-----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, Jit3LKkFDA4ngCtUDJIWXsPZa/rsdqhIo/j/M9cHHwuLdu97z3ULfaCuuYFm347V 0j8MMlPk2OujDLNQLGfjcg== 0000950129-97-001352.txt : 19970401 0000950129-97-001352.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950129-97-001352 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROWAN COMPANIES INC CENTRAL INDEX KEY: 0000085408 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 750759420 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05491 FILM NUMBER: 97568676 BUSINESS ADDRESS: STREET 1: 5450 TRANSCO TWR STREET 2: 2800 POST OAK BLVD CITY: HOUSTON STATE: TX ZIP: 77056-6196 BUSINESS PHONE: 7136217800 MAIL ADDRESS: STREET 1: 5450 TRANSCO TOWER STREET 2: 2800 POST OAK BOULEVARD CITY: HOUSTON STATE: TX ZIP: 77056-6196 FORMER COMPANY: FORMER CONFORMED NAME: ROWAN DRILLING CO INC DATE OF NAME CHANGE: 19711110 FORMER COMPANY: FORMER CONFORMED NAME: ROWAN DRILLING CO DATE OF NAME CHANGE: 19671112 10-K 1 ROWAN COMPANIES, INC. - 12/31/96 1 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 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____ ROWAN COMPANIES, INC. Incorporated in Delaware Commission File I. R. S. Employer Number 1-5491 Identification: 75-0759420 5450 Transco Tower 2800 Post Oak Boulevard, Houston, Texas 77056-6196 Registrant's telephone number, including area code: (713) 621-7800 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - ------------------------------- ---------------------- Common Stock, $.125 Par Value New York Stock Exchange Pacific Stock Exchange 11-7/8% Senior Notes due 2001 New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE 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. [ ] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . The aggregate market value as of February 27, 1997 of the Common Stock held by non-affiliates of the registrant was approximately $1,642 million. The number of shares of Common Stock, $.125 par value, outstanding at February 27, 1997 was 85,609,984. DOCUMENTS INCORPORATED BY REFERENCE Document Part of Form 10-K -------- ----------------- Annual Report to Stockholders for fiscal year ended December 31, 1996 Parts I, II and IV Proxy Statement for the 1997 Annual Meeting of Stockholders Part III 2 TABLE OF CONTENTS PART I Page Item 1. Business .................................................... 1 Drilling Operations................................................. 1 Offshore Operations ............................................. 2 Onshore Operations .............................................. 3 Contracts ....................................................... 4 Competition ..................................................... 5 Regulations and Hazards ......................................... 6 Manufacturing Operations............................................ 7 Raw Materials.................................................... 8 Competition...................................................... 8 Regulations and Hazards.......................................... 9 Aviation Operations ................................................ 10 Contracts ....................................................... 11 Competition ..................................................... 11 Regulations and Hazards ......................................... 12 Employees .......................................................... 12 Item 2. Properties .................................................. 13 Drilling Rigs ...................................................... 13 Manufacturing Facilities............................................ 18 Aircraft ........................................................... 18 Item 3. Legal Proceedings ........................................... 19 Item 4. Submission of Matters to a Vote of Security Holders ......... 19 Additional Item. Executive Officers of the Registrant ................ 19 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters ....................................... 21 Item 6. Selected Financial Data ..................................... 21 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ....................... 21 Item 8. Financial Statements and Supplementary Data ................. 21 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ....................... 21 PART III Item 10. Directors and Executive Officers of the Registrant .......... 22 Item 11. Executive Compensation ...................................... 22 Item 12. Security Ownership of Certain Beneficial Owners and Management ............................................ 22 Item 13. Certain Relationships and Related Transactions .............. 22 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ...................................... 23 3 PART I ITEM 1. BUSINESS Rowan Companies, Inc.(the "Company"), organized in 1947 as a Delaware corporation and a successor to a contract drilling business conducted since 1923 under the name Rowan Drilling Company, Inc., is engaged principally in the contract drilling of oil and gas wells in domestic and foreign areas. As noted below, it also provides aircraft services and operates a mini-steel mill, a heavy equipment manufacturing plant and a marine rig construction yard. Offshore operations of the Company consist primarily of contract drilling services utilizing mobile rigs, principally a fleet of 20 self-elevating drilling platforms ("jack-up rigs"), including three heavy duty cantilever jack-up rigs ("Gorilla Class rigs"). See "DRILLING OPERATIONS" below for information with respect to the ongoing construction of one rig and planned construction of two others, each being an enhanced version of the Company's Gorilla Class jack-ups. In 1992, the Company began providing offshore platform installation and removal services as well as Total Project Management, an approach to drilling operations which emphasizes drilling and completing wells on a turnkey basis. In light of the increasing demand for the Company's daywork drilling services, and the relatively unfavorable results of its turnkey drilling operations during the recent past, the Company has elected to focus on daywork drilling and project management contracts and not pursue additional turnkey work at this time. In February 1994, the Company purchased through its wholly-owned subsidiary, LeTourneau, Inc., the net assets of Marathon LeTourneau Company. LeTourneau, Inc. operates a mini-steel mill that recycles scrap and produces alloy steel and steel plate; a manufacturing facility that produces heavy equipment for the mining, timber and transportation industries including, among other things, front-end loaders up to 50 ton capacity and trucks up to 200 ton capacity; and a marine group that has built over one-third of all mobile offshore jack-up drilling rigs, including all 20 operated by the Company. As discussed more fully below in "DRILLING OPERATIONS", the marine group is currently constructing for the Company at its Vicksburg, Mississippi shipyard the first of three enhanced Gorilla Class jack-up rigs. The Company's wholly-owned subsidiary, Era Aviation, Inc., provides contract and charter helicopter and fixed-wing aircraft services, with its fleet consisting on March 28, 1997 of 88 helicopters and 21 fixed-wing aircraft. The Company's aircraft services include flightseeing, medivac services, forest fire control and support for oil and gas related operations out of its primary bases in Alaska, Louisiana and Nevada. In addition, the Company provides commuter airline services in Alaska using its fixed-wing aircraft. The Company also owns a 49% interest in a Dutch-based joint venture company, KLM ERA Helicopters B.V. ("KLM ERA"), which owns a fleet consisting of 15 helicopters in the Dutch and British sectors of the North Sea. Information regarding revenues, operating profit, identifiable assets and export sales of the Company's industry segments and foreign and domestic operations for each of the three years in the period ended December 31, 1996 is incorporated by reference herein and provided in Footnote 10 of the Notes to Consolidated Financial Statements on pages 25 and 26 of the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1996 ("Annual Report"), incorporated portions of which are filed as Exhibit 13 hereto. In 1996, no customer accounted for 10% or more of consolidated revenues. In 1994 and 1995, the Company had revenues (primarily from drilling operations) representing 10% or more of consolidated revenues from one customer, specifically AMOCO Corp., which provided 10% and 11%, respectively. DRILLING OPERATIONS In 1996, drilling operations generated an operating profit (income from operations before deducting general and administrative expenses) of $79,247,000. -1- 4 Offshore Operations At December 31, 1996, the Company's drilling fleet consisted of 20 deep-water jack-up rigs (eight conventional and twelve cantilever, including three Gorilla Class rigs in the latter category) and one semi-submersible rig. The Company owns all of the rigs comprising its fleet except for two cantilever jack-up rigs leased under sale/leaseback arrangements expiring in 1999 and 2000. In 1995, the Company sold its three submersible barge rigs. In April 1995, the Company announced plans for the design and construction of Rowan Gorilla V, an enhanced version of the Company's Gorilla Class jack-ups, which will be the world's largest bottom supported mobile offshore drilling unit. The rig will be able to operate year-round in 400 feet of water south of the 61st parallel, within the worst case combination of 100-year storm criteria for waves, wave periods, winds and currents. Construction of the rig, which began in early 1996, is being carried out at LeTourneau's Vicksburg, Mississippi shipyard and is expected to be completed during the third quarter of 1998 at an estimated cost of $175 million. The Company is financing up to 87.5% of the construction cost through a 12-year bank loan guaranteed by the Maritime Administration of the U.S. Department of Transportation under its Title XI Program. On October 28, 1996, the Company announced plans for the construction of Rowan Gorilla VI and Rowan Gorilla VII. Each rig will be a combination drilling and production unit like Gorilla V, capable of operating in hostile environments like the North Sea in water depths of up to 400 feet. These rigs will also be constructed at the Company's Vicksburg facility at a combined cost of approximately $380 million. Delivery is expected during the first quarter of 1999 and the second quarter of 2000. This major construction project to build three enhanced Gorilla Class rigs represents the Company's first new construction since a major drilling rig expansion program was conducted in the early to mid-1980s. In the intervening years, the Company's capital expenditures have been primarily for improvements to existing drilling rigs and the purchase of aircraft. Adding to these capital expenditures were the purchases of the 49% interest in KLM ERA and the net assets of Marathon LeTourneau in 1991 and 1994, respectively. For a discussion of the Company's availability of funds in 1997 for future operations and for estimated capital expenditures, including those related to the reactivation of the Company's marine construction capability, the construction and associated financing of Gorilla V, Gorilla VI and Gorilla VII and Company plans with respect to its $200 million 11-7/8% Senior Notes, see "Liquidity and Capital Resources" under "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 14 and 15 of the Annual Report, which information is incorporated herein by reference. Also, see ITEM 2. PROPERTIES on page 13 of this Form 10-K for additional information with respect to the operating status of the Company's rigs. The Company's existing Gorilla Class rigs are a heavier class of jack-up rig, intended to drill up to 30,000 feet in water depths up to 328 feet in extreme hostile environments (winds up to 100 miles per hour and seas up to 90 feet). Each Gorilla Class rig is equipped with a "top-drive", a drilling system costing approximately $1.25 million which assists in faster drilling while reducing the hazard of the drill string sticking, and is particularly advantageous in the case of horizontal drilling. Of the Company's other jack-up rigs, six Class 116-C rigs and one Class 116 rig have been modified to provide (but to a lesser extent than Gorilla Class rigs) the capability of operating in hostile environments. The Company's nine Class 116-C jack-up rigs, two Class 116 jack-up rigs, two Class 84 jack-up rigs, one semi-submersible rig and three of its four Class 52 jack-up rigs have been equipped with top-drive drilling systems. In 1989, the Company acquired a patent (U. S. Patent No. 4,103,503) applicable to the transfer of a drilling rig substructure from a jack-up type drilling unit to a fixed platform. In conjunction with technology contained in the patent, the Company has developed additional substructure transfer or "skid base" technology which has allowed the Company's conventional jack-up rigs to work over wells on a production platform that heretofore required a cantilever jack-up or platform rig. At March 28, -2- 5 1997, two Class 116 jack-up rigs, two Class 84 jack-up rigs and one of its Class 52 jack-up rigs have been equipped with skid base units. The Company's four Class 116-C rigs and one Gorilla Class rig presently located in the North Sea continue to undergo modifications in order to meet new offshore safety standards being implemented in the United Kingdom. Some of the safety standards under government consideration, many of which the Company has already modified its North Sea rigs to meet, are as follows: a minimum of two independent sources of sea water for firefighting; a temporary safe refuge for personnel near the escape capsules which will provide a high degree of protection from fire, smoke and gas inhalation and will contain additional safety, communication and survival gear; additional enclosed motorized escape capsules; and expanded smoke and gas protection in the crew quarters. Since 1970, the Company has pursued a policy of concentrating on jack-up rigs. Jack-ups are utilized for both offshore exploratory and development drilling and, in certain areas, for well workover operations. The Company operates larger deep-water type jack-up rigs capable of drilling to depths of 20,000 to 30,000 feet in maximum water depths ranging from 225 to 450 feet, depending on the size of the rig and its location. A jack-up rig consists of a floating hull with three independent elevating legs. The Company's rigs are equipped with propulsion thrusters to assist in towing. The entire drilling unit, consisting of the drilling rig, supplies, crew quarters, loading and unloading facilities, helicopter landing deck and other related equipment, is mounted on the hull. At the drilling site, the legs are lowered until they penetrate the ocean floor, and the platform hull is jacked up on the legs to the desired elevation above the water. The platform hull then serves as a drilling platform until the well is completed and the operation is reversed by lowering the platform hull into the water and towing it to the next drilling site. The cantilever feature contained on the Company's newer jack-ups provides for the extension of the portion of the drilling platform containing the drilling rig over fixed production platforms so that the drilling rig may be utilized to perform development or workover operations on the platforms with a minimum of interruption to production. The Company's semi-submersible rig is utilized principally for offshore exploratory drilling from a floating position in waters to depths of 1,200 feet. A semi-submersible drilling rig consists of a drilling platform raised above multiple hulls by columns. The hulls are flooded so as to be submerged beneath the surface, in which position the rig is anchored during drilling operations. The same type of equipment which is contained on a jack-up rig is mounted on the drilling platform. After completion of the well, the submerged hull is deballasted to reduce vessel draft and facilitate towing to another drilling location. Onshore Operations The Company has drilling equipment, personnel and camps available on a contract basis for exploration and development of onshore areas. It currently owns 14 land rigs located as follows: deep-well rigs - three in Oklahoma, one in Southeast Texas, three in Louisiana, and two in Argentina, which are scheduled to be moved to the United States in the second quarter of 1997; and winterized rigs - five in Alaska. Three trailer-mounted land rigs, along with the Company's Argentina subsidiary, were sold in late 1996. Over the 1992-1996 period, the drilling areas providing the greatest amount of activity for the Company's land rigs have been Venezuela and Argentina. At the start of that five year period going through mid-1994, five of the Company's rigs carried out a three-year drilling contract in Venezuela and were then returned to the United States where three of the five had sporadic work in the second half of 1994. Three of these rigs were moved to Argentina in March 1995 to perform a two-year drilling contract. Two deep-well land rigs were also moved to Argentina in 1995. Except for four deep-well land rigs that have worked fairly consistently in Texas, Mississippi and Louisiana since mid-1994, and one winterized land rig in Alaska that worked in the first quarter of 1992, another that worked in the first quarter of 1993 and another that worked for most of the first four months of 1994, the deep-well land rigs based in Texas, Oklahoma, Louisiana and Alaska have been idle since mid-1988 due to inadequate rates. Accordingly, seven of the Company's land rigs remained "mothballed" at March 28, 1997. -3- 6 The cost of maintaining these rigs is modest and the remaining investment in the rigs is not significant. The drilling equipment comprising an onshore rig consists basically of engines, drawworks or hoist, derrick, pumps to circulate the drilling fluid, drill pipe and drilling bits. The type of rig required by a customer depends upon the anticipated well depth, terrain and conditions in the drilling area. Contracts The Company's policy with regard to day rates and contract durations depends upon the prevailing strength or weakness of the market. During periods when the offshore rig markets are weak and declining rates prevail, the Company generally pursues a policy of entering into lower rate contracts to remain in a competitive position and to offset the substantial cost of maintaining and reactivating stacked rigs. During those times when the markets are strong and increasing rates prevail, the Company's policy is generally one of negotiating short rather than long-term contracts for its offshore rigs because such policy allows the Company to maximize its ability to obtain the benefit of rate increases and to pass through cost increases to customers. Drilling contracts presently being sought by the Company are those which provide for drilling compensation on a day rate basis, such contracts being obtained either through competitive bidding or individual negotiations. Rates obtained depend upon the type of equipment used, its availability and its location, as well as the type of operations involved. Both offshore and onshore contracts for use of the Company's drilling equipment are "well-to-well", "multiple well" or for a fixed term generally ranging from four to twelve months. Well-to-well contracts are cancelable at the option of either party upon completion of drilling at any one site, and fixed-term contracts customarily provide for termination by either party if drilling operations are suspended for extended periods by events of force majeure. While most current fixed-term contracts are for relatively short periods, some fixed-term and well-to-well contracts continue for a longer period than the original term or for a specific series of wells. Contracts, particularly those for offshore operations, generally contain renewal or extension provisions exercisable at the option of the customer at prices mutually agreeable to the Company and the customer and, in many cases, provide for additional payments for mobilization and demobilization. Contracts for work in foreign countries generally provide for payment in United States dollars except for minimal amounts required to meet local expenses. Most of the Company's drilling contracts in the North Sea are well-to-well contracts or short-term contracts of similar duration lasting 60-120 days, while most of the Company's contracts in the Gulf of Mexico are well-to-well contracts lasting 30-60 days. Beginning in 1992 and going through late 1996, the Company also sought drilling contracts for work done on a turnkey basis. In the case of such contracts, the Company's compensation was contingent on the Company successfully drilling a well to a specified depth for a fixed price. In the event certain operational problems would occur causing the Company to not be unable to reach the specified turnkey depth, the Company was not entitled to any portion of the turnkey price thereby causing it to absorb substantial out-of-pocket expenses. For this reason, wells drilled on a turnkey basis generally involved greater economic risk to the Company than wells drilled on a day rate basis. As previously noted, the Company is not presently pursuing additional turnkey work due to the relatively unfavorable results during the recent past. The Company expects to conclude its current turnkey operations in early 1997. Contracts for platform installation and removal services typically contain the same types of provisions and features described herein for drilling contracts. The Company believes that the contract status of its onshore and offshore rigs is more informative than backlog calculations, and that backlog information is neither calculable nor meaningful given the cancellation options contained in, and the short duration of, fixed-term contracts and the indeterminable duration of well-to-well and multiple well contracts. See ITEM 2. PROPERTIES beginning on page 13 of this Form 10-K for the contract status of rigs as of March 28, 1997. -4- 7 Competition The Company encounters continual competition in securing domestic and foreign drilling contracts from approximately 34 offshore drilling contractors operating or having available to operate about 557 mobile rigs, approximately 14 major domestic drilling contractors operating or having available to operate about 50 land rigs in the deep-well market in the Permian and Anadarko Basins, and five domestic drilling contractors operating or having available to operate about 16 winterized land rigs on the Alaskan North Slope. Some of the Company's competitors with greater financial and other resources may be in a better position than the Company to make the continuous capital investments required to make technological improvements to existing equipment or to replace equipment that becomes obsolete. Furthermore, a few of the Company's competitors have been substantially relieved of debt burdens by bankruptcy proceedings. Technological advances in equipment, particularly offshore equipment, may cause older equipment having lower capital costs to be less suitable for some proposed drilling operations. As a result, the Company has employed the following strategy: during the 1980-1986 period - carried out a drilling rig expansion program, including the development of the heavier jack-up rig class known as the Gorilla rig; during the period 1987 through the present - engaged in a drilling rig modification program designed to provide the Company's fleet with jack-ups reflecting recent technological advancements and which meet known government-imposed safety and pollution control requirements; and during the period 1995 to present - began to carry out a drilling rig expansion program involving the development of an enhanced version of the Gorilla Class rig. The completion schedule for the three rigs comprising the current expansion program is as follows: Rowan Gorilla V - third quarter 1998; Rowan Gorilla VI - first quarter 1999 and Rowan Gorilla VII - second quarter 2000. The offshore markets in which the Company competes are chosen on the basis of those which offer the greatest market potential and are generally located in the more politically stable areas of the world. Relocation of drilling rigs from one geographic location to another is dependent upon changing market dynamics with moves occurring only when the likelihood of higher returns make such action economical. At March 28, 1997, 14 jack-ups were located in the Gulf of Mexico, five jack-ups were located in the North Sea, one jack-up was located offshore eastern Canada, and one semi-submersible rig was located in the Gulf of Mexico. A number of factors affect a drilling contractor's ability both onshore and offshore to obtain contracts at a profitable rate within an area. Such factors include the location and availability of equipment, its suitability for the project, the comparative cost of the equipment, the competence of personnel and the reputation of the contractor. The ability to obtain a profitable rate of return is also dependent upon receiving adequate rates to compensate for the added cost of moving equipment to drilling locations. See "Contracts" on page 4 of this Form 10-K concerning the pricing policies pursued by the Company under various market conditions. The Company markets its drilling services by directly contacting present and potential customers, including large international energy companies, many smaller energy companies and foreign government-owned or controlled energy companies. Beginning in 1992, downsizings by major energy companies, coupled with the significant reductions of exploration by such companies in offshore U.S. waters, resulted in the Company adapting its marketing efforts to increase emphasis on independent operators. Because the exploration activities of the Company's present and potential customers are impacted by state, federal and foreign regulations associated with the production and transportation of oil and gas, the demand for the Company's drilling services is impacted accordingly. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 12 through 15 of the Annual Report, the information under which caption is incorporated herein by reference, for a discussion of current industry conditions and their impact on operations. -5- 8 Regulations and Hazards The offshore and onshore operations of the Company are subject to many hazards. In the drilling business, inherent hazards include blowouts and well fires, which could cause personal injury, suspend drilling operations, seriously damage or destroy the equipment involved and cause substantial damage to producing formations and the surrounding areas. Offshore drilling operations and platform installation and removal operations are also subject to the hazards incident to marine operations, either on site or while under tow, such as capsizing, collision or grounding. Raising and lowering the legs of jack-up rigs into the ocean bottom and ballasting semi-submersible units require skillful handling to avoid capsizing or other serious damage. Drilling deviated holes into high pressure formations is a complex process and problems frequently occur. The process of removing platforms and caissons using underwater explosives involves substantial risks and requires a significant amount of skill in order to confine the resulting destruction to the intended areas. The Company believes that it is adequately insured for physical damage to its rigs, and for marine liabilities, worker's compensation, Maritime Employees Liability, automobile liability and for various other types of exposures customarily encountered in providing the Company's services. Certain of the Company's liability insurance policies specifically exclude coverage for fines, penalties and punitive or exemplary damages. Under current conditions, the Company anticipates that its present insurance coverage will be maintained, but no assurance can be given that insurance coverage will continue to be available at rates considered reasonable, that self-insured amounts or deductibles will not increase or that certain types of coverage will be available at any cost. Foreign operations are subject to certain political, economic and other uncertainties not encountered in domestic operations, including risks of expropriation of equipment as well as expropriation of a particular energy company operator's property and drilling rights, taxation policies, customs restrictions, currency rate fluctuations and the general hazards associated with foreign sovereignty over certain areas in which operations are conducted. The Company attempts to minimize the risk of currency rate fluctuations by generally denominating contract payment terms in United States dollars. Many aspects of the operations of the Company are subject to government regulation, including those relating to equipping and operating vessels, drilling practices and methods and the level of taxation. In addition, various countries (including the United States) have regulations relating to environmental protection and pollution control affecting drilling operations. Recent events have also increased the sensitivity of the oil and gas industry to environmental matters. The Company may be liable for damages resulting from pollution of offshore waters and, under United States regulations, must establish financial responsibility. Generally, the Company is substantially indemnified under drilling contracts compensated on a day rate basis from pollution damages, except in certain cases of pollution emanating above the surface of land or water from spills of pollutants, or in the case of pollutants emanating from the Company's drilling rigs, but no assurance can be given regarding the enforceability of such indemnification provisions. In performing a contract for work done on a turnkey basis, the Company is normally responsible for certain risks that would customarily be assumed by the customer under a contract compensated on a day rate basis. These risks include liability for pollution resulting from a blowout or uncontrolled flow from the well bore, an underground blowout, the cost of controlling a wild well and the expense to redrill a well which has blown out. The Company carries insurance to cover such risks and generally obtains an indemnity from its customers with respect to liabilities exceeding the amount of insurance carried by the Company. The Company believes that it complies with all material legislation and regulations affecting its operations in the drilling of oil and gas wells, and in controlling the discharge of wastes. To date the Company has made significant -6- 9 modifications to its rigs located in the Gulf of Mexico in order to reduce waste and rain water discharge from such rigs and believes that it could operate those rigs at "zero discharge" without material additional expenditures. Other than these expenditures and those relating to the previously discussed United Kingdom safety standards, compliance has not, to date, materially affected the capital expenditures, earnings or competitive position of the Company, although these measures add to the costs of operating drilling equipment in some instances, and in others they may operate to reduce drilling activity. Further legislation or regulation may reasonably be anticipated, but the effects thereof on operations cannot be predicted. The Company is subject to the requirements of the Federal Occupational Safety and Health Act ("OSHA") and comparable state statutes. The OSHA hazard communication standard, the Environmental Protection Agency "community right-to-know" regulations under Title III of the Federal Superfund Amendment and Reauthorization Act and comparable state statutes require the Company to organize and report certain information about the hazardous materials used in its operations to employees, state and local government authorities and local citizens. MANUFACTURING OPERATIONS In 1994, LeTourneau, Inc. ("LeTourneau"), a wholly-owned subsidiary of the Company, acquired the net assets of Marathon LeTourneau Company, which is headquartered in Longview, Texas. As more fully described below, LeTourneau operates a manufacturing facility that produces heavy equipment, a mini-steel mill that recycles scrap and produces steel plate and forging ingots and a marine group that has built over one-third of all mobile offshore jack-up drilling rigs, including all 20 operated by the Company. The Company holds a number of patents on its inventions and the "LeTourneau" name is considered to be significant to its manufacturing operation. The mining equipment product line of LeTourneau includes loaders and off-road trucks. The primary production line is front-end loaders with bucket capacities of 17, 22, 28 and 33 cubic yards. A secondary product line is off-road trucks with capacities of 190 and 200 tons. LeTourneau's loaders and trucks are generally used in coal, gold, copper, iron ore and other mines and utilize the LeTourneau diesel electric-drive systems with solid state controls. The primary benefit of the diesel electric-drive system is to allow large, mobile equipment to stop, start and reverse without gear shifting and high maintenance braking. LeTourneau loaders can load LeTourneau rear-dump trucks and competitive trucks in the 85 ton to 310 ton size range. LeTourneau's mining equipment and parts are distributed through a world-wide network of independent distributors and a Company-owned distribution network serving the western United States. The forestry equipment product line includes diesel electric powered log stackers having either two or four wheel drive configurations with load capacities ranging from 35 to 65 tons. LeTourneau is the only manufacturer that sells electrically powered jib cranes with ratings from 25,000 to 52,000 lbs. at a reach of 100 to 150 feet and having a 360 degree rotation. The forestry equipment is marketed primarily in North America through independent distributors and a Company-owned distribution network in the northwestern United States. LeTourneau's material handling equipment line includes several different types of intermodal equipment. These include 50 ton capacity, diesel electric, gantry cranes and large forklift type vehicles, called side porters, used for lifting, transporting and stacking large shipping containers and trailers at ports and rail yards. Gantry cranes equipped with a spreader can lift containers from the top and also have retractable arms which are used in loading and unloading piggyback trailers. Gantry cranes can span up to seven rows plus a truck aisle and stack 9 ft. 6 inch containers up to five high. The intermodal equipment is marketed primarily in North America through independent distributors and a Company-owned distribution network in the northwestern United States. LeTourneau also sells parts and components to repair and maintain mining, forestry and intermodal equipment. Equipment parts are marketed through one dealer and a Company-owned distribution network in the United States with 17 parts stocking branches, one dealer in Canada with over 19 parts stocking branches, and 31 international dealers with over 50 parts stocking locations. -7- 10 LeTourneau's mini-steel mill located in Longview, Texas produces carbon, alloy and specialty steel plate products. LeTourneau concentrates on "niche" markets that require alloy, specialty steel grades, or "exotic" versions of carbon steel products including mold steels, tool steels, aircraft quality steels, 400 series stainless steel and hydrogen induced crack resistant steels. External steel sales, which are garnered through a direct sales force of LeTourneau employees, consist primarily of steel plate, but also include forging ingots and value-added fabrication of steel products. Steel products are generally sold to steel service centers, fabricators, manufacturers, forge shops and brokers. The market for carbon steel plate products and fabricated products is regional and encompasses Texas, Oklahoma, Louisiana, Mississippi and Arkansas. LeTourneau ships alloy and specialty grades of plate products nationally and exports quantities to Mexico and Canada. The forging ingot market is concentrated in the Gulf Coast region of Texas. Carbon and alloy plate products are also used internally in the production of heavy equipment and parts. LeTourneau has a shipyard in Vicksburg, Mississippi for the construction of mobile self-elevating offshore drilling platforms. LeTourneau also has the capability of providing engineering support and spare parts to the drilling industry. With the announcement of the construction of Rowan Gorilla V in April 1995, the Company began, and has now largely completed, the rebuilding of this facility. The yard currently employs about 625, most of whom have been newly hired. Ongoing rig component manufacturing and marine repair service businesses, as well as a marine design engineering business, have been and continue to be located at the Company's Longview, Texas facility. In 1996, manufacturing operations generated an operating profit (income from operations before deducting general and administrative expenses) of $9,468,000 and had an external backlog for all of its product lines at March 1, 1997 of approximately $36 million. LeTourneau engages in a limited amount of research and product development, primarily to increase the capacity of and provide innovative improvements to the product lines. The Company evaluates on an ongoing basis the LeTourneau product and service lines with the intention of making enhancements. Raw Materials The principal raw material utilized in LeTourneau's manufacturing operations is steel plate, most of which is supplied by LeTourneau's mini-steel mill. Other required materials are generally available in sufficient quantities through purchases in the open market to meet its manufacturing needs. LeTourneau does not believe that it is dependent on any single supplier. Competition LeTourneau's loaders and large trucks compete worldwide with several competitors. LeTourneau's loader product line has only two direct competitors; however, the larger loader models compete with other types of loading equipment, primarily electric and hydraulic mining shovels. The LeTourneau truck competes with five truck manufacturers all of whom offer a broader range of truck sizes than LeTourneau, including trucks in the 240-ton class. Three competitors have recently introduced models in the 260-ton to 310-ton class. The market for LeTourneau forestry and intermodal equipment is also characterized by vigorous competition. Even though LeTourneau's jib crane is unique, it does encounter competition from other equipment manufacturers that offer alternate methods for meeting the requirements. The number of major competitors by type of equipment are as follows: log stackers - four, jib cranes - - three, side porters - six and gantry cranes - more than ten. LeTourneau's mini-steel mill encounters competition from a total of eight major competitors, with the breakdown by product line being as follows: plate products - four; fabricated products - two and forging ingots - two. -8- 11 The competition LeTourneau encounters in the parts business is extremely fragmented with only three other companies being considered to be competitors. Vendors supplying parts directly to end-users and well-fitters who obtain parts and copy them to supply less expensive and lower quality substitutes represent more intense competition than that of direct competitors. In order to be competitive in the mining and forestry heavy equipment markets, LeTourneau offers warranties at the time of purchase as well as parts guarantees. Warranties, which are based upon stipulated periods of ownership or hours of usage, whichever occurs first, generally cover the drive train and, in the case of LeTourneau trucks, covers the frame. Parts consumption guaranties and maintenance and repair contracts are also made on the same basis. LeTourneau pursues a parts return policy, which provides that returned parts must be in new, usable condition, be in current production and be readily resalable. At present, LeTourneau has a limited number of competitors in the marine rig construction and support industry due to low demand over a prolonged period. However, as demand for marine rigs increases, new competitors can be expected to enter the market. Historically, the make up of LeTourneau's customer base has been such that none of the product lines have been dependent upon any one customer or small group of customers. Regulations and Hazards LeTourneau's manufacturing operations and facilities are subject to regulation by a variety of local, state and federal agencies which regulate safety and the discharge of materials into the environment, including the Environmental Protection Agency (EPA), the Texas Natural Resources Conservation Commission (TNRCC) and the Mississippi Department of Environmental Quality. LeTourneau's manufacturing facilities are also subject to the requirements of the Occupational Safety Health Act and comparable state statutes. Hazardous materials are generated at LeTourneau's Longview plant in association with the steel making process. Industrial waste water generated at the mini-steel mill facility for cooling operations is recirculated and quality tests are conducted regularly. The facility has permits for waste water discharges, solid waste disposal and air emissions. Waste products considered hazardous by the EPA are disposed of by shipment to an EPA or state permitted waste disposal facility. As a part of the acquisition of the net assets of Marathon LeTourneau Company, the sellers agreed to remediate certain environmental conditions at the Longview, Texas and Vicksburg, Mississippi sites. In September 1996, the Company assumed certain environmental liabilities related to these facilities in exchange for a negotiated amount of cash and a reduction in a promissory note. The remediation efforts include, among other things, post-closure care for a landfill at the Longview facility closed by Marathon LeTourneau Company prior to LeTourneau's acquisition. LeTourneau jack-up designs are subject to regulatory approvals by various agencies depending upon the customer's selection of geographic areas where the rig will qualify for drilling. The rules vary by location and are subject to frequent change. These rules primarily relate to safety and environmental issues in addition to those which classify the jack-up as a vessel. LeTourneau may be liable for damages resulting from pollution of air, land and inland waters associated with its manufacturing operations. LeTourneau believes that compliance with environmental protection laws and regulations will have no material effect on its capital expenditures, earnings or competitive position during 1997. Although further legislation or regulation pertaining to the protection of the environment may reasonably be anticipated, the effects thereof on LeTourneau's manufacturing operations cannot be accurately predicted. -9- 12 As a manufacturing company, LeTourneau may be responsible for certain risks associated with the use of its products. These risks include product liability claims for personal injury and/or death, property damage, loss of use of product, business interruption and necessary legal expenses to defend LeTourneau against such claims. LeTourneau carries insurance which it believes adequately covers such risks. LeTourneau did not assume certain liabilities of Marathon LeTourneau Company, such as product liability and tort claims, associated with all products manufactured, produced, marketed or distributed prior to the date of the acquisition. LeTourneau anticipates incurring expenses associated with the warranty of its products, including those existing at the date of the acquisition. In the non-marine business segments, dealers of LeTourneau's products perform the warranty work for the manufacturer, and in the marine segment, LeTourneau generally performs warranty work directly. AVIATION OPERATIONS The Company, through its wholly-owned subsidiary, Era Aviation, Inc. ("Era"), provides charter and contract helicopter and fixed-wing aircraft services principally in Alaska, the coastal areas of Louisiana and Texas, and the western United States. In Alaska, a diversified range of services has been developed to include tourism, commercial fishing support and medical evacuation as well as support for forest fire control, mining operations and seismic testing. Additionally, the fixed-wing division of the Company conducts scheduled airline service between six cities from a hub in Anchorage and to 17 villages from a hub in Bethel, Alaska. Services provided offshore Louisiana and Texas are primarily to oil and gas related industries. In the western United States, the majority of helicopter services are provided to governmental agencies in support of forest fire control, construction, seismic testing and onshore and offshore oil field support. Since 1991, the Company has owned a 49% interest in KLM Helikopters B.V., a wholly-owned subsidiary of KLM Royal Dutch Airlines, as a means of gaining access to the North Sea aviation market. The joint venture company, KLM ERA Helicopters B.V., currently owns 15 helicopters. Operating locations and the numbers of helicopters deployed at March 28, 1997 were as follows: ten in the Dutch Sector of the North Sea and five in the British Sector of the North Sea. KLM ERA serves principally the offshore oil and gas drilling, production and service companies operating in the Dutch and British Sectors of the North Sea. Based on the number of helicopters operating, the Company is the largest helicopter operator in Alaska. It provides charter services from bases at Anchorage, Deadhorse (on the North Slope), Juneau, Kenai and Valdez. The Company's charter and contract services are provided throughout Alaska with particular emphasis in the oil, mining and high density tourist regions within the state. Helicopters are usually operated on a seasonal basis in Alaska because of the prevalent climatic conditions. The peak utilization period in Alaska is May through September, with the winter months comprising the least active period. The seasonal nature of the Alaska business has been ameliorated in prior years by moving helicopters on a limited basis to the Gulf of Mexico area and, more recently, by moving helicopters to the west and northwest regions of the United States and various overseas locations, the most recent being the Peoples Republic of China. From 1992 to 1995, the Company had operations in Croatia and Macedonia flying for the United Nations. Since 1983, the Company has operated a scheduled commuter airline service in Alaska encompassing the transportation of passengers, mail and cargo. The Company currently serves Valdez, Kenai, Homer, Kodiak, Iliamna and Cordova from its base hub in Anchorage. In May 1997, scheduled services will begin to Whitehorse in the Yukon from Anchorage. In addition, it services 17 remote villages from its hub in Bethel, Alaska. The Company operates under a code sharing agreement with Alaska Airlines which -10- 13 is the largest carrier of passengers from the contiguous United States to Alaska. The Company's commuter airline is the largest airline operation of that type within the state of Alaska and is the third largest carrier of passengers into and out of the Anchorage International Airport, including the large jet carriers. Since 1979, the Company has been providing charter and contract helicopter services in the Gulf of Mexico area primarily to the offshore oil and gas industry. Operations are conducted from the division office in Lake Charles, Louisiana and from bases in the Louisiana cities of Morgan City, Cameron, New Iberia, Intracoastal City, Venice, Fourchon, Houma, Schriever and Johnson Bayou and the Texas cities of Houston, Corpus Christi, Bay City and Sabine Pass. Based upon the number of helicopters operating, the Company is the third largest helicopter operator in the Gulf of Mexico. In 1987, upon receiving FAA certification, the Company began manufacturing and marketing, from its Gulf Coast Division facility at Lake Charles, Louisiana, a composite external auxiliary fuel tank for use on Bell 205, 212 and 412 helicopters and the military "Huey" helicopter. The tank system provides enhanced range with nominal drag while increasing the passenger seats available. Sales to date have been to both civilian and military customers, including emergency float systems for US Army UH-1 Helicopters. Other aircraft accessories are also manufactured at the facility. In 1996, aviation operations generated an operating profit (profit from operations before deducting general and administrative expenses) of $6,547,000. Contracts The Company's flight services generally are engaged by customers by entering into master service agreements, term contracts or day-to-day charter arrangements. Master service agreements provide for incremental payments based on usage, in some instances with fixed terms ranging from one month to one year, and are cancelable upon notice by either party in 30 days or less. Some contracts are not cancelable by either party and generally provide for payments, depending upon the term, as follows: less than one month - either incremental payments based on usage or incremental payments based on usage plus a base daily rental; and one month to one year - incremental payments based on usage plus a base monthly rental. Under day-to-day charters, the compensation arrangement is the same as that of term contracts having a term of less than one month. Payment, duration and cancellation features of the agreements, contracts and charter arrangements used by KLM ERA are similar in nature and in principle to those used in the Company's domestic operations. Because master service agreements and day-to-day charters are the most common types of engagements for its flight services, the Company believes that the contract status of its aircraft as discussed in the following paragraph is more informative than backlog information, which it believes is neither calculable nor meaningful. Company-owned aircraft available for contract use and day charters on March 28, 1997 consisted of 88 helicopters (of which 45 were based in Alaska and 43 in the Gulf of Mexico area) and 21 fixed-wing aircraft that were based in Alaska. The contract status as of March 28, 1997 consisted of: 31 master helicopter service agreements and 39 term contracts (34 helicopters and five fixed-wing aircraft). The remaining aircraft were being operated under day charters or were available for operation under day charter or contract arrangements. KLM ERA-owned aircraft available for contract use and day charters on March 28, 1997 consisted of ten helicopters based in The Netherlands and five in the United Kingdom. The contract status of such aircraft as of March 28, 1997 consisted of six master service agreements and six term contracts. Competition Although the Company maintains the largest helicopter operation in Alaska in terms of numbers of aircraft and revenues, it encounters intense competition from several other companies which furnish similar services. Approximately six other operators compete directly with the Company in Alaska on a contract or charter basis. -11- 14 The Company competes over its scheduled airline routes with up to four other carriers. In the Gulf of Mexico area, the Company competes directly with five other operators and ranks third in the number of helicopters operating with approximately 8% of the market. A number of other helicopter operators compete with the Company in the west and northwest regions of the United States and in overseas locations. At present, the number of competitors that KLM ERA has in the areas of the North Sea in which it operates are as follows: Dutch Sector - one; southern British Sector - three. KLM ERA's share of the helicopter markets in those two areas are estimated to be 55% and 30%, respectively. Regulations and Hazards The operation of scheduled airline services in the United States requires a certificate under the Federal Aviation Act of 1958, as presently administered by the Department of Transportation. The granting of a certificate is conditioned upon a showing of financial ability and operational expertise. A similar certificate authorizing the right to operate a charter service is not required by any jurisdiction in the Company's operating areas. KLM ERA holds the necessary certificates for operating aircraft in The Netherlands and, since June 1993, in the U.K sector of the North Sea. Other operating certificates will be obtained on a case by case basis depending upon the contracts to be awarded. Operation of helicopters and fixed-wing aircraft, particularly under weather conditions prevailing in Alaska, is considered potentially hazardous, although the Company conducts rigorous safety training programs to minimize these hazards. The Company believes that it is adequately protected by public liability and property damage insurance, including hull insurance against loss of equipment, but carries no insurance against loss of earnings. The Company believes that KLM ERA is adequately protected by public liability and property damage insurance, including hull insurance against loss of equipment. EMPLOYEES The total numbers of employees of the Company at March 15, 1997 and at December 31, 1996, 1995 and 1994 were as follows: 4,624, 4,587, 3,930 and 3,484, respectively. Some of the employees included in these numbers are not United States citizens. None of the Company's employees are covered by collective bargaining agreements with labor unions. The Company considers relations with its employees to be satisfactory. -12- 15 ITEM 2. PROPERTIES The Company leases as its corporate headquarters 59,600 square feet of space in an office tower located at 2800 Post Oak Boulevard in Houston, Texas. DRILLING RIGS The following is a summary of the principal drilling equipment owned or operated by the Company and in service at March 28, 1997. See "Liquidity and Capital Resources" as appearing in "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 14 and 15 in the Annual Report, which pages are incorporated herein by reference. OFFSHORE
(b) Depth: Year Contracting Party/ Water/ in (l) Type of Contract Name/Class (a) Drilling Service Location (m) Estimated Release Date - ------------------------ -------- ------- -------- -------------------------- Cantilever Jack-up Rigs: Rowan Gorilla II 450'/30,000' 1984 Gulf of Mexico BHP Petroleum (Americas), Inc. 200-C (d) (e) (h) (l) Single Well (m) June 1997 Rowan Gorilla III 328'/30,000' 1984 Eastern Canada PanCanadian Nova Scotia Limited 200-C (d) (e) (l) Term (m) December 1997 Rowan Gorilla IV 328'/30,000' 1986 North Sea Phillips Petroleum U.K. Limited 200-C (d) (e) (l) Multiple Well (m) January 1998 Rowan-California 225'/30,000' 1983 North Sea Wintershall Noordzee B.V. 116-C (c) (e) (l) Multiple Well (m) October 1997 Rowan-Halifax 225'/30,000' 1982 North Sea Mobil North Sea Limited 116-C (c) (e) (i) (l) Term (m) November 1998 Cecil Provine 225'/30,000' 1982 North Sea Wintershall Noordzee B.V. 116-C (c) (e) (j) (l) Multiple Well (m) May 1997; Talisman (1) Single Well (m) July 1997 Wintershall Noordzee B.V. (1) Multiple Well (m) September 1997 Arch Rowan 225'/30,000' 1981 North Sea Amoco Netherlands B.V. 116-C (c) (e) (1) Multiple Well (m) June 1997 Gilbert Rowe 350'/30,000' 1981 Gulf of Mexico Walter Oil & Gas Corporation 116-C (c) (e) (h) (l) Multiple Well (m) June 1997
-13- 16 ITEM 2. PROPERTIES OFFSHORE (Continued)
(b) Depth: Year Contracting Party/ Water/ in (l) Type of Contract Name/Class (a) Drilling Service Location (m) Estimated Release Date - ------------------------ -------- ------- -------- -------------------------- Cantilever Jack-up Rigs: Charles Rowan 350'/30,000' 1981 Gulf of Mexico Amoco Production Company 116-C (c) (e) (h) (l) Multiple Well (m) August 1997 Rowan-Paris 350'/30,000' 1980 Gulf of Mexico Union Pacific Resources Company 116-C (e) (h) (l) Multiple Well (m) June 1997 Rowan-Middletown 350'/30,000' 1980 Gulf of Mexico Amoco Production Company 116-C (e) (h) (l) Multiple Well (m) September 1997 Rowan-Fort Worth 350'/30,000' 1978 Gulf of Mexico Mobil Exploration & Production U.S., Inc. 116-C (e) (h) (1) Single Well (m) June 1997
17 ITEM 2. PROPERTIES OFFSHORE (Continued)
(b) Depth: Year Contracting Party/ Water/ in (l) Type of Contract Name/Class (a) Drilling Service Location (m) Estimated Release Date - ------------------------ -------- ------- -------- -------------------------- Conventional Jack-up Rigs: Rowan-Juneau 300'/30,000' 1977 Gulf of Mexico Pennzoil Exploration & Production Co. 116 (c) (e) (f) (l) Single Well (Turnkey) (m) April 1997 Mariner Exploration, Inc. (1) Single Well (m) May 1997 Rowan-Odessa 350'/30,000' 1977 Gulf of Mexico Barrett Resources Corp. 116 (e) (f) (h) (1) Multiple Well (m) May 1997 Rowan-Louisiana 350'/30,000' 1975 Gulf of Mexico Seneca Resources Corp. 84 (e) (f) (h) (1) Single Well (m) April 1997 Rowan-Alaska 350'/30,000' 1975 Gulf of Mexico CXY Energy, Inc. 84 (e) (f) (h) (l) Multiple Well (m) July 1997 Rowan-Texas 250'/20,000' 1973 Gulf of Mexico Forcenergy Gas Exploration, Inc. 52 (e) (1) Multiple Well (m) April 1997; Zilka Energy Corp. (1) Term (m) October 1997 Rowan-Anchorage 250'/20,000' 1972 Gulf of Mexico Apache Corporation 52 (e) (l) Term (m) January 1998 Rowan-New Orleans 250'/20,000' 1971 Gulf of Mexico Barrett Resources Corp. 52 (f) (g) (l) Term (m) September 1997 Rowan-Houston 250'/20,000' 1970 Gulf of Mexico Hall-Houston Oil Company 52 (e) (l) Term (m) June 1997
-15- 18 ITEM 2. PROPERTIES OFFSHORE (Continued)
(b) Depth: Year Contracting Party/ Water/ in (l) Type of Contract Name/Class (a) Drilling Service Location (m) Estimated Release Date - ------------------------ -------- ------- -------- -------------------------- Semi-Submersible Rig: Rowan-Midland (e) 1,200'/25,000' 1976 Gulf of Mexico Murphy Exploration & Production Co. (l) Single Well (m) May 1997
ONSHORE (k) Contracting Party/ Maximum (l) Type of Contract Description Drilling Depth Location (m) Estimated Release Date - ----------- -------------- --------- --------------------------- Rig 9 25,000' Louisiana Egan Hub Partners, LP (l) Single Well (m) May 1997 Rig 26 25,000' Louisiana Chesapeake Operating, Inc. (1) Term (m) August 1997 Rig 31 30,000' Louisiana Chesapeake Operating, Inc. (l) Single Well (m) May 1997 Rig 12 20,000' Southeast Texas Reata Oil & Gas (1) Single Well (m) April 1997 Rig 7 20,000' Argentina/Texas(n) Aegis Energy, Inc. (1) Single Well (m) June 1997 Rig 30 20,000' Argentina/Texas(n) Not Committed Three rigs 30,000' Oklahoma Not Committed Five rigs 18,000'/20,000' Alaska Not Committed
- ----------------------------------------------- (a) Classes 200-C ("Gorilla"), 116-C, 116, 84 and 52 are nomenclature assigned by LeTourneau, Inc. to jack-ups of its design and construction. (b) Indicates rated water depth in current location and rated drilling depth, respectively. -16- 19 (Footnotes continued) (c) Unit modified to increase operating capability in hostile environments. (d) Gorilla Class unit designed for extreme hostile environment capability. (e) Unit equipped with a "top-drive" drilling system. (f) Unit equipped with a "skid base" unit. (g) Unit equipped with drilling/heavy-lift crane option. (h) Unit equipped with leg extensions. (i) Rig sold in December 1984 and leased back for 15 years. (j) Rig sold in December 1985 and leased back for 15 years. (k) Onshore rigs were constructed at various dates between 1960 and 1982, utilizing, in some instances, new as well as used equipment. Most of the older rigs have been substantially rebuilt subsequent to their respective dates of construction. (l) Refer to "Contracts" on page 4 of this Form 10-K for definition of types of contracts. (m) Indicates estimated completion date of work to be performed. (n) The rigs will be relocated from Argentina in the second quarter of 1997. The Company's drilling division leases and, in some cases, owns various operating and administrative facilities generally consisting of office, maintenance and storage space in the states of Alaska, Texas and Louisiana and, on a foreign basis, in the countries of Canada, England, Scotland and The Netherlands. -17- 20 MANUFACTURING FACILITIES LeTourneau's principal manufacturing facility and headquarters are located in Longview, Texas on approximately 2,400 acres with about 1.2 million square feet under roof. Included within the facility are: a mini-steel mill having approximately 330,000 square feet of covered work space and housing two 25-ton electric arc furnaces having an aggregate 120,000 tons per year capacity; a fabrication shop having approximately 300,000 square feet of covered work space and housing a 3,000 ton vertical bender for making roll-ups or flattening materials up to 2 1/2 inches thick by 11 feet wide; a machine shop having approximately 140,000 square feet of covered work space and housing various types of machinery; and an assembly shop having approximately 124,000 square feet and housing various types of machinery. The marine group's facility located in Vicksburg, Mississippi is located on 1,850 acres of land and has approximately 560,000 square feet of covered work space. In conjunction with the announcement of the construction of Rowan Gorilla V, this facility has now been reopened and has been essentially rebuilt. The LeTourneau Portland Division's distributor for forest products in the northwestern United States is located on a six acre site in Troutdale, Oregon with approximately 22,000 square feet of building space. The Western Mining Division of LeTourneau headquartered in Tucson, Arizona is housed in a 20,000 square foot leased facility. It functions as the distributor for LeTourneau's mining equipment products in the western United States. AIRCRAFT At March 28, 1997, the U.S.-based Company-owned helicopter fleet consisted of 16 twin-engine turbine IFR rated Bell 212 helicopters (14 passenger), 16 twin-engine turbine IFR rated Bell 412 helicopters (14 passenger), 28 twin-engine turbine MBB BO-105CBS helicopters (five passenger), two Aerospatiale 332L Super Puma helicopters (19 passenger) and 26 various single-engine turbine helicopters (four to six passenger). The U.S.-based fixed-wing fleet of Company-owned aircraft consisted of five Convair 580s (50 passenger), ten DeHavilland Twin Otters (9-19 passenger), two DeHavilland Dash 8s (37 passenger), two Douglas DC-3s (28 passenger), one Lear Jet 35A (six passenger) and one Beechcraft King Air 200C (six passenger). Helicopters owned by KLM ERA on March 28, 1997 consisted of five twin-engine turbine IFR rated Sikorsky S-61N helicopters (26 passenger), eight twin-engine turbine IFR rated Sikorsky S-76B helicopters (13 passenger) and two MBB BO-105CBS helicopters equipped as air ambulances. The Company's principal aircraft bases in Alaska, all located on leased property, are a fixed-wing air service center (57,000 square feet of hangar, repair and office facilities) at Anchorage International Airport, with two adjacent hangars housing the Company's helicopter and fixed-wing operations totaling aproximately 45,000 square feet, and hangar, office and repair facilities at Fairbanks International Airport (13,000 square feet). The Company also maintains similar, smaller helicopter facilities in Alaska at Deadhorse, Juneau, Valdez and Yakutat. The Company's principal facilities to accommodate its Gulf of Mexico operations are located on leased property at Lake Charles Regional Airport. The facilities, comprising 63,000 square feet, include helicopter hangars, a repair facility and an operations and administrative building. The Company also operates a helicopter facility (20,700 square feet of hangar, repair and office facilities) located on leased property at the Terrebonne Airport in Houma, Louisiana and a helicopter facility (5,700 square feet of hangar, repair and office facilities) located on leased property in New Iberia, Louisiana. KLM ERA's principal facility to accommodate its operations in the Dutch sector of the North Sea is a base located in Den Helder. The facility, comprising 35,000 square feet, includes a helicopter hangar, a repair facility and an operations and administrative building. To accommodate its operations in the British Sector of the North Sea, KLM ERA also has a helicopter hangar (13,000 square feet) and office facility (2,800 square feet) located at Norwich Airport. -18- 21 ITEM 3. LEGAL PROCEEDINGS The Company is involved from time to time in litigation arising out of the conduct of the Company's operations and other matters, not all the potential liabilities with respect to which are covered by the terms of the Company's insurance policies. While the Company is unable to predict the ultimate liabilities which may result from such litigation, the Company believes that no such litigation in which the Company was involved as of March 28, 1997 will have a material adverse effect on the financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the Company's common stockholders during the fourth quarter of the fiscal year ended December 31, 1996. ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT The names, positions, years of credited service and ages of the officers of the Company and certain officers of the Company's wholly-owned subsidiaries, Era Aviation, Inc. and LeTourneau Inc., as of March 28, 1997 are listed below. Officers of all three entities are normally appointed annually by each entity's Board of Directors at the bylaws-prescribed meetings held in the spring and serve at the discretion of the Board of Directors. There are no family relationships among these officers, nor any arrangements or understandings between any officer and any other person pursuant to which the officer was selected.
Years of Credited Name Position Service Age ------------------- ------------------------------------ --------- --- Executive Officers of the Registrant: C. R. Palmer Chairman of the Board, President 36 62 and Chief Executive Officer R. G. Croyle Executive Vice President 23 54 Paul L. Kelly Senior Vice President, Special Projects 14 57 D. F. McNease Senior Vice President, Drilling 23 45 E. E. Thiele Senior Vice President, Finance, 27 57 Administration and Treasurer John L. Buvens Vice President, Legal 16 41 C. W. Johnson(1) Vice President, Aviation 19 53 Mark A. Keller Vice President, Marketing - 5 44 North American Drilling Bill S. Person Vice President, Industrial Relations 29 48 William C. Provine Vice President, Investor Relations 10 50 Other Officers of the Registrant: William H. Wells Controller 3 34 Mark H. Hay Secretary and Assistant Treasurer 18 52 P. G. Wheeler Assistant Treasurer 22 49 Lynda A. Aycock Assistant Treasurer and 25 50 Assistant Secretary Certain Officer of LeTourneau, Inc.: Dan C. Eckermann President and Chief 6 49 Executive Officer Certain Officer of Era Aviation, Inc.: James Vande Voorde Senior Vice President 23 57
(1) Also serves as President and Chief Operating Officer of Era Aviation, Inc. -19- 22 Each of the executive officers and other officers of the Company as well as the officers of Era Aviation, Inc. and LeTourneau, Inc. listed above continuously served in the position shown above for more than the past five years except as noted in the following paragraphs. Since October 1993, Mr. Croyle's principal occupation has been in the position set forth. For more than five years prior to that time, Mr. Croyle served as Vice President, Legal of the Company. Since April 1996, Mr. Kelly's principal occupation has been in the position set forth. For more than five years prior to that time Mr. Kelly served as Vice President, Special Projects. Since October 1993, Mr. McNease's principal occupation has been in the position set forth. From April 1991 to October 1993, Mr. McNease served as Vice President, Drilling of the Company. For more than five years prior to that time, he served as Vice President of Rowandrill, Inc., a subsidiary of the Company. Since April 1994, Mr. Thiele's principal occupation has been in the position set forth. From January 1994 to April 1994, Mr. Thiele served in the position of Vice President, Finance, Administration and Treasurer. From February 1989 to January 1994, he served as Vice President, Finance and Administration. Since October 1993, Mr. Buvens' principal occupation has been in the position set forth. From April 1988 to present and April 1994 to present, Mr. Buvens has also served in the positions of Vice President of Rowandrill, Inc. and Rowan International, Inc., respectively, both subsidiaries of the Company. Since April 1994, Mr. Johnson's principal occupation has been in the position set forth. From December 1993 to present, Mr. Johnson has also served in the position of President and Chief Operating Officer of Era Aviation, Inc., a subsidiary of the Company. For more that five years prior to that time, he served as Executive Vice President of Era. Since April 1994, Mr. Keller's principal occupation has been in the position set forth. From July 1992 to present and April 1993 to present, Mr. Keller has also served in the positions of Vice President of Terminator, Inc. and Rowandrill, Inc., respectively, both subsidiaries of the Company. From April 1992 to July 1992, Mr. Keller served as Marketing Coordinator for Terminator, Inc. For more than five years prior to April 1992, he served as Senior Vice President of Chiles Offshore Corp. Chiles is not a parent, subsidiary or affiliate of the Company. Since October 1993, Mr. Person's principal occupation has been in the position set forth. From April 1990 to October 1993, Mr. Person served as Director of British American Offshore Limited, a subsidiary of the Company. For more than five years prior to that time, he served as Manager of Industrial Relations of the Company. Since October 1993, Mr. Provine's principal occupation has been in the position set forth. For more than five years prior to that time, Mr. Provine served as Vice President of Rowandrill, Inc., a subsidiary of the Company. Since joining the Company in March 1994, Mr. Wells' occupation has been in the position set forth. For more than five years prior to that time, Mr. Wells served in various positions with the independent accounting firm of Deloitte & Touche LLP, including Audit Manager and, most recently, Senior Audit Manager. Deloitte & Touche LLP is not a parent, subsidiary or affiliate of the Company but does serve as the Company's independent auditors. Since April 1994, Ms. Aycock's principal occupation has been in the position set forth. From October 1993 to April 1994, Ms. Aycock served in the position of Assistant Treasurer. For more than five years prior to that time, Ms. Aycock served as an Accountant for the Company. -20- 23 Since September 1996, Mr. Eckermann's principal occupation has been in the position set forth. From February 1994 to September 1996, Mr. Eckermann served in the position of President of LeTourneau Marine Group and Vice President, Operations of LeTourneau, Inc, a subsidiary of the Company. From May 1990 to February 1994, he served as President of Marathon LeTourneau Marine Company, a subsidiary of Marathon LeTourneau Company. Marathon LeTourneau was a company whose net assets were purchased by LeTourneau, Inc. in February 1994. Marathon LeTourneau was not, and is not now, a parent, subsidiary or affiliate of the Company. Since October 1982, Mr. Vande Voorde's principal occupation has been in the position set forth. For more than five years prior to that time, Mr. Vande Voorde served as Vice President of Era Aviation, Inc., a subsidiary of the Company. In addition to serving in the position shown above, Mr. Wheeler has also served as Corporate Tax Director of the Company for more than five years. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information required hereunder regarding the Common Stock price range and cash dividend information for 1996 and 1995 and the number of holders of Common Stock is set forth on page 27 of the Company's Annual Report under the title "Common Stock Price Range, Cash Dividends and Stock Splits (Unaudited)", and is incorporated herein by reference, except for the final two paragraphs under such title. Also incorporated herein by reference to the Annual Report is the eighth paragraph appearing on page 15 within "Management's Discussion and Analysis of Financial Condition and Results of Operations", which provides information pertinent to the Company's ability to pay cash dividends subject to certain restrictions. The Company's Common Stock is listed on the New York Stock Exchange and the Pacific Stock Exchange. ITEM 6. SELECTED FINANCIAL DATA The information required hereunder is set forth on pages 10 and 11 of the Company's Annual Report under the title "Ten-Year Financial Data" and is incorporated herein by reference except for the information for the years 1991, 1990, 1989, 1988 and 1987. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required hereunder is set forth on pages 12 through 15 under the title "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Refer to ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K on pages 23 through 27 of this Form 10-K for a listing of financial statements of the registrant and its subsidiaries, all of which financial statements are incorporated by reference under this item. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None -21- 24 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information provided under the columns entitled Name, Principal Occupation for the Past Five Years, Age and Year First Became Director in the table on page 6, in footnotes (1) and (3) on page 7 and in the paragraph under the caption, "Section 16(a) Beneficial Ownership Reporting Compliance" on page 4 of the Proxy Statement for the Company's 1997 Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein by reference. There are no family relationships among the directors or nominees for directors and the executive officers of the Company, nor any arrangements or understandings between any director or nominee for director and any other person pursuant to which such director or nominee for director was selected. Except as otherwise indicated, each director or nominee for director of the Company has been employed or engaged for the past five years in the principal occupation set forth opposite his name in the information incorporated by reference. See ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT on pages 19 through 21 of this Form 10-K for information relating to executive officers. ITEM 11. EXECUTIVE COMPENSATION The standard arrangement for compensating directors described under the title, "Director Compensation" at the bottom of page 12 of the Proxy Statement and the information appearing under the titles "Summary Compensation Table", "Option Grants in Last Fiscal Year", "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values", "Option Plans", "Convertible Debenture Incentive Plan" and "Pension Plans" on pages 8 through 12 of the Proxy Statement are incorporated herein by reference. In accordance with the instructions to Item 402 of Regulation S-K, the information contained in the Proxy Statement under the titles "Board Compensation Committee Report on Executive Compensation" and "Stockholder Return Performance Presentation" shall not be deemed to be filed as part of this Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information regarding security ownership of certain beneficial owners and management of the Company set forth under the headings "Voting Securities Outstanding" appearing on page 1 and "Security Ownership of Management and Principal Stockholders" appearing on pages 2 through 4 of the Proxy Statement is incorporated herein by reference. The business address of all directors is the principal executive offices of the Company as set forth on the facing page of this Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain business relationships and transactions between the Company and certain of the directors of the Company under the heading "Compensation Committee Interlocks and Insider Participation; Certain Transactions" appearing on page 18 of the Proxy Statement is incorporated herein by reference. -22- 25 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1. Financial Statements The following financial statements and independent auditors' report, included in the Annual Report, are incorporated herein by reference:
Page of 1996 Annual Report ------------- Consolidated Balance Sheet December 31, 1996 and 1995 ............................. 16 Consolidated Statement of Operations for the Years Ended December 31, 1996, 1995 and 1994 ........... 17 Consolidated Statement of Changes in Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 18 Consolidated Statement of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994........ 19 Notes to Consolidated Financial Statements............... 20 Independent Auditors' Report............................. 27 Selected Quarterly Financial Data (Unaudited) for the Quarters Ended March 31, June 30, September 30 and December 31, 1996 and 1995.......................... 27
2. Financial Statement Schedules Financial Statement Schedules I, II, III, IV, and V are not included in this Form 10-K because such schedules are not required, not significant or because the required information is shown in Notes to the Consolidated Financial Statements of the Company's Annual Report. 3. Exhibits: Unless otherwise indicated below as being incorporated by reference to another filing of the Company with the Securities and Exchange Commission, each of the following exhibits is filed herewith: 3a Restated Certificate of Incorporation of the Company, dated February 17, 1984, incorporated by reference to: Exhibit 3a to the Company's Form 10-K for the fiscal year ended December 31, 1983 (File No. 1-5491); Exhibit 4.2 to the Company's Registration Statement on Form S-3 (Registration No. 33-13544); and Exhibits 4a, 4b, 4c, 4d and 4e below. 3b Bylaws of the Company amended as of August 30, 1996, incorporated by reference to Exhibit 3 to the Company's Form 10-Q for the quarter ended September 30, 1996 (File No. 1-5491). 4a Certificate of Designation of the Company's $2.125 Convertible Exchangeable Preferred Stock incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-3 (Registration No. 33-6476). 4b Certificate of Designation of the Company's Series I Preferred Stock incorporated by reference to Exhibit 4b to the Company's Form 10-K for the fiscal year ended December 31, 1986 (File No.1-5491). -23- 26 4c Certificate of Designation of the Company's Series II Preferred Stock incorporated by reference to Exhibit 4c to the Company's Form 10-K for the fiscal year ended December 31, 1987 (File No.1-5491). 4d Certificate of Designation of the Company's Series III Preferred Stock incorporated by reference to Exhibit 4d to the Company's Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-5491). 4e Certificate of Designation of the Company's Series A Junior Preferred Stock dated March 2, 1992 incorporated by reference to Exhibit 4d to the Company's Form 10-K for the fiscal year ended December 31, 1991 (File No. 1-5491). 4f Rights Agreement as amended dated as of February 25, 1992 between the Company and Citibank, N.A. as Rights Agent incorporated by reference to Exhibit 4g to the Company's Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-5491). 4g Indenture dated December 1, 1991 between the Company and Bankers Trust Company, as Trustee, relating to the Company's 11-7/8% Senior Notes due 2001 incorporated by reference to Exhibit 28.1 to the Company's Current Report on Form 8-K dated December 12, 1991 (File No. 1-5491). 4h Specimen Common Stock certificate. 4i Form of Promissory Note dated November 30, 1994 between the purchasers of Series III Floating Rate Subordinated Convertible Debentures due 2004 and the Company incorporated by reference to Exhibit 4j to the Company's Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-5491). 10a 1980 Nonqualified Stock Option Plan of the Company together with form of Stock Option Agreement related thereto incorporated by reference to Exhibit 5.10 to the Company's Registration Statement on Form S-7 (Registration No. 2-68622). 10b 1988 Nonqualified Stock Option Plan of the Company as amended together with form of Stock Option Agreement related thereto incorporated by reference to Exhibit 10b of the Company's Form 10-K for the fiscal year ended December 31, 1992 (File No. 1-5491). 10c Amendment No. 1 dated October 25, 1990, to all then outstanding Stock Option Agreements related to the 1980 Nonqualified Stock Option Plan of the Company incorporated by reference to Exhibit 10c to the Company's Form 10-K for the fiscal year ended December 31, 1990 (File No. 1-5491). 10d Amendment No. 2 dated May 23, 1991, to all then outstanding Stock Option Agreements related to the 1980 Nonqualified Stock Option Plan of the Company incorporated by reference to Exhibit 10d to the Company's Form 10-K for the fiscal year ended December 31, 1991 (File No. 1-5491). 10e Amendment No. 1 dated October 25, 1990, to all then outstanding Stock Option Agreements related to the 1988 Nonqualified Stock Option Plan of the Company incorporated by reference to Exhibit 10d to the Company's Form 10-K for the fiscal year ended December 31, 1990 (File No. 1-5491). 10f Amendment No.2 dated May 23, 1991, to all then outstanding Stock Option Agreements related to the 1988 Nonqualified Stock Option Plan of the Company incorporated by reference to Exhibit 10f to the Company's Form 10-K for the fiscal year ended December 31, 1991 (File No. 1-5491). 10g Amendment No. 4 dated July 24, 1996 to the 1996 convertible Debenture Incentive Plan. 10h 1986 Convertible Debenture Incentive Plan of the Company amended as of July 24, 1996. -24- 27 10i Pension Restoration Plan of the Company incorporated by reference to Exhibit 10h to the Company's Form 10-K for the fiscal year ended December 31, 1992 (File No. 1-5491). 10j Pension Restoration Plan of LeTourneau, Inc. incorporated by reference to Exhibit 10j to the Company's Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-5491). 10k Credit Agreement dated September 22, 1986 (including amendatory letter dated March 25, 1987) and First Preferred Ship Mortgage dated November 7, 1986 between the Company and Marathon LeTourneau Company incorporated by reference to Exhibit 10c to the Company's Form 10-K for the fiscal year ended December 31, 1986 and amendatory letter dated February 21, 1992 incorporated by reference to Exhibit 10h to the Company's Form 10-K for the fiscal year ended December 31, 1991 (File No. 1-5491). 10l Participation Agreement dated December 1, 1984 between the Company and Textron Financial Corporation et al. and Bareboat Charter dated December 1, 1984 between the Company and Textron Financial Corporation et al. incorporated by reference to Exhibit 10c to the Company's Form 10-K for the fiscal year ended December 31, 1985 (File No. 1-5491). 10m Participation Agreement dated December 1, 1985 between the Company and Eaton Leasing Corporation et. al. and Bareboat Charter dated December 1, 1985 between the Company and Eaton Leasing Corporation et. al. incorporated by reference to Exhibit 10d to the Company's Form 10-K for the fiscal year ended December 31, 1985 (File No.1-5491). 10n Corporate Continuing Guaranty dated September 10, 1987 between Shearson Lehman Brothers Holdings Inc. and the Company incorporated by reference to Exhibit 10i to the Company's Form 10-K for the fiscal year ended December 31, 1987 (File No.1-5491). 10o Cross-Border Corporate Continuing Guaranty dated May 29, 1991 between Citicorp and the Company's wholly-owned subsidiary, Rowan International, Inc. incorporated by reference to Exhibit 10o to the Company's Form 10-K for the fiscal year ended December 31, 1991 (File No. 1-5491). 10p Consulting Agreement as amended dated April 1, 1995 between the Company and C. W. Yeargain incorporated by reference to Exhibit 10q to the Company's Form 10-K for the fiscal year ended December 31, 1995 (File No. 1-5491) 10q Acquisition Agreement dated as of November 7, 1991, among KLM Royal Dutch Airlines, Blue Yonder I B.V., KLM Helikopters B.V. and Rowan Aviation (Netherlands) B.V. incorporated by reference to Exhibit 28.1 to the Company's Current Report on Form 8-K dated November 7, 1991 (File No. 1-5491). 10r Asset Purchase Agreement dated as of November 12, 1993, among Rowan Companies, Inc., Rowan Equipment, Inc., General Cable Corporation, Marathon LeTourneau Company, Marathon LeTourneau Sales & Service Company and Marathon LeTourneau Australia Pty. Ltd. incorporated by reference to the Company's Current Report on Form 8-K dated February 11, 1994 (File No. 1-5491). 10s Asset Purchase and Sale Agreement dated December 5, 1995 between Era Aviation, Inc. and Columbia Helicopters, Inc., Alaska Helicopters, Inc. and BIJOS Enterprises. Incorporated by reference to Exhibit 10u to the Company's Form 10-K for the fiscal year ended December 31, 1995 (File No. 1-5491) 10t Commitment to Guarantee Obligations and First Preferred Ship Mortgage both dated December 17, 1996 between the Company and the Maritime Administration of the U.S. Department of Transportation. 10u Credit Agreement and Trust Indenture both dated December 17, 1996 between the Company and Citibank, N.A. -25- 28 11 Computation of Primary and Fully Diluted Earnings (Loss) Per Share for the years ended December 31, 1996, 1995 and 1994 appearing on page 29 in this Form 10-K. *13 Annual Report to Stockholders for fiscal year ended December 31, 1996. 21 Subsidiaries of the Registrant as of March 28, 1997. 23 Independent Auditors' Consent. 24 Powers of Attorney pursuant to which names were affixed to this Form 10-K for the fiscal year ended December 31, 1996. 27 Financial Data Schedule for the year ended December 31, 1996. The Company agrees to furnish to the Commission upon request a copy of all instruments defining the rights of holders of long-term debt of the Company and its subsidiaries. -------------------------- * Only portions specifically incorporated herein are deemed to be filed. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS Compensatory plans in which directors and executive officers of the Company participate are listed as follows: . 1980 Nonqualified Stock Option Plan of the Company together with form of Stock Option Agreement related thereto incorporated by reference to Exhibit 5.10 to the Company's Registration Statement on Form S-7 (Registration No. 2-68622); Amendment No. 1 dated October 25, 1990, to all then outstanding Stock Option Agreements related to such Plan incorporated by reference to Exhibit 10c to the Company's Form 10-K for the fiscal year ended December 31, 1990 (File No. 1-5491); and Amendment No. 2 dated May 23, 1991, to all then outstanding Stock Option Agreements related to such Plan incorporated by reference to Exhibit 10d to the Company's Form 10-K for the fiscal year ended December 31, 1991 (File No. 1-5491). . 1988 Nonqualified Stock Option Plan of the Company as amended together with form of Stock Option Agreement related thereto incorporated by reference to Exhibit 10b to the Company's Form 10-K for the fiscal year ended December 31, 1992 (File No. 1-5491; Amendment No. 1 dated October 25, 1990, to all then outstanding Stock Option Agreements related to such Plan incorporated by reference to Exhibit 10d to the Company's Form 10-K for the fiscal year ended December 31, 1990 (File No. 1-5491); and Amendment No. 2 dated May 23, 1991, to all then outstanding Stock Option Agreements related to such Plan incorporated by reference to Exhibit 10f to the Company's Form 10-K for the fiscal year ended December 31, 1991 (File No. 1-5491). . 1986 Convertible Debenture Incentive Plan of the Company as amended included as Exhibit 10h of this Form 10-K. . Pension Restoration Plan of the Company incorporated by reference to Exhibit 10i to the Company's Form 10-K for the fiscal year ended December 31, 1992 (File 1-5491). . Pension Restoration Plan of LeTourneau, Inc. incorporated by reference to Exhibit 10j to the Company's Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-5491). -26- 29 (b) Reports on Form 8-K: . No reports on Form 8-K were filed by the Registrant during the fourth quarter of fiscal year 1996. For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant Registration Statements on Form S-8 Nos. 2-67866 (filed May 22, 1980), 2-58700, as amended by Post-Effective Amendment No. 4 (filed June 11, 1980), 33-33755, as amended by Amendment No. 1 (filed March 29, 1990),33-61444 (filed April 23, 1993), 33-51103 (filed November 18, 1993) 33-51105 (filed November 18, 1993) and 33-51109 (filed November 18, 1993): Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the act and will be governed by the final adjudication of such issue. -27- 30 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. ROWAN COMPANIES, INC. By: C. R. PALMER (C. R. Palmer, Chairman of the Board, President and Chief Executive Officer) Date: March 28, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- C. R. PALMER Chairman of the Board, President March 28, 1997 (C. R. Palmer) and Chief Executive Officer E. E. THIELE Principal Financial Officer March 28, 1997 (E. E. Thiele) WILLIAM H. WELLS Principal Accounting Officer March 28, 1997 (William H. Wells) *RALPH E. BAILEY Director March 28, 1997 (Ralph E. Bailey) *HENRY O. BOSWELL Director March 28, 1997 (Henry O. Boswell) *H. E. LENTZ Director March 28, 1997 (H. E. Lentz) *HON. COLIN B. MOYNIHAN Director March 28, 1997 (Hon. Colin B. Moynihan) *WILFRED P. SCHMOE Director March 28, 1997 (Wilfred P. Schmoe) *CHARLES P. SIESS, JR. Director March 28, 1997 (Charles P. Siess, Jr.) *PETER SIMONIS Director March 28, 1997 (Peter Simonis) *C. W. YEARGAIN Director March 28, 1997 (C. W. Yeargain)
* BY C. R. PALMER (C. R. Palmer, Attorney-in-fact) -28- 31 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal year ended: Commission file number: December 31, 1996 1-5491 - -------------------------- ----------------------- ROWAN COMPANIES, INC. -------------------------------------------------------- (Exact name of Registrant as specified in its charter) EXHIBITS 32 EXHIBIT INDEX
Footnote Exhibit Reference Number Exhibit Description - ------------- ------- -------------------------------------------------------- (1) 3a Restated Certificate of Incorporation of the Company, dated February 17, 1984, incorporated by reference to: Exhibit 3a to the Company's Form 10-K for the fiscal year ended December 31, 1983 (File No. 1-5491); Exhibit 4.2 to the Company's Registration Statement on Form S-3 (Registration No. 33-13544); and Exhibits 4a, 4b, 4c, 4d and 4e below. (1) 3b Bylaws of the Company amended as of August 30, 1996, incorporated by reference to Exhibit 3 to the Company's Form 10-Q for the quarter ended September 30, 1996 (File No. 1-5491). (1) 4a Certificate of Designation of the Company's $2.125 Convertible Exchangeable Preferred Stock incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-3 (Registration No. 33-6476). (1) 4b Certificate of Designation of the Company's Series I Preferred Stock incorporated by reference to Exhibit 4b to the Company's Form 10-K for the fiscal year ended December 31, 1986 (File No.1-5491). (1) 4c Certificate of Designation of the Company's Series II Preferred Stock incorporated by reference to Exhibit 4c to the Company's Form 10-K for the fiscal year ended December 31, 1987 (File No.1-5491). (1) 4d Certificate of Designation of the Companies Series III Preferred Stock incorporated by reference to Exhibit 4d to the Company's Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-5491). (1) 4e Certificate of Designation of the Company's Series A Junior Preferred Stock dated March 2, 1992 incorporated by reference to Exhibit 4d to the Company's Form 10-K for the fiscal year ended December 31, 1991 (File No. 1-5491). (1) 4f Rights Agreement as amended dated as of February 25, 1992 between the Company and Citibank, N.A. as Rights Agent incorporated by reference to Exhibit 4g to the Company's Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-5491). (1) 4g Indenture dated December 1, 1991 between the Company and Bankers Trust Company, as Trustee, relating to the Company's 11-7/8% Senior Notes due 2001 incorporated by reference to Exhibit 28.1 to the Company's Current Report on Form 8-K dated December 12, 1991 (File No. 1-5491). (2) 4h Specimen Common Stock certificate.
33 EXHIBIT INDEX
Footnote Exhibit Reference Number Exhibit Description - ------------- ------- -------------------------------------------------------- (1) 4i Form of Promissory Note dated November 30, 1994 between the purchasers of Series III Floating Rate Subordinated Convertible Debentures due 2004 and the Company incorporated by reference to Exhibit 4j to the Company's Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-5491). (1) 10a 1980 Nonqualified Stock Option Plan of the Company together with form of Stock Option Agreement related thereto incorporated by reference to Exhibit 5.10 to the Company's Registration Statement on Form S-7 (Registration No. 2-68622). (1) 10b 1988 Nonqualified Stock Option Plan of the Company as amended together with form of Stock Option Agreement related thereto incorporated by reference to Exhibit 10b of the Company's Form 10-K for the fiscal year ended December 31, 1992 (File No. 1-5491). (1) 10c Amendment No. 1 dated October 25, 1990, to all then outstanding Stock Option Agreements related to the 1980 Nonqualified Stock Option Plan of the Company incorporated by reference to Exhibit 10c to the Company's Form 10-K for the fiscal year ended December 31, 1990 (File No. 1-5491). (1) 10d Amendment No. 2 dated May 23, 1991, to all then outstanding Stock Option Agreements related to the 1980 Nonqualified Stock Option Plan of the Company incorporated by reference to Exhibit 10d to the Company's Form 10-K for the fiscal year ended December 31, 1991 (File No. 1-5491). (1) 10e Amendment No. 1 dated October 25, 1990, to all then outstanding Stock Option Agreements related to the 1988 Nonqualified Stock Option Plan of the Company incorporated by reference to Exhibit 10d to the Company's Form 10-K for the fiscal year ended December 31, 1990 (File No. 1-5491). (1) 10f Amendment No. 2 dated May 23, 1991, to all then outstanding Stock Option Agreements related to the 1988 Nonqualified Stock Option Plan of the Company incorporated by reference to Exhibit 10f to the Company's Form 10-K for the fiscal year ended December 31, 1991 (File No. 1-5491). (2) 10g Amendment No. 4 dated July 24, 1996 to the 1996 Convertible Debenture Incentive Plan. (2) 10h 1986 Convertible Debenture Incentive Plan of the Company amended as of July 24, 1996. (1) 10i Pension Restoration Plan of the Company incorporated by reference to Exhibit 10h to the Company's Form 10-K for the fiscal year ended December 31, 1992 (File No. 1-5491). (1) 10j Pension Restoration Plan of LeTourneau, Inc incorporated by reference to Exhibit 10j to the Company's Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-5491).
34 EXHIBIT INDEX
Footnote Exhibit Reference Number Exhibit Description - ------------- ------- -------------------------------------------------------- (1) 10k Credit Agreement dated September 22, 1986 (including amendatory letter dated March 25, 1987) and First Preferred Ship Mortgage dated November 7, 1986 between the Company and Marathon LeTourneau Company incorporated by reference to Exhibit 10c to the Company's Form 10-K for the fiscal year ended December 31, 1986 and amendatory letter dated February 21, 1992 incorporated by reference to Exhibit 10h to the Company's Form 10-K for the fiscal year ended December 31, 1991 (File No. 1-5491). (1) 10L Participation Agreement dated December 1, 1984 between the Company and Textron Financial Corporation et al. and Bareboat Charter dated December 1, 1984 between the Company and Textron Financial Corporation et al. incorporated by reference to Exhibit 10c to the Company's Form 10-K for the fiscal year ended December 31, 1985 (File No. 1-5491). (1) 10m Participation Agreement dated December 1, 1985 between the Company and Eaton Leasing Corporation et. al. and Bareboat Charter dated December 1, 1985 between the Company and Eaton Leasing Corporation et. al. incorporated by reference to Exhibit 10d to the Company's Form 10-K for the fiscal year ended December 31, 1985 (File No.1-5491). (1) 10n Corporate Continuing Guaranty dated September 10, 1987 between Shearson Lehman Brothers Holdings Inc. and the Company incorporated by reference to Exhibit 10i to the Company's Form 10-K for the fiscal year ended December 31, 1987 (File No.1-5491). (1) 10o Cross-Border Corporate Continuing Guaranty dated May 29, 1991 between Citicorp and the Company's wholly-owned subsidiary, Rowan International, Inc. incorporated by reference to Exhibit 10o to the Company's Form 10-K for the fiscal year ended December 31, 1991 (File No. 1-5491). (1) 10p Consulting Agreement as amended dated April 1, 1995 between the Company and C. W Yeargain incorporated by reference to Exhibit 10q to the Company's Form 10-K for the fiscal year ended December 31, 1996 (File No. 1-5491). (1) 10q Acquisition Agreement dated as of November 7, 1991, among KLM Royal Dutch Airlines, Blue Yonder I B.V., KLM Helikopters B.V. and Rowan Aviation (Netherlands) B.V. incorporated by reference to Exhibit 28.1 to the Company's Current Report on Form 8-K dated November 7, 1991 (File No. 1-5491).
35 EXHIBIT INDEX
Footnote Exhibit Reference Number Exhibit Description - ------------- ------- -------------------------------------------------------- (1) 10r Asset Purchase Agreement dated as of November 12, 1993, among Rowan Companies, Inc., Rowan Equipment, Inc., General Cable Corporation, Marathon LeTourneau Company, Marathon LeTourneau Sales & Service Company and Marathon LeTourneau Australia Pty. Ltd. incorporated by reference to the Company's Current Report on Form 8-K dated February 11, 1994 (File No. 1-5491). (1) 10s Asset Purchase and Sale Agreement dated December 5, 1995 between Era Aviation, Inc. and Columbia Helicopters, Inc., Alaska Helicopters, Inc. and BIJOS Enterprises. (2) 10t Commitment to Guarantee Obligations and First Preferred Ship Mortgage both dated December 17, 1996 between the Company and the Maritime Administration of the U.S. Department of Transportation. (2) 10u Credit Agreement and Trust Indenture both dated December 17, 1996 between the Company and Citibank, N.A. (3) 11 Computation of Primary and Fully Diluted Earnings (Loss) Per Share for the years ended December 31, 1996, 1995 and 1994 appearing on page 29 in this Form 10-K. (4) 13 Annual Report to Stockholders for fiscal year ended December 31, 1996. (2) 21 Subsidiaries of the Registrant as of March 28, 1996 (2) 23 Independent Auditors' Consent. (2) 24 Powers of Attorney pursuant to which names were affixed to this Form 10-K for the fiscal year ended December 31, 1996. (2) 27 Financial Data Schedule for the year ended December 31, 1996.
__________________________________________ (1) Incorporated herein by reference to another filing of the Company with the Securities and Exchange Commission as indicated. (2) Included herein. (3) Included in Form 10-K on page 29. (4) Included herein. See ITEM 1, ITEMS 5-8 and Subpart (a)1. of ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K on pages 21 through 23 on Form 10-K for specific portions incorporated herein by reference. EX-4.H 2 SPECIMEN COMMON STOCK CERTIFICATE 1 EXHIBIT 4h NUMBER SHARES - --------------------- --------------------- - --------------------- --------------------- S [LOGO] ROWAN COMPANIES, INC COMMON STOCK COMMON STOCK INCORPORATED UNDER THE LAWS CUSIP 779382 10 0 OF THE STATE OF DELAWARE THIS CERTIFICATE IS TRANSFERABLE IN CHICAGO, ILLINOIS OR NEW YORK, NEW YORK THIS CERTIFIES THAT _______________________________ IS THE OWNER OF SEE REVERSE FOR CERTAIN DEFINITIONS FULL-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF $.12 1/2 EACH OF ROWAN COMPANIES, INC., TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE ISSUED AND SHALL BE SUBJECT TO ALL OF THE PROVISIONS OF THE CERTIFICATE OF INCORPORATION, AS NOW OR HEREAFTER AMENDED, TO ALL OF WHICH THE HOLDER HEREOF BY ACCEPTANCE HEREOF ASSENTS. THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED AND REGISTERED BY A TRANSFER AGENT AND REGISTRAR OF THE CORPORATION. WITNESS THE FACSMILE SEAL OF THE CORPORATION AND THE FACSMILE SIGNATURES OF ITS DULY AUTHORIZED OFFICERS. DATED MARK H. HAY C. R. PALMER SECRETARY PRESIDENT COUNTERSIGNED AND REGISTERED: ROWAN COMPANIES, INC. HARRIS TRUST AND SAVINGS BANK CORPORATE SEAL TRANSFER AGENT AND REGISTRAR 1947 BY DELAWARE (C) SECURITY-COLUMBIAN UNITED STATES BANKNOTE COMPANY AUTHORIZED AGENT 2 EXHIBIT 4h ROWAN COMPANIES, INC. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE CORPORATION, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. SUCH REQUEST MAY BE MADE TO THE CORPORATION OR TO THE TRANSFER AGENT. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT Custodian TEN ENT - as tenants by the entireties -------- ----------- JT TEN - as joint tenants with right of (Cust) (Minor) survivorship and not as tenants under Uniform Gifts to Minors in common Act --------- (State)
Additional abbreviations may also be used though not in the above list. For Value Received,__________hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE -------------------------------------- -------------------------------------- ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ _________________________________________________________________________ SHARES OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT _______________________________________________________________________ ATTORNEY TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES. DATED_________________________________ _________________________________________________________ THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF NOTICE: THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between Rowan Companies, Inc. (the "Company") and Citibank, N.A. (the "Rights Agent") dated as of February 25, 1992 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal office of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed, may expire, or may be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void. EX-10.G 3 CONVERTIBLE DEBENTURE INCENTIVE PLAN AMEND. #4 1 EXHIBIT 10g ROWAN COMPANIES, INC AMENDMENT NO. 4 TO THE 1986 CONVERTIBLE DEBENTURE INCENTIVE PLAN: WHEREAS, there is reserved to the Committee in Section 10 of the Rowan Companies, Inc. 1986 Convertible Debenture Incentive Plan (the "Plan") the right to amend the Plan in whole or in part at any time and in such manner as it may deem advisable, subject to certain restrictions set forth in the Plan; be it RESOLVED, THAT, Section 3.03 of the Plan is hereby amended effective as of July 24, 1996, by adding thereto the following: Notwithstanding the foregoing or any provision in the Plan to the contrary, effective with the occurrence of a Corporate Change, as defined in the Company's 1988 Nonqualified Stock Option Plan, each Debenture that has been issued and outstanding for more than one year as of the date of the Corporate Change shall automatically be fully convertible on and after the date of such Corporate Change. EX-10.H 4 1986 CONVERTIBLE DEBENTURE INCENTIVE PLAN 1 EXHIBIT 10h ROWAN COMPANIES, INC. 1986 CONVERTIBLE DEBENTURE INCENTIVE PLAN AS AMENDED 1. Purpose. The Rowan Companies, Inc. 1986 Convertible Debenture Incentive Plan (the "Plan") is intended to promote the interests of Rowan Companies, Inc. (the "Company") and its stockholders by allowing officers and other key personnel of the Company and its subsidiaries the opportunity to invest in corporate debt in the form of the Company's floating interest rate subordinated debentures (the "Debentures") which are convertible into shares of Preferred stock, $1 par value, of the Company (the "Preferred Stock"), which shares of Preferred Stock are convertible into shares of common stock, $.125 par value, of the Company (the "Common Stock"), thereby giving key personnel added incentive to work toward the continued growth and success of the Company. The Company's Board of Directors also contemplates that the Plan will enable the Company and its subsidiaries to compete more effectively for the services of management personnel needed for the continued growth and success of the Company. 2. Issuance of the Debentures. The Company shall have authority to issue Debentures in such amounts and to such of the key employees of the Company and its subsidiaries (as defined by Section 425 of the Internal Revenue Code of 1954, as amended) as the Committee (as defined in Section 9) shall from time to time determine. Such employees purchasing Debentures are designated herein as "Purchasers". 3. General Terms and Conditions of the Debentures. Section 3.01. General. The Committee shall from time to time determine with respect to each series of Debentures to be issued the interest rate thereof, the conversion price applicable thereto (including the conversion ratio of the Preferred Stock), and such other terms and conditions of the Debentures, all to the extent not inconsistent with the provisions of this Plan. Section 3.02. Form and Term of Debentures. Debentures will be issued in series the terms and conditions of which may differ among series and shall be in such form and in such denominations as the Committee may approve. Each series will be due not earlier than five years, or later than ten years, from the date of issuance, or on such earlier date as the Company redeems any Debenture, which date is referred to herein as the "Due Date". Section 3.03. Conversion of the Debentures. Subject to the provisions of this Section 3.03, the Debentures will be convertible at the conversion price in effect at the time of conversion into fully paid and non-assessable shares of Preferred Stock, which will be immediately convertible into fully paid and nonassessable shares of Common Stock of the Company, at any time in quantities and after time periods determined by the Committee, which in no event will be less than one year after the date of issuance until the close of business on the Due Date. Each series of Debentures shall be convertible into a separate series of Preferred Stock. The conversion privilege with respect to any Debenture may be exercised only by the Purchaser thereof or by the estate of a deceased Purchaser or a beneficiary under such estate. 2 Upon termination of a Purchaser's employment, the conversion privilege will terminate with respect to each Debenture issued to such Purchaser on the earlier of the Due Date or a date determined as follows: (a) Three years after the date of termination of employment as a result of retirement or disability; (b) Two years after the date of termination of employment as a result of death; (c) Prior to the date of termination of employment as a result of discharge for cause (as determined in the sole discretion of the Committee); or (d) Three months after the date of termination of employment for any other reason. The conversion privilege with respect to any Debenture (i) will terminate if the Purchaser, without the Company's consent, sells, assigns, transfers, pledges, hypothecates or otherwise disposes of a Debenture except as permitted by Section 3.04 and (ii) will not be exercisable during such time as the Debenture is pledged to secure loans as permitted by Section 3.04. In no event may any Purchaser or the estate of a deceased Purchaser or a beneficiary under such estate exercise the conversion privilege associated with a Debenture prior to one year from the date of issuance of such Debenture or after the Due Date. Notwithstanding the foregoing or any provision in the Plan to the contrary, effective with the occurrence of a Corporate Change, as defined in the Company's 1988 Nonqualified Stock Option Plan, each Debenture that has been issued and outstanding for more than one year as of the date of the Corporate Change shall automatically be fully convertible on and after the date of such Corporate Change. Section 3.04. Transfer and Pledge of Debentures. A Purchaser may not sell, assign, transfer, pledge, hypothecate or otherwise dispose of a Debenture except by (i) will or the laws of descent and distribution or (ii) a pledge ("Permitted Pledge") of Debentures to a lender (which may be the Company if a loan is made pursuant to Section 8 hereof) as security for loans to provide all or part of the financing to purchase the Debentures. If such loan shall be made by other than the Company, the Purchaser shall give advance written notice to the Company prior to making any Permitted Pledge and the Purchaser and such Lender shall give notice of discharge of any Debenture from a Permitted Pledge, which notice shall be conclusive evidence that the conversion privilege with respect to such Debenture will again be exercisable subject to the provisions of Section 3.03. Section 3.05. Redemption of Debentures. Subject to the provisions of this Section 3.05, the Company may, upon at least thirty days prior written notice to all Debenture holders, redeem as a class, on any interest payment date, all of the Debentures issued under this Plan. The Company (i) shall redeem on the next interest payment date after termination of the conversion privilege with respect thereto any Debenture with respect to which the conversion privilege has terminated pursuant to clauses (a), (b) or (d) of Section 3.03, (ii) may redeem any Debenture pledged pursuant to Section 3.04 on the next interest payment date following notice received by the Company from a lender (other than the Company) that a loan for which such Debenture is pledged is in default, provided such default has not been cured, and (iii) may at its option redeem, on any interest payment date, any Debenture with respect to which the 3 conversion privilege has terminated for any other reason provided in Section 3.03. The holder of any Debenture redeemed pursuant to this Section 3.05 shall be entitled to receive only the face amount of the Debenture plus accrued interest thereof to the Due Date. 4. Authorized Amount of Debentures. The Company may issue up to $20,000,000 in aggregate principal amount of all Debentures. 5. Effective Date. The Plan shall become effective upon approval thereof by the vote of the holders of a majority of the shares of Common Stock of the Company voting at the 1986 Annual Meeting of Stockholders, and shall expire when all of the Company's obligations with respect to all of the outstanding Debentures have been discharged; provided, however, that no Debenture shall be issued after April 1, 1995. 6. Offers and Sales Price of Debentures. The Debentures shall be sold by the Company to Purchasers at a price equal to the higher of (a) face value plus any accrued interest to the date of sale or (b) the fair market value of the Debentures as of the date the Purchaser elects to purchase the Debentures, as determined by an independent investment banking firm. If the Internal Revenue Service determines that the value of a Debenture at the time of sale exceeded its sale price and if (a) the Company receives a federal income tax benefit as a result of such determination and (b) the Purchaser has contested such determination in a manner which the Company determines to be appropriate under the circumstances, then the Company will pay to the Purchaser or his estate or a beneficiary under his estate the lesser of (x) the federal income tax benefit derived by the Company as a result of the sale of the Debenture to the Purchaser or (y) the amount estimated by the Company (based on the highest marginal federal income tax rate applicable with respect to compensation income for the year in which the sale occurred and the amount determined by the Internal Revenue Service to be taxable income to the Purchaser as a result of his purchase of the Debenture) to be Purchaser's federal income tax liability resulting from his purchase of the Debenture. The Debentures may be offered only on April 15, May 30, August 30 and November 30 of each year (any such date is referred to herein as an "Offering Date"). An employee may elect to purchase all or none of the Debentures offered to him on an Offering Date by giving written notice to the Company of his election within 10 business days of such Offering Date. Payment for such Debentures shall be in cash or in Common Stock (valued at the reported last sales price of Common Stock prior to the date of such payment, as shown on the Composite Tape for securities listed on the New York Stock Exchange) and shall be made within 20 business days of such Offering Date. 7. Conversion Price. The price (the "Conversion Price") at which shares of Preferred Stock shall be delivered upon conversion of a series of Debentures shall be set at a price at least equal to the reported last sales price of the Company's Common Stock prior to the date of sale of such series of Debentures, as shown on the Composite Tape for securities listed on the New York Stock Exchange. The number of shares of Common Stock which shall be delivered upon conversion of any shares of a series of Preferred Stock (the "Conversion Ratio") shall not exceed the face value of the related Debentures which were converted into such Preferred Stock divided by the reported last sales price of the Company's Common Stock prior to the date of sale of such Debentures as shown on the composite tape for securities listed on the New York Stock Exchange. Upon any change in the capital stock of the Company, through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, spin-off, split up, dividend in kind or other change in the corporate structure or distribution to stockholders, appropriate adjustments to the Conversion Price and Conversion Ratio and the kind of shares delivered upon conversion of the Debentures and Preferred Stock may be made by the Committee (or, if the Company is 4 not the surviving corporation in any such transaction, the board of directors of the surviving corporation) with respect to both outstanding and unissued Debentures and Preferred Stock. If the Internal Revenue Service determines that the conversion of Debentures into Preferred Stock or that the subsequent conversion of Preferred Stock into Common Stock is a taxable transaction and if (a) the Company receives a federal income tax benefit as a result of such determination and (b) the Purchaser has contested such determination in a manner which the Company deems to be appropriate under the circumstances, then the Company will pay to the Purchaser or his estate or a beneficiary under his estate the lesser of (x) the federal income tax benefit derived by the Company with respect to such conversion or (y) the amount estimated by the Company (based on the highest marginal federal income tax rate applicable with respect to compensation income for the year in which the conversion occurred and the amount determined by the Internal Revenue Service to be taxable income to the Purchaser as a result of such conversion) to be Purchaser's federal income tax liability resulting from such conversion. 8. Company Loans. The Company may, from time to time, make full recourse (or, in the case of (1) an aggregate of $5,125,000 in principal amount of loans made by the Company to Purchasers on June 13, 1986 and (2) an aggregate of $10,300,000 in principal amount of loans made by the Company to Purchasers on November 30, 1994, non- recourse) loans ("Company Loans") to Purchasers for the purpose of providing all or part of the financing necessary to purchase any Debenture; provided, however, that the maximum amount of the Company Loan shall not exceed the purchase price of the Debentures. Subject to the foregoing, Company Loans may be made to such Purchasers in such amounts bearing interest at such rates (not less than the higher of the interest rate on the Debenture or a floating rate determined under Sections 483 and 1274(d) of the Internal Revenue Code of 1954, as amended), shall be secured by a pledge of and lien on the Debenture (which may be inferior to the pledge and lien securing the Bank Loan) and on such other terms and conditions as the Committee may from time to time approve. 9. Administration. The Plan shall be administered by a committee of the Board of Directors (the "Committee") which shall consist of three or more persons. No Debentures may be sold to any member of the Committee during the term of his membership on the Committee. No person shall be eligible to serve on the Committee unless he is a "disinterested person" within the meaning of Paragraph (d)(3) of Rule 16b-3, under the Securities Exchange Act of 1934 or any successor thereto as then in effect ("Rule 16b-3"). The members of the Committee shall be appointed by the Board of Directors, and any vacancy on the Committee shall be filled by the Board of Directors. Subject to the foregoing paragraphs, the Committee shall interpret the Plan and the Debentures sold under the Plan, shall make such rules as it deems necessary for the proper administration of the Plan, shall make all other determinations necessary or advisable for the administration of the Plan and shall correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Debenture in the manner and to the extent the Committee deems desirable to administer the Plan or the Debentures. The Committee's determination of any matter within its authority shall be conclusive and binding upon the Company and all other persons. 10. Amendment and Discontinuance. Subject to the provisions of this Section 10, the Committee may amend, suspend or terminate the Plan. No amendment, suspension or termination of the Plan may: (a) Without the consent of the holder of a Debenture, terminate his Debenture or adversely affect his rights under the Debenture in any material respect; 5 (b) Without the consent of a majority of the shares of voting stock of the Company voting at any meeting of Stockholders (i) increase the amount of Debentures available under the Plan, (ii) change materially the persons eligible to purchase Debentures under the Plan, (iii) increase materially the benefits under the Plan, or (iv) extend the termination date of the Plan; or (c) Cause the plan to fail to meet the requirements of Rule 16b-3. 11. Other Provisions. (a) The Purchaser of a Debenture shall not be entitled to any rights as a stockholder of the Company until such Purchaser has exercised the conversion privilege contained in the Debenture. (b) No Debenture shall be construed as limiting any right which the Company or any subsidiary of the Company may have to terminate at any time, with or without cause, the employment of a Purchaser to whom a Debenture has been sold. (c) Notwithstanding any provision of the Plan or the terms of any Debenture sold pursuant to the Plan, (i) the Company shall not be required to issue any Debentures hereunder if such issuance would, in the judgment of the Committee, constitute a violation of any state or Federal law, or of the rules or regulations of any governmental regulatory body, and (ii) any amount of interest paid or payable on a Debenture which exceeds the amount legally payable to a Purchaser under the applicable usury laws will be paid by the Company as compensation to the Purchaser. EX-10.T 5 COMMITMENT TO GUARANTEE OBLIGATIONS 1 EXHIBIT 10t Contract No. MA-13257 COMMITMENT TO GUARANTEE OBLIGATIONS BY THE UNITED STATES OF AMERICA UNDER TITLE XI OF THE MERCHANT MARINE ACT, 1936, AS AMENDED ACCEPTED BY ROWAN COMPANIES, INC. Dated as of December 17, 1996 2 COMMITMENT TO GUARANTEE OBLIGATIONS by THE UNITED STATES OF AMERICA Accepted by ROWAN COMPANIES, INC. Shipowner (Under Title XI, Merchant Marine Act, 1936, as amended, and in effect on the date of this Guarantee Commitment) ------------ TABLE OF CONTENTS
Document Number Document ------ -------- 1 Commitment to Guarantee Obligations 2 Appendix I -- Form of Credit Agreement 3 Appendix II -- Form of Trust Indenture 4 Schedule A -- Schedule of Definition to Trust Indenture 5 Exhibit 1 -- General Provisions Incorporated into the Trust Indenture by Reference 6 Exhibit 2 -- Form of Floating Rate Note 7 Exhibit 3 -- Form of Fixed Rate Note 8 Exhibit 4 -- Form of Authorization Agreement 9 Exhibit 5 -- Form of Secretary's Supplemental Indenture 10 Appendix III -- Security Agreement 11 Exhibit 1 -- General Provisions Incorporated into the Security Agreement by Reference 12 Schedule X -- Schedule of Definitions 13 Exhibit 2 -- Form of Secretary's Note 14 Exhibit 3 -- Form of First Preferred Ship Mortgage 15 Exhibit 4 -- Title XI Reserve Fund and Financial Agreement 16 Exhibit 1 -- General Provisions Incorporated into the Title XI Reserve Fund and Financial Agreement 17 Exhibit 5 -- Consent of Shipyard 18 Exhibit 6 -- Construction Contract 19 Exhibit 7 -- Depository Agreement
3 Contract No. MA-13257 COMMITMENT TO GUARANTEE OBLIGATIONS by THE UNITED STATES OF AMERICA accepted by ROWAN COMPANIES, INC. Shipowner TABLE OF CONTENTS (*)
Page ---- Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I Findings and Determinations of Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE II Commitment to Guarantee Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE III The Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE IV Covenants of the Shipowner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE V Conditions to Execution and Delivery of the Authorization Agreement, and the Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE VI Variation of Guarantee Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE VII Termination or Assignment of Guarantee Commitment . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE VIII Conformity To Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE IX Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
- --------------- (*) This Table of Contents is not a part of the Guarantee Commitment and has no bearing upon the interpretation of any of its terms and provisions. 4 Table A Appendix I - Form of Credit Agreement Appendix II - Form of Trust Indenture Appendix III - Security Agreement 5 COMMITMENT TO GUARANTEE OBLIGATIONS by THE UNITED STATES OF AMERICA Accepted by ROWAN COMPANIES, INC. Shipowner ------------- THIS COMMITMENT TO GUARANTEE OBLIGATIONS, dated as of December 17, 1996 (the "Guarantee Commitment"), is made and entered into by the UNITED STATES OF AMERICA (the "United States"), represented by the SECRETARY OF TRANSPORTATION, acting by and through the MARITIME ADMINISTRATOR (the "Secretary"), and accepted on said date by ROWAN COMPANIES, INC., a Delaware corporation (the "Shipowner"). RECITALS: A. The Shipowner will be the sole owner of the mobile, self-contained and elevating drilling platform to be named the GORILLA V (the "Vessel") built pursuant to certain construction contract (the "Construction Contract") with LETOURNEAU, INC., a Texas corporation (the "Shipyard"). B. To aid in financing the construction of the Vessel, the Shipowner will borrow an aggregate principal amount approximately equal to, but in no event in excess of, 87 1/2% of the Actual Cost of the Vessel. C. As one means of such financing, the Shipowner has entered into a Credit Agreement (said Credit Agreement, as the same may be amended, modified or supplemented from time to time as permitted thereunder, herein called the "Credit Agreement"), by and between the Shipowner and CITIBANK, N.A., a national banking association (the "Lender"). D. The Shipowner will on the Closing Date, execute and deliver a Trust Indenture (the "Indenture"), between the Shipowner and CITIBANK, N.A., a national banking association, as Indenture Trustee (the "Indenture Trustee"), in connection with the Obligations to be issued in respect of the Vessel, in the aggregate amount, with the maturity and bearing interest at the rate specified in the Indenture. E. Under the Authorization Agreement (the "Authorization Agreement"), Contract MA-13258 to be entered into on the Closing Date between the Secretary and the Indenture Trustee, the 6 Indenture Trustee will be authorized to endorse and execute, by means of facsimile signature of the Secretary and the facsimile seal of the Department of Transportation, on each of the Obligations issued and to authenticate a guarantee by the Secretary of the payment in full of all the unpaid interest on, and the unpaid balance of the principal of, each Obligation, including interest accruing between the date of default under such Obligation and the date of payment by the Secretary (individually, a "Guarantee" and, collectively, the "Guarantees"). F. The Shipowner, as security for the Guarantees, and as security to the Secretary for the payment to the Secretary of the principal of, and the interest due or to become due on, the Secretary's Note to be executed in accordance with the terms thereof, will, on the Closing Date, enter into a Security Agreement with the Secretary (the "Security Agreement"), Contract MA-13259, pursuant to which the Shipowner will assign to the Secretary, among other things, all of the Shipowner's interest in the Construction Contract, and all other contracts which relate to the construction of the Vessel, as specified therein, and all property, including the Vessel, in which the Shipowner has or will have an interest pursuant to the Construction Contract. G. The Shipowner will as further security to the Secretary, execute and deliver on the Delivery Date, a First Preferred Ship Mortgage, Contract MA-13260, created under and pursuant to Chapter 313, Title 46 United States Code, to the Secretary, as Mortgagee, upon and attaching to the Vessel. H. In connection with the execution and delivery of the Security Agreement, the Shipyard will enter into a consent to the assignment of the Construction Contract (the "Consent of Shipyard"). I. In order to implement certain aspects of the transactions contemplated by the Security Agreement and the Indenture, the Secretary, the Shipowner and CITIBANK, N.A., a national banking association, (the "Depository") will enter into the Depository Agreement, Contract MA-13262 (the "Depository Agreement"). J. The Shipowner will as further security to the Secretary, enter into a Title XI Reserve Fund and Financial Agreement, Contract MA-13261, with the Secretary (the "Title XI Reserve Fund and Financial Agreement"). -2- 7 W I T N E S E T H: That under the provisions of Title XI of the Merchant Marine Act, 1936, as amended and in effect on the date hereof (said provisions, as so amended and in effect on the date hereof, being called "Title XI") and in consideration of (i) the covenants of the Shipowner contained herein, (ii) the payment by the Shipowner to the Secretary of the charges for this Guarantee Commitment pursuant to Section 1104(f) of Title XI, and (iii) other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Secretary hereby commits itself as herein provided. The following executed documents are annexed to each counterpart of this Guarantee Commitment: the Security Agreement, the Title XI Reserve Fund and Financial Agreement, and the Depository Agreement. Annexed to each counterpart of this Guarantee Commitment are forms of the Consent of Shipyard, the Credit Agreement, the Indenture, the Obligations, the Authorization Agreement, the Mortgage, and the Secretary's Note. As used herein, the "Closing Date" refers to the date for the execution and delivery of the Obligations as provided in the Credit Agreement annexed hereto, subject to the conditions contained in Article V hereof. The Consent of Shipyard, the Credit Agreement, the Indenture, the Obligations, the Authorization Agreement, and the Secretary's Note (except as otherwise required by the Secretary), shall be executed and delivered substantially in the respective forms annexed hereto, except that the blanks, if any, therein shall be filled in as contemplated therein and herein and, except further that the maturity dates and interest rates of the Obligations must be further approved by the Secretary. The Mortgage shall be executed and delivered substantially in the form annexed hereto on the Delivery Date. ARTICLE I Findings and Determinations of Secretary Pursuant to Section 1104(d) of Title XI, the Secretary has found that the property or project with respect to which the Obligations will be executed will be, in his opinion, economically sound. Pursuant to Sections 1101(f), 1101(g) and 1104(b)(2) of Title XI, the Secretary has determined that the Actual Cost of the Vessel is $175,042,902. The Actual Cost of the Vessel is comprised of the amounts determined by the Secretary set forth in -3- 8 Table A annexed hereto, and the Secretary has determined that the amounts set forth in said Table A are itemized as also set forth therein. The Secretary may, at the request of the Shipowner, make a redetermination of the Actual Cost of the Vessel to include, in addition to the items set forth or referred to in said Table A, any other items or any increase in the amounts of the items set forth or referred to therein. The aggregate principal amount of the Obligations will not exceed 87-1/2% of the Actual Cost of the Vessel, and the Shipowner may execute the Obligations in amounts less than 87-1/2% of the Actual Cost during the Construction Period, provided that on or prior to two years after the Delivery Date, the Shipowner shall have executed and delivered Obligations equal to 87-1/2% of Actual Cost, subject to the provisions of the preceding paragraph. Pursuant to Section 1104(b)(3) and 1104(b)(5) of Title XI, respectively, the Secretary has determined that the maturity date of the Obligations is satisfactory and that the interest rate to be borne by the Obligations (exclusive of the charges for the Guarantee Fee and service charges, if any) to be issued on the Closing Date is reasonable, taking into account the range of interest rates prevailing in the private market for similar loans and risks assumed by the Secretary. Pursuant to Section 1104(b)(4) of Title XI, the Secretary has determined that payments of principal required by the Obligations are satisfactory. ARTICLE II Commitment to Guarantee Obligations The United States, represented by the Secretary, HEREBY COMMITS ITSELF TO GUARANTEE (as provided in the Obligations) the payment of the unpaid interest on, and the unpaid balance of the principal of, the Obligations, including interest accruing between the date of default under the Obligations and the payment in full of the Guarantees, and, to effect this Guarantee Commitment, hereby commits itself to execute and deliver the Authorization Agreement, the Security Agreement, the Title XI Reserve Fund and Financial Agreement, and the Depository Agreement on the Closing Date and the Mortgage on the Delivery Date. -4- 9 ARTICLE III The Obligations The Obligations shall be as provided in the Indenture and in the form of the Obligations annexed as Exhibit 2 to the Indenture. The Obligations shall be subject to all of the terms and conditions set forth in the Indenture and in the forms thereof. The Credit Agreement, the Indenture, the Obligations, the Security Agreement, the Secretary's Note, the Title XI Reserve Fund and Financial Agreement, and the Depository Agreement shall be executed and delivered by the Shipowner on the Closing Date. The Mortgage shall be executed and delivered by the Shipowner on the Delivery Date. The forms of the Credit Agreement, the Indenture, the Obligations, the Authorization Agreement, the Security Agreement, the Mortgage, the Secretary's Note, the Title XI Reserve Fund and Financial Agreement, and the Depository Agreement are hereby approved by the Secretary. ARTICLE IV Covenants of the Shipowner The Shipowner represents and, until termination of this Guarantee Commitment, agrees: (a) that the Vessel will be constructed substantially in accordance with the plans and specifications, as applicable, pursuant to the Construction Contract, as amended, by LETOURNEAU, INC., a shipyard within the United States approved by the Secretary, and on the Delivery Date will be and shall remain documented under the laws of the United States; (b) to furnish to the Secretary, promptly upon written request, such reasonable, material and pertinent reports, evidence, proof or information, in addition to that furnished pursuant to the further provisions of this Guarantee Commitment or in the application for this Guarantee Commitment under Title XI or otherwise available to the Secretary, as the Secretary may reasonably deem necessary or appropriate in connection with the performance by the Secretary of his duties and functions under the Act; (c) to maintain records of all amounts paid or obligated to be paid by or for the account of the Shipowner for the construction of the Vessel; (d) to permit the Secretary, promptly upon request, to make such reasonable, material and pertinent examination and audit of the Shipowner's books, records and accounts and to take -5- 10 such information therefrom and make such transcripts or copies thereof, as the Secretary may reasonably deem necessary or appropriate in connection with the performance by the Secretary of his duties and functions under the Act; (e) to maintain its United States citizenship within the meaning of Section 2 of the Shipping Act, 1916, as amended, for the purpose of operation of the Vessel in the trade or trades in which the Shipowner proposes to operate the Vessel, to the satisfaction of the Secretary and, at the time of the execution and delivery of the Authorization Agreement, to submit to the Secretary such supplemental proof of citizenship as the Secretary may deem appropriate to evidence the continued United States citizenship of the Shipowner for said purpose; and (f) to execute and deliver on the Closing Date, the Credit Agreement, the Obligations, the Indenture, the Security Agreement, the Secretary's Note, the Title XI Reserve Fund and Financial Agreement, and the Depository Agreement, and on the Delivery Date, to execute and deliver the Mortgage. ARTICLE V Conditions to Execution and Delivery of the Authorization Agreement and the Security Agreement On the Closing Date, the Authorization Agreement shall be executed and delivered by the United States and the Indenture Trustee; the Security Agreement, and the Title XI Reserve Fund and Financial Agreement shall be executed and delivered by the Shipowner and the Secretary; the Credit Agreement shall be executed and delivered by the Shipowner and the Lender; the Construction Contract shall be executed and delivered by the Shipowner and the Shipyard; the Consent of the Shipyard shall be executed and delivered by the Shipyard; and the Depository Agreement shall be executed and delivered by the Shipowner, the Secretary and the Depository; and the Secretary's Note shall be executed and delivered and the Obligations shall be issued and delivered by the Shipowner. The obligation of the United States represented by the Secretary to execute and deliver the Authorization Agreement, the Security Agreement, the Depository Agreement and the Title XI Reserve Fund and Financial Agreement on the Closing Date shall be subject to the following conditions unless waived in writing by the Secretary: (a) the Closing Date shall occur prior to March 31, 1997; (b) the Shipowner shall have undertaken to execute and deliver to the Secretary on the Delivery Date a certification -6- 11 that the Vessel shall be free of any claim, lien, charge, mortgage or other encumbrance of any character (except the Mortgage, the Security Agreement, and liens otherwise permitted by Section 2.04 of Exhibit 1 to the Security Agreement); and the Credit Agreement shall have been executed and delivered on or prior to the Closing Date and the Indenture and the Obligations shall have been duly executed and delivered on the Closing Date; (c) on the Closing Date, the Shipowner shall be a citizen of the United States within the meaning of Section 2 of the Shipping Act, 1916, as amended, and shall have furnished to the Secretary an affidavit setting forth data showing such citizenship to the Secretary's satisfaction at least 30 days prior to the Closing Date and the Shipowner shall have submitted pro forma affidavits at least ten days prior to the Closing Date; (d) (i) there shall have been delivered to the Secretary two executed counterparts of the Credit Agreement, and two executed counterparts of the Indenture, (ii) two specimen copies of the Obligations issued under the Indenture; and (iii) two originals of all other documents delivered by the Shipowner or the Indenture Trustee on the Closing Date; (e) the following representations and warranties shall have been made to the Secretary in writing and shall be true as of the Closing Date: (i) the Shipowner is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has not failed to qualify to do business in any jurisdiction in the United States in which its business or properties require such qualification, and had and has full legal right, corporate power and authority to own its own properties and assets and conduct its business as it is presently conducted; (ii) the Shipowner had and has legal power and authority to enter into and carry out the terms of this Guarantee Commitment, the Construction Contract, the Credit Agreement, the Obligations, the Indenture, the Security Agreement, the Secretary's Note, the Title XI Reserve Fund and Financial Agreement, and the Depository Agreement; (iii) each and all of the documents and instruments referred to in clause (ii) hereof have been duly authorized, executed and delivered by the Shipowner and constitute, in accordance with their respective terms, legal, valid and binding instruments enforceable against the Shipowner, except to the extent limited by applicable bankruptcy, reorganization, insolvency, moratorium or the -7- 12 similar laws of general application relating to or affecting the enforcement of creditors rights as from time to time in effect; (iv) the consummation of the transactions contemplated by and compliance by the Shipowner of all the terms and provisions of the documents and instruments referred to in clause (ii) hereof will not violate any provisions of the Certificate of Incorporation or By-laws, as amended, of the Shipowner and will not result in a breach of the terms and provisions of, or constitute a default under any other agreement or undertaking by the Shipowner or by which the Shipowner is bound or any order of any court or administrative agency entered into in any proceedings to which the Shipowner is or has been a party; (v) there is no litigation, proceeding or investigation pending or, to the best of the Shipowner's knowledge, threatened, involving the Shipowner or any of its property which could prevent or jeopardize the performance by the Shipowner of the documents and instruments referred to in clause (ii) hereof. (f) there shall have been delivered to the Secretary a copy of each document and legal opinion delivered to the Lender on the Closing Date; (g) the Secretary shall have received the Guarantee Fee payable under the Security Agreement; (h) all charges levied or assessed by the Secretary under Section 1104(f) of Title XI shall have been paid by the Shipowner; (i) the Shipowner shall have performed without material breach its agreements under Article IV hereof, and the further terms, conditions and provisions of this Guarantee Commitment shall have been complied with in all material respects; (j) there shall not have occurred any event which constitutes (or after any period of time or any notice, or both, would constitute) a "Default" under the Security Agreement; (k) there shall have been delivered to the Secretary by the Shipowner an opinion (or opinions) of counsel acceptable to the Secretary, and in form and substance satisfactory to the Secretary, to the effect that: (i) by the terms of the Security Agreement, the Shipowner has granted to the Secretary a fully perfected, -8- 13 first priority security interest in each of the assets which constitutes the Security, as defined therein; (ii) all filings and recordings required or available to perfect the Secretary's first priority security interests in the Security, as defined in the Security Agreement, granted by the Shipowner in the Security Agreement, and to render such security interests valid and enforceable under the laws of the States of Delaware, Texas and Mississippi (including without limitation, all filings of financing statements under the UCC) have been duly effected, and no periodic refiling or periodic re-recording is required to protect and preserve the perfection and first priority of such security interests, except as provided by the laws of such States; (iii) all agreements have been executed and all action has been taken which are required under the laws of the State of New York to establish a bailment by the Shipowner/Secretary/Bailor of the amounts held or to be held by the Depository/Bailee under the Depository Agreement, at whatever time, whether such amounts are cash, instruments, negotiable documents, chattel paper, proceeds thereof or otherwise (the "Funds"), in order to insure that the Secretary has a fully perfected first priority security interest in the Funds; (l) there shall have been executed and delivered to the Secretary an opinion of counsel in form and substance satisfactory to the Secretary; (m) the Secretary shall have received a letter agreement from the Shipowner to provide the Secretary within a reasonable time after the Closing Date, with seven conformed copies of the Guarantee Commitment and each of the Appendices and Exhibits thereto executed on or prior to such date; (n) on the Closing Date, the qualifying requirements set forth in Section 15 of the Title XI Reserve Fund and Financial Agreement shall have been complied with and certified to as required therein; (o) at least ten days prior to the Closing Date, there shall have been delivered to the Secretary, pro forma balance sheets for the Shipowner as of the last date of the month immediately preceding the Closing Date, certified by an officer of the Shipowner showing, among other things, all non-Title XI debt of the Shipowner; -9- 14 (p) on the Closing Date, the Shipowner shall certify that all non-Title XI loans to the Shipowner relating to the vessel have been discharged; (q) at least ten days prior to the Closing Date the Shipowner shall have provided the Secretary with satisfactory evidence of insurance and at least ten days prior to the Delivery Date the Shipowner shall have provided the Secretary with satisfactory evidence of marine insurance as required by the Security Agreement; and (r) on the Closing Date, the Shipowner shall have undertaken to execute and deliver the Mortgage to the Secretary on the Delivery Date. ARTICLE VI Variation of Guarantee Commitment No variation from the terms and conditions hereof shall be permitted except pursuant to an amendment executed by the Secretary and accepted by the Shipowner. ARTICLE VII Termination or Assignment of Guarantee Commitment This Guarantee Commitment may terminate and the parties hereto shall have no further rights or obligations hereunder, upon written notice by the Secretary, after the earlier of (a) the termination of the obligations of the United States pursuant to the Shipowner's failure to satisfy one or more conditions set forth in Article V hereof or (b) the execution and delivery of the Security Agreement and the Authorization Agreement. This Guarantee Commitment may not be assigned by the Shipowner without the prior written approval of the Secretary and any attempt to do so shall be null and void ab initio. ARTICLE VIII Conformity with Regulations The Secretary hereby affirms that, with respect to the rights of the Indenture Trustee and the Holders of the Obligations, this Guarantee Commitment conforms to its existing regulations governing the issuance of commitments to guarantee and guarantees under Title XI of the Act and that this Guarantee Commitment contains a complete list of conditions required for -10- 15 the execution and delivery of guarantees including the Guarantees. ARTICLE IX Miscellaneous (a) The table of contents and the titles of the Articles are inserted as a matter of convenient reference and shall not be construed as a part of this Guarantee Commitment. This Guarantee Commitment may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. (b) For all purposes of this Guarantee Commitment, unless otherwise expressly provided or unless the context shall otherwise require: (i) The terms "hereof," "herein," "hereby," "hereto," "hereunder," "hereinafter" and "herewith" refer to this Guarantee Commitment as the same may be supplemented or amended as herein provided; and (ii) Terms defined in Schedule X of the Security Agreement annexed hereto or by reference therein to other instruments shall have the respective meanings stated in Schedule X or such other instruments. -11- 16 IN WITNESS WHEREOF, this Commitment to Guarantee Obligations has been executed by the United States and accepted by the Shipowner, all as of the day and year first above written. UNITED STATES OF AMERICA, SECRETARY OF TRANSPORTATION BY: MARITIME ADMINISTRATION [SEAL] BY: Joel C. Richard ----------------------------------- Secretary Maritime Administration Attest: Sarah J. Johnson - ----------------------- Assistant Secretary Maritime Administration ACCEPTED BY: ROWAN COMPANIES, INC. as Shipowner BY: E. E. Thiele ----------------------------------- Senior Vice President [SEAL] Attest: BY: Mark H. Hay ------------------- Secretary -12- 17 Document 14 FIRST PREFERRED SHIP MORTGAGE Covering the whole of the Vessel listed in the GRANTING CLAUSE Exhibit 3 to Security Agreement 18 Contract No. MA-13260 FIRST PREFERRED SHIP MORTGAGE $153,091,000 ROWAN COMPANIES, INC. Shipowner and Mortgagor ----------------------- ----------------------- to THE UNITED STATES OF AMERICA Mortgagee represented by the Secretary of Transportation acting by and through the Maritime Administrator Maritime Administration, U.S. Department of Transportation 400 Seventh Street, S.W. Washington, D.C. 20590 Dated as of ____________ ----------------------- Covering the whole of the Vessel listed in the GRANTING CLAUSE 19 FIRST PREFERRED SHIP MORTGAGE THIS FIRST PREFERRED SHIP MORTGAGE, effective as of _______________, 19__, is made by ROWAN COMPANIES, INC., a Delaware corporation (the "Shipowner" and "Mortgagor") located at 5450 Transco Tower, 2800 Post Oak Blvd., Houston, Texas 77056-6196, to the UNITED STATES OF AMERICA (the "United States"), represented by the Secretary of Transportation, acting by and through the Maritime Administrator (the "Secretary" and "Mortgagee") located at the U.S. Department of Transportation, 400 Seventh Street, S.W., Washington, D.C. 20590. WHEREAS, the Shipowner is the sole owner of the whole of the GORILLA V more fully described in the Granting Clause below; WHEREAS, the Shipowner has, in consideration of the issuance of certain Guarantees (the "Guarantees") by the Secretary, pursuant to Title XI of the Merchant Marine Act, 1936, as amended ("Title XI"), of the payment of the unpaid interest on, and the unpaid balance of the principal of, the United States Government Guaranteed Ship Financing Obligations, GORILLA V Series issued by the Shipowner in the aggregate principal amount of $153,091,000 (the "Obligations"), and pursuant to the terms and provisions of the Security Agreement, dated December 17, 1996, between the Shipowner and the Secretary (herein as it may be amended or supplemented, called the "Security Agreement"), issued and delivered to the Secretary its promissory note dated December 17, 1996, payable to the Secretary in the principal amount of $153,091,000 (said promissory note in the form attached to the Security Agreement as Exhibit 2 being herein called the "Secretary's Note"); and the Shipowner has agreed to execute and deliver this First Preferred Ship Mortgage to the Secretary (hereinafter referred to in this Mortgage as the "Mortgagee") for the purpose of securing the Shipowner's obligations to the Secretary with respect to the Guarantees and the payment of the principal of and interest on the Secretary's Note in accordance with its terms, and the terms of the Security Agreement and this Mortgage (the Mortgage, as the same may hereafter be amended or supplemented in accordance with the terms hereof, herein called the "Mortgage"); NOW, THEREFORE, THIS MORTGAGE WITNESSETH: That, in consideration of the premises and of the additional covenants herein contained and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and as security for the Guarantees and in order to secure the payment of the above-mentioned interest on and principal of the Secretary's Note and all other sums that may be 20 secured by the Mortgage and the Security Agreement, and to secure the due performance and observance of all the agreements and covenants in the Secretary's Note and herein contained, the Shipowner has granted, conveyed, mortgaged, pledged, confirmed, assigned, transferred and set over, and by these presents does grant, convey, mortgage, pledge, confirm, assign, transfer and set over unto the Mortgagee, the whole of the Vessel described as follows: GORILLA V, O.N._______, which Vessel is more fully described in its certificate of documentation, together with all of its boilers, engines, machinery, masts, spares, rigging, boats, anchors, cables, chains, tackle, tools, pumps and pumping equipment, apparel, furniture, fittings and equipment, spare parts and all other appurtenances to said Vessel appertaining or belonging, whether now owned or hereafter acquired whether on board or not and all additions, improvements, renewals and replacements hereafter made in or to said Vessel or said appurtenances. TO HAVE AND TO HOLD, all and singular, the above mortgaged and described property unto the Mortgagee, to its own use, benefit and behoof forever; PROVIDED, HOWEVER, and these presents are upon the condition that, if the above-mentioned principal of and interest on the Secretary's Note are paid or satisfied in accordance with the terms thereof, the Security Agreement and this Mortgage, and all other job obligations and liabilities that may be secured by the Security Agreement and this Mortgage are paid in accordance with their terms, then this Mortgage and the estate and rights hereunder shall cease, determine and be void, otherwise to remain in full force and effect. The Shipowner hereby agrees with the Mortgagee that the Vessel subject to the lien of this mortgage is to be held subject to the further agreements and conditions hereinafter set forth. ARTICLE FIRST Section 1. The execution and delivery of this Mortgage and the execution and delivery of the Secretary's Note have each been duly authorized by the Shipowner and are not in contravention of any indenture or undertaking to which the Shipowner is a party or by which it is bound. Section 2. All of the covenants and agreements on the part of the Shipowner including, without limitation, those relating to maintenance of United States citizenship; organization and existence of the Shipowner; title to and possession of the Vessel; sale, transfer or charter of the Vessel; taxes; liens; documentation of the Vessel; material changes in the Vessel; 2 21 compliance with applicable laws; maintenance of marine insurance; requisition of title; and compliance with Chapter 313 of Title 46 of the United States Code, which are set forth in, and all of the rights, immunities, powers and remedies of the Secretary which are provided for in the Security Agreement (including the Special Provisions thereof and the General Provisions of Exhibit 1 thereto), except for the Granting Clause thereof, together with all other provisions of the Security Agreement, are incorporated herein by reference with the same force and effect as though set forth at length in this Mortgage, and true copies of the form of the Special Provisions of and Exhibit 1 to the Security Agreement are annexed hereto. Section 3. A Default pursuant to the provisions of the Security Agreement shall constitute a default hereunder, and shall give the Mortgagee the rights and remedies established by Chapter 313 of Title 46 of the United States Code, and as provided in the Security Agreement. Section 4. This instrument is executed as and shall constitute an instrument supplemental to the Security Agreement, and shall be construed in connection with, and as part of, the Security Agreement. ARTICLE SECOND Section 1. This Mortgage may be executed in any number of counterparts and all such counterparts executed and delivered each as an original shall constitute but one and the same instruments. Section 2. All the covenants, promises, stipulations and agreements of the Shipowner in this Mortgage shall bind the Shipowner and its successors and assigns, and shall inure to the benefit of the Mortgagee and its successors and assigns, and all the covenants, promises, stipulations and agreements of the Mortgagee in this Mortgage contained herein, shall bind the Mortgagee and its successors and assigns, and shall inure to the benefit of the Shipowner and its successors and assigns, whether so expressed or not. Section 3. Any term used herein which is defined in the Security Agreement and which is not specifically defined herein shall have the meaning specified in the Security Agreement, unless the context otherwise requires. Section 4. No provision of this Mortgage or of the Security Agreement shall be deemed to constitute a waiver by the Mortgagee of the preferred status of the Mortgage given by 46 U.S.C. Section 31305, and any provision of this Mortgage or of the Security 3 22 Agreement which would otherwise constitute such a waiver, shall to such extent be of no force and effect. Section 5. If the Secretary's Note shall have been satisfied and discharged, and if the Shipowner shall pay or cause to be paid all other sums that may have become secured under the Security Agreement and this Mortgage, then this Mortgage and the estate and rights hereunder shall cease, determine, and become null and void; and the Secretary, on request of the Shipowner and at the Shipowner's cost and expense, shall forthwith cause satisfaction and discharge of this Mortgage to be entered upon its and other appropriate records, and shall execute and deliver to the Shipowner such instruments as may be necessary, duly acknowledging the satisfaction and discharge of this Mortgage. ARTICLE THIRD The total principal amount of the obligations that is secured by this First Preferred Ship Mortgage is ONE HUNDRED FIFTY THREE MILLION NINETY ONE THOUSAND DOLLARS AND NO/100's ($153,091,000) (together with any additional sums owed by the Shipowner to the Secretary pursuant to the provisions of the Security Agreement including, but not limited to, sections 2.14 and 6.05), excluding interest, expenses, and fees (such as custodial costs and attorneys' fees). The date of maturity is July 1, 2010. 4 23 IN WITNESS WHEREOF, this instrument has been executed on the date below indicated, and effective as of the day and year first above written. ROWAN COMPANIES, INC., as Shipowner [SEAL] BY: ----------------------------------- Senior Vice President Date Signed: --------------------- Attest: - ------------------------------- Secretary CONSENTED TO: UNITED STATES OF AMERICA SECRETARY OF TRANSPORTATION acting by and through the MARITIME ADMINISTRATOR By: ----------------------------------- Secretary Maritime Administration 5 24 ACKNOWLEDGEMENT DISTRICT OF COLUMBIA ) ) ss: CITY OF WASHINGTON ) On this day _____ of ____________, 19__, before me, _________________, a Notary Public in and for the District of Columbia, personally appeared ______________________, duly known to me to be the Senior Vice President of ROWAN COMPANIES, INC., a Delaware corporation, the corporation described in and that executed the instrument hereto annexed and acknowledged to me that the seal affixed to said instrument is such corporation's seal, that it was so affixed by authority set forth in the By-laws or said corporation, and that he/she signed his/her name thereto by like authority. ------------------------------------------------ NOTARY PUBLIC My Commission Expires: [NOTARIAL SEAL] 6 25 ACKNOWLEDGEMENT DISTRICT OF COLUMBIA ) ) ss: CITY OF WASHINGTON ) I, the undersigned, a Notary Public in and for the District of Columbia, do hereby certify that _____________, Secretary of the Maritime Administration, personally appeared before me in said District, the aforesaid officer being personally well known to me as the person who executed the Mortgage hereto annexed, and acknowledged the same to be his/her act and deed as said officer. Given under my hand and seal this ____ day of ______________. ------------------------------------------------ NOTARY PUBLIC My Commission Expires: [NOTARIAL STAMP AND SEAL] 7 EX-10.U 6 CREDIT AGREEMENT & TRUST INDENTURE - 12/17/96 1 EXHIBIT 10u CREDIT AGREEMENT dated as of December 17, 1996 between ROWAN COMPANIES, INC. as Shipowner and CITIBANK, N.A. as the Lender 2 TABLE OF CONTENTS SECTION 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.01 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.02 Principles of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 2. THE CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.01 Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.02 Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.03 Disbursements and Minimum Amount of Utilizations . . . . . . . . . . . . . . . . . . . . . 2 2.04 Floating Rate Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 3. DISBURSEMENT REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3.01 Disbursement Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 4. TERMS OF THE CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4.01 Principal Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4.02 Interest Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4.03 Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.04 Recapture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.05 Evidence of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4.06 Limit of United States Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 5. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5.01 Conditions Precedent to Lender's Obligations Under this Agreement . . . . . . . . . . . . 6 5.02 Conditions Precedent to Each Disbursement . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 6. FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 6.01 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 6.02 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 6.03 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 6.04 Additional or Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 7. PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 7.01 Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 7.02 Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 8. REPRESENTATIONS AND WARRANTIES BY THE SHIPOWNER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 8.01 Representations and Warranties of the Shipowner . . . . . . . . . . . . . . . . . . . . . 12 8.02 Agreements of the Shipowner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 9. CANCELLATION, SUSPENSION AND EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 9.01 Cancellation by the Shipowner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 9.02 [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 9.03 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 10. GOVERNING LAW AND JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 10.01 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 10.02 Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 10.03 Waiver of Security Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 10.04 No Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3 SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 11.01 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 11.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 11.03 Disposition of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 11.04 Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 11.05 No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 11.06 Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 11.07 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 11.08 Amendment or Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 11.09 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 11.10 Benefit of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 11.11 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 11.12 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 11.13 Shipowner Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 11.14 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Exhibits Exhibit 1 Schedule of Definitions Annexes Annex A Form of Disbursement Requests 4 THIS CREDIT AGREEMENT, dated as of December 17, 1996, is made by and between ROWAN COMPANIES, INC., a Delaware corporation, as the Shipowner, and CITIBANK, N.A., a national banking association, as the Lender. BACKGROUND WHEREAS: (A) by this Agreement, the Lender has established a credit facility (the "Credit Facility") in the amount of $153,091,000, pursuant to which the Lender shall, subject to the terms and conditions hereof, extend financing to the Shipowner (i) for the manufacture, construction, fabrication, financing and purchase by the Shipowner of the Vessel; (ii) for the payment of the related Construction Period Interest; and (iii) for the payment of the Guarantee Fees; (B) the establishment of the Credit Facility is in reliance upon the commitment of the United States to guarantee the payment of the unpaid interest on, and the unpaid balance of the principal of, the Floating Rate Note, including interest accruing between the date of an Indenture Default under the Floating Rate Note and the payment in full of the Guarantee; (C) a condition to the Lender's extension of the Credit Facility under this Agreement is the Lender's timely receipt of Certificates Authorizing Disbursement and issuance of the Guarantee of the Floating Rate Note; and (D) the Credit Facility may be utilized by the Shipowner in accordance with the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows: SECTION 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION 1.01 Defined Terms. For the purposes of this Agreement, unless otherwise defined herein, defined terms shall have the meanings specified in Exhibit 1 hereto. 1.02 Principles of Construction. (a) The meanings set forth for defined terms in this Agreement shall be equally applicable to both the singular and plural forms of the terms defined. (b) Unless otherwise specified, all references in this Agreement to Annexes or Exhibits are to Annexes or Exhibits in or to this Agreement. 5 -2- (c) The headings of the Sections in this Agreement are included for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. SECTION 2. THE CREDIT FACILITY 2.01 Amount. The Lender hereby establishes the Credit Facility, upon the terms and conditions set forth in this Agreement, in favor of the Shipowner in the maximum amount of $153,091,000 (the "Credit Facility Amount"), to enable the Shipowner to finance: (i) the manufacture, construction, fabrication, financing and purchase of the Vessel; (ii) Construction Period Interest; and (iii) the Guarantee Fees. The Lender will, subject to the terms and conditions provided herein, be obligated to fund under the Credit Facility the amount (the "Available Amount") which is equal to the excess, if any, of the Credit Facility Amount over the outstanding principal amount evidenced by the Floating Rate Note ("Outstanding Principal"). 2.02 Availability. Disbursements under the Credit Facility may be made once a calendar month and up to and including the Final Disbursement Date. "Final Disbursement Date" shall mean either October 31, 1998 or, if earlier, the date on which the Available Amount under the Credit Facility is cancelled in accordance with Section 9.01 or reduced to zero. 2.03 Disbursements and Minimum Amount of Utilizations. Upon satisfaction of Sections 3.01, 5.01 and 5.02, disbursements shall be made by advances from the Lender to the Shipowner ("Disbursements") in accordance with Section 3.01. Notwithstanding anything in this Agreement to the contrary, the Shipowner may not request a Disbursement under the Credit Facility for an amount (a) less than the smaller of (i) $1,000,000 or (ii) the Available Amount or (b) more than the Available Amount. 2.04 Floating Rate Note. Disbursements from the Credit Facility shall become the indebtedness of the Shipowner to the Lender under the Floating Rate Note. SECTION 3. DISBURSEMENT REQUIREMENTS 3.01 Disbursement Procedures. Upon receipt of each Certificate Authorizing Disbursement at least five Business Days prior to the proposed disbursement date, the Lender shall disburse funds in accordance with the terms of such Certificate Authorizing Disbursement to the Shipowner subject to the terms of this Agreement; provided that, if the Certificate Authorizing Disbursement and the request for disbursement referred to therein do not specify a disbursement date, then the disbursement date shall be the fifth Business Day (or such earlier or later Business Day as is requested by the Shipowner and is acceptable to the Lender) following the Lender's receipt of such Certificate Authorizing Disbursement. Promptly following each Disbursement, the Lender shall transmit to the Indenture Trustee a copy of the Certificate Authorizing Disbursement, a confirmation that the Disbursement was made, and a copy of Exhibit A to the Floating Rate Note, updated to reflect such Disbursement and other intervening, related events. SECTION 4. TERMS OF THE CREDIT 4.01 Principal Repayment. The Shipowner shall repay all Outstanding Principal in twenty-four (24) approximately equal, successive semi-annual installments, with each such installment to be payable on a Payment Date, provided that, on the last Payment Date, the Shipowner shall repay in full the remaining Outstanding Principal. 6 -3- 4.02 Interest Payment. (a) On each Interest Payment Date the Shipowner shall pay interest on the Outstanding Principal, calculated at an interest rate per annum equal to the Applicable Interest Rate therefor, as determined for each successive Interest Period. The interest rate on such amount shall be determined by the Indenture Trustee pursuant to the definition of Applicable Interest Rate. From time to time, the Lender will confirm LIBOR, Base Rate, and Applicable Interest Rate to the Indenture Trustee, provided, however, such confirmation shall not relieve the Indenture Trustee of its obligations under the Indenture to determine the Applicable Interest Rate. (b) The Shipowner shall pay to the Person entitled to any Unpaid Amount, on demand, interest on such Unpaid Amount (to the extent permitted by applicable law) for each Post Maturity Period at an interest rate per annum equal to the sum (the "Post Maturity Interest Rate") of (1) two percent (2%), plus (2) the Post Maturity Applicable Interest Rate. With respect to any Unpaid Amounts, the "Post Maturity Applicable Interest Rate" shall mean either (i) LIBOR on the Quotation Date therefor plus during the Construction Period, nine-twentieths of one percent (0.45%) per annum and thereafter, one-half of one percent (0.50%) per annum, or (ii) if, for any such Post Maturity Period, LIBOR cannot be determined, the rate per annum reasonably determined by the Person to whom such Unpaid Amount is owed before the last day of such Post Maturity Period to be that which expresses as a percentage rate per annum the cost which such Person would incur in funding such Unpaid Amount from whatever source it reasonably deems appropriate for such Post Maturity Period plus during the Construction Period, nine-twentieths of one percent (0.45%) per annum and thereafter, one-half of one percent (0.50%) per annum or (iii) if any such Unpaid Amount is an Accelerated Repayment, then during the first Post Maturity Period the rate which would have been applicable to such Unpaid Amount had it not so fallen due. In the absence of an Indenture Default, any interest which shall have accrued under this Section 4.02(b) in respect of an Unpaid Amount shall be due and payable and shall be paid by the Shipowner on demand on such dates as the Person to whom such Unpaid Amount is owed may specify by written notice to the Shipowner, or if there is an Indenture Default, any interest which shall have accrued under this Section 4.02(b) in respect of an Unpaid Amount shall be due and payable immediately and shall be paid by the Shipowner without demand and any payment by, or on behalf of, the Shipowner hereunder shall be governed by Section 7.02 and the provisions of the last paragraph of Section 9.03. As used herein, "Unpaid Amount" means all or any part of principal, accrued interest, fees or other amounts owing to the Lender under this Agreement or the Floating Rate Note which is not paid in full when and as due and payable, whether at Stated Maturity, by acceleration or otherwise, or any sum due and payable by the Shipowner to the Lender under any judgment of any court or arbitral tribunal in connection with this Agreement which is not paid on the date of such judgment; provided, however, that it is agreed that Unpaid Amount shall not include any part of the principal and interest on the Floating Rate Note, except that Unpaid Amount shall include all such amounts thereof as are not paid by the Shipowner as and when they are due but are paid by the Shipowner prior to payment thereof by the Secretary. "LIBOR" shall mean, in relation to any Post Maturity Period (other than the first Post Maturity Period contemplated by clause (iii) of Section 4.02(b)), the rate of interest per annum (rounded upward, if necessary, to the nearest 1/16 of 1%) last quoted by the principal London office of CITIBANK, N.A. prior to the close of business at such London office on the Quotation Date for the offering to leading banks in the London interbank market of U.S. Dollar deposits on an overnight basis and in an amount comparable to the Unpaid Amount to which LIBOR is to apply. "Accelerated Repayment" shall mean any part of the principal of the Floating Rate Note which became due and payable on a day other than its Payment Date. "Post Maturity Period" shall mean with respect to the period from the date an Unpaid Amount was due until such amount shall have been paid in full, each successive period, the first of which shall start on the date such Unpaid Amount was due (or the date of any such judgment or arbitral award, if earlier) and each other of which shall start on the last day of the preceding such period, and the duration of each of which shall be one day, or if LIBOR applies, then from and including the Quotation Date for such Post Maturity Period to but excluding the next Quotation Date or such other duration selected by the Person to whom such Unpaid Amount is due, provided, however, that in the case of any Accelerated Repayment, the first such Post Maturity Period applicable thereto shall be of a duration equal to the unexpired portion of its then applicable Interest Period. "Quotation Date" in relation to any Post Maturity Period means the day on which quotations would ordinarily be given by CITIBANK, N.A. in the London interbank market 7 -4- for dollar deposits for delivery on the first day of that period, provided, however, that if, for any such Post Maturity Period, quotations would ordinarily be given on more than one date, the Quotation Date for that period shall be the last of those dates. 4.03 Prepayment. (a) The Shipowner may from time to time prepay on any Interest Payment Date all or part of the Outstanding Principal evidenced by the Floating Rate Note, provided that: (i) any partial prepayment shall be in a minimum principal amount of $10,000,000, unless otherwise required by the Indenture; (ii) the Shipowner shall have given the Lender and the Indenture Trustee prior written notice of the prepayment (which shall be not less than 40 nor more than 60 days); (iii) the Shipowner shall have paid in full all amounts due under this Agreement as of the date of such prepayment, including, without limitation, interest which has accrued to the date of prepayment on the amount prepaid and all other amounts payable hereunder relating to the prepayment; and (iv) any amount prepaid hereunder shall not be considered part of the Available Amount. (b) Upon delivery to the Shipowner and the Secretary of the instrument satisfying and discharging the Indenture contemplated by Section 12.01 of the Exhibit 1 to the Indenture, all of the Shipowner's indebtedness, liabilities and obligations under this Agreement and the Fee Letter shall become immediately due and payable without demand upon, or notice to, the Shipowner. (c) Notwithstanding any other provision to the contrary herein, the Shipowner or the Secretary (after the Secretary's assumption of the Floating Rate Note pursuant to Section 6.09 of Exhibit 1 to the Indenture) may from time to time prepay all or part of the principal amount of the Floating Rate Note without any prepayment penalty or premium in accordance with Article III of Exhibit 1 to the Indenture. 4.04 Recapture. (a) The Shipowner shall pay to the Lender, upon the written request of the Lender, such amounts as shall be sufficient (in the reasonable judgment of the Lender) to compensate the Lender for any loss, expense or liability (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or redeployment of deposits from third parties or in connection with obtaining funds to make or maintain any Disbursement) which the Lender reasonably determines is attributable to: (i) any failure to make scheduled payments on a Payment Date or any payment due in connection with any Redemption; or (ii) any failure by the Shipowner to borrow any advance for which a Certificate Authorizing Disbursement has been issued; or (iii) any revocation of a notice of prepayment given pursuant to Section 4.03(a); or (iv) any prepayment of the Floating Rate Note (including, without limitation, due to the issuance of any fixed rate notes) other than on an Interest Payment Date after giving five Business Days prior written notice to the Lender. (b) Without prejudice to any other provision hereof (and at the Shipowner's expense), the Lender shall use such reasonable efforts as it shall determine in its sole discretion to minimize any loss, expense or liability to the extent possible. 4.05 Evidence of Debt. The Shipowner agrees that to evidence further its obligation to repay all amounts disbursed under the Credit Facility, with interest accrued thereon, it shall issue and deliver to the Lender the Floating Rate Note. The Floating Rate Note shall (i) be in the form of Exhibit 2 to the Indenture; (ii) bear the Secretary's Guarantee, and (iii) be valid and enforceable as to its principal amount at any time only to the extent of the aggregate amounts then disbursed and outstanding thereunder, and, as to interest, only to the extent of the interest accrued thereon at the rate guaranteed by the Secretary; with any interest in excess thereof being evidenced by this Agreement. 8 -5- 4.06 Limit of United States Guarantee. None of the interest, fees, and expenses arising under Section 6 and none of the Indemnified Amounts, commissions, Taxes, Other Taxes, Post Maturity Interest Rate, interest in excess of 10.25% under the Floating Rate Note, the costs of obtaining any interest rate protection, or any other charges, costs, expenses, or indebtedness owed by the Shipowner under this Agreement to any Person is guaranteed by the United States. The Guarantee of the United States extends only to the principal and interest owed under the Floating Rate Note and only to the extent specified therein. SECTION 5. CONDITIONS PRECEDENT 5.01 Conditions Precedent to Lender's Obligations Under this Agreement. The obligations of the Lender under this Agreement shall be subject to the delivery to the Lender of the following documents on or before the Closing Date: 9 -6- (a) This Agreement, the Floating Rate Note and the Fee Letter. This Agreement and the Fee Letter, each fully executed by the parties thereto in form and substance satisfactory to the Lender, which shall be in full force and effect and the Floating Rate Note shall have been fully executed by the Shipowner, endorsed by, or on behalf of, the United States, and delivered to the Lender and all amounts then payable under the Fee Letter shall have been paid to the Person entitled thereto. (b) Existence. Evidence in form and substance satisfactory to the Lender that the Shipowner is duly organized, validly existing and in good standing under the laws of the State of Delaware, with full power, authority and legal right to own its property and to carry on its business as now conducted. (c) Authority. Evidence in form and substance satisfactory to the Lender of the authority of the Shipowner to execute, deliver, perform and observe the terms and conditions of this Agreement, the Floating Rate Note, and the Indenture and evidence of authority (including specimen signatures) for each Person who, on behalf of the Shipowner, signed this Agreement, the Floating Rate Note, and the Indenture, or will otherwise act as representatives of the Shipowner in the operation of the Credit Facility. (d) Governmental and Other Authorizations. Copies, certified as true copies by a duly authorized officer of the Shipowner, of each consent, license, authorization or approval of, and exemption by, any Governmental Authority and any governmental authorities within the United States or elsewhere, which are necessary or advisable (i) for the execution, delivery, performance and observance by the Shipowner of this Agreement, the Floating Rate Note and the Indenture; and (ii) for the validity, binding effect and enforceability of this Agreement, the Floating Rate Note and the Indenture, or if none is necessary, a written certification from the Shipowner that none is necessary. (e) Legal Opinions. (1) Opinion of legal counsel for the Shipowner concerning this Agreement, the Floating Rate Note, and the Indenture; (2) Opinion of the Chief Counsel of the Maritime Administration dated the Closing Date, signed by or on behalf of such Chief Counsel, addressed to the Lender to the effect that the Guarantees and the Authorization Agreement have been or will be duly authorized, executed and delivered by the United States of America, and constitute legal, valid, and binding obligations of the United States of America enforceable in accordance with their respective terms; and (3) Opinion of Mayer, Brown & Platt addressed to the Lender and the Indenture Trustee concerning this Agreement, the Indenture and the Floating Rate Note. (f) Guarantee Commitment. A copy of the fully executed Guarantee Commitment, which shall be in full force and effect until completion of the Closing. (g) Authorization Agreement. The fully executed Authorization Agreement, which shall be in full force and effect. (h) Indenture. The fully executed Indenture, which shall be in full force and effect. 5.02 Conditions Precedent to Each Disbursement. The obligation of the Lender to make any Disbursement, including the first Disbursement, shall be subject only to the Lender's receipt of a Certificate Authorizing Disbursement and the Lender may conclusively rely thereon. 10 -7- SECTION 6. FEES AND EXPENSES 6.01 Fees. The Shipowner shall pay or cause to be paid to the Person entitled thereto such fees and other amounts as are set forth in that certain Fee Letter (as amended, restated or otherwise modified from time to time with the prior written consent of the Secretary, the "Fee Letter") dated as of December 17, 1996 by the Shipowner and accepted by, among others, the Lender, in each case when and as due. 6.02 Taxes. (a) The Shipowner agrees to pay all amounts owing by it under this Agreement or the Floating Rate Note free and clear of and without deduction for any and all present and future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding in the case of the Lender, taxes imposed on its income, and franchise taxes imposed on it in lieu of income taxes, by either (i) the jurisdiction under the laws of which the Lender is organized or any political subdivision thereof, or (ii) the jurisdiction of the Lender's applicable lending office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to as "Taxes"). In addition, the Shipowner agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the Floating Rate Note or from the execution, delivery, or registration of, or otherwise with respect to, this Agreement or the Floating Rate Note (hereinafter referred to as "Other Taxes"). (b) The Shipowner further agrees: (i) that, if the Shipowner is prevented by operation of law from paying any such Taxes or Other Taxes, or if any such Taxes or Other Taxes are required to be deducted or withheld, then the fees or expenses required to be paid under this Agreement shall, on an after-tax basis, be increased by the amount necessary to yield to the Lender fees or expenses in the amounts provided for in this Agreement after the provision for the payment of all such Taxes and Other Taxes; (ii) that the Shipowner shall, at the request of the Lender, execute and deliver to the Lender such further instruments as may be necessary or desirable to effect the payment of the increased amounts as provided for in subsection (i) above, provided, however, that the Shipowner may not amend the Floating Rate Note without the prior written consent of the Secretary; (iii) that the Shipowner shall hold the Lender harmless from and against the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 6.02) and any and all liabilities (including, without limitation, penalties, interest and expenses) arising from, or with respect to, any Taxes or Other Taxes (whether or not properly or legally asserted) and whether paid, or payable, by the Shipowner, the Lender or any other Person; (iv) that, at the request of the Lender, the Shipowner shall provide the Lender within the later of thirty (30) calendar days after such request or thirty (30) calendar days after the payment of such Taxes or Other Taxes, a copy evidencing the payment of any Taxes or Other Taxes by the Shipowner; and (v) that each payment under this Section 6.02 shall be made within 30 days from the date the Lender makes written demand therefor. Each demand for payment by the Lender under Section 6.02(b)(v) for amounts paid or incurred by the Lender shall be accompanied by a certificate (with accompanying documentation supporting the demand) showing in reasonable detail the basis for the calculation of the amounts demanded, which certificate, in the absence of manifest error, shall be conclusive and binding for all purposes. 11 -8- (c) Notwithstanding anything to the contrary contained herein, the agreements in this Section 6.02 shall survive the termination of this Agreement and the payment of the Floating Rate Note and all other amounts due hereunder. 6.03 Expenses. The Shipowner agrees, whether or not the transactions hereby contemplated shall be consummated, to pay, or reimburse the Lender promptly upon demand for the payment of all reasonable and duly documented costs and expenses arising in connection with the preparation, printing, execution, delivery, registration, implementation, modification of or waiver or consent under this Agreement, the Floating Rate Note or the Indenture, including, without limitation, the reasonable and duly documented out-of-pocket expenses of the Lender (incurred in respect of telecommunications, mail or courier service, travel and the like), and the fees and expenses of counsel for the Lender. The Shipowner shall also pay all of the costs and expenses (including, without limitation, the fees and expenses of counsel) incurred by or charged to the Lender in connection with the amendment or enforcement of this Agreement, the Floating Rate Note or the Indenture or the protection or preservation of any right or claim of the Lender arising out of this Agreement, the Floating Rate Note or the Indenture. 6.04 Additional or Increased Costs. (a) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to the Lender of agreeing to make or making, funding or maintaining the Disbursements or the Credit Facility, then the Shipowner shall from time to time, upon demand by the Lender, pay to the Lender additional amounts sufficient to compensate the Lender for such increased cost. (b) If the Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required to be maintained by the Lender or any corporation controlling the Lender and that the amount of such capital is increased by or based upon the existence of the Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by the Lender, the Shipowner shall immediately pay to the Lender, from time to time as specified by the Lender, additional amounts sufficient to compensate the Lender or such corporation in the light of such circumstances, to the extent that the Lender reasonably determines such increase in capital to be allocable to the existence of the Lender's commitment to lend hereunder. (c) The Lender shall take such reasonable steps as it shall determine to minimize amounts demanded under this Section 6.04. In the event that the Lender transfers the booking office of the Credit Facility or the Floating Rate Note to minimize amounts demanded under this Section 6.04, any costs and expenses incurred in such transfer shall be paid by the Shipowner. (d) Each demand for payment by the Lender under this Section 6.04 shall be accompanied by a certificate showing in reasonable detail the basis for the calculation of the amounts demanded, which certificate, in the absence of manifest error, shall be conclusive and binding for all purposes. (e) The Lender shall notify the Shipowner of any event occurring after the date of this Agreement which entitles the Lender to compensation pursuant to this Section 6.04, as promptly as practicable, and in any event within ninety (90) days after it has knowledge of such event and has determined that a request for compensation hereunder shall be made. The Shipowner shall not be obligated to reimburse the Lender for any loss or cost incurred more than ninety (90) days prior to delivery of notice to the Shipowner by the Lender requesting compensation under this Section 6.04. 12 -9- SECTION 7. PAYMENTS 7.01 Method of Payment. (a) All payments to be made by the Shipowner under this Agreement and the Floating Rate Note shall be made without set-off or counterclaim in Dollars in immediately available and freely transferable funds no later than 11:00 A.M. (New York City time) on the date on which due. The Shipowner shall pay the principal and the guaranteed amount of the Applicable Interest Rate on the Floating Rate Note to the Indenture Trustee and all other amounts due under this Agreement directly to the Person entitled thereto, in each case, by wire transfer in same day and immediately available and freely transferable funds. Wire transfer instructions shall be provided to the Shipowner. (b) Except as otherwise provided herein, whenever any payment would otherwise fall due on a day which is not a Business Day, the due date for payment shall be the immediately succeeding Business Day, and interest and fees shall be computed in accordance with Section 11.01. 7.02 Application of Payments. In the absence of an Indenture Default, the Lender shall apply payments received by it under this Agreement and the Floating Rate Note (whether at Stated Maturity, by reason of acceleration, prepayment or otherwise), in the following order of priority: (i) interest due pursuant to Section 4.02(a); (ii) installments of principal due; (iii) interest due pursuant to Section 4.02(b) other than the amount described in clause (i) above; (iv) all amounts due under the Fee Letter; and (v) all other amounts due under this Agreement and not otherwise provided for in this Section 7.02. Upon the occurrence of an Indenture Default, the Lender shall hold any payments it receives after an Indenture Default from, or on behalf of, the Shipowner under this Agreement, the Fee Letter and any related agreement (excluding the Floating Rate Note) and shall promptly deliver such payments to the Secretary if the Secretary has been required to honor a Guarantee as a result of said Indenture Default. All such amounts received during an Indenture Default and delivered to the Secretary in accordance with the preceding sentence shall be applied first to pay, satisfy and discharge all amounts owed by the Shipowner to the Secretary under the Secretary's Note and the Mortgage and then to pay, satisfy and discharge any and all amounts owed to the Lender. SECTION 8. REPRESENTATIONS AND WARRANTIES BY THE SHIPOWNER 8.01 Representations and Warranties of the Shipowner. The Shipowner represents and warrants to the Lender that, as of the Closing Date: (a) Existence and Authority. The Shipowner is duly organized, validly existing under the laws of the State of Delaware, is in good standing under the laws of the State of Delaware, has been duly qualified to do business in, and is in good standing as a foreign corporation in each jurisdiction in which the conduct of its business or the ownership of its properties requires it to be so qualified, has full power, authority and legal right to own its properties and conduct its business as it is presently now conducted, and is a "citizen of the United States" within the meaning of Section 2 of the Shipping Act, 1916, as amended, for the purpose of operating the Vessel in the trades or manner in which the Shipowner proposes to operate the Vessel. The Shipowner has full power, authority and legal right (i) to execute and deliver this Agreement, the Floating Rate Note and the Indenture, (ii) to perform and observe the terms and provisions of each of said documents to be performed or observed by it, (iii) to consummate the transactions contemplated thereby and (iv) to own its properties (including, without limitation, the Vessel owned or to be owned by it) and conduct its business as presently conducted. (b) Government and Other Authorizations. All consents, licenses, authorizations and approvals of, and exemptions by, any Governmental Authority and any governmental authorities within the United States or elsewhere and any other Persons that are necessary or advisable: (i) for the execution, delivery, performance and 13 -10- observance by the Shipowner of this Agreement, the Floating Rate Note, and the Indenture; and (ii) for the validity, binding effect and enforceability of this Agreement, the Floating Rate Note, and the Indenture have been obtained and are in full force and effect. (c) Restrictions. The execution, delivery and performance or observance by the Shipowner of the terms of, and consummation by the Shipowner of the transactions contemplated by, this Agreement, the Floating Rate Note, and the Indenture do not and will not conflict with or result in a breach or violation of: (i) the charter, by-laws or similar documents of the Shipowner; (ii) any federal or state law of the United States or any other ordinance, decree, constitutional provision, regulation or other requirement of any Governmental Authority (including, without limitation, any restriction on interest that may be paid by the Shipowner); or (iii) any order, writ, injunction, judgment or decree of any court or other tribunal. Further, the execution, delivery and performance or observance by the Shipowner of the terms of, and consummation by the Shipowner of the transactions contemplated by, this Agreement, the Floating Rate Note, and the Indenture does not and will not conflict with or result in a breach of any agreement or instrument to which the Shipowner is a party, or by which it or any of its revenues, properties or assets may be subject, or result in the creation or imposition of any Lien upon any of the revenues, properties or assets of the Shipowner pursuant to any such agreement or instrument. "Lien" shall mean any lien, lease, mortgage, pledge, hypothecation, preferential arrangement relating to payments, or other encumbrance or security interest. (d) Binding Effect. This Agreement, the Floating Rate Note, and the Indenture which have been executed on or before the date hereof have been duly executed and delivered by the Shipowner. Each of the Agreement, the Floating Rate Note, and the Indenture constitutes, and each of the Agreement, the Floating Rate Note, and the Indenture as it may hereafter be amended will constitute, a direct, general and unconditional obligation of the Shipowner which is legal, valid and binding upon the Shipowner and enforceable against the Shipowner in accordance with its respective terms. All obligations evidenced by the Floating Rate Note will be entitled to the benefits of the Guarantees and the Authorization Agreement. (e) Choice of Law. Under applicable conflict of laws principles, the choice of law provisions of this Agreement, the Floating Rate Note and the Indenture are valid, binding and not subject to revocation by the Shipowner, and, in any proceedings brought for enforcement of this Agreement, the Indenture or the Floating Rate Note, the choice of the law of the State of New York as the governing law of such documents will be recognized and such law will be applied. (f) Legal Proceedings. No legal proceedings are pending or, to the best of the Shipowner's knowledge, threatened before any court or governmental agency which might: (i) materially and adversely affect the Shipowner's financial condition, business or operations; (ii) restrain or enjoin or have the effect of restraining or enjoining the performance or observance of the terms and conditions of any of this Agreement, the Indenture or the Floating Rate Note; or (iii) in any other manner question the validity, binding effect or enforceability of any of this Agreement, the Indenture or the Floating Rate Note. (g) Use of the Vessel. The Vessel will be used for lawful purposes. (h) Shipowner Financial Statements. The Shipowner Financial Statements present fairly the financial condition of the Shipowner at the date of such statements and the results of the operations of the Shipowner for such fiscal year. The Shipowner Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States consistently applied. Except as fully reflected in the Shipowner Financial Statements, there are no liabilities or obligations with respect to the Shipowner of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) for the period to which the Shipowner Financial Statements relate that, either individually or in the aggregate, would be material to the Shipowner. Since the date of the most recent audited Shipowner Financial Statements, there has been no material adverse change in the financial condition, business prospects or operations of the Shipowner. "Shipowner Financial Statements" shall mean the financial statements of the Shipowner furnished to the Lender prior to the date of this Agreement. 14 -11- (i) No Taxes. There is no Tax imposed on or in connection with: (i) the execution, delivery or performance of this Agreement, the Indenture or the Floating Rate Note; (ii) the enforcement of this Agreement, the Indenture or the Floating Rate Note; or (iii) on any payment to be made to the Lender under this Agreement or the Floating Rate Note. (j) Laws. None of this Agreement, the Indenture, the Floating Rate Note, the transactions contemplated thereunder nor any Person party to this Agreement, the Indenture or the Floating Rate Note is required to qualify under the Trust Indenture Act or register or qualify under any securities law. (k) Defaults. No Event of Default has occurred and is continuing and no event or circumstance has occurred and is continuing which with the passage of time, the giving of notice or both would constitute an Event of Default. 8.02 Agreements of the Shipowner. The Shipowner agrees that until all amounts owing under this Agreement and the Floating Rate Note have been paid in full, the Shipowner will, unless the Lender shall have consented in writing: (a) Interest Rate Protection. At all times that (1) a Floating Rate Note exists and (2) the Applicable Interest Rate is greater than 9.5%, the Shipowner (at its expense) within 15 Business Days thereafter, shall (A) enter into, and thereafter maintain in full force and effect, an amortizing interest rate cap agreement with a strike price providing for a cap based on the Applicable Interest Rate not in excess of 10.25% per annum and otherwise acceptable to the Lender, with a counterparty rated "A" or better by any nationally recognized rating agency or such other counterparty reasonably acceptable to the Lender, covering the Floating Rate Note and based on the expected amortization schedule of such Note, and (B) execute such documents and instruments as may be necessary, or in the opinion of the Lender desirable, to effect the assignment of its rights thereunder to the Lender in every case with such terms as are reasonably acceptable to the Lender for the protection of the Lender. If the Shipowner fails to satisfy the requirements of this Section 8.02(a) within the 15 Business Days set forth above, the Lender may (in its sole discretion) and if the Lender so elects, the Shipowner hereby authorizes and directs the Lender to, satisfy the requirements of this Section 8.02(a), all at the expense of the Shipowner, due on demand. (b) Notice of Defaults. Promptly, but in no event later than ten (10) days after the occurrence of an Indenture Default or an Event of Default of which the Shipowner has knowledge, notify the Lender and the Indenture Trustee of any report required by the Shipowner Documents (or any other document entered into by the Shipowner in connection therewith), and send a copy thereof to the Lender, in each case by telecopier or hand delivery. (c) Financial Reports. Beginning with the fiscal year in which this Agreement is executed and continuing until all amounts owing under this Agreement and the Floating Rate Note have been paid in full, the Shipowner shall furnish to the Lender a copy of all financial reports furnished to the Secretary pursuant to the Title XI Reserve Fund and Financial Agreement. (d) [Intentionally Omitted] (e) Other Acts. From time to time, do and perform any and all acts and execute any and all documents as may be necessary or as reasonably requested by the Lender or the Indenture Trustee in order to effect the purposes of this Agreement and to protect the interests of the Lender in the Floating Rate Note and the interests of the Lender in the Guarantee. (f) Use of Proceeds. Use proceeds from each Disbursement solely to finance: (i) the manufacture, construction, fabrication, financing and purchase of the Vessel; (ii) Construction Period Interest; and (iii) the Guarantee Fees. Use the proceeds from the issuance of any fixed rate notes to repay amounts owed under the 15 -12- Floating Rate Note or to finance: (i) the manufacture, construction, fabrication, financing and purchase of the Vessel; (ii) Construction Period Interest; and (iii) the Guarantee Fees. (g) Successors. Require that any successor to all or substantially all of its business as a result of any merger or consolidation with any other entity; dissolution or termination of legal existence; sale, lease, transfer or other disposal of any substantial part of its properties or any of its properties essential to the conduct of its business or operations, as now or hereafter conducted; any change in control; any agreement to do any of, or any combination of, the foregoing, to assume all of the Shipowner's indebtedness, liabilities and obligations under this Agreement and the Floating Rate Note. SECTION 9. CANCELLATION, SUSPENSION AND EVENTS OF DEFAULT 9.01 Cancellation by the Shipowner. The Shipowner may cancel at any time all or any part of the Available Amount of the Credit Facility, provided that (i) thirty (30) days' prior irrevocable written notice is given to the Lender, the Indenture Trustee, and the Secretary and (ii) the Shipowner shall have paid to the Lender any commitment fees accrued and unpaid under Section 6.01 and all other amounts due and payable under this Agreement and the Floating Rate Note as of the proposed date of cancellation. In the absence of an Indenture Default, the Lender may not for any reason cancel at any time any part of the Available Amount of the Credit Facility. 9.02 [Intentionally Omitted] 9.03 Events of Default. Upon the occurrence of any of the following events or conditions (each, an "Event of Default"): (a) any failure by the Shipowner to pay when and as due any amount owing under this Agreement, but which is not guaranteed by the Secretary; or (b) any failure by the Shipowner to comply with its obligations under Section 8.02(b) or 8.02(f); or any failure by the Shipowner to perform or comply with any of its agreements set forth in this Agreement (exclusive of any events specified as an Event of Default in any other subsection of this Section 9.03 and exclusive of Section 8.02(a)), which failure, if capable of being cured, remains uncured for a period of thirty (30) days after written notice thereof has been given to the Shipowner by the Lender; or (c) the Shipowner shall be unable to pay its debts when and as they fall due or shall admit in writing its inability to pay its debts as they fall due or shall become insolvent; or the Shipowner shall apply for or consent to the appointment of any liquidator, receiver, trustee or administrator for all or a substantial part of its business, properties, assets or revenues; or a liquidator, receiver, trustee or administrator shall be appointed for the Shipowner and such appointment shall continue undismissed, undischarged or unstayed for a period of thirty (30) days, or the Shipowner shall institute (by petition, application, answer, consent or otherwise) any bankruptcy, arrangement, readjustment of debt, dissolution, liquidation or similar executory or judicial proceeding; or a bankruptcy, arrangement, readjustment of debt, dissolution, liquidation or similar executory or judicial proceeding shall be instituted against the Shipowner and shall remain undismissed, undischarged or unstayed for a period of thirty (30) days; or (d) an Indenture Default has occurred; then, and in any such event, and at any time thereafter, if such event is continuing, and if there is no Indenture Default (or if there is an Indenture Default, only after the Secretary has received all payments due under the Secretary's Note and the Mortgage), the Lender (by written notice to the Shipowner), shall have the right to institute any judicial or other proceedings under this Agreement to recover all amounts owing under this Agreement. The Lender agrees that so long as an Indenture Default exists, all amounts received during such period from, or on 16 -13- behalf of, the Shipowner shall be applied in the manner set forth in Section 7.02. Notwithstanding an Event of Default, the Lender may not terminate the Available Amount of the Credit Facility without the Secretary's consent; provided, however, that the Shipowner's use of the Available Amount of the Credit Facility shall remain subject to the requirements of Sections 2.02, 3.01, and 5.02. Except as expressly provided above in this Section 9.03, presentment, demand, protest and all other notices of any kind are hereby expressly waived. Notwithstanding any other provision of this Agreement, if Section 9.03(c) is applicable, the Lender may file appropriate claims in connection therewith, but shall apply any funds collected as a consequence of said filings in accordance with the provisions of Section 7.02 of this Agreement. SECTION 10. GOVERNING LAW AND JURISDICTION 10.01 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 10.02 Submission to Jurisdiction. Each of the Shipowner and the Lender hereby irrevocably agrees that any legal suit, action or proceeding arising out of or relating to this Agreement, or any of the transactions contemplated hereby, may be instituted by the other parties hereto in the Courts of the State of New York or the Federal Courts sitting in the Borough of Manhattan, City of New York, State of New York. Each of the Shipowner and the Lender hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may have now or hereafter to the laying of the venue or any objection based on forum non conveniens, or based on the grounds of jurisdiction with respect to any such legal suit, action or proceeding and irrevocably submits generally and unconditionally to the jurisdiction of any such court in any such suit, action or proceeding. Each of the Shipowner and the Lender agrees that a judgment, after exhaustion of all available appeals, in any such action or proceeding shall be conclusive and binding upon it and may be enforced in any other jurisdiction by suit upon such judgment, a certified copy of which shall be conclusive evidence of the judgment. Each of the Shipowner and the Lender waives personal service of any summons, complaint, or other process, which service may be made by such or any other means permitted by New York law. 10.03 Waiver of Security Requirements. To the extent the Shipowner may, in any action or proceeding arising out of or relating to this Agreement be entitled under applicable law to require or claim that the Lender post security for costs or take similar action, the Shipowner hereby irrevocably waives and agrees not to claim the benefit of such entitlement. 10.04 No Limitation. Nothing in this Section 10 shall affect the right of the Lender to serve process in any manner permitted by law or to commence legal proceedings or otherwise proceed against the Shipowner in any jurisdiction; provided, however, that except as provided in Section 9.03, in the event of an Indenture Default, the Lender may not proceed against the Shipowner without the Secretary's consent unless the Secretary has received full payment under the Secretary's Note. SECTION 11. MISCELLANEOUS 11.01 Computations. Each determination of an interest rate, fee or other amounts by the Lender or any other Person pursuant to any provision of this Agreement, the Fee Letter or the Floating Rate Note, in the absence of manifest error, shall be conclusive and binding on the Shipowner. All computations of interest and fees hereunder and under the Floating Rate Note shall be made on the basis of a year of three hundred sixty-five (365) days and actual days elapsed; provided, however, that LIBOR shall be determined on the basis of a year of 360 days and actual days elapsed. 11.02 Notices. Except as otherwise specified, all notices given hereunder shall be in writing, and shall be given by mail, telecopier, tested telex or personal delivery and shall be deemed to be given for the purposes of this Agreement on the day that such notice is received by the intended recipient thereof. Unless otherwise 17 -14- specified in a notice delivered in accordance with this Section 11.02, all notices shall be delivered to the parties hereto and to the Indenture Trustee and the Secretary at their respective addresses indicated below: To CITIBANK, N.A., as the Lender Address: CITIBANK, N.A. 399 Park Avenue New York, New York 10043 Attention: Structured Trade Finance Facsimile: (212) 793-2330 Telephone: (212) 559-6787 with a copy to: Citibank International Plc 335 Strand, 6th Floor London WC2R1LS England Attention: Alfred Rodrigues Telephone: 01144171500 1394 Facsimile: 01144171500 0479 To the Shipowner Address: ROWAN COMPANIES, INC. 5450 Transco Tower 2800 Post Oak Boulevard Houston, Texas 77056 Attention: Chief Financial Officer Telephone: (713) 960-7686 Facsimile: (713) 960-7660 To the Secretary Address: SECRETARY OF TRANSPORTATION c/o Maritime Administrator 400 Seventh Street, S.W. Washington, D.C. 20590 Attention: Office of Ship Finance Telephone: (202) 366-5744 Facsimile: (202) 366-7901 To the Indenture Trustee Address: CITIBANK, N.A. 120 Wall Street 13th Floor New York, New York 10043 Attention: Corporate Agency and Trust Department Telephone: (212) 412-6243 Facsimile: (212) 480-1614 18 -15- 11.03 Disposition of Indebtedness. Once the Shipowner has completely drawn down on the Credit Facility and the Available Amount is zero, the Lender may sell, assign, transfer, negotiate, or otherwise dispose of all or any part of its interest in all or any part of the Shipowner's indebtedness under this Agreement and the Floating Rate Note to any party (collectively, a "Disposition of Indebtedness"), and any such party shall enjoy all the rights and privileges of the Lender under this Agreement and the Floating Rate Note; provided, however, that each Disposition of Indebtedness to any Person other than a domestic Affiliate of the Lender shall require the prior written consent of the Shipowner (which consent shall not be unreasonably withheld or delayed); provided, further, however, that the Lender may pledge or grant participation in all or any part of its interest in all or any part of the Shipowner's indebtedness under this Agreement and the Floating Rate Note to any party at any time without the Secretary's prior written consent so long as the Lender's commitment to lend the Available Amount under this Agreement is not affected thereby and without the Shipowner's prior written consent. The Shipowner shall, at the request of the Lender, execute and deliver to the Lender or to any party that the Lender may designate, any such further instruments as may be necessary or desirable to give full force and effect to a Disposition of Indebtedness by the Lender. 11.04 Disclaimer. The Lender shall not be responsible in any way for the performance of the Construction Contract or any other Shipowner Document, and no claim against the Shipbuilder or any other Person with respect to the performance of the Construction Contract will affect the obligations of the Shipowner under this Agreement or the Floating Rate Note. 11.05 No Waiver; Remedies Cumulative. No failure or delay on the part of the Lender in exercising any right, power or privilege under this Agreement, the Floating Rate Note or the Indenture and no course of dealing between or among the Shipowner and the Lender shall operate as a waiver of the rights of the Shipowner and the Lender against each other under this Agreement; nor shall any single or partial exercise of any right, power or privilege hereunder or under the Floating Rate Note or the Indenture preclude the Shipowner and the Lender from exercising against each other any other right, power or privilege hereunder. The rights and remedies expressly provided herein are cumulative and not exclusive of any rights or remedies which the Lender would otherwise have. No notice to or demand on the Shipowner in any case shall entitle the Shipowner to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Lender under this Agreement to any other or further action in any circumstances without notice or demand. Notwithstanding any other provision to the contrary herein, no provision in this Agreement or any other related agreement preserves any rights in favor of the parties against the Secretary in the event that either party fails or delays to exercise any rights, powers, or privileges under this Agreement, the Floating Rate Note or the Indenture or engages in any particular course of dealing. 11.06 Currency. All payments of principal, interest, fees or other amounts due hereunder and under the Floating Rate Note shall be made in Dollars, regardless of any law, rule, regulation or statute, whether now or hereafter in existence or in effect in any jurisdiction, which affects or purports to affect such obligations. 11.07 Severability. To the extent permitted by applicable law, the illegality or unenforceability of any provision of this Agreement shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement. 11.08 Amendment or Waiver. This Agreement may not be changed, discharged or terminated without the written consent of the parties hereto, and no provision hereof may be waived without the written consent of the party to be bound thereby. There may be no change, discharge, termination or claim of waiver of the terms of this Agreement without the prior written consent of the Secretary, who is entitled to enforce his rights under this Agreement as an intended third party beneficiary to this Agreement. The parties hereto acknowledge, however, that nothing in this Agreement creates in either the Shipowner or the Lender any right whatsoever against the Secretary. 19 -16- 11.09 Indemnification. Without limiting any other rights that the Lender may have hereunder or under applicable law, the Shipowner hereby agrees to indemnify the Lender from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by the Lender arising out of or as a result of this Agreement or the Floating Rate Note excluding, however, Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of the Lender. In the event of an Indenture Default, all amounts received by the Lender pursuant to such indemnification after an Indenture Default shall be held and paid in the manner required by Section 7.02. 11.10 Benefit of Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided, however, that the Shipowner may not assign any of its rights or obligations hereunder without the prior written consent of the Lender and, to the extent set forth in paragraph 11.03 hereof, the Secretary. 11.11 Waiver of Jury Trial. Each of the Shipowner and the Lender waives its respective rights to a trial by jury of any claim or cause of action based upon or arising out of or related to this Agreement, any assignment or the transactions contemplated hereby, in any action, proceeding or other litigation of any type brought by any party against the other parties, whether with respect to contract claims, tort claims, or otherwise. Each of the Shipowner and the Lender agrees that any such claim or cause of action shall be tried by a court trial without a jury. Without limiting the foregoing, the parties further agree that their respective right to a trial by jury is waived by operation of this section as to any action, counterclaim or other proceeding which seeks, in whole or in part, to challenge the validity or enforceability of this Agreement, any assignment or any provision hereof or thereof. This waiver shall apply to any subsequent amendments, renewals, supplements or modifications to this Agreement or any assignment. 11.12 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement. 11.13 Shipowner Documents. Notwithstanding the provisions of this Agreement, in any conflict between this Agreement and the provisions of the Shipowner Documents, the Shipowner Documents shall govern the agreement between the parties hereto, but only with respect to the subject matter thereof. Notwithstanding the previous sentence, any provision in the Indenture (or any other agreement the Shipowner has entered into with any other Person) purporting to release the Shipowner of any indebtedness, liability or obligation shall not apply to any indebtedness, liability or obligation of the Shipowner hereunder and no termination of the Indenture (or any other agreement the Shipowner has entered into with any other Person) shall affect the continued effectiveness of this Agreement, which shall continue in full force and effect until the Credit Facility has been terminated and all indebtedness, liabilities and obligations of the Shipowner have been fully discharged and satisfied, the Floating Rate Note have been paid, satisfied and discharged in full, and there has elapsed a year and a day from the last payment received from, or on behalf, of the Shipowner. However, this Section 11.13 shall have no affect on the relationships established and the agreements entered into by the parties to the Shipowner Documents (and such other agreements the Shipowner has entered into with any other Person), in each case to which the Lender is not a party in its capacity as the Lender hereunder. 11.14 Entire Agreement. This Agreement, the Fee Letter and the Floating Rate Note contain the entire agreement among the parties hereto regarding the Credit Facility. 20 -17- IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed and delivered as of the date first above written. ROWAN COMPANIES, INC. CITIBANK, N.A., as the Lender By: E. E. Thiele By: Ae Kyong Chung -------------------------- ------------------------- (Signature) (Signature) Name: E. E. Thiele Name: Ae Kyong Chung ------------------------ ----------------------- (Print) (Print) Title: Senior Vice President Title: Attorney-in-Fact ----------------------- ---------------------- (Print) (Print) 21 SCHEDULE OF DEFINITIONS EXHIBIT 1 to CREDIT AGREEMENT 22 Schedule of Definitions to Credit Agreement Dated as of December 17, 1996 "Accelerated Repayment" shall have the meaning set forth in Section 4.02(b) of the Credit Agreement. "Act" means the Merchant Marine Act, 1936, as amended, and in effect on the Closing Date. "Affiliate" or "Affiliated" means any Person directly or indirectly controlling, controlled by, or under common control with, another Person. "Applicable Interest Rate" shall mean a rate per annum equal to LIBOR plus during the Construction Period, nine-twentieths of one percent (0.45%) per annum and thereafter, one-half of one percent (0.50%) per annum; provided, however, that, if the Lender shall have determined, prior to the commencement of any Interest Period that: (A) Dollar deposits of sufficient amount and maturity for funding a Disbursement are not available to such Lender in the London interbank market in the ordinary course of business; or (B) by reason of circumstances affecting the relevant market, adequate and fair means do not exist for ascertaining the rate of interest to be applicable to a Disbursement; or (C) the relevant rate of interest referred to in the definition of LIBOR which is to be used to determine the rate of interest for a Disbursement does not cover the funding cost to the Lender of making or maintaining the Disbursement, then the Lender shall so notify the Indenture Trustee, who shall give notice to the Shipowner of such condition and interest shall, effective as of the date of such notice and so long as such condition shall exist, accrue during each applicable Interest Period at the Base Rate; provided, further, however that if, in the Lender's reasonable judgment, it becomes unlawful at any time for such Lender to make or maintain Disbursements based upon LIBOR, the Lender shall so notify the Indenture Trustee, who shall give notice to the Shipowner of such determination and, effective as of the date of such notice and so long as such condition shall exist, interest shall thereafter accrue during each applicable Interest Period at the Base Rate. "Authorization Agreement" means the Authorization Agreement, Contract No. MA-13258, dated the Closing Date, between the Secretary and the Indenture Trustee, whereby the Secretary authorizes the Guarantee of the United States of America to be endorsed on the Floating Rate Note, as the same is originally executed, or as modified, amended or supplemented in accordance with the applicable provisions thereof. "Available Amount" shall have the meaning set forth in Section 2.01 of the Credit Agreement. "Base Rate" means, for any Interest Period or any other period, a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s base rate; or (b) 1/2 of one percent per annum above the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three-week moving average being determined weekly on each Monday (or, if any such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by Citibank, N.A. on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York, or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank, N.A. from three New York certificate of deposit dealers of recognized standing selected by Citibank, N.A., in either case - 1 - 23 adjusted to the nearest 1/4 of one percent or, if there is no nearest 1/4 of one percent, to the next higher 1/4 of one percent. "Business Day" shall mean any day on which dealings in Dollar deposits are carried on in the London interbank market and on which commercial banks in London and New York City are open for domestic and foreign exchange business. "Certificate Authorizing Disbursement" shall mean, with respect to a Disbursement, the United States Certificate Authorizing Disbursement substantially in the form set forth on page A-4 of Annex A to the Credit Agreement. "Closing Date" means December 17, 1996. "Construction Contract" means that certain Mobile Platform Construction Agreement (LeTourneau Hull No. 219), dated October 24, 1995, by and between the Shipowner and the Shipyard, as the same may be amended, modified or supplemented in accordance with the applicable provisions thereof. "Construction Period" shall mean the period from the date hereof to the Delivery Date. "Construction Period Interest" shall mean all interest that accrues on the Outstanding Principal during the Construction Period. "Credit Facility" shall have the meaning set forth in Whereas Clause (A) of the Credit Agreement. "Credit Facility Amount" shall have the meaning set forth in Section 2.01 of the Credit Agreement. "Credit Agreement" or "Agreement" shall mean the Credit Agreement dated as of the Closing Date, between the Shipowner and CITIBANK, N.A., including any Annex, Exhibit, and other attachment thereto, as the same may be amended, modified or supplemented in accordance with the application provisions thereof. "Delivery Date" means the date on which the Vessel is delivered to and accepted by the Shipowner. "Depository Agreement" means the Depository Agreement, Contract No. MA-13262, dated the Closing Date, between the Shipowner, CITIBANK, N.A., as Depository-Bailee, and the Secretary, as the same is originally executed, or amended, modified or supplemented in accordance with the applicable provisions thereof. "Disbursements" shall have the meaning set forth in Section 2.03 of the Credit Agreement. "Disbursement Date" shall mean, in relation to any Disbursement, the Business Day on which the Lender shall make such Disbursement. "Disposition of Indebtedness" shall have the meaning set forth in Section 11.03 of the Credit Agreement. "Dollars," "U.S. Dollars," "U.S.D.," "U.S.$" or "$" shall mean the lawful currency of the United States of America. "Event of Default" shall have the meaning set forth in Section 9.03 of the Credit Agreement. - 2 - 24 "Fee Letter" shall have the meaning set forth in Section 6.01 of the Credit Agreement. "Final Disbursement Date" shall have the meaning set forth in Section 2.02 of the Credit Agreement. "Floating Rate Note" shall mean the Note substantially in the form of Exhibit 2 to the Indenture, appropriately completed. "Governmental Authority" shall mean the government of any country, any agency, department or other administrative authority or instrumentality thereof, and any local or other governmental authority within any such country. "Guarantee" or "Guarantees" means the guarantee of the Floating Rate Note by the United States of America pursuant to Title XI of the Act, as provided in the Authorization Agreement. "Guarantee Commitment" means the Commitment to Guarantee Obligations, Contract No. MA-13257, dated as of the Closing Date, executed by the Secretary and accepted by the Shipowner with respect to the Guarantees, as originally executed or as modified, amended or supplemented in accordance with the applicable provisions thereof. "Guarantee Fees" shall mean the amounts described in the Guarantee Commitment payable in consideration for the commitment therein described and payable as provided in such Guarantee Commitment. "Holder" means each holder of the Floating Rate Note. "Indemnified Amounts" shall have the meaning set forth in Section 11.09 of the Credit Agreement. "Indenture" means the Trust Indenture dated as of the Closing Date, between the Shipowner and the Indenture Trustee, as the same is originally executed, or as modified, amended or supplemented in accordance with the applicable provisions thereof. "Indenture Default" has the meaning specified in Article VI of Exhibit 1 to the Indenture. "Indenture Trustee" means CITIBANK, N.A., a national banking association, and any successor trustee permitted under the Indenture. "Interest Payment Date" means, with respect to the Floating Rate Note, the date when any installment of interest on such Note is due and payable, which are January 1 and July 1 of each year, beginning on July 1, 1997 and the date of any prepayment of the Floating Rate Note. "Interest Period" shall mean, with respect to any Disbursement, (i) the period commencing on the Disbursement Date and extending up to, but not including, the next Interest Payment Date; and (ii) thereafter the period commencing on each Interest Payment Date and extending up to, but not including, the next Interest Payment Date. "Lender" shall mean CITIBANK, N.A., a national banking association, and its permitted successors and assigns. "LIBOR" shall mean (a) in relation to any Interest Period, the rate of interest per annum (rounded upward, if necessary, to the nearest 1/16 of 1%) quoted by the principal London office of CITIBANK, N. A., at - 3 - 25 approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for the offering to leading banks in the London interbank market of U.S. Dollar deposits for a period and in an amount comparable to such Interest Period and the principal amount upon which interest is to be paid during such Interest Period and (b) in relation to any Post Maturity Period, have the meaning set forth in Section 4.02(b) of the Credit Agreement. "Lien" shall have the meaning set forth in Section 8.01(c) of the Credit Agreement. "Maturity," when used with respect to the Floating Rate Note, means the date on which the principal of, or interest on, such Note becomes due and payable as therein provided, whether on a Payment Date, at the Stated Maturity or by prepayment, repayment, redemption or declaration of acceleration or otherwise. "Mortgage" means the first preferred ship mortgage on the Vessel, Contract No. MA-13260, between the Shipowner and the Secretary, as originally executed or as modified, amended or supplemented in accordance with the applicable provisions thereof. "Obligation" means the Floating Rate Note. "Other Taxes" shall have the meaning set forth in Section 6.02(a) of the Credit Agreement. "Outstanding Principal" shall have the meaning set forth in Section 2.01 of the Credit Agreement. "Payment Date" shall mean January 1 and July 1 of each year, beginning on January 1, 1999. "Payment Default" has the meaning specified in Section 6.01(a) of Exhibit 1 to the Indenture. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Post Maturity Applicable Interest Rate" shall have the meaning set forth in Section 4.02(b) of the Credit Agreement. "Post Maturity Interest Rate" shall have the meaning set forth in Section 4.02(b) of the Credit Agreement. "Post Maturity Period" shall have the meaning set forth in Section 4.02(b) of the Credit Agreement. "Quotation Date" shall have the meaning set forth in Section 4.02(b) of the Credit Agreement. "Redemption" means with respect to the redemption of the Floating Rate Note, the repayment or prepayment of the Floating Rate Note as applicable. "Redemption Date" means, with respect to the Floating Rate Note, a date fixed for the prepayment, repayment or redemption of such Note by or pursuant to Section 4 of the Credit Agreement, Article Fourth of the Indenture, or Article III of Exhibit 1 to the Indenture. - 4 - 26 "Redemption Price" means, with respect to the Floating Rate Note, the price at which the Floating Rate Note is to be prepaid, repaid, or redeemed pursuant to Section 4 of the Credit Agreement, Article Fourth of the Indenture, or Article III of Exhibit 1 to the Indenture. "Secretary" means the Secretary of Transportation or any official or official body from time to time duly authorized to perform the duties and functions of the Secretary of Transportation under Title XI of the Act (including the Maritime Administrator, the Acting Maritime Administrator, and to the extent so authorized, the Deputy Maritime Administrator and other officials of the Maritime Administration). "Secretary's Note" means a promissory note issued and delivered by the Shipowner to the Secretary described in Article Third of the Security Agreement and shall also mean any promissory note issued in substitution for and replacement thereof pursuant to the Security Agreement. "Security Agreement" shall mean that certain security agreement, Contract No. MA-13259, dated as of the Closing Date, with respect to the Vessel, executed by the Shipowner and the Secretary relating to the security in respect to the Guarantees, as originally executed or as modified, amended or supplemented in accordance with the applicable provisions thereof. "Shipowner" means ROWAN COMPANIES, INC., a Delaware corporation, and for purposes of the Indenture and the Floating Rate Note, subject to the provisions of Sections 6.09, 8.01 and 8.02 of Exhibit 1 to the Indenture, shall also include its successors and assigns; provided, however, that for purposes of the Credit Agreement, the term Shipowner shall also include the Shipowner's permitted successors and assigns under the Credit Agreement. "Shipowner's Documents" means the Security Agreement, the Mortgage, the Title XI Reserve Fund and Financial Agreement, the Depository Agreement, and the Secretary's Note. "Shipowner Financial Statements" shall have the meaning set forth in Section 8.01(h) of the Credit Agreement. "Shipyard" or "Shipbuilder" means LETOURNEAU, INC., a Texas corporation. "Stated Maturity," when used with respect to the Floating Rate Note, means the date determinable as set forth in such Note as the final date on which the principal of such Note is due and payable, which shall include, without limitation, each of the Payment Dates. "Taxes" shall have the meaning set forth in Section 6.02(a) of the Credit Agreement. "Title XI Reserve Fund and Financial Agreement" means that certain Title XI Reserve Fund and Financial Agreement, Contract No. 13261, dated as of the Closing Date, executed by the Shipowner and the Secretary, as amended, modified or supplemented in accordance with the applicable provisions thereof. "United States" means the United States of America. "Unpaid Amount" shall have the meaning set forth in Section 4.02(b) of the Credit Agreement. "Vessel" means the Shipowner's self-elevating mobile offshore drilling unit to be named the GORILLA V and constructed by LETOURNEAU, INC. in accordance with the Construction Contract, including all work and - 5 - 27 material heretofore or hereafter performed upon or installed in or placed on board such Vessel, together with related appurtenances, additions, improvements, and replacements. - 6 - 28 FORM OF DISBURSEMENT REQUESTS Annex A to Credit Agreement -1- 29 ROWAN COMPANIES, INC. 5450 Transco Tower 2800 Post Oak Boulevard Houston, Texas 77056 __________, 1996 Secretary of Transportation c/o Maritime Administrator Department of Transportation 400 Seventh Street, S.W. Washington, D.C. 20590 Ladies and Gentlemen: We are enclosing herewith our disbursement Request No. ___ and Certificate plus the following documents for disbursement from the Credit which has been established for LeTourneau Hull No. 219: 1. Shipyard's Certificate of no Liens pursuant to Section 2.04(d) of Exhibit 1 to the Security Agreement. 2. Wire transfer instructions for Shipyard, Shipowner, or Lender. 3. Request for Actual Cost Approval and Reimbursement (___________) with Supplemental Schedules Nos. __ and ___. 4. Certificate Authorizing Disbursements The amount requested, U.S.$ __________ represents: Progress payment No. __ for LeTourneau Hull No. 219. Very truly yours, ROWAN COMPANIES, INC. By:______________________ Title:___________________ A-1 30 ROWAN COMPANIES, INC. DISBURSEMENT REQUEST NO. __ AND CERTIFICATE TO ACCOMPANY DISBURSEMENT FROM CREDIT FOR HULL 219 __________, 1996 Secretary of Transportation c/o Maritime Administration Department of Transportation 400 Seventh Street, S.W. Washington, D.C. 20590 Rowan Companies, Inc. (the "Shipowner") hereby requests the Secretary of Transportation, acting by and through the Maritime Administrator (the "Secretary") to approve disbursement from the Credit Facility for Hull No. 219 under the Credit Agreement dated December 17, 1996, (the "Agreement"), in accordance with the accompanying wire transfer instructions. In support of said request and in order to induce the Secretary to approve said disbursement, the Shipowner hereby certifies: I. That the Termination Date of the Credit Facility has not occurred and that there is no default under the Security Agreement dated December 17, 1996, Contract No. MA-13259 (the "Security Agreement"). II. That the requested Disbursement is properly due and payable to the following payee(s), in the following amount(s) and in respect of the following items(s): Payee Amount Item ______________ $___________ ____________________________ III. That all prior Disbursements (if any) from the Credit Facility have been used for the purposes stated in prior certificates furnished to the Secretary. IV. That the requested Disbursement is not to be used to pay, or to reimburse the Shipowner for the payment of, any item(s) or amount(s) paid or reimbursed from any prior Disbursement(s) from the Credit. V. That the amount (if any) stated in II above to be paid to the _____________ for the payment of interest, is the amount of interest on the Obligations equal to the interest payable on ______________________, 199___. VI. That the amount(s) (if any) stated in II above to be paid to the Lender, Shipyard or other persons entitled thereto, or to the Shipowner as reimbursement for amounts which it shall have paid or have caused to be paid to said parties, is (are) properly payable from the Credit because: A-2 31 A. The total amount paid by or for the account of the Company on account of the items, amounts and increases set forth or referred to in Article First of the Special Provisions of the Security Agreement from sources other than the proceeds of the Obligations equals at least 12-1/2% of the Actual Cost of the Vessel stated in the Security Agreement. (1) B. The amount(s) (if any) stated in II above to be paid to the Company would not have the effect of reducing the total amount paid referred to in A above, below the minimum set forth in A above; All terms used herein shall have the same meaning as they have in the Security Agreement. ROWAN COMPANIES, INC. By: Title: ____________________ (1) If such Actual Cost has been redetermined by the Secretary, add: "as the same was redetermined by the Secretary on ____________________, 199__. A-3 32 CERTIFICATE AUTHORIZING DISBURSEMENT Date ___________________ CITIBANK, N.A., as Lender New York, New York Subject: Credit Agreement dated December 17, 1996 Rowan Companies, Inc. Certificate Authorizing Disbursement No. ____ Ladies and Gentlemen: In accordance with the terms and conditions of the Credit Agreement ("Agreement"), dated as of December 17, 1996, by and among ROWAN COMPANIES, INC., a Delaware corporation (the "Shipowner" or "Borrower") and CITIBANK, N.A., a national banking association (the "Lender"), and with the Shipowner's Request for Disbursement, we hereby authorize the Lender to make a Disbursement under the Credit Facility in the amount of U.S. $________ on or after ___________ , 199_, by paying to the Lender from the proceeds of the Disbursement the Construction Period Interest payable to such Lender in the amount of U.S. $___________________, and then paying the balance of the proceeds of the Disbursement to the account of [identify the Shipowner's account as it is carried on the books of the payee bank] at [complete name and address of the payee bank]. The defined terms in this Certificate shall have the respective meanings specified in the Credit Agreement. UNITED STATES OF AMERICA SECRETARY OF TRANSPORTATION Attest: By: Maritime Administration By: - -------------------------- ------------------------- Assistant Secretary Secretary Maritime Administration Maritime Administration A-4 33 CERTIFICATE OF NO LIENS LeTourneau, Inc., a Texas corporation (the "Shipyard"), does hereby certify that, on the date hereof, the Vessel being constructed pursuant to that certain construction contract dated October 24, 1995, as amended, between the Shipyard and Rowan Companies, Inc., a company organized and existing under the laws of Delaware, (the "Shipowner") (the "Construction Contract"), which is identified as Shipbuilder's Hull No. 219, and its component parts are free of any liens and rights in rem. IN WITNESS WHEREOF, the Shipyard has caused this Certificate to be duly executed and delivered this _____ day of ________________________. LETOURNEAU, INC. a Texas Corporation By: Name: Title: A-5 34 REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT SUMMARY SHEET Shipowner's Name Rowan Companies, Inc. Shipowner's Address 5450 Transco Tower, 2800 Post Oak Blvd., Houston, TX 77056 Shipyard's Name LeTourneau, Inc. Shipyard's Address P. O. Box 2307-57606, Longview, Texas 75606 Name of Vessel GORILLA V Shipyard Hull No. 219 Type of Vessel Mobile self-contained and elevating drilling Platform LOA LBP BEAM DEPTH SHP Submittal No. Date Period Covered From: ______________ to: ____________ Final Cost Submittal [ ] Date of Last Previous Submittal: ____________________ A-6 35 INSTRUCTIONS TO SHIPOWNER Requests for actual cost approvals and remittances must be submitted on this form and on the supplemental schedules listed below as applicable. Specific instructions are included on each supplemental schedule.
=============================================================================================================== Previous Cumulative Supplemental Cumulative Actual Cost Actual Cost Remittances to Shipyard Schedule No. Total This Submittal to Date - --------------------------------------------------------------------------------------------------------------- Contract Base Cost 1 Escalation Changes & Extras Other Items ------------------------------------------------------------------ 1 ------------------------------------------------------------------ 2 & 2A ------------------------------------------------------------------ 3 - --------------------------------------------------------------------------------------------------------------- 1. Subtotal-Actual Construction Cost - --------------------------------------------------------------------------------------------------------------- Owner Furnished Items 4 Design, Engineering and Inspection at Owner's Cost 2. Subtotal-Actual Owner's Cost ------------------------------------------------------------------ 5 ------------------------------------------------------------------ - --------------------------------------------------------------------------------------------------------------- TOTAL (1&2) ACTUAL CONSTRUCTION & OUTFITTING COST: LESS: ITEMS OF FOREIGN COST ------------------------------------------------------------------ 6 - --------------------------------------------------------------------------------------------------------------- 3. Subtotal-Actual Construction and Owner's Outfitting Cost - --------------------------------------------------------------------------------------------------------------- Financing Costs: Commitment Fees 7 Interest Fees Interest Income ------------------------------------------------------------------ ------------------------------------------------------------------ - --------------------------------------------------------------------------------------------------------------- 4. Subtotal-Financing Costs - --------------------------------------------------------------------------------------------------------------- TOTAL-ACTUAL COST - --------------------------------------------------------------------------------------------------------------- 5. Source of Payments - --------------------------------------------------------------------------------------------------------------- Credit Shipowner General Fund TOTAL ------------------------------------------------------------------ ------------------------------------------------------------------ ------------------------------------------------------------------ ===============================================================================================================
Notes, Comments, Etc. A-7 36 CERTIFICATION OF PAYMENT The undersigned has examined the records of N/A and certifies the above cost figures and the supplemental schedules to accurately state the actual costs, both paid and to be paid, of ___ in accordance with generally accepted accounting practices. Date: A-8 37 U.S. DEPARTMENT OF TRANSPORTATION MARITIME ADMINISTRATION TITLE XI REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT SUPPLEMENTAL SCHEDULE NO. 1 CONTRACT BASE COST AND ESCALATION Shipowner's Name Rowan Companies, Inc. Shipowner's Address 5450 Transco Tower, 2800 Post Oak Blvd., Houston, Texas 77056 Shipyard's Name LeTourneau, Inc. Shipyard's Address P. O. Box 2307-75606, Longview, Texas 75606 Name of Vessel GORILLA V Shipyard Hull No. 219 Submittal No. Date INSTRUCTIONS TO SHIPOWNER List all remittances made to the shipyard for the construction of the vessel as shown in the contract specifications. Include escalation, if applicable, as defined in the contract. Do not include the cost of subsequent amendments to the contract or changes and extras which are to be listed on Schedules 2 and 2A.
DATE OF NOTES OR COMMENTS CONTRACT PAYMENT (IF REQUIRED) BASE COST ESCALATION TOTAL - ------- ------------- --------- ---------- -----
A-9 38 U.S. DEPARTMENT OF TRANSPORTATION MARITIME ADMINISTRATION TITLE XI REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT SUPPLEMENTAL SCHEDULE NO. 2 INDEX OF CHANGES AND EXTRAS Shipowner's Name Rowan Companies, Inc. Shipowner's Address 5450 Transco Tower, 2800 Post Oak Blvd., Houston, Texas 77056 Shipyard's Name LeTourneau, Inc. Shipyard's Address P. O. Box 2307-75606, Longview, Texas 75606 Name of Vessel GORILLA V Shipyard Hull No. 219 Submittal No. Date INSTRUCTIONS TO SHIPOWNER List all changes and extras in numerical order as indicated below. Fill in all information requested. Show total cost claimed at the end of the list. Attach Schedule 2A with information requested arranged in the same sequence. If preferred, the Applicant may request the shipyard to forward this schedule and Schedule 2A directly to Chief, Division of Cost Estimates and Analysis, Maritime Administration, Code MAR-722, Room 2122, 400 Seventh Street, S.W., Washington, D.C. 20590.
CHANGE NO. DESCRIPTION OR IDENTIFICATION SUBCONTRACTOR (IF APPLIC.) COST PER SHIP - -----------------------------------------------------------------------------------------------------------------------
A-10 39 U.S. DEPARTMENT OF TRANSPORTATION MARITIME ADMINISTRATION TITLE XI REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT SUPPLEMENTAL SCHEDULE NO. 2A CHANGE AND EXTRA DETAILS Shipowner's Name Rowan Companies, Inc. Shipowner's Address 5450 Transco Tower, 2800 Post Oak Blvd., Houston, Texas 77056 Shipyard's Name LeTourneau, Inc. Shipyard's Address P. O. Box 2307-75606, Longview, Texas 75606 Name of Vessel GORILLA V Shipyard Hull No. 219 Submittal No. Date INSTRUCTIONS TO SHIPOWNER Enter below the details requested for each change order in the same sequence as listed in Schedule 2. The scope of work for each change should be briefly described. Major items of material and/or labor should be set forth individually-whether added or deleted. Sufficient detail should be included to justify the cost added or deleted for each change. Include as many changes as possible on each sheet.
TITLE OR CHANGE/SCOPE OF NET COST CHANGE WORK BY PHASES/MATERIAL MATERIAL COST LABOR OF CHANGE NO. DESCRIPTION/LABOR DESCRIPTION UNIT TOTAL HOURS COST (+)OR(-) - ------------------------------------------------------------------------------------------------------------------------
A-11 40 U.S. DEPARTMENT OF TRANSPORTATION MARITIME ADMINISTRATION TITLE XI REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT SUPPLEMENTAL SCHEDULE NO. 3 OTHER ITEMS Shipowner's Name Rowan Companies, Inc. Shipowner's Address 5450 Transco Tower, 2800 Post Oak Blvd., Houston, Texas 77056 Shipyard's Name LeTourneau, Inc. Shipyard's Address P. O. Box 2307-75606, Longview, Texas 75606 Name of Vessel GORILLA V Shipyard Hull No. 219 Submittal No. Date INSTRUCTIONS TO SHIPOWNER List below all items paid directly to the shipyard which qualify as construction cost, but do not belong in the categories of basic contract cost, changes, extras, and escalation. Example: insurance, storage of owner furnished items, performance bond; if such items are not provided for in construction contract.
ITEM NO. DESCRIPTION COST - ------------------------------------------------------------------------------------------------------------------------
A-12 41 U.S. DEPARTMENT OF TRANSPORTATION MARITIME ADMINISTRATION TITLE XI REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT SUPPLEMENTAL SCHEDULE NO. 4 OTHER FURNISHED ITEMS Shipowner's Name Rowan Companies, Inc. Shipowner's Address 5450 Transco Tower, 2800 Post Oak Blvd., Houston, Texas 77056 Shipyard's Name LeTourneau, Inc. Shipyard's Address P. O. Box 2307-75606, Longview, Texas 75606 Name of Vessel GORILLA V Shipyard Hull No. 219 Submittal No. Date INSTRUCTIONS TO SHIPOWNER List below all furnished materials, equipment and services where the total cost per invoice exceeds $2,500. At the end of the list include all invoices costing less than $2,500 in a lump sum opposite the description "Miscellaneous Owner Items." Description of individual items listed should include quantity, material specification, model No., horse power, capacity, etc., as applicable to allow review for reasonability of cost and eligibility as Title XI actual cost. Invoices containing the above information may be submitted in lieu of filling this form out provided a summary of all such invoices is provided with each submittal.
ITEM DESCRIPTION OR MANUFACTURE'S NAME VENDOR'S COST PER NO. QUANTITY IDENTIFICATION CITY AND COUNTY INVOICE NO. SHIPSET - -----------------------------------------------------------------------------------------------------------------------
A-13 42 U.S. DEPARTMENT OF TRANSPORTATION MARITIME ADMINISTRATION TITLE XI REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT SUPPLEMENTAL SCHEDULE NO. 5 DESIGN, INSPECTION AND ENGINEERING AT OWNER'S COST Shipowner's Name Rowan Companies, Inc. Shipowner's Address 5450 Transco Tower, 2800 Post Oak Blvd., Houston, Texas 77056 Shipyard's Name LeTourneau, Inc. Shipyard's Address P. O. Box 2307-75606, Longview, Texas 75606 Name of Vessel GORILLA V Shipyard Hull No. 219 Submittal No. Date INSTRUCTIONS TO SHIPOWNER List below expenditures paid by the Applicant for design, inspection and engineering in sufficient detail to permit review for Title XI eligibility and reasonability of cost.
NAMES OF APPLICANT'S EMPLOYEES AND/OR ITEM NAMES OF SUBCONTRACTORS NO. OR INVOICE NO. NO. NATURE OF WORK PERFORMED HOURS RATE/HOUR COST - ---------------------------------------------------------------------------------------------------------------------
A-14 43 U.S. DEPARTMENT OF TRANSPORTATION MARITIME ADMINISTRATION TITLE XI REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT SUPPLEMENTAL SCHEDULE NO. 6 ITEMS OF FOREIGN MANUFACTURE, GROWTH OR ORIGIN Shipowner's Name Rowan Companies, Inc. Shipowner's Address 5450 Transco Tower, 2800 Post Oak Blvd., Houston, Texas 77056 Shipyard's Name LeTourneau, Inc. Shipyard's Address P. O. Box 2307-75606, Longview, Texas 75606 Name of Vessel GORILLA V Shipyard Hull No. 219 Submittal No. Date INSTRUCTIONS TO SHIPOWNER Under Maritime Administration policy all items of foreign manufacture, growth or origin are ineligible as Title XI actual cost. It is the responsibility of the Applicant to furnish the information listed below for each such item. This includes both goods and services. The total cost of the items listed will be deducted from the total actual cost eligible for Title XI Guarantee unless a waiver has been requested by letter from Maritime and granted by Maritime by letter.
ITEM DESCRIPTION OR VENDOR'S NAME VENDOR'S COST PER NO. QUANTITY IDENTIFICATION CITY AND COUNTRY INVOICE NO. SHIP - ------------------------------------------------------------------------------------------------------------------------
A-15 44 U.S. DEPARTMENT OF TRANSPORTATION MARITIME ADMINISTRATION TITLE XI REQUEST FOR ACTUAL COST APPROVAL AND REIMBURSEMENT SUPPLEMENTAL SCHEDULE NO. 7 INTEREST AND COMMITMENT FEES Shipowner's Name Rowan Companies, Inc. Shipowner's Address 5450 Transco Tower, 2800 Post Oak Blvd., Houston, Texas 77056 Shipyard's Name LeTourneau, Inc. Shipyard's Address P. O. Box 2307-75606, Longview, Texas 75606 Name of Vessel GORILLA V Shipyard Hull No. 219 Submittal No. Date INSTRUCTIONS TO SHIPOWNER Fill out the information requested below concerning the commitment fees for which you are requesting reimbursement in the submittal.
PERIOD CHECK WHICH PAID PRINCIPAL INTEREST AMOUNT COVERED INT. FEE TO AMOUNT RATE PAID - ---------------------------------------------------------------------------------------------------------------------
A-16 45 Document 3 TRUST INDENTURE Relating to United States Government Guaranteed Ship Financing Obligations A-1 46 _________________________________________________________ TRUST INDENTURE Relating to United States Government Guaranteed Ship Financing Obligations Between ROWAN COMPANIES, INC. Shipowner AND CITIBANK, N.A. Indenture Trustee Dated as of December 17, 1996 A-2 47 _________________________________________________________ TRUST INDENTURE Between ROWAN COMPANIES, INC. Shipowner AND CITIBANK, N.A. Indenture Trustee Dated as of December 17, 1996 A-3 48 TABLE OF CONTENTS TO SPECIAL PROVISIONS OF THE INDENTURE (1/)
Page ---- Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE FIRST Incorporation of General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE SECOND The Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE THIRD Interest Rate Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE FOUR Certain Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
__________________ (1) This Table of Contents is not a part of the Indenture and has no bearing upon the interpretation of any of its terms and provisions. A-4 49 ARTICLE FIFTH Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE SIXTH Additions, Deletions and Amendments to Exhibit 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
EXHIBITS TO TRUST INDENTURE SCHEDULE A Schedule of Definitions to Trust Indenture EXHIBIT 1 General Provisions of the Indenture Incorporated by Reference EXHIBIT 2 Form of Floating Rate Note EXHIBIT 3 Form of Fixed Rate Note EXHIBIT 4 Authorization Agreement EXHIBIT 5 Form of Secretary Supplemental Indenture A-5 50 TRUST INDENTURE SPECIAL PROVISIONS THIS TRUST INDENTURE, is dated as of December 17, 1996 (said Trust Indenture, as the same may be amended, modified or supplemented from time to time as permitted hereunder, herein called the "Indenture"), is between (i) ROWAN COMPANIES, INC., a Delaware corporation (herein called the "Shipowner"), and (ii) CITIBANK, N.A., a national banking association, (said bank, any successor or assign hereunder, herein called the "Indenture Trustee"). RECITALS: A. As provided in Article Fifth hereof, the terms defined in Schedule A to this Indenture shall have the respective meanings stated in said Schedule; B. The Shipowner has duly executed this Indenture, and duly authorized the issuance hereunder of $153,091,000 principal amount of its Obligations pursuant to Section 2.03 of Exhibit 1 to this Indenture (herein together with any Obligations issued in respect thereof pursuant to Sections 2.09, 2.10, 2.12 and 3.10(b) of said Exhibit 1, called the "Obligations") designated "United States Government Guaranteed Ship Financing Obligations, GORILLA V Series;" C. The Obligations will be issued by the Shipowner to aid in the financing of the cost of construction of a self-elevating mobile offshore drilling unit to be named the GORILLA V (the "Vessel"); D. To aid in financing the construction of the Vessel, the Shipowner has entered into a credit agreement (the "Credit Agreement") with CITIBANK, N.A., a national banking association as Lender, providing for the delivery of no more than $153,091,000 principal amount of note designated "United States Government Guaranteed Ship Financing Obligations, GORILLA V Series"; E. Under the Authorization Agreement in the form set forth as Exhibit 4 hereto, the Secretary, on behalf of the United States, has agreed and will agree to execute on the Obligations to be issued, a Guarantee of the payment of the unpaid interest to the date of such payment on, and the unpaid balance of the principal of, such Obligation under the provisions of Title XI of the Act, and the Indenture Trustee is authorized to cause the Guarantees, bearing the facsimile signature of the Secretary, and the facsimile seal of the United States Department of Transportation, to be imprinted on the Obligations, and to authenticate and deliver the Obligations and the Guarantees issued on the Closing Date and from time to time thereafter, such agreements and authorizations being subject to the conditions set forth in the Authorization Agreement; F. Pursuant to Section 1104(b)(5) of the Act, the Secretary will determine that the interest to be borne by the Obligations (exclusive of charges for the guarantee fee and service charges, if any) is reasonable; and G. All actions necessary have been or will be taken in order (1) to make the Obligations, when executed by the Shipowner, authenticated by the Indenture Trustee and issued under the Indenture, the valid, binding and legal obligations of the Shipowner in accordance with their terms, (2) to make the Guarantees to be endorsed on the 1 51 Obligations, when executed on behalf of the Secretary, authenticated by the Indenture Trustee and delivered under this Indenture, the valid, binding and legal obligations of the United States in accordance with their terms, and (3) to make this Indenture the valid, binding and legal agreement of the parties hereto in accordance with its terms. NOW THEREFORE, in consideration of the premises, of the mutual covenants herein contained, of the purchase of the Obligations by the Holder and of other good and valuable consideration, the receipt and adequacy of which the parties hereby acknowledge, and for the equal and proportionate benefit of the present and future Holder, the parties hereto agree as follows: ARTICLE FIRST INCORPORATION OF GENERAL PROVISIONS This Indenture shall consist of two parts: the Special Provisions and the General Provisions attached hereto as Exhibit 1, made a part of this Indenture and incorporated herein by reference. 2 52 ARTICLE SECOND THE OBLIGATIONS (a) The Obligations issued hereunder shall be designated "United States Government Guaranteed Ship Financing Obligations, GORILLA V Series," and shall be in the form of Exhibit 2 to this Indenture; and, the principal amount of Obligations which may be issued under this Indenture shall not exceed $153,091,000 except as provided in Sections 2.09, 2.10, 2.12 and 3.10(b) of Exhibit 1 hereto. (b) The Obligations shall be in the denominations of $1,000 or any integral multiple thereof. (c) The Shipowner shall at all times cause to be maintained in the City of Houston, State of Texas an office or agency for the purposes specified in Section 5.03 of Exhibit 1 to this Indenture. (d) The Indenture Trustee shall at all times have its Corporate Trust Office in the City of New York, State of New York. ARTICLE THIRD INTEREST RATE CALCULATIONS Upon the terms and subject to the conditions contained in the Obligations, the Indenture Trustee will calculate the Applicable Interest Rate on the Obligations in the manner and at the times provided in the Obligations and shall communicate the same to the Shipowner, the Secretary and any paying agent identified to it in writing as soon as practicable after each determination. The Indenture Trustee will, upon the request of the Holder of the Obligations, determine the Applicable Interest Rate then in effect with respect to the Obligations. 3 53 ARTICLE FOURTH CERTAIN REDEMPTIONS (a) Scheduled Mandatory Redemption. The Obligations are subject to redemption at a Redemption Price equal to 100% of the principal amount thereof, together with interest accrued thereon to the applicable Redemption Date, through the operation of scheduled repayment providing for the semi-annual redemption on January 1 and July 1 of each year, commencing January 1, 1999, of $6,380,000 principal amount of Obligations (or such lesser principal amount of Obligations as shall then be outstanding), which amount represents approximately one twenty-fourth (1/24) of the Original Principal Amount of Obligations, plus interest accrued thereon to the Redemption Date. There shall be a final redemption of the remaining outstanding principal on the earlier of (i) July 1, 2000, or (ii) two (2) years after the Delivery Date. Notwithstanding the foregoing provisions of this subsection (a), if the principal amount of Outstanding Obligations shall be reduced by reason of any redemption pursuant to Section 3.04 of Exhibit 1 to this Indenture, the principal amount of Obligations to be redeemed pursuant to this subsection (a) on each subsequent Redemption Date for such Obligations shall be reduced by an amount equal to the principal amount of such Obligations retired by reason of such redemption pursuant to Section 3.04 of Exhibit 1 hereto divided by the number of Redemption Dates (including the Stated Maturity of such Obligations) scheduled thereafter to July 1, 2000 (subject to such increase as shall be necessary so that the total principal amount of Obligations to be redeemed on any such Redemption Date shall be an integral multiple of $1,000); provided that, the entire unpaid principal amount of the Outstanding Obligations shall be paid not later than July 1, 2000. The Shipowner shall, in accordance with Section 3.02(d) of Exhibit 1 hereto, promptly after each redemption pursuant to said Section 3.04, furnish to the Secretary, the Indenture Trustee and each Holder a revised table of scheduled repayments reflecting the reductions made pursuant to this subsection (a) as a result of such redemption. (b) Optional Redemption of Obligations Without Premium. At its option, the Shipowner may without premium, (i) prepay on any Interest Payment Date the Obligation, in whole or in part, in a minimum principal amount of $10,000,000, at a Redemption Price equal to 100% of the principal amount thereof together with interest accrued thereon to the Redemption Date, or (ii) redeem or prepay the Obligation, in whole or in part, on a Redemption Date designated by the Shipowner, from the proceeds from the issuance of fixed rate notes. (c) If the Shipowner shall elect to make any such optional redemptions pursuant to this Article, the Shipowner shall, at least 40 days but not more than 60 days prior to the date fixed for redemption, deliver to the Indenture Trustee a Request stating that the Shipowner intends to exercise its rights as above set forth to make such optional redemptions and specifying the Redemption Date and the principal amount which the Shipowner intends to redeem on such date. 4 54 ARTICLE FIFTH DEFINITIONS For all purposes of this Indenture, unless otherwise expressly provided or unless the context otherwise requires: (1) All references herein to Articles, Sections or other subdivisions, unless otherwise specified, refer to the corresponding Articles, Sections and other subdivisions of this Indenture; (2) The terms "hereof," "herein," "hereby," "hereto," "hereunder" and "herewith" refer to this Indenture; and (3) The terms used herein and defined in Schedule A to this Indenture shall have the respective meanings stated in said Schedule. ARTICLE SIXTH ADDITIONS, DELETIONS AND AMENDMENTS TO EXHIBIT 1 The following additions, deletions and amendments are hereby made to Exhibit 1 to this Indenture. (a) Concerning Citibank, N.A. Citibank, N.A. and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, the Shipowner, any of its subsidiaries or affiliates, and any Person who may do business with or own securities of the Shipowner or any such subsidiary or affiliates, all as if Citibank, N.A. were not the Indenture Trustee and without any duty to account therefor to the Holder. (b) Concerning Immediately Available Funds. Notwithstanding any provision in Exhibit 1 to this Indenture to the contrary, all payments are to be made in immediately available funds. (c) Concerning Mandatory Scheduled Redemptions. The terms "sinking fund payment" and "sinking fund redemption" in Exhibit 1 to this Indenture refer to the mandatory scheduled redemption. (d) Concerning Section 2.02. Section 2.02(c) is revised to read as follows: (c) If the Maturity of any Obligation or an Interest Payment Date for any Obligation shall be a day other than a Business Day, then such payment may be made on the next succeeding Business Day, with the same force and effect as if made on the Interest Payment Date for such payment, provided, however, that interest shall accrue thereon for the period after said Interest Payment Date (whether or not such next succeeding Business Day occurs in a succeeding month). (e) Concerning Section 2.04. Prior to the earlier of (i) July 1, 2000, or (ii) two (2) years from the Delivery Date, the Shipowner and the Indenture Trustee may enter into a Supplemental Indenture, and the Indenture Trustee may enter into a supplement to the Authorization Agreement, pursuant to Section 2.04 of Exhibit 1 to this Indenture, to provide for the issuance of fixed rate obligations in the form of Exhibit 3 hereto for the purpose of repaying the Obligations, provided however, that the Shipowner and Indenture Trustee have obtained the prior written consent of the Secretary. 5 55 (f) Concerning Section 2.06. Interest at the Applicable Interest Rate shall be due on each Disbursement at the end of each Interest Period. The Indenture Trustee will determine the Applicable Interest Rate for each Interest Period. (g) Concerning Section 2.10. Section 2.10(c) is revised to read as follows: (c) The Shipowner or the Indenture Trustee shall not be required to register transfers or make exchanges of (1) Obligations for a period of 15 days immediately prior to (A) an Interest Payment Date or (B) any selection of Obligations to be redeemed, (2) Obligations after demand for payment of the Guarantees and prior to the payment thereof or rescission of such demand pursuant to Section 6.02(a), or (3) any Obligation which has been selected for redemption in whole or in part, except as to the unredeemed portion of any Obligation being redeemed in part. (h) Concerning Section 2.12. With respect to clause (1) of the proviso to Section 2.12 of Exhibit 1 to the Indenture, a written agreement of indemnity which is satisfactory in form and substance to the Secretary, the Shipowner, and the Indenture Trustee, executed and delivered by an institutional Holder having a capital and surplus of at least $100,000,000 shall be considered sufficient indemnity to the Secretary, the Shipowner, and the Indenture Trustee in connection with the execution, authentication and delivery of any new Obligations or the making of any payment as contemplated by said Section 2.12. (i) Concerning Payment of the Obligations. Notwithstanding anything to the contrary in Exhibit 1 hereto, the Obligations to be issued hereunder shall be payable as to principal, premium (if any), and interest, at an office or agency maintained by the Shipowner for such purpose at the Corporate Trust Office of the Indenture Trustee, or at the option of the Shipowner, as to payments of principal, premium (if any), or interest by wire, in immediately available funds, by such Corporate Trust Office to the Obligees as appear in the Obligation Register, subject in any event to the provisions hereof concerning home office payment and subject to the Indenture Trustee's prior receipt of funds sufficient for the payment of principal, premium (if any) or interest by wire or other immediately available funds. The Indenture Trustee shall have no obligation to determine whether such wires or payments were received by the Obligees. (j) Concerning Section 3.02. Section 3.02(c) and (d) are revised to read as follows: (c) Scheduled Redemptions. If the Obligations of any series and Stated Maturity or the Special Provisions hereof or the Supplemental Indenture establishing such series shall so provide, such Obligations shall be subject to (i) scheduled redemption through the operation of a mandatory redemption schedule, in such amounts, at such times and subject to such credits (if any) as may be specified therein, and (ii) redemption at the option of the Shipowner, in connection with the operation of any such mandatory redemption schedule, in such additional amounts and subject to such conditions as may be specified therein. (d) Adjustments of Redemption Payments. If the Obligations of any series and Stated Maturity or the Special Provisions hereof or of the Supplemental Indenture establishing such series provide for an adjustment in scheduled redemption payments as a result of any redemption or cancellation of Obligations, the Shipowner shall recompute the remaining scheduled redemption payments pursuant to such provisions and shall, at least 60 days prior to the next Interest Payment Date which occurs at least 60 days following any such redemption or cancellation of Obligations of such series requiring such recomputation, submit to the Secretary for his review such recomputation to ascertain compliance with the provisions of such Obligations or the Special Provisions hereof or such Supplemental Indenture, and table of revised 6 56 mandatory redemption schedule payments on the Obligations of such series reflecting the adjustments made pursuant to such provisions as a result of such redemption or cancellation. Upon advice by the Secretary that he finds such recomputation to comply with such provisions, the Shipowner shall submit said table to the Indenture Trustee and the Indenture Trustee shall promptly submit a copy thereof to each Holder of an Obligation of such series. (k) Concerning Section 3.03. The date required by Section 3.03 of Exhibit 1 hereto is the earlier of July 1, 2000, or (ii) two (2) years from the Delivery Date. (l) Concerning Section 3.06. Section 3.06 of Exhibit 1 hereto is hereby amended in its entirety to read as follows: SECTION 3.06. Redemption After Assumption by the Secretary. Upon receipt by the Indenture Trustee of written instructions from the Secretary stating that the principal amount of Obligations specified in such instructions are required to be redeemed on the date specified therein (which shall be not less than 40 nor more than 60 days from the receipt of such instructions by the Indenture Trustee) at the option of the Secretary at any time after the Secretary's assumption of the Obligations pursuant to Section 6.09, the Indenture Trustee shall promptly give notice as provided in Section 3.08 of the redemption on the Redemption Date of the principal amount of Obligations specified in such instructions and the Indenture Trustee shall, on such Redemption Date, redeem such Obligations together with interest accrued thereon to such Redemption Date; provided that, the Secretary shall redeem at the principal amount thereof and interest accrued thereon the Outstanding Obligations relating to the Vessel if the Vessel has been sold pursuant to Section 8.02 to a purchaser or purchasers who have not assumed such Obligations by notice to the Indenture Trustee in accordance with this Section 3.06 within 40 days of the nonassumption of the Obligations by such purchaser. (m) Concerning Section 3.07. Section 3.07(a) is revised to delete the phrase "or 3.05." (n) Concerning Section 3.09. Section 3.09 is revised to read as follows: SECTION 3.09. Deposit of Redemption Moneys. No later than 11:00 a.m. in New York City on any Redemption Date, the Shipowner shall, except as contemplated by Section 3.08(b), deposit or cause to be deposited with the Indenture Trustee or with any Paying Agent an amount in immediately available funds sufficient for such redemption (after taking into account any amounts then held by the Indenture Trustee or such Paying Agent and available for such redemption) with irrevocable directions to it to so apply the same. (o) Concerning Section 4.01. Section 4.01(b) of Exhibit 1 hereto is hereby amended in its entirety to read as follows: "(b) Cash held by the Indenture Trustee or any Paying Agent (other than the Shipowner) under this Indenture - (i) need not be segregated; (ii) shall not be invested except as permitted by clause (iv) of this Section 4.01(b); 7 57 (iii) shall not bear interest except as the Shipowner and the Indenture Trustee (or such Paying Agent) may agree in writing; and (iv) if the Shipowner shall have deposited or caused to be deposited with the Indenture Trustee funds sufficient for the payment of the Obligations at their Maturity, including interest to the date of Maturity, and the date of Maturity is more than one (1) Business Days after the deposit of such funds, the Indenture Trustee upon the Request of the Shipowner shall invest such funds, as directed by the Shipowner in writing, in direct obligations of the United States Government maturing at or prior to the date of Maturity of such Obligations and having a principal amount equal to not less than the amount of the funds so invested. Such investments shall be held in trust for the purpose for which the funds so invested were held. After the Obligations in respect of which the funds were deposited have been paid in full (except as to unclaimed amounts as referred to in Section 4.03) any of such funds (including interest received in respect of such investments and gain on matured investments purchased at a discount) held by the Indenture Trustee in excess of amounts to which Holders of such Obligations are entitled shall upon the Request of the Shipowner be paid by the Indenture Trustee to the Shipowner but only in the absence of a Default hereunder." (p) Concerning Section 4.02. The appointment of a Paying Agent by the Shipowner is subject to the prior consent of the Secretary and Indenture Trustee, which consent shall not be unreasonably withheld. (q) Concerning Section 4.03. Section 4.03 is revised to read as follows: SECTION 4.03. Unclaimed Amounts. Any moneys received by the Indenture Trustee or a Paying Agent, for the payment of Obligations or Guarantees and remaining unclaimed by the Holders thereof for 6 years after the date of the Maturity of said Obligations or the date of payment by the Secretary of the Guarantees shall, upon delivery to the Indenture Trustee of a Request by the Shipowner, be paid to the Shipowner; provided that, not less than 30 days prior to such payment, the Shipowner shall publish notice thereof to the Obligees at least once in the Authorized Newspapers. In such event, such Holders shall thereafter be entitled to look only to the Shipowner (and the settlor or settlors of any trust for which the Shipowner is trustee, to the extent paid over to it or them) for the payment thereof, and the Indenture Trustee or such Paying Agent, as the case may be, shall thereupon be relieved from all responsibility to such Holders therefor. No such Request, publication or payment shall be construed to extend any statutory period of limitations which would have been applicable in the absence of such Request, publication or payment. (r) Concerning Sections 5.01 and 5.02. Sections 5.01 and 5.02 are revised to read as follows: SECTION 5.01. Authorization, Execution and Delivery of Indenture and Performance. The Shipowner has duly authorized the execution, delivery and performance of this Indenture. SECTION 5.02. Payment and Procedure for Payment of Obligations. The Shipowner will duly and punctually pay the principal of (and premium, if any) and interest on the Obligations according to the terms thereof and of this Indenture. The Shipowner will deposit with the Indenture Trustee or (subject to Section 3.09) a Paying Agent no later than 11:00 a.m. in New York City on each date fixed for such payment or as 8 58 otherwise provided by the Special Provisions hereof an amount in immediately available funds sufficient for such payment (after taking into account any amounts then held by the Indenture Trustee or such Paying Agent and available for such payment) with irrevocable directions to it to so apply the same; provided that, payments of interest may be made as provided in Section 2.02(b)(4); and provided further, that except with the consent of the Secretary the Shipowner shall not deposit any such amount more than ten days prior to the date of the payment for which such amount is deposited, unless otherwise provided by the Special Provisions hereof. (s) Concerning Section 6.06. Section 6.06(a) revised to read as follows: SECTION 6.06. (a) Obligees' Right to Direct Indenture Trustee after Indenture Default. During the continuance of any Indenture Default, the Holders of a majority in principal amount of the Outstanding Obligations shall have the right, by an Act of Obligees, to direct the Indenture Trustee: (1) to exercise or to refrain from exercising any right or to enforce any remedy granted to it by this Indenture; and (2) to direct the time, method and place of the exercise of any such right or the enforcement of any such remedy; provided that, subject to Section 7.03, the Indenture Trustee shall have the right not to take any such action if it shall determine in good faith that the action would involve it in personal liability, or would be unjustly prejudicial to the Obligees not parties to such direction. Anything in this Section 6.06(a) to the contrary notwithstanding, the Indenture Trustee shall be obligated to demand payment of the Guarantees as provided in Section 6.02(a) unless the Holders of all Outstanding Obligations shall have elected to terminate the Guarantees as provided in Section 6.04(a)(2), in which case the Indenture Trustee shall be obligated to refrain from making such demand. (t) Concerning Section 6.09. The reference to "Exhibit 4" in Section 6.09 is revised to read "Exhibit 5." (u) Concerning Section 7.02. The reference to "$3,000,000" in Section 7.02 is revised to read "$75,000,000." (v) Concerning Section 7.03. Section 7.03(h) and (o) are revised to read as follows: (h) In all cases where this Indenture does not make express provision as to the evidence on which the Indenture Trustee may act or refrain from acting, the Indenture Trustee shall be entitled to receive and shall be protected (subject to paragraph (c) of this Section) in acting or refraining from acting hereunder in reliance upon an Officer's Certificate as to the existence or nonexistence of any fact. (o) No provision of this Indenture shall require the Indenture Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. 9 59 (w) Concerning Section 7.04. Section 7.04 is revised to read as follows: SECTION 7.04. Compensation, Expenses and Indemnification of Indenture Trustee. The Shipowner shall (1) pay such compensation to the Indenture Trustee as they may agree upon in writing from time to time and reimburse it for its reasonable expenses and disbursements (including counsel fees and expenses) and (2) indemnify the Indenture Trustee for, and hold it harmless against, any loss, liability or expense which it may incur or suffer without negligence or bad faith in acting under this Indenture or the Authorization Agreement. The compensation of the Indenture Trustee shall not be limited to the compensation provided by law for a trustee acting under an express trust. The obligations of the Shipowner under this Section 7.04 shall survive the termination of the Indenture and resignation or removal of the Indenture Trustee. (x) Concerning Sections 8.01 and 8.02. Sections 8.01 and 8.02 are revised to read as follows: SECTION 8.01. Consolidation, Merger or Sale by Shipowner. Nothing in this Indenture shall prevent any lawful consolidation or merger of the Shipowner with or into any other Person, or any sale of the Vessel to any other Person lawfully entitled to acquire and operate the Vessel or any sale by the Shipowner of all or substantially all of its assets to any other Person; provided that, except where the Shipowner shall be the Person surviving a merger or consolidation, the Person formed by or surviving such consolidation or merger, or to which the sale of the Vessel shall be made, shall, by Supplemental Indenture, expressly assume the payment of the principal of and interest (and premium, if any) on the Outstanding Obligations relating to the Vessel in accordance with the terms of the Obligations and of the Indenture and shall expressly assume the performance of the agreements of the Shipowner in the Indenture; provided further, that to the extent the Outstanding Obligations are not so assumed, the Shipowner shall redeem or cause to be redeemed the Outstanding Obligations, such redemption to be in accordance with the terms of the Obligations and of the Indenture. When a Person so assumes this Indenture and the Outstanding Obligations, the Supplemental Indenture shall discharge and release the Shipowner from any and all obligations thereunder relating to the Outstanding Obligations. In the event of such an assumption by a Person to whom the Vessel has been sold (a) such Person shall succeed to, and be substituted for, and may exercise every right and power of the original Shipowner with the same effect as if such successor Shipowner had been named as the Shipowner herein and (b) the Outstanding Obligations shall be surrendered to the Indenture Trustee for appropriate notation or for the issuance of new Obligations in exchange for the Outstanding Obligations in the name of the successor Shipowner, as required by the Secretary. SECTION 8.02. Sale of the Vessel by the Secretary. Nothing contained in this Indenture shall prevent the sale of the Vessel to any other Person by the Secretary, by a court of law or by the Shipowner following, in connection with or in lieu of a foreclosure or similar action. Following any such sale (1) the Person to whom the Vessel has been sold may, by Supplemental Indenture, expressly assume the payment of principal and interest (and premium, if any) on all of the Outstanding Obligations in accordance with the terms of the Obligations and the Indenture and shall expressly assume the performance of the agreements of the Shipowner in the Indenture; and (2) in the event such Person does not so assume, the Secretary shall prepay or redeem all of the Outstanding Obligations without premium pursuant to Section 3.06 hereof; provided that, the Secretary shall allow or permit the sale of the Vessel to the original Shipowner or to any affiliate of the original Shipowner only if (i) the Secretary has not prepaid or redeemed such Obligations prior to such sale, and (ii) such purchaser assumes all of the Outstanding Obligations as contemplated by the preceding clause (1). When a Person so assumes this Indenture and all of the Outstanding Obligations, the Supplemental Indenture shall discharge and release the Secretary from any and all obligations 10 60 thereunder in the Secretary's capacity as Shipowner relating to the Outstanding Obligations. In the event of such an assumption by a Person to whom the Vessel has been sold (a) such Person shall succeed to, and be substituted for, and may exercise every right and power of the original Shipowner with the same effect as if such successor Shipowner had been named as the Shipowner herein and (b) the Outstanding Obligations shall be surrendered to the Indenture Trustee for appropriate notation or for the issuance of new Obligations in exchange for the Outstanding Obligations in the name of the successor Shipowner, as required by the Secretary. Any such sale or the execution of a Supplemental Indenture by an successor Shipowner shall not discharge or in any manner affect the obligation of the United States to pay the Guarantees pursuant to the terms thereof. (y) Concerning Notices. Subject to the provisions of Section 13.01 of Exhibit 1 to this Indenture, any notice, request, demand, direction, consent, waiver, approval or other communication to be given to a party hereto or the Secretary, shall be deemed to have been sufficiently given or made when addressed to: The Indenture Trustee as: CITIBANK, N.A. 120 Wall Street, 13th Floor New York, New York 10043 Attn: Corporate Agency and Trust Department The Shipowner as: ROWAN COMPANIES, INC. 5450 Transco Tower 2800 Post Oak Boulevard Houston, Texas 77056-6196 Attn: Chief Financial Officer The Secretary as: SECRETARY OF TRANSPORTATION c/o Maritime Administrator Department of Transportation 400 Seventh Street, SW Washington, D.C. 20590 Attention: Office of the Chief Counsel (z) Concerning Applicable Law. This Indenture and each Obligation shall be governed by the laws of the State of New York, and to the extent applicable, the laws of the United States. (aa) Execution of Counterparts. This Indenture may be executed in any number of counterparts. All such counterparts shall be deemed to be originals, and shall constitute but one and the same instrument. (bb) Concerning Disbursement Notations. Upon receipt from the Lender of documents confirming Disbursements, the Indenture Trustee shall review Exhibit A of the Floating Rate Note (The "Grid"), and calculate principal and applicable interest thereon. If the Indenture Trustee's calculations are not consistent with those of the Lender, the calculations of the former shall prevail. The Indenture Trustee shall promptly thereafter send a copy of the Grid bearing its calculations to the Holder, who shall endorse the Indenture Trustee's calculations on the original Exhibit A to the Floating Rate Note, and send a copy thereof, so noted, to the Indenture Trustee, who, in turn, shall promptly send a copy thereof to the Secretary. 11 61 IN WITNESS WHEREOF, this Trust Indenture has been duly executed by the parties hereto as of the day and year first above written. [SEAL] ROWAN COMPANIES, INC. Shipowner ATTEST: Mark H. Hay By: E.E. Thiele - -------------------- ----------------------------------- Secretary Senior Vice President CITIBANK, N.A. Indenture Trustee [SEAL] ATTEST: Carol Ng By: Authur Aslasian - -------------------- ----------------------------------- Vice President Vice President 12 62 DISTRICT OF COLUMBIA ) ) SS: CITY OF WASHINGTON ) On this 17th day of December, 1996, before me personally appeared Edward E. Thiele to me known, who being by me duly sworn, did depose and say that he is the Senior Vice President of ROWAN COMPANIES, INC., that he knows the seal affixed to said instrument is such corporation's seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. In testimony whereof, I have hereunto set my hand and seal this 17th day of December, 1996. Lisa M. Henshaw --------------- NOTARY PUBLIC [NOTARIAL STAMP AND SEAL] 13 63 STATE OF NEW YORK ) ) SS: COUNTY OF NEW YORK ) Be it known this 17th day of December, 1996, personally appeared before me, Arthur W. Aslanian, who after being duly sworn, deposed and said that he/she is a Vice President of CITIBANK, N.A., a national banking association, which is described in and executed the instrument hereto annexed, and that he/she signed the instrument hereto annexed by order of the Board of Directors of the said national banking association, and acknowledged the annexed instrument to be the free act and deed of the said national banking association. In testimony whereof, I have hereunto set my hand and seal this 17th day of December, 1996. Karen Katlan ------------- NOTARY PUBLIC [NOTARIAL STAMP AND SEAL] 64 Document 4 SCHEDULE OF DEFINITIONS SCHEDULE A to Trust Indenture 65 Schedule of Definitions to Trust Indenture Dated as of December 17, 1996 "Act" means the Merchant Marine Act, 1936, as amended, and in effect on the Closing Date. "Act of Obligees" means any request, demand, authorization, direction, notice, consent, waiver or other action to be given or taken by the Obligees and embodied in one or more documents of the type, and executed in the manner, required by the Indenture. "Actual Cost" means the actual cost of the Vessel as determined and re-determined by the Secretary pursuant to Sections 1101(f) and 1104(b)(2) of the Act. "Actual Knowledge" means actual knowledge of a Responsible Officer of a Person. "Affiliate" or "Affiliated" means any Person directly or indirectly controlling, controlled by, or under common control with, another Person. "Applicable Interest Rate" shall mean the rate per annum equal to the lesser of (i) 10.25% per annum, or (ii) LIBOR plus during the Construction Period, nine-twentieths of one percent (0.45%) per annum and thereafter, one-half of one percent (0.50%) per annum; provided, however, that, if the Lender shall have determined, prior to the commencement of any Interest Period that: (A) Dollar deposits of sufficient amount and maturity for funding a Disbursement are not available to such Lender in the London interbank market in the ordinary course of business; or (B) by reason of circumstances affecting the relevant market, adequate and fair means do not exist for ascertaining the rate of interest to be applicable to a Disbursement; or (C) the relevant rate of interest referred to in the definition of LIBOR which is to be used to determine the rate of interest for a Disbursement does not cover the funding cost to the Lender of making or maintaining the Disbursement, then the Lender shall so notify the Indenture Trustee, who shall give notice to the Shipowner of such condition and interest shall, effective as of the date of such notice and so long as such condition shall exist, accrue during each applicable Interest Period at the Base Rate; provided, further, however that if, in the Lender's reasonable judgment, it becomes unlawful at any time for such Lender to make or maintain Disbursements based upon LIBOR, the Lender shall so notify the Indenture Trustee, who shall give notice to the Shipowner of such determination and, effective as of the date of such notice and so long as such condition shall exist, interest shall thereafter accrue during each applicable Interest Period at the Base Rate. "Authorization Agreement" means the Authorization Agreement, Contract No. MA-13258, dated the Closing Date, between the Secretary and the Indenture Trustee, whereby the Secretary authorizes the Guarantee of the United States of America to be endorsed on each of the Obligations, as the same is originally executed, or as modified, amended or supplemented in accordance with the applicable provisions thereof. "Authorized Newspapers" means The Wall Street Journal (all editions) and The Journal of Commerce. Whenever successive weekly publications in the Authorized Newspapers are required under any agreement or other document, such publications may be made (unless otherwise expressly provided under any agreement or other document) on the same or different days of the week and in the same or in different Authorized Newspapers. If it is impossible or impractical to publish any notice required under any agreement or other document in the manner therein provided, then such publication in lieu thereof as shall be made with the approval of the -1- 66 Secretary (in the case of notice under the Authorization Agreement or Security Agreement), or approval of the Indenture Trustee (in the case of notice under this Indenture), shall constitute a sufficient publication of such notice. "Base Rate" means, for any Interest Period or any other period, a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s base rate; or (b) 1/2 of one percent per annum above the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three-week moving average being determined weekly on each Monday (or, if any such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by Citibank, N.A. on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York, or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank, N.A. from three New York certificate of deposit dealers of recognized standing selected by Citibank, N.A., in either case adjusted to the nearest 1/4 of one percent or, if there is no nearest 1/4 of one percent, to the next higher 1/4 of one percent but in neither event shall the Base Rate exceed 10.25% per annum. "Borrower" means the Shipowner. "Business Day" shall mean any day on which dealings in Dollar deposits are carried on in the London interbank market and on which commercial banks in London and New York City are open for domestic and foreign exchange business. "Certificate Authorizing Disbursement" shall mean, with respect to a Disbursement, the United States Certificate Authorizing Disbursement substantially in the form set forth in Annex A to the Credit Agreement. "Closing Date" means December 17, 1996. "Construction Contract" means that certain Mobile Platform Construction Agreement (LeTourneau Hull No. 219), dated October 24, 1995, by and between the Shipowner and the Shipyard, as the same may be amended, modified or supplemented in accordance with the applicable provisions thereof. "Construction Period" shall mean the period from the date hereof to the Delivery Date. "Construction Period Interest" shall mean all interest that accrues on the Disbursements during the Construction Period. "Corporate Trust Office" means the principal corporate trust office of the Indenture Trustee at which, at any time, its corporate trust business shall be principally administered, which office at the date of execution of the Indenture is located at 120 Wall Street, 13th Floor, New York, New York, 10043, Attention: Corporate Agency and Trust Department, except that for purposes of presentation of Obligations for payment or registration or transfer exchange, "Corporate Trust Office" means the office of the Indenture Trustee at which, at any time, its corporate agency business shall be principally administered, which office at the date of execution of the Indenture is located at 111 Wall Street, 5th Floor, New York, New York 10043. -2- 67 "Credit Agreement" or "Agreement" shall mean the Credit Agreement dated as of the Closing Date between the Shipowner and CITIBANK, N.A., including any Annex, Exhibit, and other attachment thereto, as the same may be amended, modified or supplemented in accordance with the applicable provisions thereof. "Credit Facility" shall have the meaning set forth in Whereas Clause (A) of the Credit Agreement. "Delivery Date" means the date on which the Vessel is delivered to and accepted by the Shipowner. "Depreciated Actual Cost" means the depreciated actual cost of the Vessel as determined and redetermined by the Secretary pursuant to Sections 1101(g) and 1104(b)(2) of the Act. "Disbursement" shall have the meaning set forth in Section 2.03 of the Credit Agreement. "Disbursement Date" shall mean, in relation to any Disbursement, the Business Day on which the Lender shall make such Disbursement. "Dollars," "U.S. Dollars," "U.S.D.," "U.S.$" or "$" shall mean the lawful currency of the United States of America. "Final Disbursement Date" shall have the meaning set forth in Section 2.02 of the Credit Agreement. "Floating Rate Note" shall mean the Obligation substantially in the form of Exhibit 2 to the Indenture, appropriately completed. "Governmental Authority" shall mean the government of any country, any agency, department or other administrative authority or instrumentality thereof, and any local or other governmental authority within any such country. "Guarantee" or "Guarantees" means the guarantee of an Obligation by the United States of America pursuant to Title XI of the Act, as provided in the Authorization Agreement. "Guarantee Commitment" means the Commitment to Guarantee Obligations, Contract No. MA-13257, dated as of the Closing Date, executed by the Secretary and accepted by the Shipowner with respect to the Guarantees, as originally executed or as modified, amended or supplemented in accordance with the applicable provisions thereof. "Guarantee Fees" shall mean the amounts described in the Guarantee Commitment payable in consideration for the commitment therein described and payable as provided in such Guarantee Commitment. "Holder" means the holder of an Obligation. "Indenture" means the Trust Indenture dated as of the Closing Date, between the Shipowner and the Indenture Trustee, as the same is originally executed, or as modified, amended or supplemented in accordance with the applicable provisions thereof. "Indenture Default" has the meaning specified in Article VI of Exhibit 1 to the Indenture. -3- 68 "Indenture Trustee" means CITIBANK, N.A., a national banking association, and any successor trustee permitted under the Indenture. "Interest Payment Date" means, with respect to any Obligation, the date when any installment of interest on such Obligation is due and payable, which are January 1 and July 1 of each year, beginning on July 1, 1997 and the date of any prepayment of any Obligation. "Interest Period" shall mean, with respect to any Disbursement, (i) the period commencing on the Disbursement Date and extending up to, but not including, the next Interest Payment Date; and (ii) thereafter the period commencing on each Interest Payment Date and extending up to, but not including, the next Interest Payment Date. "Lender" shall mean CITIBANK, N.A., a national banking association, and its successors and assigns. "LIBOR" shall mean, in relation to any Interest Period, the rate of interest per annum (rounded upward, if necessary, to the nearest 1/16 of 1%) quoted by the principal London office of CITIBANK, N. A., at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for the offering to leading banks in the London interbank market of U.S. Dollar deposits for a period and in an amount comparable to such Interest Period and the principal amount upon which interest is to be paid during such Interest Period. "Maturity," when used with respect to any Obligation, means the date on which the principal of, or interest on, such Obligation becomes due and payable as therein provided, whether on a Payment Date, at the Stated Maturity or by prepayment, repayment, redemption or declaration of acceleration or otherwise. "Mortgage" means the first preferred ship mortgage on the Vessel, Contract No. MA-13260, between the Shipowner and the Secretary, as originally executed or as modified, amended or supplemented in accordance with the applicable provisions thereof. "Obligation" or "Obligations" shall mean the Floating Rate Note of the Shipowner bearing a Guarantee and authenticated and delivered pursuant to the Indenture and the Authorization Agreement. "Obligee" means each Holder. "Officer's Certificate" means a certificate conforming to Section 1.02 of Exhibit 1 to the Indenture and signed by a Responsible Officer of the Person giving such certificate. "Opinion of Counsel" means an opinion of counsel conforming to Section 1.02 of Exhibit 1 to the Indenture. "Outstanding," when used with reference to the Obligations, shall mean all Obligations theretofore issued under the Indenture, except: (1) Obligations Retired or Paid; and (2) Obligations in lieu of which other Obligations have been issued under the Indenture. -4- 69 For the purposes of Articles VI and X of Exhibit 1 to the Indenture, and also in determining whether the Holders of a stated percentage of the principal amount of Outstanding Obligations have taken any Act of Obligees required or permitted by the Indenture, Obligations owned by the Shipowner or by any Affiliate of the Shipowner (excluding (a) Obligations held by an Affiliate of the Shipowner when such Affiliate is acting in a fiduciary capacity if it is established to the satisfaction of the Indenture Trustee that neither the Shipowner nor another Affiliate has a beneficial interest therein and (b) Obligations pledged in good faith by the Shipowner or by any Affiliate of the Shipowner, if the pledgee (i) is not an Affiliate of the pledgor and (ii) establishes to the satisfaction of the Indenture Trustee that the pledgee has the right to vote such Obligations) shall be disregarded and deemed not to be Outstanding; provided however that, for the purpose of determining whether the Indenture Trustee shall be protected in relying on any such Act of Obligees, only Obligations which the Indenture Trustee has actual knowledge are so owned shall be so disregarded and deemed not to be Outstanding. Obligations which are not Outstanding shall not be entitled to any rights or benefits provided in the Indenture. "Note" shall mean the Floating Rate Note. "Paying Agent" means any bank or trust company having the qualifications set forth in clauses (1), (3), (4) and (5) of Section 7.02(a) of Exhibit 1 to the Indenture, which shall be appointed by the Shipowner in accordance with Section 4.02 of Exhibit 1 to the Indenture to pay the principal of (and premium, if any) or interest on the Obligations on behalf of the Shipowner. "Payment Date" shall mean January 1 and July 1 of each year, beginning on January 1, 1999. "Payment Default" has the meaning specified in Section 6.01(a) of Exhibit 1 to the Indenture. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment" means the place at which an Obligation is to be redeemed pursuant to Article III of Exhibit 1 to the Indenture. "Principal Office," when used with respect to the Shipowner, means the office of the Shipowner at which, at any particular time, its corporate business is principally administered, which office at the date of execution of the Indenture is located at 5450 Transco Tower, 2800 Post Oak Boulevard, Houston, Texas 77056. "Redeem" means with respect to the redemption of Obligations, to repay or prepay. "Redemption" means with respect to the redemption of Obligations, the repayment or prepayment of Obligations as applicable. "Redemption Date" means, with respect to any Obligation, a date fixed for the prepayment, repayment or redemption of such Obligation by or pursuant to Article Fourth of the Indenture or Article III of Exhibit 1 to the Indenture. "Redemption Price" means, with respect to any Obligation, the price at which an Obligation is to be prepaid, repaid, or redeemed pursuant to Article Fourth of the Indenture or Article III of Exhibit 1 to the Indenture. -5- 70 "Request" means a written request to a Person for the action therein specified, signed by the Person making such request or a Responsible Officer thereof. "Responsible Officer" means (i) in the case of any business corporation, the chairman of the board of directors, the president, any vice-president, the secretary, assistant secretary, the treasurer or assistant treasurer thereof, (ii) in the case of any commercial bank, the chairman or vice-chairman of the executive committee of the board of directors or trustees, the president, any vice president, the secretary, the treasurer, any trust officer, any executive, senior, second or assistant vice president or any officer or assistant officer customarily performing functions similar to those performed by the persons who at the time shall be such officers or to whom any related matter is referred because of his/her knowledge of and familiarity with the particular subject, (iii) in the case of the Indenture Trustee, any senior trust officer or trust officer, or any vice president associated with the Corporate Agency and Trust Department, (iv) with respect to the signing or authentication of Obligations and Guarantees by the Indenture Trustee, any person specifically authorized by the Indenture Trustee to sign or authenticate Obligations. "Retired or Paid," as applied to Obligations and the indebtedness evidenced thereby, means that such Obligations shall be deemed to have been retired or paid and shall no longer be entitled to any rights or benefits provided in the Indenture if: (1) such Obligations shall have been paid in full in immediately available funds; (2) such Obligations shall have been cancelled by the Indenture Trustee or shall have been delivered to the Indenture Trustee for cancellation; or (3) such Obligations shall have become due and payable at Maturity and funds sufficient for the payment of such Obligations (including interest to the date of Maturity, or in the case of a payment after Maturity, to the date of payment, together with any premium thereon) and available for such payment (whether as a result of payment pursuant to the Guarantees or otherwise) shall be held by the Indenture Trustee or any Paying Agent pursuant to Section 4.02 of Exhibit 1 to the Indenture (or shall have been so held and shall thereafter have been paid to the Shipowner pursuant to Section 4.03 of Exhibit 1 to the Indenture) in trust for the purpose or with irrevocable directions, to apply the same; provided that, the foregoing definition is subject to the provisions of Section 6.08 of Exhibit 1 to the Indenture. "Secretary" means the Secretary of Transportation or any official or official body from time to time duly authorized to perform the duties and functions of the Secretary of Transportation under Title XI of the Act (including the Maritime Administrator, the Acting Maritime Administrator, and to the extent so authorized, the Deputy Maritime Administrator and other officials of the Maritime Administration). "Secretary's Note" means a promissory note issued and delivered by the Shipowner to the Secretary described in Article Third of the Security Agreement and shall also mean any promissory note issued in substitution for and replacement thereof pursuant to the Security Agreement. "Secretary's Notice" means a notice from the Secretary to the Indenture Trustee to the effect that (a) a default, within the meaning of Section 1105(b) of the Act, has occurred under a mortgage, loan agreement, or other security agreement that has been entered into between the Secretary, the Shipowner and any other parties in order to protect the interests of the United States of America in connection with the Guarantees, (b) such notice is given for the purposes of Section 6.01(b) of Exhibit 1 to the Indenture in order to protect the security interests of the -6- 71 United States of America under such mortgage, loan agreement or other security agreement, and (c) the Guarantees will terminate upon the expiration of 60 days from the date of such notice if the Indenture Trustee and each Obligee shall have failed to demand payment of the Guarantees as provided in the Indenture, the Guarantees or the Act. Such notice shall be given (i) in writing, by registered mail, return receipt requested, deposited in the United States Mail on the date of such notice and addressed to a Responsible Officer in the Corporate Trust Office of the Indenture Trustee in accordance with the Special Provisions of the Indenture, (ii) by telegram, telex, telecopy or similar means of transmission dispatched on such date and addressed to the Responsible Officer in the Corporate Trust Office of the Indenture Trustee, as aforesaid, and (iii) by collect telephone call made on such date to a Responsible Officer in the Corporate Trust Office of the Indenture Trustee. A Secretary's Notice shall not be deemed to have been given unless it shall have been given in accordance with all the provisions of this definition, and the date of any Secretary's Notice shall be deemed to be the last date on which it is so given pursuant to clauses (i) through (iii) above. "Secretary's Supplemental Indenture" means a Supplemental Indenture evidencing the succession, pursuant to Section 6.09 of Exhibit 1 to the Indenture, of the Secretary to the Shipowner, and the assumption by the Secretary of the obligations of the Shipowner under the Indenture. "Section 1104" means Section 1104A of the Act, and when used with reference to subsections of Section 1104, means subsections of Section 1104A. "Security Agreement" shall mean that certain security agreement, Contract No. MA-13259, dated as of the Closing Date, with respect to the Vessel, executed by the Shipowner and the Secretary relating to the security in respect to the Guarantees, as originally executed or as modified, amended or supplemented in accordance with the applicable provisions thereof. "Shipowner" means ROWAN COMPANIES, INC., a Delaware corporation, and subject to the provisions of Sections 6.09, 8.01 and 8.02 of Exhibit 1 to the Indenture, shall also include its successors and assigns. "Shipyard" or "Shipbuilder" means LETOURNEAU, INC., a Texas corporation. "Stated Maturity," when used with respect to any Obligation, means the date determinable as set forth in such Obligation as the final date on which the principal of such Obligation is due and payable, which shall include, without limitation, each of the Payment Dates. "Supplemental Indenture" shall mean any indenture supplement to the Indenture entered into pursuant to Article X thereof. "Title XI" means Title XI of the Act. "Title XI Reserve Fund and Financial Agreement" means that certain Title XI Reserve Fund and Financial Agreement, Contract No. 13261, dated as of the Closing Date, executed by the Shipowner and the Secretary, as amended, modified or supplemented in accordance with the applicable provisions thereof. "United States" means the United States of America. "Vessel" means the Shipowner's self-elevating mobile offshore drilling unit to be named the GORILLA V and constructed by LETOURNEAU, INC. in accordance with the Construction Contract, including all work and material heretofore or hereafter performed upon or installed in or placed on board such Vessel, together with related appurtenances, additions, improvements, and replacements. -7- EX-11 7 COMPUTATION OF PRIMARY & FULLY DILUTED EARNINGS 1 EXHIBIT 11 ROWAN COMPANIES, INC. AND SUBSIDIARIES COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS (LOSS) PER SHARE (in thousands except per share amounts)
For the Year Ended December 31 ------------------------------------------------- 1996 1995 1994 -------- -------- ------- Weighted average shares of common stock outstanding 85,335 84,589 84,092 Stock options (treasury stock method) 2,107 630 (A) 444 (A) ------------------------------------------------- Weighted average shares for primary earnings (loss) per share calculation 87,442 85,219 84,536 Stock options (treasury stock method) 450 790 (A) Shares issuable from assumed conversion of floating rate subordinated convertible debentures 400 400 (A) 400 (A) ------------------------------------------------- Weighted average shares for fully diluted earnings (loss) per share calculation 88,292 86,409 84,936 ================================================= Net income (loss) for primary calculation $61,338 ($18,436) ($22,989) Subordinated debenture interest 323 374 301 ------------------------------------------------- Net income (loss) for fully diluted calculation $61,661 ($18,062) ($22,688) ================================================= Primary earnings (loss) per share $0.70 ($0.22) ($0.27) ================================================= Fully diluted earnings (loss) per share $0.70 ($0.21) (B) ($0.27) =================================================
Note: Reference is made to Note 1 to Consolidated Financial Statements regarding computation of per share amounts. (A) Included in accordance with Regulation S-K Item 601(b)(11) although not required to be provided or by Accounting Principles Board Opinion No. 15 because the effect is insignificant. (B) This calculation is submitted in accordance with regulation S-K Item 601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an antidilutive result. EX-13 8 ANNUAL REPORT TO STOCKHOLDERS 1 EXHIBIT 13 Rowan Companies, Inc. and Subsidiaries TEN-YEAR FINANCIAL DATA
(In thousands except per share amounts and ratios) 1996 1995 1994 1993 ---------- ---------- ---------- ---------- OPERATIONS Revenues: Drilling services $ 316,123 $ 250,080 $ 245,917 $ 271,022 Manufacturing sales and services 143,768 133,755 96,664 Aviation services 111,269 87,462 95,578 82,174 ---------- ---------- ---------- ---------- Total 571,160 471,297 438,159 353,196 ---------- ---------- ---------- ---------- Costs and expenses: Drilling services 202,878 207,934 207,577 211,095 Manufacturing sales and services 131,665 120,378 87,382 Aviation services 93,473 79,993 79,955 68,882 Depreciation and amortization 47,882 50,555 50,790 51,918 General and administrative 16,591 14,692 13,862 13,940 ---------- ---------- ---------- ---------- Total 492,489 473,552 439,566 345,835 ---------- ---------- ---------- ---------- Income (loss) from operations 78,671 (2,255) (1,407) 7,361 ---------- ---------- ---------- ---------- Other income (expense): Interest expense (27,547) (27,702) (27,530) (25,361) Less interest capitalized 2,516 Gain on disposals of property, plant and equipment 2,359 6,598 1,344 1,955 Interest income 4,157 5,209 4,813 2,348 Other -- net 374 468 260 150 ---------- ---------- ---------- ---------- Other income (expense) -- net (18,141) (15,427) (21,113) (20,908) ---------- ---------- ---------- ---------- Income (loss) before income taxes 60,530 (17,682) (22,520) (13,547) Provision (credit) for income taxes (808) 754 469 (288) ---------- ---------- ---------- ---------- Income (loss) before extraordinary charge 61,338 (18,436) (22,989) (13,259) Extraordinary charge from redemption of debt ---------- ---------- ---------- ---------- Net income (loss) $ 61,338 $ (18,436) $ (22,989) $ (13,259) ---------- ---------- ---------- ---------- Per share of common stock: Net income (loss): Primary $ .70 $ (.22) $ (.27) $ (.17) ---------- ---------- ---------- ---------- Fully diluted $ .70 $ (.22) $ (.27) $ (.17) ---------- ---------- ---------- ---------- Cash dividends $ -- $ -- $ -- $ -- ---------- ---------- ---------- ---------- FINANCIAL POSITION Working capital $ 232,045 $ 200,588 $ 195,945 $ 172,117 ---------- ---------- ---------- ---------- Property, plant and equipment -- at cost: Drilling equipment 954,249 944,021 961,391 950,538 Aircraft and related equipment 188,681 189,954 176,874 166,791 Manufacturing plant and equipment 37,377 25,037 18,955 Construction in progress 77,318 Other property and equipment 94,517 91,089 86,883 81,636 ---------- ---------- ---------- ---------- Total 1,352,142 1,250,101 1,244,103 1,198,965 ---------- ---------- ---------- ---------- Property, plant and equipment -- net 546,200 487,039 506,121 507,193 Total assets 899,308 802,488 805,179 765,263 Capital expenditures 117,947 33,881 43,377 21,989 Long-term debt 267,321 247,744 248,504 207,137 Common stockholders' equity 496,219 429,155 442,347 460,300 ---------- ---------- ---------- ---------- STATISTICAL INFORMATION Current ratio 3.72 3.75 4.39 4.90 Long-term debt/total capitalization .35 .37 .36 .31 Book value per share of common stock $ 5.80 $ 5.06 $ 5.25 $ 5.49 ========== ========== ========== ==========
* Includes $.08 per share effect of extraordinary charge. ** At December 31, 1991, the $125,000,000 principal amount of the Company's 13 3/4% Senior Notes had been called for redemption and appeared as a current liability. If redemption had occurred prior to year-end, the current ratio would have been 3.61. 10 2
1992 1991 1990 1989 1988 1987 - ---------- ---------- ---------- ---------- ---------- ---------- $ 162,121 $ 170,739 $ 180,118 $ 128,818 $ 144,018 $ 90,145 87,877 101,433 111,992 97,446 72,667 52,984 - ---------- ---------- ---------- ---------- ---------- ---------- 249,998 272,172 292,110 226,264 216,685 143,129 - ---------- ---------- ---------- ---------- ---------- ---------- 162,816 147,853 130,845 119,182 126,288 113,348 74,347 82,364 88,182 75,943 62,571 48,996 51,367 52,954 50,702 52,062 60,324 61,312 12,092 11,739 9,549 7,690 7,313 6,766 - ---------- ---------- ---------- ---------- ---------- ---------- 300,622 294,910 279,278 254,877 256,496 230,422 - ---------- ---------- ---------- ---------- ---------- ---------- (50,624) (22,738) 12,832 (28,613) (39,811) (87,293) - ---------- ---------- ---------- ---------- ---------- ---------- (26,254) (21,379) (21,601) (23,682) (23,920) (23,463) 237 319 731 1,660 3,996 2,320 27,578 1,814 2,658 4,763 8,635 12,709 4,002 4,917 165 127 178 161 345 407 - ---------- ---------- ---------- ---------- ---------- ---------- (22,700) (14,829) (8,792) (8,492) 8,242 (16,006) - ---------- ---------- ---------- ---------- ---------- ---------- (73,324) (37,567) 4,040 (37,105) (31,569) (103,299) 429 1,174 2,081 672 32 (34,009) - ---------- ---------- ---------- ---------- ---------- ---------- (73,753) (38,741) 1,959 (37,777) (31,601) (69,290) (5,627) - ---------- ---------- ---------- ---------- ---------- ---------- $ (73,753) $ (44,368) $ 1,959 $ (37,777) $ (31,601) $ (69,290) - ---------- ---------- ---------- ---------- ---------- ---------- $ (1.01) $ (.61)* $ .03 $ (.52) $ (.44) $ (1.12) - ---------- ---------- ---------- ---------- ---------- ---------- $ (1.01) $ (.61)* $ .03 $ (.52) $ (.44) $ (1.12) - ---------- ---------- ---------- ---------- ---------- ---------- $ -- $ -- $ -- $ -- $ -- $ -- - ---------- ---------- ---------- ---------- ---------- ---------- $ 61,397 $ 125,996 $ 134,393 $ 143,963 $ 152,335 $ 76,779 - ---------- ---------- ---------- ---------- ---------- ---------- 939,793 913,379 885,264 867,540 863,450 946,127 162,001 158,361 138,327 107,985 97,500 98,860 79,801 76,251 73,504 70,598 88,039 88,113 - ---------- ---------- ---------- ---------- ---------- ---------- 1,181,595 1,147,991 1,097,095 1,046,123 1,048,989 1,133,100 - ---------- ---------- ---------- ---------- ---------- ---------- 537,819 552,481 549,608 542,995 585,365 697,144 684,301 895,889 739,133 737,826 800,684 827,785 39,528 85,618 59,905 22,945 18,318 14,123 212,907 220,764 153,621 163,473 181,330 184,187 375,754 445,368 485,748 479,287 515,491 546,078 - ---------- ---------- ---------- ---------- ---------- ---------- 2.47 1.71 ** 4.00 4.55 4.07 2.88 .36 .33 .24 .25 .26 .25 $ 5.13 $ 6.11 $ 6.69 $ 6.64 $ 7.16 $ 7.59 ========== ========== ========== ========== ========== ==========
11 3 Rowan Companies, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following analysis highlights the Company's operating results for the years indicated (in millions):
1996 1995 1994 -------- -------- -------- Revenues: Drilling $ 316.1 $ 250.1 $ 245.9 Manufacturing 143.8 133.7 96.7 Aviation 111.3 87.5 95.6 -------- -------- -------- Total $ 571.2 $ 471.3 $ 438.2 -------- -------- -------- Operating Profit (Loss)*: Drilling $ 79.3 $ 5.0 $ 0.2 Manufacturing 9.5 11.7 7.7 Aviation 6.5 (4.3) 4.6 -------- -------- -------- Total $ 95.3 $ 12.4 $ 12.5 -------- -------- -------- Net Income (Loss) $ 61.3 $ (18.4) $ (23.0) ======== ======== ========
* Income (loss) from operations before deducting general and administrative expenses. Growing worldwide demand for energy products, higher oil and natural gas prices, lower finding and recovery costs and the relative scarcity of capable equipment combined to dramatically improve energy service economics in 1996, enabling the Company to achieve its best results since 1982. As reflected above, the Company's 1996 operating results were significantly improved over 1995 primarily through the strength of the drilling division, as near-100% utilization of the offshore rig fleet afforded continual escalations in drilling day rates. The Company achieved near-record aviation services revenues primarily in support of oil and gas and fire control activities and commuter transportation, and the manufacturing division continued to provide meaningful returns while assuming a lead role in the Company's offshore drilling fleet expansion program. The Company's 1995 results were improved over 1994 primarily due to higher rig utilization and, beginning in the second quarter, increasing drilling day rates which, coupled with gains realized on sales of drilling and aviation equipment and continued growth in the Company's manufacturing operations, more than offset unfavorable results of aviation operations and reduced turnkey drilling. DRILLING OPERATIONS. The Company's drilling operating results are generally a function of rig rates and activity achieved in its offshore drilling business conducted primarily in the Gulf of Mexico and the North Sea. Such rates and activity are, in turn, primarily influenced by the level of offshore expenditures by energy companies and the availability of competitive equipment. Market conditions in the offshore drilling industry improved considerably during the last half of the 1994 -- 1996 period. Firming natural gas prices strengthened offshore utilization and day rates in the Gulf of Mexico throughout much of 1994, while North Sea drilling activity and rates were generally weak due to many energy companies downsizing their drilling programs in the face of anticipated changes in United Kingdom energy policies. In late 1994, Gulf of Mexico utilization and day rates were impaired by softening natural gas prices while the North Sea market began to stabilize as changes in UK policies were deferred. Beginning in the second quarter of 1995, both markets began to offer improving returns due to increasing worldwide demand for oil and gas. Activity and day rates in the Gulf of Mexico were positively influenced by strengthening natural gas prices, while North Sea utilization approached 100% due to the relatively scarce supply of harsh environment drilling equipment. The Gulf of Mexico and North Sea drilling markets continued to improve dramatically in 1996 primarily due to consistently high energy prices and advances in horizontal drilling and 3-D seismic technologies which together have yielded the following industry conditions, each of which has proven directly or indirectly beneficial to the Company's operations: o the economic viability of deep-water prospects in the Gulf of Mexico o the growth of drilling markets in west Africa, southeast Asia and The Netherlands o the trend toward longer-term drilling contracts. As a result, the Company's Gulf of Mexico rigs were 99% utilized in 1996 and achieved a 41% increase in average day rates compared to 1995, while the North Sea fleet was 94% utilized and averaged a 32% increase in day rates between years. The Company considers only revenue-producing days in computing rig utilization. The Company's worldwide fleet of 20 jack-ups (two of which are leased) was utilized 97%, 90% and 86% in 1996, 1995 and 1994, respectively, while the Company's semi-submersible achieved 100%, 85% and 73%, respectively. The Company sold its three submersible barge rigs during the fourth quarter of 1995. The effects of fluctuations in activity and day rates are shown in the following analysis of changes in the Company's contract drilling revenues (in millions):
1995 1994 TO 1996 TO 1995 -------- -------- Utilization $ 24.0 $ 33.9 Drilling Rates 79.4 (13.3) ======== ========
12 4 These fluctuations, net of a decline in turnkey drilling, yielded a $66.0 million or 26% increase in 1996 drilling revenues compared to 1995, which was 2% over 1994. Drilling operations expenses were 2% lower in 1996 compared to 1995, which was unchanged from 1994. The expense variations do not correlate with the revenue fluctuations primarily due to the effects of turnkey drilling operations. Three of the Company's deep-well land rigs were under contract in Texas and Louisiana for almost all of 1996 and one other worked much of the third quarter and all of the fourth in Louisiana. The Company sold its ongoing Argentina operations in November 1996 including its three trailer-mounted rigs. Two other deep-well land rigs in Argentina were idle at year end. The Company's five arctic land rigs and remaining three rigs in Oklahoma were idle in 1996. The cost of maintaining the idle rigs is modest and the remaining investment in such rigs is not significant. Perceptible trends existing in the offshore drilling markets in which the Company operates are shown below: - ------------------------------------------------------------------------------- GULF OF MEXICO -- Continuing high levels of exploration and development activity NORTH SEA -- Continuing high levels of drilling activity for jack-up rigs EASTERN CANADA -- Improving demand =============================================================================== The drilling markets in which the Company competes frequently experience significant fluctuations in the demand for drilling services, as measured by the level of exploration and development expenditures, and the supply of capable drilling equipment. These expenditures, in turn, are affected by many factors such as existing and newly discovered oil and natural gas reserves, political and regulatory policies, seasonal weather patterns, contractual requirements under leases or concessions, trends in finding and extraction costs and, probably most influential, oil and natural gas prices. The volatile nature of such factors prevents the Company from being able to accurately predict whether existing market conditions or the perceptible market trends reflected in the preceding table will continue beyond the near term. In response to fluctuating market conditions, the Company can, as it has done in the past, relocate its drilling rigs from one geographic area to another, but only when such moves are economically justified. Assuming current conditions and trends prevail, the drilling division should experience increased profitability in 1997. AVIATION OPERATIONS. Although the aviation division's operating results are still heavily influenced by oil and natural gas exploration and production, principally in the Gulf of Mexico, and seasonal weather conditions, primarily in Alaska, the division has continued to diversify its flight services. The Company offers, among other services, forest fire control, commuter airline services, flightseeing and medivac services, and, in recent years, has developed and sold auxiliary fuel tanks for helicopters. The Company further broadened its aviation operations in 1994 to include China, where two twin engine helicopters are currently under contract. Aviation revenues grew by 27% in 1996 compared to 1995, which was 8% less than 1994. Aviation division expenses in 1996 were up by 17% over 1995, which was unchanged from 1994. Though each of the Company's aviation service lines and areas contributed to the improved 1996 operating performance, the largest growth beyond oil and gas related flying was achieved in forest fire control services, which are traditionally provided during the third quarter throughout the western United States, and in the Company's scheduled and charter airline services in Alaska. The number of aircraft operated by the Company at the end of each year in the 1994 -- 1996 period and the revenue hours for each of those years are reflected in the following table:
1996 1995 1994 -------- -------- -------- Twin Engine Helicopters: Number 62 62 63 Revenue Hours 34,848 29,129 33,330 Single Engine Helicopters: Number 26 25 27 Revenue Hours 11,466 9,563 11,574 Fixed-Wing Aircraft: Number 21 19 17 Revenue Hours 20,669 20,430 23,136 ======== ======== ========
Excluded from the preceding table are fifteen twin engine helicopters owned by the Company's Dutch affiliate which recorded revenue hours of 10,378 in 1996, 8,907 in 1995 and 8,134 in 1994. Perceptible trends existing in the aviation markets in which the Company operates are shown below: - ------------------------------------------------------------------------------- ALASKA -- Moderately improving market conditions GULF OF MEXICO -- Moderately improving market conditions NORTH SEA -- Moderately improving flight support activity CHINA -- Generally stable demand =============================================================================== The Company cannot predict whether these market trends will continue. Changes in energy company exploration and production activities, seasonal weather patterns and other factors can affect the demand for flight services in the aviation markets in which the Company competes. The Company can, as it has done in the past, move aircraft from one market to another, but only when the likelihood of higher returns makes such action economical. Assuming the foregoing trends continue, the aviation division should contribute positive operating results in 1997. 13 5 MANUFACTURING OPERATIONS. The Company's manufacturing division generated a 7% increase in revenues in 1996 compared to 1995, which was 38% higher than 1994, and continued to measurably enhance operating results while devoting substantial efforts towards reactivating its marine rig construction capability and the design and construction of Rowan Gorilla V. The heavy equipment line shipped 56 mining, timber and transportation loaders, stackers and cranes during 1996, or 19% more than in 1995, which was 34% higher than 1994. Consolidated manufacturing operations exclude approximately $46.9 million of products and services provided to the Company's drilling division in 1996 compared to $4.7 million in 1995. The Company's manufacturing operations are considerably less volatile than its drilling and aviation operations. Given a year-end external backlog of about $44 million and barring unforeseen circumstances, the Company's manufacturing division should continue to contribute positive operating results during 1997. - ------------------- The Company's overall financial goals for 1997 include revenues approaching $650 million and earnings near $160 million. Most of the expected improvement over 1996 should be contributed by the drilling division. In light of the increasing demand for the Company's daywork drilling services, and the relatively unfavorable results of the Company's turnkey drilling operations during the recent past, management has elected to focus on daywork drilling and project management contracts and not pursue additional turnkey work at this time. The Company expects to conclude its current turnkey operations during the first quarter of 1997. The Company estimates that its first quarter 1997 earnings will be in the range of $24 million to $26 million (before an extraordinary charge from the redemption of debt). LIQUIDITY AND CAPITAL RESOURCES Key balance sheet amounts and ratios for 1996 and 1995 were as follows (dollars in millions):
December 31, 1996 1995 -------- -------- Cash and cash equivalents $ 97.2 $ 90.3 Current assets $ 317.3 $ 273.5 Current liabilities $ 85.3 $ 72.9 Current ratio 3.72 3.75 Note payable and current maturities of long-term debt $ 3.9 $ 7.0 Long-term debt $ 267.3 $ 247.7 Stockholders' equity $ 496.2 $ 429.2 Long-term debt/total capitalization .35 .37 ======== ========
Reflected in the comparisons above are the effects of net cash provided by operations of $83.7 million, capital expenditures of $117.9 million, proceeds from equipment disposals and the sale of the Argentina operations totaling $13.8 million, and proceeds from borrowings of $29.0 million. During 1996, the Company began construction of Rowan Gorilla V, an enhanced version of the Company's Gorilla Class jack-ups, which will be the world's largest bottom supported mobile offshore drilling unit. The rig is being constructed at the Company's Vicksburg, Mississippi shipyard and should be completed by mid-1998 at an estimated cost of $175 million. The Company is financing up to 87.5% of the construction cost through a 12-year bank loan guaranteed by the Maritime Administration of the U.S. Department of Transportation under its Title XI Program. Under the Title XI Program, the Company obtains funding for Gorilla V as construction progress is achieved and outstanding borrowings bear interest at .45% above a short-term LIBOR rate. The Company may fix the interest rate at any time and must fix the rate on all outstanding principal amounts on the earlier of July 1, 2000 or two years following completion of construction. Interest is payable semi-annually beginning July 1, 1997 and principal will be repaid in semi-annual installments commencing January 1, 1999. Gorilla V is pledged as security for the government guarantee. At December 31, 1996, the Company had drawn down about $29 million of the $153 million total credit facility at an interest rate of 6.075% The reactivation of the Company's marine construction capability, principally through rebuilding of the Vicksburg shipyard, should be substantially complete in early 1997. Capital expenditures encompass new assets or enhancements to existing assets as expenditures for routine maintenance and major repairs are charged to operations as incurred. Capital expenditures in 1996 included $68.5 million toward the design and construction of Gorilla V and about $15 million related to reactivation of the Company's Vicksburg facility. The remainder primarily reflects major rig enhancements and purchases of aircraft and components. 14 6 On October 28, 1996, the Company announced plans for the construction of Rowan Gorilla VI and Rowan Gorilla VII. Each rig will be a combination drilling and production unit like Gorilla V, capable of operating in hostile environments like the North Sea in water depths of up to 400 feet. The rigs will be constructed at the Company's Vicksburg facility at a combined cost of approximately $380 million, with delivery expected during the first quarter of 1999 and the second quarter of 2000. The Company believes that if operating conditions continue to improve as expected, internally generated working capital may be sufficient to finance construction of both rigs, with outside financing obtained if necessary. There can be no assurance that working capital will be adequate or that outside financing will be available. The Company currently has no other available credit facilities. The Company estimates 1997 capital expenditures to be between $160 and $170 million, including $85 -- 90 million for Gorilla V and $35 -- 40 million for Gorilla VI. The Company may also spend amounts to acquire additional aircraft as market conditions justify and to upgrade existing offshore rigs. On February 3, 1997, the Company announced plans for a partial redemption of its $200 million 11 7/8% Senior Notes due 2001. On April 1, 1997, the Company will redeem $50 million of the notes and pay a 6% premium. The Company will record an estimated $3.5 million loss on the transaction as an extraordinary charge in the first quarter of 1997, though remaining 1997 operations will be enhanced by an estimated $2.6 million reduction in net interest cost. The Company intends to refinance the remaining $150 million of 11 7/8% Senior Notes during 1997 and would realize an estimated $10 million extraordinary loss upon such redemption. Based on current operating levels and the previously discussed market trends, management believes that 1997 operations, together with existing working capital and available financial resources, will generate sufficient cash flow to sustain planned capital expenditures and debt service requirements at least through the remainder of 1997. At December 31, 1996, the provisions of the Company's existing indebtedness would allow the Company to enter into sale/leaseback transactions with a maximum value of approximately $81 million. In December 1995, in connection with the purchase of 16 aircraft and a hangar and office facility in Alaska, the Company issued a $7 million non-interest bearing promissory note payable at the end of one year. The note was repaid in full during 1996. In February 1994, the Company paid $10.4 million in cash and issued $41.7 million of 7%, 5-year notes in connection with its acquisition of the net manufacturing assets of Marathon LeTourneau Company. During 1996, the Company assumed certain environmental obligations related to its manufacturing facilities from the previous owners in exchange for $4 million in cash and a $5.5 million reduction in one of the notes. The Company believes it has adequately accrued for environmental liabilities. See Notes 1 and 9 of the Notes to Consolidated Financial Statements. The Company did not pay any dividends on its common stock during the 1994--1996 period. See Note 5 of the Notes to Consolidated Financial Statements. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, which governs accounting for the impairment of long-lived assets. The effect of adopting the statement on the Company's financial position and results of operations was not material. The Company does not intend to adopt the accounting provisions of Statement of Financial Accounting Standards No. 123, but rather has elected to continue to apply Accounting Principles Board Opinion No. 25 for measurement and recognition of employee stock-based compensation. The Company estimates that the provisions of the statement, if adopted, would not have materially affected reported amounts for net income (loss) and earnings (loss) per share in 1996 and 1995. This report contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements as to the expectations, beliefs and future expected financial performance of the Company that are based on current expectations and are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected by the Company. Among the factors that could cause actual results to differ materially are the following: o oil and natural gas prices o the level of offshore expenditures by energy companies o the general economy, including inflation o weather conditions in the Company's principal operating areas o environmental and other laws and regulations. Other relevant factors have been disclosed in the Company's filings with the U.S. Securities and Exchange Commission. 15 7 Rowan Companies, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEET
December 31, ---------------------- (In thousands except share amounts) 1996 1995 ---------- ---------- ASSETS Current Assets: Cash and cash equivalents $ 97,225 $ 90,338 Receivables -- trade and other 112,836 87,811 Inventories: Raw materials and supplies 65,734 51,898 Work-in-progress 21,181 23,015 Finished goods 1,758 708 Prepaid expenses 8,750 11,430 Cost of turnkey drilling contracts in progress 9,835 8,259 ---------- ---------- Total current assets 317,319 273,459 ---------- ---------- Investment In and Advances To 49% Owned Companies 28,049 29,770 ---------- ---------- Property, Plant and Equipment -- at cost: Drilling equipment 954,249 944,021 Aircraft and related equipment 188,681 189,954 Manufacturing plant and equipment 37,377 25,037 Construction in progress 77,318 Other property and equipment 94,517 91,089 ---------- ---------- Total 1,352,142 1,250,101 Less accumulated depreciation and amortization 805,942 763,062 ---------- ---------- Property, plant and equipment -- net 546,200 487,039 ---------- ---------- Other Assets and Deferred Charges 7,740 12,220 ---------- ---------- Total $ 899,308 $ 802,488 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Note payable and current maturities of long-term debt (Note 2) $ 3,932 $ 7,039 Accounts payable -- trade 28,106 21,774 Other current liabilities (Note 4) 53,236 44,058 ---------- ---------- Total current liabilities 85,274 72,871 ---------- ---------- Long-Term Debt -- less current maturities (Note 2) 267,321 247,744 ---------- ---------- Other Liabilities (Notes 6 and 9) 39,573 36,227 ---------- ---------- Deferred Credits: Income taxes (Note 7) 1,774 4,146 Gain on sale/leaseback transactions (Note 9) 9,147 12,345 ---------- ---------- Total deferred credits 10,921 16,491 ---------- ---------- Commitments and Contingent Liabilities (Note 9) ---------- ---------- Stockholders' Equity: Preferred stock, $1.00 par value: Authorized 5,000,000 shares issuable in series: Series I Preferred Stock, authorized 6,500 shares, none issued Series II Preferred Stock, authorized 6,000 shares, none issued Series III Preferred Stock, authorized 10,300 shares, none issued Series A Junior Preferred Stock, authorized 1,500,000 shares, none issued Common stock, $.125 par value; authorized 150,000,000 shares; issued 87,054,028 shares at December 31, 1996 and 86,353,792 shares at December 31, 1995 (Note 3) 10,882 10,794 Additional paid-in capital 401,730 396,092 Retained earnings (Note 5) 86,092 24,754 Less cost of treasury stock -- 1,457,919 shares 2,485 2,485 ---------- ---------- Total stockholders' equity 496,219 429,155 ---------- ---------- Total $ 899,308 $ 802,488 ========== ==========
See Notes to Consolidated Financial Statements. 16 8 Rowan Companies, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31, --------------------------------- (In thousands except per share amounts) 1996 1995 1994 --------- --------- --------- Revenues: Drilling services $ 316,123 $ 250,080 $ 245,917 Manufacturing sales and services 143,768 133,755 96,664 Aviation services 111,269 87,462 95,578 --------- --------- --------- Total 571,160 471,297 438,159 --------- --------- --------- Costs and Expenses: Drilling services 202,878 207,934 207,577 Manufacturing sales and services 131,665 120,378 87,382 Aviation services 93,473 79,993 79,955 Depreciation and amortization 47,882 50,555 50,790 General and administrative 16,591 14,692 13,862 --------- --------- --------- Total 492,489 473,552 439,566 --------- --------- --------- Income (Loss) From Operations 78,671 (2,255) (1,407) --------- --------- --------- Other Income (Expense): Interest expense (27,547) (27,702) (27,530) Less: interest capitalized 2,516 Gain on disposals of property, plant and equipment 2,359 6,598 1,344 Interest income 4,157 5,209 4,813 Other -- net 374 468 260 --------- --------- --------- Other income (expense) -- net (18,141) (15,427) (21,113) --------- --------- --------- Income (Loss) Before Income Taxes 60,530 (17,682) (22,520) Provision (credit) for income taxes (Note 7) (808) 754 469 --------- --------- --------- Net Income (Loss) $ 61,338 $ (18,436) $ (22,989) ========= ========= ========= Earnings (Loss) Per Share of Common Stock (Note 1): Primary $ .70 $ (.22) $ (.27) Fully Diluted $ .70 $ (.22) $ (.27) ========= ========= =========
See Notes to Consolidated Financial Statements. 17 9 Rowan Companies, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994 ----------------------------------------------------------- Common Stock --------------------------------------- Additional Issued In Treasury Paid-in Retained (In thousands) Shares Amount Shares Amount Capital Earnings -------- -------- -------- -------- -------- -------- Balance, January 1, 1994 85,350 $ 10,669 1,458 $ 2,485 $385,937 $ 66,179 Exercise of stock options 388 48 340 Value of services rendered by participants in the Nonqualified Stock Option Plans (Note 3) 4,648 Net loss (22,989) -------- -------- -------- -------- -------- -------- Balance, December 31, 1994 85,738 10,717 1,458 2,485 390,925 43,190 Exercise of stock options 538 67 472 Value of services rendered by participants in the Nonqualified Stock Option Plans (Note 3) 4,255 Conversion of subordinated debentures 78 10 440 Net loss (18,436) -------- -------- -------- -------- -------- -------- Balance, December 31, 1995 86,354 10,794 1,458 2,485 396,092 24,754 Exercise of stock options 626 78 548 Value of services rendered by participants in the Nonqualified Stock Option Plans (Note 3) 4,600 Conversion of subordinated debentures 74 10 490 Net income 61,338 -------- -------- -------- -------- -------- -------- BALANCE, DECEMBER 31, 1996 87,054 $ 10,882 1,458 $ 2,485 $401,730 $ 86,092 ======== ======== ======== ======== ======== ========
See Notes to Consolidated Financial Statements. 18 10 Rowan Companies, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, --------------------------------- (In thousands) 1996 1995 1994 --------- --------- --------- Cash Provided By (Used In): Operations: Net income (loss) $ 61,338 $ (18,436) $ (22,989) Noncash charges (credits) to net income (loss): Depreciation and amortization 47,882 50,555 50,790 Gain on disposals of property, plant and equipment (2,359) (6,598) (1,344) Compensation expense 4,600 4,255 4,648 Change in sale/leaseback payable (1,232) (1,460) (1,405) Amortization of sale/leaseback gain (3,198) (3,198) (3,198) Provision for pension and postretirement benefits 1,217 7,402 6,922 Other -- net (210) 1,161 (503) Changes in current assets and liabilities: Receivables -- trade and other (28,658) (9,494) 18,080 Inventories (13,052) (16,235) (9,205) Other current assets 2,713 (17,718) (2,464) Current liabilities 11,033 3,148 6,064 Net changes in other noncurrent assets and liabilities 3,673 (171) (2,591) --------- --------- --------- Net cash provided by (used in) operations 83,747 (6,789) 42,805 --------- --------- --------- Investing activities: Capital expenditures: Property, plant and equipment additions (117,947) (33,881) (32,963) Acquisition of net manufacturing assets (10,414) Proceeds from sale of Argentina drilling operations 6,946 Proceeds from disposals of property, plant and equipment 6,829 16,013 2,604 Repayments from affiliates 32 3,676 --------- --------- --------- Net cash used in investing activities (104,140) (14,192) (40,773) --------- --------- --------- Financing activities: Proceeds from borrowings 29,009 Repayments of borrowings (2,355) (290) (8,127) Other -- net 626 539 387 --------- --------- --------- Net cash provided by (used in) financing activities 27,280 249 (7,740) --------- --------- --------- Increase (Decrease) in Cash and Cash Equivalents 6,887 (20,732) (5,708) Cash and Cash Equivalents, Beginning of Year 90,338 111,070 116,778 --------- --------- --------- Cash and Cash Equivalents, End of Year $ 97,225 $ 90,338 $ 111,070 ========= ========= =========
See Notes to Consolidated Financial Statements. 19 11 Rowan Companies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Rowan Companies, Inc. and all of its wholly and majority owned subsidiaries (the "Company"). On February 11, 1994, the Company completed the acquisition of substantially all of the assets, and assumed certain related liabilities, of Marathon LeTourneau Company for $52,070,000 pursuant to an agreement with General Cable Corporation dated November 12, 1993. The acquisition was financed with $10,414,000 in cash and $41,656,000 in 7% promissory notes due in 1999 and has been recorded using the purchase method of accounting. The accompanying consolidated financial statements give effect to the acquisition as of January 1, 1994 and include the financial position, results of operations and cash flows associated with the acquired net assets from that date. The Company accounts for its investment in 49% owned companies using the equity method. The excess of cost over the net assets of subsidiaries at dates of acquisitions ($8,452,000) is being amortized over a thirty-year period. At December 31, 1996, the unamortized excess cost was $2,690,000. Intercompany transactions are eliminated in consolidation. REVENUE RECOGNITION. Most drilling contracts provide for payment on a day rate basis, and revenues and expenses are recognized as the work progresses. The Company also utilizes turnkey contracts for certain of its drilling operations. Under these short-term, fixed price arrangements, revenues and expenses are recognized on a completed contract basis. The Company's aviation services generally are provided under master service agreements (which provide for incremental payments based on usage), term contracts, or day-to-day charter arrangements. Aviation revenues and expenses are recognized as services are rendered. Manufacturing sales and related costs are generally recognized as products are shipped. Revenues and costs and expenses included sales and costs of sales of $134,929,000 and $111,973,000, $119,640,000 and $97,324,000, and $90,460,000 and $72,717,000 in 1996, 1995 and 1994, respectively. INVENTORIES. Manufacturing inventories are stated principally at lower of first-in, first-out cost or market. Drilling and aviation materials and supplies are carried at average cost. STATEMENT OF CASH FLOWS. The Company generally considers all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents. Noncash financing activities in 1996 consisted of the retirement of $4,684,000 of debt through the disposition of aviation equipment, a $5,500,000 reduction in debt in exchange for assumption of certain environmental obligations and the conversion of $500,000 of Series III Floating Rate Convertible Subordinated Debentures into 74,074 shares of common stock. Noncash transactions in 1995 included the issuance of a $6,972,000 non-interest bearing promissory note in connection with the purchase of certain aviation assets and the conversion of $450,000 of Series I Floating Rate Convertible Subordinated Debentures into 78,261 shares of common stock. Noncash transactions in 1994 included the issuance of $10,300,000 Series III Floating Rate Convertible Subordinated Debentures and the issuance of $41,656,000 7% promissory notes in connection with the acquisition of the net assets of Marathon LeTourneau Company. See Notes 2, 3 and 9. PROPERTY AND DEPRECIATION. For financial reporting purposes, the Company computes depreciation using the straight-line method over the estimated lives of the related assets as follows:
Salvage Years Value - ------------------------------------------------------------ Offshore drilling equipment: Semi-submersible 15 20% Cantilever jack-ups 15 20% Conventional jack-ups 12 20% Land drilling equipment 12 20% Drill pipe and tubular equipment 4 10% Aviation equipment: Aircraft 7 to 10 15% to 25% Other 2 to 10 various Manufacturing plant and equipment: Buildings and improvements 10 to 25 10% to 20% Other 2 to 12 various Other property and equipment 3 to 40 various - ------------------------------------------------------------
The Company depreciates its equipment from the date placed in service until the equipment is sold or becomes fully depreciated. The Company capitalizes, during the construction period, an allocation of the interest cost incurred during the period required to complete the asset. Engineering salaries and other expenses related to the construction of drilling equipment are also capitalized. Expenditures for new property or enhancements to existing property are capitalized. Expenditures for routine maintenance and major repairs are charged to operations as incurred. See Note 10. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement generally requires a periodic review of long-lived assets for indications that their carrying amount may not be recoverable and governs the measurement and disclosure of any resulting impairment loss. Its application did not have a material impact on the Company's financial position or results of operations. ENVIRONMENTAL MATTERS. Environmental remediation costs are accrued based on estimates of known remediation requirements even if uncertainties about the ultimate cost of the remediation exist. Ongoing environmental compliance costs are expensed as incurred and expenditures to mitigate or prevent future environmental contamination are capitalized. The Company's estimated liability is not discounted. See Note 9. INCOME TAXES. The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred income tax assets and liabilities which reflect the future tax consequences of differences between the financial statement and tax bases of assets and liabilities. See Note 7. 20 12 EARNINGS (LOSS) PER COMMON SHARE. Earnings (loss) per share amounts are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year, plus any shares issuable upon the exercise of stock options and the conversion of debentures, when dilutive. MANAGEMENT ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS. Certain reclassifications have been made in the 1995 and 1994 amounts to conform with the 1996 presentations. 2. LONG-TERM DEBT Long-term debt consisted of (in thousands):
December 31, 1996 1995 -------- -------- 11 7/8% Senior Notes due 2001 $200,000 $200,000 Nonrecourse notes payable in quarterly installments through 1997 with a final balloon payment due in 1998; bearing interest at 7% and collateralized by two aircraft costing approximately $3.6 million 2,488 2,797 Nonrecourse notes payable due 1999 bearing interest at 7% 36,156 41,656 Promissory note payable in 1996; non- interest bearing and secured by 15 aircraft costing approximately $ 6.7 million 6,730 Floating-rate note payable guaranteed under U.S. Department of Transportation Title XI; secured by drilling rig Rowan Gorilla V 29,009 Series II subordinated convertible debenture due 1997 bearing interest at 1/2% above prime rate 3,600 3,600 -------- -------- Total 271,253 254,783 Less current maturities 3,932 7,039 -------- -------- Remainder $267,321 $247,744 ======== ========
Maturities of long-term debt for the five years ending December 31, 2001 are as follows: 1997 -- $3,932,000, 1998 -- $2,156,000, 1999 -- $38,573,000, 2000 -- $2,417,000 and 2001 -- $202,417,000. The 11 7/8% Senior Notes due 2001 became redeemable on December 1, 1996, in whole or in part, upon payment of a premium of 6%. The premium decreases by 2% annually from that date to December 1, 1999, when the Company may redeem the notes at the principal amount. See Note 12. In January 1993, the Company entered into a five-year nonrecourse loan agreement with a bank to finance the purchase of two fixed-wing aircraft for $3,560,000. The resulting notes payable are collateralized by the aircraft and bear a fixed interest rate of 7%. The notes will be repaid in quarterly installments through 1997, with a final balloon payment due in January 1998. In February 1994, in connection with the acquisition of certain net manufacturing assets, the Company issued $41,656,000 in 7% promissory notes due in 1999. During 1996, the Company obtained a $5,500,000 reduction in one of the notes in return for assuming certain environmental remediation obligations. See Note 9 for further information. In December 1996, the Company obtained financing for up to $153,091,000 of the cost of designing and constructing Rowan Gorilla V through a 12-year bank loan guaranteed by the Maritime Administration of the U.S. Department of Transportation under its Title XI Program. The Company obtains funding as construction progress is achieved and outstanding borrowings bear interest at .45% above a short-term LIBOR rate. At December 31, 1996, the interest rate was 6.075%. The Company may fix the interest rate at any time and must fix the rate on all outstanding principal on the earlier of July 1, 2000 or two years following completion of construction. Interest is payable semi-annually beginning July 1, 1997 and principal will be repaid in semi-annual installments commencing January 1, 1999. Rowan Gorilla V is pledged as security for the government guarantee. The $3,600,000 principal amount of the Series II Floating Rate Convertible Subordinated Debenture is convertible into $3,600,000 of Series II Preferred Stock, which may be converted into an aggregate of 400,000 shares of the Company's common stock. At December 31, 1996, the interest rate was 8.75%. See Note 3 for further information. In November 1994, the Company issued $10,300,000 principal amount of Series III Floating Rate Convertible Subordinated Debentures. At December 31, 1996, debentures in the amount of $9,200,000 were outstanding. The outstanding debentures are convertible into $9,200,000 of Series III Preferred Stock, which may be converted into an aggregate of 1,362,963 shares of the Company's common stock. The debentures were issued in exchange for promissory notes containing provisions for setoff. Accordingly, the debentures and notes, and the related interest amounts, have been offset in the consolidated financial statements pursuant to Financial Accounting Standards Board Interpretation No. 39. See Note 3 for further information. Interest payments for 1996, 1995 and 1994 were $27,073,000, $27,433,000 and $26,900,000, respectively. Certain debt agreements of the Company contain provisions that require an excess of current assets over current liabilities, an excess of stockholders' equity over consolidated funded indebtedness and a minimum level of stockholders' equity, and restrict investments, sale/leaseback transactions, mergers, consolidations, sales of assets, borrowings, creation of liens, purchases of the Company's capital stock, and present and future common stock dividend payments. See Note 5 for further information. 3. STOCKHOLDERS' EQUITY The Company has two nonqualified stock option plans through which options have been granted to certain key employees. The Company's 1980 Nonqualified Stock Option Plan authorized the Board of Directors to grant, through January 25, 1990, options to purchase a total of 1,000,000 shares of the Company's common stock. 21 13 Under the terms of the 1988 Nonqualified Stock Option Plan, as amended (the "1988 Plan"), the Board of Directors can grant, before January 21, 2003, options to purchase a total of 7,000,000 shares of the Company's common stock. At December 31, 1996, options for 6,453,504 shares had been granted at exercise prices ranging from $1.00 to $15.25 per share, and 348 active, key employees had been granted options. Options are exercisable to the extent of 25% after one year from date of grant, 50% after two years, 75% after three years and 100% after four years. All options not exercised expire ten years after the date of grant. The Company recognizes compensation expense with respect to any nonqualified option pursuant to Accounting Principles Board (APB) Opinion No. 25 as the difference between the market price per share and the option price per share on the date of grant. The compensation is recorded as expense over the period in which the employee performs services to earn the right to exercise the option and an equal amount is credited to additional paid-in capital. The Company has elected not to adopt Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" which offers an alternative method for measuring compensation cost. The statement, if adopted, would not have materially affected reported amounts for net income (loss) and earnings (loss) per share in 1996 and 1995. Stock option activity was as follows:
Number of Shares ------------------------------------ 1996 1995 1994 ---------- ---------- ---------- Stock options outstanding, January 1 2,499,700 2,182,650 1,616,325 Changes during the year: Granted: at $1.00 per share 928,000 982,000 at $7.625 per share 525,000 at $8.00 per share 25,000 at $15.25 per share 177,000 Exercised, at $ 1.00 per share (626,162) (537,950) (387,675) Forfeited (102,250) (73,000) (28,000) ---------- ---------- ---------- Stock options outstanding, December 31 2,498,288 2,499,700 2,182,650 ---------- ---------- ---------- Stock options exercisable, December 31 564,476 494,513 440,338 ========== ========== ========== Stock options available for grant, December 31: 1988 Plan 1,984,071 2,608,821 3,463,821 ========== ========== ==========
The Rowan Companies, Inc. 1986 Convertible Debenture Incentive Plan (the "Plan") provides for the issuance to key employees of up to $20,000,000 in aggregate principal amount of the Company's floating rate convertible subordinated debentures. The debentures are initially convertible into preferred stock which has no voting rights (except as required by law or the Company's charter), no dividend and a nominal liquidation preference. The preferred stock is immediately convertible into common stock. Since the inception of the plan, debentures in the aggregate principal amount of $19,925,000 have been issued by the Company. At December 31, 1996, all $5,125,000 principal amount of Series I debentures issued in 1986 had been converted into common stock at $5.75 per share. In 1987, the Company issued a Series II debenture in the principal amount of $4,500,000, of which $3,600,000 was outstanding at December 31, 1996. This residual amount is ultimately convertible into common stock at $9.00 per share for each $1,000 principal amount of debenture at any time through September 10, 1997, unless earlier redeemed or the conversion privilege is terminated. In November 1994, the Company issued Series III debentures in the principal amount of $10,300,000, of which $9,200,000 was outstanding at December 31, 1996. This amount is ultimately convertible into common stock at $6.75 per share for each $1,000 principal amount of debenture through November 30, 2004, as follows, unless earlier redeemed or the conversion privilege is terminated: $4,300,000 through November 29, 1997; $6,700,000 on or after November 30, 1997 and $9,200,000 on or after November 30, 1998. On February 25, 1992, the Company adopted a Stockholder Rights Agreement to protect against coercive takeover tactics. The agreement provides for the distribution to the Company's stockholders of one Right for each outstanding share of common stock. Each Right entitles the holder to purchase from the Company one one-hundredth of a share of Series A Junior Preferred Stock of the Company at an exercise price of $30. In addition, under certain circumstances, each Right will entitle the holder to purchase securities of the Company or an acquiring entity at one-half market value. The Rights are exercisable only if a person or group acquires 15% or more of the Company's outstanding common stock or makes a tender offer for 30% or more of the Company's outstanding common stock. The Rights will expire on February 25, 2002. The Company may generally redeem the Rights at a price of $.01 per Right at any time until the 10th day following public announcement that a 15% position has been acquired. 4. OTHER CURRENT LIABILITIES Other current liabilities consisted of (in thousands):
December 31, 1996 1995 --------- --------- Gain on sale/leaseback transactions $ 3,198 $ 3,198 Accrued liabilities: Income taxes 1,009 1,321 Compensation and related employee costs 29,084 25,610 Interest 2,033 2,012 Taxes and other 17,912 11,917 --------- --------- Total $ 53,236 $ 44,058 ========= =========
22 14 5. RESTRICTIONS ON RETAINED EARNINGS Under the terms of certain debt agreements, the Company has agreed not to declare dividends or make any distribution on its common stock unless the total dividends or distributions subsequent to December 31, 1991 are less than the sum of a) $20,000,000, plus b) 50% of cumulative consolidated net income, if positive, subsequent to December 31, 1991, plus c) the net proceeds from the sale of any class of capital stock after December 31, 1991, less d) 100% of cumulative consolidated net income, if negative, subsequent to December 31, 1991. Under this dividend restriction, the Company had a computed positive balance of $44,894,000 at December 31, 1996. Subject to these restrictions, the Board of Directors will determine payment, if any, of future dividends or distributions in light of conditions then existing, including the Company's earnings, financial condition and requirements, opportunities for reinvesting earnings, business conditions and other factors. 6. BENEFIT PLANS Since 1952, the Company has sponsored defined benefit pension plans covering substantially all of its employees. In 1994, in connection with its acquisition of certain manufacturing assets, the Company assumed the assets and obligations of a separate plan covering manufacturing employees. Pension benefits are based on an employee's years of service and average earnings for the five highest consecutive calendar years of compensation during the ten years immediately preceding retirement. The Company's policy is to fund the minimum amount required by the Internal Revenue Code. The following table sets forth the plans' funded status and the amounts recognized in the Company's consolidated balance sheet (in thousands):
December 31, 1996 1995 --------- --------- Actuarial present value of benefit obligations: Accumulated benefit obligation, Vested benefits $ 113,833 $ 107,803 ========= ========= Total benefits $ 121,455 $ 115,533 ========= ========= Plan assets at fair value $ 141,997 $ 108,056 Projected benefit obligation for service rendered to date 136,721 130,722 --------- --------- Plan assets in excess of (less than) projected benefit obligation 5,276 (22,666) Unrecognized net (gain) loss (16,013) 9,857 Unrecognized net benefits being recognized over 15 years (3,634) (4,845) Unrecognized prior service cost 440 555 --------- --------- Accrued pension cost included in Current and Other Liabilities $ (13,931) $ (17,099) ========= =========
The plans' assets consist primarily of equity securities and U.S. Treasury bonds and notes and, at December 31, 1996, included 1,500,000 shares of the Company's common stock at an average cost of $4.81 per share. At December 31, 1996, $11,800,000 of the plans' assets were invested in a dedicated bond fund. The plans had a basis in these assets of $9,300,000 yielding approximately 5.7% to maturity. Net pension cost included the following components (in thousands):
1996 1995 1994 -------- -------- -------- Service cost -- benefits earned during the period $ 5,757 $ 4,335 $ 4,784 Interest cost on projected benefit obligation 9,477 8,580 7,879 Actual return on plan assets -- (gain) loss (31,607) (24,166) 7,264 Net amortization and deferral 20,692 15,280 (17,105) -------- -------- -------- Net periodic pension cost $ 4,319 $ 4,029 $ 2,822 ======== ======== ========
Assumptions used in actuarial calculations were:
1996 1995 1994 ------- ------- ------- Discount rate 7.5% 7.25% 8.75% Rate of compensation increase 4.0% 4.0% 4.0% Expected rate of return on plan assets 9.0% 9.0% 9.0% ======= ======= =======
The Company also sponsors pension restoration plans to supplement the benefits for certain key executives that would otherwise be limited by section 415 of the Internal Revenue Code. The plans are unfunded and had projected benefit obligations at December 31, 1996 and 1995 of $3,317,000 and $3,021,000, respectively. The net pension liabilities included in the Company's consolidated balance sheet were $2,615,000 and $2,230,000 at December 31, 1996 and 1995, respectively. Net pension cost was $508,000 in 1996, $473,000 in 1995 and $437,000 in 1994. In addition to pension benefits, the Company provides certain health care and life insurance benefits for retired employees. Substantially all of the Company's drilling and aviation employees may become eligible for those benefits if they reach normal retirement age while working for the Company. The following table sets forth the plans' funded status and the amounts recognized in the Company's consolidated balance sheet (in thousands):
December 31, 1996 1995 -------- -------- Accumulated postretirement benefit obligations: Retirees $ 12,322 $ 12,006 Fully eligible active plan participants 8,933 7,751 Other active plan participants 12,257 11,570 -------- -------- Total benefits 33,512 31,327 Unrecognized transition obligation being recognized over 20 years (12,103) (12,859) Unrecognized net gain (loss) (7,803) (8,870) -------- -------- Accrued postretirement benefit cost included in Other Liabilities $ 13,606 $ 9,598 ======== ========
The actuarially determined accumulated postretirement benefit obligation reflects health care cost trend rates of 11% for 1996 and decreasing by 1% annually through 2001 and a discount rate of 7.5%. A one percentage point increase in the assumed health care cost trend rate would increase net periodic postretirement benefit cost by approximately $535,000 and increase the accumulated postretirement benefit obligation by approximately $3,125,000. 23 15 Net postretirement benefit cost included the following components (in thousands):
1996 1995 1994 -------- -------- -------- Service cost $ 1,686 $ 1,157 $ 1,475 Interest cost 2,269 1,998 1,799 Net amortization and deferral 1,129 797 1,003 -------- -------- -------- Net periodic postretirement benefit cost $ 5,084 $ 3,952 $ 4,277 ======== ======== ========
Cash payments for postretirement benefits in 1996, 1995 and 1994 were approximately $1,076,000, $1,052,000 and $614,000, respectively. During 1995, the Company commenced the Rowan Companies, Inc. Savings and Investment Plan in conformity with section 401(k) of the Internal Revenue Code. The plan, to which the Company contributed about $1,377,000 in 1996 and $988,000 in 1995, covers all drilling and aviation employees. Manufacturing employees are covered by a separate plan to which the Company contributed approximately $637,000, $620,000 and $433,000 in 1996, 1995 and 1994, respectively. 7. INCOME TAXES The detail of income tax provisions (credits) is presented below (in thousands):
1996 1995 1994 -------- -------- -------- Current: Federal $ 1,236 $ 87 $ (98) Foreign 141 787 145 State 187 202 268 -------- -------- -------- Total current provision 1,564 1,076 315 Deferred -- Foreign and other (2,372) (322) 154 -------- -------- -------- Total income tax provision (credit) $ (808) $ 754 $ 469 ======== ======== ========
Total income tax expense (credit) shown in the consolidated statement of operations is reconciled to the amount that would be computed if the income (loss) before income taxes was multiplied by the federal income tax rate (statutory rate) as follows (in thousands):
1996 1995 1994 -------- -------- -------- Statutory rate 35% 35% 35% Tax at statutory rate $ 21,186 $ (6,189) $ (7,883) Increase (decrease) in taxes resulting from: Net operating loss carryforward (21,155) 6,224 7,663 Foreign taxes (2,336) 465 753 Alternative minimum tax 1,226 87 (98) Other -- net 271 167 34 -------- -------- -------- Total income tax provision (credit) $ (808) $ 754 $ 469 ======== ======== ========
Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities at December 31, 1996 and 1995 were as follows (in thousands):
December 31, 1996 1995 --------- --------- Deferred tax asset: Deferred sale/leaseback gain $ 4,324 $ 5,443 Accrued pension and postretirement benefit costs 10,574 10,190 ESOP/PAYSOP contributions 832 1,428 Net operating loss carryforward 77,912 97,608 Investment tax credit carryforward 36,723 49,495 Other 6,439 4,457 --------- --------- 136,804 168,621 --------- --------- Valuation allowance (38,415) (69,278) --------- --------- 98,389 99,343 --------- --------- Deferred tax liability: Property, plant and equipment 97,062 99,162 Foreign income taxes 393 2,632 Other 2,708 1,695 --------- --------- 100,163 103,489 --------- --------- Deferred tax liability -- net $ 1,774 $ 4,146 ========= =========
The valuation allowance at December 31, 1996 consists primarily of investment tax credit carryforwards which are forecast as not being utilized prior to their statutory expiration dates. The valuation allowance decreased by $30,863,000 in 1996 primarily as a result of expiring tax credits and reduced net operating loss carryforwards. At December 31, 1996, the Company had $34,345,000 of regular investment tax credits and $2,378,000 of ESOP (Employee Stock Ownership Plan) tax credits available for application against future federal taxes payable. Total credits, if not utilized, will expire as follows: 1997 -- $11,069,000, 1998 -- $8,026,000, 1999 -- $10,110,000, 2000 -- $2,017,000 and 2001 -- $5,501,000. At December 31, 1996, the Company had net operating loss carryforwards for federal income tax purposes of approximately $222,607,000 which will expire, if not utilized, as follows: 2001 -- $30,986,000, 2002 -- $129,124,000, 2006 -- $1,860,000, 2007 -- $50,260,000, 2008 -- $3,002,000, 2009 -- $1,465,000 and 2010 -- $5,910,000. Deferred income taxes not provided for undistributed earnings of foreign subsidiaries, because such earnings are considered permanently invested abroad, amounted to approximately $6,951,000 at December 31, 1996. Income (loss) before income taxes consisted of $58,573,000, $(17,292,000) and $(21,640,000) of domestic earnings (losses), and $1,957,000, $(390,000) and $(880,000) of foreign earnings (losses) for 1996, 1995 and 1994, respectively. Income tax payments exceeded refunds by $1,747,000 in 1996, $388,000 in 1995 and $393,000 in 1994. 8. FAIR VALUES OF FINANCIAL INSTRUMENTS At December 31, 1996, the carrying amounts of the Company's cash and cash equivalents, receivables and payables approximated their fair values due to the short maturity of such financial instruments. Except for the 11 7/8% Senior Notes discussed below, the carrying amount of the Company's long-term debt was estimated to approximate its fair value at December 31, 1996 based upon quoted market prices for similar issues. 24 16 The 11 7/8% Senior Notes had a fair value of $213,250,000 at December 31, 1996, or a $13,250,000 premium to carrying value, based upon the closing price quoted on the New York Stock Exchange. 9. COMMITMENTS AND CONTINGENT LIABILITIES During 1984 and 1985, the Company sold two cantilever jack-ups, Rowan-Halifax and Cecil Provine, for a total of $126,500,000 in cash and leased each rig back under 15-year operating leases at effective interest rates of 9.3% and 8.0%, respectively. In each of 1999 and 2000, the Company will have an option to purchase the respective rig at the then fair market value, terminate the lease, or renew the lease at the lesser of a) a fixed rental renewal of 50% of the weighted average amount of the semi-annual installments during the basic term, or b) a fair market rental renewal. Each transaction resulted in a gain which is being recognized over the respective lease term. Total payments to be made under the sale/leaseback agreements are being expensed on a straight-line basis though the payments are variable. Other liabilities at December 31, 1996 and 1995 included the excess of inception-to-date sale/lease-back expenses over related payments of $8,063,000 and $12,857,000, respectively. In September 1996, the Company assumed certain environmental liabilities related to its manufacturing facilities in exchange for $4,000,000 in cash and a $5,500,000 reduction in a promissory note. The measurement of remediation costs is subject to uncertainties, including the evolving nature of environmental regulations and the extent of any agreements to mitigate remediation costs. Other liabilities at December 31, 1996 included $8,763,000 related to environmental matters. The Company believes that it has adequately accrued for environmental liabilities. The Company has operating leases covering aircraft hangars, offices and computer equipment and the sale/leaseback rigs. Net rental expense under all operating leases was $20,820,000 in 1996, $20,365,000 in 1995 and $20,756,000 in 1994. As of December 31, 1996, the future minimum payments to be made under noncancelable operating leases were (in thousands): 1997 $ 24,698 1998 20,254 1999 22,277 2000 17,781 2001 249 Later years 1,518 -------- Total $ 86,777 ========
The Company estimates 1997 capital expenditures at between $160,000,000 and $170,000,000, including $120,000,000 to $130,000,000 toward construction of the offshore rigs Rowan Gorilla V and Rowan Gorilla VI. In the Company's opinion, at December 31, 1996, there were no contingencies, claims or lawsuits against the Company which could have a material adverse effect on its financial position or results of operations. 10. SEGMENTS OF BUSINESS The Company has three principal segments of business: contract and turnkey drilling of oil and gas wells, both onshore and offshore ("Drilling"), charter helicopter and fixed-wing aircraft services ("Aviation") and, beginning in 1994, manufacture and sale of heavy equipment for the mining, timber and transportation industries, alloy steel and steel plate and marine drilling equipment ("Manufacturing"). Drilling services are provided in both domestic and foreign areas. Aviation services are provided primarily in Alaska, the western United States and along the Gulf Coast and include charter airline, flightseeing and forest fire control services as well as oil and gas related flying. Manufacturing operations are primarily conducted in Longview, Texas, but sales and services are carried out throughout the United States and in many foreign locations. Total revenues reported by industry segments consist principally of revenues from unaffiliated customers. The Company had revenues, primarily from drilling operations, in excess of 10% of consolidated revenues from one customer in each of 1995 (11%) and 1994 (10%). In 1996, no customer accounted for more than 10% of consolidated revenues. The Company believes that it has no significant concentrations of credit risk. The Company has never experienced any significant credit losses and its drilling and aviation services customers have heretofore primarily been large energy companies and government bodies. The addition of manufacturing operations in 1994 has diversified the Company's operations and attendant credit risk. Further, the Company retains the ability to relocate its major drilling and aviation assets over significant distances on a timely basis in response to changing market conditions. Assets are identified to a segment by their direct use. The Company classifies its drilling rigs for segment purposes as domestic or foreign based upon the drilling rig's country of registry. Accordingly, drilling rigs registered in the United States are classified with domestic operations and revenues generated from foreign operations of these rigs are considered export revenues. Revenues generated by foreign-registered drilling rigs from operations offshore the United States are classified as foreign revenues. Assuming revenues derived from all drilling operations within the United States, both onshore and offshore, were treated as domestic revenues and export revenues were treated as foreign revenues, revenues from foreign drilling operations would have been $105,010,000 in 1996. Domestic drilling operations included export revenues of $104,596,000 in 1996, $82,177,000 in 1995 and $84,025,000 in 1994. Except for $46,000,000 in 1996, $39,826,000 in 1995 and $34,533,000 in 1994, from other foreign areas, such export revenues were generated from North Sea operations. Manufacturing operations included export sales of $70,695,000, $48,222,000 and $34,543,000 in 1996, 1995 and 1994, respectively. At December 31, 1996, 27 drilling rigs, including 15 offshore rigs, with a carrying value of $206,430,000 were located in the United States and 8 drilling rigs, including 6 offshore rigs, with a carrying value of $121,674,000 were located in foreign jurisdictions. 25 17 Information concerning the Company's operations is summarized by segment as follows (in thousands):
1996 1995 1994 --------- --------- --------- Revenues: Drilling services: Domestic $ 289,622 $ 224,563 $ 216,983 Foreign 26,501 25,517 28,934 Manufacturing sales and services 143,768 133,755 96,664 Aviation services 111,269 87,462 95,578 --------- --------- --------- Consolidated $ 571,160 $ 471,297 $ 438,159 ========= ========= ========= Operating profit (loss): Drilling services: Domestic $ 72,549 $ 9,075 $ 1,942 Foreign 6,698 (4,056) (1,768) Manufacturing sales and services 9,468 11,737 7,667 Aviation services 6,547 (4,319) 4,614 --------- --------- --------- Consolidated 95,262 12,437 12,455 Gain on disposals of property, plant and equipment 2,359 6,598 1,344 Interest and other income 4,531 5,677 5,073 General and administrative (16,591) (14,692) (13,862) Interest expense -- net (25,031) (27,702) (27,530) --------- --------- --------- Income (loss) before income taxes $ 60,530 $ (17,682) $ (22,520) ========= ========= ========= Identifiable assets at December 31: Drilling services: Domestic $ 573,849 $ 483,354 $ 531,990 Foreign 44,592 56,077 40,863 Manufacturing sales and services 135,750 108,798 83,616 Aviation services 145,117 154,259 148,710 --------- --------- --------- Total assets $ 899,308 $ 802,488 $ 805,179 ========= ========= =========
Certain other financial information for each of the Company's principal business segments is summarized as follows (in thousands):
1996 1995 1994 -------- -------- -------- Depreciation and amortization: Drilling $ 33,998 $ 37,127 $ 38,166 Aviation 11,248 11,788 11,009 Manufacturing 2,636 1,640 1,615 Capital expenditures: Drilling 87,927 14,846 17,033 Aviation 8,913 12,897 14,657 Manufacturing 21,107 6,138 11,687 Maintenance and repairs: Drilling 32,947 25,870 27,237 Aviation 18,248 13,911 16,138 Manufacturing 9,389 9,071 7,836 -------- -------- --------
11. RELATED PARTY TRANSACTIONS A member of the Company's Board of Directors also served as a director of one of the Company's drilling customers during 1995 and part of 1996. The transaction with this customer in 1995 involved a day rate and operating costs which were comparable to those experienced by the Company in connection with third party contracts for similar rigs. Because of the aforementioned relationship, the contract between the Company and the customer was reviewed and ratified by the Board of Directors of the Company. Related 1995 revenues were $2,755,000. 12. SUBSEQUENT EVENT On February 3, 1997, the Company announced plans for a partial redemption of its $200,000,000 11 7/8% Senior Notes due 2001. On April 1, 1997, the Company will redeem $50,000,000 of the notes and pay a 6% premium plus accrued interest. The Company will record an estimated $3,500,000 loss on the transaction as an extraordinary charge in the first quarter of 1997. 26 18 INDEPENDENT AUDITORS' REPORT Rowan Companies, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheet of Rowan Companies, Inc. and Subsidiaries (the "Company") as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP Houston, Texas March 3, 1997 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following unaudited information for the quarters ended March 31, June 30, September 30 and December 31, 1995 and 1996 includes, in the Company's opinion, all adjustments (which comprise only normal recurring accruals) necessary for a fair presentation of such amounts (in thousands except per share amounts):
First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- --------- --------- 1995: Revenues $ 92,797 $ 117,382 $ 134,343 $ 126,775 Operating profit (loss) (13,637) 5,261 10,184 10,629 Net income (loss) (21,735) (3,706) 663 6,342 Earnings (loss) per common share (.26) (.04) .01 .07 --------- --------- --------- --------- 1996: Revenues $ 126,808 $ 137,166 $ 154,683 $ 152,503 Operating profit 10,315 21,825 32,324 30,798 Net income 2,357 12,665 22,710 23,606 Earnings per common share .03 .15 .26 .27 ========= ========= ========= =========
The sum of the per share amounts for the quarters may not equal the per share amounts for the full years since the quarterly and full year per share computations are made independently. COMMON STOCK PRICE RANGE, CASH DIVIDENDS AND STOCK SPLITS (UNAUDITED) The price range below is as reported by the New York Stock Exchange on the Composite Tape. On February 27, 1997 there were approximately 3,100 holders of record.
Quarter 1996 1995 ------------------ ------------------ High Low High Low -------- -------- -------- -------- First $ 13.13 $ 8.88 $ 6.75 $ 5.38 Second 16.75 12.75 8.38 6.38 Third 19.13 14.00 8.63 6.75 Fourth 24.50 18.50 10.00 6.00 ======== ======== ======== ========
The Company did not pay any dividends on its common stock during 1996 and 1995. See Note 5 of the Notes to the Consolidated Financial Statements for restrictions on dividends. Stock splits and stock dividends since the Company became publicly owned in 1967 have been as follows: 2 for 1 stock splits on January 25, 1973, December 16, 1976 and May 13, 1980; 2 for 1 stock splits effected in the form of a stock dividend on February 6, 1978 and January 20, 1981; and a 5% stock dividend on May 21, 1975. On the basis of these splits and dividends, each share acquired prior to January 25, 1973 would be represented by 33.6 shares if still owned at present. 27 EX-21 9 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The following is a list of subsidiaries of the Registrant: Registrant and Parent: Rowan Companies, Inc. Wholly-Owned Subsidiaries of Registrant: Era Aviation, Inc., a Washington corporation Rowan International, Inc., a Panamanian corporation Rowandrill, Inc., a Texas corporation Rowan Drilling Company, Inc., a Texas corporation Atlantic Maritime Services, Inc., a Texas corporation Rowan Petroleum, Inc., a Texas corporation LeTourneau, Inc., a Texas corporation Note: Certain subsidiaries have been omitted from this listing because such subsidiaries, when considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. EX-23 10 CONSENT OF INDEPENDENT AUDITORS' 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT Rowan Companies, Inc.: We consent to the incorporation by reference in Post-Effective Amendment No. 4 to Registration Statement No. 2-58700, Amendment No. 1 to Registration Statement No. 33-33755, Registration Statement No. 33-61444, Registration Statement No. 33-51103, Registration Statement No. 33-51105 and Registration Statement No. 33-51109, each on Form S-8, and to the incorporation by reference in Amendment No. 1 to Registration Statement No 33-15721, Amendment No. 2 to Registration Statement No. 33-30057, Amendment No. 2 to Registration Statement No. 33-61696, and Amendment No. 1 to Registration Statement No. 33-62885, each on Form S-3, of our report dated March 3, 1997 incorporated by reference in this Annual Report on Form 10-K of Rowan Companies, Inc., for the year ended December 31, 1996. We also consent to the reference to us under the heading "Experts" in Amendment No. 1 to Registration Statement No. 33-62885. DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Houston, Texas March 28, 1997 EX-24 11 POWERS OF ATTORNEY 1 EXHIBIT 24 Form 10-K for the Year Ended December 31, 1996 The Exchange Act of 1934 -------------------- Power of Attorney KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints C. R. Palmer or E. E. Thiele, or either of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign to the Company's Form 10-K for the year ended December 31, 1996 and any or all amendments, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. -------------------- Pursuant to the requirement of the Exchange Act of 1934, the Company's Form 10-K for the year ended December 31, 1996 or amendment has been signed below by the following persons in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- --------------------------- President, Chairman of the (C. R. Palmer) Board and Chief Executive Officer /s/ RALPH E. BAILEY --------------------------- Director March 28, 1997 (Ralph E. Bailey) /s/ HENRY O. BOSWELL --------------------------- Director March 28, 1997 (Henry O. Boswell) /s/ H. E. LENTZ --------------------------- Director March 28, 1997 (H. E. Lentz) /s/ HON. COLIN B. MOYNIHAN --------------------------- Director March 28, 1997 (Hon. Colin B. Moynihan) /s/ WILFRED P. SCHMOE --------------------------- Director March 28, 1997 (Wilfred P. Schmoe) /s/ CHARLES P. SIESS, JR. --------------------------- Director March 28, 1997 (Charles P. Siess, Jr.) /s/ PETER SIMONIS --------------------------- Director March 28, 1997 (Peter Simonis) /s/ C. W. YEARGAIN --------------------------- Director March 28, 1997 (C. W. Yeargain)
EX-27 12 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF ROWAN COMPANIES, INC. FOR THE YEAR ENDED DECEMBER 31, 1996 INCLUDED IN ITS 1996 ANNUAL REPORT TO STOCKHOLDERS AND INCORPORATED BY REFERENCE IN THIS ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 DEC-31-1996 97,225 0 112,836 0 88,673 317,319 1,352,142 805,942 899,308 85,274 267,321 0 0 10,882 485,337 899,308 134,929 571,160 111,973 492,489 0 0 25,031 60,530 (808) 61,338 0 0 0 61,338 0.70 0.70
-----END PRIVACY-ENHANCED MESSAGE-----