-----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, Cwlr35iKUK7KzGStBPdT/xnX28I7GXTq/Jfk7pUWYROCArUzCCbJbiTiuRLDB9FM Yp3w5n/cHp/FhWyohr35TA== 0000950129-04-001250.txt : 20040312 0000950129-04-001250.hdr.sgml : 20040312 20040312172651 ACCESSION NUMBER: 0000950129-04-001250 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040312 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: 04667085 BUSINESS ADDRESS: STREET 1: 2800 POST OAK BLVD. STREET 2: SUITE 5450 CITY: HOUSTON STATE: TX ZIP: 77056-6127 BUSINESS PHONE: 7136217800 MAIL ADDRESS: STREET 1: 2800 POST OAK BOULEVARD STREET 2: SUITE 5450 CITY: HOUSTON STATE: TX ZIP: 77056-6127 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 h13239e10vk.txt ROWAN COMPANIES, INC. - DATED 12/31/2003 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, 2003 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 2800 Post Oak Boulevard Suite 5450 Houston, Texas 77056-6127 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 Exchange - Stock & Options Preferred Stock Purchase Rights New York Stock Exchange Pacific Exchange - Stock & Options Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]. The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $2.1 billion as of June 30, 2003, based upon the closing price of the registrant's Common Stock on the New York Stock Exchange Composite Tape on such date of $22.40 per share. The number of shares of Common Stock, $.125 par value, outstanding at March 1, 2004 was 105,724,036. DOCUMENTS INCORPORATED BY REFERENCE Document Part of Form 10-K -------- ----------------- Annual Report to Stockholders for fiscal year ended December 31, 2003 Parts I, II and IV Proxy Statement for the 2004 Annual Meeting of Stockholders Part III TABLE OF CONTENTS
Page PART I Item 1. Business .................................................... 1 Drilling Operations................................................. 1 Offshore Operations ............................................. 1 Onshore Operations .............................................. 3 Contracts ....................................................... 4 Competition ..................................................... 4 Regulations and Hazards ......................................... 5 Manufacturing Operations............................................ 6 Raw Materials.................................................... 8 Competition...................................................... 8 Regulations and Hazards.......................................... 9 Aviation Operations ................................................ 10 Contracts ....................................................... 11 Competition ..................................................... 11 Regulations and Hazards ......................................... 12 Employees .......................................................... 12 Risk Factors ....................................................... 12 Item 2. Properties .................................................. 15 Drilling Rigs ...................................................... 15 Manufacturing Facilities............................................ 17 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 ....................................... 20 Item 6. Selected Financial Data ..................................... 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ....................... 20 Item 7A. Quantitative and Qualitative Disclosures about Market Risks.. 20 Item 8. Financial Statements and Supplementary Data ................. 21 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ....................... 21 Item 9A. Controls and Procedures ..................................... 21 PART III Item 10. Directors and Executive Officers of the Registrant .......... 21 Item 11. Executive Compensation ...................................... 22 Item 12. Security Ownership of Certain Beneficial Owners and Management ............................................ 22 Item 13. Certain Relationships and Related Transactions .............. 22 Item 14. Principal Accountant Fees and Services....................... 22 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K ....................................... 23
PART I ITEM 1. BUSINESS Rowan Companies, Inc. (hereinafter referred to as "Rowan" or "the Company") is a major provider of international and domestic contract drilling and aviation services. Rowan also operates a mini-steel mill, a manufacturing facility that produces heavy equipment for the mining, timber and transportation industries and a drilling products group that has designed or built about one-third of all mobile offshore jack-up drilling rigs. Rowan was 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. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are made available free of charge on our internet website at http://www.rowancompanies.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Information regarding each of Rowan's industry segments, including revenues, operating profit (loss), assets and foreign-source revenues for 2003, 2002 and 2001 is incorporated herein by reference from Footnote 10 of the Notes to Consolidated Financial Statements on pages 35 and 36 of Rowan's 2003 Annual Report to Stockholders ("Annual Report"), incorporated portions of which are filed as Exhibit 13 hereto. During 2003, 14% of Rowan's consolidated revenues were derived from El Paso Corporation and 10% were derived from Anadarko Petroleum Corporation, primarily from drilling services. In 2002, 13% of Rowan's consolidated revenues were derived from El Paso Corporation, primarily from drilling services. In 2001, 14% of Rowan's consolidated revenues were derived from Anadarko Petroleum Corporation, primarily from drilling services. DRILLING OPERATIONS Rowan provides contract drilling services utilizing a fleet of 23 self-elevating mobile offshore drilling platforms ("jack-up rigs"), one mobile offshore floating platform ("semi-submersible rig") and 18 land drilling rigs. Rowan's drilling operations are conducted primarily in the Gulf of Mexico, the North Sea, offshore eastern Canada and in Texas and Louisiana. In 2003, drilling operations generated an operating profit (income from operations before deducting general and administrative expenses) of $30.6 million. Offshore Operations Since 1970, Rowan's drilling operations have featured jack-up rigs performing both exploratory and development drilling and, in certain areas, well workover operations. Rowan operates larger, deep-water type jack-up rigs capable of drilling to depths of 20,000 to 35,000 feet in maximum water depths ranging from 250 to 550 feet, depending on the size of the rig and its location. Rowan's jack-up rigs are designed with a floating hull with three independently elevating legs, drilling equipment, supplies, crew quarters, loading and unloading facilities, a helicopter landing deck and other related equipment. Drilling equipment includes engines, drawworks or hoist, derrick, pumps to circulate the drilling fluid, drill pipe and drilling bits. Rowan's rigs are equipped with propulsion thrusters to assist in towing. At the drilling site, the legs are lowered until they penetrate the ocean floor and the hull is jacked-up on the legs to the desired elevation above the water. The hull then serves as a drilling platform until the well is completed, at which time the hull is lowered into the water, the legs are elevated and the rig is towed to the next drilling site. 1 Rowan's cantilever jack-ups can extend a portion of the sub-structure containing the drawworks, derrick and related equipment over fixed production platforms so that development or workover operations on the platforms can be carried out with a minimum of interruption to production. In 1989, Rowan acquired and developed a "skid base" technology, whereby the rig floor drilling equipment on a conventional jack-up rig can be "skidded" out over the top of a fixed platform. Thus, conventional jack-up rigs can be used on certain drilling assignments that previously required a cantilever jack-up or platform rig. At March 12, 2004, Rowan's offshore drilling fleet included the following: - 16 cantilever jack-up rigs, featuring three harsh environment "Gorilla class" rigs and four enhanced "Super Gorilla class" rigs - seven conventional jack-up rigs, including five rigs with skid base capability - one semi-submersible rig The fleet increased to 24 units following the delivery in August 2003 of the Bob Palmer. The Company operates two of the cantilever jack-up rigs under operating leases expiring in 2008. Rowan's Gorilla class rigs are a heavier-duty class of jack-up rig, capable of operating in water depths up to 328 feet in extreme hostile environments (winds up to 100 miles per hour and seas up to 90 feet) such as in the North Sea and offshore eastern Canada. Gorillas II and III can drill up to 30,000 feet and Gorilla IV is equipped to reach 35,000 feet. During the fourth quarter of 1998, Rowan completed construction of its first Super Gorilla class rig, Rowan Gorilla V. Construction of Rowan Gorilla VI was completed in June 2000, and Rowan Gorilla VII was delivered in December 2001. Gorillas V, VI and VII are enhanced versions of Rowan's Gorilla class rigs, featuring a combination drilling and production capability. They can operate year-round in 400 feet of water south of the 61st parallel in the North Sea, within the worst-case combination of 100-year storm criteria for waves, wave periods, winds and currents. Rowan financed $153.1 million of the cost of Gorilla V, $171.0 million of the cost of Gorilla VI and $185.4 million of the cost of Gorilla VII through bank loans guaranteed by the U.S. Department of Transportation's Maritime Administration under its Title XI Program. In August 2003, Rowan completed construction of the Bob Palmer (formerly Gorilla VIII), an enhanced version of the Super Gorilla class jack-up designated a Super Gorilla XL. The Bob Palmer has 713 feet of leg, 139 feet more than Gorillas V, VI or VII, and has 30% larger spud cans, enabling operation in the Gulf of Mexico in water depths up to 550 feet. The Bob Palmer can also operate in water depths up to 400 feet in the hostile environments offshore eastern Canada and in the North Sea. Rowan financed $187.3 million of the cost of the Bob Palmer through bank loans guaranteed under the Title XI Program. In July 2001, Rowan's Board of Directors approved the development, design and construction of a new class of jack-up rig, specifically targeted for deep drilling in water depths up to 250 feet on the Gulf of Mexico's outer continental shelf. The Tarzan Class rig will offer drilling capabilities similar to our Gorilla class jack-ups, enabling more efficient drilling beyond 15,000 feet, but with reduced environmental criteria (wind, wave and current) and at less than one-half of the construction cost. The first of as many as four new Tarzan rigs, the Scooter Yeargain, is at Sabine Pass, Texas for final outfitting and should be delivered in April 2004. The second Tarzan Class rig, the Bob Keller, formerly Tarzan II, is under construction at Vicksburg, Mississippi, with delivery expected during the third quarter of 2005. Rowan has obtained financing for up to $180.9 of the cost of the first two Tarzan rigs through government-guaranteed Title XI bank loans, under terms and conditions similar to those in effect for the Bob Palmer, and has applied for Title XI financing for Tarzans III and IV. 2 The current fleet expansion program began in 1995 and represents Rowan's first new construction since the mid-1980s. In the intervening period, Rowan's capital expenditures were primarily for enhancements to existing drilling rigs and manufacturing facilities and for the purchase of aircraft. Of Rowan's 16 remaining jack-up rigs, six cantilever rigs and one conventional rig have been modified to provide a degree of hostile environment operating capability, and seven cantilever rigs and three conventional rigs are equipped to operate in water depths up to 350 feet. Rowan takes advantage of lulls in drilling activity to perform needed maintenance and make certain enhancements to its drilling fleet. During 1998 and 1999, the Company completed the following enhancements: upgrading solids control mud systems on all nine of the Company's 116-C class jack-up rigs; adding one to two engines to six of the 116-C class rigs, each such rig now being equipped with six engines; installing new generation top-drives on four of the 116-C class rigs and one of the Gorilla class rigs; upgrading the electrical systems on one of the 84 class rigs; adding leg length to three of the 116-C class rigs and reconditioning the subsea equipment on the semi-submersible rig. For a further discussion of Rowan's availability of funds in 2004 to sustain operations, debt service and planned capital expenditures, including those related to construction of the Tarzan Class rigs, see "Liquidity and Capital Resources" under "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 20 through 22 of the Annual Report, which information is incorporated herein by reference. Also, see ITEM 2. PROPERTIES beginning on page 15 of this Form 10-K for additional information with respect to the capabilities and operating status of the Company's rigs. Rowan's semi-submersible rig is utilized principally for offshore exploratory drilling from a floating position and is capable of drilling to a depth of 25,000 feet in water depths up to 1,200 feet. A semi-submersible drilling rig consists of a drilling platform raised above multiple hulls by columns. The hulls are flooded and submerged beneath the water surface, in which position the rig is anchored during drilling operations. The drilling platform contains the same type of equipment found on a jack-up rig. After completion of the well, the submerged hull is deballasted to reduce vessel draft and facilitate towing to another drilling location. Rowan operates six anchor-handling, towing and supply (AHTS) boats obtained under five-year lease agreements that expire in 2004 (one boat) and 2005 (five boats) and contain purchase options. The boats are fully crewed by the lessor, but managed by Rowan to provide towing and supply services to our drilling operations. Rowan also directly markets the boats to third parties, with emphasis on their anchor-handling capabilities for deepwater semi-submersibles. Onshore Operations Rowan has drilling equipment, personnel and camps available on a contract basis for exploration and development of onshore areas. Rowan currently owns 18 deep-well land rigs located as follows: 12 in Texas and six in Louisiana. The fleet features four newly constructed rigs and nine rigs that have been substantially rebuilt in recent years. 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. 3 Contracts Rowan's drilling contracts generally provide for compensation on a day rate basis, whereby the Company earns a fixed amount per day, and are usually obtained either through competitive bidding or individual negotiations. 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. Profitability may also be dependent upon receiving adequate compensation for the cost of moving equipment to drilling locations. When weak market conditions characterized by declining drilling day rates prevail, Rowan generally accepts lower rate contracts in an attempt to maintain its competitive position and to offset the substantial costs of maintaining and reactivating stacked rigs. When drilling markets are strong and increasing rates prevail, Rowan generally pursues short rather than long-term contracts for its rigs to maximize its ability to obtain rate increases and pass through any cost increases to customers. Rowan's drilling contracts are either "well-to-well", "multiple well" or for a fixed term generally ranging from one to twelve months. Well-to-well contracts are cancelable by either party upon completion of drilling at any one site, and fixed-term contracts usually provide for termination by either party if drilling operations are suspended for extended periods by events of force majeure. While most fixed-term contracts are for relatively short periods, some fixed-term and well-to-well contracts continue for a longer period than the original term or for a specific series of wells. Many offshore contracts contain renewal or extension provisions exercisable at the option of the customer at prices agreeable to the Company and most require additional payments for mobilization and demobilization costs. Rowan's contracts for work in foreign countries generally provide for payment in United States dollars except for minimal amounts required to meet local expenses, such as payroll. Rowan 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 15 of this Form 10-K for the contract status of the Company's rigs as of March 12, 2004. Competition The contract drilling industry is highly competitive and involves many factors, including price, equipment capability, operating and safety performance and reputation. Rowan believes that it competes favorably with respect to all of these factors. Rowan competes with more than 20 offshore drilling contractors together having available more than 500 mobile rigs worldwide and approximately 20 domestic drilling contractors with about 200 available deep-well land rigs in the aggregate. Based upon the number of rigs as tabulated by ODS-Petrodata, Rowan is the seventh largest offshore drilling contractor in the world and the sixth largest jack-up rig operator. Some of the Company's competitors have greater financial and other resources and may be more able to make technological improvements to existing equipment or replace equipment that becomes obsolete. 4 Technological advances can create competitive advantages and eventually cause less capable equipment to be less suitable for certain drilling operations. As a result, during the 1980-1986 period, Rowan carried out a drilling rig expansion program, culminating with the development of a heavier jack-up rig class known as the Gorilla rig. Since that time, Rowan has employed a drilling rig modification and enhancement program designed to provide a fleet of jack-up rigs reflecting the latest technological advancements. In 1995, Rowan began a drilling rig expansion program featuring the development of enhanced versions of the Gorilla class rig and, beginning in 2001, the Tarzan Class rig. The offshore markets in which the Company competes are characterized by their economic viability and political stability. At March 12, 2004, Rowan had 21 jack-ups and its semi-submersible located in the Gulf of Mexico, one jack-up located offshore eastern Canada and one jack-up located in the North Sea. Based upon the number of rigs as tabulated by ODS-Petrodata, Rowan is the fourth largest offshore drilling contractor in the Gulf of Mexico and the second largest jack-up rig operator in the area. Relocation of equipment from one geographic location to another is dependent upon changing market dynamics, with moves occurring only when the likelihood of higher returns makes such action economical over the longer term. During 1999 and 2000, the Company relocated its six rigs from the North Sea to the Gulf of Mexico (five rigs) and offshore eastern Canada (one rig) and two rigs from offshore eastern Canada to the Gulf of Mexico to pursue more favorable market conditions. Gorilla VII was relocated from the Gulf of Mexico to the North Sea in January 2002. Rowan 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. Since 1992, with the many restructurings, downsizings and, more recently, mergers by major energy companies, followed by significant reductions in their domestic budgets, the Company has increased its marketing emphasis on independent operators. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 16 through 22 of Rowan's 2003 Annual Report, the information under which caption is incorporated herein by reference, for a discussion of current industry conditions and their impact on operations. Regulations and Hazards Rowan's drilling operations are subject to many hazards, including 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 are also subject to marine hazards, either while on site or under tow, such as vessel 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 into high-pressure formations is a complex process and problems can frequently occur. Rowan believes that it is adequately insured for physical damage to its rigs, and for marine liabilities, worker's compensation, maritime employers liability, automobile liability and for various other types of exposures customarily encountered in the Company's operations. Certain of Rowan's liability insurance policies specifically exclude coverage for fines, penalties and punitive or exemplary damages. Rowan 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. 5 Foreign operations are often subject to political, economic and other uncertainties not encountered in domestic operations, such as arbitrary taxation policies, onerous customs restrictions, unstable currencies and the risk of asset expropriation due to foreign sovereignty over operating areas. As noted previously, Rowan attempts to minimize the risk of currency rate fluctuations by generally contracting for payment in United States dollars. Many aspects of Rowan's operations are subject to government regulation, as in the areas of equipping and operating vessels, drilling practices and methods and taxation. In addition, various countries (including the United States) have regulations relating to environmental protection and pollution control. Recent events have also increased the sensitivity of the oil and gas industry to environmental matters. Rowan could become liable for damages resulting from pollution of offshore waters and, under United States regulations, must establish financial responsibility. Generally, Rowan is substantially indemnified under its drilling contracts for 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. Rowan believes that it complies in all material respects with legislation and regulations affecting the drilling of oil and gas wells and the discharge of wastes. To date, the Company has made significant modifications to its Gulf of Mexico rigs to reduce waste and rain water discharge and believes that it could operate those rigs at "zero discharge" without material additional expenditures. Otherwise, regulatory compliance has not materially affected the capital expenditures, earnings or competitive position of the Company to date, although such measures do increase drilling costs and may reduce drilling activity. Further regulations may reasonably be anticipated, but any effects thereof on Rowan's drilling operations cannot be accurately predicted. Rowan is subject to the requirements of the Federal Occupational Safety and Health Act ("OSHA") and comparable state statutes. OSHA's hazard communication standard, the Environmental Protection Agency's "community right-to-know" regulations and comparable state statutes require Rowan to organize and report certain information about the hazardous materials used in its operations to employees, state and local government authorities and local citizens. Since the exploration activities of Rowan's present and potential customers are directly impacted by state, federal and foreign regulations associated with the production and transportation of oil and gas, the demand for Rowan's drilling services is also affected. MANUFACTURING OPERATIONS In 1994, LeTourneau, Inc. ("LeTourneau"), a wholly-owned subsidiary of the Company, acquired the net assets of Marathon LeTourneau Company, headquartered in Longview, Texas. LeTourneau operates a mini-steel mill that recycles scrap and produces steel plate; a manufacturing facility that produces heavy equipment such as front-end loaders with up to an 80-ton capacity; and a drilling products group that has designed or built about one-third of all mobile offshore jack-up drilling rigs, including all 23 operated by Rowan. In 2003, the manufacturing division generated an operating profit of $2.3 million. External manufacturing backlog for all product lines was approximately $52 million at February 29, 2004, all of which is expected to be realized in 2004, compared with $24 million at February 28, 2003, all of which was realized during 2003. 6 The mining equipment product line features front-end loaders with bucket capacities of 18, 22, 28, 33 and 53 cubic yards. LeTourneau's loaders are generally used in coal, gold, copper, diamond and iron ore mines and utilize LeTourneau's diesel electric-drive system with digital controls. This system allows large, mobile equipment to stop, start and reverse without gear shifting and high maintenance braking. LeTourneau loaders can load rear-dump trucks in the 85-ton to 400-ton range. LeTourneau's mining equipment and parts are distributed through a worldwide network of independent distributors and its own distribution network serving the western United States and Australia. The timber equipment product line features diesel electric powered log stackers with either two or four wheel drive configurations and load capacities ranging from 35 to 55 tons. LeTourneau is one of two manufacturers that sell electrically powered jib cranes rated from 25,000 to 52,000 lbs. at a reach of 100 to 150 feet and with a 360-degree rotation. LeTourneau's timber equipment is marketed primarily in North America through independent dealers and its own dealer in the northwestern United States. LeTourneau's transportation equipment line produces several different types of material handling equipment, such as 50-ton capacity, diesel electric, gantry cranes used for lifting, transporting and stacking large shipping containers and trailers at ports and rail yards. Gantry cranes can span up to seven container rows plus a truck aisle and stack 9-1/2-feet tall containers up to five high. Gantry cranes equipped with a spreader can lift containers from the top and have retractable arms for loading and unloading piggyback trailers. LeTourneau's transportation equipment is marketed primarily in North America through independent dealers and its own dealer in the northwestern United States. LeTourneau also sells parts and components to repair and maintain mining, timber and transportation equipment. Equipment parts are marketed through two independent dealers and its own dealer in the United States with 16 parts-stocking locations, one dealer in Canada with 12 parts-stocking locations, and 25 independent international dealers and its own Australian dealer with 40 parts-stocking locations. LeTourneau's Longview, Texas mini-steel mill produces carbon, alloy and specialty steel plate products. LeTourneau concentrates on "niche" markets that require alloy, specialty steel grades, or "exotic" versions of carbon steel products, including mold steels, tool steels, aircraft quality steels, 400 series stainless steel and hydrogen-induced, crack-resistant steels. External steel sales, which are garnered through a direct sales force, consist primarily of steel plate, but also include forging ingots and value-added fabrication of steel products. Steel products are generally sold to steel service centers, fabricators, manufacturers and forge shops. The market for carbon steel plate products and fabricated products is regional and encompasses Texas, Oklahoma, Louisiana, Mississippi and Arkansas. LeTourneau ships alloy and specialty grades of plate products nationally and exports quantities to Mexico and Canada. The forging ingot market is concentrated in the Gulf Coast region of Texas. Carbon and alloy plate products are also used internally in the production of heavy equipment and parts. LeTourneau's Vicksburg, Mississippi shipyard was reactivated during 1995-1996 following Rowan's announcement of the planned construction of Rowan Gorilla V and is dedicated to providing equipment, spare parts and engineering support to the offshore drilling industry. The yard currently employs about 700 people, most of whom have been hired since 1995. Some rig component manufacturing and rig repair services, as well as design engineering, continue to be performed at the Longview, Texas facility. As noted previously, the drilling products group completed Rowan Gorilla V in late 1998 and Rowan Gorilla VI in June 2000, delivered Rowan Gorilla VII during December 2001 and the Bob Palmer during August 2003, and is currently constructing for the Company the first two of as many as four Tarzan Class jack-up rigs. The drilling products group also completed two Super 116-C class jack-up rig kits for others in 1998. 7 LeTourneau engages in a limited amount of research and product development, primarily to increase the capacity of and provide innovative improvements to its product lines. The Company evaluates on an ongoing basis the manufacturing product and service lines with the intention of making enhancements. During January 2000, LeTourneau completed the purchase of The Ellis Williams Company, Inc. and EWCO, Inc. dba Traitex Machine Co., which collectively design and manufacture mud pumps in a wide range of sizes for a variety of applications. The purchase price was approximately $10 million, with $7 million in cash and the balance in promissory notes due over a three-year period. The notes were repaid in full during 2001. During January 2002, the Company completed the purchase of certain assets of Oilfield-Electric-Marine, Inc. and Industrial Logic Systems, Inc. (OEM), issuing from treasury 439,560 shares of Rowan common stock valued at approximately $8 million. OEM manufactures variable speed AC motors and variable frequency drive systems, DC motors and drive systems, and consoles for marine boats and lay barges, the oil and gas drilling industry, and the mining and dredging industries. Additionally, OEM manufactures medium voltage switchgear from 5KV through 38KV for the industrial and petrochemical markets. Raw Materials The principal raw material utilized in LeTourneau's manufacturing operations is steel plate, much of which is supplied by LeTourneau's mini-steel mill. Other required materials are generally available in sufficient quantities to meet its manufacturing needs through purchases in the open market. LeTourneau does not believe that it is dependent on any single supplier. Competition LeTourneau's mining equipment competes 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. Based upon internal marketing studies, LeTourneau's share of the small-loader market (1,000 horsepower and below) has decreased to less than 1% in recent years due to the availability of smaller (and cheaper) alternatives. In the large-loader market (above 1,000 horsepower), LeTourneau has achieved about a 50% share of both domestic and export sales over the past seven years. The market for LeTourneau's timber equipment is also characterized by vigorous competition. Though LeTourneau's jib crane is unique, it does encounter competition from other equipment manufacturers that offer alternative methods for meeting customer requirements. The number of major competitors by type of equipment is as follows: log stackers - four and jib cranes - three. LeTourneau's estimated share of the domestic log-stacker market is around 20% and its estimated share of the Canadian market is around 15%. LeTourneau's mini-steel mill encounters competition from a total of six major competitors, with the breakdown by product line being as follows: plate products - - four and fabricated products - two. LeTourneau's share of the overall steel market is negligible. The internal requirements of the equipment and drilling products groups provide a base load for the steel mill, and LeTourneau uses a small, direct sales force to sell specialized alloy, carbon and tool steel products to steel service centers, fabricators, manufacturers and brokers. The competition LeTourneau encounters in the parts business is fragmented with only three other companies being considered to be direct competitors. Vendors supplying parts directly to end users and well-fitters who obtain and copy parts for cheaper and lower quality substitutes provide more intense competition than LeTourneau's direct competitors. 8 LeTourneau markets and sells its equipment and support parts primarily through an established international dealer association. LeTourneau dealers are predominantly independent business organizations and all have established dealer agreements with LeTourneau. The dealers are responsible for selling equipment on behalf of LeTourneau to end users and providing the necessary follow-up service and parts supply directly to those end users. To be competitive in the mining and timber equipment markets, LeTourneau offers warranties at the time of purchase and parts guarantees. The warranties extend for stipulated periods of ownership or hours of usage, whichever occurs first. Parts consumption guaranties and maintenance and repair contracts are made on the same basis. LeTourneau's parts-return policy provides that returned parts must be in new, usable condition, in current production and readily resalable. Since 1955, when the first LeTourneau unit was delivered, LeTourneau has been recognized as a leading designer and builder of "jack-up" drilling rigs. Currently, there are nine competitive jack-ups under construction worldwide, two of which are LeTourneau's Tarzan Class rigs. At present, LeTourneau has a limited number of competitors in the rig construction and support industry. However, there are numerous shipyard facilities with the capability for jack-up construction. LeTourneau's two principal competitors in the mud pump business have a combined market share approaching 90%. Historically, LeTourneau's customer base has been diverse, such that none of its 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 Commission on Environmental Quality (TCEQ) and the Mississippi Department of Environmental Quality. LeTourneau's manufacturing facilities are also subject to the requirements of OSHA and comparable state statutes. Hazardous materials are generated at LeTourneau's Longview, Texas plant in association with the steel making process. Industrial wastewater generated at the mini-steel mill facility for cooling purposes is recirculated and quality tests are conducted regularly. The facility has permits for wastewater discharges, solid waste disposal and air emissions. Waste products considered hazardous by the EPA are disposed of by shipment to an EPA or state approved waste disposal facility. LeTourneau jack-up designs are subject to regulatory approval by various agencies, depending upon the geographic areas where the rig will be qualified for drilling. The rules vary by location and are subject to frequent change, and 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 2004. Further regulations may reasonably be anticipated, but any effects thereof on the Company's manufacturing operations cannot be accurately predicted. 9 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 product use, business interruption and necessary legal expenses to defend LeTourneau against such claims. LeTourneau carries insurance that 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. In the equipment business, dealers of LeTourneau's products perform the warranty work while in the rig construction business, LeTourneau generally performs warranty work directly. AVIATION OPERATIONS Rowan's wholly-owned subsidiary, Era Aviation, Inc. ("Era"), provides contract and charter helicopter and fixed-wing aviation services principally in Alaska, the coastal areas of Louisiana and Texas, and the western United States, with its fleet consisting on March 12, 2004 of 85 helicopters and 16 fixed-wing aircraft. In 2003, the aviation division incurred an operating loss of $5.4 million. Era's helicopter services in recent years have featured flightseeing, forest fire control and support for oil and gas related operations from its primary bases in Alaska, Louisiana and Nevada. Services provided offshore Louisiana and Texas are primarily oil and gas-related while the majority of helicopter services in the western United States are provided to governmental agencies in support of forest fire control, construction and other utility work. Based on the number of helicopters operating, Era is the largest helicopter operator in Alaska. It provides charter services from bases at Anchorage, Deadhorse (on the North Slope), Juneau, Kenai and Valdez. Era's charter and contract services are provided throughout Alaska with particular emphasis in the oil, mining and high-density tourist regions within the state. During 2003, the Alaska helicopter operations contributed approximately 26% of the Company's aviation revenues. 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 offset in prior years by establishing a helicopter operation in the Gulf of Mexico area and by moving helicopters on a limited basis to the west and northwest regions of the United States and various overseas locations. Since 1983, Era has operated a scheduled regional airline service in Alaska encompassing the transportation of passengers, mail and cargo. Era currently serves Valdez, Kenai, Homer, Kodiak and Cordova. In addition, it services 17 remote villages from its hub in Bethel, Alaska. Era operates under a code sharing agreement with Alaska Airlines, which is the largest carrier of passengers from the contiguous United States to Alaska. Based on revenue passenger miles, Era's regional airline is the largest airline operation of that type within the state of Alaska and, including the large jet carriers, is the third largest carrier of passengers into and out of the Ted Stevens Anchorage International Airport. During 2003, the commuter airline contributed approximately 30% of the Company's aviation revenues. 10 Since 1979, Era 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 on the number of helicopters operating, Era is the third largest helicopter operator in the Gulf of Mexico. During 2003, the Gulf of Mexico helicopter operations contributed approximately 38% of the Company's aviation revenues. Since 1987, Era has manufactured and marketed, from its Gulf Coast Division facility at Lake Charles, Louisiana, a composite external auxiliary fuel tank for use on several helicopters, including the Bell 205, 212 and 412, the military "Huey" and the Eurocopter BK-117. The tank system provides enhanced flight range with nominal drag while increasing the passenger capacity. Sales to date have been to both civilian and military customers, including emergency float systems for US Army UH-1 Helicopters. Other aircraft accessories are also manufactured at the facility. During 2001, the Company committed to purchase three Sikorsky S-92 helicopters for the Gulf of Mexico deepwater drilling market, subject to obtaining long-term operating contracts. The S-92 design features a 19-passenger capacity and a range of 475 nautical miles. Rowan currently expects the helicopters to be available in the first half of 2005 and that their total cost will approach $50 million. Contracts Era's flight services generally are provided through master service agreements, term contracts or day-to-day charter arrangements. Master service agreements require incremental payments based on usage, usually have fixed terms ranging from one month to one year and generally are cancelable upon notice by either party in 30 days or less. Term contracts generally are noncancelable and require payments, depending upon their duration, as follows: up to one month - either incremental payments based on usage or incremental payments plus a base daily rental; and one month to one year - incremental payments based on usage plus a base monthly rental. Day-to-day charters have the same compensation arrangements as up to one-month term contracts. Because master service agreements and day-to-day charters are Era's most prevalent contracts, 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. Era aircraft at March 12, 2004 consisted of 85 helicopters (including 40 based in Alaska and 45 in the Gulf of Mexico area) and 16 fixed-wing aircraft (based in Alaska). The fleet contract status at that date included 20 term contracts. The remaining aircraft were either being operated under day-to-day charters or one or more of 80 master service agreements, or were available for operation under day-to-day charter or other contract arrangements. Competition Approximately five other operators compete directly with Era in Alaska on a contract or charter basis. Era competes over its scheduled airline routes with up to three other carriers. In the Gulf of Mexico area, Era competes directly with six 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 Era in the west and northwest regions of the United States and in overseas locations. Services under term contracts are usually obtained through a successful bid process whereas shorter-term charters and scheduled airline services typically involve published rates. The Company believes that performance and safety are the key competitive factors in Era's aviation markets. 11 Regulations and Hazards The operation of a scheduled airline 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 demonstration of financial ability and operational expertise. A similar certificate authorizing the right to operate a charter service is not presently required by any jurisdiction in Era's operating areas. Operation of helicopters and fixed-wing aircraft, particularly under weather conditions prevailing in Alaska, is considered potentially hazardous, although Era conducts rigorous training and safety programs to minimize these hazards. Era 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. EMPLOYEES Rowan had 5,282 employees at February 29, 2004 and 5,395, 5,227 and 4,943 employees at December 31, 2003, 2002 and 2001, 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. Rowan considers relations with its employees to be satisfactory. RISK FACTORS You should consider carefully the following risk factors, in addition to the other information contained and incorporated by reference in this Form 10-K, before deciding to invest in our common stock. Volatile oil and natural gas prices greatly impact demand for our offshore drilling and related services. The success of our drilling, manufacturing and aviation operations depends upon the condition of the oil and gas industry, particularly the level of offshore drilling activity. Demand for our offshore drilling and related services is vulnerable to periodic declines in drilling activity typically associated with depressed oil and natural gas prices. Oil and natural gas prices have historically been volatile, and the offshore drilling market was generally depressed from the early 1980s until the mid-1990s. While the drilling industry benefited from increasing oil and natural gas prices during most of the 1999-2000 period, it has never fully recovered from the dramatic decline in prices during 1998 and the ensuing reduction in drilling activity and day rates. Oil and natural gas prices increased steadily during 2000, but declined just as swiftly in 2001. Our drilling operations improved over much of the 2000-2001 period, but deteriorated rapidly over the last half of 2001. During 2002, oil and natural gas prices virtually doubled and, throughout 2003 and early 2004, have generally remained at historically high levels. However, demand for drilling services, particularly in our largest market, the Gulf of Mexico, remains well below peak 2000-2001 levels, and our drilling operating results in 2002 and the first half of 2003 were generally unfavorable. In early 2004, our rig utilization and average day rates have declined and our drilling operations have been adversely impacted. 12 Demand for drilling services also depends on additional factors that are beyond our control, including: - fluctuations in the worldwide demand for oil and natural gas; - the willingness and ability of the Organization of Petroleum Exporting Countries, or OPEC, to limit production levels and influence prices; - political and military conflicts in oil-producing areas and the effects of terrorism; and - the level of production in non-OPEC countries. Our drilling and aviation operations will be adversely affected by future declines in oil and natural gas prices, but we cannot predict the extent of that effect. We also cannot assure you that a reduction in offshore drilling activity will not occur for other reasons. We have incurred losses recently and over prolonged periods in the past, a circumstance that could occur again in the future. In 2002, we experienced a 16% decline in revenues and incurred a net loss from operations of $12.9 million due primarily to the rapid decline in oil and natural gas prices in 2001, as discussed above. We incurred a $7.8 million net loss in 2003 and anticipate a net loss during the first quarter of 2004. Our markets remain highly competitive, which may cause us difficulty in differentiating our products and services and maintaining satisfactory price levels. The drilling, manufacturing and aviation markets are highly competitive, and no single competitor is dominant. In the drilling market, a general oversupply of rigs has lasted for well over a decade, and we believe that competition for drilling contracts will continue to be intense for the foreseeable future. Changes in drilling technology or in our competitors' rig fleets could affect our ability to compete in this market. The aviation and manufacturing markets are also characterized by vigorous competition among several competitors. Some of our competitors possess greater financial resources than we do. Our fleet expansion program may encounter liquidity problems. If the operating conditions we experienced in 2002, the first half of 2003 and early 2004 continue for a prolonged period, our results of operations and working capital may not be adequate to finance our fleet expansion program, and outside financing may not be available. We would be forced to suspend our construction program. We have in progress an offshore fleet expansion program under which we could spend more than $280 million over the 2004-2006 period towards the completion of the first two Tarzan Class jack-up rigs and, subject to final approval by our Board of Directors, the construction of two additional Tarzan Class rigs, of which only about $90 million is financed at this time. In addition, we expect to spend another $40-50 million annually over this period for upgrades to existing equipment and facilities and additional aircraft. We currently have no other available lines of credit. Thus, much of our expected capital expenditures over the 2004-2006 period will need to be financed from working capital or results of operations. If we experience cost overruns or delays in our capital projects or if we should need additional financing and are unable to obtain it at commercially favorable rates, we could experience liquidity problems. 13 Our results of operations will be adversely affected if we are unable to secure drilling contracts for our rigs on economically favorable terms. The drilling markets in which we compete 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. In response to fluctuating market conditions, we can, as we have done in the past, relocate drilling rigs from one geographic area to another, but only when such moves are economically justified over the longer term. If demand for our rigs declines, our rig utilization and day rates are generally adversely affected. The addition to our available drilling fleet of the Scooter Yeargain in 2004 and the Bob Keller in 2005 will, in each case, significantly increase our daily operating costs. Neither rig has been contracted at this time, and day rates for comparable rigs have, at many times over the past several years, only slightly exceeded the expected daily operating costs of the Tarzan Class rigs. We may be unable to secure economical drilling contracts for the rigs, in which case their delivery will negatively impact our operating results. We are subject to operating risks such as blowouts and well fires that could result in environmental damage, property loss, personal injury and death. Our drilling operations are subject to many hazards that could increase the likelihood of accidents. Accidents can result in: - costly delays or cancellations of drilling operations; - serious damage to or destruction of equipment; - personal injury or death; - significant impairment of producing wells, leased properties or underground geological formations; and - major environmental damage. Our offshore drilling operations are also subject to marine hazards, either at offshore sites or while drilling equipment is under tow, such as vessel capsizings, collisions or groundings. In addition, raising and lowering jack-up rigs, an offshore drilling platform whose three legs independently penetrate the ocean floor, flooding semi-submersible ballast tanks to help fix the floating drilling unit over a well site and drilling into high-pressure formations are complex, hazardous activities and we frequently encounter problems. Our manufacturing and aviation operations also present serious risks. Our manufacturing processes could pollute the air, land and inland waters, and the products we manufacture could be implicated in lawsuits alleging environmental harm, property loss, personal injury and death. Operating helicopters and fixed-wing aircraft is similarly hazardous, particularly in Alaska where weather conditions can be severe. We have had accidents in the past demonstrating some of the hazards described above, including high pressure drilling accidents resulting in lost or damaged drilling formations, towing accidents resulting in lost drilling equipment and flying accidents resulting in lost aircraft and deaths. Because of the ongoing hazards associated with our operations: - we may experience a higher number of accidents in the future than expected; - our insurance coverage may prove inadequate to cover losses that are greater than anticipated; - our insurance deductibles may increase; or - our insurance premiums may increase to the point where maintaining our current level of coverage is prohibitively expensive. Any similar events could yield future operating losses and have a significant adverse impact on our business. 14 Government regulations and environmental risks, which reduce our business opportunities and increase our operating costs, might worsen in the future. Government regulations dictate design and operating criteria for drilling vessels and aircraft, determine taxation levels to which we (and our customers) are subject, control and often limit access to potential markets and impose extensive requirements concerning employee safety, environmental protection and pollution control. Environmental regulations, in particular, prohibit access to some markets and make others less economical, increase equipment and personnel costs and often impose liability without regard to negligence or fault. In addition, governmental regulations may discourage our customers' activities, reducing demand for our products and services. We may be liable for damages resulting from pollution of offshore waters and, under United States regulations, must establish financial responsibility in order to drill offshore. Anti-takeover provisions in our Certificate of Incorporation, bylaws and stockholder rights plan could make it difficult for holders of our common stock to receive a premium for their shares upon a change of control. Holders of the common stock of acquisition targets may receive a premium for their shares upon a change of control. Delaware law and the following provisions, among others, of our Certificate of Incorporation, bylaws and rights plan could have the effect of delaying or preventing a change of control and could prevent holders of our common stock from receiving such a premium: - The affirmative vote of 80% of the outstanding shares of our capital stock is required to approve business combinations with any related person that have not been approved by our board of directors. We are also subject to a provision of Delaware corporate law that prohibits us from engaging in a business combination with any interested stockholder for three years from the date that person became an interested stockholder unless specified conditions are met. - Special meetings of stockholders may not be called by anyone other than our board of directors, its chairman, its executive committee or our president or chief executive officer. - Our board of directors is divided into three classes whose terms end in successive years, so that less than a majority of our board comes up for election at any annual meeting. - Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the voting rights and other privileges of these shares without any vote or action by our stockholders. - We have adopted a stockholder rights plan that provides our stockholders rights to purchase junior preferred stock in certain circumstances, whereby the ownership of Rowan shares by a potential acquirer can be significantly diluted by the sale at a significant discount of additional Rowan shares to all other stockholders, which could discourage unsolicited acquisition proposals. ITEM 2. PROPERTIES Rowan 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 On the following two pages are summaries of the principal drilling equipment owned or operated by Rowan and in service at March 12, 2004. See "Liquidity and Capital Resources" under "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 20 through 22 in the Annual Report, which pages are incorporated herein by reference. 15 OFFSHORE RIGS
Depth (feet) (b) Contract Status ---------------- Year in ---------------------------------------------- Name Class (a) Water Drilling Service Location Customer Type (h) Duration (i) - -------------------------- --------- ----- -------- ------- -------------- -------------- ------------- --------------- CANTILEVER JACK-UP RIGS: Bob Keller (j) 225-C 250 35,000 2005 Scooter Yeargain (j) 225-C 250 35,000 2004 Bob Palmer (c)(e) 224-C 550 35,000 2003 Gulf of Mexico not committed Rowan Gorilla VII (c)(e) 219-C 400 35,000 2002 North Sea Tuscan Energy term December 2004 Rowan Gorilla VI (c)(e) 219-C 490 35,000 2000 Gulf of Mexico Apache multiple well September 2004 Rowan Gorilla V (c)(e) 219-C 400 35,000 1998 Eastern Canada El Paso single well March 2004 Rowan Gorilla IV (c)(d) 200-C 450 35,000 1986 Gulf of Mexico not committed Rowan Gorilla III (c)(d) 200-C 450 30,000 1984 Gulf of Mexico ADT1 single well April 2004 Rowan Gorilla II (c)(d) 200-C 450 30,000 1984 Gulf of Mexico El Paso well-to-well April 2004 Rowan-California (c) 116-C 300 30,000 1983 Gulf of Mexico Apache multiple well May 2004 Rowan-Halifax (c)(g) 116-C 350 30,000 1982 Gulf of Mexico Apache single well March 2004 Cecil Provine (c)(g) 116-C 300 30,000 1982 Gulf of Mexico Westport single well April 2004 Gilbert Rowe (c)(d) 116-C 350 30,000 1981 Gulf of Mexico Dominion single well March 2004 Arch Rowan (c)(d) 116-C 350 30,000 1981 Gulf of Mexico Remington multiple well March 2004 Unocal multiple well July 2004 Charles Rowan (c)(d) 116-C 350 30,000 1981 Gulf of Mexico Anadarko single well April 2004 Rowan-Paris (c)(d) 116-C 350 30,000 1980 Gulf of Mexico Newfield single well April 2004 Rowan-Middletown (c)(d) 116-C 350 30,000 1980 Gulf of Mexico Devon well-to-well July 2004 Rowan-Fort Worth (c)(d) 116-C 350 30,000 1978 Gulf of Mexico Spinnaker single well March 2004 McMoran single well June 2004 CONVENTIONAL JACK-UP RIGS: Rowan-Odessa (c)(f) 116 350 30,000 1977 Gulf of Mexico Remington well-to-well May 2004 Rowan-Juneau (c)(f) 116 300 30,000 1977 Gulf of Mexico Anadarko single well July 2004 Rowan-Alaska (c)(f) 84 350 30,000 1975 Gulf of Mexico Spinnaker single well March 2004 Rowan-Louisiana (c)(f) 84 350 30,000 1975 Gulf of Mexico Anadarko single well May 2004 Rowan-Texas (c) 52 250 20,000 1973 Gulf of Mexico Remington well-to-well March 2004 Rowan-Anchorage (c) 52 250 20,000 1972 Gulf of Mexico Newfield well-to-well April 2004 Rowan-New Orleans (c)(f) 52 250 20,000 1971 Gulf of Mexico ADTI/Newfield single well April 2004 SEMI-SUBMERSIBLE RIG: Rowan-Midland (c) 1,200 25,000 1976 Gulf of Mexico W&T Offshore single well April-June 2004
(a) Indicated class is a number assigned by LeTourneau, Inc. to jack-ups of its design and construction. Class 200-C is a Gorilla class unit designed for extreme hostile environment capability. Class 219-C is a Super Gorilla class unit, an enhanced version of the Gorilla class. Class 224-C is a Super Gorilla XL class unit, which has been tailored for the Gulf of Mexico. Class 225-C is a Tarzan Class unit. (b) Indicates rated water depth in current location and rated drilling depth (c) Unit equipped with a top-drive drilling system (d) Unit equipped with three mud pumps (e) Unit equipped with four mud pumps (f) Unit equipped with a skid base unit - refer to page 2 of this Form 10-K for a discussion of "skid base" technology (g) Unit sold and leased back under agreement expiring in 2008 (h) Refer to "Contracts" on page 4 of this Form 10-K for a discussion of types of drilling contracts. (i) Indicates estimated completion date of work to be performed (j) Indicates units currently under construction with anticipated year of completion 16 ONSHORE RIGS (a)
Maximum Contract Status Drilling ---------------------------------------------- Name Type Depth (feet) Location Customer Type (c) Duration (d) - ------------- ------------------ ------------ --------- ------------- ------------ ------------ Rig 7 (e) Mechanical 18,000 Texas not marketed Rig 9 Diesel electric 25,000 Louisiana Anadarko well-to-well May 2004 Rig 12 (e) Mechanical 18,000 Texas not marketed Rig 14 (b) AC electric 35,000 Texas ExxonMobil well-to-well May 2004 Rig 15 (b) AC electric 35,000 Texas not committed Rig 18 (b) SCR diesel electric 35,000 Texas Black Stone single well May 2004 Rig 26 (b) SCR diesel electric 25,000 Louisiana Noble Energy single well April 2004 Rig 29 Mechanical 18,000 Louisiana Anadarko well-to-well April 2004 Rig 30 (b)(e) Mechanical 25,000 Texas not marketed Rig 31 (b) SCR diesel electric 35,000 Louisiana Noble Energy single well May 2004 Rig 33 SCR diesel electric 18,000 Texas not committed Rig 34 (b) SCR diesel electric 25,000 Texas Anadarko well-to-well April 2004 Rig 35 SCR diesel electric 18,000 Louisiana Anadarko well-to-well April 2004 Rig 41 (b) SCR diesel electric 25,000 Texas Vision well-to-well May 2004 Rig 51 (b) SCR diesel electric 25,000 Louisiana Goldston single well May 2004 Rig 52 (b) SCR diesel electric 25,000 Texas Burlington single well March 2004 Rig 53 (b) SCR diesel electric 25,000 Texas Newfield single well March 2004 Rig 54 (b) SCR diesel electric 25,000 Texas Newfield well-to-well June 2004
(a) Most of the rigs were constructed at various dates between 1960 and 1982, utilizing new as well as used equipment, and have since been substantially rebuilt. Rigs 51, 52 and 53 were completed during 2001 and Rig 54 in 2002. (b) Unit equipped with a top-drive drilling system (c) Refer to "Contracts" on page 4 of this Form 10-K for a discussion of types of drilling contracts. (d) Indicates estimated completion date of work to be performed (e) Rigs 7, 12 and 30 are not being actively marketed. Rowan's investment in and ongoing costs associated with these rigs are not significant. Rowan'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 in the countries of Canada and England. During 2001, we completed an operating and administrative facility with 19,000 square feet near Aberdeen, Scotland. MANUFACTURING FACILITIES LeTourneau's principal manufacturing facility and headquarters are located in Longview, Texas on approximately 2,400 acres with approximately 1.2 million square feet of covered working area. The facility contains: - a mini-steel mill with 330,000 square feet of covered working area; the mill has two 25-ton electric arc furnaces capable of producing 120,000 tons per year; - a fabrication shop with 300,000 square feet of covered working area; the shop has a 3,000 ton vertical bender for making roll-ups or flattening materials down to 2 1/2 inches thick by 11 feet wide; - a machine shop with 140,000 square feet of covered working area; - an assembly shop with 124,000 square feet of covered working area. The drilling products group's rig construction facility is located in Vicksburg, Mississippi on 1,850 acres of land and has approximately 560,000 square feet of covered work area. The group's rig service and repair operation is carried out primarily at the Company's Sabine Pass, Texas facility. 17 LeTourneau's mud pumps are machined, fabricated, assembled and tested at a facility in Houston, Texas, having approximately 140,000 square feet of covered work area and 16,000 square feet of office space. LeTourneau mud pumps are also machined at its Longview, Texas facility. In 2003, the Company relocated its electrical components, service and supply business conducted by OEM to a newly-constructed facility in Houston, Texas, having approximately 187,000 square feet of covered work area and 17,000 square feet of office space. LeTourneau's distributor of 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. LeTourneau's distributor of mining equipment products in the western United States is located in a leased facility in Tucson, Arizona having approximately 20,000 square feet. Its distributor of mining equipment products in Australia is located in a leased facility in Murarrie, Queensland having approximately 29,500 square feet. AIRCRAFT At March 12, 2004, Era operated a fleet of 85 helicopters and 16 fixed-wing aircraft, consisting of the following: - 60 twin-engine turbine aircraft, including: - 3 Sikorsky S-61Ns (26 passengers) - 2 Eurocopter AS-332L Super Pumas (19 passengers) - 16 Bell 212s (14 passengers) - 10 Bell 412s (14 passengers) - 7 Sikorsky S-76A+s (13 passengers) - 22 Eurocopter BO-105CBSs (5 passengers) - 25 single-engine turbine aircraft - - 25 Eurocopter AS350B-2 AStars (6 passengers) - 16 fixed-wing aircraft, including: - 2 Convair 580s (50 passengers) - 9 DeHavilland Twin Otters (9-19 passengers) - 3 DeHavilland Dash 8s (37 passengers) - 2 Douglas DC-3s (28 passengers). Era'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 Ted Stevens Anchorage International Airport, with two adjacent hangars housing its helicopter operations and training and accounting operations totaling approximately 45,000 square feet. Era also maintains similar, smaller helicopter facilities in Alaska at Deadhorse, Juneau and Valdez. Era's principal base for its Gulf of Mexico operations is located on leased property at Lake Charles Regional Airport. The facility has 66,000 square feet of space, including helicopter hangars, a repair facility, a training facility and an operations and administrative building. Era also operates a helicopter base (20,700 square feet of hangar, repair and office facilities) located on leased property at the Terrebonne Airport in Houma, Louisiana, a helicopter base (5,700 square feet of hangar, repair and office facilities) located on leased property in New Iberia, Louisiana, a helicopter base (18,900 square feet of hangar, repair, waiting room and office facilities) located on 47 acres of leased property in Fourchon, Louisiana and a helicopter base (3,600 square feet of office and waiting room facilities) located on 14 acres of owned or leased property in Venice, Louisiana. 18 ITEM 3. LEGAL PROCEEDINGS Rowan is involved in various legal proceedings incidental to its businesses and is vigorously defending its position in all such matters. Rowan believes that there are no known contingencies, claims or lawsuits that will have a material adverse effect on its financial position, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of Rowan common stockholders during the fourth quarter of the fiscal year ended December 31, 2003. ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT The names, positions, years of credited service and ages of the officers of the Company as of March 12, 2004 are listed below. Officers are normally appointed annually by the Board of Directors at the bylaws-prescribed meeting 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: D. F. McNease President, Chief Executive Officer and Director 29 52 R. G. Croyle Vice Chairman of the Board and Chief Administrative Officer 30 61 E. E. Thiele Senior Vice President, Finance, Administration and Treasurer 34 64 Paul L. Kelly Senior Vice President, Special Projects 21 64 John L. Buvens Senior Vice President, Legal 23 48 Mark A. Keller Senior Vice President, Marketing - North American Drilling 11 51 D. C. Eckermann (1) Vice President, Manufacturing 17 56 C. W. Johnson (2) Vice President, Aviation 26 60 Bill S. Person Vice President, Industrial Relations 36 56 William C. Provine Vice President, Investor Relations 17 57 OTHER OFFICERS: William H. Wells Controller 9 41 Mark H. Hay Secretary and Assistant Treasurer 24 59 P. G. Wheeler Assistant Treasurer and Corporate Tax Director 29 56 Lynda A. Aycock Assistant Treasurer and Assistant Secretary 32 57
(1) Also serves as President and Chief Executive Officer of LeTourneau, Inc., a Rowan subsidiary. (2) Also serves as President and Chief Operating Officer of Era Aviation, Inc., a Rowan subsidiary. Each of the officers listed above continuously served in the position shown above for more than the past five years except as noted in the following paragraphs. Since May 2003, Mr. McNease's principal occupation has been in the position set forth. From August 2002 to May 2003, Mr. McNease served as President and Chief Operating Officer of the Company. From April 1999 to August 2002, Mr. McNease served as Executive Vice President of the Company and President of its drilling subsidiaries. For more than five years prior to that time, Mr. McNease served as Senior Vice President, Drilling. Mr. McNease was first elected to the Board of Directors in April 1998. 19 Since August 2002, 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 Executive Vice President of the Company. Mr. Croyle was first elected to the Board of Directors in April 1998. Since April 2003, Mr. Buvens' principal occupation has been in the position set forth. For more than five years prior to that time, Mr. Buvens served as Vice President - Legal. Since April 2000, Mr. Keller's principal occupation has been in the position set forth. For more than five years prior to that time, Mr. Keller served as Vice President, Marketing - North American Drilling. Since April 1999, Mr. Eckermann's principal occupation has been in the position set forth. From September 1996 to April 1999, Mr. Eckermann served as President and Chief Executive Officer of LeTourneau, Inc., a subsidiary of the Company. 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 2003 and 2002 and the number of holders of Common Stock is set forth on page 38 of Rowan'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 sentences under such title. Also incorporated herein by reference to the Annual Report is the fourth paragraph appearing in the right column on page 21 within "Management's Discussion and Analysis of Financial Condition and Results of Operations", which provides information pertinent to the Company's payment of and ability to pay cash dividends subject to certain restrictions. Rowan's Common Stock is listed on the New York Stock Exchange and the Pacific Exchange - Stock & Options. ITEM 6. SELECTED FINANCIAL DATA The information required hereunder is set forth on pages 14 and 15 of Rowan's Annual Report under the title "Ten-Year Financial Review" and is incorporated herein by reference, except for the information for the years 1998, 1997, 1996, 1995 and 1994. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required hereunder is set forth on pages 16 through 22 under the title "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Rowan's Annual Report and is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Rowan believes that its exposure to risk of earnings loss due to changes in market interest rates is not significant. In addition, virtually all of the Company's transactions are carried out in U. S. dollars, thus Rowan's foreign currency exposure is not material. Fluctuating commodity prices affect Rowan's future earnings only to the extent that they influence demand for the Company's products and services. Rowan does not hold or issue derivative financial instruments. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Refer to ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K beginning on page 23 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 ITEM 9A. CONTROLS AND PROCEDURES The Company's management has evaluated, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company's disclosure controls and procedures, as of the end of the period covered by this report, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company's Chief Executive Officer, along with the Company's Chief Financial Officer, concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic Exchange Act reports. There have been no changes in the Company's internal controls over financial reporting that have occurred subsequent to the date the Company carried out its evaluation that have materially affected, or are reasonably likely to materially affect, the Company's control over financial reporting. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information in the table spanning pages 2 and 3, and in footnotes (1) and (2) on page 3, the second paragraph under the caption "Director Independence" on page 16, and the information under the captions "Audit Committee Financial Expert" and "Section 16(a) Beneficial Ownership Reporting Compliance" on page 17 of the Proxy Statement for Rowan's 2004 Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein by reference. There are no family relationships among the directors or nominees for director 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 Rowan director or nominee for director 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 page 19 of this Form 10-K for information relating to executive officers. The Company's Code of Business Conduct for Senior Financial Officers is included as an exhibit to this Form 10-K and is posted on the Company's website, at www.rowancompanies.com. 21 ITEM 11. EXECUTIVE COMPENSATION The standard arrangement for compensating directors described under the title, "Director Compensation and Attendance" on page 3 of the Proxy Statement and the information appearing under the captions "Summary Compensation Table", "Option Grants in Last Fiscal Year", "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values" and "Pension Plans" on pages 10 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 "Compensation Committee Report on Executive Compensation", "Audit Committee Report" and "Stock Performance Graphs" 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 management of the Company set forth under the title "Director and Officer Stock Ownership" appearing on page 5 and the information appearing under the title "Security Ownership of Certain Beneficial Owners" appearing on page 14 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 cover page of this Form 10-K. The following table provides information about our common stock that may be issued upon the exercise of options and rights or the conversion of debentures under all of our existing equity compensation plans as of December 31, 2003, including the Restated 1988 Nonqualified Stock Option Plan, as amended, the 1998 Nonemployee Directors Stock Option Plan and the 1998 Convertible Debenture Incentive Plan, as amended.
Number of securities Weighted average Number of to be issued upon exercise exercise price of securities of outstanding options, outstanding options, available for Plan category warrents and rights warrents and rights future issuance - ----------------------------------------------------------------------------------------------------- Equity compensation plans approved by security holders 7,942,827 (a) $ 16.10 (a) 2,485,368 (b) - ----------------------------------------------------------------------------------------------------- Equity compensation plans not approved by security holders - - - - ----------------------------------------------------------------------------------------------------- Total 7,942,827 $ 16.10 2,485,368 =====================================================================================================
(a) Includes the following equity compensation plans: the Restated 1988 Nonqualified Stock Option Plan, as amended, had options for 5,524,958 shares of common stock outstanding at December 31, 2003 with a weighted average exercise price of $15.95 per share; the 1998 Nonemployee Directors Stock Option Plan had options for 124,000 shares of common stock outstanding at December 31, 2003 with a weighted average exercise price of $21.94 per share; and the 1998 Convertible Debenture Incentive Plan, as amended, had approximately $37 million of employee debentures outstanding at December 31, 2003, convertible into 2,293,869 shares of common stock at a weighted average conversion price of $16.13 per share (b) Amount reflects options for 2,417,368 shares of common stock available for issuance under the Restated 1988 Nonqualified Stock Option Plan, as amended, and options for 68,000 shares of common stock available for issuance under the 1998 Nonemployee Directors Stock Option Plan at December 31, 2003. Amount excludes shares issuable under the 1998 Convertible Debenture Incentive Plan, as amended, which had $5 million principal amount of debentures issuable under the plan at December 31, 2003. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain business relationships and transactions between Rowan and certain directors and executive officers of the Company under the caption "Certain Transactions" appearing on page 15 of the Proxy Statement is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information in the two paragraphs on page 9 of the Proxy Statement, including the table shown therein, is incorporated herein by reference. 22 PART IV ITEM 15. 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 2003 Annual Report ------------ Consolidated Balance Sheet, December 31, 2003 and 2002 ........... 23 Consolidated Statement of Operations for the Years Ended December 31, 2003, 2002 and 2001 .............................. 24 Consolidated Statement of Comprehensive Income (Loss) for the Years Ended December 31, 2003, 2002 and 2001 .......... 24 Consolidated Statement of Changes in Stockholders' Equity for the Years Ended December 31, 2003, 2002 and 2001 .......... 25 Consolidated Statement of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001 .............................. 26 Notes to Consolidated Financial Statements ....................... 27 Independent Auditors' Report ..................................... 37 Selected Quarterly Financial Data (Unaudited) for the Quarters Ended March 31, June 30, September 30 and December 31, 2003 and 2002 ................................ 38
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 or the required information is not significant. 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 dated February 17, 1984, incorporated by reference to Exhibit 4.1 to Registration Statement No. 333-84369 on Form S-8 (File No. 1-5491) and Exhibits 4a, 4b, 4c, 4d, 4e, 4f, 4g, 4h, 4i and 4j below. 3b Bylaws amended as of May 1, 2003, incorporated by reference to Exhibit 3.1 to Form 10-Q for the fiscal quarter ended March 31, 2003 (File No. 1-5491). 4a Certificate of Change of Address of Registered Office and of Registered Agent dated July 25, 1984, incorporated by reference to Exhibit 4.4 to Registration Statement No. 333-84369 on Form S-8 (File No. 1-5491). 4b Certificate of Amendment of Certificate of Incorporation dated April 24, 1987, incorporated by reference to Exhibit 4.5 to Registration Statement No. 333-84369 on Form S-8 (File No. 1-5491). 4c Certificate of Designation of the Series III Preferred Stock dated November 30, 1994, incorporated by reference to Exhibit 4.7 to Registration Statement No. 333-84369 on Form S-8 (File No. 1-5491). 4d Certificate of Designation of the Series A Junior Preferred Stock dated March 2, 1992, incorporated by reference to Exhibit 4.2 to Registration Statement on Form 8-A/A filed on February 12, 2002 (File No. 1-5491). 23 4e Certificate of Designation of (and Certificate of Correction related thereto) the Series A Preferred Stock dated August 5, 1998 and January 28, 1999, respectively, incorporated by reference to Exhibit 4.8 to Registration Statement No. 333-84369 on Form S-8 (File No. 1-5491). 4f Certificate of Designation of the Series B Preferred Stock dated June 24, 1999, incorporated by reference to Exhibit 4d to Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-5491). 4g Certificate of Designation of the Series C Preferred Stock dated July 28, 2000, incorporated by reference to Exhibit 4.10 to Registration Statement No. 333-44874 on Form S-8 (File No. 1-5491). 4h Certificate of Designation of the Series D Preferred Stock dated May 22, 2001, incorporated by reference to Exhibit 4.11 to Registration Statement No. 333-82804 on Form S-3 filed on February 14, 2002 (File No. 1-5491). 4i Certificate of Designation of the Series E Preferred Stock dated October 30, 2001, incorporated by reference to Exhibit 4.12 to Registration Statement No. 333-82804 on Form S-3 filed on February 14, 2002 (File No. 1-5491). 4j Amended and Restated Rights Agreement, dated as of January 24, 2002, between Rowan and Computershare Trust Co. Inc. as Rights Agent, incorporated by reference to Exhibit 4.2 to Registration Statement on Form 8-A/A filed on March 21, 2003 (File No. 1-5491). 4k Specimen Common Stock certificate, incorporated by reference to Exhibit 4k to Form 10-K for the fiscal year ended December 31, 2001 (File No. 1-5491). 4l Form of Promissory Note dated November 30, 1994 between purchasers of Series III Floating Rate Subordinated Convertible Debentures due 2004 and Rowan, incorporated by reference to Exhibit 4j to Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-5491). 4m Form of Promissory Note dated April 24, 1998 between purchasers of Series A Floating Rate Subordinated Convertible Debentures due 2008 and Rowan, incorporated by reference to Exhibit 4j to Form 10-K for the fiscal year ended December 31, 1998 (File No. 1-5491). 4n Form of Promissory Note dated April 22, 1999 between purchasers of Series B Floating Rate Subordinated Convertible Debentures due 2009 and Rowan, incorporated by reference to Exhibit 4j to Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-5491). 4o Form of Promissory Note date April 27, 2000 between purchasers of Series C Floating Rate Subordinated Convertible Debentures due 2010 and Rowan, incorporated by reference to Exhibit 4n to Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-5491). 4p Form of Promissory Note date April 26, 2001 between the purchaser of Series D Floating Rate Subordinated Convertible Debentures due 2011 and Rowan, incorporated by reference to Exhibit 4p to Form 10-K for the fiscal year ended December 31, 2001 (File No. 1-5491). 4q Form of Promissory Note date September 20, 2001 between the purchaser of Series E Floating Rate Subordinated Convertible Debentures due 2011 and Rowan, incorporated by reference to Exhibit 4q to Form 10-K for the fiscal year ended December 31, 2001 (File No. 1-5491). 10a Restated 1988 Nonqualified Stock Option Plan, incorporated by reference to Appendix C to the Notice of Annual Meeting and Proxy Statement dated March 20, 2002 (File No. 1-5491). 10b 1998 Nonemployee Director Stock Option Plan, incorporated by reference to Exhibit 10b of Form 10-Q for the fiscal quarter ended March 31, 1998 (File No. 1-5491). 24 10c 1986 Convertible Debenture Incentive Plan, as amended, incorporated by reference to Exhibit 10h to Form 10-K for the fiscal year ended December 31, 1996 (File No. 1-5491). 10d 1998 Convertible Debenture Incentive Plan, incorporated by reference to Appendix B to the Notice of Annual Meeting and Proxy Statement dated March 20, 2002 (File No. 1-5491). 10e Pension Restoration Plan, incorporated by reference to Exhibit 10h to Form 10-K for the fiscal year ended December 31, 1992 (File No. 1-5491). 10f Pension Restoration Plan of LeTourneau, Inc., a wholly owned subsidiary of the Company, incorporated by reference to Exhibit 10j to Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-5491). 10g Participation Agreement dated December 1, 1984 between Rowan and Textron Financial Corporation et al. and Bareboat Charter dated December 1, 1984 between Rowan and Textron Financial Corporation et al., incorporated by reference to Exhibit 10c to Form 10-K for the fiscal year ended December 31, 1985 (File No. 1-5491). 10h Participation Agreement dated December 1, 1985 between Rowan and Eaton Leasing Corporation et. al. and Bareboat Charter dated December 1, 1985 between Rowan and Eaton Leasing Corporation et. al., incorporated by reference to Exhibit 10d to Form 10-K for the fiscal year ended December 31, 1985 (File No.1-5491). 10i Election and acceptance letters with respect to the exercise of the Fixed Rate Renewal Option set forth in the Bareboat Charter dated December 1, 1984 between Rowan and Textron Financial Corporation et al, incorporated by reference to Exhibit 10j to Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-5491). 10j Election and acceptance letters with respect to the exercise of the Fixed Rate Renewal Option set forth in the Bareboat Charter dated December 1, 1985 between Rowan and Eaton Leasing Corporation et. al, incorporated by reference to Exhibit 10k to Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-5491). 10k Consulting Agreement dated May 1, 2003 between Rowan and C. R. Palmer. 10l Commitment to Guarantee Obligations dated December 17, 1996 and First Preferred Ship Mortgage between Rowan and the Maritime Administration of the U.S. Department of Transportation, incorporated by reference to Exhibit 10t to Form 10-K for fiscal year ended December 31, 1996 (File No. 1-5491). 10m Amendment No. 1 dated June 30, 1997 to Commitment to Guarantee Obligations between Rowan and the Maritime Administration of the U.S. Department of Transportation, incorporated by reference to Exhibit 10p to 10-K for the fiscal year ended December 31, 1997 (File No. 1-5491). 10n Amendment No. 2 dated July 1, 1998 to Commitment to Guarantee Obligations between Rowan and the Maritime Administration of the U.S. Department of Transportation, incorporated by reference to Exhibit 10o to Form 10-K for the fiscal year ended December 31, 1998 (File No. 1-5491). 10o Credit Agreement and Trust Indenture both dated December 17, 1996 between Rowan and Citibank, N.A., incorporated by reference to Exhibit 10u to Form 10-K for the fiscal year ended December 31, 1996 (File No. 1-5491). 10p Amendment No. 1 to the Credit Agreement and Supplement No. 1 to Trust Indenture both dated July 1, 1997 between Rowan and Citibank, N.A., incorporated by reference to Exhibit 10r to Form 10-K for the fiscal year ended December 31, 1997 (File No. 1-5491). 25 10q Supplement No. 2 to Trust Indenture dated July 1, 1998 between Rowan and Citibank, N.A., incorporated by reference to Exhibit 10r to Form 10-K for the fiscal year ended December 31, 1998 (File No. 1-5491). 10r Commitment to Guarantee Obligations dated September 29, 1998 and First Preferred Ship Mortgage between Rowan and the Maritime Administration of the U.S. Department of Transportation, incorporated by reference to Exhibit 10a to Form 10-Q for fiscal quarter ended September 30, 1998 (File No. 1-5491). 10s Credit Agreement and Trust Indenture both dated September 29, 1998 between Rowan and Citibank, N.A., incorporated by reference to Exhibit 10b to Form 10-Q for the fiscal quarter ended September 30, 1998 (File No. 1-5491). 10t Amendment No. 1 dated March 15, 2001 to Commitment to Guarantee Obligations between Rowan and the Maritime Administration of the U.S. Department of Transportation, incorporated by reference to Exhibit 10v to Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-5491). 10u Supplement No. 1 to Trust Indenture dated March 15, 2001 between Rowan and Citibank, N.A., incorporated by reference to Exhibit 10v to Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-5491). 10v Commitment to Guarantee Obligations dated October 29, 1999 and First Preferred Ship Mortgage between Rowan and the Maritime Administration of the U.S. Department of Transportation, incorporated by reference to Exhibit 10v to Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-5491). 10w Credit Agreement and Trust Indenture both dated October 29, 1999 between Rowan and Citibank, N.A, incorporated by reference to Exhibit 10w to Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-5491). 10x Amendment No. 1 to the Commitment to Guarantee Obligations dated June 30, 2003 between Rowan and Citibank, N.A. 10y Supplement No. 1 to Trust Indenture dated June 30, 2003 between Rowan and Citibank, N.A. 10z Commitment to Guarantee Obligations dated May 23, 2001 and First Preferred Ship Mortgage between Rowan and the Maritime Administration of the U.S. Department of Transportation, incorporated by reference to Exhibit 10y to Form 10-K for the fiscal year ended December 31, 2001 (File No. 1-5491). 10aa Credit Agreement and Trust Indenture both dated May 23, 2001 between Rowan and Citibank, N.A., incorporated by reference to Exhibit 10z to Form 10-K for the fiscal year ended December 31, 2001 (File No. 1-5491). 10bb Commitment to Guarantee Obligations dated May 28, 2003 and First Preferred Ship Mortgage between Rowan and the Maritime Administration of the U.S. Department of Transportation relating to the Scooter Yeargain. 10cc Credit Agreement and Trust Indenture both dated May 28, 2003 between Rowan and Citibank, N.A. relating to the Scooter Yeargain. 10dd Commitment to Guarantee Obligations dated May 28, 2003 and First Preferred Ship Mortgage between Rowan and the Maritime Administration of the U.S. Department of Transportation relating to the Bob Keller (formerly Tarzan II). 10ee Credit Agreement and Trust Indenture both dated May 28, 2003 between Rowan and Citibank, N.A. relating to the Bob Keller (formerly Tarzan II). 11 Computation of Basic and Diluted Income Per Share for the years ended December 31, 2003, 2002 and 2001 appearing on page 30 in this Form 10-K. 13* Annual Report to Stockholders for fiscal year ended December 31, 2003. 14 Code of Business Conduct for Senior Financial Officers of the Company. 26 21 Subsidiaries of the Registrant as of March 12, 2004. 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, 2003. 31 Rule 13a-14(a)/15d-14(a) Certifications (Section 302 of the Sarbanes-Oxley Act of 2002). 32 Section 1350 Certifications (Section 906 of the Sarbanes-Oxley Act of 2002). * Only portions specifically incorporated herein are deemed to be filed. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS Compensatory plans in which Rowan's directors and executive officers participate are listed as follows: - Restated 1988 Nonqualified Stock Option Plan, incorporated by reference to Appendix C to the Notice of Annual Meeting and Proxy Statement dated March 20, 2002 (File No. 1-5491). - 1998 Nonemployee Director Stock Option Plan, incorporated by reference to Exhibit 10b of Form 10-Q for the fiscal quarter ended March 31, 1998 (File No. 1-5491). - 1986 Convertible Debenture Incentive Plan, as amended, included as Exhibit 10h of this Form 10-K incorporated by reference to Exhibit 10h to Form 10-K for the fiscal year ended December 31, 1996 (File No. 1-5491). - 1998 Convertible Debenture Incentive Plan, incorporated by reference to Appendix B to the Notice of Annual Meeting and Proxy Statement dated March 20, 2002 (File No. 1-5491). - Pension Restoration Plan, incorporated by reference to Exhibit 10i to Form 10-K for the fiscal year ended December 31, 1992 (File 1-5491). - Pension Restoration Plan of LeTourneau, Inc., a wholly owned subsidiary of the Company, incorporated by reference to Exhibit 10j to Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-5491). - Consulting Agreement dated May 1, 2003 between Rowan and C. R. Palmer. Rowan 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. (b) Reports on Form 8-K: No reports on Form 8-K were filed by the Registrant during the fourth quarter of fiscal year 2003, except as follows: On October 15, 2003, Rowan Companies, Inc. issued a press release announcing its results for the third quarter of 2003. Such press release was included as an exhibit to Form 8-K filed on that date. 27 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's Registration Statements on Form S-8 Nos. 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), 33-51109 (filed November 18, 1993), 333-25041 (filed April 11, 1997), 333-25125 (filed April 14, 1997), 333-84369 (filed August 3, 1999), 333-84405 (filed August 3, 1999) and 333-101914 (filed December 17, 2002): 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. 28 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: D. F. MCNEASE (D. F. McNease, President and Chief Executive Officer) Date: March 12, 2004 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 - ---------------------- -------------------------- -------------- D. F. MCNEASE President, Chief Executive March 12, 2004 (D. F. McNease) Officer and Director E. E. THIELE Principal Financial Officer March 12, 2004 (E. E. Thiele) WILLIAM H. WELLS Principal Accounting Officer March 12, 2004 (William H. Wells) *HENRY O. BOSWELL Director March 12, 2004 (Henry O. Boswell) *HANS M. BRINKHORST Director March 12, 2004 (Hans M. Brinkhorst) *R. G. CROYLE Vice Chairman of the Board March 12, 2004 (R. G. Croyle) *WILLIAM T. FOX III Director March 12, 2004 (William T. Fox III) *FREDERICK R. LAUSEN Director March 12, 2004 (Frederick R. Lausen) *H. E. LENTZ Director March 12, 2004 (H. E. Lentz) *LORD MOYNIHAN Director March 12, 2004 (Lord Moynihan) *C. R. PALMER Chairman of the Board March 12, 2004 (C. R. Palmer) *BY D. F. MCNEASE (D. F. McNease, Attorney-in-fact)
29 EXHIBIT 11 ROWAN COMPANIES, INC. COMPUTATION OF BASIC AND DILUTED INCOME (LOSS) PER SHARE (in thousands except per share amounts)
For the Year Ended December 31, --------------------------------------- 2003 2002 2001 ---------- ---------- --------- Weighted average shares of common stock outstanding 93,820 93,764 94,173 Stock options (treasury stock method) 735 702 Shares issuable from assumed conversion of floating rate subordinated debentures 893 936 ---------- ---------- ---------- Weighted average shares for diluted income per share calculation 93,820 95,392 95,811 ========== ========== ========== Net income (loss) for basic calculation $ (7,774) $ 86,278 $ 76,998 Charges related to dilutive securities ---------- ---------- ---------- Net income (loss) for diluted calculation $ (7,774) $ 86,278 $ 76,998 ========== ========== ========== Basic income (loss) per share $ (.08) $ .92 $ .82 ========== ========== ========== Diluted income (loss) per share $ (.08) $ .90 $ .80 ========== ========== ==========
Note: Reference is made to Note 1 to Consolidated Financial Statements regarding computation of per share amounts. 30 EXHIBIT INDEX Page 1 of 6
Footnote Exhibit Reference Number Exhibit Description - --------- ------- ------------------- (1) 3a Restated Certificate of Incorporation of the Company, dated February 17, 1984, incorporated by reference to Exhibit 4.1 to Registration Statement No. 333-84369 on Form S-8 (File No. 1-5491) and Exhibits 4a, 4b, 4c, 4d, 4e, 4f, 4g 4h, 4i and 4j. (1) 3b Bylaws amended as of May 1, 2003, incorporated by reference to Exhibit 3.1 to the Form 10-Q for the fiscal quarter ended March 31, 2003 (File No. 1-5491). (1) 4a Certificate of Change of Address of Registered Office and of Registered Agent dated July 25, 1984, incorporated by reference to Exhibit 4.4 to Registration Statement No. 333-84369 on Form S-8 (File No. 1-5491). (1) 4b Certificate of Amendment of Certificate of Incorporation dated April 24, 1987, incorporated by reference to Exhibit 4.5 to Registration Statement No. 333-84369 on Form S-8 (File No. 1-5491). (1) 4c Certificate of Designation of the Company's Series III Preferred Stock dated November 30, 1994 incorporated by reference to Exhibit 4.7 to Registration Statement No. 333-84369 on Form S-8 (File No. 1-5491). (1) 4d Certificate of Designation of the Company's Series A Junior Preferred Stock dated March 2, 1992 incorporated by reference to Exhibit 4.2 to Registration Statement No. 333-84369 on Form 8A/A filed on February 12, 2002 (File No. 1-5491). (1) 4e Certificate of Designation of (and Certificate of Correction related thereto) the Company's Series A Preferred Stock dated August 5, 1998 and January 28, 1999, respectively, incorporated by reference to Exhibit 4.8 to Registration Statement No. 333-84369 on Form S-8 (File No. 1-5491). (1) 4f Certificate of Designation of the Company's Series B Preferred Stock dated June 24, 1999, incorporated by reference to Exhibit 4d to Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-5491). (1) 4g Certificate of Designation of the Series C Preferred Stock dated July 28, 2000, incorporated by reference to Exhibit 4.10 to Registration Statement No. 333-44874 on Form S-8 (File No. 1-5491). (1) 4h Certificate of Designation of the Series D Preferred Stock dated May 22, 2001, incorporated by reference to Exhibit 4.11 to Registration Statement No. 333-82804 on Form S-3 filed on February 14, 2002 (File No. 1-5491).
EXHIBIT INDEX Page 2 of 6
Footnote Exhibit Reference Number Exhibit Description - --------- ------- ------------------- (1) 4i Certificate of Designation of the Series E Preferred Stock dated October 30, 2001, incorporated by reference to Exhibit 4.12 to Registration Statement No. 333-82804 on Form S-3 filed on February 14, 2002 (File No. 1-5491). (1) 4j Amended and Restated Rights Agreement, dated January 24, 2002, between the Company and Citibank, N.A. as Rights Agent incorporated by reference to Exhibit 4.1 to Registration Statement on Form 8-A/A filed on February 12, 2002 (File No. 1-5491). (1) 4k Specimen Common Stock certificate, incorporated by reference to Exhibit 4k to Form 10-K for the fiscal year ended December 31, 2001 (File No. 1-5491). (1) 4l 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 Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-5491). (1) 4m Form of Promissory Note date April 24, 1998 between the purchasers of Series A Floating Rate Subordinated Convertible Debentures due 2008 and the Company, incorporated by reference to Exhibit 4h to Form 10-K for the fiscal year ended December 31, 1998 (File No. 1-5491). (1) 4n Form of Promissory Note date April 22, 1999 between the purchasers of Series B Floating Rate Subordinated Convertible Debentures due 2009 and the Company incorporated by reference to Exhibit 4j to Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-5491). (1) 4o Form of Promissory Note date April 27, 2000 between purchasers of Series C Floating Rate Subordinated Convertible Debentures due 2010 and Rowan incorporated by reference to Exhibit 4n to Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-5491). (1) 4p Form of Promissory Note date April 26, 2001 between the purchaser of Series D Floating Rate Subordinated Convertible Debentures due 2011 and Rowan, incorporated by reference to Exhibit 4p to Form 10-K for the fiscal year ended December 31, 2001 (File No. 1-5491). (1) 4q Form of Promissory Note date September 20, 2001 between the purchaser of Series E Floating Rate Subordinated Convertible Debentures due 2011 and Rowan, incorporated by reference to Exhibit 4q to Form 10-K for the fiscal year ended December 31, 2001 (File No. 1-5491). (1) 10a Restated 1988 Nonqualified Stock Option Plan, incorporated by reference to Appendix C to the Notice of Annual Meeting and Proxy Statement dated March 20, 2002 (File No. 1-5491).
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Footnote Exhibit Reference Number Exhibit Description - --------- ------- ------------------- (1) 10b 1998 Nonemployee Director Stock Option Plan of the Company incorporated by reference to Exhibit 10b of Form 10-Q for the fiscal quarter ended March 31, 1998 (File No. 1-5491). (1) 10c 1986 Convertible Debenture Incentive Plan of the Company as amended incorporated by reference to Exhibit 10h to Form 10-K for the fiscal year ended December 31, 1996 (File No. 1-5491). (1) 10d 1998 Convertible Debenture Incentive Plan, incorporated by reference to Appendix B to the Notice of Annual Meeting and Proxy Statement date March 20, 2002 (File No. 1-5491). (1) 10e Pension Restoration Plan of the Company incorporated by reference to Exhibit 10h to Form 10-K for the fiscal year ended December 31, 1992 (File No. 1-5491). (1) 10f Pension Restoration Plan of LeTourneau, Inc incorporated by reference to Exhibit 10j to Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-5491). (1) 10g 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 Form 10-K for the fiscal year ended December 31, 1985 (File No. 1-5491). (1) 10h 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 Form 10-K for the fiscal year ended December 31, 1985 (File No.1-5491). (1) 10i Election and acceptance letters with respect to the exercise of the Fixed Rate Renewal Option set forth in the Bareboat Charter dated December 1, 1984 between the Company and Textron Financial Corporation et. al., incorporated by reference to Exhibit 10j to Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-5491). (1) 10j Election and acceptance letters with respect to the exercise of the Fixed Rate Renewal Option set forth in the Bareboat Charter dated December 1, 1985 between the Company and Eaton Leasing Corporation et. al., incorporated by reference to Exhibit 10K to Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-5491).
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Footnote Exhibit Reference Number Exhibit Description - --------- ------- ------------------- (2) 10k Consulting Agreement dated May 1, 2003 between Rowan and C. R. Palmer. (1) 10l 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 incorporated by reference to Exhibit 10t to Form 10-K for fiscal year ended December 31, 1996 (File No. 1-5491). (1) 10m Amendment No. 1 dated June 30, 1997 to Commitment to Guarantee Obligations between the Company and the Maritime Administration of the U.S. Department of Transportation incorporated by reference to Exhibit 10p to Form 10-K for the fiscal year ended December 31, 1997 (File No. 1-5491). (1) 10n Amendment No. 2 dated July 1, 1998 to Commitment to Guarantee Obligations between the Company and the Maritime Administration of the U.S. Department of Transportation, incorporated by reference to Exhibit 10o to Form 10-K for the fiscal year ended December 31, 1998 (File No. 1-5491). (1) 10o Credit Agreement and Trust Indenture both dated December 17, 1996 between the Company and Citibank, N.A. incorporated by reference to Exhibit 10u to Form 10-K for the fiscal year ended December 31, 1996 (File No. 1-5491). (1) 10p Amendment No. 1 to the Credit Agreement and Supplement No. 1 to Trust Indenture both dated July 1, 1997 between the Company and Citibank, N.A. incorporated by reference to Exhibit 10r to Form 10-K for the fiscal year ended December 31, 1997 (File No. 1-5491). (1) 10q Supplement No. 2 to Trust Indenture dated July 1, 1998 between the Company and Citibank, N.A, incorporated by reference to Exhibit 10r to Form 10-K for the fiscal year ended December 31, 1998 (File No. 1-5491). (1) 10r Commitment to Guarantee Obligations and First Preferred Ship Mortgage both dated September 29, 1998 between the Company and the Maritime Administration of the U.S. Department of Transportation incorporated by reference to Exhibit 10a to Form 10-Q for fiscal quarter ended September 30, 1998 (File No. 1-5491). (1) 10s Credit Agreement and Trust Indenture both dated September 30, 1998 between the Company and Citibank, N.A. incorporated by reference to Exhibit 10b to Form 10-Q for the fiscal quarter ended September 30, 1998 (File No. 1-5491).
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Footnote Exhibit Reference Number Exhibit Description - --------- ------- ------------------- (1) 10t Amendment No. 1 dated March 15, 2001 to Commitment to Guarantee Obligations between Rowan and the Maritime Administration of the U.S. Department of Transportation incorporated by reference to Exhibit 10v to Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-5491). (1) 10u Supplement No. 1 to Trust Indenture dated March 15, 2001 between Rowan and Citibank, N.A. incorporated by reference to Exhibit 10w to Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-5491). (1) 10v Commitment to Guarantee Obligations dated October 29, 1999 and First Preferred Ship Mortgage between the Company and the Maritime Administration of the U.S. Department of Transportation, incorporated by reference to Exhibit 10v to Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-5491). (1) 10w Credit Agreement and Trust Indenture both dated October 29, 1999 between the Company and Citibank, N.A., incorporated by reference to Exhibit 10w to Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-5491). (2) 10x Amendment No. 1 to the Commitment to Guarantee Obligations dated June 30, 2003 between Rowan and Citibank, N.A. (2) 10y Supplement No. 1 to Trust Indenture dated June 30, 2003 between Rowan and Citibank, N.A. (1) 10z Commitment to Guarantee Obligations dated May 23, 2001 and First Preferred Ship Mortgage between Rowan and the Maritime Administration of the U.S. Department of Transportation, incorporated by reference to Exhibit 10y to Form 10-K for the fiscal year ended December 31, 2001 (File No. 1-5491). (1) 10aa Credit Agreement and Trust Indenture both dated May 23, 2001 between Rowan and Citibank, N.A., incorporated by reference to Exhibit 10z to Form 10-K for the fiscal year ended December 31, 2001 (File No. 1-5491). (2) 10bb Commitment to Guarantee Obligations dated May 28, 2003 and First Preferred Ship Mortgage between Rowan and the Maritime Administration of the U.S. Department of Transportation relating to the Scooter Yeargain. (2) 10cc Credit Agreement and Trust Indenture both dated May 28, 2003 between Rowan and Citibank, N.A. relating to the Scooter Yeargain. (2) 10dd Commitment to Guarantee Obligations dated May 28, 2003 and First Preferred Ship Mortgage between Rowan and the Maritime Administration of the U.S. Department of Transportation relating to the Bob Keller (formerly Tarzan II).
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Footnote Exhibit Reference Number Exhibit Description - --------- ------- ------------------- (2) 10ee Credit Agreement and Trust Indenture both dated May 28, 2003 between Rowan and Citibank, N.A. relating to the Bob Keller (formerly Tarzan II). (3) 11 Computation of Basic and Diluted Income (Loss) Per Share for the years ended December 31, 2003, 2002 and 2001. (4) 13 Annual Report to Stockholders for fiscal year ended December 31, 2003. (2) 14 Code of Business Conduct for Senior Financial Officers of the Company. (2) 21 Subsidiaries of the Registrant as of March 12, 2004. (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, 2003. (2) 31 Rule 13a-14(a)/15d-14(a) Certifications (Section 302 of the Sarbanes-Oxley Act of 2002). (2) 32 Section 1350 Certifications (Section 906 of the Sarbanes-Oxley Act of 2002).
- -------------- (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 30. (4) Included herein. See ITEM 1, ITEMS 5-8 and Subpart (a)1. of ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K on page 23 on Form 10-K for specific portions incorporated herein by reference. EX-10.K 3 h13239exv10wk.txt CONSULTING AGREEMENT - C. R. PALMER EXHIBIT 10k Outline of Duties, Responsibilities and Activities Non-Executive Chairman of Rowan Companies, Inc. Effective May 1, 2003 In addition to the duties, responsibilities and activities provided by the Corporate By Laws and Board Resolutions, the non-executive chairman is to be involved actively in the areas of: - Corporate Governance - Management Succession and Transition - Business Development - Investor Relations - Government Relations - Industry Affairs Corporate Governance In addition to Chairman of meetings of the Board of Directors and Stockholders, he will serve as Chairman - Executive Committee Director of: Rowan Drilling UK Ltd. - London British American Offshore Ltd. - London RDC Marine, Inc. (Corporate aviation) Aberuchill Ltd. - Perthshire Ex-Officio Member - Pension Fund Committee Management Succession & Transition Provide advice and counsel, as requested by the Board of Directors and/or management Business Development - Focus primarily on eastern Canada, North Sea and Alaska - Oversight corporate entertainment facilities Investor Relations - Provide advice and counsel upon request Government Relations - Maintain contacts with certain elected officials and regulatory agencies Industry Affairs Continue involvement with: - American Bureau of Shipping (ABS) - Member and Council - American Petroleum Institute (API) - Directors - National Petroleum Council (NPC) - Member and Chairman of Appointment Committee - National Ocean Industries Association (NOIA) - past Chairman - International Association of Drilling Contractors (IADC) - past President - World Presidents Organization (WPO) - Houston Chapter and International member Compensation and Benefits As authorized by the Compensation Committee, to include - Vesting of all existing stock options and convertible debentures as of May 1, 2003 - Compensation at the rate of $250,000/year, payable monthly beginning May 1, 2003 - Standard post retirement medical benefits w/Medicare primary - Use of current office and administrative assistant/secretary - Additional compensation in accordance with that provided to non-employee directors Other - Reasonable personal use of company personnel or facilities for non-business activities. The Company to be reimbursed at a rate approximating the incremental cash cost of such goods and services. Included in such personal use is the corporate aircraft on an "if available" basis. Reimbursement to be at the standard intra-company allocation rates (approximately 1.25 x fuel cost). - Reimbursement of all reasonable business related expenses, excluding club membership dues, subject to review and approval of the Board of Directors. EX-10.X 4 h13239exv10wx.txt AMEND.#1 TO COMMITMENT TO GUARANTEE OBLIGATIONS EXHIBIT 10x 3.01 AMENDMENT NO. 1 TO COMMITMENT TO GUARANTEE OBLIGATIONS THIS AMENDMENT NO. 1, dated as of June 30, 2003 (the "Amendment"), to that certain Commitment to Guarantee Obligations, dated as of October 29, 1999 (the "Commitment"), is by and between the United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administration (the "Secretary"), and ROWAN COMPANIES, INC. (the "Shipowner", and together with the Secretary, the "Parties"). WHEREAS, on October 29, 1999, the Shipowner executed the Indenture, and issued thereunder a Floating Rate Note designated, "United States Government Guaranteed Ship Financing Obligations, GORILLA VII Series" (the "Initial Transaction") with a maximum principal amount of $185,398,000; WHEREAS, pursuant to Title XI of the Merchant Marine Act, 1936, the Secretary guaranteed the payment of outstanding principal of and interest on the Floating Rate Note ("the Obligations"), the outstanding principal amount of which is currently $162,223,000; and WHEREAS, Section 4(b) of the Special Provisions of the Trust Indenture provides that the Shipowner may redeem or repay the Floating Rate Note, in whole or in part, on a Redemption Date designated by the Shipowner, from the proceeds of the issuance of a fixed rate note (the "Fixed Rate Note"); and WHEREAS, the Parties wish to amend certain documents relating to the Initial Transaction in order to provide for the complete redemption of the Floating Rate Note, by the issuance of a Fixed Rate Note in the aggregate principal amount of $162,223,000; NOW THEREFORE, in consideration of the mutual rights and obligations set forth herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows: SECTION 1.01 Annexed to each counterpart of this Amendment No. 1 to the Commitment to Guarantee Obligations are the forms of the Obligation Purchase Agreement, Supplement No. 1 to -1- the Trust Indenture, Amendment No. 2 to the Security Agreement, and the Obligations to be issued June 30, 2003, the forms of which are hereby approved by the Secretary. SECTION 1.02 Article III of the Commitment shall be amended pursuant to Article V thereof, as follows: The Obligations to be issued as a fixed rate note shall be as provided in the Indenture and in the form of the Fixed Rate Note annexed as Exhibit 3B to the Indenture. The Obligations shall be subject to all of the terms and conditions set forth in the Indenture. Supplement No. 1 to the Trust Indenture, Amendment No. 2 to the Security Agreement, and the Obligations to be issued as a fixed rate note shall be executed and delivered by the Shipowner on the Effective Date. Except as so amended, the provisions of the Commitment shall apply to and govern this Amendment No. 1 to Commitment to Guarantee Obligations. Capitalized terms not specifically defined herein shall have the respective meanings stated in Schedule A to the Trust Indenture dated as of October 29, 1999, as amended, between the Shipowner and the Indenture Trustee. This Amendment No. 1 to Commitment to Guarantee Obligations may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Notwithstanding any provision herein, in the event there are any inconsistencies between the original of this document held by the Secretary, and an original held by any other party to this transaction, this provisions of the original held by the Secretary shall prevail. -2- IN WITNESS WHEREOF, this Amendment No. 1 to Commitment to Guarantee Obligations has been executed and sealed by the United States and accepted and sealed by the Shipowner on the day and year first above written. UNITED STATES OF AMERICA SECRETARY OF TRANSPORTATION BY: MARITIME ADMINISTRATOR (SEAL) ATTEST: __________________________________ Secretary ____________________________________ Assistant Secretary ROWAN COMPANIES, INC. (SEAL) ATTEST: By: _______________________________ Senior Vice President ____________________________________ Secretary -3- EX-10.Y 5 h13239exv10wy.txt SUPPLEMENT #1 TO TRUST INDENTURE EXHIBIT 10y 4.04 SUPPLEMENT NO. 1 TO TRUST INDENTURE THIS SUPPLEMENT NO. 1, dated as of June 30, 2003 ("Supplement No. 1"), to that certain Trust Indenture dated as of October 29, 1999 (the "Indenture") is by and between MANUFACTURERS AND TRADERS TRUST COMPANY, a New York banking corporation (successor-in-interest to ALLFIRST TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association), as indenture trustee (the "Indenture Trustee"), and ROWAN COMPANIES, INC. (the "Shipowner", and together with the Indenture Trustee, the "Parties"). WHEREAS, on October 29, 1999, the Shipowner executed the Indenture, and issued thereunder a Floating Rate Note designated, "United States Government Guaranteed Ship Financing Obligations, GORILLA VII Series" (the "Initial Transaction") with a maximum principal amount of $185,398,000; WHEREAS, Section 4(b) of the Special Provisions of the Indenture provides that the Shipowner may redeem or repay the Floating Rate Note, in whole or in part, on a Redemption Date designated by the Shipowner, from the proceeds of the issuance of a fixed rate note; WHEREAS, the outstanding principal amount of the Floating Rate Note is currently $162,223,000; and WHEREAS, the Parties wish to amend certain documents relating to the Initial Transaction in order to provide for the complete redemption of the Floating Rate Note by the issuance of a fixed rate note in the aggregate principal amount of $162,223,000. NOW THEREFORE, in consideration of the mutual rights and obligations set forth herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows: ARTICLE FIRST SECTION 1.01 SCHEDULE A. Schedule A to the Indenture is hereby amended by adding or substituting the following definitions: "Authorized Newspapers" means The Wall Street Journal (all editions), or if it ceases to exist, then in such other newspaper(s) as the Secretary may designate. "Effective Date" means June 30, 2003. "Fixed Rate Note" shall mean an Obligation substantially in the form of Exhibit 3B to the Indenture, appropriately completed. "Reinvestment Rate" means the yield determined by the Indenture Trustee, based on information received from the Holder or calculation agent, to be the yield of the issue of actively traded United States Treasury securities having a maturity equal to the Weighted Average Life to Final Maturity plus ..10%; provided, however, that if such Weighted Average Life to Final Maturity is not equal to the maturity of an actively traded United States Treasury security (rounded to the nearest one-twelfth of a year), such yield shall be obtained by linear interpolation from the yields of actively traded United States Treasury securities having the greater maturity closest to and the lesser maturity closest to such Weighted Average Life to Final Maturity. The yields shall be determined by reference to the yields as indicated by Telerate Access Service (page 8003 or the relevant page at the date of determination indicating such yields) (or, if such data ceases to be available, any publicly available sources of similar market data) at approximately 11:00 a.m. (New York City time) on the Make-Whole Premium Determination Date. "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, the Acting Deputy Maritime Administrator, and other officials of the Maritime Administration). All other capitalized terms used herein have the meanings set forth in Schedule A to the Indenture, as amended. ARTICLE SECOND -2- The Indenture shall be amended as follows: Section 2.01 The Obligations. Article 2(a) of the Special Provisions of the Indenture is hereby amended and restated in its entirety as follows: (a) The Obligations issued hereunder shall be designated "United States Government Guaranteed Ship Financing Obligations, GORILLA VII Series," and shall be substantially in the form of Exhibit 3B to this Indenture; and, the aggregate principal amount of Obligations which may be issued under this Indenture shall not exceed $162,223,000. Section 2.02 Endorsement of Floating Rate Note. On the Effective Date, the Floating Rate Note issued on October 29, 1999 shall be endorsed to show the redemption of the outstanding amount and thereupon shall be cancelled. Section 2.03 Form of Fixed Rate Note. The form of Fixed Rate Note attached as Exhibit 3 to the Indenture is renumbered as Exhibit 3A and the form of Fixed Rate Note attached as an Exhibit to this Supplement is designated as Exhibit 3B to the Indenture. Section 2.04 Issuance of Fixed Rate Note. On and after the Effective Date, the Shipowner shall issue and deliver to the Holders thereof Fixed Rate Note(s) in accordance with the Indenture substantially in the form of Exhibit 3B to the Indenture. Except as so amended, the provisions of the Indenture are hereby confirmed, and shall remain in full force and effect. This Supplement No. 1 to the Indenture may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Notwithstanding any provision herein, in the event there are any inconsistencies between the original of this document held by the Secretary, and an original held by any other party to this transaction, the provisions of the original document held by the Secretary shall prevail. -3- IN WITNESS WHEREOF, this Supplement No. 1 to the Indenture has been duly executed by the Parties as of the day and year first above written. (SEAL) ROWAN COMPANIES, INC. ATTEST: By:______________________________ Senior Vice President ______________________________ Secretary MANUFACTURERS AND TRADERS TRUST COMPANY (SEAL) Indenture Trustee ATTEST: By:______________________________ Vice President ______________________________ Vice President CONSENT: Pursuant to Section 10.05 of the General Provisions Incorporated into the Trust Indenture by Reference attached as Exhibit 1 to the Trust Indenture, the Secretary hereby consents to this Supplement No. 1 to the Trust Indenture. ATTEST: UNITED STATES OF AMERICA, SECRETARY OF TRANSPORTATION ______________________________ BY: MARITIME ADMINISTRATION By:______________________________ Secretary -4- EX-10.BB 6 h13239exv10wbb.txt COMMITMENT TO GUARANTEE OBLIGATIONS EXHIBIT 10bb Document 1 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
Doc. No. Document - ---- --------- 1 Commitment to Guarantee Obligations 2 Schedule One -- Form of Opinion of Counsel 3 Appendix I -- Form of Credit Agreement 4 Appendix II -- Form of Trust Indenture 5 Schedule A -- Schedule of Definitions to Trust Indenture 6 Exhibit 1 -- General Provisions Incorporated into the Trust Indenture by Reference 7 Exhibit 2 -- Form of Floating Rate Note 8 Exhibit 3 -- Form of Fixed Rate Note 9 Exhibit 4 -- Form of Authorization Agreement 10 Appendix III -- Form of 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 -- Form of Amendment No. 7 to Financial Agreement 16 Exhibit 5 -- Form of Consent of Shipyard 17 Exhibit 6 -- Construction Contract 18 Exhibit 7 -- Form of Amendment No. 4 to Depository Agreement
Contract No. MA-13837 COMMITMENT TO GUARANTEE OBLIGATIONS BY THE UNITED STATES OF AMERICA Accepted by ROWAN COMPANIES, INC. SHIPOWNER THIS COMMITMENT TO GUARANTEE OBLIGATIONS, dated as of May 28, 2003 (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 SCOOTER YEARGAIN ("the Vessel") built pursuant to 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 equal to 87-1/2% of the Actual Cost of the Vessel, as of the Closing Date. To accomplish such financing, the Shipowner has accepted this Guarantee Commitment subject to the terms and conditions set forth herein. C. The Shipowner has entered into the Credit Agreement providing for the sale and delivery, on the Closing Date, of obligations in the aggregate principal amount of $91,198,000 to be designated "United States Government Guaranteed Ship Financing Obligations, SCOOTER YEARGAIN Series" (the "Obligations") having the maturity date and interest rate set forth herein. D. As security for the Guarantees and the Secretary's Note, the Shipowner will execute and deliver the Security Agreement, Contract No. MA-13839, and the following agreements shall be executed and delivered: on the Closing Date, the Indenture, the Authorization Agreement, Contract No. MA-13838, the Secretary's Note, Amendment No. 7 to the Financial Agreement, Contract MA-13261, and Amendment No. 4 to the Depository Agreement, Contract No. MA-13445, and on the 1 Delivery Date, the Mortgage, Contract No. MA-13840. W I T N E S S E T H: That under the provisions of Title XI of the Merchant Marine Act, 1936, as amended and in consideration of (i) the covenants of the Shipowner contained herein and (ii) other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Secretary hereby commits itself as herein provided. ARTICLE I FINDINGS AND DETERMINATIONS OF SECRETARY Pursuant to Section 1104A(b)(1) of Title XI, the Secretary has approved the Shipowner as responsible and possessing the ability, experience, financial resources and other qualifications necessary to the adequate operation and maintenance of the Vessel. Pursuant to Section 1104A(b)(2) of Title XI, the Secretary has determined that the aggregate of the Actual Cost of the Vessel is $104,228,402. Prior to the Closing Date, the Secretary, in its discretion, may redetermine the Actual Cost of the Vessel. On the Closing Date, the aggregate principal amount of the Obligations will not exceed 87-1/2% of the Actual Cost. Pursuant to Sections 1104A(b)(3), 1104A(b)(4) and 1104A(b)(5) of Title XI, the Secretary has determined that: (1) the maturity date of the Obligations is satisfactory, (2) the payments of principal required by the Obligations are satisfactory, and (3) the interest rate to be borne by the Obligations to be issued on the Closing Date is reasonable. Pursuant to Section 1104A(d) of Title XI, the Secretary has found that the Shipowner's proposed use of the Vessel will be economically sound. ARTICLE II COMMITMENT TO GUARANTEE OBLIGATIONS The United States, represented by the Secretary, HEREBY COMMITS ITSELF TO GUARANTEE 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, Security Agreement, Amendment No. 7 to Financial Agreement, and Amendment No. 4 to the Depository Agreement on the Closing Date, and the Mortgage on the Delivery Date pursuant to the terms of the Guarantee Commitment. 2 ARTICLE III THE OBLIGATIONS The Obligations shall be as provided in the Indenture and in the form of the Obligations annexed as Exhibits 2 and 3 to the Indenture. The Obligations shall be subject to all of the terms and conditions set forth in the Indenture. ARTICLE IV CONDITIONS TO EXECUTION AND DELIVERY OF THE GUARANTEE The obligation of the Secretary to execute and deliver the Guarantee on the Closing Date shall be subject to the following conditions unless waived in writing by the Secretary: (a) the Closing Date shall occur on or prior to August 20, 2003; (b) the Shipowner and the Shipyard shall have executed and delivered to the Secretary a copy of the Construction Contract, as amended, and the Shipyard shall have executed the Consent of Shipyard; (c) the Shipowner shall have executed and delivered the following documents in the form attached hereto: the Security Agreement, Amendment No. 7 to Financial Agreement, Trust Indenture, Secretary's Note, Obligations, Credit Agreement, and Amendment No. 4 to the Depository Agreement; (d) the Indenture Trustee shall have executed, in the form attached hereto, the Authorization Agreement and Trust Indenture, the Depository shall have executed Amendment No. 4 to the Depository Agreement; and the Lender shall have executed the Credit Agreement; (e) the following documents shall have been delivered to the Secretary: (i) one executed counterpart and one copy of the Credit Agreement ; (ii) two executed counterparts of the Indenture, (iii) two specimen copies of the Obligations; (iv) two executed originals of the legal opinion issued under section (k) of this Article; (v) two copies of the legal opinion delivered to the Lender pursuant to the Credit Agreement, and (vi) two originals of all other documents delivered by the Shipowner, Indenture Trustee or the Depository in connection with this Closing; (f) if the Shipowner intends to operate the Vessel in the U.S. domestic trade, the Shipowner and any bareboat charterers of such Vessel shall have furnished to the Secretary, within ten (10) days of the commencement of such operation, an affidavit complying with the requirements of 46 C.F.R. 355, demonstrating U.S. citizenship; (g) the Shipowner shall have executed an Officer's Certificate representing and warranting the truth of the following statements as of the Closing Date: 3 (i) each of the representations and warranties set out at Section 2.01 of the General Provisions of the Security Agreement in Appendix III; and (ii) the Shipowner is not in violation of any Federal laws having a substantial adverse effect on the interests of the United States of America and that the consummation of the Commitment complies with non-Title XI Federal law. (h) the Secretary shall have received the Guarantee Fee payable under Section 1104A (e) of Title XI and the Investigation Fee due under Section 1104A (f) of Title XI; (i) the Shipowner shall have complied in all material respects with its agreements under this Guarantee Commitment; (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 of counsel acceptable to the Secretary, in the form annexed hereto as Schedule 1 which shall include, among other things, an opinion to the effect that: (i) by the terms of the Security Agreement, the Shipowner has granted to the Secretary a fully perfected, first priority security interest in each of the assets which constitutes the Security; and (ii) all filings, recordings, notices and other actions required to perfect the Secretary's interests in the Security and to render such security interests valid and enforceable under applicable State law have been duly effected; (l) the Secretary shall have received a letter agreement from the Shipowner to provide the Secretary within a reasonable time after the Closing Date, with five conformed copies of the Guarantee Commitment and each of the Appendices and Exhibits thereto executed on or prior to such date; (m) on the Closing Date, the qualifying requirements set forth in Section 15 of the Financial Agreement shall have been complied with and certified to as required therein; and (n) at least ten (10) days prior to the Closing Date, there shall have been delivered to the Secretary, pro forma balance sheets for the Shipowner as of the Closing Date, certified by an officer of the Shipowner showing, among other things, all non-Title XI debt of the Shipowner; (o) on the Closing Date, the Shipowner shall certify that all non-Title XI debt to the Shipowner relating to the Vessel have been discharged or subordinated satisfactorily to the Secretary; and (p) at least ten (10) days prior to the Closing Date, the Shipowner shall have provided the Secretary with satisfactory evidence of Builder's Risk insurance as required by the Security Agreement, and at least ten (10) days prior to the Delivery Date, the Shipowner shall have provided 4 the Secretary with satisfactory evidence of marine insurance as required by the Security Agreement. ARTICLE V 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 the Shipowner. ARTICLE VI TERMINATION OR ASSIGNMENT OF GUARANTEE COMMITMENT This Guarantee Commitment may be terminated and the parties hereto shall have no further rights or obligations hereunder, upon written notice by the Secretary of 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 IV hereof or upon the Secretary's determination, at or before the Closing Date, that (i) the Shipowner is in violation of Federal law and such violation would have a substantial, adverse effect on the interests of the United States of America, or (ii) the consummation of the Commitment would violate non-Title XI Federal law. The Shipowner's warranties and representations shall survive the termination of this Guarantee Commitment and the Secretary's issuance of the Guarantees. 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 VII 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, capitalized terms used herein shall have the meaning given in Schedule X to the Security Agreement. 5 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 ADMINISTRATOR (SEAL) BY: /s/ Joel C. Richard ---------------------------- Secretary Maritime Administration Attest: /s/ Sarah. J. Washington - ------------------------------ Assistant Secretary Maritime Administration ACCEPTED BY: ROWAN COMPANIES, INC. as Shipowner BY:/s/ E. E. Thiele ----------------------------- Senior Vice President (SEAL) Attest: BY: /s/ Mark H. Hay -------------------------- Secretary 6 EXHIBIT 3 TO THE SECURITY AGREEMENT DOCUMENT 14 Contract No. MA-13840 FIRST PREFERRED SHIP MORTGAGE THIS FIRST PREFERRED SHIP MORTGAGE, dated ____ 20__, is made by ROWAN COMPANIES, INC., a Delaware corporation (the "Shipowner" and "Mortgagor") located at Suite 5450, 2800 Post Oak Blvd., Houston, Texas 77056 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, pursuant to the Trust Indenture executed May 28, 2003, the Shipowner has authorized the issuance of Obligations designated "United States Government Guaranteed Ship Financing Obligations, Scooter Yeargain Series" in an aggregate principal amount not to exceed $91,198,000 to finance the construction of the SCOOTER YEARGAIN, Official Number __________ (the "Vessel"); WHEREAS, the Shipowner is the sole owner of the whole of the Vessel; 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 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 a hundred percent interest in the whole of the Vessel which is more fully described in its certificates 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. 7 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 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 now or at any time subject to the lien of this mortgage is to be held by the Mortgagee subject to the further agreements and conditions hereinafter set forth. ARTICLE FIRST SECTION 1. All of the Shipowner's covenants and agreements 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; compliance with applicable laws; maintenance of marine insurance; requisition of title; and compliance with Chapter 313 of Title 46 of the United States Code, set forth in, and all of the Secretary's rights, immunities, powers and remedies provided for in the Security Agreement, 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 a true copy of the form of the Security Agreement are annexed hereto. SECTION 2. 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. 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. 8 SECTION 2. All of the Shipowner's covenants, promises, stipulations and agreements 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 of the Mortgagee's covenants, promises, stipulations and agreements in this Mortgage, 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. All capitalized terms used herein shall have the meaning specified in Schedule X to 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 Agreement which would otherwise constitute such a waiver, shall to such extent be of no force and effect. SECTION 5. Once the Mortgage shall have become null and void, 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 Ninety One Million One Hundred Ninety Eight Thousand Dollars and NO/100's ($91,198,000) excluding interest, expenses, and fees. The date of discharge for the Vessel is the later of (x) the date on which the Secretary's Note is satisfied under Section 3.02(a), (b), or (d) of the General Provisions to the Security Agreement or (y) May 10, 2019. 9 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 10 ACKNOWLEDGMENT STATE OF TEXAS ) ) ss: COUNTY OF HARRIS ) On this ____ day of ___________, ____, before me, ______________, a Notary Public in and for the State of Texas, County of Harris, 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 Bylaws of said corporation, and that he signed his name thereto by like authority. (NOTARIAL SEAL) ________________________________ NOTARY PUBLIC My Commission Expires: 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) 11 EX-10.CC 7 h13239exv10wcc.txt CREDIT AGREEMENT AND TRUST INDENTURE EXHIBIT 10cc DOCUMENT 3 CREDIT AGREEMENT dated as of May 28, 2003 among ROWAN COMPANIES, INC. as Shipowner GOVCO INCORPORATED as Primary Lender CITIBANK, N.A. as Alternate Lender CITIBANK, N.A., as Facility Agent and CITICORP NORTH AMERICA, INC. as Administrative Agent for the Primary Lender and the commercial paper holders of the Primary Lender. TABLE OF CONTENTS SECTION 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION................................. 2 1.01 Defined Terms............................................................. 2 1.02 Principles of Construction................................................ 2 SECTION 2. THE CREDIT FACILITY........................................................ 2 2.01 Amount.................................................................... 2 2.02 Availability.............................................................. 3 2.03 Disbursements and Minimum Amount of Utilizations.......................... 3 2.04 Relationship of Floating Rate Note and Fixed Rate Note.................... 3 2.05 Trigger Event............................................................. 3 2.06 Extension of Commitment Termination Date; Non-Renewal Event............... 4 SECTION 3. DISBURSEMENT REQUIREMENTS.................................................. 5 3.01 Disbursement Procedures................................................... 5 SECTION 4. TERMS OF THE CREDIT........................................................ 5 4.01 Principal Repayment....................................................... 5 4.02 Interest Payment.......................................................... 6 4.03 Prepayment................................................................ 7 4.04 Recapture................................................................. 8 4.05 Evidence of Debt.......................................................... 9 4.06 Limit of United States Guarantee.......................................... 10 SECTION 5. CONDITIONS PRECEDENT........................................................ 10 5.01 Conditions Precedent to Lenders' Obligations Under this Agreement......... 10 5.02 Conditions Precedent to Each Disbursement................................. 11 SECTION 6. FEES AND EXPENSES........................................................... 11 6.01 Fees...................................................................... 11 6.02 Taxes..................................................................... 12 6.03 Expenses.................................................................. 13 6.04 Additional or Increased Costs............................................. 14 SECTION 7. PAYMENTS................................................................... 15 7.01 Method of Payment......................................................... 15 7.02 Application of Payments................................................... 16 SECTION 8. REPRESENTATIONS AND WARRANTIES BY THE SHIPOWNER............................ 17 8.01 Representations and Warranties of the Shipowner........................... 17 8.02 Agreements of the Shipowner............................................... 19
i SECTION 9. CANCELLATION, SUSPENSION AND EVENTS OF DEFAULT............................. 21 9.01 Cancellation.............................................................. 21 9.02 Events of Default......................................................... 21 SECTION 10. GOVERNING LAW AND JURISDICTION............................................ 22 10.01 Governing Law............................................................. 22 10.02 Submission to Jurisdiction................................................ 22 10.03 Waiver of Security Requirements........................................... 22 10.04 No Limitation............................................................. 23 SECTION 11. MISCELLANEOUS............................................................. 23 11.01 Computations.............................................................. 23 11.02 Notices................................................................... 23 11.03 Disposition of Indebtedness............................................... 25 11.04 Disclaimer................................................................ 25 11.05 No Waiver; Remedies Cumulative............................................ 25 11.06 Currency.................................................................. 26 11.07 Severability.............................................................. 26 11.08 Amendment or Waiver....................................................... 26 11.09 Indemnification........................................................... 26 11.10 Benefit of Agreement...................................................... 26 11.11 Waiver of Jury Trial...................................................... 26 11.12 Execution in Counterparts................................................. 27 11.13 Shipowner Documents....................................................... 27 11.14 Entire Agreement.......................................................... 27 11.15 No Proceedings............................................................ 27 11.16 Tax Disclosures........................................................... 28 SECTION 12. ARRANGEMENTS AMONG THE AGENTS AND THE LENDERS............................. 28 12.01 Appointment............................................................... 28 12.02 Rights of Facility Agent.................................................. 28 12.03 Duties.................................................................... 29 12.04 Limitation on Obligations of Facility Agent............................... 29 12.05 Indemnification by Lenders................................................ 30 12.06 Limitation on Responsibility.............................................. 30 12.07 No Claims on Employees of Facility Agent.................................. 30 12.08 Banking Business.......................................................... 30 12.09 Resignation or Termination of Facility Agent.............................. 31 12.10 Successor to Facility Agent............................................... 31 12.11 Discharge of Obligations.................................................. 31 12.12 Responsibilities of Lenders............................................... 31 12.13 Agency Division........................................................... 32 12.14 Administrative Agent...................................................... 32 12.15 Facility Agent Only Agent for the Lenders................................. 32
ii Exhibits Exhibit 1 Schedule of Definitions Annexes Annex A Form of Disbursement Requests Annex B Form of Extension Request iii THIS CREDIT AGREEMENT, dated as of May 28, 2003 is made by and among ROWAN COMPANIES, INC., a Delaware corporation (the "Shipowner"), GOVCO INCORPORATED, a Delaware corporation (the "Primary Lender"), CITIBANK, N.A., a national banking association (the "Alternate Lender"), CITIBANK N.A., a national banking association, as facility agent for both the Primary Lender and the Alternate Lender (and their respective successors and assigns) with respect to the Floating Rate Note, and its permitted successors and assigns (in such capacity, the "Facility Agent"), and CITICORP NORTH AMERICA, INC., a Delaware corporation, as administrative agent for the Primary Lender and the commercial paper holders of the Primary Lender (and their respective successors and assigns) (in such capacity, together with its permitted successors and assigns, the "Administrative Agent," and together with the Facility Agent, the "Agents"). As used herein, the term "Lender" shall mean either the Primary Lender or the Alternate Lender, as the case may be, depending on which of the two parties made or will make the relevant disbursement of funds under this Agreement; provided, however, that if the Primary Lender assigns its rights under this Agreement to the Alternate Lender, the term "Lender," as used herein, shall mean only the Alternate Lender. The term "Lenders," as used herein, shall mean collectively the Primary Lender and the Alternate Lender. BACKGROUND WHEREAS: (A) by this Agreement, the Lenders have established a credit facility (the "Credit Facility") in the amount of $91,198,000, pursuant to which the Primary Lender may, in its discretion, 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; and if the Primary Lender chooses at any time not to extend, or continue to extend, any such financing, then the Alternate Lender shall, subject to the terms and conditions hereof, extend the undisbursed portion of such financing; (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 Lenders' extension of the Credit Facility under this Agreement is the Facility Agent's timely receipt of Certificates Authorizing Disbursement and issuance of the Guarantee of the Floating Rate Note; 1 (D) the Facility Agent will serve as facility agent for the benefit, and on behalf, of each of the Lenders in connection with the Credit Facility, this Agreement and the other related documents and the Administrative Agent will act as an administrative agent for the Primary Lender and the Primary Lender's commercial paper holders; and (E) 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. (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 Lenders hereby establish the Credit Facility, upon the terms and conditions set forth in this Agreement, in favor of the Shipowner in the maximum amount of $91,198,000 (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; all as set forth in Certificates Authorizing Disbursements submitted in accordance with this Agreement. The Primary Lender intends (but is not obligated) to fund the Credit Facility through the issuance and sale of Commercial Paper to investors which is exempt from the registration requirements of the United States Securities Act of 1933, as amended. The Primary Lender may, at its option, elect at any time not to fund the Credit Facility or the undisbursed portion thereof, in which case the Alternate 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 2 any, of the Credit Facility Amount over the outstanding principal amount evidenced by the Floating Rate Note, plus the aggregate outstanding principal amount evidenced by Fixed Rate Notes ("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 the earliest of (x) October 1, 2004, (y) upon the request of the Secretary, the date upon which the Trigger Event (as defined in Section 2.05) shall occur or, (z) the date on which the Available Amount under the Credit Facility is canceled 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 Primary Lender or the Alternate 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 Relationship of Floating Rate Note and Fixed Rate Note. Disbursements from the Credit Facility shall become the indebtedness of the Shipowner to the Lenders under the Floating Rate Note. The Shipowner shall redeem the Floating Rate Note in full by causing to be issued one or more Fixed Rate Notes and using the proceeds thereof to repay the Floating Rate Note in full no later than the earliest of (i) four years from the Delivery Date, (ii) October 1, 2008, or (iii) at the request of the Secretary, within fifteen (15) Business Days from the date upon which the Trigger Event shall occur. At its option, and from time to time, the Shipowner may redeem all or any portion of the indebtedness under the Floating Rate Note by causing a Fixed Rate Note or series of Fixed Rate Notes to be issued at any time during or after the construction of the Vessel, so long as such redemption of the Floating Rate Note from the proceeds of Fixed Rate Note(s) does not occur later than the earliest of (i) four years after the Delivery Date, (ii) October 1, 2008, or (iii) at the request of the Secretary, within fifteen (15) Business Days from the date upon which the Trigger Event shall occur, and except for the final redemption, each redemption is in a minimum amount of $25,000,000; and the Shipowner shall have paid any amount payable under Section 4.04(a)(iv) or any other provision hereof in connection therewith. 2.05 Trigger Event. (a) The Shipowner shall redeem the outstanding indebtedness under the Floating Rate Note in full by causing to be issued a fixed rate obligation with a Maturity date of May 10, 2019 whenever the Treasury constant maturities rate (10-year) as reported by the Federal Reserve Board in statistical release H.15 (519) (the "Treasury Rate") equals or exceeds nine percent (9%) per annum (the "Trigger Event"). If a Trigger Event should occur, the Shipowner shall redeem the Floating Rate Note in full by causing to be issued a fixed rate obligation and using the 3 proceeds thereof to repay the Floating Rate Note in full, at the request of the Secretary, within fifteen (15) Business Days of receiving notice of the occurrence of the Trigger Event, pursuant to Section 2.05(d) or of having actual notice thereof. (b) Nothing in this Section 2.05 shall prevent the Shipowner from redeeming the Floating Rate Note by issuance of a fixed-rate obligation at any time prior to Maturity. (c) The failure of the Shipowner to redeem the Floating Rate Note by issuance of a fixed-rate obligation within fifteen (15) Business Days of receiving notice of the occurrence of the Trigger Event pursuant to Section 2.05(d) or of having actual notice thereof, unless subsequently waived in writing by the Secretary, shall constitute an Indenture Default without further notice to the Shipowner or the Lenders being required under the Indenture or this Agreement. (d) The Shipowner covenants for the benefit of the Secretary that it shall arrange for an independent reporting service or bank acceptable to the Secretary to send the Secretary, the Facility Agent, and the Shipowner a written interest rate report once a month on the first business day of every month (until such time as the Floating Rate Note is redeemed in full). This interest rate report shall specify the Treasury Rate as of the date of the report. 2.06 Extension of Commitment Termination Date; Non-Renewal Event. (a) The Shipowner may request that the Alternate Lender extend the then current Commitment Termination Date for a period not to exceed 364 days following the expiration of the current Commitment Termination Date by delivering an Extension Request to the Facility Agent not more than 90 but not less than 60 days prior to the expiration of the current Commitment Termination Date. If the Alternate Lender, in its sole discretion, is willing to agree to the requested extension, it shall return a duly executed copy of the Extension Request to the Shipowner not later than 45 days prior to the expiration of the current Commitment Termination Date, and upon receipt of the executed Extension Request by the Shipowner, the Commitment Termination Date shall be so extended. (b) In the event that the Alternate Lender does not timely agree to any requested extension of the Commitment Termination Date in accordance with Section 2.06(a) (a "Non-Renewal Event"), then the Shipowner may, at its sole discretion, redeem the outstanding indebtedness under the Floating Rate Note in full in accordance with Section 2.04 by causing to be issued a fixed rate obligation with a Maturity date of May 10, 2019. If the Shipowner does not redeem the Floating Rate Note on or before the Commitment Termination Date expires, (i) the Primary Lender shall, prior to such date, assign to the Alternate Lender all of its interest in its outstanding indebtedness under this Agreement and the Floating Rate Note, and all of its 4 other rights and obligations hereunder, in exchange for the Alternate Lender's payment of an amount equal to the outstanding principal balance of the assigned indebtedness, plus the amount of all interest and fees accrued through the date of such assignment; and (ii) the Alternate Lender shall accept and assume all of the Primary Lender's rights and obligations under this Agreement and the Floating Rate Note. From and after the date of the assignment (which shall be evidenced by an assignment agreement in form and substance acceptable to the Lenders and the Shipowner), the Primary Lender shall cease to be a Lender hereunder, and shall have no rights or obligations hereunder or under the Floating Rate Note, except for any rights which by their express terms survive the termination of this Agreement or the Floating Rate Note. (c) Nothing in this Section 2.06 shall prevent the Shipowner from redeeming the Floating Rate Note by issuance of a fixed-rate obligation at any time prior to Maturity. SECTION 3. DISBURSEMENT REQUIREMENTS 3.01 Disbursement Procedures. Upon receipt by the Facility Agent of each Certificate Authorizing Disbursement at least five (5) Business Days prior to the proposed disbursement date, the Primary Lender may, and if the Primary Lender elects not to, the Alternate Lender shall, disburse funds in accordance with the terms of such Certificate Authorizing Disbursement to the Shipowner, or the Shipowner's designee, subject to the terms of this Agreement and such Certificate Authorizing Disbursement; 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 disbursing Lender) following the Facility Agent's receipt of such Certificate Authorizing Disbursement. Promptly following each Disbursement, the Facility Agent 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 the Outstanding Principal of the Floating Rate Note as follows: (i) in installments in the principal amount of $3,040,000, on each Payment Date commencing on November 10, 2004, and continuing until May 10, 2008, and 5 (ii) the full amount of the Outstanding Principal evidenced by the Floating Rate Note, on the earliest of (i) four years from the Delivery Date, (ii) October 1, 2008, or (iii) at the request of the Secretary, within fifteen (15) Business Days from the date upon which the Trigger Event shall occur. 4.02 Interest Payment. (a) On each Interest Payment Date, the Shipowner shall pay to the Indenture Trustee, on behalf of the Person(s) entitled thereto, interest on the Outstanding Principal of the Floating Rate Note, calculated at an interest rate per annum equal to the Applicable Interest Rate therefor, as determined for each successive Interest Period. The Indenture Trustee shall calculate the Applicable Interest Rate based on information provided (i) by the Administrative Agent to the Facility Agent if the Primary Lender is the Lender, or (ii) by the Facility Agent if the Alternate Lender is the Lender. From time to time, the Administrative Agent or Facility Agent will confirm CP Rate, LIBOR, Base Rate, and Applicable Interest Rate to the Indenture Trustee. In the event that the Primary Lender assigns the financing of all or any portion of the amount outstanding under the Credit Facility (whether or not evidenced by a Note) to the Alternate Lender or other assignee permitted by the terms of this Agreement (including, without limitation, any assignment pursuant to Section 2.06(b)), the interest rate on such amount shall be determined by the Facility Agent (and the Facility Agent shall notify the Indenture Trustee thereof and the Indenture Trustee shall recalculate such interest rate based on information provided by the Facility Agent) pursuant to clause (i) of the definition of Applicable Interest Rate for the period prior to the effective date of such assignment and pursuant to clause (ii) of such definition for all periods after such date. (b) The Shipowner shall pay to the Facility Agent, on behalf of the Person(s) 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 Applicable Interest Rate, provided, that if such Unpaid Amount consists of principal on the Floating Rate Note as to which guaranteed interest continues to accrue, the Post Maturity Interest Rate on such Unpaid Amount shall be limited to the incremental amount of additional interest required to be paid under this Section 4.02(b) and shall equal two percent (2.0%) per annum. 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 6 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 9.02. As used herein, "Unpaid Amount" means all or any part of principal, accrued interest, fees or other amounts owing to the Lenders 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 Lenders under any judgment of any court or arbitral tribunal in connection with this Agreement which is not paid on the date of such judgment. "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 that 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 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 any 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 Facility Agent and the Indenture Trustee prior written notice of such 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 7 has accrued to the date of prepayment on the amount prepaid and all other amounts payable hereunder relating to such prepayment; (iv) any amount prepaid hereunder (other than the Outstanding Principal amount thereof prepaid through the issuance of Fixed Rate Notes, the Outstanding Principal amount of which is subtracted from the Credit Facility pursuant to the last sentence of Section 2.01) shall not be considered part of the Available Amount; and (v) subject to Section 4.03(c), if the Lender is the Primary Lender, the Shipowner shall pay to the Facility Agent, for the benefit of the Primary Lender an amount equal to (x) the amount of yield that the Primary Lender is required to pay to holders of its Commercial Paper during the Liquidation Period (as defined below) on an amount of Commercial Paper having an aggregate issue price equal to the amount of the Shipowner's prepayment less (y) the amount of the estimated investment earnings, as determined by the Facility Agent, on the prepayment amount during the Liquidation Period. The "Liquidation Period" means the period from the date on which a prepayment is made to the earliest date on which the Primary Lender's total amount of Commercial Paper related to the funding of the Disbursements can be reduced (without prepayment thereof) by an amount equal to the amount of the Shipowner's prepayment. Prepayments shall be applied to the installments of principal of the Credit Facility in the inverse order of their maturity, and, in cases where more than one Note is outstanding, pro rata to each Note. (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 any 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. (d) Notwithstanding any other provision to the contrary herein, the Shipowner shall have the right to prepay any portion of the Floating Rate Note and redeem the Floating Rate Note by issuing a Fixed Rate Note and using the proceeds thereof to prepay the Floating Rate Note so long as it first obtains the Secretary's consent to the interest rate applicable to the Fixed Rate Note and, except for the final redemption, the principal amount of such redemption equals or exceeds $25,000,000; and the Shipowner shall have paid any amount payable under Section 4.04(a)(iv) or any other provision hereof in connection therewith. 4.04 Recapture. (a) Upon the written request of the Facility Agent, the Shipowner shall pay to the applicable Lender, such amounts as shall be 8 sufficient (in the reasonable judgment of such Lender) to compensate such 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 such 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) subject to the provisions of Section 4.03(c), 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 such Lender, the Facility Agent, and the Indenture Trustee. (b) Without prejudice to any other provision hereof (and at the Shipowner's expense), such 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. (c) With respect to the Shipowner's obligations under Section 4.04(a)(iv), if the Shipowner shall at any time notify the Facility Agent and the applicable Lender of its intention to pursue any such prepayment, the Facility Agent and the applicable Lender shall reasonably cooperate with the Shipowner in assessing and quantifying any loss, expense or liability the Lender may incur in connection with a prepayment under the circumstances described in Section 4.04(a)(iv), so that the Shipowner may make an informed decision as to the cost to it of any such prepayment. Any information provided to the Shipowner by the Lender pursuant to this Section 4.04(c) is understood by the parties to be an estimate of the costs of prepayment only and shall not be binding in the determination of such costs pursuant to Section 4.04(a)(iv). 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 Facility Agent, in accordance with the written instructions of the Facility Agent, 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 9 thereon at the rate guaranteed by the Secretary, with any interest in excess thereof being evidenced by this Agreement. 4.06 Limit of United States Guarantee. None of the incremental amount of interest required to be paid under Section 4.02(b), none of the fees, and expenses arising under Sections 4.03, 4.04 and 6, and none of the Indemnified Amounts, commissions, Taxes, Other Taxes, Post Maturity Interest Rate, interest in excess of 10.25% (or such higher rate as may be agreed from time to time by the Secretary) (the "Cap Rate") 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 Obligations and only to the extent specified therein. The Cap Rate shall not apply to fixed-rate obligations. SECTION 5. CONDITIONS PRECEDENT 5.01 Conditions Precedent to Lenders' Obligations Under this Agreement. The obligations of the Lenders under this Agreement shall be subject to the delivery to the Facility Agent of the documents indicated below on or before the Closing Date: (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 Lenders, 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 Facility Agent, 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 Lenders, 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 Lenders, of the authority of the Shipowner to execute, deliver, perform and observe the terms and conditions of this Agreement, the Floating Rate Note, the Fee Letter, 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, the Fee Letter, 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 10 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, the Fee Letter, and the Indenture; and (ii) for the validity, binding effect and enforceability of this Agreement, the Floating Rate Note, the Fee Letter, 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, the Fee Letter, 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 Lenders and the Agents 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, Rowe & Maw addressed to the Lenders, the Agents, and the Indenture Trustee concerning this Agreement, the Fee Letter, 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 agreement of the Primary Lender to fund any Disbursement under this Agreement and any obligations of the Alternate Lender to fund any Disbursement under this Agreement shall be subject only to the Facility Agent's receipt of a Certificate Authorizing Disbursement, upon which each such Lender may conclusively rely. 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, the "Fee Letter") dated as of May 28, 2003 between the Shipowner and the Agents, in each case when and as due. 11 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 each 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 such Lender is organized or any political subdivision thereof, or (ii) the jurisdiction of such 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 Lenders 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 any Lender or any Agent, execute and deliver to such Lender or Agent, as the case may be, 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 Lenders 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 Lenders, or any other Person; (iv) that, at the request of any Lender or any Agent, the Shipowner shall provide such Lender or Agent 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 12 (v) that each payment under this Section 6.02 shall be made within thirty (30) days from the date the Facility Agent on behalf of the applicable Lender makes written demand therefor. Each demand for payment by such Lender under Section 6.02(b)(v) for amounts paid or incurred by the Lenders or itself 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. 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 Agents and the Lenders, respectively, 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 Agents and the Lenders (incurred in respect of telecommunications, mail or courier service, travel and the like), and the fees and expenses of counsel for the Agents and the Lenders. 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 Agents or the Lenders 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 Agents or the Lenders arising out of this Agreement, the Floating Rate Note or the Indenture. 13 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, regulation or accounting principle, 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 any 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 such Lender, pay to such Lender additional amounts sufficient to compensate such Lender for such increased cost. In furtherance and not in limitation of the foregoing, if the issuance of Financial Accounting Standards Board Interpretation No. 46 ("FASB 46"), or any other change in accounting standards or the issuance of any other pronouncement, release or interpretation, or the implementation of FASB 46 or any other such standard, pronouncement, release or interpretation, causes or requires the consolidation of all or a portion of the assets and liabilities of the Primary Lender with the assets and liabilities of the Alternate Lender or any other funding source, such event shall constitute a circumstance on which the affected Lender may base a claim for reimbursement under this Section 6.04. (b) If any 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 such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by such Lender, the Shipowner shall immediately pay to the Facility Agent (for the benefit of such Lender), from time to time as specified by the Facility Agent (on behalf of such Lender), additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of its commitment to lend hereunder. (c) Each Lender shall take such reasonable steps as it shall determine to minimize amounts demanded under this Section 6.04; provided that no Lender shall be obligated to take any actions under this Section 6.04 if such Lender has determined, that such actions would cause it to incur any material costs or expenses or would otherwise be disadvantageous to it in any material respect. In the event that a 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 on demand by such Lender. (d) Each demand for payment by the Facility Agent (on behalf of any 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, 14 which certificate, in the absence of manifest error, shall be conclusive and binding for all purposes. (e) The Facility Agent on behalf of each Lender shall notify the Shipowner of any event occurring after the date of this Agreement which entitles such 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 any 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. SECTION 7. PAYMENTS 7.01 Method of Payment. (a) (i) 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. Except as provided in Section 7.01(a)(ii), all payments to be made by the Shipowner or the Agents hereunder shall be made to (A) the Primary Lender (for the account of GOVCO Incorporated, its successors and assigns), (B) the Alternate Lender (for the account of Citibank, N.A., its successors and assigns), (C) the Facility Agent (for the account of Citibank, N.A., its successors and assigns), (D) the Administrative Agent (for the account of Citicorp North America, Inc., its successors and assigns), or (E) any other Lender (for the account of such Lender, its successors and assigns), in each case to the Facility Agent (for the account of Citibank, N.A., its successors and assigns) at Citibank, N.A., 388 Greenwich Street, 20th floor, New York, NY 10013, ABA # 021 0000 89, DDA. Account No. 3041-9849, Attn: Loans Agency. - Rowan Companies, Inc. Upon receipt thereof by the Facility Agent, the Facility Agent shall forthwith forward such funds to the party entitled thereto pursuant to the written instructions provided by such party to the Facility Agent in accordance with Section 11.02. (ii) 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. Until further notice, wire instructions for the Indenture Trustee are as follows: Allfirst Trust Company, National Association, ABA #052000113, Credit Trust Receipts, A/C #090-02-764, Re: Rowan Companies, Inc., Attention Donald Hargadon, extension 4224 (SCOOTER YEARGAIN). (b) Except as otherwise provided herein, whenever any payment would otherwise fall due on a day that is not a Business Day, the due date for 15 payment shall be the immediately succeeding Business Day, and interest and fees shall be computed in accordance with Section 11.01. (c) Whenever a sum is required to be paid to the Facility Agent under this Agreement for the account of another Person, the Facility Agent shall not be obligated to make such sum available to such other Person unless and until the Facility Agent shall have established to its satisfaction that it has actually received payment of such sum. Notwithstanding the foregoing, unless it has received actual notice to the contrary, the Facility Agent may (but shall not be obligated to) assume on the date of any Disbursement or any other payment required to be made by any Lender hereunder that such Lender has made available to the Facility Agent such Disbursement or other payment and the Facility Agent may (but shall not be required to) make available to the Shipowner on such date a corresponding amount in reliance upon such assumption. Additionally, the Facility Agent may (but shall not be obligated to) assume on the date of any payment required to be made by the Shipowner hereunder that the Shipowner has made available to the Facility Agent such payment and the Facility Agent may (but shall not be required to) make available to the Lenders on such date a corresponding amount in reliance upon such assumption. If and to the extent that either (i) the Lender shall not in fact have made such Disbursement or other payment available to the Facility Agent and the Facility Agent has made available a corresponding amount to the Shipowner in reliance on the above-described assumptions or (ii) the Shipowner has not in fact made such payment and the Facility Agent has made available a corresponding amount to the Lender in reliance on the above-described assumptions, then, in either such case, such Lender agrees to repay to the Facility Agent forthwith on demand such corresponding amount together with an amount sufficient to indemnify the Facility Agent against any cost or loss it may have suffered or incurred by reason of its having paid out such sum prior to receipt thereof. 7.02 Application of Payments. In the absence of an Indenture Default, the Lenders shall each apply payments received by them 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 Lenders shall each hold any payments they receive 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 16 and the Mortgage and then to pay, satisfy and discharge any and all amounts owed to the Lenders or the Agents. SECTION 8. REPRESENTATIONS AND WARRANTIES BY THE SHIPOWNER 8.01 Representations and Warranties of the Shipowner. The Shipowner represents and warrants to the Agents and the Lenders 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, and has full power, authority and legal right to own its properties and conduct its business as it is presently now conducted. 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 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 other organizational 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 17 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, except to the extent enforceability thereof is limited by applicable bankruptcy, reorganization, insolvency, moratorium or similar laws of general application relating to or affecting the enforcement of creditors rights generally. 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. 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 the provisions 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 18 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 Facility Agent prior to the date of this Agreement. (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 any 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 Agents and the Lenders shall have consented in writing: (a) Interest Rate Protection. At all times that (1) a Floating Rate Note exists and (2) either the Applicable Interest Rate is equal to or greater than the Cap Rate less 0.5% or the Trigger Event has occurred, the Shipowner (at its expense) within ten (10) 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 the Cap Rate per annum and otherwise acceptable to the Lenders, with a counterparty rated "AA" or better by any of the rating agencies that rate the Commercial Paper issued by the Primary Lender or such other counterparty reasonably acceptable to the Lenders, 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 Facility Agent desirable, to effect the assignment of its rights thereunder to the Facility Agent for the benefit of the Lenders or, if any payments are made under any Guarantee, the Secretary, in every case with such terms as are reasonably acceptable to the Facility Agent for the protection of the Lenders. If the Shipowner fails to satisfy the requirements of this Section 8.02(a) within the ten (10) Business Days set forth above, the Facility Agent may (in its sole discretion) and if the Facility Agent so elects, the Shipowner hereby authorizes and directs the Facility Agent to, satisfy the requirements of this Section 8.02(a), all at the expense of the Shipowner, due on demand. 19 (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 Facility Agent 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 Facility Agent, in each case by facsimile 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 Facility Agent (and the Facility Agent, upon receipt thereof, shall furnish to each Lender and the Administrative Agent) a copy of all financial reports furnished to the Secretary pursuant to the Title XI Reserve Fund and Financial Agreement. (d) 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 Facility Agent or the Indenture Trustee in order to effect the purposes of this Agreement and to protect the interests of the Lenders in the Floating Rate Note and the interests of the Lenders in the Guarantees. (e) 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 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. (f) 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, the Indenture and the Floating Rate Note. 20 SECTION 9. CANCELLATION, SUSPENSION AND EVENTS OF DEFAULT 9.01 Cancellation. 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 Agents, the Indenture Trustee, and the Secretary and (ii) the Shipowner shall have paid to the Lenders 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 Lenders may not for any reason cancel at any time any part of the Available Amount of the Credit Facility. 9.02 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(e); 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 9.02 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 Facility Agent; 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), any Agent or any Lender (by written notice to the Shipowner), shall have the right to institute any judicial or 21 other proceedings under this Agreement to recover all amounts owing under this Agreement. The Lenders agree that so long as an Indenture Default exists, all amounts received during such period from, or on behalf of, the Shipowner shall be applied in the manner set forth in Section 7.02. Notwithstanding an Event of Default, the Lenders 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 9.02, presentment, demand, protest and all other notices of any kind are hereby expressly waived. Notwithstanding any other provision of this Agreement, if Section 9.02(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 Lenders 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 Lenders 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 Lenders 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 Lenders 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 Agents or the Lenders post security for costs or take similar action, the Shipowner hereby irrevocably waives and agrees not to claim the benefit of such entitlement. 22 10.04 No Limitation. Nothing in this Section 10 shall affect the right of the Agents or any 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 9.02, in the event of an Indenture Default, the Agents and the Lenders 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 by the Administrative Agent or the Facility Agent, or any other Person pursuant to any provision of this Agreement, the Fee Letter or the Floating Rate Note, in the absence of error, shall be conclusive and binding on the Shipowner. Each determination of a fee or other amounts (excluding interest rates) by the Facility Agent, any 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 (360) days and actual days elapsed. The Secretary and Indenture Trustee may request supporting documentation for the information provided by the Facility Agent or the Administrative Agent to the Indenture Trustee. 11.02 Notices. Except as otherwise specified, all notices given hereunder shall be in writing, and shall be given by mail, facsimile, 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 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 the Facility Agent and the Lenders: Address: Citibank, N.A., as Facility Agent 2 Penn's Way New Castle, Delaware 19720 Attention: Onat Acet Telephone: (302) 894-6088 Facsimile: (212) 994-0849 With a copy to: Address: Citibank, N.A., as the Alternate Lender 388 Greenwich Street 20th Floor New York, NY 10013 Attention: Barbara Kobelt 23 Facsimile: (212) 816-0263 Telephone: (212) 816-1063 With a copy to the Administrative Agent To the Administrative Agent Address: Citicorp North America, Inc. 388 Greenwich Street 20th floor New York, NY 10013 Attention: Sean Portrait Facsimile (212) 816-0397 Telephone: (212) 816-5717 To the Shipowner Address: ROWAN COMPANIES, INC. Suite 5450 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: ALLFIRST TRUST COMPANY, NATIONAL ASSOCIATION Mail Code 101-591 25 South Charles Street Baltimore, Maryland 21201 Attention: Mr. Donald C. Hargadon Telephone: (410) 244-4224 Facsimile: (410) 244-4236 24 11.03 Disposition of Indebtedness. Once the Shipowner has completely drawn down on the Credit Facility and the Available Amount is zero, each 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 such Lender under this Agreement and the Floating Rate Note to the extent of the interest sold or assigned; provided, however, that each Disposition of Indebtedness to any Person other than another Lender or a domestic Affiliate of a Lender shall require the prior written consent of the Shipowner (which consent shall not be unreasonably withheld or delayed); provided, further, however, that each 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 so long as such Lender's commitment to lend the Available Amount under this Agreement is not affected thereby. The Shipowner shall, at the request of the Facility Agent, execute and deliver to the Facility Agent or to any party that the Facility Agent 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 applicable Lender. 11.04 Disclaimer. Neither the Agents nor the Lenders shall 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 any Agent or any 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 any Agent or any Lender shall operate as a waiver of the rights of the Shipowner and such Lenders 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, the Agents, or the Lenders 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 that the Agents or the Lenders 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 any Agent or any 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. 25 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 Lenders any right whatsoever against the Secretary. 11.09 Indemnification. Without limiting any other rights that any Agent or any Lender may have hereunder or under applicable law, the Shipowner hereby agrees to indemnify each of the Agents and the Lenders (each, an "Indemnified Party") 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 such Indemnified Party 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 such Indemnified Party. In the event of an Indenture Default, all amounts received by such Indemnified Party 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 Lenders, 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 Lenders 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 26 Shipowner and the Lenders 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 Lenders are not parties in their capacities as the Lenders 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. 11.15 No Proceedings. Each of the Shipowner, the Alternate Lender and the Agents hereby agrees that it will not institute against, or join any other Person in instituting against, the Primary Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or any other proceeding under any federal or state bankruptcy or similar law, so long as any Commercial Paper issued by the Primary Lender shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such Commercial Paper shall have been outstanding. 27 11.16 Tax Disclosure. Notwithstanding any other provision herein, each party hereby agrees that each party (and each employee, representative or other agent of such party) may disclose to any and all persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to such party relating to such U.S. tax treatment and U.S. tax structure, other than any information for which nondisclosure is reasonably necessary in order to comply with applicable securities laws. SECTION 12. ARRANGEMENTS AMONG THE AGENTS AND THE LENDERS 12.01 Appointment. Each Lender hereby appoints the Facility Agent to act as its agent in connection herewith and in connection with the Floating Rate Note and the Indenture and authorizes the Facility Agent to exercise such rights, powers and discretions as are specifically delegated to the Facility Agent by the terms hereof and thereof, together with all such rights, powers and discretions as are reasonably incidental thereto. Without limiting the foregoing, all notices to be delivered to, and approvals to be given by, a Lender under the disbursement procedures described in Section 3.01 hereof shall be delivered to and given by the Facility Agent on behalf of such Lender. 12.02 Rights of Facility Agent. The Lenders and the Facility Agent agree that the Facility Agent may: (i) assume that (a) any representation made by the Shipowner in connection herewith is true; (b) no event which is or may become an Event of Default has occurred; (c) the Shipowner is not in breach of or default under its obligations hereunder; (d) any right, power, authority or discretion vested herein upon the Lenders or any other person or group of persons has not been exercised; unless it has, in its capacity as Facility Agent, notice or actual knowledge to the contrary; (ii) engage and pay for the advice or services of any lawyers, accountants, surveyors or other experts whose advice or services may to it seem necessary, expedient or desirable and rely upon any advice so obtained; (iii) rely as to any matters of fact that might reasonably be expected to be within the knowledge of the Shipowner upon a certificate signed by or on behalf of the Shipowner; (iv) rely upon any communication or document believed by it to be genuine; (v) refrain from exercising any right, power or discretion vested in it as facility agent hereunder unless and until instructed by a Lender as to whether or not such right, power or discretion is to be exercised and, if it is to be exercised, as to the manner in which it should be exercised; and 28 (vi) refrain from acting in accordance with any instructions of any Lender to begin any legal action or proceeding arising out of or in connection with this Agreement until it shall have received such security as it may require (whether by way of payment in advance or otherwise) for all costs, claims, expenses (including legal fees) and liabilities which it will or may expend or incur in complying with such instructions. 12.03 Duties. The Facility Agent shall: (i) promptly inform each Lender of the contents of any notice or document received by it from the Shipowner hereunder; (ii) promptly notify each Lender of the occurrence of any Event of Default or any default by the Shipowner in the due performance of or compliance with its obligations under this Agreement of which the Facility Agent has notice from any other party hereto; (iii) save as otherwise provided herein, act as facility agent hereunder in accordance with any instructions given to it by any Lender, which instructions shall be binding on all of the Lenders; and (iv) if so instructed by any Lender, refrain from exercising any right, power or discretion vested in it as facility agent hereunder. 12.04 Limitation on Obligations of Facility Agent. Notwithstanding anything to the contrary expressed or implied herein, the Lenders and the Facility Agent agree that the Facility Agent shall not: (i) be bound to inquire as to: (a) whether or not any representation made by the Shipowner in connection herewith is true; (b) the occurrence or otherwise of any event which is or may become an Event of Default; (c) the performance by the Shipowner of its obligations hereunder; or (d) any breach of or default by the Shipowner or under its obligations hereunder; 29 (ii) be bound to account to any Lender for any sum or the profit element of any sum received by it for its own account; (iii) be bound to disclose to any other person any information relating to the Shipowner or any of its agencies if such disclosure would or might in its opinion constitute a breach of any law or regulation or be otherwise actionable at the suit of any person; or (iv) be under any obligations other than those for which express provision is made herein. 12.05 Indemnification by Lenders. The Alternate Lender shall, from time to time on demand by the Facility Agent, indemnify the Facility Agent, against any and all costs, claims, expenses (including legal fees) and liabilities (collectively, "Liabilities") together with any tax thereon which the Facility Agent may incur, otherwise than by reason of its own gross negligence or willful misconduct, in acting in its capacity as facility agent hereunder (including, without limitation, any Liabilities in anyway relating to or arising out of certifications made with respect to either (a) the due authorization, execution or delivery of a Floating Rate Note, or (b) laws and/or regulations of any Governmental Authority, in each case in connection with any request by the Facility Agent to the Indenture Trustee or the Secretary for the Secretary to endorse its guarantee on a Floating Rate Note or for the Indenture Trustee to authenticate a Floating Rate Note). 12.06 Limitation on Responsibility. The Facility Agent accepts no responsibility to the Lenders for the accuracy and/or completeness of any information supplied by the Shipowner in connection herewith or for the legality, validity, effectiveness, adequacy or enforceability of this Agreement, and the Facility Agent shall be under no liability to the Lenders as a result of taking or omitting to take any action in relation to this Agreement, save in the case of its own negligence or willful misconduct. 12.07 No Claims on Employees of Facility Agent. Each Lender agrees that it will not assert or seek to assert against any director, officer or employee of the Facility Agent any claim that it might have against it in respect of the matters referred to in Clause 12.06. 12.08 Banking Business. The Lenders agree that the Facility Agent may accept deposits from, lend money to and generally engage in any kind of banking or other business with the Shipowner. 30 12.09 Resignation or Termination of Facility Agent. (i) The Facility Agent may (after consultation with the Shipowner and the Lenders) resign its appointment hereunder at any time without assigning any reason therefor by giving not less than thirty (30) days' prior written notice to that effect to each of the other parties hereto; provided, that no such resignation shall be effective until a successor for the Facility Agent is appointed in accordance with the succeeding provisions of this Section 12; (ii) The Lenders and the Shipowner may jointly seek the termination of the appointment of the Facility Agent hereunder at any time by giving not less than thirty (30) days prior written notice to that effect to the Facility Agent; provided that no such termination shall be effective until a successor for the Facility Agent is appointed in accordance with the succeeding provisions of this Section 12; provided further that any such notice of termination must be signed by all of the Lenders and the Shipowner; and (iii) For the avoidance of doubt, the parties hereto agree that the provisions of this Section 12.09 shall at no time apply to or restrict the ability of the Administrative Agent to resign its position of Administrative Agent. 12.10 Successor to Facility Agent. If the Facility Agent gives notice of its resignation pursuant to Section 12.09(i) or receives notice of termination pursuant to Section 12.09(ii), then any reputable and experienced bank or other financial institution may be appointed as a successor to the Facility Agent by the Lenders with the consent of the Secretary and Shipowner (which consent of the Shipowner shall not be unreasonably withheld or delayed) during the period of such notice but, if no such successor is so appointed, the Facility Agent may appoint such a successor itself with the consent of the Secretary and Shipowner (which consent of the Shipowner shall not be unreasonably withheld or delayed). 12.11 Discharge of Obligations. If a successor to the Facility Agent is appointed under the provisions of Section 12.10, then (i) the retiring Facility Agent shall be discharged from any further obligation hereunder but shall remain entitled to the benefits of the provisions of this Section 12 and (ii) its successor and each of the other parties hereto shall have the same rights and obligations amongst themselves as they would have had if such successor had been a party hereto. 12.12 Responsibilities of Lenders. It is understood and agreed by each Lender that it is, and will continue to be, solely responsible for making its own independent appraisal of and investigations into the financial condition, creditworthiness, condition, affairs, status and nature of the Shipowner, the Secretary and the United States of America and, accordingly, each Lender warrants to the Facility Agent that it has not relied and will not hereafter rely on the Facility Agent: 31 (i) to check or inquire on its behalf into the adequacy, accuracy or completeness of any information provided by the Shipowner in connection with this Agreement or the transaction herein contemplated (whether or not such information has been or is hereafter circulated to such Lender by the Facility Agent); or (ii) to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of the Shipowner. 12.13 Agency Division. In acting as Facility Agent for the Lenders, the Facility Agent's agency division shall be treated as a separate entity from any other of its divisions or departments and, notwithstanding the foregoing provisions of this Section 12, in the event that the Facility Agent should act for the Shipowner in any capacity in relation to any other matter, any information given by the Shipowner to the Facility Agent in such other capacity may be treated as confidential by the Facility Agent. 12.14 Administrative Agent. Each party hereto (other than the Administrative Agent) acknowledges that the Administrative Agent is a party hereto only in its capacity as administrative agent of the Primary Lender and the Primary Lender's commercial paper holders. 12.15 Facility Agent Only Agent for the Lenders. The Facility Agent is not authorized to, nor shall it, act as the agent for the Secretary, the Indenture Trustee, the Shipowner or any of their successors in interest or assigns in any of the capacities provided for herein. 32 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., as the Shipowner By:/s/ E. E. Thiele GOVCO INCORPORATED, as the Primary ----------------------------- Lender, by Citicorp North America, Inc., (Signature) its attorney-in-fact. Name: E. E. Thiele By: /s/ P. A. Botticelli --------------------------- ------------------------------------- (Print) (Signature) Title: Senior Vice President Name: P.A. Botticelli ----------------------------------- CITIBANK, N.A. (Print) as Facility Agent Title: Vice President ---------------------------------- By: /s/ John Gilliland (Print) ----------------------------- (Signature) CITIBANK, N.A., as the Alternate Lender Name: John B. Gilliland --------------------------- (Print) By /s/ John Gilliland Title: Vice President -------------------------------------- (Print) (Signature) Name: John B. Gilliland ------------------------------------ (Print) Title: Vice President ------------------------------ (Print) CITICORP NORTH AMERICA, INC., as the Administrative Agent By: /s/ P. A. Botticelli -------------------------------- (Signature) Name: P. A. Botticelli ------------------------------- (Print) Title: Vice President ------------------------------- (Print) 33 Annex B to Credit Agreement Form of Extension Request Dated as of [______________] Citibank, N.A. as Facility Agent 2 Penn's Way New Castle, Delaware 19720 Attn: Onat Acet Citibank, N.A. as the Alternate Lender 388 Greenwich Street 20th Floor New York, NY 10013 Attn: Barbara Kobelt Citicorp North America, Inc., as Administrative Agent for the Primary Lender 388 Greenwich Street 20th floor New York, NY 10013 Attention: Sean Portrait Re: Extension of Commitment Termination Date Ladies and Gentlemen: Please refer to the Credit Agreement, dated as of May 28, 2003 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement") among Rowan Companies, Inc., as shipowner (the "Shipowner"), GOVCO Incorporated, as primary lender (the "Primary Lender"), Citibank, N.A., as alternate lender (the "Alternate Lender"), Citibank, N.A., as facility agent, and Citicorp North America, Inc., as administrative agent for the Primary Lender. Pursuant to Section 2.06(a) of the Credit Agreement, the Shipowner hereby requests that the Alternate Lender extend the Commitment Termination Date until _____________________ (the "Extension"). 34 Please indicate your agreement to the Extension by signing below. Very truly yours, ROWAN COMPANIES, INC., as the Shipowner By: ___________________________ Name: _________________________ Title: ________________________ The undersigned hereby agrees to extend the Commitment Termination Date until [________________]. CITIBANK, N.A. as the Alternate Lender By: ___________________________ Name: _________________________ Title: __________________________ APPENDIX II TO GUARANTEE COMMITMENT DOCUMENT 4 TRUST INDENTURE SPECIAL PROVISIONS THIS TRUST INDENTURE, dated May 28, 2003 (the "Indenture" or the "Agreement"), is between (i) ROWAN COMPANIES, INC., a Delaware corporation (the "Shipowner"), and (ii) ALLFIRST TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association (the "Indenture Trustee"). RECITALS: WHEREAS, to aid in financing the construction of the Vessel, the Shipowner has entered into a credit agreement (the "Credit Agreement") with GOVCO INCORPORATED a Delaware corporation (the "Primary Lender"), CITIBANK, N.A., a national banking association (the "Alternate Lender"), CITIBANK, N.A., a national banking association (the "Facility Agent") and CITICORP NORTH AMERICA, INC., a Delaware corporation (the "Administrative Agent") providing for the delivery of no more than $91,198,000 principal amount of notes designated "United States Government Guaranteed Ship Financing Obligations, Scooter Yeargain Series"; 35 WHEREAS, the Secretary, on behalf of the United States, has agreed to Guarantee the payment of the unpaid interest to the date of such payment on, and the unpaid balance of the principal of, such Obligations under the provisions of Title XI of the Act, and has authorized the Indenture Trustee to cause the Guarantees to be imprinted on the Obligations pursuant to the Authorization Agreement. NOW THEREFORE, in consideration of the premises, of the mutual covenants herein contained, of the purchase of the Obligations by the Holders thereof, 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 all the present and future Holders of the Obligations, the parties hereto agree as follows: 1. INCORPORATION OF GENERAL PROVISIONS. This Indenture shall consist of two parts: the Special Provisions and the General Provisions attached hereto as Exhibit 1, and they shall be treated as one instrument. In the event of a conflict, the terms of the Special Provisions shall prevail. 2. THE OBLIGATIONS. (a) The Obligations issued hereunder shall be designated "United States Government Guaranteed Ship Financing Obligations, Scooter Yeargain Series," and shall be in the forms of Exhibits 2 and 3 to this Indenture; and, the aggregate principal amount of Obligations which may be issued under this Indenture shall not exceed $91,198,000. (b) The denominations of the Obligations shall be in integral multiples of $1,000. (c) The Shipowner shall at all times cause to be maintained in the City of Baltimore, State of Maryland, 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 Baltimore, State of Maryland. 3. INTEREST RATE CALCULATION. Upon the terms and subject to the conditions contained in the Obligations, and based on information received from the Facility Agent (but only in connection with the Floating Rate Note), the Indenture Trustee shall 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, based on information received from the Facility Agent (but only in connection with the Floating Rate Note), shall, upon the request of the Holder of the Obligations, determine the Applicable Interest Rate then in effect with respect to the Obligations. 4. 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 May 10 and November 10 of each year, commencing November 10, 2004 of $3,040,000 of principal amount of Obligations, which amount represents approximately one thirtieth (1/30) of the Original Principal Amount of Obligations, plus interest 36 accrued thereon to the Redemption Date. There shall be a final redemption of the remaining outstanding principal of the Floating Rate Note on the earliest of (i) October 1, 2008, (ii) four (4) years after the Delivery Date, or (iii) at the request of the Secretary, within fifteen (15) Business Days from the date upon which the Trigger Event (as hereinafter defined) shall occur, and a final redemption of the remaining outstanding principal of the Fixed Rate Notes on May 10, 2019. 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 Sections 3.04 or 3.06 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 Sections 3.04 or 3.06 of Exhibit 1 hereto divided by the number of Redemption Dates (including the Stated Maturity of such Obligations) scheduled thereafter to November 10, 2008 in the case of the Floating Rate Note and May 10, 2019 in the case of Fixed Rate Note(s) (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 October 1, 2008 in the case of the Floating Rate Note and May 10, 2019 in the case of each Fixed Rate Note. The Shipowner shall, in accordance with Section 3.02(e) of Exhibit 1 hereto, promptly after each redemption pursuant to said Sections 3.04 or 3.06, 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 Floating Rate Note, 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 Floating Rate Note, in whole or in part, on a Redemption Date designated by the Shipowner, from the proceeds from the issuance of the Fixed Rate Notes. (c) OPTIONAL REDEMPTIONS OF OBLIGATIONS AT MAKE-WHOLE PREMIUM. At its option, the Shipowner may prepay on any Interest Payment Date the Fixed Rate Notes, 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 plus the Make-Whole Premium, if any. Prepayments shall be applied pro rata against each Fixed Rate Note and applied against the scheduled principal payments in the inverse order of scheduled maturity. (d) OPTIONAL REDEMPTIONS. 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 (1) 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, and (2) at least 35 days prior to the date fixed for redemption in the case of the Fixed Rate Notes, deliver to the Indenture Trustee an amount equal to the Make 37 Whole Premium estimated by the Indenture Trustee, based on information received from the Holder or a calculation agent, to be paid on the Redemption Date. The Indenture Trustee, based on information received from the Holder or a calculation agent, shall give an estimate of the Make Whole Premium to the Shipowner within two (2) Business Days of the delivery of the Shipowner's Request. In the event the amount of the Make Whole Premium deposited by the Shipowner with the Indenture Trustee pursuant to this section (and interest, if any, accrued thereon, less any losses incurred on the investment thereof) is insufficient to pay the amount of the Make Whole Premium, the Shipowner shall pay the amount of the shortfall to the Indenture Trustee in immediately available funds upon one (1) day's notice. In the event the amount of the Make Whole Premium deposited by the Shipowner pursuant to this section (and interest, if any, accrued thereon, less any losses incurred on the investment thereof) exceeds the Make Whole Premium, the excess amount shall be refunded to the Shipowner by the Indenture Trustee in immediately available funds on the Redemption Date. (e) FIXED RATE NOTE INTEREST RATE PROTECTION. (1) The Shipowner shall redeem the Floating Rate Note in full by causing to be issued one or more fixed rate obligations with a maturity equal to May 10, 2019 and using the proceeds thereof to repay the Floating Rate Note in full, whenever the Treasury constant maturities rate (10-year) as reported by the Federal Reserve Board in statistical release H.15 (519) (the "Treasury Rate") equals or exceeds nine percent (9.0%) per annum (the "Trigger Event"). If a Trigger Event should occur, the Shipowner shall redeem the Floating Rate Note in full by causing to be issued one or more fixed rate obligations and using the proceeds thereof to repay the Floating Rate Note in full, at the request of the Secretary, within fifteen (15) Business Days from the date of the Trigger Event. (2) Nothing herein shall prevent the Shipowner from redeeming the Floating Rate Note by the issuance of one or more fixed rate obligations at any time prior to Maturity. (3) The failure of the Shipowner to redeem the Floating Rate Note in full by causing to be issued one or more fixed rate obligations and using the proceeds thereof to repay the Floating Rate Note in full, at the request of the Secretary, within fifteen (15) Business Days, unless subsequently waived in writing by the Secretary, shall constitute an Indenture Default without further notice to the Shipowner or the Holders being required under the Indenture. 5. ADDITIONS, DELETIONS AND AMENDMENTS TO EXHIBIT 1 The following additions, deletions and amendments are hereby made to Exhibit 1 to this Indenture. (a) 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. (b) 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. 38 (c) INTEREST RATES. Interest at the Applicable Interest Rate shall be due on each Disbursement at the end of each Interest Period. The Indenture Trustee, based on information received from the Facility Agent (but only in connection with the Floating Rate Note), shall determine the Applicable Interest Rate for each Interest Period. (d) 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, from time to time. 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. (e) CONCERNING SECTION 2.01. Section 2.01(c) and (e) are revised to read as follows: (c) The principal and interest and any premium due on the Obligations shall be paid by (i) the Indenture Trustee or (ii) a Paying Agent, out of funds it receives from the Shipowner, by (x) certified or official bank check mailed by first class postage prepaid to the addresses of the Obligees appearing on the Obligation Register or (y) at the request of an Obligee, received by the Indenture Trustee at least three (3) Business Days prior to the date of payment, by wire transfer to a commercial bank in the United States or by credit to an account maintained by the Obligee with the Indenture Trustee without presentment of the Obligation. Prior to any sale, assignment or transfer of such Obligation, the Holder is required to present the Obligation to the Indenture Trustee so that a proper notation of all principal payments under subparagraph (y) above are made on the Obligation. (e)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). (f) CONCERNING SECTION 2.02. Prior to the earliest of (i) October 1, 2008, (ii) four (4) years from the Delivery Date, or (iii) at the request of the Secretary, fifteen (15) Business Days from the date any Trigger Event shall occur, 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 2.02 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 Floating Rate Note and/or financing an amount equal to the Available Amount (which amount shall be deposited into the Escrow Fund established by the Security Agreement); provided however, that the Shipowner and Indenture Trustee have obtained the prior written consent of the Secretary and further provided, that (a) except for the final issuance, each issuance of a Fixed Rate Note must be in a minimum aggregate principal amount of $25,000,000 , and (b) the proceeds from the issuance of Fixed Rate Notes shall be used to pay off, satisfy and cancel the Floating Rate 39 Note; provided, however, that in the absence of a Trigger Event during the Construction Period the Floating Rate Note need not be paid off in its entirety and need only be reduced by the net proceeds from the issuance of the Fixed Rate Notes. (g) CONCERNING SECTION 2.07. (i) The first sentence of Section 2.07(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. (ii) Section 2.07(e) is revised to read as follows: (e) As a condition precedent to any transfer or exchange of Obligations, the Shipowner and the Indenture Trustee may require the payment of a sum sufficient to reimburse it for any taxes or other governmental charges that may be imposed with respect thereto and a sum not exceeding $2.00 for each Obligation delivered upon any such transfer or exchange. (h) CONCERNING SECTION 2.09. With respect to clause (1) of the proviso to Section 2.09 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 2.09. (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 to the Indenture Trustee's receipt, by not later than 11:00 am on the due date thereof, 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 (e) 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 40 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. (e) 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 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 send a copy thereof to each Holder of an Obligation of such series. (k) CONCERNING SECTION 3.04. Section 3.04 is revised to read as follows: SECTION 3.04. Redemptions to Comply with Section 1104A(b)(2) of the Act. The Shipowner and the Secretary may Request a Redemption Date, at least forty (40) days but not more than sixty (60) days from the Indenture Trustee's receipt of the Request, for the redemption of certain Obligations because the principal amount of the Outstanding Obligations is in excess of the amount eligible for guarantee by the United States under Section 1104A(b)(2) of the Act. Upon receipt, the Indenture Trustee shall promptly give notice to the Holders of the Redemption Date as provided in Section 3.08 and on that date shall redeem, out of funds it receives from the Shipowner, the principal amount of Obligations specified in the instruction together with the interest accrued thereon. (l) CONCERNING SECTION 3.05. Section 3.05 is revised to read as follows: SECTION 3.05. Redemption after Total Loss, Requisition of Title, Seizure or Forfeiture of a Vessel or Termination of Certain Contracts. The Shipowner and the Secretary may Request a Redemption Date, at least forty (40) days but not more than sixty (60) days from the Indenture Trustee's receipt of the Request, for the redemption of certain Obligations because of (1) an actual, constructive, agreed or compromised total loss of a Vessel, (2) requisition of title to, or seizure or forfeiture of a Vessel or (3) termination of a primary Construction Contract. Upon receipt, the Indenture Trustee shall promptly give notice to the Holders of the Redemption Date as provided in Section 3.08 and on that date shall redeem, out of funds it receives from the Shipowner, such principal amount of Obligations together with the interest accrued thereon. (m) CONCERNING SECTION 3.06. Section 3.06 is revised to read as follows: 41 SECTION 3.06. Redemption After Assumption by the Secretary. At any time after the Secretary has assumed the Obligations under Section 6.09 of the Indenture, the Secretary may Request a Redemption Date, at least forty (40) days but not more than sixty (60) days from the Indenture Trustee's receipt of the Request, for the redemption of all or part of the Obligations. Upon receipt, the Indenture Trustee shall promptly give notice to the Holders of the Redemption Date as provided in Section 3.08 and on that date shall redeem, out of funds it receives from the Shipowner, such principal amount of Obligations together with the interest accrued thereon. (n) CONCERNING SECTION 3.07. Notwithstanding the provisions of Section 3.07 of Exhibit 1 to this Indenture, if less than all of the Obligations are to be redeemed under any of the provisions contained or referred to in Article Fourth hereof (excluding Section 4 (c) or Article III of said Exhibit 1), the Indenture Trustee shall select such Obligations to be redeemed on the Redemption Date by allocating the principal amount to be redeemed first between each maturity of Obligations in proportion to the Outstanding Obligations and second among the holders of each maturity of Obligations in proportion to the aggregate principal amount of such maturity of Obligations registered in their respective names; provided that, the Indenture Trustee may select for redemption portions of the principal amount of the Obligations of a denomination larger than $1,000; but the portions of the principal amount of the Obligations so selected shall be equal to $1,000 or an integral multiple thereof. (o) CONCERNING SECTION 3.09. The second sentence of Section 3.09 is revised to read as follows: Failure to so deposit the amounts with the Indenture Trustee or the Paying Agent shall render any notice to redeem of no effect, and the Indenture Trustee shall so advise the Holders. (p) 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); (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 Day after the deposit of such funds (or the next Business Day if the deposit of such funds is made by 11:00 a.m. on the Business Day prior to the date of Maturity), the Indenture Trustee upon the Request of the Shipowner shall invest such 42 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 an Indenture Default hereunder." (q) CONCERNING SECTION 4.02. (i) The appointment of a Paying Agent by the Shipowner is subject to the prior written consent of the Secretary and Indenture Trustee, which consent shall not be unreasonably withheld. (ii) Section 4.02(a)(3) is revised to read as follows: (3) promptly, and in no event later than five (5) days after any payment made by it hereunder, give written notice to a Responsible Officer in the Corporate Trust Office of all payments of Obligations made by it, including and identifying all endorsements of payment made on Obligations by it, signed and containing the specified information as provided in subparagraph (2) above, and deliver for cancellation to the Indenture Trustee all Obligations surrendered to the Paying Agent. (r) 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 six (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 (unless the Secretary has previously paid the Guarantees, in which case it shall be paid only upon a request by the Secretary); provided that, not less than thirty (30) days prior to such payment, the Shipowner shall publish notice thereof to the Obligees at least once in the Authorized Newspapers and provide the Indenture Trustee with a copy thereof. 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. (s) CONCERNING SECTION 5.02. Section 5.02 is revised to read as follows: 43 SECTION 5.02. Payment and Procedure for Payment of Obligations. The Shipowner shall 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 shall deposit with the Indenture Trustee or (subject to Section 3.09) a Paying Agent no later than 11:00 a.m. in Baltimore, Maryland on each date fixed for such payment or as 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; (t) CONCERNING SECTION 6.05. Section 6.05 is revised to read as follows: SECTION 6.05. Rights of Indenture Trustee after Indenture Default. During the continuance of any Indenture Default, the Indenture Trustee shall have the right to demand and to receive payment of the Guarantees and shall have, with the consent of the Secretary as to matters other than the enforcement of the Guarantees (unless all the Guarantees shall have terminated as provided herein): (a) the right (in its name, as the trustee of an express trust, or as agent and attorney-in-fact for each Holder of the Obligations as a class) to take all action to enforce its rights and remedies (including the institution and prosecution of all judicial and other proceedings and the filings of proofs of claim and debt in connection therewith), and to enforce all existing rights of the Holders of the Obligations as a class; and (b) all other rights and remedies granted to the Indenture Trustee by this Indenture, or the Authorization Agreement, or by law. In addition, during the continuance of an Indenture Default and if all the Guarantees shall have terminated, except by payment of the Guarantees, as provided herein, the Indenture Trustee shall have the right, by written notice to the Shipowner, to declare the entire unpaid principal amount of the Outstanding Obligations and all unpaid interest to be immediately due and payable. In the event 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, the entire unpaid principal amount of the Outstanding Obligations and all unpaid interest shall be automatically due and payable. (u) CONCERNING SECTION 6.06. Section 6.06 is revised to read as follows: 44 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, would subject it to expense and liability against which it had not been offered sufficient indemnity, 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. (b) Limitations on Obligees' Right to Sue. No Obligee shall have the right to institute any judicial or other proceedings under this Indenture unless: (1) the Indenture Trustee shall have been directed to institute such proceeding by the Holders of at least 25% in aggregate principal amount of the Obligations then Outstanding; (2) the Indenture Trustee shall have been offered sufficient indemnity and security against the costs, expenses and liabilities to be incurred by compliance with such direction; (3) the Indenture Trustee shall not have instituted such proceeding within sixty (60) days after the receipt of both such direction and such offer of security and indemnity; (4) no direction inconsistent with such request shall have been given to the Indenture Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Obligations; and (5) the institution and prosecution of such proceeding would not result in an impairment of the rights of any other Obligee, it being understood and intended that no one or more Obligees shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Obligees or to obtain or to seek to obtain priority or preference over any other Obligees or to enforce 45 any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Obligees. (c) Unconditional Right of Obligees to Sue for Principal (and Premium, if any) and Interest. Nothing in paragraph (b) shall (i) affect the obligation of the Shipowner to pay the principal of (and premium, if any) and interest on the Obligations in accordance with their terms or affect the right of any Obligee to institute any judicial or other proceeding to enforce the payment of his Obligations, or (ii) limit the right of any Obligee to demand payment of the Guarantees pursuant to Section 6.02(b) or to institute any judicial or other proceeding to enforce the payment of the Guarantee of any Obligation of which he is the Holder. (v) CONCERNING SECTION 6.07. Section 6.07 is revised to read as follows: SECTION 6.07. Attorneys' Fees and Costs. In any proceeding for the enforcement of any right or remedy under this Indenture, or in any proceeding against the Indenture Trustee for any action taken or omitted by it as Indenture Trustee, the court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant, having due regard to the merits and good faith of the claims or defense made by such party litigant. The provisions of this Section shall not apply to any proceeding instituted by the Indenture Trustee or any proceeding instituted by any Obligee against the Secretary for the payment of the principal of (and premium, if any) and interest on the Obligations. (w) CONCERNING SECTION 6.09. The following paragraph is added at the end of Section 6.09: In the event that the Obligations are registered in the name of The Depository Trust Company ("DTC"), Cede & Co. ("Cede") or another nominee of DTC or Cede pursuant to a Letter of Representations ("LOR") which is executed among the Shipowner, the Indenture Trustee and DTC, and (i) if the Secretary assumes the Obligations pursuant to Section 6.09(a) hereof, or (ii) if the Secretary instructs the Shipowner and the Indenture Trustee to terminate the LOR, the Shipowner and the Indenture Trustee, immediately upon receipt of notice of such assumption or upon receipt of notice of such termination, shall terminate or cause the termination of the LOR in accordance with Section 18 thereof and Rider A thereto. The Indenture Trustee shall within 30 days from receipt of either such notice from the Secretary also instruct DTC to notify its direct and indirect participants of the need to re-register the Obligations in the names of the beneficial owners. Upon surrender by DTC of the Obligations issued in its name, the name of Cede or another nominee, the Shipowner shall issue at its sole expense, and the Indenture Trustee shall authenticate Obligations in the names provided to the Indenture Trustee by DTC. (x) CONCERNING SECTION 7.03. Section 7.03(h) and (n) 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 46 Section) in acting or refraining from acting hereunder in reliance upon an Officer's Certificate as to the existence or non-existence of any fact. (n) 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. (y) 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. (z) CONCERNING SECTION 7.07. Section 7.07 is revised to read as follows: SECTION 7.07. Effect of Appointment of Successor Indenture Trustee. Each successor Indenture Trustee shall forthwith, without further act or deed, succeed to all the rights and duties of its predecessor in trust under this Indenture and the Authorization Agreement. Upon the written request of the successor Indenture Trustee or the Shipowner and upon payment by the Shipowner of all amounts due to such predecessor Indenture Trustee under this Indenture, such predecessor Indenture Trustee shall promptly deliver to such successor Indenture Trustee all sums held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Indenture Trustee under this Indenture and shall transfer, assign and confirm to the successor Indenture Trustee all its rights under this Indenture in such manner as deemed by such successor Indenture Trustee or the Shipowner to be necessary or appropriate in connection therewith and the predecessor Indenture Trustee shall have no liability for any actions taken by the successor Indenture Trustee. (aa) CONCERNING SECTION 9.01. Section 9.01(a) is revised to read as follows: (a) Except as herein otherwise expressly provided, an Act of Obligees shall become effective when it is delivered to the Indenture Trustee and, where it is expressly required, to the Shipowner and the Secretary. Proof of execution of any instrument appointing an agent or attorney to execute an Act of Obligees made in the manner of subsection (b) below shall be sufficient and conclusive for any purpose of this Indenture. (bb) CONCERNING SECTION 12.01. Section 12.01(a) is revised to read as follows: 47 SECTION 12.01. Satisfaction and Discharge of Indenture. Whenever all Outstanding Obligations authenticated and delivered hereunder shall have been Retired or Paid the Indenture Trustee shall forthwith deliver to the Shipowner and the Secretary a duly executed instrument, in form submitted to it by the Shipowner and reasonably satisfactory to the Secretary and the Indenture Trustee, satisfying and discharging this Indenture and, at the time such form of instrument is submitted to the Indenture Trustee the Shipowner shall deliver to the Indenture Trustee an Officer's Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the Obligations of the Shipowner to the Indenture Trustee under Section 7.04 shall survive. (cc) CONCERNING REGISTERED AND BENEFICIAL OWNERSHIP OF THE OBLIGATIONS; LEGENDS. (i) The Fixed Rate Notes may be issued initially in the form of one or more permanent global Notes in definitive, fully registered form without interest coupons (each, a "Global Obligation"). Except as provided in paragraph (iii) below, owners of beneficial interests in Global Obligations ("Obligation Owners") shall not be entitled to receive separate certificated Notes ("Definitive Obligation") and shall not be considered the holders thereof. Each such Global Obligation shall be deposited with The Depository Trust Company (the "DTC") or the Indenture Trustee, as custodian for DTC, registered in the name of DTC or a nominee of DTC, and duly executed by the Shipowner and authenticated by the Indenture Trustee as provided in the Indenture. Each Global Obligation shall bear such legend as DTC may require. (ii) Members of, or participants in, DTC shall have no rights under the Indenture with respect to any Global Obligation held on their behalf by DTC or by the Indenture Trustee, as the custodian of DTC, or under such Global Obligation, and DTC may be treated by the Shipowner, the Indenture Trustee and any agent of the Shipowner or the Indenture Trustee as the absolute owner of such Global Obligation for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Shipowner, the Indenture Trustee or any agent of the Shipowner or the Indenture Trustee from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its members and participants, the operation of customary practices of DTC governing the exercise of the rights of an owner of a beneficial interest in any Global Obligation. (iii) (1) The transfer and exchange of Global Obligations or beneficial interests therein shall be effected through DTC or the Indenture Trustee, as the custodian for DTC, in accordance with the Indenture and the procedures of DTC therefor. (2) A Global Obligation shall be exchangeable for Definitive Obligations registered in the names of persons owning beneficial interest in such Global Obligation only if any of the following events shall have occurred: (1) DTC notifies the Shipowner, with a copy to the Indenture Trustee, that it is unwilling or unable to 48 continue as depositary for such Global Obligation or DTC ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, at a time when DTC is required to be so registered in order to act as depositary, and a successor depositary is not appointed by the Shipowner within 90 days thereafter, (2) the Shipowner or the Indenture Trustee elects to terminate DTC's services or the book entry system, (3) the Secretary assumes the Obligations, or (4) the Secretary instructs the Shipowner and Indenture Trustee to terminate the Letter of Representations. (3) Any Global Obligation that is exchangeable for Definitive Obligations registered in the name of the owners of beneficial interests therein pursuant to this paragraph (iii) shall be surrendered by DTC to the Indenture Trustee to be so exchanged, without charge, and the Shipowner shall execute and the Indenture Trustee shall authenticate and deliver, upon such exchange of such Global Obligation, an equal aggregate principal amount of Definitive Obligations of authorized denominations. Definitive Obligations issued in exchange for a beneficial interest in a Global Obligation pursuant hereto shall be registered in such names and in such authorized denominations as DTC, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Indenture Trustee in writing. The Indenture Trustee shall deliver such Definitive Obligations to the Obligation Owners in whose names such Obligations are so registered in accordance with the instructions of DTC. (4) The registered holder of a Global Obligation may grant proxies and otherwise authorize any Obligation Owner, including DTC's members and participants and Obligation Owners that may hold interest through such members and participants, to take any action which a Holder is entitled to take under the Indenture or the Obligations. (5) In the event of the occurrence of any of the events specified in paragraph (iii)(2), the Shipowner shall promptly make available to the Indenture Trustee a reasonable supply of Definitive Obligations. (6) Notwithstanding any other provision of the Indenture, a Global Obligation may not be transferred except as a whole by DTC for such Global Obligation to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC. (iv) At such time as all beneficial interests in a Global Obligations have either been exchanged for Definitive Obligations, redeemed, repurchased or canceled, such Global Obligation shall be returned to the Indenture Trustee for cancellation or retained and canceled by the Indenture Trustee. (v) The Indenture Trustee shall have no responsibility or obligation to any owner of a beneficial interest in a Global Obligation, a member of, or a participant in DTC or any other Obligation Owner with respect to the accuracy of the records of DTC or its nominee or of any participant or member thereof, with respect to any ownership interest in the Obligations or with respect to the delivery to any participant, member, beneficial owner or other Obligation Owner (other than DTC) of any notice (including any notice of redemption) or the payment of any amount or delivery of any Obligations (or other security or property) under or with respect to such Obligations. All notices and communications to be given to the Holders and all payments to be made to Holders in respect to the Obligations shall be given or made only to or upon the order of the registered Holders 49 (which shall be DTC or its nominee in the case of a Global Obligation). The rights of owners of beneficial interests in any Global Obligation shall be exercised only through DTC subject to the applicable rules and procedures of DTC. The Indenture Trustee may rely and shall be fully protected in relying upon information furnished by DTC with respect to its members, participants and any beneficial owners. 6. MISCELLANEOUS. (a) 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: ALLFIRST TRUST COMPANY, NATIONAL ASSOCIATION 25 South Charles St. 16th Floor (Mail Code 101-591) Baltimore, MD 21201 The Shipowner as: ROWAN COMPANIES, INC. Suite 5450 2800 Post Oak Boulevard Houston, Texas 77056-6127 Attn: Chief Financial Officer 50 The Secretary as: SECRETARY OF TRANSPORTATION c/o Maritime Administrator U.S. Department of Transportation 400 Seventh Street, SW Washington, D.C. 20590 (b) CONCERNING APPLICABLE LAW. This Indenture and each Obligation shall be governed by the federal laws of the United State of America, but to the extent that they are inapplicable by the laws of the State of New York. (c) 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. 51 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: /s/ Mark H. Hay By /s/ E. E. Thiele - ------------------------------ --------------------------------- Secretary Senior Vice President ALLFIRST TRUST COMPANY NATIONAL ASSOCIATION Indenture Trustee ATTEST: /s/ Donald C. Hargadon By: /s/ Robert D. Brown - ---------------------- ----------------------- Vice President Vice President 52 EX-10.DD 8 h13239exv10wdd.txt COMMITMENT TO GUARANTEE OBLIGATIONS EXHIBIT 10dd Document 1 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
Doc. No. Document - ----- --------------------------------------------------------------- 1 Commitment to Guarantee Obligations 2 Schedule One -- Form of Opinion of Counsel 3 Appendix I -- Form of Credit Agreement 4 Appendix II -- Form of Trust Indenture 5 Schedule A -- Schedule of Definitions to Trust Indenture 6 Exhibit 1 -- General Provisions Incorporated into the Trust Indenture by Reference 7 Exhibit 2 -- Form of Floating Rate Note 8 Exhibit 3 - Form of Fixed Rate Note 9 Exhibit 4 -- Form of Authorization Agreement 10 Appendix III -- Form of 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 -- Form of Amendment No. 7 to Financial Agreement 16 Exhibit 5 -- Form of Consent of Shipyard 17 Exhibit 6 -- Construction Contract 18 Exhibit 7 -- Form of Amendment No. 4 to Depository Agreement
Contract No. MA-13842 COMMITMENT TO GUARANTEE OBLIGATIONS BY THE UNITED STATES OF AMERICA Accepted by ROWAN COMPANIES, INC. SHIPOWNER THIS COMMITMENT TO GUARANTEE OBLIGATIONS, dated as of May 28, 2003 (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 TARZAN II ("the Vessel") built pursuant to 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 equal to 87-1/2% of the Actual Cost of the Vessel, as of the Closing Date. To accomplish such financing, the Shipowner has accepted this Guarantee Commitment subject to the terms and conditions set forth herein. C. The Shipowner has entered into the Credit Agreement providing for the sale and delivery, on the Closing Date, of obligations in the aggregate principal amount of $89,658,000 to be designated "United States Government Guaranteed Ship Financing Obligations, TARZAN II Series" (the "Obligations") having the maturity date and interest rate set forth herein. D. As security for the Guarantees and the Secretary's Note, the Shipowner will execute and deliver the Security Agreement, Contract No. MA-13844 and the following agreements shall be executed and delivered: on the Closing Date, the Indenture, the Authorization Agreement, Contract No. MA-13843, the Secretary's Note, Amendment No. 7 to the Financial Agreement, Contract MA-13261, and Amendment No. 4 to the Depository Agreement, Contract No. MA-13445, and on the Delivery Date, the Mortgage, Contract No. MA-13845 1 W I T N E S S E T H: That under the provisions of Title XI of the Merchant Marine Act, 1936, as amended and in consideration of (i) the covenants of the Shipowner contained herein and (ii) other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Secretary hereby commits itself as herein provided. ARTICLE I FINDINGS AND DETERMINATIONS OF SECRETARY Pursuant to Section 1104A(b)(1) of Title XI, the Secretary has approved the Shipowner as responsible and possessing the ability, experience, financial resources and other qualifications necessary to the adequate operation and maintenance of the Vessel. Pursuant to Section 1104A(b)(2) of Title XI, the Secretary has determined that the aggregate of the Actual Cost of the Vessel is $102,446,308. Prior to the Closing Date, the Secretary, in its discretion, may redetermine the Actual Cost of the Vessel. On the Closing Date, the aggregate principal amount of the Obligations will not exceed 87-1/2% of the Actual Cost. Pursuant to Sections 1104A(b)(3), 1104A(b)(4) and 1104A(b)(5) of Title XI, the Secretary has determined that: (1) the maturity date of the Obligations is satisfactory, (2) the payments of principal required by the Obligations are satisfactory, and (3) the interest rate to be borne by the Obligations to be issued on the Closing Date is reasonable. Pursuant to Section 1104A(d) of Title XI, the Secretary has found that the Shipowner's proposed use of the Vessel will be economically sound. ARTICLE II COMMITMENT TO GUARANTEE OBLIGATIONS The United States, represented by the Secretary, HEREBY COMMITS ITSELF TO GUARANTEE 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, Security Agreement, Amendment No. 7 to Financial Agreement, and Amendment No. 4 to the Depository Agreement on the Closing Date, and the Mortgage on the Delivery Date pursuant to the terms of the Guarantee Commitment. 2 ARTICLE III THE OBLIGATIONS The Obligations shall be as provided in the Indenture and in the form of the Obligations annexed as Exhibits 2 and 3 to the Indenture. The Obligations shall be subject to all of the terms and conditions set forth in the Indenture. ARTICLE IV CONDITIONS TO EXECUTION AND DELIVERY OF THE GUARANTEE The obligation of the Secretary to execute and deliver the Guarantee on the Closing Date shall be subject to the following conditions unless waived in writing by the Secretary: (a) the Closing Date shall occur on or prior to August 20, 2003; (b) the Shipowner and the Shipyard shall have executed and delivered to the Secretary a copy of the Construction Contract, as amended, and the Shipyard shall have executed the Consent of Shipyard; (c) the Shipowner shall have executed and delivered the following documents in the form attached hereto: the Security Agreement, Amendment No. 7 to Financial Agreement, Trust Indenture, Secretary's Note, Obligations, Credit Agreement, and Amendment No. 4 to the Depository Agreement; (d) the Indenture Trustee shall have executed, in the form attached hereto, the Authorization Agreement and Trust Indenture, the Depository shall have executed Amendment No. 4 to the Depository Agreement; and the Lender shall have executed the Credit Agreement; (e) the following documents shall have been delivered to the Secretary: (i) one executed counterpart and one copy of the Credit Agreement ; (ii) two executed counterparts of the Indenture, (iii) two specimen copies of the Obligations; (iv) two executed originals of the legal opinion issued under section (k) of this Article; (v) two copies of the legal opinion delivered to the Lender pursuant to the Credit Agreement, and (vi) two originals of all other documents delivered by the Shipowner, Indenture Trustee or the Depository in connection with this Closing; (f) if the Shipowner intends to operate the Vessel in the U.S. domestic trade, the Shipowner and any bareboat charterers of such Vessel shall have furnished to the Secretary, within ten (10) days of the commencement of such operation, an affidavit complying with the requirements of 46 C.F.R. 355, demonstrating U.S. citizenship; (g) the Shipowner shall have executed an Officer's Certificate representing and warranting the truth of the following statements as of the Closing Date: 3 (i) each of the representations and warranties set out at Section 2.01 of the General Provisions of the Security Agreement in Appendix III; and (ii) the Shipowner is not in violation of any Federal laws having a substantial adverse effect on the interests of the United States of America and that the consummation of the Commitment complies with non-Title XI Federal law. (h) the Secretary shall have received the Guarantee Fee payable under Section 1104A (e) of Title XI and the Investigation Fee due under Section 1104A (f) of Title XI; (i) the Shipowner shall have complied in all material respects with its agreements under this Guarantee Commitment; (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 of counsel acceptable to the Secretary, in the form annexed hereto as Schedule 1 which shall include, among other things, an opinion to the effect that: (i) by the terms of the Security Agreement, the Shipowner has granted to the Secretary a fully perfected, first priority security interest in each of the assets which constitutes the Security; and (ii) all filings, recordings, notices and other actions required to perfect the Secretary's interests in the Security and to render such security interests valid and enforceable under applicable State law have been duly effected; (l) the Secretary shall have received a letter agreement from the Shipowner to provide the Secretary within a reasonable time after the Closing Date, with five conformed copies of the Guarantee Commitment and each of the Appendices and Exhibits thereto executed on or prior to such date; (m) on the Closing Date, the qualifying requirements set forth in Section 15 of the Financial Agreement shall have been complied with and certified to as required therein; and (n) at least ten (10) days prior to the Closing Date, there shall have been delivered to the Secretary, pro forma balance sheets for the Shipowner as of the Closing Date, certified by an officer of the Shipowner showing, among other things, all non-Title XI debt of the Shipowner; (o) on the Closing Date, the Shipowner shall certify that all non-Title XI debt to the Shipowner relating to the Vessel have been discharged or subordinated satisfactorily to the Secretary; and (p) at least ten (10) days prior to the Closing Date, the Shipowner shall have provided the Secretary with satisfactory evidence of Builder's Risk insurance as required by the Security Agreement, and at least ten (10) days prior to the Delivery Date, the Shipowner shall have provided 4 the Secretary with satisfactory evidence of marine insurance as required by the Security Agreement. ARTICLE V 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 the Shipowner. ARTICLE VI TERMINATION OR ASSIGNMENT OF GUARANTEE COMMITMENT This Guarantee Commitment may be terminated and the parties hereto shall have no further rights or obligations hereunder, upon written notice by the Secretary of 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 IV hereof or upon the Secretary's determination, at or before the Closing Date, that (i) the Shipowner is in violation of Federal law and such violation would have a substantial, adverse effect on the interests of the United States of America, or (ii) the consummation of the Commitment would violate non-Title XI Federal law. The Shipowner's warranties and representations shall survive the termination of this Guarantee Commitment and the Secretary's issuance of the Guarantees. 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 VII 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, capitalized terms used herein shall have the meaning given in Schedule X to the Security Agreement. 5 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 ADMINISTRATOR (SEAL) BY: /s/ Joel C. Richard ---------------------------------- Secretary Maritime Administration Attest: /s/ Sarah J. Washington - -------------------------------- Assistant Secretary Maritime Administration ACCEPTED BY: ROWAN COMPANIES, INC. as Shipowner BY: /s/ E. E. Thiele ---------------------------------- Senior Vice President (SEAL) Attest: BY: /s/ Mark H. Hay -------------------------------- Secretary 6 EXHIBIT 3 TO THE SECURITY AGREEMENT DOCUMENT 14 Contract No. MA-13845 FIRST PREFERRED SHIP MORTGAGE THIS FIRST PREFERRED SHIP MORTGAGE, dated ____ 20__, is made by ROWAN COMPANIES, INC., a Delaware corporation (the "Shipowner" and "Mortgagor") located at Suite 5450, 2800 Post Oak Blvd., Houston, Texas 77056 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, pursuant to the Trust Indenture executed May 28, 2003, the Shipowner has authorized the issuance of Obligations designated "United States Government Guaranteed Ship Financing Obligations, TARZAN II Series" in an aggregate principal amount not to exceed $89,658,000 to finance the construction of the TARZAN II, Official Number __________ (the "Vessel"); WHEREAS, the Shipowner is the sole owner of the whole of the Vessel; 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 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 a hundred percent interest in the whole of the Vessel which is more fully described in its certificates 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. 7 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 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 now or at any time subject to the lien of this mortgage is to be held by the Mortgagee subject to the further agreements and conditions hereinafter set forth. ARTICLE FIRST SECTION 1. All of the Shipowner's covenants and agreements 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; compliance with applicable laws; maintenance of marine insurance; requisition of title; and compliance with Chapter 313 of Title 46 of the United States Code, set forth in, and all of the Secretary's rights, immunities, powers and remedies provided for in the Security Agreement, 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 a true copy of the form of the Security Agreement are annexed hereto. SECTION 2. 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. 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 of the Shipowner's covenants, promises, stipulations and 8 agreements 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 of the Mortgagee's covenants, promises, stipulations and agreements in this Mortgage, 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. All capitalized terms used herein shall have the meaning specified in Schedule X to 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 Agreement which would otherwise constitute such a waiver, shall to such extent be of no force and effect. SECTION 5. Once the Mortgage shall have become null and void, 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 Eighty Nine Million Six Hundred Fifty Eight Thousand Dollars and NO/100's ($89,658,000) excluding interest, expenses, and fees. The date of discharge for the Vessel is the later of (x) the date on which the Secretary's Note is satisfied under Section 3.02(a), (b), or (d) of the General Provisions to the Security Agreement or (y) November 10, 2019. 9 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 10 ACKNOWLEDGMENT STATE OF TEXAS ) ) ss: COUNTY OF HARRIS ) On this ____ day of ___________, ____, before me, ______________, a Notary Public in and for the State of Texas, County of Harris, 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 Bylaws of said corporation, and that he signed his name thereto by like authority. (NOTARIAL SEAL) ______________________________________ NOTARY PUBLIC My Commission Expires: 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) 11 EX-10.EE 9 h13239exv10wee.txt CREDIT AGREEMENT AND TRUST INDENTURE EXHIBIT 10ee DOCUMENT 3 CREDIT AGREEMENT dated as of May 28, 2003 among ROWAN COMPANIES, INC. as Shipowner GOVCO INCORPORATED as Primary Lender CITIBANK, N.A. as Alternate Lender CITIBANK, N.A., as Facility Agent and CITICORP NORTH AMERICA, INC. as Administrative Agent for the Primary Lender and the commercial paper holders of the Primary Lender. TABLE OF CONTENTS SECTION 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION.................................... 2 1.01 Defined Terms............................................................... 2 1.02 Principles of Construction.................................................. 2 SECTION 2. THE CREDIT FACILITY........................................................... 2 2.01 Amount...................................................................... 2 2.02 Availability................................................................ 3 2.03 Disbursements and Minimum Amount of Utilizations............................ 3 2.04 Relationship of Floating Rate Note and Fixed Rate Note...................... 3 2.05 Trigger Event............................................................... 3 2.06 Extension of Commitment Termination Date; Non-Renewal Event................. 4 SECTION 3. DISBURSEMENT REQUIREMENTS..................................................... 5 3.01 Disbursement Procedures..................................................... 5 SECTION 4. TERMS OF THE CREDIT........................................................... 5 4.01 Principal Repayment......................................................... 5 4.02 Interest Payment............................................................ 6 4.03 Prepayment.................................................................. 7 4.04 Recapture................................................................... 8 4.05 Evidence of Debt............................................................ 9 4.06 Limit of United States Guarantee............................................ 10 SECTION 5. CONDITIONS PRECEDENT.......................................................... 10 5.01 Conditions Precedent to Lenders' Obligations Under this Agreement........... 10 5.02 Conditions Precedent to Each Disbursement................................... 11 SECTION 6. FEES AND EXPENSES............................................................. 11 6.01 Fees........................................................................ 11 6.02 Taxes....................................................................... 12 6.03 Expenses.................................................................... 13 6.04 Additional or Increased Costs............................................... 14 SECTION 7. PAYMENTS...................................................................... 15 7.01 Method of Payment........................................................... 15 7.02 Application of Payments..................................................... 16 SECTION 8. REPRESENTATIONS AND WARRANTIES BY THE SHIPOWNER............................... 17 8.01 Representations and Warranties of the Shipowner............................. 17 8.02 Agreements of the Shipowner................................................. 19
i SECTION 9. CANCELLATION, SUSPENSION AND EVENTS OF DEFAULT................................ 21 9.01 Cancellation................................................................ 21 9.02 Events of Default........................................................... 21 SECTION 10. GOVERNING LAW AND JURISDICTION............................................... 22 10.01 Governing Law............................................................... 22 10.02 Submission to Jurisdiction.................................................. 22 10.03 Waiver of Security Requirements............................................. 22 10.04 No Limitation............................................................... 23 SECTION 11. MISCELLANEOUS................................................................ 23 11.01 Computations................................................................ 23 11.02 Notices..................................................................... 23 11.03 Disposition of Indebtedness................................................. 25 11.04 Disclaimer.................................................................. 25 11.05 No Waiver; Remedies Cumulative.............................................. 25 11.06 Currency.................................................................... 26 11.07 Severability................................................................ 26 11.08 Amendment or Waiver......................................................... 26 11.09 Indemnification............................................................. 26 11.10 Benefit of Agreement........................................................ 26 11.11 Waiver of Jury Trial........................................................ 26 11.12 Execution in Counterparts................................................... 27 11.13 Shipowner Documents......................................................... 27 11.14 Entire Agreement............................................................ 27 11.15 No Proceedings.............................................................. 27 11.16 Tax Disclosures............................................................. 28 SECTION 12. ARRANGEMENTS AMONG THE AGENTS AND THE LENDERS................................ 28 12.01 Appointment................................................................. 28 12.02 Rights of Facility Agent.................................................... 28 12.03 Duties...................................................................... 29 12.04 Limitation on Obligations of Facility Agent................................. 29 12.05 Indemnification by Lenders.................................................. 30 12.06 Limitation on Responsibility................................................ 30 12.07 No Claims on Employees of Facility Agent.................................... 30 12.08 Banking Business............................................................ 30 12.09 Resignation or Termination of Facility Agent................................ 31 12.10 Successor to Facility Agent................................................. 31 12.11 Discharge of Obligations.................................................... 31 12.12 Responsibilities of Lenders................................................. 31 12.13 Agency Division............................................................. 32 12.14 Administrative Agent........................................................ 32 12.15 Facility Agent Only Agent for the Lenders................................... 32
ii Exhibits Exhibit 1 Schedule of Definitions Annexes Annex A Form of Disbursement Requests Annex B Form of Extension Request iii THIS CREDIT AGREEMENT, dated as of May 28, 2003 is made by and among ROWAN COMPANIES, INC., a Delaware corporation (the "Shipowner"), GOVCO INCORPORATED, a Delaware corporation (the "Primary Lender"), CITIBANK, N.A., a national banking association (the "Alternate Lender"), CITIBANK N.A., a national banking association, as facility agent for both the Primary Lender and the Alternate Lender (and their respective successors and assigns) with respect to the Floating Rate Note, and its permitted successors and assigns (in such capacity, the "Facility Agent"), and CITICORP NORTH AMERICA, INC., a Delaware corporation, as administrative agent for the Primary Lender and the commercial paper holders of the Primary Lender (and their respective successors and assigns) (in such capacity, together with its permitted successors and assigns, the "Administrative Agent," and together with the Facility Agent, the "Agents"). As used herein, the term "Lender" shall mean either the Primary Lender or the Alternate Lender, as the case may be, depending on which of the two parties made or will make the relevant disbursement of funds under this Agreement; provided, however, that if the Primary Lender assigns its rights under this Agreement to the Alternate Lender, the term "Lender," as used herein, shall mean only the Alternate Lender. The term "Lenders," as used herein, shall mean collectively the Primary Lender and the Alternate Lender. BACKGROUND WHEREAS: (A) by this Agreement, the Lenders have established a credit facility (the "Credit Facility") in the amount of $89,658,000, pursuant to which the Primary Lender may, in its discretion, 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; and if the Primary Lender chooses at any time not to extend, or continue to extend, any such financing, then the Alternate Lender shall, subject to the terms and conditions hereof, extend the undisbursed portion of such financing; (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 Lenders' extension of the Credit Facility under this Agreement is the Facility Agent's timely receipt of Certificates Authorizing Disbursement and issuance of the Guarantee of the Floating Rate Note; 1 (D) the Facility Agent will serve as facility agent for the benefit, and on behalf, of each of the Lenders in connection with the Credit Facility, this Agreement and the other related documents and the Administrative Agent will act as an administrative agent for the Primary Lender and the Primary Lender's commercial paper holders; and (E) 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. (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 Lenders hereby establish the Credit Facility, upon the terms and conditions set forth in this Agreement, in favor of the Shipowner in the maximum amount of $89,658,000 (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; all as set forth in Certificates Authorizing Disbursements submitted in accordance with this Agreement. The Primary Lender intends (but is not obligated) to fund the Credit Facility through the issuance and sale of Commercial Paper to investors which is exempt from the registration requirements of the United States Securities Act of 1933, as amended. The Primary Lender may, at its option, elect at any time not to fund the Credit Facility or the undisbursed portion thereof, in which case the Alternate 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 2 any, of the Credit Facility Amount over the outstanding principal amount evidenced by the Floating Rate Note, plus the aggregate outstanding principal amount evidenced by Fixed Rate Notes ("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 the earliest of (x) April 1, 2005, (y) upon the request of the Secretary, the date upon which the Trigger Event (as defined in Section 2.05) shall occur or, (z) the date on which the Available Amount under the Credit Facility is canceled 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 Primary Lender or the Alternate 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 Relationship of Floating Rate Note and Fixed Rate Note. Disbursements from the Credit Facility shall become the indebtedness of the Shipowner to the Lenders under the Floating Rate Note. The Shipowner shall redeem the Floating Rate Note in full by causing to be issued one or more Fixed Rate Notes and using the proceeds thereof to repay the Floating Rate Note in full no later than the earliest of (i) four years from the Delivery Date, (ii) April 1, 2009, or (iii) at the request of the Secretary, within fifteen (15) Business Days from the date upon which the Trigger Event shall occur. At its option, and from time to time, the Shipowner may redeem all or any portion of the indebtedness under the Floating Rate Note by causing a Fixed Rate Note or series of Fixed Rate Notes to be issued at any time during or after the construction of the Vessel, so long as such redemption of the Floating Rate Note from the proceeds of Fixed Rate Note(s) does not occur later than the earliest of (i) four years after the Delivery Date, (ii) April 1, 2009, or (iii) at the request of the Secretary, within fifteen (15) Business Days from the date upon which the Trigger Event shall occur, and except for the final redemption, each redemption is in a minimum amount of $25,000,000; and the Shipowner shall have paid any amount payable under Section 4.04(a)(iv) or any other provision hereof in connection therewith. 2.05 Trigger Event. (a) The Shipowner shall redeem the outstanding indebtedness under the Floating Rate Note in full by causing to be issued a fixed rate obligation with a Maturity date of November 10, 2019 whenever the Treasury constant maturities rate (10-year) as reported by the Federal Reserve Board in statistical release H.15 (519) (the "Treasury Rate") equals or exceeds nine percent (9%) per annum (the "Trigger Event"). If a Trigger Event should occur, the Shipowner shall redeem the Floating Rate Note in full by causing to be issued a fixed rate obligation and using the 3 proceeds thereof to repay the Floating Rate Note in full, at the request of the Secretary, within fifteen (15) Business Days of receiving notice of the occurrence of the Trigger Event, pursuant to Section 2.05(d) or of having actual notice thereof. (b) Nothing in this Section 2.05 shall prevent the Shipowner from redeeming the Floating Rate Note by issuance of a fixed-rate obligation at any time prior to Maturity. (c) The failure of the Shipowner to redeem the Floating Rate Note by issuance of a fixed-rate obligation within fifteen (15) Business Days of receiving notice of the occurrence of the Trigger Event pursuant to Section 2.05(d) or of having actual notice thereof, unless subsequently waived in writing by the Secretary, shall constitute an Indenture Default without further notice to the Shipowner or the Lenders being required under the Indenture or this Agreement. (d) The Shipowner covenants for the benefit of the Secretary that it shall arrange for an independent reporting service or bank acceptable to the Secretary to send the Secretary, the Facility Agent, and the Shipowner a written interest rate report once a month on the first business day of every month (until such time as the Floating Rate Note is redeemed in full). This interest rate report shall specify the Treasury Rate as of the date of the report. 2.06 Extension of Commitment Termination Date; Non-Renewal Event. (a) The Shipowner may request that the Alternate Lender extend the then current Commitment Termination Date for a period not to exceed 364 days following the expiration of the current Commitment Termination Date by delivering an Extension Request to the Facility Agent not more than 90 but not less than 60 days prior to the expiration of the current Commitment Termination Date. If the Alternate Lender, in its sole discretion, is willing to agree to the requested extension, it shall return a duly executed copy of the Extension Request to the Shipowner not later than 45 days prior to the expiration of the current Commitment Termination Date, and upon receipt of the executed Extension Request by the Shipowner, the Commitment Termination Date shall be so extended. (b) In the event that the Alternate Lender does not timely agree to any requested extension of the Commitment Termination Date in accordance with Section 2.06(a) (a "Non-Renewal Event"), then the Shipowner may, at its sole discretion, redeem the outstanding indebtedness under the Floating Rate Note in full in accordance with Section 2.04 by causing to be issued a fixed rate obligation with a Maturity date of November 10, 2019. If the Shipowner does not redeem the Floating Rate Note on or before the Commitment Termination Date expires, (i) the Primary Lender shall, prior to such date, assign to the Alternate Lender all of its interest in its outstanding indebtedness under this Agreement and the Floating Rate Note, and all of its 4 other rights and obligations hereunder, in exchange for the Alternate Lender's payment of an amount equal to the outstanding principal balance of the assigned indebtedness, plus the amount of all interest and fees accrued through the date of such assignment; and (ii) the Alternate Lender shall accept and assume all of the Primary Lender's rights and obligations under this Agreement and the Floating Rate Note. From and after the date of the assignment (which shall be evidenced by an assignment agreement in form and substance acceptable to the Lenders and the Shipowner), the Primary Lender shall cease to be a Lender hereunder, and shall have no rights or obligations hereunder or under the Floating Rate Note, except for any rights which by their express terms survive the termination of this Agreement or the Floating Rate Note. (c) Nothing in this Section 2.06 shall prevent the Shipowner from redeeming the Floating Rate Note by issuance of a fixed-rate obligation at any time prior to Maturity. SECTION 3. DISBURSEMENT REQUIREMENTS 3.01 Disbursement Procedures. Upon receipt by the Facility Agent of each Certificate Authorizing Disbursement at least five (5) Business Days prior to the proposed disbursement date, the Primary Lender may, and if the Primary Lender elects not to, the Alternate Lender shall, disburse funds in accordance with the terms of such Certificate Authorizing Disbursement to the Shipowner, or the Shipowner's designee, subject to the terms of this Agreement and such Certificate Authorizing Disbursement; 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 disbursing Lender) following the Facility Agent's receipt of such Certificate Authorizing Disbursement. Promptly following each Disbursement, the Facility Agent 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 the Outstanding Principal of the Floating Rate Note as follows: (i) in installments in the principal amount of $2,989,000, on each Payment Date commencing on May 10, 2005, and continuing until November 10, 2008, and 5 (ii) the full amount of the Outstanding Principal evidenced by the Floating Rate Note, on the earliest of (i) four years from the Delivery Date, (ii) April 1, 2009, or (iii) at the request of the Secretary, within fifteen (15) Business Days from the date upon which the Trigger Event shall occur. 4.02 Interest Payment. (a) On each Interest Payment Date, the Shipowner shall pay to the Indenture Trustee, on behalf of the Person(s) entitled thereto, interest on the Outstanding Principal of the Floating Rate Note, calculated at an interest rate per annum equal to the Applicable Interest Rate therefor, as determined for each successive Interest Period. The Indenture Trustee shall calculate the Applicable Interest Rate based on information provided (i) by the Administrative Agent to the Facility Agent if the Primary Lender is the Lender, or (ii) by the Facility Agent if the Alternate Lender is the Lender. From time to time, the Administrative Agent or Facility Agent will confirm CP Rate, LIBOR, Base Rate, and Applicable Interest Rate to the Indenture Trustee. In the event that the Primary Lender assigns the financing of all or any portion of the amount outstanding under the Credit Facility (whether or not evidenced by a Note) to the Alternate Lender or other assignee permitted by the terms of this Agreement (including, without limitation, any assignment pursuant to Section 2.06(b)), the interest rate on such amount shall be determined by the Facility Agent (and the Facility Agent shall notify the Indenture Trustee thereof and the Indenture Trustee shall recalculate such interest rate based on information provided by the Facility Agent) pursuant to clause (i) of the definition of Applicable Interest Rate for the period prior to the effective date of such assignment and pursuant to clause (ii) of such definition for all periods after such date. (b) The Shipowner shall pay to the Facility Agent, on behalf of the Person(s) 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 Applicable Interest Rate, provided, that if such Unpaid Amount consists of principal on the Floating Rate Note as to which guaranteed interest continues to accrue, the Post Maturity Interest Rate on such Unpaid Amount shall be limited to the incremental amount of additional interest required to be paid under this Section 4.02(b) and shall equal two percent (2.0%) per annum. 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 6 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 9.02. As used herein, "Unpaid Amount" means all or any part of principal, accrued interest, fees or other amounts owing to the Lenders 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 Lenders under any judgment of any court or arbitral tribunal in connection with this Agreement which is not paid on the date of such judgment. "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 that 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 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 any 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 Facility Agent and the Indenture Trustee prior written notice of such 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 7 has accrued to the date of prepayment on the amount prepaid and all other amounts payable hereunder relating to such prepayment; (iv) any amount prepaid hereunder (other than the Outstanding Principal amount thereof prepaid through the issuance of Fixed Rate Notes, the Outstanding Principal amount of which is subtracted from the Credit Facility pursuant to the last sentence of Section 2.01) shall not be considered part of the Available Amount; and (v) subject to Section 4.03(c), if the Lender is the Primary Lender, the Shipowner shall pay to the Facility Agent, for the benefit of the Primary Lender an amount equal to (x) the amount of yield that the Primary Lender is required to pay to holders of its Commercial Paper during the Liquidation Period (as defined below) on an amount of Commercial Paper having an aggregate issue price equal to the amount of the Shipowner's prepayment less (y) the amount of the estimated investment earnings, as determined by the Facility Agent, on the prepayment amount during the Liquidation Period. The "Liquidation Period" means the period from the date on which a prepayment is made to the earliest date on which the Primary Lender's total amount of Commercial Paper related to the funding of the Disbursements can be reduced (without prepayment thereof) by an amount equal to the amount of the Shipowner's prepayment. Prepayments shall be applied to the installments of principal of the Credit Facility in the inverse order of their maturity, and, in cases where more than one Note is outstanding, pro rata to each Note. (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 any 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. (d) Notwithstanding any other provision to the contrary herein, the Shipowner shall have the right to prepay any portion of the Floating Rate Note and redeem the Floating Rate Note by issuing a Fixed Rate Note and using the proceeds thereof to prepay the Floating Rate Note so long as it first obtains the Secretary's consent to the interest rate applicable to the Fixed Rate Note and, except for the final redemption, the principal amount of such redemption equals or exceeds $25,000,000; and the Shipowner shall have paid any amount payable under Section 4.04(a)(iv) or any other provision hereof in connection therewith. 4.04 Recapture. (a) Upon the written request of the Facility Agent, the Shipowner shall pay to the applicable Lender, such amounts as shall be 8 sufficient (in the reasonable judgment of such Lender) to compensate such 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 such 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) subject to the provisions of Section 4.03(c), 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 such Lender, the Facility Agent, and the Indenture Trustee. (b) Without prejudice to any other provision hereof (and at the Shipowner's expense), such 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. (c) With respect to the Shipowner's obligations under Section 4.04(a)(iv), if the Shipowner shall at any time notify the Facility Agent and the applicable Lender of its intention to pursue any such prepayment, the Facility Agent and the applicable Lender shall reasonably cooperate with the Shipowner in assessing and quantifying any loss, expense or liability the Lender may incur in connection with a prepayment under the circumstances described in Section 4.04(a)(iv), so that the Shipowner may make an informed decision as to the cost to it of any such prepayment. Any information provided to the Shipowner by the Lender pursuant to this Section 4.04(c) is understood by the parties to be an estimate of the costs of prepayment only and shall not be binding in the determination of such costs pursuant to Section 4.04(a)(iv). 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 Facility Agent, in accordance with the written instructions of the Facility Agent, 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 9 thereon at the rate guaranteed by the Secretary, with any interest in excess thereof being evidenced by this Agreement. 4.06 Limit of United States Guarantee. None of the incremental amount of interest required to be paid under Section 4.02(b), none of the fees, and expenses arising under Sections 4.03, 4.04 and 6, and none of the Indemnified Amounts, commissions, Taxes, Other Taxes, Post Maturity Interest Rate, interest in excess of 10.25% (or such higher rate as may be agreed from time to time by the Secretary) (the "Cap Rate") 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 Obligations and only to the extent specified therein. The Cap Rate shall not apply to fixed-rate obligations. SECTION 5. CONDITIONS PRECEDENT 5.01 Conditions Precedent to Lenders' Obligations Under this Agreement. The obligations of the Lenders under this Agreement shall be subject to the delivery to the Facility Agent of the documents indicated below on or before the Closing Date: (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 Lenders, 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 Facility Agent, 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 Lenders, 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 Lenders, of the authority of the Shipowner to execute, deliver, perform and observe the terms and conditions of this Agreement, the Floating Rate Note, the Fee Letter, 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, the Fee Letter, 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 10 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, the Fee Letter, and the Indenture; and (ii) for the validity, binding effect and enforceability of this Agreement, the Floating Rate Note, the Fee Letter, 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, the Fee Letter, 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 Lenders and the Agents 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, Rowe & Maw addressed to the Lenders, the Agents, and the Indenture Trustee concerning this Agreement, the Fee Letter, 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 agreement of the Primary Lender to fund any Disbursement under this Agreement and any obligations of the Alternate Lender to fund any Disbursement under this Agreement shall be subject only to the Facility Agent's receipt of a Certificate Authorizing Disbursement, upon which each such Lender may conclusively rely. 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, the "Fee Letter") dated as of May 28, 2003 between the Shipowner and the Agents, in each case when and as due. 11 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 each 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 such Lender is organized or any political subdivision thereof, or (ii) the jurisdiction of such 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 Lenders 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 any Lender or any Agent, execute and deliver to such Lender or Agent, as the case may be, 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 Lenders 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 Lenders, or any other Person; (iv) that, at the request of any Lender or any Agent, the Shipowner shall provide such Lender or Agent 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 12 (v) that each payment under this Section 6.02 shall be made within thirty (30) days from the date the Facility Agent on behalf of the applicable Lender makes written demand therefor. Each demand for payment by such Lender under Section 6.02(b)(v) for amounts paid or incurred by the Lenders or itself 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. 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 Agents and the Lenders, respectively, 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 Agents and the Lenders (incurred in respect of telecommunications, mail or courier service, travel and the like), and the fees and expenses of counsel for the Agents and the Lenders. 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 Agents or the Lenders 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 Agents or the Lenders arising out of this Agreement, the Floating Rate Note or the Indenture. 13 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, regulation or accounting principle, 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 any 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 such Lender, pay to such Lender additional amounts sufficient to compensate such Lender for such increased cost. In furtherance and not in limitation of the foregoing, if the issuance of Financial Accounting Standards Board Interpretation No. 46 ("FASB 46"), or any other change in accounting standards or the issuance of any other pronouncement, release or interpretation, or the implementation of FASB 46 or any other such standard, pronouncement, release or interpretation, causes or requires the consolidation of all or a portion of the assets and liabilities of the Primary Lender with the assets and liabilities of the Alternate Lender or any other funding source, such event shall constitute a circumstance on which the affected Lender may base a claim for reimbursement under this Section 6.04. (b) If any 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 such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by such Lender, the Shipowner shall immediately pay to the Facility Agent (for the benefit of such Lender), from time to time as specified by the Facility Agent (on behalf of such Lender), additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of its commitment to lend hereunder. (c) Each Lender shall take such reasonable steps as it shall determine to minimize amounts demanded under this Section 6.04; provided that no Lender shall be obligated to take any actions under this Section 6.04 if such Lender has determined, that such actions would cause it to incur any material costs or expenses or would otherwise be disadvantageous to it in any material respect. In the event that a 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 on demand by such Lender. (d) Each demand for payment by the Facility Agent (on behalf of any 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, 14 which certificate, in the absence of manifest error, shall be conclusive and binding for all purposes. (e) The Facility Agent on behalf of each Lender shall notify the Shipowner of any event occurring after the date of this Agreement which entitles such 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 any 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. SECTION 7. PAYMENTS 7.01 Method of Payment. (a) (i) 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. Except as provided in Section 7.01(a)(ii), all payments to be made by the Shipowner or the Agents hereunder shall be made to (A) the Primary Lender (for the account of GOVCO Incorporated, its successors and assigns), (B) the Alternate Lender (for the account of Citibank, N.A., its successors and assigns), (C) the Facility Agent (for the account of Citibank, N.A., its successors and assigns), (D) the Administrative Agent (for the account of Citicorp North America, Inc., its successors and assigns), or (E) any other Lender (for the account of such Lender, its successors and assigns), in each case to the Facility Agent (for the account of Citibank, N.A., its successors and assigns) at Citibank, N.A., 388 Greenwich Street, 20th floor, New York, NY 10013, ABA # 021 0000 89,DDA. Account No. 3041-9849, Attn: Loans Agency. - Rowan Companies, Inc. Upon receipt thereof by the Facility Agent, the Facility Agent shall forthwith forward such funds to the party entitled thereto pursuant to the written instructions provided by such party to the Facility Agent in accordance with Section 11.02. (ii) 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. Until further notice, wire instructions for the Indenture Trustee are as follows: Allfirst Trust Company, National Association, ABA #052000113, Credit Trust Receipts, A/C #090-02-764, Re: Rowan Companies, Inc., Attention Donald Hargadon, extension 4224 (TARZAN II). (b) Except as otherwise provided herein, whenever any payment would otherwise fall due on a day that is not a Business Day, the due date for 15 payment shall be the immediately succeeding Business Day, and interest and fees shall be computed in accordance with Section 11.01. (c) Whenever a sum is required to be paid to the Facility Agent under this Agreement for the account of another Person, the Facility Agent shall not be obligated to make such sum available to such other Person unless and until the Facility Agent shall have established to its satisfaction that it has actually received payment of such sum. Notwithstanding the foregoing, unless it has received actual notice to the contrary, the Facility Agent may (but shall not be obligated to) assume on the date of any Disbursement or any other payment required to be made by any Lender hereunder that such Lender has made available to the Facility Agent such Disbursement or other payment and the Facility Agent may (but shall not be required to) make available to the Shipowner on such date a corresponding amount in reliance upon such assumption. Additionally, the Facility Agent may (but shall not be obligated to) assume on the date of any payment required to be made by the Shipowner hereunder that the Shipowner has made available to the Facility Agent such payment and the Facility Agent may (but shall not be required to) make available to the Lenders on such date a corresponding amount in reliance upon such assumption. If and to the extent that either (i) the Lender shall not in fact have made such Disbursement or other payment available to the Facility Agent and the Facility Agent has made available a corresponding amount to the Shipowner in reliance on the above-described assumptions or (ii) the Shipowner has not in fact made such payment and the Facility Agent has made available a corresponding amount to the Lender in reliance on the above-described assumptions, then, in either such case, such Lender agrees to repay to the Facility Agent forthwith on demand such corresponding amount together with an amount sufficient to indemnify the Facility Agent against any cost or loss it may have suffered or incurred by reason of its having paid out such sum prior to receipt thereof. 7.02 Application of Payments. In the absence of an Indenture Default, the Lenders shall each apply payments received by them 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 Lenders shall each hold any payments they receive 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 16 and the Mortgage and then to pay, satisfy and discharge any and all amounts owed to the Lenders or the Agents. SECTION 8. REPRESENTATIONS AND WARRANTIES BY THE SHIPOWNER 8.01 Representations and Warranties of the Shipowner. The Shipowner represents and warrants to the Agents and the Lenders 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, and has full power, authority and legal right to own its properties and conduct its business as it is presently now conducted. 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 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 other organizational 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 17 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, except to the extent enforceability thereof is limited by applicable bankruptcy, reorganization, insolvency, moratorium or similar laws of general application relating to or affecting the enforcement of creditors rights generally. 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. 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 the provisions 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 18 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 Facility Agent prior to the date of this Agreement. (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 any 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 Agents and the Lenders shall have consented in writing: (a) Interest Rate Protection. At all times that (1) a Floating Rate Note exists and (2) either the Applicable Interest Rate is equal to or greater than the Cap Rate less 0.5% or the Trigger Event has occurred, the Shipowner (at its expense) within ten (10) 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 the Cap Rate per annum and otherwise acceptable to the Lenders, with a counterparty rated "AA" or better by any of the rating agencies that rate the Commercial Paper issued by the Primary Lender or such other counterparty reasonably acceptable to the Lenders, 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 Facility Agent desirable, to effect the assignment of its rights thereunder to the Facility Agent for the benefit of the Lenders or, if any payments are made under any Guarantee, the Secretary, in every case with such terms as are reasonably acceptable to the Facility Agent for the protection of the Lenders. If the Shipowner fails to satisfy the requirements of this Section 8.02(a) within the ten (10) Business Days set forth above, the Facility Agent may (in its sole discretion) and if the Facility Agent so elects, the Shipowner hereby authorizes and directs the Facility Agent to, satisfy the requirements of this Section 8.02(a), all at the expense of the Shipowner, due on demand. 19 (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 Facility Agent 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 Facility Agent, in each case by facsimile 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 Facility Agent (and the Facility Agent, upon receipt thereof, shall furnish to each Lender and the Administrative Agent) a copy of all financial reports furnished to the Secretary pursuant to the Title XI Reserve Fund and Financial Agreement. (d) 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 Facility Agent or the Indenture Trustee in order to effect the purposes of this Agreement and to protect the interests of the Lenders in the Floating Rate Note and the interests of the Lenders in the Guarantees. (e) 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 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. (f) 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, the Indenture and the Floating Rate Note. 20 SECTION 9. CANCELLATION, SUSPENSION AND EVENTS OF DEFAULT 9.01 Cancellation. 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 Agents, the Indenture Trustee, and the Secretary and (ii) the Shipowner shall have paid to the Lenders 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 Lenders may not for any reason cancel at any time any part of the Available Amount of the Credit Facility. 9.02 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(e); 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 9.02 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 Facility Agent; 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), any Agent or any Lender (by written notice to the Shipowner), shall have the right to institute any judicial or 21 other proceedings under this Agreement to recover all amounts owing under this Agreement. The Lenders agree that so long as an Indenture Default exists, all amounts received during such period from, or on behalf of, the Shipowner shall be applied in the manner set forth in Section 7.02. Notwithstanding an Event of Default, the Lenders 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 9.02, presentment, demand, protest and all other notices of any kind are hereby expressly waived. Notwithstanding any other provision of this Agreement, if Section 9.02(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 Lenders 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 Lenders 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 Lenders 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 Lenders 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 Agents or the Lenders post security for costs or take similar action, the Shipowner hereby irrevocably waives and agrees not to claim the benefit of such entitlement. 22 10.04 No Limitation. Nothing in this Section 10 shall affect the right of the Agents or any 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 9.02, in the event of an Indenture Default, the Agents and the Lenders 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 by the Administrative Agent or the Facility Agent, or any other Person pursuant to any provision of this Agreement, the Fee Letter or the Floating Rate Note, in the absence of error, shall be conclusive and binding on the Shipowner. Each determination of a fee or other amounts (excluding interest rates) by the Facility Agent, any 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 (360) days and actual days elapsed. The Secretary and Indenture Trustee may request supporting documentation for the information provided by the Facility Agent or the Administrative Agent to the Indenture Trustee. 11.02 Notices. Except as otherwise specified, all notices given hereunder shall be in writing, and shall be given by mail, facsimile, 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 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 the Facility Agent and the Lenders: Address: Citibank, N.A., as Facility Agent 2 Penn's Way New Castle, Delaware 19720 Attention: Onat Acet Telephone: (302) 894-6088 Facsimile: (212) 994-0849 With a copy to: Address: Citibank, N.A., as the Alternate Lender 388 Greenwich Street 20th Floor New York, NY 10013 Attention: Barbara Kobelt 23 Facsimile: (212) 816-0263 Telephone: (212) 816-1063 With a copy to the Administrative Agent To the Administrative Agent Address: Citicorp North America, Inc. 388 Greenwich Street 20th floor New York, NY 10013 Attention: Sean Portrait Facsimile (212) 816-0397 Telephone: (212) 816-5717 To the Shipowner Address: ROWAN COMPANIES, INC. Suite 5450 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: Allfirst Trust Company, National Association Mail Code 101-591 25 South Charles Street Baltimore, Maryland 21201 Attention: Mr. Donald C. Hargadon Telephone: (410) 244-4224 Facsimile: (410) 244-4236 24 11.03 Disposition of Indebtedness. Once the Shipowner has completely drawn down on the Credit Facility and the Available Amount is zero, each 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 such Lender under this Agreement and the Floating Rate Note to the extent of the interest sold or assigned; provided, however, that each Disposition of Indebtedness to any Person other than another Lender or a domestic Affiliate of a Lender shall require the prior written consent of the Shipowner (which consent shall not be unreasonably withheld or delayed); provided, further, however, that each 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 so long as such Lender's commitment to lend the Available Amount under this Agreement is not affected thereby. The Shipowner shall, at the request of the Facility Agent, execute and deliver to the Facility Agent or to any party that the Facility Agent 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 applicable Lender. 11.04 Disclaimer. Neither the Agents nor the Lenders shall 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 any Agent or any 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 any Agent or any Lender shall operate as a waiver of the rights of the Shipowner and such Lenders 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, the Agents, or the Lenders 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 that the Agents or the Lenders 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 any Agent or any 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. 25 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 Lenders any right whatsoever against the Secretary. 11.09 Indemnification. Without limiting any other rights that any Agent or any Lender may have hereunder or under applicable law, the Shipowner hereby agrees to indemnify each of the Agents and the Lenders (each, an "Indemnified Party") 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 such Indemnified Party 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 such Indemnified Party. In the event of an Indenture Default, all amounts received by such Indemnified Party 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 Lenders, 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 Lenders 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 26 Shipowner and the Lenders 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 Lenders are not parties in their capacities as the Lenders 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. 11.15 No Proceedings. Each of the Shipowner, the Alternate Lender and the Agents hereby agrees that it will not institute against, or join any other Person in instituting against, the Primary Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or any other proceeding under any federal or state bankruptcy or similar law, so long as any Commercial Paper issued by the Primary Lender shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such Commercial Paper shall have been outstanding. 27 11.16 Tax Disclosure. Notwithstanding any other provision herein, each party hereby agrees that each party (and each employee, representative or other agent of such party) may disclose to any and all persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to such party relating to such U.S. tax treatment and U.S. tax structure, other than any information for which nondisclosure is reasonably necessary in order to comply with applicable securities laws. SECTION 12. ARRANGEMENTS AMONG THE AGENTS AND THE LENDERS 12.01 Appointment. Each Lender hereby appoints the Facility Agent to act as its agent in connection herewith and in connection with the Floating Rate Note and the Indenture and authorizes the Facility Agent to exercise such rights, powers and discretions as are specifically delegated to the Facility Agent by the terms hereof and thereof, together with all such rights, powers and discretions as are reasonably incidental thereto. Without limiting the foregoing, all notices to be delivered to, and approvals to be given by, a Lender under the disbursement procedures described in Section 3.01 hereof shall be delivered to and given by the Facility Agent on behalf of such Lender. 12.02 Rights of Facility Agent. The Lenders and the Facility Agent agree that the Facility Agent may: (i) assume that (a) any representation made by the Shipowner in connection herewith is true; (b) no event which is or may become an Event of Default has occurred; (c) the Shipowner is not in breach of or default under its obligations hereunder; (d) any right, power, authority or discretion vested herein upon the Lenders or any other person or group of persons has not been exercised; unless it has, in its capacity as Facility Agent, notice or actual knowledge to the contrary; (ii) engage and pay for the advice or services of any lawyers, accountants, surveyors or other experts whose advice or services may to it seem necessary, expedient or desirable and rely upon any advice so obtained; (iii) rely as to any matters of fact that might reasonably be expected to be within the knowledge of the Shipowner upon a certificate signed by or on behalf of the Shipowner; (iv) rely upon any communication or document believed by it to be genuine; (v) refrain from exercising any right, power or discretion vested in it as facility agent hereunder unless and until instructed by a Lender as to whether or not such right, power or discretion is to be exercised and, if it is to be exercised, as to the manner in which it should be exercised; and 28 (vi) refrain from acting in accordance with any instructions of any Lender to begin any legal action or proceeding arising out of or in connection with this Agreement until it shall have received such security as it may require (whether by way of payment in advance or otherwise) for all costs, claims, expenses (including legal fees) and liabilities which it will or may expend or incur in complying with such instructions. 12.03 Duties. The Facility Agent shall: (i) promptly inform each Lender of the contents of any notice or document received by it from the Shipowner hereunder; (ii) promptly notify each Lender of the occurrence of any Event of Default or any default by the Shipowner in the due performance of or compliance with its obligations under this Agreement of which the Facility Agent has notice from any other party hereto; (iii) save as otherwise provided herein, act as facility agent hereunder in accordance with any instructions given to it by any Lender, which instructions shall be binding on all of the Lenders; and (iv) if so instructed by any Lender, refrain from exercising any right, power or discretion vested in it as facility agent hereunder. 12.04 Limitation on Obligations of Facility Agent. Notwithstanding anything to the contrary expressed or implied herein, the Lenders and the Facility Agent agree that the Facility Agent shall not: (i) be bound to inquire as to: (a) whether or not any representation made by the Shipowner in connection herewith is true; (b) the occurrence or otherwise of any event which is or may become an Event of Default; (c) the performance by the Shipowner of its obligations hereunder; or (d) any breach of or default by the Shipowner or under its obligations hereunder; 29 (ii) be bound to account to any Lender for any sum or the profit element of any sum received by it for its own account; (iii) be bound to disclose to any other person any information relating to the Shipowner or any of its agencies if such disclosure would or might in its opinion constitute a breach of any law or regulation or be otherwise actionable at the suit of any person; or (iv) be under any obligations other than those for which express provision is made herein. 12.05 Indemnification by Lenders. The Alternate Lender shall, from time to time on demand by the Facility Agent, indemnify the Facility Agent, against any and all costs, claims, expenses (including legal fees) and liabilities (collectively, "Liabilities") together with any tax thereon which the Facility Agent may incur, otherwise than by reason of its own gross negligence or willful misconduct, in acting in its capacity as facility agent hereunder (including, without limitation, any Liabilities in anyway relating to or arising out of certifications made with respect to either (a) the due authorization, execution or delivery of a Floating Rate Note, or (b) laws and/or regulations of any Governmental Authority, in each case in connection with any request by the Facility Agent to the Indenture Trustee or the Secretary for the Secretary to endorse its guarantee on a Floating Rate Note or for the Indenture Trustee to authenticate a Floating Rate Note). 12.06 Limitation on Responsibility. The Facility Agent accepts no responsibility to the Lenders for the accuracy and/or completeness of any information supplied by the Shipowner in connection herewith or for the legality, validity, effectiveness, adequacy or enforceability of this Agreement, and the Facility Agent shall be under no liability to the Lenders as a result of taking or omitting to take any action in relation to this Agreement, save in the case of its own negligence or willful misconduct. 12.07 No Claims on Employees of Facility Agent. Each Lender agrees that it will not assert or seek to assert against any director, officer or employee of the Facility Agent any claim that it might have against it in respect of the matters referred to in Clause 12.06. 12.08 Banking Business. The Lenders agree that the Facility Agent may accept deposits from, lend money to and generally engage in any kind of banking or other business with the Shipowner. 30 12.09 Resignation or Termination of Facility Agent. (i) The Facility Agent may (after consultation with the Shipowner and the Lenders) resign its appointment hereunder at any time without assigning any reason therefor by giving not less than thirty (30) days' prior written notice to that effect to each of the other parties hereto; provided, that no such resignation shall be effective until a successor for the Facility Agent is appointed in accordance with the succeeding provisions of this Section 12; (ii) The Lenders and the Shipowner may jointly seek the termination of the appointment of the Facility Agent hereunder at any time by giving not less than thirty (30) days prior written notice to that effect to the Facility Agent; provided that no such termination shall be effective until a successor for the Facility Agent is appointed in accordance with the succeeding provisions of this Section 12; provided further that any such notice of termination must be signed by all of the Lenders and the Shipowner; and (iii) For the avoidance of doubt, the parties hereto agree that the provisions of this Section 12.09 shall at no time apply to or restrict the ability of the Administrative Agent to resign its position of Administrative Agent. 12.10 Successor to Facility Agent. If the Facility Agent gives notice of its resignation pursuant to Section 12.09(i) or receives notice of termination pursuant to Section 12.09(ii), then any reputable and experienced bank or other financial institution may be appointed as a successor to the Facility Agent by the Lenders with the consent of the Secretary and Shipowner (which consent of the Shipowner shall not be unreasonably withheld or delayed) during the period of such notice but, if no such successor is so appointed, the Facility Agent may appoint such a successor itself with the consent of the Secretary and Shipowner (which consent of the Shipowner shall not be unreasonably withheld or delayed). 12.11 Discharge of Obligations. If a successor to the Facility Agent is appointed under the provisions of Section 12.10, then (i) the retiring Facility Agent shall be discharged from any further obligation hereunder but shall remain entitled to the benefits of the provisions of this Section 12 and (ii) its successor and each of the other parties hereto shall have the same rights and obligations amongst themselves as they would have had if such successor had been a party hereto. 12.12 Responsibilities of Lenders. It is understood and agreed by each Lender that it is, and will continue to be, solely responsible for making its own independent appraisal of and investigations into the financial condition, creditworthiness, condition, affairs, status and nature of the Shipowner, the Secretary and the United States of America and, accordingly, each Lender warrants to the Facility Agent that it has not relied and will not hereafter rely on the Facility Agent: 31 (i) to check or inquire on its behalf into the adequacy, accuracy or completeness of any information provided by the Shipowner in connection with this Agreement or the transaction herein contemplated (whether or not such information has been or is hereafter circulated to such Lender by the Facility Agent); or (ii) to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of the Shipowner. 12.13 Agency Division. In acting as Facility Agent for the Lenders, the Facility Agent's agency division shall be treated as a separate entity from any other of its divisions or departments and, notwithstanding the foregoing provisions of this Section 12, in the event that the Facility Agent should act for the Shipowner in any capacity in relation to any other matter, any information given by the Shipowner to the Facility Agent in such other capacity may be treated as confidential by the Facility Agent. 12.14 Administrative Agent. Each party hereto (other than the Administrative Agent) acknowledges that the Administrative Agent is a party hereto only in its capacity as administrative agent of the Primary Lender and the Primary Lender's commercial paper holders. 12.15 Facility Agent Only Agent for the Lenders. The Facility Agent is not authorized to, nor shall it, act as the agent for the Secretary, the Indenture Trustee, the Shipowner or any of their successors in interest or assigns in any of the capacities provided for herein. 32 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., as the GOVCO INCORPORATED, as the Shipowner Primary Lender, by Citicorp North America, Inc., its By: /s/ E. E. Thiele attorney-in-fact. --------------------------- (Signature) By: /s/ P. A. Botticelli ------------------------- Name: E. E. Thiele (Signature) ------------------------- (Print) Name: P.A. Botticelli ----------------------- Title: Senior Vice President (Print) CITIBANK, N.A. Title: Vice President as Facility Agent ---------------------- (Print) By: /s/ John B. Gilliland --------------------------- CITIBANK, N.A., as the Alternate Lender (Signature) Name: John B. Gilliland By: /s/ John B. Gilliland ------------------------- ------------------------ (Print) (Signature) Title: Vice President Name: John B. Gilliland ------------------------ ----------------------- (Print) (Print) Title: Vice President ---------------------- (Print) CITICORP NORTH AMERICA, INC., as the Administrative Agent By: /s/ P. A. Botticelli ------------------------ (Signature) Name: P. A. Botticelli ---------------------- (Print) Title: Vice President ---------------------- (Print) 33 Annex B to Credit Agreement Form of Extension Request Dated as of [ ] Citibank, N.A. as Facility Agent 2 Penn's Way New Castle, Delaware 19720 Attn: Onat Acet Citibank, N.A. as the Alternate Lender 388 Greenwich Street 20th Floor New York, NY 10013 Attn: Barbara Kobelt Citicorp North America, Inc., as Administrative Agent for the Primary Lender 388 Greenwich Street 20th floor New York, NY 10013 Attention: Sean Portrait Re: Extension of Commitment Termination Date Ladies and Gentlemen: Please refer to the Credit Agreement, dated as of May 28, 2003 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement") among Rowan Companies, Inc., as shipowner (the "Shipowner"), GOVCO Incorporated, as primary lender (the "Primary Lender"), Citibank, N.A., as alternate lender (the "Alternate Lender"), Citibank, N.A., as facility agent, and Citicorp North America, Inc., as administrative agent for the Primary Lender. Pursuant to Section 2.06(a) of the Credit Agreement, the Shipowner hereby requests that the Alternate Lender extend the Commitment Termination Date until _____________________ (the "Extension"). 34 Please indicate your agreement to the Extension by signing below. Very truly yours, ROWAN COMPANIES, INC., as the Shipowner By: ___________________________ Name: _________________________ Title: ________________________ The undersigned hereby agrees to extend the Commitment Termination Date until [________________]. CITIBANK, N.A. as the Alternate Lender By: ___________________________ Name: _________________________ Title: __________________________ APPENDIX II TO GUARANTEE COMMITMENT DOCUMENT 4 TRUST INDENTURE SPECIAL PROVISIONS THIS TRUST INDENTURE, dated May 28, 2003 (the "Indenture" or the "Agreement"), is between (i) ROWAN COMPANIES, INC., a Delaware corporation (the "Shipowner"), and (ii) ALLFIRST TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association (the "Indenture Trustee"). RECITALS: WHEREAS, to aid in financing the construction of the Vessel, the Shipowner has entered into a credit agreement (the "Credit Agreement") with GOVCO INCORPORATED a Delaware corporation (the "Primary Lender"), CITIBANK, N.A., a national banking association (the "Alternate Lender'), CITIBANK, N.A., a national banking association (the "Facility Agent") and CITICORP NORTH AMERICA, INC., a Delaware corporation (the "Administrative Agent") providing for the delivery of no more than $89,658,000 principal amount of notes designated "United States Government Guaranteed Ship Financing Obligations, TARZAN II Series"; 35 WHEREAS, the Secretary, on behalf of the United States, has agreed to Guarantee the payment of the unpaid interest to the date of such payment on, and the unpaid balance of the principal of, such Obligations under the provisions of Title XI of the Act, and has authorized the Indenture Trustee to cause the Guarantees to be imprinted on the Obligations pursuant to the Authorization Agreement. NOW THEREFORE, in consideration of the premises, of the mutual covenants herein contained, of the purchase of the Obligations by the Holders thereof, 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 all the present and future Holders of the Obligations, the parties hereto agree as follows: 1. INCORPORATION OF GENERAL PROVISIONS. This Indenture shall consist of two parts: the Special Provisions and the General Provisions attached hereto as Exhibit 1, and they shall be treated as one instrument. In the event of a conflict, the terms of the Special Provisions shall prevail. 2. THE OBLIGATIONS. (a) The Obligations issued hereunder shall be designated "United States Government Guaranteed Ship Financing Obligations, TARZAN II Series," and shall be in the forms of Exhibits 2 and 3 to this Indenture; and, the aggregate principal amount of Obligations which may be issued under this Indenture shall not exceed $89,658,000. (b) The denominations of the Obligations shall be in integral multiples of $1,000. (c) The Shipowner shall at all times cause to be maintained in the City of Baltimore, State of Maryland, 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 Baltimore, State of Maryland. 3. INTEREST RATE CALCULATION. Upon the terms and subject to the conditions contained in the Obligations, and based on information received from the Facility Agent (but only in connection with the Floating Rate Note), the Indenture Trustee shall 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, based on information received from the Facility Agent (but only in connection with the Floating Rate Note), shall, upon the request of the Holder of the Obligations, determine the Applicable Interest Rate then in effect with respect to the Obligations. 4. 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 May 10 and November 10 of each year, commencing May 10, 2005 of $2,989,000 of principal amount of Obligations, which amount represents approximately one thirtieth (1/30) of the Original Principal Amount of Obligations, plus interest 36 accrued thereon to the Redemption Date. There shall be a final redemption of the remaining outstanding principal of the Floating Rate Note on the earliest of (i) April 1, 2009, (ii) four (4) years after the Delivery Date, or (iii) at the request of the Secretary, within fifteen (15) Business Days from the date upon which the Trigger Event (as hereinafter defined) shall occur, and a final redemption of the remaining outstanding principal of the Fixed Rate Notes on November 10, 2019. 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 Sections 3.04 or 3.06 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 Sections 3.04 or 3.06 of Exhibit 1 hereto divided by the number of Redemption Dates (including the Stated Maturity of such Obligations) scheduled thereafter to May 10, 2009 in the case of the Floating Rate Note and November 10, 2019 in the case of Fixed Rate Note(s) (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 April 1, 2009 in the case of the Floating Rate Note and November 10, 2019 in the case of each Fixed Rate Note. The Shipowner shall, in accordance with Section 3.02(e) of Exhibit 1 hereto, promptly after each redemption pursuant to said Sections 3.04 or 3.06, 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 Floating Rate Note, 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 Floating Rate Note, in whole or in part, on a Redemption Date designated by the Shipowner, from the proceeds from the issuance of the Fixed Rate Notes. (c) OPTIONAL REDEMPTIONS OF OBLIGATIONS AT MAKE-WHOLE PREMIUM. At its option, the Shipowner may prepay on any Interest Payment Date the Fixed Rate Notes, 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 plus the Make-Whole Premium, if any. Prepayments shall be applied pro rata against each Fixed Rate Note and applied against the scheduled principal payments in the inverse order of scheduled maturity. (d) OPTIONAL REDEMPTIONS. 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 (1) 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, and (2) at least 35 days prior to the date fixed for redemption in the case of the Fixed Rate Notes, deliver to the Indenture Trustee an amount equal to the Make 37 Whole Premium estimated by the Indenture Trustee, based on information received from the Holder or a calculation agent, to be paid on the Redemption Date. The Indenture Trustee, based on information received from the Holder or a calculation agent, shall give an estimate of the Make Whole Premium to the Shipowner within two (2) Business Days of the delivery of the Shipowner's Request. In the event the amount of the Make Whole Premium deposited by the Shipowner with the Indenture Trustee pursuant to this section (and interest, if any, accrued thereon, less any losses incurred on the investment thereof) is insufficient to pay the amount of the Make Whole Premium, the Shipowner shall pay the amount of the shortfall to the Indenture Trustee in immediately available funds upon one (1) day's notice. In the event the amount of the Make Whole Premium deposited by the Shipowner pursuant to this section (and interest, if any, accrued thereon, less any losses incurred on the investment thereof) exceeds the Make Whole Premium, the excess amount shall be refunded to the Shipowner by the Indenture Trustee in immediately available funds on the Redemption Date. (e) FIXED RATE NOTE INTEREST RATE PROTECTION. (1) The Shipowner shall redeem the Floating Rate Note in full by causing to be issued one or more fixed rate obligations with a maturity equal to November 10, 2019 and using the proceeds thereof to repay the Floating Rate Note in full, whenever the Treasury constant maturities rate (10-year) as reported by the Federal Reserve Board in statistical release H.15 (519) (the "Treasury Rate") equals or exceeds nine percent (9.0%) per annum (the "Trigger Event"). If a Trigger Event should occur, the Shipowner shall redeem the Floating Rate Note in full by causing to be issued one or more fixed rate obligations and using the proceeds thereof to repay the Floating Rate Note in full, at the request of the Secretary, within fifteen (15) Business Days from the date of the Trigger Event. (2) Nothing herein shall prevent the Shipowner from redeeming the Floating Rate Note by the issuance of one or more fixed rate obligations at any time prior to Maturity. (3) The failure of the Shipowner to redeem the Floating Rate Note in full by causing to be issued one or more fixed rate obligations and using the proceeds thereof to repay the Floating Rate Note in full, at the request of the Secretary, within fifteen (15) Business Days, unless subsequently waived in writing by the Secretary, shall constitute an Indenture Default without further notice to the Shipowner or the Holders being required under the Indenture. 5. ADDITIONS, DELETIONS AND AMENDMENTS TO EXHIBIT 1 The following additions, deletions and amendments are hereby made to Exhibit 1 to this Indenture. (a) 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. (b) 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. 38 (c) INTEREST RATES. Interest at the Applicable Interest Rate shall be due on each Disbursement at the end of each Interest Period. The Indenture Trustee, based on information received from the Facility Agent (but only in connection with the Floating Rate Note), shall determine the Applicable Interest Rate for each Interest Period. (d) 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, from time to time. 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. (e) CONCERNING SECTION 2.01. Section 2.01(c) and (e) are revised to read as follows: (c) The principal and interest and any premium due on the Obligations shall be paid by (i) the Indenture Trustee or (ii) a Paying Agent, out of funds it receives from the Shipowner, by (x) certified or official bank check mailed by first class postage prepaid to the addresses of the Obligees appearing on the Obligation Register or (y) at the request of an Obligee, received by the Indenture Trustee at least three (3) Business Days prior to the date of payment, by wire transfer to a commercial bank in the United States or by credit to an account maintained by the Obligee with the Indenture Trustee without presentment of the Obligation. Prior to any sale, assignment or transfer of such Obligation, the Holder is required to present the Obligation to the Indenture Trustee so that a proper notation of all principal payments under subparagraph (y) above are made on the Obligation. (e) 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). (f) CONCERNING SECTION 2.02. Prior to the earliest of (i) April 1, 2009, (ii) four (4) years from the Delivery Date, or (iii) at the request of the Secretary, fifteen (15) Business Days from the date any Trigger Event shall occur, 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 2.02 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 Floating Rate Note and/or financing an amount equal to the Available Amount (which amount shall be deposited into the Escrow Fund established by the Security Agreement); provided however, that the Shipowner and Indenture Trustee have obtained the prior written consent of the Secretary and further provided, that (a) except for the final issuance, each issuance of a Fixed Rate Note must be in a minimum aggregate principal amount of $25,000,000 , and (b) the proceeds from the issuance of Fixed Rate Notes shall be used to pay off, satisfy and cancel the Floating Rate 39 Note; provided, however, that in the absence of a Trigger Event during the Construction Period the Floating Rate Note need not be paid off in its entirety and need only be reduced by the net proceeds from the issuance of the Fixed Rate Notes. (g) CONCERNING SECTION 2.07. (i) The first sentence of Section 2.07(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. (ii) Section 2.07(e) is revised to read as follows: (e) As a condition precedent to any transfer or exchange of Obligations, the Shipowner and the Indenture Trustee may require the payment of a sum sufficient to reimburse it for any taxes or other governmental charges that may be imposed with respect thereto and a sum not exceeding $2.00 for each Obligation delivered upon any such transfer or exchange. (h) CONCERNING SECTION 2.09. With respect to clause (1) of the proviso to Section 2.09 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 2.09. (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 to the Indenture Trustee's receipt, by not later than 11:00 am on the due date thereof, 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 (e) 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 40 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. (e) 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 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 send a copy thereof to each Holder of an Obligation of such series. (k) CONCERNING SECTION 3.04. Section 3.04 is revised to read as follows: SECTION 3.04. Redemptions to Comply with Section 1104A(b)(2) of the Act. The Shipowner and the Secretary may Request a Redemption Date, at least forty (40) days but not more than sixty (60) days from the Indenture Trustee's receipt of the Request, for the redemption of certain Obligations because the principal amount of the Outstanding Obligations is in excess of the amount eligible for guarantee by the United States under Section 1104A(b)(2) of the Act. Upon receipt, the Indenture Trustee shall promptly give notice to the Holders of the Redemption Date as provided in Section 3.08 and on that date shall redeem, out of funds it receives from the Shipowner, the principal amount of Obligations specified in the instruction together with the interest accrued thereon. (l) CONCERNING SECTION 3.05. Section 3.05 is revised to read as follows: SECTION 3.05. Redemption after Total Loss, Requisition of Title, Seizure or Forfeiture of a Vessel or Termination of Certain Contracts. The Shipowner and the Secretary may Request a Redemption Date, at least forty (40) days but not more than sixty (60) days from the Indenture Trustee's receipt of the Request, for the redemption of certain Obligations because of (1) an actual, constructive, agreed or compromised total loss of a Vessel, (2) requisition of title to, or seizure or forfeiture of a Vessel or (3) termination of a primary Construction Contract. Upon receipt, the Indenture Trustee shall promptly give notice to the Holders of the Redemption Date as provided in Section 3.08 and on that date shall redeem, out of funds it receives from the Shipowner, such principal amount of Obligations together with the interest accrued thereon. (m) CONCERNING SECTION 3.06. Section 3.06 is revised to read as follows: 41 SECTION 3.06. Redemption After Assumption by the Secretary. At any time after the Secretary has assumed the Obligations under Section 6.09 of the Indenture, the Secretary may Request a Redemption Date, at least forty (40) days but not more than sixty (60) days from the Indenture Trustee's receipt of the Request, for the redemption of all or part of the Obligations. Upon receipt, the Indenture Trustee shall promptly give notice to the Holders of the Redemption Date as provided in Section 3.08 and on that date shall redeem, out of funds it receives from the Shipowner, such principal amount of Obligations together with the interest accrued thereon. (n) CONCERNING SECTION 3.07. Notwithstanding the provisions of Section 3.07 of Exhibit 1 to this Indenture, if less than all of the Obligations are to be redeemed under any of the provisions contained or referred to in Article Fourth hereof (excluding Section 4 (c) or Article III of said Exhibit 1), the Indenture Trustee shall select such Obligations to be redeemed on the Redemption Date by allocating the principal amount to be redeemed first between each maturity of Obligations in proportion to the Outstanding Obligations and second among the holders of each maturity of Obligations in proportion to the aggregate principal amount of such maturity of Obligations registered in their respective names; provided that, the Indenture Trustee may select for redemption portions of the principal amount of the Obligations of a denomination larger than $1,000; but the portions of the principal amount of the Obligations so selected shall be equal to $1,000 or an integral multiple thereof. (0) CONCERNING SECTION 3.09. The second sentence of Section 3.09 is revised to read as follows: Failure to so deposit the amounts with the Indenture Trustee or the Paying Agent shall render any notice to redeem of no effect, and the Indenture Trustee shall so advise the Holders. (p) 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); (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 Day after the deposit of such funds (or the next Business Day if the deposit of such funds is made by 11:00 a.m. on the Business Day prior to the date of Maturity), the Indenture Trustee upon the Request of the Shipowner shall invest such 42 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 an Indenture Default hereunder." (q) CONCERNING SECTION 4.02. (i) The appointment of a Paying Agent by the Shipowner is subject to the prior written consent of the Secretary and Indenture Trustee, which consent shall not be unreasonably withheld. (ii) Section 4.02(a)(3) is revised to read as follows: (3) promptly, and in no event later than five (5) days after any payment made by it hereunder, give written notice to a Responsible Officer in the Corporate Trust Office of all payments of Obligations made by it, including and identifying all endorsements of payment made on Obligations by it, signed and containing the specified information as provided in subparagraph (2) above, and deliver for cancellation to the Indenture Trustee all Obligations surrendered to the Paying Agent. (r) 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 six (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 (unless the Secretary has previously paid the Guarantees, in which case it shall be paid only upon a request by the Secretary); provided that, not less than thirty (30) days prior to such payment, the Shipowner shall publish notice thereof to the Obligees at least once in the Authorized Newspapers and provide the Indenture Trustee with a copy thereof. 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. (s) CONCERNING SECTION 5.02. Section 5.02 is revised to read as follows: 43 SECTION 5.02. Payment and Procedure for Payment of Obligations. The Shipowner shall 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 shall deposit with the Indenture Trustee or (subject to Section 3.09) a Paying Agent no later than 11:00 a.m. in Baltimore, Maryland on each date fixed for such payment or as 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; (t) CONCERNING SECTION 6.05. Section 6.05 is revised to read as follows: SECTION 6.05. Rights of Indenture Trustee after Indenture Default. During the continuance of any Indenture Default, the Indenture Trustee shall have the right to demand and to receive payment of the Guarantees and shall have, with the consent of the Secretary as to matters other than the enforcement of the Guarantees (unless all the Guarantees shall have terminated as provided herein): (a) the right (in its name, as the trustee of an express trust, or as agent and attorney-in-fact for each Holder of the Obligations as a class) to take all action to enforce its rights and remedies (including the institution and prosecution of all judicial and other proceedings and the filings of proofs of claim and debt in connection therewith), and to enforce all existing rights of the Holders of the Obligations as a class; and (b) all other rights and remedies granted to the Indenture Trustee by this Indenture, or the Authorization Agreement, or by law. In addition, during the continuance of an Indenture Default and if all the Guarantees shall have terminated, except by payment of the Guarantees, as provided herein, the Indenture Trustee shall have the right, by written notice to the Shipowner, to declare the entire unpaid principal amount of the Outstanding Obligations and all unpaid interest to be immediately due and payable. In the event 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, the entire unpaid principal amount of the Outstanding Obligations and all unpaid interest shall be automatically due and payable. (u) CONCERNING SECTION 6.06. Section 6.06 is revised to read as follows: 44 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, would subject it to expense and liability against which it had not been offered sufficient indemnity, 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. (b) Limitations on Obligees' Right to Sue. No Obligee shall have the right to institute any judicial or other proceedings under this Indenture unless: (1) the Indenture Trustee shall have been directed to institute such proceeding by the Holders of at least 25% in aggregate principal amount of the Obligations then Outstanding; (2) the Indenture Trustee shall have been offered sufficient indemnity and security against the costs, expenses and liabilities to be incurred by compliance with such direction; (3) the Indenture Trustee shall not have instituted such proceeding within sixty (60) days after the receipt of both such direction and such offer of security and indemnity; (4) no direction inconsistent with such request shall have been given to the Indenture Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Obligations; and (5) the institution and prosecution of such proceeding would not result in an impairment of the rights of any other Obligee, it being understood and intended that no one or more Obligees shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Obligees or to obtain or to seek to obtain priority or preference over any other Obligees or to enforce 45 any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Obligees. (c) Unconditional Right of Obligees to Sue for Principal (and Premium, if any) and Interest. Nothing in paragraph (b) shall (i) affect the obligation of the Shipowner to pay the principal of (and premium, if any) and interest on the Obligations in accordance with their terms or affect the right of any Obligee to institute any judicial or other proceeding to enforce the payment of his Obligations, or (ii) limit the right of any Obligee to demand payment of the Guarantees pursuant to Section 6.02(b) or to institute any judicial or other proceeding to enforce the payment of the Guarantee of any Obligation of which he is the Holder. (v) CONCERNING SECTION 6.07. Section 6.07 is revised to read as follows: SECTION 6.07. Attorneys' Fees and Costs. In any proceeding for the enforcement of any right or remedy under this Indenture, or in any proceeding against the Indenture Trustee for any action taken or omitted by it as Indenture Trustee, the court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant, having due regard to the merits and good faith of the claims or defense made by such party litigant. The provisions of this Section shall not apply to any proceeding instituted by the Indenture Trustee or any proceeding instituted by any Obligee against the Secretary for the payment of the principal of (and premium, if any) and interest on the Obligations. (w) CONCERNING SECTION 6.09. The following paragraph is added at the end of Section 6.09: In the event that the Obligations are registered in the name of The Depository Trust Company ("DTC"), Cede & Co. ("Cede") or another nominee of DTC or Cede pursuant to a Letter of Representations ("LOR") which is executed among the Shipowner, the Indenture Trustee and DTC, and (i) if the Secretary assumes the Obligations pursuant to Section 6.09(a) hereof, or (ii) if the Secretary instructs the Shipowner and the Indenture Trustee to terminate the LOR, the Shipowner and the Indenture Trustee, immediately upon receipt of notice of such assumption or upon receipt of notice of such termination, shall terminate or cause the termination of the LOR in accordance with Section 18 thereof and Rider A thereto. The Indenture Trustee shall within 30 days from receipt of either such notice from the Secretary also instruct DTC to notify its direct and indirect participants of the need to re-register the Obligations in the names of the beneficial owners. Upon surrender by DTC of the Obligations issued in its name, the name of Cede or another nominee, the Shipowner shall issue at its sole expense, and the Indenture Trustee shall authenticate Obligations in the names provided to the Indenture Trustee by DTC. (x) CONCERNING SECTION 7.03. Section 7.03(h) and (n) 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 46 Section) in acting or refraining from acting hereunder in reliance upon an Officer's Certificate as to the existence or non-existence of any fact. (n) 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. (y) 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. (z) CONCERNING SECTION 7.07. Section 7.07 is revised to read as follows: SECTION 7.07. Effect of Appointment of Successor Indenture Trustee. Each successor Indenture Trustee shall forthwith, without further act or deed, succeed to all the rights and duties of its predecessor in trust under this Indenture and the Authorization Agreement. Upon the written request of the successor Indenture Trustee or the Shipowner and upon payment by the Shipowner of all amounts due to such predecessor Indenture Trustee under this Indenture, such predecessor Indenture Trustee shall promptly deliver to such successor Indenture Trustee all sums held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Indenture Trustee under this Indenture and shall transfer, assign and confirm to the successor Indenture Trustee all its rights under this Indenture in such manner as deemed by such successor Indenture Trustee or the Shipowner to be necessary or appropriate in connection therewith and the predecessor Indenture Trustee shall have no liability for any actions taken by the successor Indenture Trustee. (aa) CONCERNING SECTION 9.01. Section 9.01(a) is revised to read as follows: (a) Except as herein otherwise expressly provided, an Act of Obligees shall become effective when it is delivered to the Indenture Trustee and, where it is expressly required, to the Shipowner and the Secretary. Proof of execution of any instrument appointing an agent or attorney to execute an Act of Obligees made in the manner of subsection (b) below shall be sufficient and conclusive for any purpose of this Indenture. (bb) CONCERNING SECTION 12.01. Section 12.01(a) is revised to read as follows: 47 SECTION 12.01. Satisfaction and Discharge of Indenture. Whenever all Outstanding Obligations authenticated and delivered hereunder shall have been Retired or Paid the Indenture Trustee shall forthwith deliver to the Shipowner and the Secretary a duly executed instrument, in form submitted to it by the Shipowner and reasonably satisfactory to the Secretary and the Indenture Trustee, satisfying and discharging this Indenture and, at the time such form of instrument is submitted to the Indenture Trustee the Shipowner shall deliver to the Indenture Trustee an Officer's Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the Obligations of the Shipowner to the Indenture Trustee under Section 7.04 shall survive. (cc) CONCERNING REGISTERED AND BENEFICIAL OWNERSHIP OF THE OBLIGATIONS; LEGENDS. (i) The Fixed Rate Notes may be issued initially in the form of one or more permanent global Notes in definitive, fully registered form without interest coupons (each, a "Global Obligation"). Except as provided in paragraph (iii) below, owners of beneficial interests in Global Obligations ("Obligation Owners") shall not be entitled to receive separate certificated Notes ("Definitive Obligation") and shall not be considered the holders thereof. Each such Global Obligation shall be deposited with The Depository Trust Company (the "DTC") or the Indenture Trustee, as custodian for DTC, registered in the name of DTC or a nominee of DTC, and duly executed by the Shipowner and authenticated by the Indenture Trustee as provided in the Indenture. Each Global Obligation shall bear such legend as DTC may require. (ii) Members of, or participants in, DTC shall have no rights under the Indenture with respect to any Global Obligation held on their behalf by DTC or by the Indenture Trustee, as the custodian of DTC, or under such Global Obligation, and DTC may be treated by the Shipowner, the Indenture Trustee and any agent of the Shipowner or the Indenture Trustee as the absolute owner of such Global Obligation for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Shipowner, the Indenture Trustee or any agent of the Shipowner or the Indenture Trustee from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its members and participants, the operation of customary practices of DTC governing the exercise of the rights of an owner of a beneficial interest in any Global Obligation. (iii) (1) The transfer and exchange of Global Obligations or beneficial interests therein shall be effected through DTC or the Indenture Trustee, as the custodian for DTC, in accordance with the Indenture and the procedures of DTC therefor. (2) A Global Obligation shall be exchangeable for Definitive Obligations registered in the names of persons owning beneficial interest in such Global Obligation only if any of the following events shall have occurred: (1) DTC notifies the Shipowner, with a copy to the Indenture Trustee, that it is unwilling or unable to 48 continue as depositary for such Global Obligation or DTC ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, at a time when DTC is required to be so registered in order to act as depositary, and a successor depositary is not appointed by the Shipowner within 90 days thereafter, (2) the Shipowner or the Indenture Trustee elects to terminate DTC's services or the book entry system, (3) the Secretary assumes the Obligations, or (4) the Secretary instructs the Shipowner and Indenture Trustee to terminate the Letter of Representations. (3) Any Global Obligation that is exchangeable for Definitive Obligations registered in the name of the owners of beneficial interests therein pursuant to this paragraph (iii) shall be surrendered by DTC to the Indenture Trustee to be so exchanged, without charge, and the Shipowner shall execute and the Indenture Trustee shall authenticate and deliver, upon such exchange of such Global Obligation, an equal aggregate principal amount of Definitive Obligations of authorized denominations. Definitive Obligations issued in exchange for a beneficial interest in a Global Obligation pursuant hereto shall be registered in such names and in such authorized denominations as DTC, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Indenture Trustee in writing. The Indenture Trustee shall deliver such Definitive Obligations to the Obligation Owners in whose names such Obligations are so registered in accordance with the instructions of DTC. (4) The registered holder of a Global Obligation may grant proxies and otherwise authorize any Obligation Owner, including DTC's members and participants and Obligation Owners that may hold interest through such members and participants, to take any action which a Holder is entitled to take under the Indenture or the Obligations. (5) In the event of the occurrence of any of the events specified in paragraph (iii)(2), the Shipowner shall promptly make available to the Indenture Trustee a reasonable supply of Definitive Obligations. (6) Notwithstanding any other provision of the Indenture, a Global Obligation may not be transferred except as a whole by DTC for such Global Obligation to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC. (iv) At such time as all beneficial interests in a Global Obligations have either been exchanged for Definitive Obligations, redeemed, repurchased or canceled, such Global Obligation shall be returned to the Indenture Trustee for cancellation or retained and canceled by the Indenture Trustee. (v) The Indenture Trustee shall have no responsibility or obligation to any owner of a beneficial interest in a Global Obligation, a member of, or a participant in DTC or any other Obligation Owner with respect to the accuracy of the records of DTC or its nominee or of any participant or member thereof, with respect to any ownership interest in the Obligations or with respect to the delivery to any participant, member, beneficial owner or other Obligation Owner (other than DTC) of any notice (including any notice of redemption) or the payment of any amount or delivery of any Obligations (or other security or property) under or with respect to such Obligations. All notices and communications to be given to the Holders and all payments to be made to Holders in respect to the Obligations shall be given or made only to or upon the order of the registered Holders 49 (which shall be DTC or its nominee in the case of a Global Obligation). The rights of owners of beneficial interests in any Global Obligation shall be exercised only through DTC subject to the applicable rules and procedures of DTC. The Indenture Trustee may rely and shall be fully protected in relying upon information furnished by DTC with respect to its members, participants and any beneficial owners. 6. MISCELLANEOUS. (a) 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: ALLFIRST TRUST COMPANY, NATIONAL ASSOCIATION 25 South Charles St. 16th Floor (Mail Code 101-591) Baltimore, MD 21201 The Shipowner as: ROWAN COMPANIES, INC. Suite 5450 2800 Post Oak Boulevard Houston, Texas 77056-6127 Attn: Chief Financial Officer 50 The Secretary as: SECRETARY OF TRANSPORTATION c/o Maritime Administrator U.S. Department of Transportation 400 Seventh Street, SW Washington, D.C. 20590 (b) CONCERNING APPLICABLE LAW. This Indenture and each Obligation shall be governed by the federal laws of the United State of America, but to the extent that they are inapplicable by the laws of the State of New York. (c) 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. 51 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: /s/ Mark H. Hay By: /s/ Edward E. Thiele - ----------------------- ------------------------ Secretary Senior Vice President ALLFIRST TRUST COMPANY NATIONAL ASSOCIATION Indenture Trustee ATTEST: /s/ Donald C. Hargadon By: /s/ Robert D. Brown - ----------------------- ------------------------ Vice President Vice President 52 EX-13 10 h13239exv13.txt ANNUAL REPORT TO STOCKHOLDERS . . . EXHIBIT 13 TEN-YEAR FINANCIAL REVIEW ROWAN COMPANIES, INC.
(In thousands except per share amounts and ratios) 2003 2002 2001 - -------------------------------------------------- ---- ---- ---- OPERATIONS Revenues: Drilling services $ 421,412 $ 357,244 $ 486,291 Manufacturing sales and services 133,186 118,120 102,150 Aviation services 124,490 141,894 142,623 ------------- ------------- ------------- Total 679,088 617,258 731,064 ------------- ------------- ------------- Costs and expenses: Drilling services 330,124 304,846 303,420 Manufacturing sales and services 122,229 109,842 88,691 Aviation services 112,391 112,286 118,153 Depreciation and amortization 86,851 78,091 68,499 General and administrative 25,357 25,140 27,670 ------------- ------------- ------------- Total 676,952 630,205 606,433 ------------- ------------- ------------- Income (loss) from operations 2,136 (12,947) 124,631 ------------- ------------- ------------- Other income (expense): Net proceeds from Gorilla V settlement 157,125(1) Interest expense (20,027) (20,645) (24,240) Less interest capitalized 4,142 4,722 11,170 Interest income 1,124 4,106 8,382 Other - net 673 458 264 ------------- ------------- ------------- Other income (expense) - net (14,088) 145,766 (4,424) ------------- ------------- ------------- Income (loss) before income taxes (11,952) 132,819 120,207 Provision (credit) for income taxes (4,178) 46,541 43,209 ------------- ------------- ------------- Income (loss) before extraordinary charges (7,774) 86,278 76,998 Extraordinary charges from redemption of debt ------------- ------------- ------------- Net income (loss) $ (7,774) $ 86,278(1) $ 76,998 ------------- ------------- ------------- Per share of common stock: Net income (loss): Basic: Income (loss) before extraordinary charges $ (.08) $ .92 $ .82 Extraordinary charges from redemption of debt ------------- ------------- ------------- Net income (loss) $ (.08) $ .92 $ .82 ------------- ------------- ------------- Diluted: Income (loss) before extraordinary charges $ (.08) $ .90 $ .80 Extraordinary charges from redemption of debt ------------- ------------- ------------- Net income (loss) $ (.08) $ .90(1) $ .80 ------------- ------------- ------------- Cash dividends $ - $ .25 $ - ------------- ------------- ------------- FINANCIAL POSITION Working capital $ 293,859 $ 353,927 $ 305,188 ------------- ------------- ------------- Property, plant and equipment - at cost: Drilling equipment 2,133,365 1,922,341 1,634,370 Aircraft and related equipment 265,165 264,212 255,600 Manufacturing plant and equipment 138,803 120,705 104,018 Construction in progress 135,707 199,352 327,032 Other property and equipment 162,010 155,815 140,706 ------------- ------------- ------------- Total 2,835,050 2,662,425 2,461,726 ------------- ------------- ------------- Property, plant and equipment - net 1,728,219 1,567,144 1,418,843 Total assets 2,190,809 2,054,504 1,938,955 Capital expenditures 250,463 242,896 305,180 Long-term debt 569,067 512,844 438,484 Common stockholders' equity 1,136,830 1,131,777 1,108,087 ------------- ------------- ------------- STATISTICAL INFORMATION Current ratio 2.95 4.05 2.51 Long-term debt/total capitalization .33 .31 .28 Book value per share of common stock $ 12.08 $ 12.09 $ 11.84 Price range of common stock $ 17.70-26.72 $ 15.89-26.84 $ 11.10-33.89 ============= ============= =============
(1) Excluding the Gorilla V settlement, net income (loss) and net income (loss) per diluted share would have been approximately $(16) million and $(.17), respectively. (2) Amounts reflect advances of $110 million outstanding under the Company's $155 million revolving credit facility expiring in October 2000. The Company repaid such advances during February 2000 from the $247 million net proceeds from a stock offering and cancelled the facility. Giving effect to these transactions at December 31,1999,the Company's Working capital and Current ratio would have been $370 million and 5.00,respectively. 14 TEN-YEAR FINANCIAL REVIEW ROWAN COMPANIES, INC.
2000 1999 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- ---- ---- $ 418,948 $ 260,939 $ 431,664 $ 434,004 $ 316,123 $ 250,080 $ 245,917 103,465 95,545 158,913 154,852 143,768 133,755 96,664 123,546 104,078 115,773 106,396 111,269 87,462 95,578 - ------------- ------------ ------------ -------------- -------------- ------------ ------------ 645,959 460,562 706,350 695,252 571,160 471,297 438,159 - ------------- ------------ ------------ -------------- -------------- ------------ ------------ 256,615 213,356 218,372 217,514 202,394 203,415 207,306 88,463 88,430 134,535 134,324 131,693 120,328 86,883 106,374 93,806 98,037 95,368 91,570 77,964 79,381 58,865 54,699 49,703 47,078 47,882 50,555 50,790 24,072 18,399 18,366 16,971 16,591 14,692 13,862 - ------------- ------------ ------------ -------------- -------------- ------------ ------------ 534,389 468,690 519,013 511,255 490,130 466,954 438,222 - ------------- ------------ ------------ -------------- -------------- ------------ ------------ 111,570 (8,128) 187,337 183,997 81,030 4,343 (63) - ------------- ------------ ------------ -------------- -------------- ------------ ------------ (25,652) (22,755) (17,500) (26,208) (27,547) (27,702) (27,530) 13,510 11,238 16,264 9,966 2,516 10,948 4,583 7,205 5,190 4,157 5,209 4,813 487 526 395 343 374 468 260 - ------------- ------------ ------------ -------------- -------------- ------------ ------------ (707) (6,408) 6,364 (10,709) (20,500) (22,025) (22,457) - ------------- ------------ ------------ -------------- -------------- ------------ ------------ 110,863 (14,536) 193,701 173,288 60,530 (17,682) (22,520) 40,650 (4,870) 69,241 16,863 (808) 754 469 - ------------- ------------ ------------ -------------- -------------- ------------ ------------ 70,213 (9,666) 124,460 156,425 61,338 (18,436) (22,989) 9,766 - ------------- ------------ ------------ -------------- -------------- ------------ ------------ $ 70,213 $ (9,666) $ 124,460 $ 146,659 $ 61,338 $ (18,436) $ (22,989) - ------------- ------------ ------------ -------------- -------------- ------------ ------------ $ .76 $ (.12) $ 1.45 $ 1.82 $ .72 $ (.22) $ (.27) $ .12 - ------------- ------------ ------------ -------------- -------------- ------------ ------------ $ .76 $ (.12) $ 1.45 $ 1.70 $ .72 $ (.22) $ (.27) - ------------- ------------ ------------ -------------- -------------- ------------ ------------ $ .74 $ (.12) $ 1.43 $ 1.76 $ .70 $ (.22) $ (.27) $ .11 - ------------- ------------ ------------ -------------- -------------- ------------ ------------ $ .74 $ (.12) $ 1.43 $ 1.65 $ .70 $ (.22) $ (.27) - ------------- ------------ ------------ -------------- -------------- ------------ ------------ $ - $ - $ - $ - $ - $ - $ - - ------------- ------------ ------------ -------------- -------------- ------------ ------------ $ 379,003 $ 122,792(2) $ 286,059 $ 330,852 $ 232,045 $ 200,588 $ 195,945 - ------------- ------------ ------------ -------------- -------------- ------------ ------------ 1,553,849 1,268,704 1,238,361 965,292 954,249 944,021 961,391 236,760 221,776 211,313 202,044 188,681 189,954 176,874 94,077 83,835 75,949 60,902 37,377 25,037 18,955 157,314 248,567 127,075 195,996 77,318 121,997 113,008 108,353 94,476 94,517 91,089 86,883 - ------------- ------------ ------------ -------------- -------------- ------------ ------------ 2,163,997 1,935,890 1,761,051 1,518,710 1,352,142 1,250,101 1,244,103 - ------------- ------------ ------------ -------------- -------------- ------------ ------------ 1,182,780 1,025,739 877,197 677,160 546,200 487,039 506,121 1,678,426 1,356,067 1,249,108 1,122,135 899,308 802,488 805,179 223,082 204,689 247,747 180,066 117,947 33,881 43,377 372,212 296,677 310,250 256,150 267,321 247,744 248,504 1,052,757 723,724 729,996 653,098 496,219 429,155 442,347 - ------------- ------------ ------------ -------------- -------------- ------------ ------------ 4.63 1.61(2) 4.59 5.06 3.72 3.75 4.39 .26 .29 .30 .28 .35 .37 .36 $ 11.17 $ 8.69 $ 8.77 $ 7.53 $ 5.80 $ 5.06 $ 5.25 $ 19.06-34.25 $ 8.50-21.69 $ 9.00-32.50 $ 16.75-43.94 $ 8.88-24.50 $ 5.38-10.00 $ 5.75-9.25 ============= ============ ============ ============== ============== ============ ============
15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ROWAN COMPANIES, INC. RESULTS OF OPERATIONS The following analysis highlights Rowan's operating results for the years indicated (in millions):
2003 2002 2001 ---- ---- ---- Revenues: Drilling $ 421.4 $ 357.3 $ 486.3 Manufacturing 133.2 118.1 102.2 Aviation 124.5 141.9 142.6 ---------- ---------- ---------- Total $ 679.1 $ 617.3 $ 731.1 ========== ========== ========== Operating Expenses*: Drilling $ 390.8 $ 359.7 $ 349.9 Manufacturing 130.9 117.3 96.5 Aviation 129.9 128.1 132.4 ---------- ---------- ---------- Total $ 651.6 $ 605.1 $ 578.8 ========== ========== ========== Operating Profit (Loss)**: Drilling $ 30.6 $ (2.4) $ 136.4 Manufacturing 2.3 0.8 5.7 Aviation (5.4) 13.8 10.2 ---------- ---------- ---------- Total $ 27.5 $ 12.2 $ 152.3 ========== ========== ========== General & Administrative Expenses $ 25.4 $ 25.1 $ 27.7 ========== ========== ========== Net Income (Loss) $ (7.8) $ 86.3 $ 77.0 ========== ========== ==========
* Including depreciation and amortization expense **Revenues less operating expenses. Operating profit is income (loss) from operations before general and administrative expenses, many of which are incurred in support of all of Rowan's businesses and not allocable to specific segments. As indicated in the preceding table, Rowan's results of operations are heavily dependent upon the performance of our drilling division, which comprises about 88% of our fixed assets and, over the past three years, has generated more than 60% of our revenues and more than 85% of our aggregate operating profit. The performance of each of our operating segments over the 2001-2003 period is discussed more fully below. The settlement in March 2002 of the Gorilla V contract dispute yielded approximately $102 million of net income in 2002, improving upon what otherwise would have been a $16 million net loss. General and administrative expenses were higher in 2001 due primarily to legal costs associated with this matter. Such settlement is discussed more fully under Liquidity and Capital Resources, which follows the review of our operating results. DRILLING OPERATIONS Rowan's drilling operating results are generally a function of rig rates and activity in our principal operating areas: the Gulf of Mexico, the North Sea and offshore eastern Canada. Such rates and activity are primarily determined by the level of expenditures by energy companies, which are heavily influenced by oil and natural gas prices and the availability of competitive equipment. In recent years, Rowan's offshore drilling operations have been focused in the Gulf of Mexico, where 22 of our 24 offshore rigs are currently deployed. This market is extremely fragmented among many oil and gas companies, most of whom are independent operators whose drilling activities are often highly dependent upon near-term operating cash flows. A typical drilling assignment is for 30-45 days of exploration or development work, performed under a single-well contract containing negotiable renewal options. Thus, drilling activity and day rates in this market tend to fluctuate rather quickly and generally follow the trend in natural gas prices. Rowan generally avoids long-term, fixed-rate commitments - which are available only from the major integrated oil companies and a few of the larger independents - in order to maximize opportunities for day rate increases in the future. The North Sea is a mature offshore drilling market that has long been dominated by major oil and gas companies operating within a relatively tight regulatory environment. Drilling assignments can range from several months to several years and project lead times are often lengthy. Thus, drilling activity and day rates move slowly in response to market conditions and generally follow trends in oil prices. We have operated offshore eastern Canada to varying degrees since the early 1980s. In recent years, the market for harsh environment jack-ups in this area has been sporadic, with Rowan ranging from three rigs fully utilized in the area in mid-2000 to having only one rig approximately 60% utilized there over the past three years. Rowan does not cold-stack its drilling rigs during slack periods as we believe the long-term costs of retraining personnel and restarting equipment outweighs any short-term savings. Thus, our drilling expenses do not typically fluctuate with rig activity, though they have increased in recent years as our drilling fleets have expanded. Rowan added to its offshore fleet the Super Gorilla XL class Bob Palmer in September 2003 and the Super Gorilla class Rowan Gorilla VII in early 2002. Four new land rigs were constructed over the 2001-2002 period and two existing land rigs were substantially rebuilt during 2003. 2003 compared to 2002 Rowan's drilling division generated a $33 million increase in operating profit in 2003 compared to 2002. Drilling revenues increased by $64.1 million or 18% in 2003, due to the effects of increases in both drilling activity and average day rates, as follows (in millions): Increase in drilling activity $ 35.7 Increase in drilling rates 28.4
Natural gas prices remained fairly stable at or above $5.00 per mcf throughout 2003 and the size of the competitive Gulf of Mexico jack-up fleet declined by more than 10% during the year. Thus, our Gulf of Mexico fleet utilization was consistently strong in 2003 and, as a result, our average day rates in the area improved throughout the year. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ROWAN COMPANIES, INC. The following table summarizes average natural gas prices and Rowan's overall Gulf of Mexico fleet utilization and average day rates during 2003:
NATURAL AVERAGE AVERAGE GAS (MCF)* UTILIZATION DAY RATE ---------- ----------- -------- First quarter $ 5.92 90% $ 34,700 Second quarter 5.74 93% 35,700 Third quarter 4.89 93% 39,100 Fourth quarter 5.43 92% 42,400 Full year 5.49 92% 38,100
* Source: New York Mercantile Exchange We consider only revenue-producing days in computing rig utilization and average day rates. Our average Gulf of Mexico day rate in 2003 as shown in the preceding table was approximately 17% higher than our average for 2002. Our Gulf of Mexico fleet increased to 22 units in September 2003 with the commencement of operations by the Bob Palmer. Oil prices were also fairly stable throughout 2003, at or above $30 per barrel, which helped influence an increase in rig demand in many foreign markets and the migration of many jack-ups from the Gulf of Mexico. However, market conditions in our principal foreign areas, the North Sea and offshore eastern Canada, did not improve measurably during the year. After being idle for most of the first half of 2003, Gorilla VII began in June a contract to drill and produce wells in the UK sector of the North Sea. The rig was 100% utilized in the area throughout the remainder of the year. Rowan Gorilla V was only 58% utilized offshore eastern Canada during 2003. Rowan's fleet of 18 deep-well land rigs was 74% utilized in 2003 and achieved an average day rate of $10,700 during the year, compared to 67% and $9,900 in 2002. The fleet includes four rigs constructed during the 2001-2002 period and nine rigs that have been substantially rebuilt in recent years, including two in 2003. Fifteen of our land rigs are actively marketed in Texas, Louisiana and Mississippi. Our fleet of six anchor-handling, towing and supply (AHTS) vessels was 74% utilized in 2003, compared to 76% in 2002. Each vessel was obtained in 1999-2000 under five-year lease agreements that contain purchase options. The boats are fully-crewed by the lessor, but managed by Rowan to provide towing and supply services to our drilling operations. We also directly market the boats to third parties, with emphasis on their anchor-handling capabilities for deepwater semi-submersibles. Drilling operating expenses were about $31.1 million or 9% higher in 2003 compared to 2002, due to the addition of the Bob Palmer, the continued expansion of our land rig operations and higher pension and insurance costs. 2002 compared to 2001 Rowan's drilling division suffered a $138.8 million decrease in operating profit (loss) in 2002 compared to 2001. Drilling revenues decreased by $129 million or 27% in 2002, as the effects of a significant decline in average day rates more than offset an increase in drilling activity, as follows (in millions): Increase in drilling activity $ 37.1 Decrease in drilling rates (166.1)
During 2000 and 2001, natural gas prices were extremely volatile, increasing from around $2 per mcf to about $10 during 2000 and falling back to around $2 by the end of 2001. Gulf of Mexico jack-up demand followed a similar pattern, improving steadily throughout 2000 only to fall by nearly 50% during 2001. Gas prices improved rather steadily throughout 2002, finishing the year near $5 per mcf. Our Gulf of Mexico drilling operations, which continued to experience the effects of the 2000-2001 market volatility in early 2002, showed improvement over most of the second and third quarters, but leveled off during the fourth quarter and began weakening by year end. The following table summarizes average natural gas prices and Rowan's overall Gulf of Mexico fleet utilization and average day rates during 2002:
NATURAL AVERAGE AVERAGE GAS (MCF)* UTILIZATION DAY RATE ---------- ----------- -------- First quarter $ 2.49 83% $ 29,400 Second quarter 3.42 95% 30,500 Third quarter 3.20 95% 35,000 Fourth quarter 4.32 93% 35,600 Full year 3.36 91% 32,700
* Source: New York Mercantile Exchange Our Gulf of Mexico day rates finished 2002 only slightly higher than where they started the year, with our full year average as shown in the preceding table about 38% below our average for 2001. Our Gulf of Mexico fleet increased to 22 units with the addition, in February 2002, of Gorilla VII. It declined to 21 units following the loss in October of the Rowan-Houston during Hurricane Lili, which is discussed more fully under Liquidity and Capital Resources following the review of our operating results. In March 2000, Rowan temporarily withdrew from the North Sea market, though we remained confident in its long-term viability, particularly for our Gorilla and Super Gorilla jack-ups. During 2001, we constructed a new area headquarters facility near Aberdeen, Scotland and drilling activity improved somewhat throughout that year. In anticipation of the continued strengthening of that market, we relocated the newly-constructed Gorilla VII to the North Sea in early 2002 and it was 76% utilized in the area over the last half of the year. Gorilla V was only 34% utilized offshore eastern Canada in 2002. Drilling operating expenses were about $9.8 million or less than 3% higher in 2002 compared to 2001, due primarily to the addition of Gorilla VII. Rowan's land rig fleet was 67% utilized in 2002 and achieved an average day rate of $9,900 during the year, compared to 72% and $13,400 in 2001. Our fleet of six AHTS boats was 76% utilized in 2002, compared to 90% in 2001. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ROWAN COMPANIES, INC. Outlook With generally favorable oil and natural gas prices over the past two years, energy companies have and will likely continue to realize improved cash flows. Many are also struggling to offset declining production and the depletion of their reserve base. Recent royalty waivers on natural gas production from "deep shelf" wells in the shallow waters of the Gulf of Mexico should increase drilling activity there. As a result, we continue to believe that, ultimately, such cash flows will be reinvested in additional drilling projects, but are uncertain as to when this will occur. The majority of our capital investments in recent years have been for new jack-up rigs. We designed these rigs to target emerging market niches, such as simultaneous drilling and production in harsh environments as is currently being performed by Gorilla VII and more efficient deep shelf drilling offered by the Tarzan Class rigs. Such investments have yet to consistently provide the returns that we originally envisioned, but we remain optimistic that they will do so in the future. Though near-term drilling demand is uncertain, we remain confident in the long-term potential of the harsh environment jack-up markets in the North Sea and offshore eastern Canada. We are optimistic that recent regulatory and tax changes in the United Kingdom will increase participation in that market by independent operators, which should increase rig demand. In recent months, we have seen an increase in bid activity in many other foreign locations, especially in areas with perceived liquefied natural gas (LNG) potential such as Trinidad and Qatar. We are aggressively pursuing contracts where we see an opportunity to maximize the contribution of our Super Gorilla class and other offshore rigs and measurably improve our operating results. Worldwide rig demand is inherently volatile and generally varies from one market to the next, as does the supply of competitive equipment. Exploration and development expenditures on the part of energy companies are affected by many factors beyond oil and natural gas price levels and trends, such as political and regulatory policies, seasonal weather patterns, lease expirations, mergers and acquisitions and new oil and gas discoveries. The outlook for most worldwide drilling markets appears to be stable or improving. However, the volatility inherent in the drilling business prevents us from being able to accurately predict whether existing market conditions will continue beyond the near term or whether any expected improvements will materialize. In response to fluctuating market conditions, we can, as we have done in the past, relocate drilling rigs from one geographic area to another, but only when we believe such moves are economically justified over the longer term. Currently, Rowan's drilling operations are unprofitable and they will be adversely affected should market conditions deteriorate. MANUFACTURING OPERATIONS We have manufacturing facilities in Longview, Texas, Vicksburg, Mississippi and Houston, Texas that produce mining and timber equipment, alloy steel and steel plate and various drilling rig components. Through the acquisition of The Ellis Williams Company, now LEWCO, we expanded our drilling products group in 2000 to include the production of oilfield mud pumps. In early 2002, we acquired, for approximately $8 million of our common stock, net assets of two companies that collectively manufacture variable speed AC motors and variable frequency drive systems and consoles for marine boats and lay barges, the oil and gas drilling industry and the mining and dredging industries. Rowan's manufacturing division has continued to generate operating profits while leading the effort to expand and upgrade our drilling fleets. During 2003, our manufacturing division delivered the Bob Palmer, achieved significant construction progress on the first two Tarzan Class jack-ups and provided key components for the rebuilding of two land rigs. 2003 compared to 2002 Our manufacturing division achieved a $15.1 million or 13% increase in revenues in 2003 compared to 2002 which, after a $13.6 million or 12% increase in operating expenses, yielded a $1.5 million increase or near-tripling of operating profit between periods. The equipment group generated a $14.8 million or 25% increase in revenues in 2003. New equipment sales increased by 22% between periods as the group shipped 14 new loaders and stackers during 2003, compared to 12 units in 2002. Parts sales improved by 9% in 2003. The steel group suffered a $1.4 million or 7% decrease in revenues in 2003 on a 1% decrease in external steel shipments. The drilling products group increased outside sales of rig components, parts and fabrication services by $1.6 million or 4% in 2003. The group shipped 15 pumps to outside customers during 2003, up from 11 pumps in 2002. Our 2003 manufacturing operations exclude approximately $136 million of products and services provided to Rowan's drilling division during the year, most of which was attributable to construction progress on the Bob Palmer and the Scooter Yeargain. The drilling products group completed and delivered the Bob Palmer during August 2003. 2002 compared to 2001 Our manufacturing division achieved a $15.9 million or 16% increase in revenues in 2002 compared to 2001 which, after a $20.8 million or 22% increase in operating expenses, yielded a $4.9 million or 86% decline in operating profit between periods. The equipment group experienced an $8.3 million or 12% decrease in revenues in 2002, as the effects of unfavorable commodities prices and mining company mergers contributed to a $7.3 million or 18% decrease in parts sales between periods. The group shipped 12 new loaders and stackers during 2002, compared to 11 units in 2001. The steel group achieved a $2.4 million or 15% increase in revenues in 2002 on an 18% increase in external steel shipments. The drilling products group increased outside sales of rig components, parts and fabrication services by $21.8 million or 119% in 2002. The group shipped 11 pumps to outside customers during 2002, down from 23 pumps in 2001. Our 2002 manufacturing operations exclude approximately $113 million of products and services provided to Rowan's drilling division during the year, most of which was attributable to construction progress on the Bob Palmer. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ROWAN COMPANIES, INC. Outlook Though considerably less volatile than our drilling operations, our manufacturing operations, especially the equipment group, have in recent years been adversely impacted by a prolonged period of unfavorable world commodities prices; in particular, prices for copper, iron ore, coal and gold. In addition, prospects for our drilling products group are ultimately tied to the condition of the overall drilling industry and its demand for equipment, parts and services. Many commodity prices have increased in recent months due to growth in worldwide demand - and the de facto devaluation of the U.S. dollar - and our external manufacturing backlog, currently at $46 million, is more than double the prior-year level. We are optimistic that a recovery in the mining equipment business may be underway, but cannot, however, accurately predict whether or not any such recovery will continue beyond the near term or its impact on our manufacturing operations. AVIATION OPERATIONS Rowan's aviation operations are heavily influenced by oil and natural gas exploration and production activities, principally in the Gulf of Mexico and seasonal weather conditions, primarily in Alaska. The division continues to diversify its flight services and other key sources of aviation revenues include a commuter airline in Alaska, forest fire control services throughout the western United States and Alaska tourism. Most of our flight services are provided under short-term charter arrangements or, on an as-needed basis, under master service agreements. Term contracts are only occasionally available, and then they are usually confined to energy-related flying for major oil and gas companies. Based upon fleet size, we are the largest operator in Alaska and third-largest in the Gulf of Mexico area. We have gradually restructured our fleet over the years, placing more emphasis on higher-capacity and longer-range twin-engine helicopters. The following table reflects the numbers of our aircraft at the end of each of the last three years and the revenue hours flown for each of those years.
2003 2002 2001 ---- ---- ---- Alaska: Number of helicopters 40 45 46 Revenue hours 13,342 15,600 18,785 Number of fixed-wing aircraft 16 19 19 Revenue hours 18,148 18,798 19,789 Gulf of Mexico: Number of helicopters 45 47 49 Revenue hours 15,619 24,283 28,124
2003 compared to 2002 Our aviation division suffered a $17.4 million or 12% decrease in revenues in 2003 compared to 2002 which, after a $1.8 million or 1% increase in operating expenses, yielded a $19.2 million decrease in operating profit (loss) between periods. As indicated in the preceding table, revenue flight hours decreased by 20% in 2003. Our revenues from energy-related flying, primarily in support of Gulf of Mexico deepwater drilling operations, declined by 23% in 2003, consistent with the decline in deepwater drilling activity. We achieved a 15% increase in forest fire control revenues and a 7% increase in tourism-related revenues over 2002. Our commuter airline in Alaska generated a 4% increase in revenues in 2003. Aviation operating expenses increased slightly in 2003 primarily due to higher pension costs. 2002 compared to 2001 Our aviation division experienced a $.7 million or less than 1% decrease in revenues in 2002 compared to 2001 which, after a $4.3 million or 3% decrease in operating expenses, yielded a $3.6 million or 35% increase in operating profit between periods. The 12% decrease in 2002 revenue flight hours, as shown in the preceding table, was virtually offset by the effects of rate increases in each of the current and prior years. Our revenues from energy-related flying improved by only 3% in 2002, due primarily to the lethargic deepwater drilling market that prevailed for much of the year. We achieved a 36% increase in forest fire control revenues, which was substantially offset by a 13% decrease in tourism-related revenues. Revenues from our commuter airline were virtually unchanged in 2002. Aviation operating expenses declined in 2002 as gains on aircraft sales more than offset a near-50% increase in insurance costs from 2001 in the aftermath of 9/11. Outlook We currently do not anticipate any significant improvement in the Alaska aviation market in 2004, though longer-term we are encouraged by proposals for additional drilling and pipeline construction activities in the area. We are optimistic that the Gulf of Mexico aviation market will strengthen if offshore drilling activity improves as expected. Changes in energy company exploration and production activities, seasonal weather patterns and many other factors affect the demand for flight services in the aviation markets in which we compete. The inherent uncertainty underlying such factors prevents us from being able to accurately predict whether existing market conditions will continue beyond the near term, whether any expected improvements will materialize or their impact on our aviation operations. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ROWAN COMPANIES, INC. LIQUIDITY AND CAPITAL RESOURCES Key balance sheet amounts and ratios for 2003 and 2002 were as follows (dollars in millions):
2003 ------------------------- DECEMBER 31, ACTUAL PRO FORMA* 2002 - ------------ ------ ---------- ---- Cash and cash equivalents $ 58.2 $ 322.8 $ 178.8 Current assets $ 444.2 $ 708.8 $ 469.9 Current liabilities $ 150.4 $ 150.4 $ 116.0 Current ratio 2.95 4.71 4.05 Current maturities of long-term debt $ 55.3 $ 55.3 $ 42.5 Long-term debt $ 569.1 $ 569.1 $ 512.8 Stockholders' equity $ 1,136.8 $ 1,401.4 $ 1,131.8 Long-term debt/ total capitalization .33 .29 .31
* As adjusted for early 2004 common stock sale Reflected in the comparisons shown in the preceding table are the effects of the following 2003 transactions: net cash provided by operations of $48.3 million; capital expenditures of $250.5 million; proceeds from borrowings of $111.5 million and debt repayments of $42.5 million. Pro forma 2003 amounts give effect to the sale, in early 2004, of 11.5 million shares of Rowan common stock for approximately $265 million as if such transactions had occurred at December 31, 2003. Capital expenditures in 2003 included $118 million towards construction of the first two of a new class of jack-up rig, specifically targeted for deep drilling in water depths up to 250 feet on the outer continental shelf in the Gulf of Mexico. The Tarzan Class rigs will offer drilling capabilities similar to our Gorilla class jack-ups, enabling more efficient drilling beyond 15,000 feet, but with reduced environmental criteria (wind, wave and current). The first rig, the Scooter Yeargain, is at our Sabine Pass, Texas facility for final outfitting and is scheduled for delivery during April 2004. The Bob Keller (formerly Tarzan II) is being constructed at our Vicksburg, Mississippi shipyard with delivery expected during the third quarter of 2005. Two additional Tarzan Class jack-ups are tentatively planned. During May 2003, Rowan obtained financing for up to 87.5% of the cost of the first two Tarzan Class rigs through 15-year bank loans guaranteed by the U.S. Department of Transportation's Maritime Administration (MARAD) under its Title XI Program. Under the Title XI Program, we obtain reimbursements for expenditures based upon actual construction progress. Outstanding borrowings initially bear interest at .15% above a short-term commercial paper rate. Rowan may fix the interest rate at any time and must fix the rate on all outstanding principal amounts within four years following rig delivery. Interest is payable semi-annually on each May 10 and November 10 and the principal will be repaid in 30 semi-annual installments commencing November 10, 2004. Each Tarzan Class rig is pledged as security for the respective government guarantee. At December 31, 2003, we had drawn down about $72 million of the $91.2 million Scooter Yeargain credit facility, which bore interest of 1.26%. No borrowings were outstanding under the $89.7 million Bob Keller credit facility at year end. We have applied to MARAD for Title XI government-guaranteed financing for up to 87.5% of the cost of Tarzans III and IV on terms and conditions similar to those in effect for the Scooter Yeargain. However, there can be no assurance that any such financing will be obtained. Capital expenditures in 2003 included $49 million towards the completion of the Bob Palmer, an enhanced version of our Super Gorilla class jack-up designated as Super Gorilla XL, which was delivered in August 2003. The Bob Palmer is outfitted with 713 feet of leg, 139 feet more than Gorillas V, VI or VII and has 30% larger spud cans, enabling operation in the Gulf of Mexico in water depths up to 550 feet. The Bob Palmer was also designed to operate in water depths up to 400 feet in the hostile environments offshore eastern Canada and in the North Sea. Rowan financed 87.5% of the cost of the Bob Palmer through an 18-year bank loan guaranteed under the MARAD Title XI Program. Outstanding borrowings bear interest at .25% above a short-term commercial paper rate. Rowan may fix the interest rate at any time and must fix the rate on all outstanding principal amounts by August 18, 2007. Interest is payable semi-annually on each January 15 and July 15 and the first of 36 semi-annual principal repayments occurred on January 15, 2004. The Bob Palmer is pledged as security for the government guarantee. At December 31, 2003, we had $187.3 million of the credit facility outstanding, which bore interest of 1.36%. Capital expenditures during 2003 also included $22 million toward the expansion and upgrade of our land drilling capabilities, including the substantial rebuilding of two existing land rigs. Capital expenditures encompass new assets or enhancements to existing assets as expenditures for routine maintenance and major repairs are charged to operations as incurred. The remainder of 2003 capital expenditures was primarily for major enhancements to existing offshore rigs and manufacturing facilities and purchases of aircraft and components. Our 2004 capital budget is estimated to be in the range of about $120 million, including approximately $75 million for the first two Tarzan Class rigs. We will review and adjust the capital budget as necessary to take advantage of market opportunities in our drilling, manufacturing and aviation businesses. We have committed to purchase three Sikorsky S-92 helicopters for the deepwater drilling market, subject to our obtaining long-term operating contracts. The S-92 design features a 19-passenger capacity and a range of 475 nautical miles. We currently expect the helicopters to be available in the first half of 2005 and that their total cost, estimated to approach $50 million, will be funded from existing working capital or outside financing. However, there can be no assurance that working capital will be adequate or outside financing will be available. Construction of Rowan Gorilla VII, completed during December 2001, was substantially financed through a $185.4 million government-guaranteed bank note issued under the Title XI Program. On June 30, 2003, we fixed the interest rate on all outstanding principal amounts at 2.8%. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ROWAN COMPANIES, INC. Principal and accrued interest are payable semi-annually on each April 20 and October 20 through 2013. Gorilla VII is pledged as security for the government guarantee. Outstanding borrowings totaled $154.5 million at December 31, 2003. Construction of Rowan Gorilla VI, completed during June 2000, was substantially financed through a $171 million government-guaranteed bank note issued under the Title XI Program. On March 15, 2001, we fixed the interest rate on all outstanding principal amounts at 5.88%. Principal and accrued interest are payable semi-annually on each March 15 and September 15 through March 2012. Gorilla VI is pledged as security for the government guarantee. Outstanding borrowings totaled $121.1 million at December 31, 2003. Construction of Rowan Gorilla V, completed in late 1998, was substantially financed through two government-guaranteed bank notes totaling $153.1 million issued under the Title XI Program in 1997 and 1998. Principal and accrued interest are payable semi-annually on each January 1 and July 1 through 2010. Gorilla V is pledged as security for the government guarantees. Outstanding borrowings at December 31, 2003, were as follows: $39.1 million at 6.94% and $50.2 million at 6.15%. During the 2001-2003 period, Rowan contributed about $47 million to our defined benefit pension plans. Such contributions were based upon actuarial calculations of pension assets and liabilities that involve, among other things, assumptions about long-term asset returns and discount rates. Similar calculations were used to estimate pension costs and obligations as reflected in our consolidated financial statements, which showed an accumulated other comprehensive loss resulting from unfunded pension liabilities of $54.7 million at December 31, 2003. We believe that our pension costs will increase in 2004, in amounts not presently determinable and currently expect to contribute approximately $20 million in 2004 for our pension and other benefit plans. Contractual Obligations and Commercial Commitments The following is a summary of our contractual obligations at December 31, 2003 (dollars in millions):
PAYMENTS DUE BY PERIOD ----------------------------------------------------- CONTRACTUAL WITHIN 2-3 4-5 AFTER OBLIGATIONS TOTAL 1 YEAR YEARS YEARS 5 YEARS ----------- ----- ------ ----- ----- ------- Long-term debt $ 624.3 $ 55.3 $ 115.4 $ 115.4 $ 338.2 Operating leases 88.1 39.4 32.5 15.6 0.6 -------- ------- ------- ------- --------- Total $ 712.4 $ 94.7 $ 147.9 $ 131.0 $ 338.8 ======== ======= ======= ======= =========
Rowan periodically employs letters of credit or other bank-issued guarantees in the normal course of its businesses and was contingently liable for performance under such agreements to the extent of approximately $10.5 million at December 31, 2003. In December 2003, Rowan filed a $500 million universal shelf registration statement. In early 2004, we sold 11.5 million shares of common stock, consisting of approximately 1.7 million shares of treasury stock and 9.8 million newly issued shares. The net proceeds of approximately $265 million were retained for general corporate purposes, including working capital and capital expenditures. Based on current and anticipated near-term operating levels, we believe that 2004 operations, together with existing working capital and available financial resources, will be adequate to sustain planned capital expenditures and debt service and other requirements at least through the remainder of 2004. We currently have no other available credit facilities, but believe financing could be obtained if deemed necessary. During November, 2001, an English Court ruled in Rowan's favor and dismissed the plaintiff's claim that it had been entitled, in January 1999, to terminate its drilling contract with a Rowan subsidiary for the use of the jack-up rig Rowan Gorilla V. The Court ordered the plaintiff to pay Rowan for all unpaid day rates, damages, interest and an interim payment for legal costs, for which we received $88.6 million. The matter was under appeal at December 31, 2001 and such amount, along with investment earnings, less outstanding receivables dating from contract inception, was deferred at year end. On March 14, 2002, a settlement agreement was reached among the parties whereby all litigation involving this matter was dropped and we received an additional $84.2 million. In total, Rowan received $175 million in connection with the Gorilla V contract dispute and such amount is shown, net of final legal costs and expenses, as Other Income on the Consolidated Statement of Operations for the year ended December 31, 2002. The Company is involved in various other legal proceedings incidental to its businesses and is vigorously defending its position in all such matters. Rowan believes that there are no known contingencies, claims or lawsuits, including matters related to the loss of the Rowan-Houston as discussed below, that will have a material adverse effect on its financial position, results of operations or cash flows. On April 26, 2002, our Board of Directors declared a special cash dividend of $.25 per share of common stock that was paid on June 6, 2002 to shareholders of record on May 16, 2002. Rowan did not pay any dividends during 2001 or 2003 and, at December 31, 2003, had approximately $254 million of retained earnings available for distribution to stockholders under the most restrictive provisions of our debt agreements. Future dividends, if any, will only be paid at the discretion of the Board of Directors. During 2000 and 2001, we repurchased in the open market 1,435,300 shares of Rowan's outstanding common stock at an average cost of $16.93 per share. On January 31, 2002, in connection with the OEM acquisition, we issued from treasury 439,560 shares of Rowan common stock valued at approximately $8 million. During 2002, we repurchased another 738,700 shares of Rowan's outstanding common stock at an average cost of $17.87 per share. The 1.7 million shares we held in treasury at December 31, 2003 had an average cost of $17.33 per share and were included within the sale of 11.5 million shares of common stock in early 2004 at a net price of $23.05 per share. In October 2002, our jack-up rig, Rowan-Houston, collapsed and sank during Hurricane Lili. With the assistance of outside consultants, we have completed a detailed post-incident investigation and analysis of the loss of the rig. Wind gusts were measured between 165 and 169 mph 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ROWAN COMPANIES, INC. and wave heights were from 54 to 59 feet in the area, which greatly exceeded the 50-year storm criteria in the Gulf of Mexico. Winds and waves of that magnitude would environmentally overload the rig and are the probable cause of its total loss. These storm conditions were localized, not widespread, or there would have been much greater damage than was actually suffered by offshore installations, including other rigs. Contrary to initial reports that indicated a collision had occurred, the failure of the starboard leg gear unit foundation was the most likely cause of the sequence of events that led to the rig's ultimate collapse and sinking. The majority of the wreckage has been removed with completion scheduled during the second quarter of 2004. We received the full insured value of the rig, which exceeded its carrying value, and believe the remaining costs of wreckage removal will continue to be fully insured under our prevailing coverages. Critical Accounting Policies and Management Estimates Rowan's significant accounting policies are outlined in Note 1 to our financial statements. Such policies and management judgments, assumptions and estimates made in their application, underlie reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. We believe our most critical accounting policies and management estimates involve property and depreciation, specifically capitalizable costs, useful lives and salvage values and pension liabilities and costs, specifically assumptions used in actuarial calculations, as changes in such policies and/or estimates would produce significantly different amounts from those reported herein. Rowan uses the intrinsic value method of accounting for stock-based employee compensation pursuant to Accounting Principles Board Opinion No. 25. We estimate that use of the fair value method outlined by Statement of Financial Accounting Standards No. 123, as amended, would have reduced reported amounts of net income and net income per share by $4.4 million or $.05 per diluted share in 2003, $3.9 million or $.04 per diluted share in 2002 and $3.4 million or $.03 per diluted share in 2001. Rowan does not hold or issue derivative financial instruments and our adoption of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended, has not materially impacted our financial position or results of operations. Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", generally provides that goodwill and other intangible assets with indefinite useful lives no longer be amortized to expense, but rather be assessed periodically for impairment losses. Rowan's adoption of Statement No. 142, effective January 1, 2002, did not materially impact our financial position or results of operations. Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", superceded existing standards pertaining to accounting and reporting for long-lived assets, especially those held for disposal. Rowan's adoption of Statement No. 144, effective January 1, 2002, did not materially impact our financial position or results of operations. Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations", addresses accounting and reporting for fixed asset retirement costs and obligations. Rowan's adoption of Statement No. 143, effective January 1, 2003, did not materially impact our financial position or results of operations. Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", addresses accounting and reporting for costs and obligations related to exit or disposal activities initiated on or after January 1, 2003. Rowan's adoption of Statement No. 146 did not materially impact our financial position or results of operations. The Medicare Prescription Drug, Improvement and Modernization Act of 2003, signed into law on December 8, 2003, introduced a prescription drug benefit under Medicare (Part D) and a federal subsidy to sponsors of retiree healthcare plans like Rowan that provide benefits at least actuarially equivalent to Part D. We have elected to defer recognizing any effects of the Act on our plan benefit obligations or benefits costs pursuant to Financial Accounting Standards Board Staff Position No. FAS 106-1. Specific authoritative guidance on accounting for the federal subsidy is pending and such guidance, when issued, may require us to change previously reported information. 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 Rowan 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 us. Among the factors that could cause actual results to differ materially are the following: - - oil and natural gas prices - - the level of exploration and development expenditures by energy companies - - changes in rig utilization and day rates for our rigs - - energy demand - - the general economy, including inflation - - weather conditions in our principal operating areas - - environmental and other laws and regulations Other relevant factors have been disclosed in Rowan's filings with the U.S. Securities and Exchange Commission. 22 CONSOLIDATED BALANCE SHEET ROWAN COMPANIES, INC.
DECEMBER 31, ------------------------------ (In thousands except share amounts) 2003 2002 - ----------------------------------- ---- ---- ASSETS Current assets: Cash and cash equivalents $ 58,227 $ 178,756 Receivables - trade and other 135,538 109,320 Inventories: Raw materials and supplies 140,413 122,846 Work-in-progress 29,421 31,348 Finished goods 11,203 8,766 Prepaid expenses 2,948 8,011 Deferred tax assets - net (Note 7) 66,474 10,855 ----------- ----------- Total current assets 444,224 469,902 ----------- ----------- Property, plant and equipment - at cost: Drilling equipment 2,133,365 1,922,341 Aircraft and related equipment 265,165 264,212 Manufacturing plant and equipment 138,803 120,705 Construction in progress 135,707 199,352 Other property and equipment 162,010 155,815 ----------- ----------- Total 2,835,050 2,662,425 Less accumulated depreciation and amortization 1,106,831 1,095,281 ----------- ----------- Property, plant and equipment - net 1,728,219 1,567,144 ----------- ----------- Goodwill and other assets (Notes 1 and 6) 18,366 17,458 ----------- ----------- Total $ 2,190,809 $ 2,054,504 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt (Note 2) $ 55,267 $ 42,458 Accounts payable - trade 25,898 30,000 Other current liabilities (Note 4) 69,200 43,517 ----------- ----------- Total current liabilities 150,365 115,975 ----------- ----------- Long-term debt - less current maturities (Note 2) 569,067 512,844 ----------- ----------- Other liabilities (Note 6) 116,268 127,848 ----------- ----------- Deferred income taxes - net (Note 7) 218,279 166,060 ----------- ----------- Commitments and contingent liabilities (Note 9) Stockholders' equity (Notes 3, 5, 6 and 12): Preferred stock, $1.00 par value: Authorized 5,000,000 shares issuable in series: Series III Preferred Stock, authorized 10,300 shares, none outstanding Series A Preferred Stock, authorized 4,800 shares, none outstanding Series B Preferred Stock, authorized 4,800 shares, none outstanding Series C Preferred Stock, authorized 9,606 shares, none outstanding Series D Preferred Stock, authorized 9,600 shares, none outstanding Series E Preferred Stock, authorized 1,194 shares, none outstanding Series A Junior Preferred Stock, authorized 1,500,000 shares, none issued Common stock, $.125 par value; authorized 150,000,000 shares; issued 95,845,180 shares at December 31, 2003 and 95,340,597 shares at December 31, 2002 11,981 11,918 Additional paid-in capital 659,849 647,600 Retained earnings 549,749 557,523 Cost of 1,734,440 treasury shares (30,064) (30,064) Accumulated other comprehensive income (loss) (54,685) (55,200) ----------- ----------- Total stockholders' equity 1,136,830 1,131,777 ----------- ----------- Total $ 2,190,809 $ 2,054,504 =========== ===========
See Notes to Consolidated Financial Statements. 23 CONSOLIDATED STATEMENT OF OPERATIONS ROWAN COMPANIES, INC.
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------- (In thousands except per share amounts) 2003 2002 2001 - --------------------------------------- ---- ---- ---- Revenues: Drilling services $ 421,412 $ 357,244 $ 486,291 Manufacturing sales and services 133,186 118,120 102,150 Aviation services 124,490 141,894 142,623 ---------- ---------- ---------- Total 679,088 617,258 731,064 ---------- ---------- ---------- Costs and expenses: Drilling services 330,124 304,846 303,420 Manufacturing sales and services 122,229 109,842 88,691 Aviation services 112,391 112,286 118,153 Depreciation and amortization 86,851 78,091 68,499 General and administrative 25,357 25,140 27,670 ---------- ---------- ---------- Total 676,952 630,205 606,433 ---------- ---------- ---------- Income (loss) from operations 2,136 (12,947) 124,631 ---------- ---------- ---------- Other income (expense): Net proceeds from Gorilla V settlement 157,125 Interest expense (20,027) (20,645) (24,240) Less interest capitalized 4,142 4,722 11,170 Interest income 1,124 4,106 8,382 Other - net 673 458 264 ---------- ---------- ---------- Other income (expense) - net (14,088) 145,766 (4,424) ---------- ---------- ---------- Income (loss) before income taxes (11,952) 132,819 120,207 Provision (credit) for income taxes (Note 7) (4,178) 46,541 43,209 ---------- ---------- ---------- Net income (loss) $ (7,774) $ 86,278 $ 76,998 ========== ========== ========== Net income (loss) per share of common stock (Note 1): Basic $ (.08) $ .92 $ .82 ---------- ---------- ---------- Diluted $ (.08) $ .90 $ .80 ========== ========== ==========
See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) ROWAN COMPANIES, INC.
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- (In thousands) 2003 2002 2001 - -------------- ---- ---- ---- Net income (loss) $ (7,774) $ 86,278 $ 76,998 Other comprehensive income (loss): Minimum pension liability adjustment, net of income taxes of $277, $(22,971) and $(6,752), respectively (Note 6) 515 (42,660) (12,540) --------- --------- --------- Comprehensive income (loss) $ (7,259) $ 43,618 $ 64,458 ========= ========= =========
See Notes to Consolidated Financial Statements. 24 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY ROWAN COMPANIES, INC.
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 ------------------------------------------------------------------------------------- COMMON STOCK ------------------------------------------ ACCUMULATED ISSUED IN TREASURY ADDITIONAL OTHER -------------------- ------------------ PAID-IN COMPREHENSIVE RETAINED (In thousands) SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (LOSS) EARNINGS - -------------- ------ ------ ------ ------ ------- ------------- -------- Balance, January 1, 2001 94,385 $ 11,798 (150) $ (3,108) $ 626,309 $417,758 Exercise of stock options 551 69 3,701 Value of services rendered by participants in the nonqualified stock option plan (Note 3) 7,856 Conversion of subordinated debentures 66 8 437 Treasury stock purchases (1,285) (21,199) Minimum pension liability adjustment, net of income taxes $ (12,540) Net income 76,998 ------ ----------- ------ -------- --------- ------------- -------- Balance, December 31, 2001 95,002 11,875 (1,435) (24,307) 638,303 (12,540) 494,756 Exercise of stock options 306 39 2,713 Value of services rendered by participants in the nonqualified stock option plan (Note 3) 5,815 Treasury stock issued for business acquisition 440 7,442 483 Payment of cash dividend ($.25 per common share) (23,511) Conversion of subordinated debentures 32 4 286 Treasury stock purchases (739) (13,199) Minimum pension liability adjustment, net of income taxes (42,660) Net income 86,278 ------ ----------- ------ -------- --------- ------------- -------- Balance, December 31, 2002 95,340 11,918 (1,734) (30,064) 647,600 (55,200) 557,523 Exercise of stock options 493 62 5,370 Value of services rendered by participants in the nonqualified stock option plan (Note 3) 6,720 Conversion of subordinated debentures 12 1 159 Minimum pension liability adjustment, net of income taxes 515 Net loss (7,774) ------ ----------- ------ -------- --------- ------------- -------- Balance, December 31, 2003 95,845 $ 11,981 (1,734) $(30,064) $ 659,849 $ (54,685) $549,749 ====== =========== ====== ======== ========= ============= ========
See Notes to Consolidated Financial Statements. 25 CONSOLIDATED STATEMENT OF CASH FLOWS ROWAN COMPANIES, INC.
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------- (In thousands) 2003 2002 2001 - -------------- ---- ---- ---- Cash provided by (used in): Operations: Net income (loss) $ (7,774) $ 86,278 $ 76,998 Adjustments to reconcile net income (loss) to net cash provided by operations: Depreciation and amortization 86,851 78,091 68,499 Deferred income taxes (3,677) 53,252 43,896 Provision for pension and postretirement benefits 30,232 15,500 11,221 Compensation expense 7,108 7,176 7,769 Gain on disposals of property, plant and equipment (4,393) (7,315) (2,587) Contributions to pension plans (22,742) (7,619) (16,675) Postretirement benefit claims paid (2,358) (1,666) (1,922) Gorilla V judgement proceeds deferred in 2001 and recognized in 2002 (88,628) 88,628 Changes in current assets and liabilities: Receivables - trade and other (27,058) 14,839 34,342 Inventories (18,077) (25,078) (14,297) Other current assets 5,063 (4,780) 209 Current liabilities 5,476 (2,369) (11,188) Net changes in other noncurrent assets and liabilities (401) 509 (3,165) --------- --------- --------- Net cash provided by operations 48,250 118,190 281,728 --------- --------- --------- Investing activities: Property, plant and equipment additions (250,463) (242,896) (305,180) Proceeds from disposals of property, plant and equipment 7,060 25,781 3,875 --------- --------- --------- Net cash used in investing activities (243,403) (217,115) (301,305) --------- --------- --------- Financing activities: Proceeds from borrowings 111,490 116,818 110,730 Repayments of borrowings (42,458) (42,458) (30,008) Payment of cash dividend (23,511) Payments to acquire treasury stock (13,199) (21,199) Proceeds from stock option and convertible debenture plans 5,592 3,042 4,215 --------- --------- --------- Net cash provided by financing activities 74,624 40,692 63,738 --------- --------- --------- Increase (decrease) in cash and cash equivalents (120,529) (58,233) 44,161 Cash and cash equivalents, beginning of year 178,756 236,989 192,828 --------- --------- --------- Cash and cash equivalents, end of year $ 58,227 $ 178,756 $ 236,989 ========= ========= =========
See Notes to Consolidated Financial Statements. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ROWAN COMPANIES, INC. 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, hereinafter referred to as "Rowan" or "the Company". Intercompany balances and transactions are eliminated in consolidation. ACQUISITIONS AND GOODWILL In early 2002, Rowan acquired, for approximately $8 million of its common stock, net assets of two companies (OEM) that collectively manufacture variable speed AC motors and variable frequency drive systems and consoles for marine boats and lay barges, the oil and gas drilling industry and the mining and dredging industries. The transaction resulted in the initial recognition of $4.7 million of goodwill and $0.5 million of other intangible assets. Through December 31, 2001, Rowan amortized goodwill on a straight-line basis over periods up to 30 years, and goodwill amortization totaled approximately $570,000 in 2001. Effective January 1, 2002, Rowan adopted Statement of Financial Accounting Standards No. 142, which provides that goodwill and other intangible assets with indefinite useful lives no longer be amortized to expense, but rather be assessed at least annually for impairment losses using a fair-value-based test. Rowan's implementation of Statement No. 142 has not materially impacted its financial position or results of operations. Rowan had goodwill with a carrying value of $12.4 million at each of December 31, 2003 and 2002, of which $10.9 million related to the manufacturing division and $1.5 million related to the drilling division. At December 31, 2003 and 2002, the Company had intangible assets subject to amortization totaling $1.5 million and $1.7 million, respectively. REVENUE RECOGNITION Rowan's drilling contracts provide for payment on a day rate basis and revenues are recognized as the work progresses. Aviation services generally are provided under master service agreements calling for incremental payments based on usage, term contracts or day-to-day charter arrangements. Aviation revenues 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 $108.1 million and $84.3 million, $106.2 million and $84.9 million and $97.3 million and $71.4 million in 2003, 2002 and 2001, respectively. Revenues from longer-term manufacturing projects such as rig kits are recognized on a percentage-of-completion basis using costs incurred relative to total estimated costs and full provision is made for any anticipated losses. INCOME (LOSS) PER COMMON SHARE "Basic" income (loss) per share is determined as income (loss) available to common stockholders divided by the weighted-average number of common shares outstanding during the period. "Diluted" income (loss) per share reflects the issuance of additional shares in connection with the assumed conversion of stock options and other convertible securities, and corresponding adjustments to income for any charges related to such securities. The computation of basic and diluted income (loss) per share for each of the past three years is as follows (in thousands except per share amounts):
NET INCOME PER SHARE YEAR ENDED DECEMBER 31, (LOSS) SHARES AMOUNT ---------------------- ---------- ------ --------- 2003: Basic income (loss) per share $ (7,774) 93,820 $ (.08) Effect of dilutive securities: Convertible debentures Stock options ---------- ------ Diluted income (loss) per share $ (7,774) 93,820 $ (.08) ========== ====== ========= 2002: Basic income per share $ 86,278 93,764 $ .92 Effect of dilutive securities: Convertible debentures 893 Stock options 735 ---------- ------ Diluted income per share $ 86,278 95,392 $ .90 ========== ====== ========= 2001: Basic income per share $ 76,998 94,173 $ .82 Effect of dilutive securities: Convertible debentures 936 Stock options 702 ---------- ------ Diluted income per share $ 76,998 95,811 $ .80 ========== ====== =========
Excluded from the 2003 computation of Diluted income (loss) per share are incremental shares of 913,000 related to convertible debentures and 836,000 related to stock options as their inclusion would have reduced the per share amount of loss for the year. The 2003 presentation also excludes any effects of the Company's sale, in early 2004, of 11.5 million shares of common stock. See Note 3 for further information regarding the Company's stock option and debenture plans and Note 12 for further information on the common stock sale. STATEMENT OF CASH FLOWS In practice, Rowan invests only in highly liquid U.S. Government securities, bank time deposits, A1/P1-rated commercial paper, money market preferred stock custodial receipts or repurchase agreements with terms no greater than 90 days, all of which are considered to be cash equivalents. Noncash investing and financing activities excluded from the Company's Consolidated Statement of Cash Flows were as follows: in 2003 - the conversion of $160,000 of Series B Floating Rate Subordinated Convertible Debentures into 11,377 shares of common stock, the addition of $388,000 of tax benefits related to employee stock options and the reduction of $840,000 of accounts receivable in exchange for drilling equipment; in 2002 - the issuance of 439,560 shares of common stock, valued at approximately $8 million, in connection with the OEM acquisition, the addition of $1,361,000 of tax benefits related to employee stock options, the conversion of $150,000 of Series III Floating Rate Subordinated Convertible Debentures into 22,222 shares of common stock and the conversion of $140,000 of Series B Floating Rate Subordinated Convertible Debentures into 9,956 shares of common stock; in 2001 - the reduction of $87,000 of tax benefits 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ROWAN COMPANIES, INC. related to employee stock options and the conversion of $445,000 of Series III Floating Rate Subordinated Convertible Debentures into 65,926 shares of common stock. See Notes 2 and 3 for further information regarding the Company's convertible debentures. INVENTORIES Manufacturing inventories are carried at lower of average cost or market. Drilling and aviation inventories consist of consumable parts and supplies and are carried at average cost. PROPERTY AND DEPRECIATION Rowan provides depreciation under the straight-line method from the date an asset is placed into service until it is sold or becomes fully depreciated based on the following estimated lives and salvage values:
SALVAGE YEARS VALUE ----- ------- Offshore drilling equipment: Super Gorilla jack-ups 25 20% Semi-submersible 15 20% Gorilla and other 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 15 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
Expenditures for new property or enhancements to existing property are capitalized. Expenditures for routine maintenance and major repairs are charged to operations as incurred. Rowan capitalizes, during the construction period, a portion of interest cost incurred. See Note 10 for further information regarding the Company's depreciation and amortization, capital expenditures and repairs and maintenance. Long-lived assets are reviewed for impairment whenever circumstances indicate their carrying amounts may not be recoverable. Rowan's adoption, effective January 1, 2002, of Statement of Financial Accounting Standards No. 144, which governs accounting and reporting for long-lived assets held for disposal, did not materially impact its financial position or results of operations. Rowan's adoption, effective January 1, 2003, of Statement of Financial Accounting Standards No. 143, which addresses accounting for fixed asset retirement costs and obligations, did not materially impact its financial position or results of operations. ENVIRONMENTAL MATTERS Environmental remediation costs are accrued using estimates of future monitoring, testing and clean-up costs where it is probable that such costs will be incurred. Estimates of future monitoring, testing and clean-up costs and assessments of the probability that such costs will be incurred incorporate many factors, including: approved monitoring, testing and/or remediation plans; ongoing communications with environmental regulatory agencies; the expected duration of remediation measures; historical monitoring, testing and clean-up costs and current and anticipated operational plans and manufacturing processes. Ongoing environmental compliance costs are expensed as incurred and expenditures to mitigate or prevent future environmental contamination are capitalized. Rowan's estimated liability is not discounted. See Note 9 for further information. INCOME TAXES Rowan recognizes deferred income tax assets and liabilities for the estimated future tax consequences of differences between the financial statement and tax bases of assets and liabilities. Valuation allowances are provided against deferred tax assets that are not likely to be realized. See Note 7 for further information regarding income taxes. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). During 2003, 2002 and 2001, Rowan recognized other comprehensive income or loss relating to minimum pension liabilities. See Note 6 for further information. DERIVATIVES Rowan does not hold or issue derivative financial instruments and its adoption, effective January 1, 2001, of Statement of Financial Accounting Standards No. 133, as amended, which requires recognition of derivative financial instruments as assets or liabilities, measured at fair value, did not materially impact its financial position or results of operations. 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 2002 and 2001 amounts to conform to the 2003 presentations. 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ROWAN COMPANIES, INC. 2. LONG-TERM DEBT Long-term debt consisted of (in thousands):
DECEMBER 31, -------------------------- 2003 2002 ---- ---- 6.94% Title XI note payable; secured by Gorilla V $ 39,090 $ 44,672 6.15% Title XI note payable; secured by Gorilla V 50,221 57,395 5.88% Title XI note payable; secured by Gorilla VI 121,125 135,377 2.80% Title XI note payable; secured by Gorilla VII 154,498 169,948 Floating-rate Title XI note payable; secured by the Bob Palmer 187,295 147,910 Floating-rate Title XI note payable; secured by the Scooter Yeargain 72,105 --------- --------- Total 624,334 555,302 Less current maturities 55,267 42,458 --------- --------- Remainder $ 569,067 $ 512,844 ========= =========
Maturities of long-term debt for each of the next five years ending December 31, are as follows: 2004 - $55.3 million and for each of 2005, 2006, 2007 and 2008 - $57.7 million. Rowan financed $153.1 million of the cost of Rowan Gorilla V through a floating-rate bank loan guaranteed by the U.S. Department of Transportation's Maritime Administration ("MARAD") under its Title XI Program. On July 1, 1997, the Company fixed $67 million of outstanding borrowings at 6.94%. On July 1, 1998, Rowan fixed the remaining $86.1 million principal amount at 6.15%. Principal and accrued interest on each note are payable semi-annually on each January 1 and July 1 through 2010. Rowan Gorilla V is pledged as security for the government guarantees. Rowan financed $171.0 million of the cost of Rowan Gorilla VI through a floating-rate bank loan guaranteed under MARAD's Title XI Program. On March 15, 2001, the Company fixed the $156.8 million of outstanding borrowings at 5.88%. Principal and accrued interest are payable semi-annually on each March 15 and September 15 through March 2012. Rowan Gorilla VI is pledged as security for the government guarantee. Rowan financed $185.4 million of the cost of Rowan Gorilla VII through a floating-rate bank loan guaranteed under MARAD's Title XI Program. On June 30, 2003, the Company fixed the $162.2 million of outstanding borrowings at 2.80%. Principal and accrued interest are payable semi-annually on each April 20 and October 20 through 2013. Rowan Gorilla VII is pledged as security for the government guarantee. Rowan financed $187.3 million of the cost of the Bob Palmer through a floating-rate bank loan guaranteed under MARAD's Title XI program. The Company may fix the interest rate at any time and must fix the rate on all outstanding principal amounts by August 18, 2007. Principal and accrued interest are payable semi-annually on each January 15 and July 15 through July 2021. The Bob Palmer is pledged as security for the government guarantee. At December 31, 2003, outstanding borrowings bore interest of 1.36%. During 2003, Rowan obtained financing for up to $91.2 million of the cost of designing and constructing the Scooter Yeargain through a 15-year bank loan guaranteed under MARAD's Title XI program. The Company obtains reimbursements for expenditures based upon actual construction progress and outstanding borrowings initially bear interest at .15% above a short-term commercial paper rate. The Company may fix the interest rate at any time and must fix the rate on all outstanding principal amounts on or before October 1, 2008. Interest is payable semi-annually on each May 10 and November 10 and the principal will be repaid in semi-annual installments commencing November 10, 2004. The Scooter Yeargain is pledged as security for the government guarantee. At December 31, 2003, outstanding borrowings bore interest of 1.26%. Also during 2003, Rowan obtained Title XI financing for up to $89.7 million of the cost of designing and constructing the Bob Keller (formerly Tarzan II) under terms and conditions similar to those in effect for the Scooter Yeargain. At December 31, 2003, Rowan did not have any outstanding borrowings related to the Bob Keller. Rowan's $7.3 million of Series III Floating Rate Subordinated Convertible Debentures outstanding at December 31, 2003 are ultimately convertible into common stock at the rate of $6.75 per share for each $1,000 principal amount of debenture through November 30, 2004. Rowan's $4.8 million of Series A Floating Rate Subordinated Convertible Debentures outstanding at December 31, 2003 are ultimately convertible into common stock at the rate of $29.75 per share for each $1,000 principal amount of debenture through April 24, 2008. Rowan's $4.5 million of Series B Floating Rate Subordinated Convertible Debentures outstanding at December 31, 2003 are ultimately convertible into common stock at the rate of $14.06 per share for each $1,000 principal amount of debenture through April 22, 2009. Rowan's $9.6 million of Series C Floating Rate Subordinated Convertible Debentures outstanding at December 31, 2003 are ultimately convertible into common stock at the rate of $28.25 per share for each $1,000 principal amount of debenture through April 27, 2010, as follows: $8.5 million through April 26, 2004 and $9.6 million on or after April 27, 2004. Rowan's $9.6 million of Series D Floating Rate Subordinated Convertible Debentures outstanding at December 31, 2003 are ultimately convertible into common stock at the rate of $32.00 per share for each $1,000 principal amount of debenture through April 26, 2011. Rowan's $1.2 million of Series E Floating Rate Subordinated Convertible Debentures outstanding at December 31, 2003 are ultimately convertible into common stock at the rate of $13.12 per share for each $1,000 principal amount of debenture through September 20, 2011. All of the Company's outstanding subordinated convertible debentures were originally issued in exchange for promissory notes containing provisions for setoff, protecting Rowan against any credit risk. 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 regarding Rowan's convertible debenture incentive plans. 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ROWAN COMPANIES, INC. Interest payments exceeded interest capitalized by $16.2 million in 2003, $16.1 million in 2002 and $14.5 million in 2001. Rowan's debt agreements contain provisions that require minimum levels of working capital and stockholders' equity, limit the amount of long-term debt and, in the event of noncompliance, restrict investment activities, asset purchases and sales, lease obligations, borrowings and mergers or acquisitions. Rowan believes it was in compliance with each of its debt covenants at December 31, 2003. See Note 5 for further information regarding dividend restrictions. 3. STOCKHOLDERS' EQUITY Rowan's 1988 Nonqualified Stock Option Plan, as amended, authorizes the Board of Directors to grant, before January 21, 2008, options to purchase a total of 14 million shares of the Company's common stock. At December 31, 2003, options for 11,582,632 shares had been granted under the plan at an average exercise price of $9.70 per share and 507 active, key employees had been granted options. Options generally become exercisable over a four-year service period to the extent of 25% per year and all options not exercised expire ten years after the date of grant. Rowan's 1998 Nonemployee Directors Stock Option Plan provides for the issuance to nonemployee Directors of the Company of nonqualified options to purchase up to 200,000 shares of Rowan's common stock. At December 31, 2003, options for 132,000 shares had been granted under the plan at an average exercise price of $21.61 per share. Options are 100% exercisable after one year and all options not exercised expire five or ten years after the date of grant. Stock option activity for each of the last three years was as follows:
WEIGHTED AVERAGE NUMBER OF EXERCISE OPTIONS PRICE --------- -------- Outstanding at January 1, 2001 3,364,000 $ 12.41 Granted 2,082,396 19.33 Exercised (551,800) 6.83 Forfeited (37,840) 15.49 --------- -------- Outstanding at December 31, 2001 4,856,756 15.99 Granted 254,544 15.21 Exercised (305,989) 9.00 Forfeited (43,414) 15.54 --------- -------- Outstanding at December 31, 2002 4,761,897 16.40 Granted 1,471,248 13.65 Exercised (493,131) 11.01 Forfeited (91,056) 20.76 --------- -------- Outstanding at December 31, 2003 5,648,958 $ 16.08 ========= ======== Exercisable at December 31, 2001 1,570,200 $ 13.44 --------- -------- Exercisable at December 31, 2002 2,382,386 $ 15.44 --------- -------- Exercisable at December 31, 2003 2,914,074 $ 16.01 ========= ========
The following table summarizes information about stock options outstanding at December 31, 2003.
WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE NUMBER OF EXERCISE REMAINING PRICE OPTIONS PRICE LIFE (YEARS) --------- --------- -------- ------------ OUTSTANDING: $ 1.00 64,975 $ 1.00 1.0 $ 4.06 to $ 9.81 1,304,803 6.18 7.1 $13.12 to $15.25 1,075,295 13.42 6.9 $18.25 to $19.75 1,368,575 18.90 5.5 $21.19 to $32.00 1,835,310 23.12 8.0 --------- -------- --- 5,648,958 $ 16.08 6.9 ========= ======== === EXERCISABLE: $ 1.00 64,975 $ 1.00 $ 4.06 to $ 9.81 571,250 6.16 $13.12 to $15.25 635,706 13.62 $18.25 to $19.75 1,090,625 19.05 $21.19 to $32.00 551,518 24.71 --------- -------- 2,914,074 $ 16.01 ========= ========
The weighted average per-share fair values at date of grant for options granted during 2003, 2002 and 2001 were estimated to be $12.08, $12.24 and $11.61, respectively. Rowan uses the intrinsic value method of accounting for stock-based employee compensation, whereby the cost of each option is measured as the difference between the market price per share and the option price per share on the date of grant, pursuant to Accounting Principles Board Opinion No. 25. The compensation is recognized as expense and additional paid-in capital over the period in which the employee performs services to earn the right to exercise the option. Rowan estimates that the accounting provisions of Statement of Financial Accounting Standards No. 123 and 148, under which compensation cost is based upon estimated fair values, would have reduced (increased) reported amounts of net income (loss) and net income (loss) per share as follows (in thousands, except per share amounts):
2003 2002 2001 ---- ---- ---- Net income (loss), as reported $ (7,774) $ 86,278 $ 76,998 Stock-based compensation, net of related tax effects: As recorded under APB 25 4,624 4,661 4,976 Pro forma under SFAS 123 (9,000) (8,590) (8,340) --------- --------- -------- Pro forma net income (loss) $ (12,150) $ 82,349 $ 73,634 ========= ========= ======== Net income (loss) per basic share: As reported $ (.08) $ .92 $ .82 Pro forma (.13) .88 .78 Net income (loss) per diluted share: As reported (.08) .90 .80 Pro forma (.13) .86 .77 ========= ========= ========
30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ROWAN COMPANIES, INC. The foregoing fair value estimates were determined using the Black-Scholes option valuation model with the following weighted average assumptions:
2003 2002 2001 ---- ---- ---- Expected life in years 3.0 3.5 3.2 Risk-free interest rate 1.7% 2.3% 3.4% Expected volatility 54.5% 54.8% 55.5%
The Rowan Companies, Inc. 1998 Convertible Debenture Incentive Plan, as amended, provides for the issuance to key employees of up to $35 million in floating-rate subordinated convertible debentures, of which $30 million has been issued. 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. At December 31, 2003, all $4.8 million principal amount of Series A debentures issued in 1998, all $9.6 million principal amount of Series C debentures issued in 2000, all $9.6 million principal amount of Series D debentures issued in 2001 and all $1.2 million principal amount of Series E debentures issued in 2001 were outstanding. Of the $4.8 million principal amount of Series B debentures issued in 1999, $4.5 million was outstanding at December 31, 2003. The outstanding Series A, B, C, D and E debentures are collectively convertible into 1,212,386 shares of Rowan's common stock. Under the Rowan Companies, Inc. 1986 Convertible Debenture Incentive Plan, floating-rate subordinated convertible debentures totaling $19.9 million were issued by the Company. 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. At December 31, 2003, all $9.6 million of Series I and Series II debentures, issued in 1986 and 1987, had been converted into an aggregate 1,391,304 shares of Rowan's common stock. Of the $10.3 million principal amount of Series III debentures issued in 1994, $7.3 million was outstanding at December 31, 2003 and is ultimately convertible into 1,081,483 shares of Rowan's common stock. In 1992, Rowan adopted a Stockholder Rights Agreement to protect against coercive takeover tactics. The agreement, as amended, provides for the distribution to Rowan'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 Rowan at an exercise price of $80. In addition, under certain circumstances, each Right will entitle the holder to purchase securities of Rowan or an acquiring entity at one-half market value. The Rights are exercisable only if a person or group knowingly acquires 15% or more of Rowan'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 January 24, 2012. 4. OTHER CURRENT LIABILITIES Other current liabilities consisted of (in thousands):
DECEMBER 31, ----------------------- 2003 2002 --------- ---------- Deferred revenues $ 11,510 $ 4,518 Accrued liabilities: Income taxes 35 17 Compensation and related employee costs 39,954 24,046 Interest 7,147 7,453 Taxes and other 10,554 7,483 --------- ---------- Total $ 69,200 $ 43,517 ========= ==========
5. RESTRICTIONS ON RETAINED EARNINGS Rowan's Title XI debt agreements contain financial covenants that limit the amount the Company may distribute to its stockholders. Under the most restrictive of such covenants, Rowan had approximately $254 million of retained earnings available for distribution at December 31, 2003. Subject to this and other 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. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ROWAN COMPANIES, INC. 6. BENEFIT PLANS Since 1952, Rowan has sponsored defined benefit pension plans covering substantially all of its employees. In addition, Rowan provides certain health care and life insurance benefits for retired drilling and aviation employees. Changes in plan assets and obligations during 2003 and 2002 and the funded status of the plans at December 31, 2003 and 2002 were as follows (in thousands):
PENSION BENEFITS OTHER BENEFITS ---------------- -------------- 2003 2002 2003 2002 ---- ---- ---- ---- BENEFIT OBLIGATIONS: Balance, January 1 $ 297,908 $ 231,256 $ 61,660 $ 52,529 Service cost 12,436 9,371 2,461 1,903 Interest cost 19,634 17,159 3,942 3,653 Plan changes 22 Actuarial loss 20,374 49,255 1,985 5,241 Benefits paid (10,456) (9,133) (2,358) (1,666) ----------- ---------- -------- -------- Balance, December 31 339,918 297,908 67,690 61,660 =========== ========== ======== ======== PLAN ASSETS: Fair value, January 1 158,203 170,740 Actual return 23,589 (11,023) Employer contributions 22,742 7,619 Benefits paid (10,456) (9,133) ----------- ---------- -------- -------- Fair value, December 31 194,078 158,203 =========== ========== ======== ======== Funded status (145,840) (139,705) (67,690) (61,660) Unrecognized amounts: Actuarial loss 131,962 125,313 21,834 20,816 Transition obligation 6,808 7,565 Prior service cost 1,197 1,386 (3,193) (3,505) =========== ========== ======== ======== Net liabilities recognized (12,681) (13,006) (42,241) (36,784) Additional minimum liability (85,315) (86,309) ----------- ---------- -------- -------- Net benefit liabilities $ (97,996) $ (99,315) $(42,241) $(36,784) =========== ========== ======== ========
The additional minimum pension liability shown in the preceding table reflects actuarially-determined unfunded accumulated pension benefit obligations at each year end, and is included in the Company's Consolidated Balance Sheet, as follows (in thousands):
DECEMBER 31, --------------------- 2003 2002 ---- ---- Goodwill and other assets $ 1,184 $ 1,386 Accumulated other comprehensive loss 84,131 84,923 -------- --------- Other liabilities $ 85,315 $ 86,309 ======== =========
Additional information related to Rowan's pension plans are as follows (in thousands):
DECEMBER 31, ----------------------- 2003 2002 ---- ---- Projected benefit obligation $ 339,918 $ 297,908 Accumulated benefit obligation 292,051 257,518 Fair value of plan assets 194,078 158,203
Net periodic pension cost included the following components (in thousands):
YEAR ENDED DECEMBER 31, ----------------------------------- 2003 2002 2001 ---- ---- ---- Service cost $ 12,436 $ 9,371 $ 7,482 Interest cost 19,634 17,159 15,678 Expected return on plan assets (16,935) (18,522) (17,374) Recognized actuarial loss 7,071 654 Amortization of prior service cost 211 209 269 --------- ---------- ---------- Total $ 22,417 $ 8,871 $ 6,055 ========= ========== ==========
Other benefits cost included the following components (in thousands):
YEAR ENDED DECEMBER 31, ----------------------------------- 2003 2002 2001 ---- ---- ---- Service cost $ 2,461 $ 1,903 $ 1,578 Interest cost 3,942 3,653 2,983 Recognized actuarial loss 967 630 161 Amortization: Transition obligation 757 756 756 Prior service cost (312) (313) (312) --------- ---------- ---------- Total $ 7,815 $ 6,629 $ 5,166 ========= ========== ==========
Assumptions used to determine benefit obligations were as follows:
DECEMBER 31, -------------------------- 2003 2002 2001 ---- ---- ---- Discount rate 6.25% 6.50% 7.25% Rate of compensation increase 4.0% 4.0% 4.0% ==== ==== ====
32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ROWAN COMPANIES, INC. Assumptions used to determine net periodic benefit costs were as follows:
YEAR ENDED DECEMBER 31, ------------------------- 2003 2002 2001 ---- ---- ---- Discount rate 6.50% 7.25% 7.75% Expected return on plan assets 9.0% 9.5% 9.5% Rate of compensation increase 4.0% 4.0% 4.0%
The pension plans had weighted average asset allocations as follows:
ALLOCATION AT DECEMBER 31, ------------- Asset category 2003 2002 ---- ---- Rowan common stock 20% 23% S&P 500 index fund 19% 0% Other equity securities 39% 39% Debt securities 18% 20% Cash and other 4% 18% --- --- Total 100% 100% === ===
Approximately 60% of the plans' assets are actively managed by investment companies who tailor asset mix between debt and equity securities to strive for an average annual return of at least 8.5%. Plan management has imposed certain investment criteria on the managers to enhance portfolio diversification and asset quality, including overall debt-equity allocation, number of holdings, minimum market capitalizations, a preference for dividend-paying equities and a prohibition against certain industries or high-risk situations. Individual manager performance is regularly evaluated against the target return and broad market benchmarks. Rowan's common stock has averaged a 10.4% annual return since its 1967 initial public offering. Subject to regulatory limits, the plans have acquired Rowan shares at various dates over the years at what were believed to be depressed prices in order to enhance long-term returns. The plans held 1,630,000 shares of Rowan common stock at December 31, 2003 having a market value of $37.8 million. Such shares were acquired at an average cost of $5.49 per share. In an effort to improve equity diversification and take advantage of the recovering U.S. economy and equity markets, recent contributions made to the plans have been directed towards a low-cost equity index fund comprised of companies in the Standard & Poors 500. The plans attempt to maintain enough available cash to cover at least one year's benefit payments and ongoing administrative expenses. Additionally, $7.9 million of the plans' assets were invested in a dedicated bond fund at December 31, 2003. The plans had a basis in these assets of $5.1 million yielding approximately 3.75% to maturity. The plans do not have overall target asset allocations. Active management is employed in an attempt to outperform the broader market. Assets are managed for the long-term, with little consideration given to short-term performance or market trends. To develop the expected long-term rate of return on assets assumption, Rowan considered the current level of expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the plans' other asset classes and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based upon the current asset allocation to develop the expected long-term rate of return on assets assumption for the plans at December 31, 2003, which was set at 8.5%. Rowan currently expects to contribute approximately $20 million in 2004 for its pension and other benefit plans. The assumed increase in per capita health care costs ranged from 11% for 2004 to 5% for 2010 and thereafter. The Company's average health care cost per employee during 2003 was less than 4% higher than the average in 2002 and virtually unchanged from the average in 2001. A one-percentage-point change in assumed health care cost trend rates would change reported amounts as follows (in thousands):
1-PERCENTAGE-POINT CHANGE ------------------------- INCREASE DECREASE -------- -------- Increase (decrease) in: Service and interest cost $ 582 $ (512) Postretirement benefit obligation 4,858 (4,400)
The Company also sponsors defined contribution plans covering substantially all employees. Rowan contributed to the plans about $4.3 million in 2003, $4.2 million in 2002 and $3.9 million in 2001. 7. INCOME TAXES The detail of income tax provisions (credits) is presented below (in thousands):
YEAR ENDED DECEMBER 31, -------------------------------------- 2003 2002 2001 ---- ---- ---- Current: Federal $ (643) $ (6,863) $ (871) Foreign (7) 86 81 State 149 66 103 --------- ------------ -------- Total current provision (501) (6,711) (687) Deferred (3,677) 53,252 43,896 --------- ------------ -------- Total $ (4,178) $ 46,541 $ 43,209 ========= ============ ========
Rowan's provision (credit) for income taxes differs from that determined by applying the federal income tax rate (statutory rate) to income (loss) before income taxes, as follows (in thousands):
YEAR ENDED DECEMBER 31, ----------------------------------------- 2003 2002 2001 ---- ---- ---- Statutory rate 35% 35% 35% Tax at statutory rate $ (4,183) $ 46,487 $ 42,072 Increase (decrease) due to: Foreign companies' operations 778 668 228 Research and devel- opment tax credit (575) Other - net (198) (614) 909 ----------- ---------- --------- Total provision (credit) $ (4,178) $ 46,541 $ 43,209 =========== ========== =========
33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ROWAN COMPANIES, INC. Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities at December 31, 2003 and 2002, were as follows (in thousands):
DECEMBER 31, ------------------------------------------------------------ 2003 2002 --------------------------- ---------------------------- CURRENT NON-CURRENT CURRENT NON-CURRENT ------- ----------- ------- ----------- Deferred tax assets: Accrued employee benefit plan costs $ 5,137 $ 36,221 $ 2,887 $ 41,629 Alternative minimum tax 5,042 5,042 Net operating loss carryforward 54,705 Research and development tax credit 3,363 Other 1,590 11,897 2,926 9,024 ----------- ------------ ---------- ------------- 66,474 51,481 10,855 50,653 Less valuation allowance (3,363) ----------- ------------ ---------- ------------- Net deferred tax assets 66,474 48,118 10,855 50,653 =========== ============ ========== ============= Deferred tax liabilities: Property, plant and equipment 258,121 208,478 Other 8,276 8,235 ----------- ------------ ---------- ------------- 266,397 216,713 ----------- ------------ ---------- ------------- Deferred tax asset (liability)- net $ 66,474 $ (218,279) $ 10,855 $ (166,060) =========== ============ ========== =============
During 2003, Rowan developed a claim for an income tax credit for qualifying research and development activities undertaken and expenditures made over the past several years. The Company claimed a portion of such credit in amending certain prior years' tax returns, and reduced its 2003 tax provision by $0.6 million, the estimated amount of taxes recoverable from the credit claimed. The remaining amount of the credit, estimated at $3.4 million at December 31, 2003, may not be recoverable and was therefore fully offset by a valuation allowance at year end. Rowan did not deem necessary a valuation allowance against its deferred tax assets at December 31, 2002. At December 31, 2003, the Company had net operating loss carryforwards for federal income tax purposes of $54.7 million, which will expire, if not utilized, in 2023. Undistributed earnings of Rowan's foreign subsidiaries were estimated to be $47.6 million at December 31, 2003. Deferred income taxes have not been provided on undistributed foreign earnings because such earnings are considered permanently invested abroad. Determination of the deferred tax liability that would result upon repatriation of the Company's undistributed foreign earnings is not practicable. Income (loss) before income taxes consisted of $(9.4) million, $136.5 million and $106.7 million of domestic earnings (losses), and $(2.6) million, $(3.7) million and $13.5 million of foreign earnings (losses) in 2003, 2002 and 2001, respectively. Income tax refunds exceeded payments by $2.5 million in 2003 and income tax payments exceeded refunds by $12.8 million and $16.7 million in 2002 and 2001, respectively. 8. FAIR VALUES OF FINANCIAL INSTRUMENTS At December 31, 2003, the carrying amounts of Rowan's cash and cash equivalents, receivables and payables approximated their fair values due to the short maturity of such financial instruments. The carrying amount of the Company's floating-rate debt approximated its fair value at December 31, 2003 as such instruments bear short-term, market-based interest rates. The fair value of Rowan's fixed-rate debt at December 31, 2003 was estimated to be approximately $385 million, or a $20 million premium to carrying value, based upon quoted market prices for similar issues. 9. COMMITMENTS AND CONTINGENT LIABILITIES During 1984 and 1985, Rowan sold two cantilever jack-ups, Rowan-Halifax and Cecil Provine and leased each rig back under operating leases with initial lease periods that expired during 2000. At that time, Rowan exercised its option to extend each lease for a period of seven and one-half years, with semi-annual lease payments equal to one-half of the weighted average lease payments made during the original lease periods. Rowan has operating leases covering six anchor-handling, towing and supply (AHTS) boats deployed in support of its Gulf of Mexico drilling business. The five-year lease agreements contain purchase options and expire during 2004 and 2005. The Company has other operating leases covering aircraft hangars, offices and computer equipment. Net rental expense under all operating leases was $49.7 million in 2003, $51.5 million in 2002 and $56.0 million in 2001. At December 31, 2003, the future minimum payments to be made under noncancelable operating leases were as follows (in thousands): 2004 $ 39,386 2005 21,487 2006 11,016 2007 10,329 2008 5,260 Later years 604 - ----------- --------- Total $ 88,082 =========== =========
Rowan periodically employs letters of credit or other bank-issued guarantees in the normal course of its businesses, and was contingently liable for performance under such agreements to the extent of approximately $10.5 million at December 31, 2003. 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ROWAN COMPANIES, INC. Rowan has ongoing environmental responsibilities related primarily to its manufacturing operations and facilities. 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. The Company is involved in various legal proceedings incidental to its businesses and is vigorously defending its position in all such matters. Rowan believes that there are no known contingencies, claims or lawsuits, including matters arising from the loss of the Rowan-Houston, that will have a material adverse effect on its financial position, results of operations or cash flows. Rowan currently estimates 2004 capital expenditures will be approximately $120 million, including about $75 million towards construction of the Tarzan Class rigs Scooter Yeargain and Bob Keller. 10. SEGMENTS OF BUSINESS Rowan has three operating segments: contract drilling of oil and gas wells, both onshore and offshore ("Drilling"), helicopter and fixed-wing aircraft services ("Aviation") and the manufacture and sale of heavy equipment for the mining, timber and transportation industries, alloy steel and steel plate and drilling products ("Manufacturing"). Rowan's reportable segments reflect separately managed, strategic business units that provide different products and services, and for which financial information is separately prepared and monitored. The accounting policies of each segment are as described in Rowan's summary of significant accounting policies. See Note 1 for further information. Drilling services are provided in domestic and foreign areas. Aviation services are provided primarily in Alaska, the western United States and along the Gulf Coast and include commuter airline, flightseeing and forest fire control services as well as oil and gas related flying. Manufacturing operations are primarily conducted in Longview, Texas, Vicksburg, Mississippi and Houston, Texas, though products are shipped throughout the United States and to many foreign locations. Assets are ascribed to a segment based upon their direct use. Rowan classifies its drilling rigs as domestic or foreign based upon the rig's operating location. Accordingly, drilling rigs operating in or offshore the United States are considered domestic assets and rigs operating in other areas are deemed foreign assets. Rowan's total assets are identified by operating segment, and its fixed assets are shown geographically as follows (in thousands):
DECEMBER 31, ---------------------------------------------- 2003 2002 2001 ---- ---- ---- Consolidated assets: Drilling $ 1,746,677 $ 1,642,320 $ 1,567,137 Manufacturing 281,389 249,562 217,169 Aviation 162,743 162,622 154,649 ------------- ------------- -------------- Total $ 2,190,809 $ 2,054,504 $ 1,938,955 ============= ============= ============== Property, plant and equipment - net: Domestic $ 1,269,143 $ 1,094,053 $ 1,181,960 Eastern Canada 204,244 212,033 218,831 North Sea 251,910 259,887 16,327 Other foreign 2,922 1,171 1,725 ------------- ------------- -------------- Total $ 1,728,219 $ 1,567,144 $ 1,418,843 ============= ============= ==============
At December 31, 2003, 40 drilling rigs, including 22 offshore rigs, were located in domestic areas and two offshore rigs were located in foreign areas. Information regarding revenues and profitability by operating segment is as follows (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------------- 2003 2002 2001 ---- ---- ---- Revenues: Drilling services $ 421,412 $ 357,244 $ 486,291 Manufacturing sales and services 133,186 118,120 102,150 Aviation services 124,490 141,894 142,623 ---------- ---------- ----------- Consolidated $ 679,088 $ 617,258 $ 731,064 ========== ========== =========== Operating profit (loss)*: Drilling services $ 30,640 $ (2,452) $ 136,409 Manufacturing sales and services 2,243 837 5,686 Aviation services (5,390) 13,808 10,206 ---------- ---------- ----------- Consolidated $ 27,493 $ 12,193 $ 152,301 ========== ========== ===========
* Income (loss) from operations before deducting general and administrative expenses Excluded from the preceding table are the effects of transactions between segments. During 2003, 2002 and 2001, Rowan's manufacturing division provided approximately $135.9 million, $112.9 million and $118.1 million, respectively, of products and services to the drilling division and Rowan's aviation division provided approximately $2.2 million, $2.2 million and $1.4 million, respectively, of flight services to the drilling division. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ROWAN COMPANIES, INC. Foreign-source revenues were as follows (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------------- 2003 2002 2001 ---- ---- ---- Drilling services: Eastern Canada $ 29,140 $ 19,635 $ 44,296 North Sea 30,006 16,265 287 Manufacturing sales and services 7,611 2,280 2,798 Aviation services 768 2,082 2,483 ---------- ---------- ----------- Total $ 67,525 $ 40,262 $ 49,864 ========== ========== ===========
Rowan had revenues, primarily from drilling operations, in excess of 10% of consolidated revenues from two customers during 2003 (14% and 10%) and one customer during each of 2002 (13%) and 2001 (14%). Rowan 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. Rowan's manufacturing operations help diversify the Company's operations and attendant credit risk. Further, Rowan retains the ability to relocate its major drilling and aviation assets over significant distances on a timely basis in response to changing market conditions. Certain other financial information for each of Rowan's operating segments is summarized as follows (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------------- 2003 2002 2001 ---- ---- ---- Depreciation and amortization: Drilling $ 60,647 $ 54,850 $ 46,462 Manufacturing 8,715 7,441 7,772 Aviation 17,489 15,800 14,265 Capital expenditures: Drilling 215,967 205,628 270,341 Manufacturing 18,291 14,839 10,048 Aviation 16,205 22,429 24,791 Repairs and maintenance: Drilling 45,593 43,773 47,035 Manufacturing 11,871 10,503 10,155 Aviation 18,265 19,758 22,558
11. RELATED PARTY TRANSACTIONS A Rowan director served until August 2003 as a Managing Director for a financial institution to which the Company paid interest and lending fees totaling $1.0 million in 2003, $0.7 million in 2002 and $6.4 million in 2001. Transactions with this lender were on terms and conditions, and involved interest rates and fees, then prevailing in the market and were reviewed and ratified by the Company's Board of Directors. A Rowan director served as Vice President for one of the Company's drilling customers through May 2002. Transactions with this customer were on terms and conditions, and involved day rates and operating costs, which were comparable to those experienced by Rowan in connection with third-party contracts for similar rigs. Because of the aforementioned relationship, the contracts between Rowan and this customer were reviewed and ratified by the Company's Board of Directors. Related revenues were approximately $5.1 million in 2001. 12. SUBSEQUENT EVENT In December 2003, Rowan filed a $500 million universal shelf registration statement. In early 2004, the Company sold 11.5 million shares of common stock, consisting of approximately 1.7 million shares of treasury stock that cost an average of $17.33 per share, and 9.8 million newly-issued shares. The net proceeds of approximately $265 million were retained for general corporate purposes, including working capital and capital expenditures. 36 INDEPENDENT AUDITORS' REPORT ROWAN COMPANIES, INC. 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, 2003 and 2002, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2003. 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 auditing standards generally accepted in the United States of America. 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, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, effective January 1, 2002, the Company changed its method of accounting for Goodwill and Other Intangible Assets. [/s/ DELOITTE & TOUCHE LLP] Houston, Texas March 5, 2004 37 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) ROWAN COMPANIES, INC. The following unaudited information for the quarters ended March 31, June 30, September 30 and December 31, 2002 and 2003 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 ------- ------- ------- ------- 2002: Revenues $ 137,805 $ 148,498 $ 184,153 $ 146,802 Operating profit (loss) (13,280) (5,210) 25,875 4,808 Net income (loss) 87,677 (8,739) 10,164 (2,824) Net income (loss) per common share: Basic .93 (.09) .11 (.03) Diluted .92 (.09) .11 (.03) ---------- ---------- ---------- ------------ 2003: Revenues $ 131,355 $ 158,100 $ 193,883 $ 195,750 Operating profit (loss) (16,525) (573) 27,455 17,136 Net income (loss) (17,182) (6,624) 11,587 4,445 Net income (loss) per common share: Basic (.18) (.07) .12 .05 Diluted (.18) (.07) .12 .05 ========== ========== ========== ============
The sum of the per share amounts for the quarters may not equal the per share amounts for the full year since the quarterly and full year per share computations are made independently. COMMON STOCK PRICE RANGE, CASH DIVIDENDS AND STOCK SPLITS (UNAUDITED) ROWAN COMPANIES, INC. The price range below is as reported by the New York Stock Exchange on the Composite Tape. On February 27, 2004, there were approximately 2,000 holders of record.
2003 2002 ------------------- ------------------------ QUARTER HIGH LOW HIGH LOW - ------- ---- --- ---- --- First $ 23.80 $ 17.70 $ 23.28 $ 15.89 Second 25.90 19.28 26.84 20.01 Third 25.62 20.80 22.57 16.36 Fourth 26.72 20.45 24.60 17.40
On April 26, 2002, Rowan's Board of Directors declared a special cash dividend of $.25 per common share which was paid on June 6, 2002 to shareholders of record on May 16, 2002. The Company did not pay any dividends on its common stock during 2003. 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. 38 EX-14 11 h13239exv14.txt CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS EXHIBIT 14 ROWAN COMPANIES, INC. CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS OF THE COMPANY Under the Securities and Exchange Commission rules, this Code of Ethics (the "Code") applies to the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer of the Company (the "Officers"). THE CODE IS SUBJECT TO ALL APPLICABLE LAW. Nothing in this Code is intended to require any action contrary to law. In the event that the Code conflicts with any law, you must comply with the law. Nothing in the Code is intended or will be considered (1) to amend the Certificate of Incorporation or Bylaws of the Company, (2) to change the legal duties imposed upon Officers under state, federal and other applicable statutes, rules and regulations, (3) to expand the liabilities of Officers beyond applicable law, or (4) to affect any rights available to Officers under state and other applicable law or the Company's Certificate of Incorporation or Bylaws. Officers shall also be entitled to the benefits of indemnification to the fullest extent permitted by law, the Company's Certificate of Incorporation and Bylaws, and to exculpation as provided by state law and the Company's Certificate of Incorporation. THE CODE MAY BE AMENDED, MODIFIED OR WAIVED FROM TIME TO TIME. This Code may be amended, modified or waived by the Board of Directors. Waivers may also be granted by a committee of the Board of Directors that consists of directors who are independent under the rules of the New York Stock Exchange. Any amendments, modifications or waivers of the Code will be promptly disclosed in accordance with applicable securities laws and the applicable rules of the New York Stock Exchange. This disclosure requirement also applies to any de facto waiver where an Officer violates the Code but is not subjected to any internal sanctions. YOU SHOULD CONSULT THE GENERAL COUNSEL IF YOU HAVE ANY QUESTIONS ABOUT THE CODE OR ETHICAL CONDUCT UNDER THE CODE. The Company has existing policies and procedures that apply to all employees, including the Officers. The Code has been adopted by the Board of Directors in order to comply with the Sarbanes-Oxley Act of 2002, and is intended to supplement, but not replace, the other policies and procedures of the Company. HONEST AND ETHICAL CONDUCT Each Officer must demonstrate honest and ethical conduct in fulfilling his or her duties, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. FAIR DISCLOSURE It is of critical importance that the Company's public filings and disclosures be accurate and timely. Each Officer of the Company is responsible for ensuring full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission and in other public communications made by the 1 Company. In addition, the Chief Executive Officer and Chief Financial Officer must review the matters to be certified in each periodic report on Form 10-K and Form 10-Q before making the certifications. Each Officer is prohibited from taking any action to improperly influence, coerce, manipulate or mislead the Company's internal or outside auditors or to prevent such persons from performing a diligent audit of the Company's financial statements. Each Officer who communicates with analysts and investors must comply with Regulation FD in discussions with analysts and investors, and must cause a corrective filing to be made if the Officer becomes aware of an inadvertent violation of Regulation FD. COMPLIANCE WITH LAWS, RULES AND REGULATIONS Each Officer is required to comply with all applicable governmental laws, rules and regulations, including, without limitation, all "insider trading" legal prohibitions and disclosure obligations applicable to the Company and the Officers. REPORTING OF VIOLATIONS OF THE CODE If any Officer, director or employee of the Company believes in good faith that a violation of this Code has occurred or may occur, the Officer, director or employee must promptly contact the General Counsel or the Audit Committee of the Company using the procedures specified in the whistleblower policy. No Officer will engage in or participate in retaliation against individuals who submit reports through proper procedures, in good faith, of actual or suspected violations of this Code, other illegal or unethical conduct, or accounting and auditing irregularities. ACCOUNTABILITY FOR ADHERENCE TO THE CODE Each Officer is responsible for adhering to this Code. Any Officer who violates this Code will be subject to appropriate disciplinary action as determined by the Audit Committee. The Company will take disciplinary action against any Officer who retaliates directly or indirectly against any employee, officer or director who reports actual or suspected violations of this Code. 2 EX-21 12 h13239exv21.txt SUBSIDIARIES OF THE REGISTRANT 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 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 13 h13239exv23.txt INDEPENDENT AUDITORS' CONSENT 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, Registration Statement No. 33-51109, Registration Statement No. 333-25041, Registration Statement No. 33-25125, Registration Statement No. 333-84369, Registration Statement No. 333-84405, Registration Statement No. 333-101914 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, Amendment No. 1 to Registration Statement No. 33-62885, Registration Statement No. 333-84407, Registration Statement No. 333-84423, Amendment No. 1 to Registration Statement No. 333-88855, Amendment No. 2 to Registration Statement No. 333-44874, Amendment No. 1 to Registration Statement No. 333-82798, Amendment No. 1 to Registration Statement No. 333-82802, Amendment No. 1 to Registration Statement No. 333-82804, and Amendment No. 1 to Registration Statement No. 333-110601, each on Form S-3, of Rowan Companies, Inc. ("Company"), of our report dated March 5, 2004, (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the Company's change in its method of accounting for Goodwill and Other Intangible Assets) incorporated by reference in this Annual Report on Form 10-K of Rowan Companies, Inc., for the year ended December 31, 2003, and to the reference to us under the heading "Experts" in Amendment No. 1 to Registration Statement No. 333-82804. /s/ DELOITTE & TOUCHE LLP Houston, Texas March 12, 2004 EX-24 14 h13239exv24.txt POWERS OF ATTORNEY EXHIBIT 24 Form 10-K for the Year Ended December 31, 2003 The Exchange Act of 1934 Power of Attorney KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints D. F. McNease 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, 2003 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, 2003 or amendment has been signed below by the following persons in the capacities and on the dates indicated:
Signature Title Date D. F. MCNEASE President and Chief Executive Officer (D. F. McNease) HENRY O. BOSWELL Director March 12, 2004 (Henry O. Boswell) HANS M. BRINKHORST Director March 12, 2004 (Hans M. Brinkhorst) R. G. CROYLE Director March 12, 2004 (R. G. Croyle) WILLIAM T. FOX III Director March 12, 2004 (William T. Fox III) FREDERICK R. LAUSEN Director March 12, 2004 (Frederick R. Lausen) H. E. LENTZ Director March 12, 2004 (H. E. Lentz) LORD MOYNIHAN Director March 12, 2004 (Lord Moynihan) C. R. PALMER Director March 12, 2004 (C. R. Palmer)
EX-31 15 h13239exv31.txt RULE 13A-14(A)/15D-14(A) CERTIFICATIONS EXHIBIT 31a CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, D. F. McNease, Chief Executive Officer of Rowan Companies, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Rowan Companies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: March 12, 2004 /s/ D. F. MCNEASE ----------------------------------------- D. F. McNease President and Chief Executive Officer EXHIBIT 31b CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, E. E. Thiele, Chief Financial Officer of Rowan Companies, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Rowan Companies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: March 12, 2004 /s/ E. E. THIELE -------------------------------- E. E. Thiele Senior Vice President - Finance, Administration and Treasurer (Chief Financial Officer) EX-32 16 h13239exv32.txt SECTION 1350 CERTIFICATIONS EXHIBIT 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U. S. C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Rowan Companies, Inc. (the "Company") on Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, D. F. McNease, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented. Date: March 12, 2004 /s/ D. F. MCNEASE ------------------------------------- D. F. McNease President and Chief Executive Officer CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U. S. C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Rowan Companies, Inc. (the "Company") on Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, E. E. Thiele, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented. Date: March 12, 2004 /s/ E. E. THIELE ---------------------------------- E. E. Thiele Senior Vice President - Finance, Administration and Treasurer (Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----