Stock are Shares that have been reacquired by the Company as treasury shares, Restricted Stock shall be awarded only for services actually rendered, as determined by the Committee. SECTION 5. ELIGIBILITY The persons who shall be eligible to receive grants of Options and any SARs that relate to such Options, and to receive awards of Restricted Stock, shall be regular salaried officers or other employees of the Company or one or more of its Affiliates. SECTION 6. GRANT OF OPTIONS (a) From time to time while the Plan is in effect, the Committee may, in its sole and absolute discretion, select from among the persons eligible to receive a grant of Options under the Plan (including persons who have already received such grants of Options) such one or more of them as in the opinion of the Committee should be granted Options. The Committee shall thereupon, likewise in its sole and absolute discretion, determine the number of Shares to be allotted for option to each person so selected. (b) Each person so selected shall be offered an Option to purchase the number of Shares so allotted to him, upon such terms and conditions, consistent with the provisions of the Plan, as the Committee may specify. Each such person shall have a reasonable period of time, to be fixed by the Committee, within which to accept or reject the proffered Option. Failure to accept within the period so fixed may be treated as a rejection. (c) Each person who accepts an Option offered to him shall enter into an Agreement with the Company, in such form as the Committee may prescribe, setting forth the terms and conditions of the Option, whereupon such person shall become a participant in the Plan. In the event a person is granted both one or more Incentive Options and one or more Nonqualified Options, such grants shall be evidenced by separate Agreements, one for each Incentive Option grant and one for each Nonqualified Option grant. The date on which the Committee completes all action constituting an offer of an Option to a person, including the specification of the number of Shares to be subject to the Option, shall constitute the date on which the Option covered by such Agreement is granted. In no event, however, shall an Optionee gain any rights in addition to those specified by the Committee in its grant, regardless of the time that may pass between the grant of the Option and the actual signing of the Agreement by the Company and the Optionee. (d) Each Agreement that includes SARs in addition to an Option shall comply with the provisions of Section 7 of the Plan. 4 5 SECTION 7. GRANT OF SARS The Committee may from time to time grant SARs in conjunction with all or any portion of any Option either (i) at the time of the initial Option grant (not including any subsequent modification that may be treated as a new grant of an Incentive Option for purposes of Section 424(h) of the Code) or (ii) with respect to Nonqualified Options, at any time after the initial Option grant while the Nonqualified Option is still outstanding. SARs shall not be granted other than in conjunction with an Option granted hereunder. SARs granted hereunder shall comply with the following conditions and also with the terms of the Agreement governing the Option in conjunction with which they are granted: (a) The SAR shall expire no later than the expiration of the underlying Option. (b) Upon the exercise of an SAR, the Optionee shall be entitled to receive payment equal to the excess of the aggregate Fair Market Value of the Shares with respect to which the SAR is then being exercised (determined as of the date of such exercise) over the aggregate purchase price of such Shares as provided in the related Option. Payment may be made in Shares, valued at their Fair Market Value on the date of exercise, or in cash, or partly in Shares and partly in cash, as determined by the Committee in its sole and absolute discretion. (c) SARs shall be exercisable (i) only at such time or times and only to the extent that the Option to which they relate shall be exercisable, (ii) only when the Fair Market Value of the Shares subject to the related Option exceeds the purchase price of the Shares as provided in the related Option, and (iii) only upon surrender of the related Option or any portion thereof with respect to the Shares for which the SARs are then being exercised. (d) Upon exercise of an SAR, a corresponding number of Shares subject to option under the related Option shall be canceled. Such canceled Shares shall be charged against the Shares reserved for the Plan, as provided in Section 4 of the Plan, as if the Option had been exercised to such extent and shall not be available for future Option grants or Restricted Stock awards hereunder. SECTION 8. OPTION PRICE The option price for each Share covered by an Incentive Option shall not be less than the greater of (a) the par value of such Share or (b) the Fair Market Value of such Share at the time such Option is granted. The option price for each Share covered by a Nonqualified Option shall not be less than the greater of (a) the par value of such Share or (b) 50 percent of the Fair Market Value of such Share at the time the Option is granted. Notwithstanding the two immediately preceding sentences, if the Company or an Affiliate agrees to substitute a new Option under the Plan for an old Option, or to assume an old Option, by reason of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization, or liquidation (any of such events being referred to herein as a "Corporate Transaction"), the option price of the Shares covered by each such new Option or assumed Option may be other than the Fair Market Value of the Shares at the time the Option is granted as determined by reference to a formula, established at the time of the Corporate Transaction, which will give effect to such substitution or assumption; provided, however, in no event shall: (a) the excess of the aggregate Fair Market Value of the Shares subject to the Option immediately after the substitution or assumption over the aggregate option price of such Shares be more than the excess of the aggregate Fair Market Value of all Shares subject to the Option immediately prior to the substitution or assumption over the aggregate option price of such Shares; (b) in the case of an Incentive Option, the new Option or the assumption of the old Option give the Optionee additional benefits that he would not have under the old Option; or 5 6 (c) the ratio of the option price to the Fair Market Value of the stock subject to the Option immediately after the substitution or assumption be more favorable to the Optionee than the ratio of the option price to the Fair Market Value of the stock subject to the old Option immediately prior to such substitution or assumption, on a Share by Share basis. Notwithstanding the above, the provisions of this Section 8 with respect to the option price in the event of a Corporate Transaction shall, in the case of an Incentive Option, be subject to the requirements of Section 424(a) of the Code and the Treasury regulations and revenue rulings promulgated thereunder. In the case of an Incentive Option, in the event of a conflict between the terms of this Section 8 and the above cited statute, regulations and rulings, or in the event of an omission in this Section 8 of a provision required by said laws, the latter shall control in all respects and are hereby incorporated herein by reference as if set out at length. SECTION 9. OPTION PERIOD AND TERMS OF EXERCISE (a) Each Option shall be exercisable during such period of time as the Committee may specify, but in no event for longer than 10 years from the date when the Option is granted; provided, however, that (i) All rights to exercise an Option and any SARs that relate to such Option shall, subject to the provisions of subsection (c) of this Section 9, terminate six months after the date the Optionee ceases to be employed by at least one of the employers in the group of employers consisting of the Company and its Affiliates, for any reason other than death, Disability or Retirement, except that, in the event of the termination of employment of the Optionee on account of fraud, dishonesty or other acts detrimental to the interests of the Company or one or more of its Affiliates, the Option and any SARs that relate to such Option shall thereafter be null and void for all purposes. Employment shall not be deemed to have ceased by reason of the transfer of employment, without interruption of service, between or among the Company and any of its Affiliates. In addition, for purposes of this Plan, employment shall not be deemed to have ceased by reason of the termination of employment with the Company or an Affiliate, followed by a reemployment with the Company or an Affiliate within six months of such initial termination, provided such reemployment is approved for purposes of this Section 9(a)(i) by the Committee in its sole discretion, of (x) a person whose employment terminated initially in December 1996 in connection with the sale by the Company and its Affiliates of their land drilling assets to Nabors Industries, Inc. and its affiliates and (y) any person not otherwise provided for in clause (x) immediately preceding. (ii) If the Optionee ceases to be employed by at least one of the employers in the group of employers consisting of the Company and its Affiliates, by reason of his death, Disability or Retirement, all rights to exercise such Option and any SARs that relate to such Option shall, subject to the provisions of subsection (c) of this Section 9, terminate five years thereafter. (b) If an Option is granted with a term shorter than 10 years, the Committee may extend the term of the Option and any SARs that relate to such Option, but for not more than 10 years from the date when the Option was originally granted. (c) In no event may an Option or any SARs that relate to such Option be exercised after the expiration of the term thereof. SECTION 10. OPTIONS AND SARS NOT TRANSFERABLE No Option or any SARs that relate to such Option shall be transferable by the Optionee otherwise than by will or the applicable laws of descent and distribution. 6 7 SECTION 11. EXERCISE OF OPTIONS AND SARS (a) During the lifetime of an Optionee, only such Optionee may exercise an Option or any SARs that relate to such Option granted to him. In the event of his death, any then exercisable portion of his Option and any SARs that relate to such Option may, within three years thereafter, or earlier date of termination of the Option, be exercised in whole or in part by the duly authorized representative of the deceased Optionee's estate. (b) At any time, and from time to time, during the period when any Option and any SARs that relate to such Option, or a portion thereof, are exercisable, such Option or SARs, or portion thereof, may be exercised in whole or in part; provided, however, that the Committee may require any Option or SAR that is partially exercised to be so exercised with respect to at least a stated minimum number of Shares. (c) Each exercise of an Option, or a portion thereof, shall be evidenced by a notice in writing to the Company accompanied by payment in full of the option price of the Shares then being purchased. Payment in full shall mean payment of the full amount due, either in cash, by certified check or cashier's check, or, with the consent of the Committee, with Shares owned by the Optionee, including an actual or deemed multiple series of exchanges of such Shares. Notwithstanding anything contained herein to the contrary, at the request of an Optionee and to the extent permitted by applicable law, the Committee may, in its sole and absolute discretion, selectively approve arrangements with a brokerage firm or firms under which any such brokerage firm shall, on behalf of the Optionee, make payment in full to the Company of the option price of the Shares then being purchased, and the Company, pursuant to an irrevocable notice in writing from the Optionee, shall make prompt delivery of one or more certificates for the appropriate number of Shares to such brokerage firm. Payment in full for purposes of the immediately preceding sentence shall mean payment of the full amount due, either in cash or by certified check or cashier's check. (d) Each exercise of SARs, or a portion thereof, shall be evidenced by a notice in writing to the Company. (e) No Shares shall be issued upon exercise of an Option until full payment therefor has been made, and an Optionee shall have none of the rights of a stockholder until Shares are issued to him. (f) Nothing herein or in any Agreement shall require the Company to issue any Shares upon exercise of an Option or SAR if such issuance would, in the opinion of counsel for the Company, constitute a violation of the Securities Act or any similar or superseding statute or statutes, or any other applicable statute or regulation, as then in effect. Upon the exercise of an Option or SAR (as a result of which the Optionee receives Shares), or portion thereof, the Optionee shall give to the Company satisfactory evidence that he is acquiring such Shares for the purposes of investment only and not with a view to their distribution; provided, however, if or to the extent that the Shares delivered to the Optionee shall be included in a registration statement filed by the Company under the Securities Act, such investment representation shall be abrogated. SECTION 12. DELIVERY OF STOCK CERTIFICATES As promptly as may be practicable after an Option or SAR (as a result of the exercise of which the Optionee receives Shares), or a portion thereof, has been exercised as hereinabove provided, the Company shall make delivery of one or more certificates for the appropriate number of Shares. In the event that an Optionee exercises both (i) an Incentive Option or SARs that relate to such Option (as a result of which the Optionee receives Shares), or a portion thereof, and (ii) a Nonqualified Option or SARs that relate to such Option (as a result of which the Optionee receives Shares), or a portion thereof, separate stock certificates shall be issued, one for the Shares subject to the Incentive Option and one for the Shares subject to the Nonqualified Option. 7 8 SECTION 13. CHANGES IN COMPANY'S SHARES AND CERTAIN CORPORATE TRANSACTIONS If at any time while the Plan is in effect there shall be any increase or decrease in the number of issued and outstanding Shares of the Company effected without receipt of consideration therefor by the Company, through the declaration of a stock dividend or through any recapitalization or merger or otherwise in which the Company is the surviving corporation, resulting in a stock split-up, combination or exchange of Shares of the Company, then and in each such event: (a) An appropriate adjustment shall be made in the maximum number of Shares then subject to being optioned or awarded as Restricted Stock under the Plan, to the end that the same proportion of the Company's issued and outstanding Shares shall continue to be subject to being so optioned and awarded; (b) Appropriate adjustment shall be made in the number of Shares and the option price per Share thereof then subject to purchase pursuant to each Option previously granted and then outstanding, to the end that the same proportion of the Company's issued and outstanding Shares in each such instance shall remain subject to purchase at the same aggregate option price; and (c) In the case of Incentive Options, any such adjustments shall in all respects satisfy the requirements of Section 424(a) of the Code and the Treasury regulations and revenue rulings promulgated thereunder. Except as is otherwise expressly provided herein, the issue by the Company of shares of its capital stock of any class, or securities convertible into shares of capital stock of any class, either in connection with a direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of or option price of Shares then subject to outstanding Options granted under the Plan. Furthermore, the presence of outstanding Options granted under the Plan shall not affect in any manner the right or power of the Company to make, authorize or consummate (i) any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business; (ii) any merger or consolidation of the Company; (iii) any issue by the Company of debt securities or preferred stock that would rank above the Shares subject to outstanding Options granted under the Plan; (iv) the dissolution or liquidation of the Company; (v) any sale, transfer or assignment of all or any part of the assets or business of the Company; or (vi) any other corporate act or proceeding, whether of a similar character or otherwise. SECTION 14. EFFECTIVE DATE The Plan was originally adopted by the Board on January 31, 1991 and approved by the stockholders of the Company on April 25, 1991. The Plan as amended and restated on January 30, 1997 shall be effective as of that date, the date of the adoption thereof by the Board, but shall be submitted to the stockholders of the Company for approval and ratification at the next regular or special meeting thereof to be held after December 31, 1996. If at such a meeting of the stockholders of the Company a quorum is present, the Plan as amended and restated shall be presented for approval and ratification, and unless at such a meeting the Plan as amended and restated is approved and ratified by the affirmative vote of a majority of the outstanding shares of common stock, par value $.10 per share, of the Company present in person or by proxy and entitled to vote, then, and in such event, the amendments to the Plan adopted by the Board on January 30, 1997 (except for the amendment set forth in Section 9(a)(i)(x) which shall, notwithstanding anything herein contained to the contrary, be effective from and after the date of its adoption by the Board) and any then outstanding Options (and any SARs that relate to such Options) that may have been conditionally granted prior to such stockholder meeting dependent upon an increase in the number of Shares subject to the Plan shall become null and void and of no further force or effect. No award of Restricted Stock dependent upon an increase in the number of Shares subject to the Plan shall be made prior to the approval and ratification of the Plan as amended and restated by stockholders in accordance with this Section 14. 8 9 SECTION 15. AMENDMENT, SUSPENSION OR TERMINATION The Board may at any time amend, suspend or terminate the Plan; provided, however, that after the stockholders have approved and ratified the Plan in accordance with Section 14 of the Plan, the Board may not, without approval of the stockholders of the Company, amend the Plan so as to (a) increase the maximum number of Shares subject thereto, as specified in Sections 4(a) and 13 of the Plan, or (b) reduce the option price for Shares covered by Options granted hereunder below the price specified in Section 8 of the Plan; and provided further, that the Board may not modify, impair or cancel any outstanding Option or SAR that relates to such Option, or the restrictions, terms or conditions applicable to Shares of Restricted Stock, without the consent of the holder thereof. SECTION 16. REQUIREMENTS OF LAW Notwithstanding anything contained herein or in any Agreement to the contrary, the Company shall not be required to sell or issue Shares under any Option or SAR if the issuance thereof would constitute a violation by the Optionee or the Company of any provision of any law or regulation of any governmental authority or any national securities exchange; and as a condition of any sale or issuance of Shares upon exercise of an Option or SAR, the Company may require such agreements or undertakings, if any, as the Company may deem necessary or advisable to assure compliance with any such law or regulation. SECTION 17. INCENTIVE OPTIONS The Committee may, in its sole and absolute discretion, designate any Option granted under the Plan as an Incentive Option intended to qualify under Section 422(b) of the Code. Any provision of the Plan to the contrary notwithstanding, (a) no Incentive Option shall be granted to any person who, at the time such Incentive Option is granted, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or any Affiliate unless the option price under such Incentive Option is at least 110 percent of the Fair Market Value of the Shares subject to the Incentive Option at the date of its grant and such Incentive Option is not exercisable after the expiration of five years from the date of its grant; and (b) the aggregate Fair Market Value of the Shares subject to an Incentive Option and the aggregate Fair Market Value of the shares of stock of the Company or any Affiliate (or a predecessor corporation of the Company or an Affiliate) subject to any other incentive stock option (within the meaning of Section 422(b) of the Code) of the Company and its Affiliates (or a predecessor corporation of any such corporation), that may become first exercisable in any calendar year, shall not (with respect to any Optionee) exceed $100,000, determined as of the date the Incentive Option is granted. SECTION 18. MODIFICATION OF OPTIONS AND SARS Subject to the terms and conditions of and within the limitations of the Plan, the Committee may modify, extend or renew outstanding Options and any SARs that relate to such Options granted under the Plan, or accept the surrender of Options and any SARs that relate to such Options outstanding hereunder (to the extent not theretofore exercised) and authorize the granting of new Options and any SARs that relate to such new Options hereunder in substitution therefor (to the extent not theretofore exercised). Notwithstanding the foregoing provisions of this Section 18, no modification of an Option and any SARs that relate to such Option granted hereunder shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option and any SARs that relate to such Option theretofore granted hereunder to such Optionee, except as may be necessary, with respect to Incentive Options, to satisfy the requirements of Section 422(b) of the Code. SECTION 19. AGREEMENT PROVISIONS (a) Each Agreement shall contain such provisions (including, without limitation, restrictions or the removal of restrictions upon the exercise of the Option and any SARs that relate to such Option and the 9 10 transfer of shares thereby acquired) as the Committee shall deem advisable. Each Agreement relating to an Option shall identify the Option evidenced thereby as an Incentive Option or Nonqualified Option, as the case may be. Incentive Options and Nonqualified Options may not both be covered by a single Agreement. Each such Agreement relating to Incentive Options shall contain such limitations and restrictions upon the exercise of the Incentive Option as shall be necessary for the Incentive Option to which such Agreement relates to constitute an incentive stock option, as defined in Section 422(b) of the Code. (b) Each Agreement shall recite that it is subject to the Plan and that the Plan shall govern where there is any inconsistency between the Plan and the Agreement. (c) Each Agreement shall contain a covenant by the Optionee, in such form as the Committee may require in its discretion, that he consents to and will take whatever affirmative actions are required, in the opinion of the Committee, to enable the Company or appropriate Affiliate to satisfy its Federal income tax and FICA and any applicable state and local withholding obligations. An Agreement may contain such provisions as the Committee deems appropriate to enable the Company or its Affiliates to satisfy such withholding obligations, including provisions permitting the Company, upon the exercise of an Option or SAR (as a result of which the Optionee receives Shares), to withhold Shares otherwise issuable to the Optionee exercising the Option or SAR, or to accept delivery of Shares owned by the Optionee, to satisfy the applicable withholding obligations. (d) Each Agreement relating to an Incentive Option shall contain a covenant by the Optionee immediately to notify the Company in writing of any disqualifying disposition (within the meaning of Section 421(b) of the Code) of Shares received upon the exercise of an Incentive Option. SECTION 20. RESTRICTED STOCK (a) Subject to the provisions of Section 14 of the Plan, the Committee may from time to time, in its sole and absolute discretion, award Shares of Restricted Stock to such persons as it shall select from among those persons who are eligible under Section 5 of the Plan to receive awards of Restricted Stock. Any award of Restricted Stock shall be made from Shares subject hereto as provided in Section 4 of the Plan. (b) A Share of Restricted Stock shall be subject to such restrictions, terms and conditions, including forfeitures, if any, as may be determined by the Committee, which may include, without limitation, the rendition of services to the Company or its Affiliates for a specified time or the achievement of specific goals, and to the further restriction that no such Share may be sold, assigned, transferred, discounted, exchanged, pledged or otherwise encumbered or disposed of until the terms and conditions set by the Committee at the time of the award of the Restricted Stock have been satisfied. Each recipient of an award of Restricted Stock shall enter into an Agreement with the Company, in such form as the Committee shall prescribe, setting forth the restrictions, terms and conditions of such award, whereupon such recipient shall become a participant in the Plan. If a person is awarded Shares of Restricted Stock, whether or not escrowed as provided below, the person shall be the record owner of such Shares and shall have all the rights of a stockholder with respect to such Shares (unless the escrow agreement, if any, specifically provides otherwise), including the right to vote and the right to receive dividends or other distributions made or paid with respect to such Shares. Any certificate or certificates representing Shares of Restricted Stock shall bear a legend similar to the following: The shares represented by this certificate have been issued pursuant to the terms of the Noble Drilling Corporation 1991 Stock Option and Restricted Stock Plan and may not be sold, assigned, transferred, discounted, exchanged, pledged or otherwise encumbered or disposed of in any manner except as set forth in the terms of the agreement embodying the award of such shares dated , 19 . 10 11 In order to enforce the restrictions, terms and conditions that may be applicable to a person's Shares of Restricted Stock, the Committee may require the person, upon the receipt of a certificate or certificates representing such Shares, or at any time thereafter, to deposit such certificate or certificates, together with stock powers and other instruments of transfer, appropriately endorsed in blank, with the Company or an escrow agent designated by the Company under an escrow agreement in such form as by the Committee shall prescribe. After the satisfaction of the restrictions, terms and conditions set by the Committee at the time of an award of Restricted Stock to a person, a new certificate, without the legend set forth above, for the number of Shares that are no longer subject to such restrictions, terms and conditions shall be delivered to the person. If a person to whom Restricted Stock has been awarded dies after satisfaction of the restrictions, terms and conditions for the payment of all or a portion of the award but prior to the actual payment of all or such portion thereof, such payment shall be made to the person's beneficiary or beneficiaries at the time and in the same manner that such payment would have been made to the person. The Committee shall have the authority (and the Agreement evidencing an award of Restricted Stock may so provide) to cancel all or any portion of any outstanding restrictions prior to the expiration of such restrictions with respect to any or all of the Shares of Restricted Stock awarded to a person hereunder on such terms and conditions as the Committee may deem appropriate. (c) Without limiting the provisions of the first paragraph of subsection (b) of this Section 20, if a person to whom Restricted Stock has been awarded ceases to be employed by at least one of the employers in the group of employers consisting of the Company and its Affiliates, for any reason, prior to the satisfaction of any terms and conditions of an award, any Restricted Stock remaining subject to restrictions shall thereupon be forfeited by the person and transferred to, and reacquired by, the Company or an Affiliate at no cost to the Company or the Affiliate; provided, however, if the cessation is due to the person's death, Retirement or Disability, the Committee may, in its sole and absolute discretion, deem that the terms and conditions have been met for all or part of such remaining portion. In the event of such forfeiture, the person, or in the event of his death, his personal representative, shall forthwith deliver to the Secretary of the Company the certificates for the Shares of Restricted Stock remaining subject to such restrictions, accompanied by such instruments of transfer, if any, as may reasonably be required by the Secretary of the Company. (d) In case of any consolidation or merger of another corporation into the Company in which the Company is the surviving corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) of the Shares (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in such shares into two or more classes or series of shares), the Committee may provide that payment of Restricted Stock shall take the form of the kind and amount of shares of stock and other securities (including those of any new direct or indirect parent of the Company), property, cash or any combination thereof receivable upon such consolidation or merger. SECTION 21. GENERAL (a) The proceeds received by the Company from the sale of Shares pursuant to Options shall be used for general corporate purposes. (b) Nothing contained in the Plan or in any Agreement shall confer upon any Optionee or recipient of Restricted Stock the right to continue in the employ of the Company or any Affiliate, or interfere in any way with the rights of the Company or any Affiliate to terminate his employment at any time, with or without cause. 11 12 (c) Neither the members of the Board nor any member of the Committee shall be liable for any act, omission or determination taken or made in good faith with respect to the Plan or any Option and any SARs that relate to such Option granted hereunder or any Restricted Stock awarded hereunder; and the members of the Board and the Committee shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expenses (including counsel fees) arising therefrom to the full extent permitted by law and under any directors' and officers' liability or similar insurance coverage that may be in effect from time to time. (d) Any payment of cash or any issuance or transfer of Shares to the Optionee, or to his legal representative, heir, legatee or distributee, in accordance with the provisions hereof, shall, to the extent thereof, be in full satisfaction of all claims of such persons hereunder. The Committee may require any Optionee, legal representative, heir, legatee or distributee, as a condition precedent to such payment, to execute a release and receipt therefor in such form as it shall determine. (e) Neither the Committee, the Board nor the Company guarantees the Shares from loss or depreciation. (f) All expenses incident to the administration, termination or protection of the Plan, including, but not limited to, legal and accounting fees, shall be paid by the Company or its Affiliates. (g) Records of the Company and its Affiliates regarding a person's period of employment, termination of employment and the reason therefor, leaves of absence, re-employment and other matters shall be conclusive for all purposes hereunder, unless determined by the Committee to be incorrect. (h) Any action required of the Company shall be by resolution of its Board or by a person authorized to act by resolution of the Board. Any action required of the Committee shall be by resolution of the Committee or by a person authorized to act by resolution of the Committee. (i) If any provision of the Plan or any Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Plan or such Agreement, as the case may be, but such provision shall be fully severable and the Plan or such Agreement, as the case may be, shall be construed and enforced as if the illegal or invalid provision had never been included herein or therein. (j) Whenever any notice is required or permitted hereunder, such notice must be in writing and personally delivered or sent by mail. Any notice required or permitted to be delivered hereunder shall be deemed to be delivered on the date on which it is personally delivered, or, whether actually received or not, on the third business day after it is deposited in the United States mail, certified or registered, postage prepaid, addressed to the person who is to receive it at the address which such person has theretofore specified by written notice delivered in accordance herewith. The Company, an Optionee or a recipient of Restricted Stock may change, at any time and from time to time, by written notice to the other, the address that it or he had theretofore specified for receiving notices. Until changed in accordance herewith, the Company and each Optionee and recipient of Restricted Stock shall specify as its and his address for receiving notices the address set forth in the Agreement pertaining to the Shares to which such notice relates. (k) Any person entitled to notice hereunder may waive such notice. (l) The Plan shall be binding upon the Optionee or recipient of Restricted Stock, his heirs, legatees, distributees and legal representatives, upon the Company, its successors and assigns, and upon the Committee, and its successors. (m) The titles and headings of Sections and paragraphs are included for convenience of reference only and are not to be considered in the construction of the provisions hereof. (n) All questions arising with respect to the provisions of the Plan shall be determined by application of the laws of the State of Texas except to the extent Texas law is preempted by Federal law. 12 13 (o) Words used in the masculine shall apply to the feminine where applicable, and wherever the context of the Plan dictates, the plural shall be read as the singular and the singular as the plural. 13 EX-10.21 5 SHORT-TERM INCENTIVE PLAN 1 EXHIBIT 10.21 NOBLE DRILLING CORPORATION SHORT TERM INCENTIVE PLAN Revised: April 1996* PURPOSE The success of Noble Drilling Corporation ("Noble Drilling") and its subsidiaries (collectively, unless the context otherwise requires, the "Company") is a result of the collective efforts of all employees. Each position within the Company has the ability to make a positive contribution to key factors making up the components used to measure a successful year. Those components include factors such as: Increase in Shareholder Value, Cash Flow from Operations, Major New Contracts/Operating Days, Net Income and Safety. In order to intensify each employee's attention on available opportunities to increase revenues, control costs and seek out profitable ventures, the Company maintains a bonus program that rewards employees for successful achievement of specific goals. It is management's belief that shareholders will benefit from the creation of an environment that ties employee compensation to the success of the Company. PARTICIPATION AND ELIGIBILITY The bonus plan covers all full-time employees in salary classifications 18 and higher who have completed one year of service at the close of the bonus plan year, which will be a calendar year. The bonus earned by employees with less than two full years of service will be adjusted based upon the number of full months employed compared to twenty-four months. Additionally, no bonus payments will be made for partial year's service; the eligibility will be determined from the employee roster at the close of the bonus plan year. STRUCTURE TARGET BONUS The target bonus amount shall be determined on an aggregate basis for each division and department. The target bonus shall be the base salary at year end of eligible employees multiplied times the appropriate percentage factor assigned to the salary classification. Salary classifications and target bonus factors are as follows: Salary Classification(1) Target Factor ------------------------ ------------- 18N through 23N 15% 24N through 25N 20% 26N through 27N 25% 28N through 32N 30% 30C through 32C 30% 33C through 36C 35% 37C 70% - ------------------ (1) There is some grade classification variance by division. * Established 1977. - 1 - 2 GOALS At the end of each year, the total bonus pool will be determined by the Board of Directors, considering target bonus levels, the Board's assessment of overall company results, and attainment of specific, predetermined division or corporate goals. Goals in the following categories will be recommended each year by the Chief Executive Officer of Noble Drilling and approved by the Board of Directors for the corporation and for each division. The percentage weighting assigned to each goal shall be as follows subject to annual review by the Board of Directors. Corporate Goals Assigned Weight --------------- --------------- 1. Increase shareholder value 30% 2. Budgeted cash flow from operations 30% 3. Major new contracts(2)/operating days 20% 4. Budgeted net income 10% 5. Safety results 10% Division Goals Assigned Weight -------------- --------------- (Gulf Coast Land, Gulf Coast Marine, Canada, Nigeria, Venezuela, Middle East and Zaire) 1. Budgeted cash flow 35% 2. Budgeted total daily operating costs 35% 3. Budgeted capital expenditures 10% 4. Safety results 10% 5. Rig maintenance and appearance 10% * Rig Managers in land divisions and Assistant Rig Managers in all divisions will be in a special 10% bonus category. Platform Superintendents and Toolpushers in the U.K. division will be in a special 5% bonus category. U.K. and Triton Goals Assigned Weight --------------------- --------------- 1. Budgeted net income 80% 2. Safety results 20% The goal weighting percentage will be used in measuring overall performance, considering measurement of actual results measured against the goal for each factor. The adjustment to the goal weighting will be based upon the following schedule. - ------------------ (2) Defined: One (1) year contract with a 20% internal rate of return, $8.5 million in revenue - applicable to international divisions. - 2 - 3 Goal Achievement Range Adjustment Factor ---------------------- ----------------- Greater than 135% 2.00 126--135% 1.75 116--125% 1.50 106--115% 1.25 96--105% 1.00 86-- 95% .75 76-- 85% .50 Less than 75% .00 The target bonus for corporate employees will be adjusted to reflect the combined percentage of achievement of all assigned corporate goals. The target bonus for division employees will be adjusted to reflect the combined percentage of achievement of all assigned goals using the ratio of 50 percent for division goal achievement and 50 percent for corporate goal achievement. Accordingly, the bonus payable to division employees is dependent on the level of achievement of both division and corporate goals. The dollar amount of the bonus payable, if any, will be calculated using the target bonus amount times the applicable multiplier determined under the following adjustment schedule: Combined Target Bonus Goal Achievement Payable ---------------- ------------ Greater than 160% 2.00 141--160% 1.75 131--140% 1.50 121--130% 1.40 106--120% 1.20 96--105% 1.00 76-- 95% .75 66-- 75% .25 Below 65% .00 BONUS ALLOCATION Each division manager, department head and operating committee member shall receive a bonus (assuming a bonus is payable) as calculated using the target bonus times the applicable multiplier. The remaining bonus pool shall be allocated to eligible employees within the division or department based upon merit. Deviation above or below the target bonus percent must be justified in writing by the employee's supervisor. Division managers and department heads shall submit the allocated bonus listing to the Chief Executive Officer of Noble Drilling for review and approval. All bonus calculations, allocations and recommendations are subject to review and approval by the Compensation Committee of the Board of Directors. - 3 - 4 GOAL FLEXIBILITY It is intended that the total bonus pool will reflect the best judgment of the Board of Directors in determining overall Company performance for the year. In determining overall Company performance, the Board will consider the Company's performance in relation to the pre-determined goals and market conditions. However, because the goals are established in November/December of the preceding plan year, some consideration to subsequent budget revisions may be given. It is expected that the Company will prepare budgets and forecasts in March/April of the plan year. If such budgets have substantially changed due to subsequent events, then the Chief Executive Officer of Noble Drilling shall, at his discretion, submit revised goals to the Board of Directors of Noble Drilling for its approval. Revision to the goals can be considered subsequent to April at the Board's discretion. CORPORATE WILL NOT BE ELIGIBLE TO RECEIVE BONUSES UNDER THE STIP UNLESS POSITIVE NET EARNINGS ARE ACHIEVED. - 4 - EX-10.25 6 REGISTRATION RIGHTS AGREEMENT DATED - 7/1/96 1 EXHIBIT 10.25 NOBLE DRILLING CORPORATION REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT dated as of July 1, 1996 (this "Agreement") by and between NOBLE DRILLING CORPORATION, a Delaware corporation (the "Company"), and ROYAL NEDLLOYD N.V., a Netherlands corporation (the "Stockholder"); W I T N E S S E T H: WHEREAS, the Company, the Stockholder and Neddrill Holding B.V., a Netherlands corporation and a wholly owned subsidiary of the Stockholder ("Seller"), are parties to that certain Agreement of Sale and Purchase dated as of April 25, 1996 (the "Purchase Agreement") pursuant to which the Company will purchase the Assets (as defined in the Purchase Agreement) from Seller and its subsidiaries (the "Acquisition"); and WHEREAS, the Purchase Price (as defined in the Purchase Agreement) payable by the Company under the Purchase Agreement includes 5,000,000 shares of common stock, par value $.10 per share, of the Company ("Common Stock"), which the Stockholder has agreed it will not, directly or indirectly, sell, assign or otherwise transfer prior to the date that is nine months after the Closing Date (as defined in the Purchase Agreement); and WHEREAS, the Company has agreed to provide to the Stockholder the limited registration rights set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual terms, covenants and conditions herein contained, and intending to be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE I REGISTRATION RIGHTS The Company and the Stockholder covenant and agree as follows: 1.1 Definitions. For purposes of this Agreement: (a) The terms "register," "registered" and "registration" refer to a registration of securities effected by preparing and filing a registration statement or similar document in compliance with the Securities Act (as defined below), and the declaration or ordering of effectiveness of such registration statement or document. (b) The term "Registrable Securities" means (i) the Common Stock received by the Stockholder pursuant to the Acquisition and (ii) a dividend or other distribution with respect to, or in exchange for or in replacement of, such Common Stock. (c) The term "Restricted Securities" means the Registrable Securities upon original issuance thereof, subject to the provisions of Section 1.2 hereof. 2 (d) The term "Person" means an individual, partnership, corporation, limited liability company, trust or unincorporated organization, or government or agency or political subdivision thereof. (e) The term "Board" means the Board of Directors of the Company. (f) The term "Commission" means the Securities and Exchange Commission. (g) The term "Securities Act" means the Securities Act of 1933, as amended, and the term "Exchange Act" means the Securities Exchange Act of 1934, as amended. (h) The term "Beall Agreement" means that certain Registration Agreement dated as of April 22, 1994 between the Company and Joseph E. Beall. (i) The term "PAJW Holder" means any Person holding "Registrable Securities" under that certain Registration Rights Agreement dated as of September 15, 1994 between the Company and P.A.J.W. Corporation (the "PAJW Agreement"). (j) The term "Best Efforts" means a Person's best efforts in accordance with reasonable commercial practice and without the incurrence of unreasonable expense. 1.2 Securities Subject to this Agreement. The securities entitled to the benefits of this Agreement are the Registrable Securities but with respect to any particular Registrable Security, only so long as such security continues to be a Restricted Security. A Registrable Security ceases to be a Restricted Security when (a) it has been effectively registered under the Securities Act and disposed of in accordance with the registration statement covering it, (b) it is sold pursuant to Rule 144 or Rule 145 (or any similar provision then in force) under the Securities Act or (c) it has otherwise been transferred by the Stockholder. 1.3 Registration on Request. (a) If, at any time after April 1, 1997 and prior to July 1, 1999, the Company shall receive a written request from the Stockholder that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities, then the Company shall, subject to the limitations of Sections 1.3(c), 1.5 and 1.7 hereof, effect the registration of all Registrable Securities that the Stockholder requests to be registered within 30 days of the receipt by the Company of such written request by means of a shelf registration statement on any appropriate form under the Securities Act for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act. The Company agrees to use its Best Efforts to keep such shelf registration statement continuously effective for a period of six months following the date on which such shelf registration statement is declared effective (plus the number of days of any discontinuance described below). (b) If the Stockholder intends to distribute the Registrable Securities covered by the request by means of an underwriting, it shall so advise the Company as a part of its request made pursuant to this Section 1.3. (c) The Company is obligated to effect one registration pursuant to this Section 1.3; provided, however, that the Company shall not be obligated to effect any registration pursuant to this Section 1.3 if the number of shares of Registrable 2 3 Securities then held by the Stockholder shall be less than one percent of the then outstanding Common Stock. A registration shall not be deemed to have been effected (i) unless it has become effective and remained effective for the period specified in Section 1.3(a) or until the Registrable Securities registered under such registration statement have been sold, or (ii) if, after it has become effective, such registration is terminated by a stop order, injunction or other order of the Commission or other governmental agency or court. (d) Subject to Section 1.3(e), any holder of shares of Common Stock that is a party to an agreement with the Company pursuant to which such holder is granted registration rights under the Securities Act shall also have the right to include such shares in any shelf registration pursuant to this Section 1.3. (e) If any of the Registrable Securities registered pursuant to any shelf registration pursuant to this Section 1.3 are to be sold in an underwritten offering, and the managing underwriter or underwriters deliver an opinion to the Company and the Stockholder that the total number of shares of Common Stock which the Stockholder and any other Persons intend to include in such offering exceeds the number of shares that can be sold in such offering, then there shall be included in such underwritten offering the number of shares of Common Stock which in the opinion of such underwriters can be sold, and such shares shall be allocated pro rata among the holders of shares of Common Stock to be sold on the basis of the number of shares of Common Stock to be registered; provided, that if shares of Common Stock are being offered for the account of other Persons as well as the Stockholder, a reduction in number of shares shall first be made from the shares intended to be offered by such Persons other than the Stockholder, except that the shares of Common Stock intended to be offered by the Stockholder shall be reduced prior to any reduction of the shares of Common Stock intended to be offered by any PAJW Holder. Anything in this Agreement to the contrary notwithstanding, in the event that the Stockholder requests registration of its Registrable Securities pursuant to this Section 1.3 and shares representing 50 percent or more of the Registrable Securities requested to be included by the Stockholder are excluded from the offering by the managing underwriter or underwriters thereof, then such registration shall not constitute, or be counted as, the registration requested by the Stockholder pursuant to Section 1.3 hereof. (f) Anything in this Agreement to the contrary notwithstanding, the Company shall not be required to register any Registrable Securities pursuant to this Section 1.3 if the Stockholder had the opportunity to register Registrable Securities pursuant to Section 1.4 hereof within the six months immediately preceding such request, but declined to do so; provided, however, that the foregoing provisions of this paragraph (f) shall not apply if the Stockholder requested registration of such Registrable Securities pursuant to Section 1.4 hereof and 25 percent or more of such Registrable Securities were excluded from the offering by the managing underwriter or underwriters thereof. 1.4 Company Registration. At any time prior to July 1, 1999 that the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Stockholder) any shares of its Common Stock under the Securities Act for sale within such period (other than registration of the Common Stock for issuance or sale (a) pursuant to Section 1.3 hereof or (b) in connection with (i) employee or non-employee director compensation or benefit programs, (ii) an exchange offer or an offering of securities solely to the existing stockholders or employees of the Company or (iii) an acquisition, merger or other business combination using a registration statement on Form S-4 or any 3 4 successor or other appropriate form), the Company will give prompt written notice (which, in any event, shall be given no less than 15 days prior to the filing of a registration statement with respect to such offering) to the Stockholder of its intention so to do and, upon the written request of the Stockholder sent within 15 days after the effective date of any such notice, the Company will, subject to the provisions of Sections 1.5 and 1.7 hereof, use its Best Efforts to cause all Registrable Securities as to which the Stockholder shall have so requested registration, to be registered under the Securities Act, all to the extent necessary to permit the sale in such offering of the Registrable Securities so registered on behalf of the Stockholder in the same manner as the Company (or stockholder other than the Stockholder, as the case may be) proposes to offer its shares of Common Stock. The Company shall use its Best Efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Registrable Securities requested by the Stockholder to be included in the registration for such offering on the same terms and conditions as the shares of Common Stock of the Company included therein. Notwithstanding the foregoing, if the managing underwriter or underwriters of such offering deliver an opinion to the Company and the Stockholder that the total number of shares of Common Stock which the Stockholder or the Company, and any other Person, intend to include in such offering will in the good faith opinion of such managing underwriter or underwriters materially and adversely affect the success of such offering, then the number of shares of Common Stock to be offered for the account of the Stockholder shall be reduced pro rata based upon the number of shares of Common Stock proposed to be sold by the Company, the Stockholder and other Persons to the extent necessary to reduce the total number of shares of Common Stock to be included in such offering to the number of shares recommended by such managing underwriter; provided, that if shares of Common Stock are being offered for the account of other Persons as well as the Company, such reduction shall first be made from the shares of Common Stock intended to be offered by such Persons other than the Stockholder, except that the shares of Common Stock intended to be offered by the Stockholder shall be reduced prior to any reduction of the shares of Common Stock intended to be offered by any PAJW Holder. 1.5 Obligations of the Company. If and whenever the Company is required by the provisions of this Agreement to use its Best Efforts to effect the registration of any Registrable Securities, the Company shall as expeditiously as reasonably practicable: (a) Prepare and file with the Commission a registration statement on an appropriate form under the Securities Act and use its Best Efforts to cause such registration statement to become effective; provided, that before filing a registration statement or prospectus or any amendments or supplements thereto, including documents incorporated by reference after the initial filing of any registration statement, as soon as practicable, the Company will furnish to the Stockholder and the underwriters, if any, copies of all such documents proposed to be filed, which documents will be subject to the review of the Stockholder and the underwriters, and the Company will not file any registration statement or amendment thereto, or any prospectus or any supplement thereto (including such documents incorporated by reference) to which the Stockholder or the underwriters, if any, shall reasonably object in the light of the requirements of the Securities Act and any other applicable laws and regulations. (b) Prepare and file with the Commission such amendments and post- effective amendments to a registration statement as may be necessary to keep such registration statement effective for the applicable period; cause the related 4 5 prospectus to be filed pursuant to Rule 424(b) under the Securities Act; cause such prospectus to be supplemented by any required prospectus supplement and, as so supplemented, to be filed pursuant to Rule 424(b) under the Securities Act; and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition set forth in such registration statement or supplement to such prospectus. (c) Notify the Stockholder and the managing underwriters, if any, promptly, and (if requested by any such Person) confirm such advice in writing, (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to a registration statement or any post- effective amendment, when the same has become effective, (ii) of any request by the Commission for amendments or supplements to a registration statement or related prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a registration statement or the initiation of any proceeding for that purpose, (iv) if at my time the representations and warranties of the Company contemplated by Section 1.5(l) cease to be true and correct, (v) of the receipt by the Company of any notification with respect to the suspension or qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, (vi) of the happening of any event which requires the making of any changes in a registration statement or related prospectus so that such documents will not contain any 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 not misleading and (vii) of the Company's reasonable determination that a post-effective amendment to a registration statement would be appropriate or that there exist circumstances not yet disclosed to the public which make further sales under such registration statement inadvisable pending such disclosures and post-effective amendment. (d) Make reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction, at the earliest possible moment. (e) If requested by the managing underwriters or the Stockholder in connection with an underwritten offering, immediately incorporate in a prospectus supplement or post effective amendment such information as the managing underwriters and the Stockholder agree should be included therein relating to such sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of shares of Registrable Securities being sold to such underwriters and the purchase price being paid therefor by such underwriters and with respect to any other terms of the underwritten (or best efforts underwritten) offering of the Registrable Securities to be sold in such offering; make all required filings of such prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and supplement or make amendments to any registration statement if requested by the Stockholder or any underwriter of such Registrable Securities. (f) Furnish to the Stockholder and each managing underwriter, if any, without charge, at least one signed copy of the registration statement, any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference). 5 6 (g) Deliver without charge to the Stockholder and the underwriters, if any, as many copies of the prospectus or prospectuses (including each preliminary prospectus) and any amendment or supplement thereto as such Persons may reasonably request; and the Company consents to the use of such prospectus or any amendment or supplement thereto by the Stockholder and the underwriters, if any, in connection with the offer and sale of the Registrable Securities covered by such prospectus or any amendment or supplement thereto. (h) Prior to any public offering of Registrable Securities, register or qualify or cooperate with the Stockholder, the underwriters, if any, and respective counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Stockholder or an underwriter reasonably requests in writing; keep each such registration or qualification effective during the period such registration statement is required to be kept effective and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable registration statement; provided, however, that the Company will not be required in connection therewith or as a condition thereto to qualify generally to do business or subject itself to general service of process in any such jurisdiction where it is not then so subject. (i) Cooperate with the Stockholder and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters may request at least two business days prior to any sale of Registrable Securities to the underwriters. (j) Use its Best Efforts to cause the Registrable Securities covered by the applicable registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary, if any, to consummate the disposition of such Registrable Securities. (k) Upon the occurrence of any event contemplated by Section 1.5(c) (ii) - (vii) above, prepare a supplement or post-effective amendment to the applicable registration statement or related prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchaser of the Registrable Securities being sold thereunder, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading. (l) Enter into such agreements (including an underwriting agreement) and take all such other actions in connection therewith in order to expedite or facilitate the disposition of such Registrable Securities and in such connection, whether or not an underwriting agreement is entered into and whether or not the Registrable Securities to be covered by such registration are to be offered in an underwritten offering: (i) make such representations and warranties to the Stockholder with respect to the registration statement, prospectus and documents incorporated by reference, if any, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings and confirm the same if and when requested; (ii) obtain opinions of counsel to the Company and updates thereof with respect to the registration statement and the prospectus in the form, scope and substance which are customarily delivered in underwritten offerings; (iii) in the case of an underwritten offering, enter into an underwriting agreement in form, scope and substance as is customary in underwritten offerings and obtain opinions 6 7 of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters and the Stockholder) addressed to the Stockholder and the underwriters, if any, covering the matters customarily covered in opinions delivered in underwritten offerings and such other matters as may be reasonably requested by the Stockholder and such underwriters; (iv) obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants addressed to the Stockholder and the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters by accountants in connection with underwritten offerings; (v) if any underwriting agreement is entered into, the same shall set forth in full the indemnification provisions and procedures customarily included in underwriting agreements in underwritten offerings; and (vi) the Company shall deliver such documents and certificates as may be requested by the Stockholder and the managing underwriters, if any, to evidence compliance with clause (i) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The above shall be done at each closing under such underwriting or similar agreement or as and to the extent required thereunder. (m) Make available for inspection by a representative of the Stockholder, any underwriter participating in any disposition pursuant to such registration, and any attorney or accountant retained by the Stockholder or such underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such representative, underwriter, attorney or accountant in connection with such registration; provided that any records, information or documents that are designated by the Company in writing as confidential shall be kept confidential by such Persons unless disclosure of such records, information or documents is required by court or administrative order. (n) Otherwise use its Best Efforts to comply with all applicable rules and regulations of the Commission and make generally available to its security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act, no later than 90 days after the end of any 12-month period (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm or best efforts underwritten offering and (ii) beginning with the first day of the Company's first fiscal quarter next succeeding each sale of Registrable Securities after the effective date of a registration statement, which statements shall cover said 12-month periods. (o) If the Company, in the exercise of its reasonable judgment, objects to any change reasonably requested by the Stockholder or the underwriters, if any, to any registration statement or prospectus or any amendments or supplements thereto (including documents incorporated or to be incorporated therein by reference) as provided for in this Section 1.5, the Company shall not be obligated to make any such change and the Stockholder may withdraw its Registrable Securities from such registration, in which event (i) the Company shall pay all registration expenses (including its counsel fees and expenses) incurred in connection with such registration statement or amendment thereto or prospectus or supplement thereto, (ii) in the case of a shelf registration, the shelf registration statement or amendment thereto shall be filed as soon as agreement with respect to any proposed change shall be reached among all the applicable parties and (iii) in the case of a registration being effected pursuant to Section 1.3, such registration shall not count as the one registration the Company is obligated to effect pursuant to Section 1.3(c). 7 8 In connection with any registration of Registrable Securities, the Company may require the Stockholder to furnish to the Company such information regarding itself and the distribution of such securities as the Company may from time to time reasonably request in writing. The Stockholder agrees by acquisition of Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 1.5(c)(ii)-(vii) hereof, the Stockholder will forthwith discontinue disposition of Registrable Securities covered by such registration statement or prospectus until the Stockholder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 1.5(c)(i) hereof, or until it is advised in writing by the Company that the use of the applicable prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in such prospectus, and, if so directed by the Company, the Stockholder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in the Stockholder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the time period mentioned in Section 1.3(a) shall be extended by the number of days during the time period from and including the date of the giving of such notice pursuant to Section 1.5(c) hereof to and including the date when the Stockholder shall have received the copies of the supplemented or amended prospectus contemplated by Section 1.5(c) hereof. 1.6 Expenses of Registration. All expenses incurred in connection with a registration, filing or qualification pursuant to Section 1.3 hereof (other than fees and expenses of the Company's counsel), including, without limitation, registration, filing and qualification fees, printers' and accounting fees (other than accounting fees incurred by the Company in connection with its compliance with the periodic reporting requirements set forth in Regulation 13A under the Exchange Act), and the fees and disbursements of counsel for the Stockholder, shall be borne and paid by the Stockholder, pro rata in such proportion as the number of Registrable Securities registered pursuant to such registration bears to the total amount of securities registered pursuant thereto. All expenses incurred in connection with a registration pursuant to Section 1.4 (including, but not limited to, the expenses enumerated in the preceding sentence) shall be borne by the Company, with the exception of fees and disbursements of the Stockholder's counsel, which shall be borne by the Stockholder. In addition, the Stockholder shall bear and pay all underwriting discounts and selling commissions attributable to sales of Registrable Securities. 1.7 Underwritten Registrations. (a) If any of the Registrable Securities covered by any registration under Section 1.3 are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Stockholder; provided, that such investment bankers and managers must be reasonably satisfactory to the Company. (b) The Stockholder may not participate in any underwritten registration under Section 1.4 hereunder unless it (i) agrees to sell its securities on the basis 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 required under the terms of such underwriting arrangements. In 8 9 connection with any underwritten offering that includes securities being issued or sold by the Company, the Company shall be the Person entitled to approve the terms of the underwriting arrangements. 1.8 Indemnification. In the event any Registrable Securities are included in a registration statement under this Agreement: (a) To the extent permitted by law, the Company will indemnify and hold harmless the Stockholder, the officers and directors of the Stockholder, each underwriter of Registrable Securities and each other Person, if any, who controls the Stockholder or such underwriter within the meaning of Section 15 of the Securities Act, against any losses, claims, damages, liabilities or expenses, joint or several, to which any such Person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement under which such Registrable Securities were registered under the Securities Act pursuant hereto, or any post-effective amendment thereof, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, if used prior to the effective date of the registration statement and not corrected in the final prospectus, or contained in the final prospectus (as amended or supplemented, if the Company shall have filed with the Commission any amendment thereof or supplement thereto), or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse any such Person for any legal or other expenses reasonably incurred by such Person in connection with investigating or defending any such loss, claim, damage, liability or expense; provided, however, that the indemnity agreement contained in this Section 1.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld); and provided further that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon any such untrue statement or omission or alleged untrue statement or omission which has been made in said registration statement, preliminary prospectus, prospectus or amendment or supplement or omitted therefrom in reliance upon and in conformity with information furnished in writing to the Company by the Stockholder or such underwriter specifically for use in the preparation thereof. (b) To the extent permitted by law, the Stockholder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, each underwriter and each Person who controls any underwriter within the meaning of Section 15 of the Securities Act, against any losses, claims, damages, liabilities or expenses, joint or several, to which the Company or any such Person, may become subject under the Securities Act or otherwise, and will reimburse the Company or any such Person for any legal or other expenses reasonably incurred by the Company or such Person in connection with investigating or defending any such loss, claim, damage, liability or expense, but only insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission of a material fact referred to in clause (i) or (ii) of Section 1.8(a) hereof, in each case to the extent (and only to the 9 10 extent) that such untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with information furnished in writing by or on behalf of the Stockholder specifically for use in connection with such registration; provided, however, that the indemnity agreement contained in this Section 1.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if such settlement is effected without the consent of the Stockholder, which consent shall not be unreasonably withheld; and, provided further, that the obligations of Stockholder under this Section 1.8(b) shall be limited to an amount equal to the amount of proceeds from the sale by the Stockholder of Registrable Securities included in a registration statement under this Agreement to which such obligations relate. (c) Promptly after receipt by an indemnified party under this Section 1.8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 1.8, notify the indemnifying party in writing of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure so to notify an indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.8, but the omission so to notify the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.8. (d) If the indemnification provided for in this Section 1.8 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations; provided that the obligations of Stockholder under this Section 1.8(d) shall be limited to an amount equal to the amount of proceeds from the sale by the Stockholder of Registrable Securities included in a registration statement under this Agreement to which such obligations relate. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 1.8(c) hereof, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. 10 11 The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 1.8(d) were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the immediately preceding paragraph. 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. 1.9 Reports Under Exchange Act. With a view to making available to the Stockholder the benefits of Rule 144 under the Securities Act and any other rule or regulation of the Commission that may at any time permit the Stockholder to sell securities of the Company to the public without registration, the Company agrees to: (a) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act, and the rules and regulations adopted by the Commission thereunder; and (b) furnish to the Stockholder forthwith upon request (i) a written statement by the Company as to whether it has complied with the reporting requirements of Rule 144, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents filed by the Company pursuant to the Exchange Act and (iii) such other information as may be reasonably requested in availing the Stockholder of any rule or regulation of the Commission which permits the sale of any securities without registration. 1.10 Assignment of Registration Rights. The right to cause the Company to register Registrable Securities pursuant to this Agreement may not be assigned, in whole or in part, by the Stockholder without the prior written consent of the Company. 1.11 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Stockholder, enter into any agreement with any holder or prospective holder of any securities of the Company which grants registration rights under the Securities Act on terms and conditions more favorable than the rights granted to the Stockholder in this Agreement. The Company is not a party to any currently subsisting agreement with respect to its securities granting any registration rights to any Person, except the Beall Agreement and the PAJW Agreement. 1.12 Hold-Back Agreements. (a) If a registration statement is filed pursuant to Section 1.3 or 1.4 hereof, the Stockholder agrees not to effect any public sale or distribution of the issue being registered or similar security of the Company, including a sale pursuant to Rule 144 under the Securities Act (except as part of such underwritten registration), during the 14-day period prior to, and during the 90-day period beginning on, the closing date of each underwritten offering made pursuant to such registration statement, to the extent timely notified in writing by the Company or the managing underwriters. (b) The Company agrees (i) not to effect any public sale or distribution of any securities similar to those being registered during the 14- day period prior to, and during the 90-day period beginning on, the effective date of a registration statement filed pursuant to Section 1.3 or 1.4 hereof (except as part of such underwritten registration or in connection with (A) employee or non-employee director compensation or benefit programs, (B) an exchange offer or an offering of 11 12 securities solely to the existing stockholders or employees of the Company, or (C) an acquisition, merger or other business combination using a registration statement on Form S-4 or any successor or other appropriate form), and (ii) to cause each holder of its privately placed securities purchased from the Company at any time on and after the date of this Agreement to agree not to effect any public sale or distribution of any such securities during such period, including a sale pursuant to Rule 144 under the Securities Act (except as part of such underwritten registration, if permitted). 1.13 Investment Representations. The Stockholder makes the representations, warranties, covenants and agreements set forth on Schedule A hereto for the purpose of compliance with the United States federal securities laws. ARTICLE II MISCELLANEOUS 2.1 Successors and Assigns; No Third Party Benefit. This Agreement shall be binding upon and inure to the benefit of the parties and their respective permitted successors and assigns. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto and their respective permitted successors and assigns any rights or remedies under or by reason of this Agreement, except as expressly provided in this Agreement. 2.2 Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the substantive laws of the State of Texas, without giving effect to the principles of conflicts of law thereof. 2.3 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all, the parties hereto. 2.4 Titles and Subtitles. The titles and subtitles used in this Agreement are inserted for convenience only and are not to be considered in construing or interpreting this Agreement. 2.5 Notices. All notices and other communications provided for or permitted hereunder shall be made in writing and shall be delivered by (a) personal delivery, (b) expedited delivery service or (c) certified or registered mail, postage prepaid. Any such notice shall be deemed given upon its receipt at the following address: (i) If to the Stockholder, initially at Royal Nedlloyd N.V. Attn: Mr. H.H. Meijer Boompjes 40 3011 XB Rotterdam The Netherlands Telefax: 31 10 400 6190 12 13 with a copy to: W. Garney Griggs, Esq. Griggs & Harrison, P.C. 1301 McKinney, Suite 3200 Houston, Texas 77010 Telefax: 713-651-1944 and thereafter at such other address, notice of which is given to the Company in accordance with this Section 2.5; and (ii) If to the Company, initially at Noble Drilling Corporation Attn: Mr. James C. Day 10370 Richmond Avenue, Suite 400 Houston, Texas 77042 Telefax: 713-953-1126 with a copy to: Robert D. Campbell, Esq. Thompson & Knight, P.C. 1700 Pacific Avenue, Suite 3300 Dallas, Texas 75201 Telefax: 214-969-1715 and thereafter at such other address, notice of which is given in accordance with this Section 2.5. 2.6 Adjustments Affecting Registrable Securities. The Company will not take any action, or permit any change to occur, with respect to the Registrable Securities which would adversely affect (a) the ability of the Stockholder to include such Registrable Securities in a registration undertaken pursuant to this Agreement or (b) the marketability of such Registrable Securities in any such registration. 2.7 Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof (which may be generally or in a particular instance and either retroactively or prospectively) may not be given, unless the Company has obtained the written consent of the Stockholder. 2.8 Severability. If any provision or any portion of any provision of this Agreement or the application of such provision or any portion thereof to any Person or circumstance shall be held invalid or unenforceable, the remaining portion of such provision, as it applies to other Persons or circumstances and the remaining provisions, shall not be affected or impaired thereby. 2.9 Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter herein contained. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company with respect to the securities received 13 14 by the Stockholder pursuant to the Acquisition. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. * * * 14 15 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. NOBLE DRILLING CORPORATION By: /s/ James C. Day ------------------------------ James C. Day, Chairman, President and Chief Executive Officer ROYAL NEDLLOYD N.V. By: /s/ John P. Boots ------------------------------ Name: John P. Boots Title: By Power of Attorney 15 EX-21.1 7 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 SUBSIDIARIES The following table sets forth the direct and indirect subsidiaries of Noble Drilling Corporation as of March 27, 1997: SUBSIDIARY NAME INCORPORATED OR ORGANIZED IN --------------- ---------------------------- NN-1 Limited Partnership(1) Texas Noble Properties Inc.(2) Oklahoma Noble Drilling International Inc.(2) Delaware Noble Drilling (U.S.) Inc.(2) Delaware Noble Drilling Services Inc.(2) Delaware Noble Drilling (West Africa) Inc.(2) Delaware Noble Offshore Corporation(2) Delaware Triton Engineering Services Company(2) Texas Noble Drilling (Mexico) Inc.(3) Delaware Noble (Gulf of Mexico) Inc.(3) Delaware Bawden Drilling Inc.(4) Delaware Noble Drilling (Canada) Ltd.(4) Alberta Drilhawk Service & Supply Ltd.(4) Alberta Noble Offshore Limited (4) Alberta 372733 Alberta Inc.(4) Alberta Noble International Limited(4) Cayman Islands Noble Drilling International Ltd.(4) Bermuda (Footnotes appear on page 4.) -1- 2 Noble Drilling (Europe) Ltd.(4) Bermuda Noble Holdings Ltd.(4) Bermuda International Directional Services Ltd.(4) Bermuda Noble International Services Ltd.(4) Bermuda Resolute Insurance Group Ltd.(4) Bermuda Bawden Drilling International Ltd.(4) Bermuda Noble Drilling (UK) Limited (4) Scotland Noble Services SDN. BHD(4) Brunei Noble Enterprises Limited(4) Cayman Islands Noble Drilling Limited(4) Cayman Islands Noble Drilling International Services PTE Ltd.(4) Singapore Noble Drilling Arabia Ltd.(4) Saudi Arabia Noble Drilling (West Africa) Ltd.(5) Cayman Islands Noble Drilling (Nigeria) Ltd.(5) Nigeria Noble Drilling (Malaysia) SDN. BHD.(6) Malaysia Noble Drilling de Venezuela C.A.(4) Venezuela Noble Offshore Africa Inc.(7) Cayman Islands Threadneedle Oil Company(8) Texas Triton International, Inc.(8) Delaware Triton USA, Inc.(8) Delaware Triton Tool & Supply, Inc.(8) Texas Triton Engineering Services Company, S.A.(8) Venezuela Asociacion en Participacion(8) Mexico (Footnotes appear on page 4.) -2- 3 Triton International de Mexico, S.A. de C.V.(9) Mexico Rigquip Ltd.(10) Scotland Triton International (Europe) Ltd.(9) U.K. Triton Drilling Services (Nigeria) Ltd.(9) Nigeria Noble Drilling Land Limited(3) Texas LP Noble-Neddrill International Limited(4) Cayman Noble Asset Company Limited(4) Cayman Noble Contracting Gmbh(4) Switzerland Noble Asset (U.K.) Limited(4) Cayman Noble Drilling (Land Support) Limited(10) U.K. Noble Nederland B.V.(4) Rotterdam Nedstaff Limited(4) Hong Kong Nedstaff Europe Limited(4) U.K. Neddrill do Brasil Limitada(4) Brazil Noble Drilling Land Inc.(2) Nevada (Footnotes appear on the following page.) - 3 - 4 Footnotes: (1) Noble Drilling Corporation is the sole general partner. Noble Drilling Corporation's sharing percentage in NN-1 Limited Partnership's distributions from operations is generally 90 percent. (2) 100% owned by Noble Drilling Corporation. (3) Direct or indirect subsidiary of Noble Drilling (U.S.) Inc. (4) Direct or indirect subsidiary of Noble Drilling International Inc. (5) 100% owned by Noble Drilling (West Africa) Inc. (6) 70% owned indirectly by Noble Drilling International Inc. (7) 100% owned by Noble Offshore Corporation. (8) 100% owned by Triton Engineering Services Company. (9) 100% owned by Triton International, Inc. (10) 100% owned by Noble Drilling (UK) Limited. - 4 - EX-23.1 8 CONSENT OF PRICE WATERHOUSE LLP. 1 EXHIBIT 23.1 NOBLE DRILLING CORPORATION AND SUBSIDIARIES CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-3289), Form S-8 (33-15269), Form S-8 (No. 33-18966), Form S-8 (33-46724), Form S-8 (33-50270), Form S-8 (33-50272) and Form S-8 (33-62394) of Noble Drilling Corporation of our report dated January 30, 1997, except as to Note 15, which is as of February 19, 1997, appearing on page 24 of this Form 10-K. PRICE WATERHOUSE LLP Houston, Texas March 27, 1997 EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1996 DEC-31-1996 149,632 21,829 103,113 1,494 3,287 388,477 1,204,069 247,035 1,367,407 151,500 239,506 0 0 13,219 912,030 1,367,407 0 514,253 0 331,582 70,120 0 18,758 101,959 22,662 79,297 0 (660) 0 72,597 0.66 0.66
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