e424b3
Filed pursuant to Rule 424(b)(3)
Registration No. 333-123563
PROSPECTUS SUPPLEMENT
(To Prospectus Dated May 13, 2005)
12,000,000 Shares
Class A Common Stock
$20.50 per share
Transocean Inc., as selling stockholder, is selling
12,000,000 shares of our Class A common stock. We will
not receive any proceeds from the Class A common stock sold
by the selling stockholder. Transocean Inc. has granted the
underwriters an option to purchase up to an additional
1,310,000 shares of Class A common stock to cover
over-allotments.
Our Class A common stock is listed on the New York Stock
Exchange under the symbol THE. The last reported
sale price of our Class A common stock on the New York
Stock Exchange on May 12, 2005 was $20.62.
Investing in our Class A common stock involves risks.
See Risk Factors beginning on page 3 of the
accompanying prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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Per Share | |
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Total | |
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Public Offering Price
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$ |
20.5000 |
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$ |
246,000,000 |
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Underwriting Discount
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$ |
0.3075 |
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$ |
3,690,000 |
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Proceeds to the Selling Stockholder
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$ |
20.1925 |
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$ |
242,310,000 |
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The underwriters expect to deliver the shares to purchasers on
or about May 18, 2005.
Sole Book-Running Manager
Citigroup
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JPMorgan |
UBS Investment Bank |
May 13, 2005
This document is in two parts. The first part is the prospectus
supplement, which describes the specific terms of this offering.
The second part is the accompanying prospectus, which gives more
general information. Generally, when we refer to the
prospectus, we are referring to both parts combined.
You should rely only on the information contained in, or
incorporated by reference, in this prospectus. We have not
authorized anyone to provide you with information different from
that contained in this prospectus. We are not making an offer of
these securities in any state where the offer is not permitted.
You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the
front of this prospectus supplement.
TABLE OF CONTENTS
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Prospectus Supplement |
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S-1 |
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S-11 |
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S-11 |
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S-12 |
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S-12 |
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S-13 |
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S-15 |
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Prospectus |
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S-i
SUMMARY
This summary highlights selected information described more
fully elsewhere in this prospectus supplement and the
accompanying prospectus. This summary may not contain all the
information that is important to you. You should read the entire
prospectus supplement and accompanying prospectus, including the
documents and financial statements and related notes
incorporated by reference, before making an investment decision
with respect to our Class A common stock. In this
prospectus supplement and the accompanying prospectus,
references to the terms we, us or other
similar terms mean TODCO and its subsidiaries, references to
Transocean mean Transocean Inc. and its subsidiaries
and references to Transocean Holdings mean
Transocean Holdings Inc., unless the context indicates
otherwise.
Our Business
TODCO is a leading provider of contract oil and gas drilling
services, primarily in the U.S. Gulf of Mexico shallow
water and inland marine region, an area that we refer to as the
U.S. Gulf Coast. We have the largest fleet of drilling rigs
in the U.S. Gulf Coast and believe that, as a result of our
leading position and geographic focus, we are well-positioned to
benefit from a potential increase in drilling activity
associated with the search for natural gas in this region.
We operate a fleet of 64 drilling rigs consisting of
27 inland barge rigs, 24 jackup rigs, three
submersible rigs, one platform rig and nine land rigs.
Currently, 50 of these rigs are located in shallow and
inland waters of the United States with the remainder in Mexico,
Trinidad and Venezuela.
Our core business is to contract our drilling rigs, related
equipment and work crews on a dayrate basis to customers who are
drilling oil and gas wells. We provide these services mainly to
independent oil and gas companies, but we also service major
international and government-controlled oil and gas companies.
Our customers in the U.S. Gulf Coast typically focus on
drilling for natural gas.
Our executive offices are located at 2000 W. Sam
Houston Parkway South, Suite 800, Houston, Texas 77042, and
our telephone number is (713) 278-6000.
S-1
Recent Industry Trends
The drilling industry in the U.S. Gulf Coast is highly
cyclical and is typically driven by general economic activity
and changes in actual or anticipated oil and gas prices. We
believe that both our earnings and demand for our rigs will
typically be correlated to our customers expectations of
energy prices, particularly natural gas prices, and that
sustained high energy prices will generally have a positive
impact on our earnings. We believe that there are several trends
that should benefit our operations, including:
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High Natural Gas Prices. While U.S. natural gas
prices are volatile, the rolling twelve-month average price of
natural gas has increased from $2.11 in January 1994 to $6.10 in
March 2005. We believe high natural gas prices in the United
States, if sustained, should result in more exploration and
development drilling activity and higher utilization and
dayrates for drilling companies like us. |
U.S. NATURAL GAS PRICE ROLLING TWELVE MONTH AVERAGE
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Source: Bloomberg (last twelve months rolling average of
historical Henry Hub prices). As of March 31,
2005. |
S-2
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Need for Increased Natural Gas Drilling Activity. From
1995 to 2004, U.S. demand for natural gas grew at an annual
rate of 0.7% while domestic supply grew at an annual rate of
0.2%. We believe that this supply and demand growth imbalance
will continue if demand for natural gas continues to increase
and production decline rates continue to accelerate. As
illustrated in the chart below, even though the number of
U.S. gas wells drilled has increased overall in recent
years, a corresponding increase in production has not been
realized. We believe that an increase in U.S. drilling
activity will be required for the natural gas industry to meet
the expected increased demand for, and compensate for the
slowing production of, natural gas in the United States. |
U.S. NATURAL GAS PRODUCTION AND GAS WELLS DRILLED
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Source: EIA. As of December 31, 2004. |
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Trend Towards Drilling Deeper Shallow Water Gas Wells. A
current trend by oil and gas companies is to drill deep gas
wells along the U.S. Gulf Coast in search of new and
potentially prolific untapped natural gas reserves. We believe
that this trend towards deeper drilling will benefit premium
jackup rigs as well as barge rigs and submersible rigs that are
capable of drilling deep gas wells. In addition, we believe this
trend will indirectly benefit conventional jackup fleets as the
use of premium rigs in the U.S. Gulf Coast to drill deep
wells should reduce the supply of rigs available to drill
conventional wells. |
S-3
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Redeployment of Jackup Rigs. Greater demand for jackup
rigs in international areas over the last three years has
reduced the overall supply of jackups in the U.S. Gulf
Coast as reflected in the first chart below. This has created a
more favorable supply environment for the remaining jackups,
including ours. This favorable supply environment has led to
increased jackup dayrates as reflected in the second chart below. |
U.S. GULF OF MEXICO JACKUP SUPPLY AND DEMAND
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Source: ODS-Petrodata. As of March 31, 2005. |
U.S. GULF OF MEXICO JACKUP DAYRATES
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Source: ODS-Petrodata. As of March 31, 2005. |
S-4
Our Strengths
We believe that we have the following strengths:
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Leading Presence in the U.S. Gulf Coast. We have the
largest combined jackup and inland barge fleet in the
U.S. Gulf Coast. Our leading presence and geographic focus
provide us with logistical advantages in servicing our
customers, including reduced mobilization times and costs and
increased flexibility of rig and crew deployment. Our size also
generates economies of scale and helps us attract, train and
retain qualified crew personnel. |
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Well-Positioned to Benefit from an Upturn in Natural Gas
Drilling Activity. Our customers in the U.S. Gulf Coast
drill primarily for natural gas. Given our leading presence in
this market, we believe we are well-positioned to benefit from
any significant increases in U.S. natural gas drilling
activity in the U.S. Gulf Coast. Because operating costs in
our industry are largely fixed, our earnings and cash flow are
very sensitive to improvements in utilization rates and dayrates. |
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Strong Balance Sheet. At March 31, 2005 we had
$29.9 million of total debt and a total debt to total
capitalization ratio of 5.8%. We believe this strong balance
sheet should enable us to take advantage of opportunities for
growth as the market improves and to respond effectively to
market downturns. |
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Experienced and Incentivized Management Team. Our senior
and operating level management team has extensive industry
experience in the U.S. Gulf Coast. Their considerable
knowledge of and experience with the cyclical nature of our
business should enhance our ability to operate effectively
through industry cycles. Additionally, our managements
participation in incentive compensation plans is designed to
align their interests with our operating and financial
performance. For a discussion of risks related to potential
conflicts of interest involving our management, see Risk
Factors Risks Related to Our Largest Stockholder,
Transocean Some of our executive officers and
directors may have potential conflicts of interest because of
their ownership of Transocean ordinary shares or role as a
director of Transocean, in the accompanying prospectus. |
Our Strategy
Our objective is to continue to be a leading offshore drilling
company with a focus on the North American natural gas industry.
Specifically, we intend to:
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Focus on Marine Assets and Drilling for Natural Gas Along the
U.S. Gulf Coast. We plan to maintain our position as
the leading contractor of jackup rigs and drilling barges in the
U.S. Gulf Coast. We believe that this approach will allow
us to take advantage of improvements in dayrates and rig demand
that may result from increased drilling activity in this region.
We believe that our focus on this region will also allow us to
take advantage of deep gas drilling opportunities. Although we
intend to focus on the U.S. Gulf Coast, we also plan to
pursue selective opportunities for our rigs in Mexico, Trinidad,
and possibly other regions. |
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Pursue Efficient, Low-Cost Operations and a Disciplined
Approach to Capital Spending. We intend to be a low-cost
contractor in the U.S. Gulf Coast drilling market. We
believe that by being an efficient, low-cost contractor, we can
maintain significant operating flexibility and maximize our
earnings and cash flow over the entire business cycle. We
believe that this operational flexibility will provide us with
an important competitive advantage and allow us to compete
effectively with competitors with higher specification fleets
and higher cost structures than ours. We plan to pursue a
disciplined approach to capital spending in increasing the size
and upgrading the capabilities of our fleet. |
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Maintain High Operating Standards. We plan to continue to
maintain a high level of quality service and safety. We have in
place a comprehensive set of safety management systems,
standards and procedures that we believe benefit our employees,
our margins and our reputation. |
S-5
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Maintain a Conservative Capital Structure. We intend to
maintain our conservative capital structure with a low
percentage of debt. We believe this is a prudent financial
strategy given that our industry is highly cyclical. |
Operational Update
Market conditions for our U.S. Gulf Coast jackup fleet
improved beginning in the third quarter of 2003 and continued to
improve through the first quarter of 2005. From the first
quarter of 2004 through the first quarter of 2005, our average
revenue per day for U.S. Gulf of Mexico jackups and
submersibles improved by 46%. During the same period, our
average revenue per day for U.S. inland barges improved by 23%.
As of May 2, 2005, we had 12 jackup rigs working in the
U.S. Gulf Coast at contract dayrates ranging from $41,900
to $48,900. As of May 2, 2005, we had 14 inland barges
working at contract dayrates ranging from $18,000 to $34,500.
Additionally, we recently signed one-year term contracts for two
of our inland barge rigs, Rig 15 and
Rig 19, at dayrates of approximately $25,000 and
$20,000 per day, respectively.
In May 2005, we entered into a non-binding letter of intent with
an international oil company to reactivate one of our
cold-stacked jackup rigs for a multi-year drilling contract. We
are still negotiating the definitive terms of the drilling
contract. However, we expect the customer to pay for
substantially all reactivation and mobilization costs and we
expect the dayrate to be in the high $50,000 range.
With respect to our Venezuelan operations, political unrest has
negatively impacted our results of operations there. As a
result, we experienced some decline in utilization in Venezuela
during the second half of 2003 through late 2004. We currently
have four land rigs operating under contract in Venezuela. In
January 2005, we retained Simmons & Company
International to explore alternatives for the disposition of our
Venezuelan land drilling business, which is not viewed by us as
being core to our ongoing offshore drilling business. The
evaluation may result in the sale of some or all of our
Venezuelan assets.
The following table shows our average rig revenue per day and
utilization for the quarterly periods ended on or prior to
March 31, 2005 with respect to each of our three drilling
segments. Average rig revenue per day is defined as operating
revenue earned per revenue earning day in the period.
Utilization in the table below is defined as the total actual
number of revenue earning days in the period as a percentage of
the total number of calendar days in the period for all drilling
rigs in our fleet.
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Three Months Ended | |
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March 31, | |
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June 30, | |
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September 30, | |
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December 31, | |
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March 31, | |
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June 30, | |
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September 30, | |
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December 31, | |
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March 31, | |
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2003 | |
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2003 | |
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2003 | |
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2003 | |
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2004 | |
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2004 | |
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2004 | |
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2004 | |
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2005 | |
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Average Rig Revenue Per Day:
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U.S. Gulf of Mexico Jackups and Submersibles
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$ |
22,600 |
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$ |
20,200 |
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$ |
22,900 |
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$ |
26,700 |
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$ |
30,600 |
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$ |
30,700 |
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$ |
33,800 |
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$ |
39,900 |
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$ |
44,600 |
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U.S. Inland Barges
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19,100 |
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17,600 |
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18,300 |
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18,700 |
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20,300 |
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22,500 |
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22,900 |
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23,000 |
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25,000 |
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Other International
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19,700 |
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19,100 |
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21,000 |
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25,600 |
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40,000 |
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37,500 |
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34,600 |
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29,400 |
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28,400 |
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Utilization:
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U.S. Gulf of Mexico Jackups and Submersibles
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31 |
% |
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44 |
% |
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54 |
% |
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50 |
% |
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43 |
% |
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50 |
% |
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54 |
% |
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56 |
% |
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56 |
% |
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U.S. Inland Barges
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47 |
% |
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39 |
% |
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38 |
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40 |
% |
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40 |
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42 |
% |
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45 |
% |
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46 |
% |
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46 |
% |
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Other International
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35 |
% |
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44 |
% |
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38 |
% |
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28 |
% |
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29 |
% |
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29 |
% |
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33 |
% |
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39 |
% |
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56 |
% |
S-6
Our Relationship with Transocean
In February 2004, we completed an initial public offering of
13,800,000 shares of our Class A common stock (the
IPO) as part of our separation from Transocean. In
September and December of 2004, we completed two additional
public offerings in which Transocean sold an additional
17,940,000 and 14,950,000 shares, respectively, of our
Class A common stock. All proceeds from the IPO and our two
additional offerings went to Transocean, the selling stockholder.
Before completion of the IPO, we entered into various agreements
to complete the separation of our business from Transocean,
including a master separation agreement, a tax sharing
agreement, a registration rights agreement and an employee
matters agreement. A number of contractual rights of Transocean
under those agreements will terminate upon completion of this
offering as a consequence of Transocean no longer owning 10% or
more of our outstanding common stock. Other agreements between
us and Transocean will remain in effect. See Certain
Relationships and Related Party Transactions
Relationship Between Us and Transocean in the accompanying
prospectus for more information regarding the remaining
contractual arrangements between us and Transocean and those
that will terminate upon completion of this offering.
S-7
The Offering
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Class A common stock offered |
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12,000,000 shares |
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Common stock to be outstanding after the offering: |
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Class A common stock |
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60,722,524 shares |
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Class B common stock |
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0 shares |
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Class A common stock to be held by Transocean after the
offering |
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1,310,000 shares, all of which are subject to the
underwriters over-allotment option |
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Use of proceeds and offering expenses |
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We will not receive any of the proceeds from this offering. All
proceeds from this offering will be received by the selling
stockholder. We will pay all expenses of the offering, but
underwriting fees and commissions will be paid by Transocean. |
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Dividend policy |
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We do not intend to declare or pay regular dividends on our
common stock in the foreseeable future. Instead, we generally
intend to invest any future earnings for use in our business. |
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New York Stock Exchange symbol for Class A common stock |
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THE |
The number of shares of our common stock to be outstanding after
this offering is based on the number of shares outstanding as of
May 10, 2005, and excludes:
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1,729,610 shares of Class A common stock issuable in
connection with the exercise of stock options and pursuant to
the terms of deferred performance units; and |
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4,000,000 additional shares of Class A common stock
reserved for issuance under our long-term incentive plan. |
Unless we specifically state otherwise, the information in this
prospectus does not take into account the sale of up to
1,310,000 shares of Class A common stock which the
underwriters have the option to purchase from Transocean to
cover over-allotments.
Risk Factors
Please see Risk Factors beginning on page 3 of
the accompanying prospectus for information concerning certain
risks of investing in our common stock.
S-8
Summary Historical Financial Data
The summary historical financial data set forth below has been
prepared using our audited consolidated financial statements
except for the summary historical financial data for the three
months ended March 31, 2004 and 2005 which has been
prepared using our unaudited condensed consolidated financial
statements. Operating results for the three months ended
March 31, 2005 are not necessarily indicative of the
results that may be expected for the entire year 2005. It is
important that you read the following summary historical
financial data together with our financial statements and the
related notes and with the information contained in the sections
entitled Managements Discussion and Analysis of
Financial Condition and Results of Operations, included in
our most recent Annual Report on Form 10-K and in our
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2005, which are incorporated by reference into
this prospectus.
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Year Ended | |
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Three Months | |
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December 31, | |
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Ended March 31, | |
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2002 | |
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2003 | |
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2004 | |
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2004 | |
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2005 | |
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(In millions, except per share data) | |
Statement of Operations Data:
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Operating revenues
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$ |
187.8 |
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$ |
227.7 |
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$ |
351.4 |
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$ |
73.8 |
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$ |
111.9 |
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Operating and maintenance expense
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185.7 |
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227.4 |
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259.7 |
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66.9 |
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68.9 |
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Net income (loss) from continuing operations before cumulative
effect of a change in accounting principle
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(529.1 |
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(222.0 |
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(28.8 |
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(22.3 |
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8.1 |
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Per Share Data:
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Net income (loss) from continuing operations before cumulative
effect of a change in accounting principle per common share
basic and diluted
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$ |
(43.57 |
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$ |
(18.28 |
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$ |
(0.52 |
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$ |
(0.53 |
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$ |
0.13 |
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Average common shares outstanding:
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Basic
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12.1 |
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12.1 |
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55.6 |
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42.1 |
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60.0 |
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Diluted
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12.1 |
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12.1 |
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55.6 |
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42.1 |
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60.9 |
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As of | |
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December 31, | |
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As of | |
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March 31, | |
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2002 | |
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2003 | |
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2004 | |
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2005 | |
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(In millions) | |
Balance Sheet Data:
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Cash and cash equivalents
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$ |
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$ |
20.0 |
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$ |
65.1 |
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$ |
77.5 |
|
|
Working capital
|
|
|
199.1 |
|
|
|
(3.8 |
) |
|
|
61.2 |
|
|
|
90.6 |
|
|
Total assets
|
|
|
2,227.2 |
|
|
|
778.2 |
|
|
|
761.4 |
|
|
|
758.5 |
|
|
Total debt
|
|
|
40.7 |
|
|
|
26.8 |
|
|
|
25.4 |
|
|
|
26.9 |
|
|
Total debt related party
|
|
|
1,080.1 |
|
|
|
525.0 |
|
|
|
3.0 |
|
|
|
3.0 |
|
|
Stockholders equity
|
|
|
561.9 |
|
|
|
137.7 |
|
|
|
480.6 |
|
|
|
485.3 |
|
S-9
[This page intentionally blank]
S-10
USE OF PROCEEDS
We will not receive any proceeds from the sale of our
Class A common stock by the selling stockholder in this
offering.
PRICE RANGE OF CLASS A COMMON STOCK
Our Class A common stock is listed on the New York Stock
Exchange under the symbol THE. As of April 30,
2005, there were approximately 227 holders of record of our
Class A common stock. We have presented in the table below,
for the periods indicated, the reported high and low sales
prices for our Class A common stock on the New York Stock
Exchange.
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Price Per Share | |
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|
of Our Class A | |
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Common Stock | |
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| |
Calendar Period |
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High | |
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Low | |
|
|
| |
|
| |
2004
|
|
|
|
|
|
|
|
|
|
First Quarter (starting February 5)
|
|
$ |
16.45 |
|
|
$ |
13.10 |
|
|
Second Quarter
|
|
|
16.05 |
|
|
|
13.38 |
|
|
Third Quarter
|
|
|
17.86 |
|
|
|
13.40 |
|
|
Fourth Quarter
|
|
|
19.05 |
|
|
|
16.15 |
|
2005
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
28.55 |
|
|
|
16.84 |
|
|
Second Quarter (through May 12, 2005)
|
|
|
27.45 |
|
|
|
20.45 |
|
S-11
DILUTION
The net tangible book value per share of our common stock will
be substantially below the offering price. You will therefore
incur immediate and substantial dilution of $12.50 per
share, based on the offering price of $20.50 per share. As
a result, if we are liquidated, you may not receive the full
value of your investment.
Dilution in net tangible book value per share represents the
difference between the amount per share of our common stock that
you pay in this offering and the net tangible book value per
share of our common stock. Net tangible book value per share
represents: (1) our total net tangible assets divided by
(2) the number of shares of our common stock outstanding.
Our net tangible book value at March 31, 2005 was
$485.3 million, or $8.00 per share. This amount
represents an immediate dilution in net tangible book value of
$12.50 per share to you. The following table illustrates
this dilution per share:
|
|
|
|
|
Public offering price per share
|
|
$ |
20.50 |
|
Net tangible book value per share as of March 31, 2005
|
|
|
8.00 |
|
|
|
|
|
Dilution per share to you
|
|
$ |
12.50 |
|
|
|
|
|
SELLING STOCKHOLDER
The following table sets forth certain information regarding
Transoceans ownership of our common stock as of
May 10, 2005, and as adjusted to reflect the sale by
Transocean of our common stock in this offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Class A | |
|
|
|
Shares of Class A | |
|
|
Common Stock | |
|
|
|
Common Stock | |
|
|
Beneficially Owned | |
|
|
|
Beneficially Owned | |
|
|
Before the Offering | |
|
|
|
After the Offering(1) | |
|
|
| |
|
Number | |
|
| |
|
|
|
|
Percentage | |
|
of Shares | |
|
|
|
Percentage | |
|
|
Number | |
|
of Shares | |
|
Being | |
|
Number | |
|
of Shares | |
Selling Stockholder |
|
of Shares | |
|
Outstanding | |
|
Offered | |
|
of Shares | |
|
Outstanding | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Transocean Inc.
|
|
|
13,310,000 |
|
|
|
22 |
% |
|
|
12,000,000 |
|
|
|
1,310,000 |
|
|
|
2 |
% |
|
|
(1) |
The number of shares being offered, the number of shares of
Class A common stock to be beneficially owned after the
offering and the percentage of shares outstanding assume no
exercise of the underwriters over-allotment option to
purchase an additional 1,310,000 shares of Class A
common stock. |
S-12
UNDERWRITING
Citigroup Global Markets Inc. is acting as sole book-running
manager of the offering and as representative of the
underwriters named below. Subject to the terms and conditions
stated in the underwriting agreement dated the date of this
prospectus supplement, each underwriter named below has agreed
to purchase, and Transocean has agreed to sell to that
underwriter, the number of shares of Class A common stock
set forth opposite the underwriters name.
|
|
|
|
|
|
|
|
Number of | |
Underwriter |
|
Shares | |
|
|
| |
Citigroup Global Markets Inc.
|
|
|
8,400,000 |
|
J.P. Morgan Securities Inc.
|
|
|
1,800,000 |
|
UBS Securities LLC
|
|
|
1,800,000 |
|
|
|
|
|
|
Total
|
|
|
12,000,000 |
|
|
|
|
|
The underwriters are offering the shares of Class A common
stock subject to their acceptance of the shares and subject to
prior sale. The underwriting agreement provides that the
obligations of the underwriters to purchase the shares of
Class A common stock included in this offering are subject
to receipt of legal opinions from counsel and to other
conditions. The underwriters are obligated to purchase all the
shares of Class A common stock (other than those covered by
the over-allotment option described below) if they purchase any
of the shares of Class A common stock.
The underwriters propose to offer some of the shares of
Class A common stock directly to the public at the public
offering price set forth on the cover page of this prospectus
supplement and some of the shares of Class A common stock
to dealers at the public offering price less a concession not to
exceed $0.1850 per share. The underwriters may allow, and
dealers may reallow, a concession not to exceed $0.1000 per
share on sales to other dealers. If all of the shares of
Class A common stock are not sold at the public offering
price, the representatives may change the public offering price
and the other selling terms.
Transocean has granted to the underwriters an option,
exercisable for 30 days from the date of this prospectus
supplement, to purchase up to 1,310,000 additional shares of
Class A common stock at the public offering price less the
underwriter discount. The underwriters may exercise the option
solely for the purpose of covering over-allotments, if any, in
connection with this offering. To the extent the option is
exercised, each underwriter must purchase a number of additional
shares of Class A common stock approximately proportionate
to that underwriters initial purchase commitment.
We will bear the expenses for this offering but underwriting
discounts and commissions will be payable by Transocean. We
estimate expenses of this offering, other than the underwriting
discounts and commissions, will be approximately $200,000.
The underwriters have informed us that they do not intend sales
to discretionary accounts to exceed 5% of the total number of
shares offered by them.
We, Mr. Jan Rask (our President and Chief Executive
Officer), Mr. T. Scott OKeefe (our Senior Vice
President and Chief Financial Officer), our directors, and
Transocean have agreed that we and they will not, without the
prior written consent of Citigroup Global Markets Inc. on behalf
of the underwriters, during the period of 45 days after the
date of this prospectus supplement:
|
|
|
|
|
offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose, directly or indirectly, any
shares of Class A common stock or any securities
convertible into or exercisable or exchangeable for shares of
Class A common stock, or |
|
|
|
enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences
of ownership of the Class A common stock, |
S-13
whether any such transaction described above is to be settled by
delivery of shares of Class A common stock or other
securities, in cash or otherwise. In addition, we have agreed
that we will not, without the prior written consent of Citigroup
Global Markets Inc. on behalf of the underwriters, during the
45-day period after the date of this prospectus file any
registration statement with respect to any shares of common
stock on any security convertible into or exchangeable for our
common stock.
The restrictions described in the preceding paragraph do not
apply to:
|
|
|
|
|
the sale of any shares of Class A common stock to the
underwriters pursuant to the underwriting agreement; |
|
|
|
any distributions of shares of our common stock by Transocean to
the holders of its ordinary shares by means of a distribution or
exchange offer; |
|
|
|
any private sales by Transocean of our common stock or other
securities, or transfers as bona fide gifts or by will or
intestacy by Mr. Rask, Mr. OKeefe and our
directors, in which the purchaser agrees to be bound by the
restrictions in the preceding paragraph; |
|
|
|
sales of shares of Class A common stock made under the
terms of a SEC Rule 10b5-1 trading plan that was
established before the date of this prospectus supplement
providing for sales of not more than 300,000 shares of
Class A common stock per month; |
|
|
|
transactions by persons other than TODCO relating to shares of
Class A common stock or other securities acquired in this
offering or in open market transactions after the completion of
this offering; |
|
|
|
the filing by us of a registration statement on Form S-8
covering securities issued pursuant to our 2005 Long Term
Incentive Plan which was approved by our stockholders at our
annual meeting on May 10, 2005; |
|
|
|
grants pursuant to our existing employee benefit plans; and |
|
|
|
the issuance by us of any shares of Class A common stock
upon the exercise of an option or warrant or the conversion of a
security outstanding on the date of this prospectus supplement. |
The common stock is listed on the New York Stock Exchange under
the symbol THE.
The underwriters will be paid a maximum underwriting
compensation or discount not to exceed 8%. The following
table shows the underwriting discounts and commissions that
Transocean is to pay to the underwriters in connection with this
offering. These amounts are shown assuming both no exercise and
full exercise of the underwriters option to purchase
additional shares of common stock.
|
|
|
|
|
|
|
|
|
|
|
|
Paid by Transocean | |
|
|
| |
Underwriter |
|
No Exercise | |
|
Full Exercise | |
|
|
| |
|
| |
Per share
|
|
$ |
0.3075 |
|
|
$ |
0.3075 |
|
|
Total
|
|
$ |
3,690,000 |
|
|
$ |
4,092,825 |
|
In connection with this offering, Citigroup Global Markets Inc.
on behalf of the underwriters, may purchase and sell shares of
Class A common stock in the open market. These transactions
may include short sales, syndicate covering transactions and
stabilizing transactions. Short sales involve syndicate sales of
Class A common stock in excess of the number of shares of
Class A common stock to be purchased by the underwriters in
this offering, which creates a syndicate short position.
Covered short sales are sales of shares of
Class A common stock made in an amount up to the number of
shares of Class A common stock represented by the
underwriters over-allotment option. In determining the
source of shares of Class A common stock to close out the
covered syndicate short position, the underwriters will
consider, among other things, the price of shares of
Class A common stock available for purchase in the open
market as compared to the price at which they may purchase
shares of Class A common stock through the over-allotment
option. Transactions to close out the covered syndicate short
position involve either purchases of the Class A common
stock in the open market after the distribution has been
completed or
S-14
the exercise of the over-allotment option. The underwriters may
also make naked short sales of shares of
Class A common stock in excess of the over-allotment
option. The underwriters must close out any naked short position
by purchasing shares of Class A common stock in the open
market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the shares of Class A common stock
in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions
consist of bids for or purchases of shares of Class A
common stock in the open market while the offering is in
progress.
The underwriters also may impose a penalty bid. Penalty bids
permit the underwriters to reclaim a selling concession from a
syndicate member when the underwriters repurchase shares of
Class A common stock originally sold by that syndicate
member in order to cover syndicate short positions or make
stabilizing purchases.
Any of these activities may have the effect of preventing or
retarding a decline in the market price of the Class A
common stock. They may also cause the price of the Class A
common stock to be higher than the price that would otherwise
exist in the open market in the absence of these transactions.
The underwriters may conduct these transactions on the New York
Stock Exchange or in the over-the-counter market, or otherwise.
If the underwriters commence any of these transactions, they may
discontinue them at any time.
Affiliates of Citigroup Global Markets Inc. participate in our
revolving credit facility for which they receive customary
compensation. The underwriters have performed investment banking
and advisory services for us from time to time for which they
have received customary fees and expenses. The underwriters may,
from time to time, engage in transactions with and perform
services for us in the ordinary course of their business.
A prospectus in electronic format may be made available on the
websites maintained by one or more of the underwriters. The
representative may agree to allocate a number of shares to
underwriters for sale to their online brokerage account holders.
The representative will allocate shares to underwriters that may
make Internet distributions on the same basis as other
allocations. In addition, shares may be sold by the underwriters
to securities dealers who resell shares to online brokerage
account holders.
We and Transocean have agreed to indemnify the underwriters and
their controlling persons and affiliates against certain
liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be
required to make because of any of those liabilities.
VALIDITY OF THE CLASS A COMMON STOCK
The validity of the Class A common stock offered by this
prospectus will be passed on for us by Porter & Hedges,
L.L.P., Houston, Texas and for the underwriters by
Sullivan & Cromwell LLP, New York, New York.
Certain legal matters in connection with the common stock
offered hereby will be passed on for the selling stockholder by
Baker Botts L.L.P., Houston, Texas.
S-15
[This page intentionally blank]
S-16
PROSPECTUS
13,310,000 Shares
Class A Common Stock
This prospectus covers the offer and sale by Transocean Inc., as
selling stockholder, of up to 13,310,000 shares of our
Class A common stock, which are currently issued and
outstanding.
We are not offering any shares of our common stock for sale
under this prospectus, and we will not receive any of the
proceeds from the sale of shares by the selling stockholder
under this prospectus.
Transocean may offer and sell the shares of our Class A
common stock from time to time at prevailing market prices, at
prices related to such prevailing market prices, at negotiated
prices or at fixed prices.
Our Class A common stock is traded on the New York Stock
Exchange under the symbol THE. On May 12, 2005,
the last reported sale price of our Class A common stock
was $20.62.
Investing in our Class A common stock involves risks.
See Risk Factors beginning on page 3 of this
prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is May 13, 2005.
TABLE OF CONTENTS
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Page | |
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1 |
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3 |
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13 |
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15 |
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16 |
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17 |
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17 |
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18 |
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33 |
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34 |
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37 |
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|
37 |
|
You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with
information that is different. The selling stockholder is
offering to sell and seeking offers to buy shares of our common
stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of our
common stock.
PROSPECTUS SUMMARY
This summary highlights selected information described more
fully elsewhere or incorporated by reference in this prospectus.
This summary may not contain all the information that is
important to you. We urge you to read the entire prospectus,
including the documents incorporated by reference, before making
an investment decision with respect to our common stock.
References in this prospectus to the terms we,
us or other similar terms mean TODCO and its
subsidiaries, and references to Transocean mean
Transocean Inc. and its subsidiaries, unless the context
indicates otherwise. References to Transocean
Holdings mean Transocean Holdings Inc.
Overview
TODCO is a leading provider of contract oil and gas drilling
services, primarily in the U.S. Gulf of Mexico shallow
water and inland marine region, an area that we refer to as the
U.S. Gulf Coast. We have the largest fleet of drilling rigs
in the U.S. Gulf Coast.
We operate a fleet of 64 drilling rigs consisting of
27 inland barge rigs, 24 jackup rigs, three
submersible rigs, one platform rig and nine land rigs.
Currently, 50 of these rigs are located in shallow and inland
waters of the United States with the remainder in Mexico,
Trinidad and Venezuela.
Our core business is to contract our drilling rigs, related
equipment and work crews on a dayrate basis to customers who are
drilling oil and gas wells. We provide these services mainly to
independent oil and gas companies, but we also service major
international and government-controlled oil and gas companies.
Our customers in the U.S. Gulf Coast typically focus on
drilling for natural gas.
Our executive offices are located at 2000 W. Sam Houston Parkway
South, Suite 800, Houston, Texas 77042, and our telephone
number is (713) 278-6000.
The Offering
|
|
|
Common stock offered by the selling stockholder |
|
up to 13,310,000 shares |
|
New York Stock Exchange symbol |
|
THE |
|
Use of proceeds |
|
We will not receive any of the proceeds from the sale of shares
by the selling stockholder. |
1
[This page intentionally blank]
2
RISK FACTORS
You should carefully consider each of the following risks and
all of the information set forth in this prospectus before
deciding to invest in our common stock. If any of the following
risks and uncertainties develop into actual events, our
business, financial condition or results of operations and the
trading price of our common stock could be materially adversely
affected. In that case, the trading price of our common stock
could decline and you may lose all or part of your
investment.
Risks Related to Our Business
|
|
|
Our business depends on the level of activity in the oil
and gas industry in the U.S. Gulf Coast, which is
significantly affected by often volatile oil and gas
prices. |
Our business depends on the level of activity in oil and gas
exploration, development and production primarily in the
U.S. Gulf Coast (our term for the U.S. Gulf of Mexico
shallow water and inland marine region) where we are active. Oil
and gas prices and our customers expectations of potential
changes in these prices significantly affect this level of
activity. In particular, changes in the price of natural gas
materially affect our operations because we primarily drill in
the U.S. Gulf Coast where the focus of drilling has tended
to be on the search for natural gas. Oil and gas prices are
extremely volatile and are affected by numerous factors,
including the following:
|
|
|
|
|
the demand for oil and gas in the United States and elsewhere; |
|
|
|
economic conditions in the United States and elsewhere; |
|
|
|
weather conditions in the United States and elsewhere; |
|
|
|
advances in exploration, development and production technology; |
|
|
|
the ability of the Organization of Petroleum Exporting
Countries, commonly called OPEC, to set and maintain
production levels and pricing; |
|
|
|
the level of production in non-OPEC countries; |
|
|
|
the policies of various governments regarding exploration and
development of their oil and gas reserves; and |
|
|
|
the worldwide military and political environment, including the
war in Iraq, uncertainty or instability resulting from an
escalation or additional outbreak of armed hostilities or other
crises in the Middle East or the geographic areas in which we
operate or further acts of terrorism in the United States, or
elsewhere. |
Depending on the market prices of oil and gas, companies
exploring for oil and gas may cancel or curtail their drilling
programs, thereby reducing demand for drilling services. In the
U.S. Gulf Coast, drilling contracts are generally
short-term, and oil and gas companies tend to respond quickly to
upward or downward changes in prices. Any reduction in the
demand for drilling services may materially erode dayrates and
utilization rates for our rigs and adversely affect our
financial results.
The U.S. Gulf Coast is a mature oil and gas production
region that has experienced substantial seismic survey and
exploration activity for many years. Because a large number of
oil and gas prospects in this region have already been drilled,
additional prospects of sufficient size and quality could be
more difficult to identify. In addition, oil and gas companies
may be unable to obtain financing necessary to drill prospects
in this region. This could result in reduced drilling activity
in the U.S. Gulf Coast region. We expect demand for
drilling services in this area to continue to fluctuate with the
cycles of reduced and increased overall domestic rig demand, and
demand at similar points in future cycles could be lower than
levels experienced in past cycles.
3
|
|
|
Our industry is highly cyclical, and our results of
operations may be volatile. |
Our industry is highly cyclical, with periods of high demand and
high dayrates followed by periods of low demand and low
dayrates. Periods of low rig demand intensify the competition in
the industry and often result in rigs being idle for long
periods of time. We may be required to idle rigs or enter into
lower rate contracts in response to market conditions in the
future. Due to the short-term nature of most of our drilling
contracts, changes in market conditions can quickly affect our
business. As a result of the cyclical nature of our industry,
our results of operations have been volatile, and we expect this
volatility to continue.
|
|
|
Our industry is highly competitive, with intense price
competition. |
The U.S. Gulf of Mexico shallow water and inland marine
market segments in which we operate are highly competitive.
Drilling contracts are traditionally awarded on a competitive
bid basis. Pricing is often the primary factor in determining
which qualified contractor is awarded a job. The competitive
environment has intensified as recent mergers among oil and gas
companies have reduced the number of available customers. Many
other offshore drilling companies are larger than we are and
have more diverse fleets, or fleets with generally higher
specifications, and greater resources than we have. This allows
them to better withstand industry downturns, better compete on
the basis of price and build new rigs or acquire existing rigs,
all of which could affect our revenues and profitability. We
believe that competition for drilling contracts will continue to
be intense in the foreseeable future.
|
|
|
The activation of nonmarketed rigs, the movement of rigs
to the Gulf of Mexico and the construction of newbuilds could
create an excess supply of jackup rigs in the Gulf of Mexico and
adversely affect utilization rates and dayrates for our
rigs. |
If, as a result of improved industry conditions in the Gulf of
Mexico, inactive rigs that are currently not being marketed are
reactivated, jackup rigs or other mobile offshore drilling units
are moved into the U.S. Gulf Coast from other regions or
increased rig construction or rig upgrade programs by our
competitors were to take place, a significant increase in the
supply of jackups in the Gulf of Mexico could occur. Some of our
competitors and speculators have ordered new jackup drilling
rigs. We believe there are currently 32 jackup rigs on
order with delivery dates ranging from 2005 to 2008. Most of the
rigs on order are premium, cantilevered drilling units with 350
to 400 foot water depth capability. This trend of new
jackup construction or other increases in the supply of jackup
or other mobile offshore drilling units could curtail a further
strengthening of utilization rates and dayrates, or reduce them.
|
|
|
Our ability to move our rigs to other regions is
limited. |
Most jackup and submersible rigs can be moved from one region to
another, and in this sense the marine contract drilling market
is a global market. The demand/supply balance for jackup and
submersible rigs may vary somewhat from region to region,
because the cost of a rig move is significant, there is limited
availability of rig-moving vessels and some rigs are designed to
work in specific regions. However, significant variations
between regions tend not to exist on a long-term basis due to
the ability to move rigs. Because many of our rigs were designed
for drilling in the U.S. Gulf Coast, our ability to move
our rigs to other regions in response to changes in market
conditions is limited.
|
|
|
Our jackup rigs are at a relative disadvantage to higher
specification rigs. |
Many of our competitors have jackup fleets with generally higher
specification rigs than those in our jackup fleet. Particularly
during market downturns when there is decreased rig demand,
higher specification jackups and other rigs may be more likely
to obtain contracts than lower specification jackups. As a
result, our lower specification jackups have in the past been
stacked earlier in the cycle of decreased rig demand than most
of our competitors jackups and have been reactivated later
in the cycle. This pattern has adversely impacted our business
and could be repeated. In addition, higher specification rigs
have greater flexibility to move to areas of demand in response
to changes in market conditions.
4
Furthermore, in recent years, an increasing amount of
exploration and production expenditures have been concentrated
in deep water drilling programs and deeper formations, including
deep gas prospects, requiring higher specification jackups,
semisubmersible drilling rigs or drillships. This trend is
expected to continue and could result in a decline in demand for
lower specification jackup rigs like ours.
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Our business involves numerous operating hazards, and we
are not fully insured against all of them. |
Our operations are subject to the usual hazards inherent in the
drilling of oil and gas wells, such as blowouts, reservoir
damage, loss of production, loss of well control, punchthroughs,
craterings, fires and pollution. The occurrence of these events
could result in the suspension of drilling operations, claims by
the operator, damage to or destruction of the equipment involved
and injury or death to rig personnel. We may also be subject to
personal injury and other claims of rig personnel as a result of
our drilling operations. Operations also may be suspended
because of machinery breakdowns, abnormal drilling conditions,
failure of subcontractors to perform or supply goods or services
and personnel shortages. In addition, offshore and inland marine
drilling operators are subject to perils peculiar to marine
operations, including capsizing, grounding, collision and loss
or damage from severe weather. Damage to the environment could
also result from our operations, particularly through oil
spillage or extensive uncontrolled fires. We may also be subject
to property, environmental and other damage claims by oil and
gas companies. Our insurance policies and contractual rights to
indemnity may not adequately cover losses, and we may not have
insurance coverage or rights to indemnity for all risks.
Moreover, pollution and environmental risks generally are not
totally insurable.
Prior to October 2004, our principal insurance coverages for
property damage, liability and occupational injury and illness
were included in Transoceans insurance program in
accordance with the master separation agreement entered into
with Transocean in connection with our initial public offering
(the IPO) in February 2004. Effective
October 15, 2004, we changed our insurance program to an
independent, stand-alone insurance program, that provides for
significantly lower deductibles than those in our previous
insurance program. Our current deductible levels under the new
hull and machinery and protection and indemnity policies are
$1.0 million and $5.0 million per occurrence,
respectively. Previously, our deductible level under each of
these policies was $10.0 million per occurrence. Insurance
premiums under the new program will be approximately
$7.5 million for the twelve-month policy period, or
approximately $3.5 million higher than those under the
previous program with Transocean. Insurance premiums and/or
deductibles could be increased or coverages may be unavailable
in the future.
If a significant accident or other event, including terrorist
acts, war, civil disturbances, pollution or environmental
damage, occurs and is not fully covered by insurance or a
recoverable indemnity from a customer, it could adversely affect
our financial position or results of operations. Moreover, we
may not be able to maintain adequate insurance in the future at
rates we consider reasonable or be able to obtain insurance
against certain risks.
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We are subject to litigation. |
We are also from time to time involved in a number of litigation
matters, including, among other things, contract disputes,
personal injury, environmental, asbestos and other toxic tort,
employment, tax and securities litigation, and other litigation
that arises in the ordinary course of our business. Litigation
may have an adverse effect on us because of potential adverse
outcomes, the costs associated with defending the lawsuits, the
diversion of our managements resources and other factors.
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Failure to retain key personnel could hurt our
operations. |
We require highly skilled personnel to operate and provide
technical services and support for our drilling rigs. To the
extent that demand for drilling services and the number of
operating rigs increases, shortages of qualified personnel could
arise, creating upward pressure on wages and difficulty in
staffing rigs.
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Loss of key management could hurt our operations. |
Our success is to a considerable degree dependent on the
services of our key management, including Jan Rask, our
President and Chief Executive Officer. The loss of any member of
our key management could adversely affect our results of
operations.
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Unionization efforts could increase our costs or limit our
flexibility. |
A small percentage of our employees worldwide work under
collective bargaining agreements, all of whom work in Venezuela
and Trinidad. Efforts have been made from time to time to
unionize other portions of our workforce, including workers in
the Gulf of Mexico. Any such unionization could increase our
costs or limit our flexibility.
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Governmental laws and regulations may add to our costs or
limit drilling activity. |
Our operations are affected in varying degrees by governmental
laws and regulations. The drilling industry is dependent on
demand for services from the oil and gas industry and,
accordingly, is also affected by changing tax and other laws
relating to the energy business generally. We may be required to
make significant capital expenditures to comply with laws and
regulations. It is also possible that these laws and regulations
may in the future add significantly to operating costs or may
limit drilling activity.
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Compliance with or a breach of environmental laws can be
costly and could limit our operations. |
Our operations are subject to regulations that require us to
obtain and maintain specified permits or other governmental
approvals, control the discharge of materials into the
environment, require the removal and cleanup of materials that
may harm the environment or otherwise relate to the protection
of the environment. For example, as an operator of mobile
offshore drilling units in navigable U.S. waters and some
offshore areas, we may be liable for damages and costs incurred
in connection with oil spills or other unauthorized discharges
of chemicals or wastes resulting from those operations. Laws and
regulations protecting the environment have become more
stringent in recent years, and may in some cases impose strict
liability, rendering a person liable for environmental damage
without regard to negligence or fault on the part of such
person. Some of these laws and regulations may expose us to
liability for the conduct of or conditions caused by others or
for acts that were in compliance with all applicable laws at the
time they were performed. The application of these requirements
or the adoption of new requirements could have a material
adverse effect on our financial position or results of
operations.
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Our non-U.S. operations involve additional risks not
associated with our U.S. operations. |
We operate in regions that may expose us to political and other
uncertainties, including risks of:
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terrorist acts, war and civil disturbances; |
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expropriation or nationalization of equipment; and |
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the inability to repatriate income or capital. |
Our insurance policies and indemnity provisions in our drilling
contracts generally do not protect us from loss of revenue. If a
significant accident or other event occurs and is not fully
covered by insurance or a recoverable indemnity from a customer,
it could adversely affect our financial position or results of
operations.
Many governments favor or effectively require the awarding of
drilling contracts to local contractors or require foreign
contractors to employ citizens of, or purchase supplies from, a
particular jurisdiction. These practices may adversely affect
our ability to compete.
Our non-U.S. contract drilling operations are subject to
various laws and regulations in countries in which we operate,
including laws and regulations relating to the equipment and
operation of drilling units, currency conversions and
repatriation, oil and gas exploration and development, taxation
of offshore
6
earnings and earnings of expatriate personnel, the use of local
employees and suppliers by foreign contractors and duties on the
importation and exportation of drilling units and other
equipment. Governments in some foreign countries have become
increasingly active in regulating and controlling the ownership
of concessions and companies holding concessions, the
exploration for oil and gas and other aspects of the oil and gas
industries in their countries. In some areas of the world, this
governmental activity has adversely affected the amount of
exploration and development work done by major oil and gas
companies and may continue to do so. Operations in less
developed countries can be subject to legal systems which are
not as mature or predictable as those in more developed
countries, which can lead to greater uncertainty in legal
matters and proceedings.
Another risk inherent in our operations is the possibility of
currency exchange losses where revenues are received and
expenses are paid in foreign currencies. We may also incur
losses as a result of an inability to collect revenues because
of a shortage of convertible currency available to the country
of operation.
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Our Venezuela operations are subject to adverse political
and economic conditions. |
A portion of our operations is conducted in the Republic of
Venezuela, which has been experiencing political and economic
turmoil, including labor strikes and demonstrations. The
implications and results of the political, economic and social
instability in Venezuela are uncertain at this time, but the
instability could have an adverse effect on our business.
Depending on future developments, we could decide to cease
operations in Venezuela. Venezuela also imposes foreign exchange
controls that limit our ability to convert local currency into
U.S. dollars and transfer excess funds out of Venezuela.
Although our current drilling contracts in Venezuela call for a
significant portion of our dayrates to be paid in
U.S. dollars, changes in existing regulation or the
interpretation or enforcement of those regulations could further
restrict our ability to receive U.S. dollar payments. The
exchange controls could also result in an artificially high
value being placed on the local currency.
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We have incurred losses and may need additional
financing. |
Our net losses from continuing operations before cumulative
effect of a change in accounting principle were approximately
$29 million, $222 million and $529 million during
the years ended December 31, 2004, 2003 and 2002,
respectively, and we anticipate incurring losses in the future.
We will not receive any proceeds from this offering. We may need
additional financing in order to satisfy our cash requirements.
If we are not able to obtain financing in sufficient amounts and
on acceptable terms, we may be required to reduce our business
activities, seek financing on unfavorable terms or pursue a
business combination with another company.
Risks Related to Our Largest Stockholder, Transocean
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Transfers of our common stock by Transocean could
adversely affect your rights as a stockholder and cause our
stock price to decline and could affect our ability to engage in
major acquisitions, mergers or other growth
opportunities. |
The shares offered under this prospectus represent all of the
remaining shares of our Class A common stock owned by
Transocean. A sale of a substantial amount of our common stock
to a third party may adversely affect the market price of our
common stock and our business and results of operations because
the purchaser may be able to influence or change management
decisions and business policy. Transocean will also be permitted
to transfer the shares of our common stock that it owns without
allowing you to participate or realize a premium for their
shares of common stock. Disclosure requirements in connection
with this offering could affect our ability to engage in major
acquisitions, mergers or other growth opportunities.
7
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Transocean will be able to exert significant influence
over us as long as it owns a significant portion of our
outstanding common stock. |
As long as Transocean owns, directly or indirectly, a
significant portion of the voting power of our outstanding
common stock, Transocean will be able to exert significant
influence over us as a result of contractual arrangements
between us and Transocean and by virtue of Transoceans
voting power, including:
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for so long as Transocean owns at least 10% of our voting power,
the right to designate a number of members to our board of
directors that is proportionate to its ownership of our voting
power; |
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for so long as Transocean is entitled to designate two members
of our board of directors (based on our current board size of
seven directors, it will be entitled to do so as long as it owns
at least approximately 21.5% of our voting power), any two
directors (including those designated by Transocean) may call
special meetings of our board of directors at any time; |
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unless otherwise provided by the Delaware General Corporation
Law, the right to call special meetings of our stockholders at
any time; |
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for so long as Transocean owns at least 10% of our voting power,
the right to designate at least one member of each committee of
our board of directors; |
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for so long as Transocean owns at least 10% of our voting power,
the right to bring business before any annual meeting of our
stockholders without complying with the applicable notice
procedures in our amended and restated bylaws; |
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for so long as Transocean is one of our stockholders, the right
to bring business before any special meeting of our stockholders
without complying with the applicable notice procedures in our
amended and restated bylaws; and |
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the allocation of specified business opportunities between
Transocean and us. |
In addition, for so long as Transocean owns at least 15% of our
voting power, without Transoceans consent, we may not
amend our rights agreement or make any amendment to our amended
and restated certificate of incorporation or bylaws that
adversely affects Transocean, any of its affiliates or any
transferee of any of our securities that it holds. See
Certain Relationships and Related Party
Transactions Relationship Between Us and
Transocean Corporate Governance.
Furthermore, even after Transocean no longer owns any shares of
our common stock, Transocean will continue to have substantial
control over our filing of tax returns so long as there remains
a present or potential obligation for us to pay Transocean
Holdings for pre-closing tax benefits under a tax sharing
agreement with Transocean Holdings entered into in connection
with the IPO.
Because of exemptions granted under our rights agreement and
because we have elected not to be subject to Section 203 of
the Delaware General Corporation Law, Transocean, as a
significant stockholder, may find it easier to sell its shares
of our common stock to a third party than if we had not taken
such actions.
Our
interests may conflict with those of Transocean with respect to
our past and ongoing business relationships, and we may not be
able to resolve these conflicts on terms commensurate with those
possible in arms-length transactions because of
Transoceans significant ownership of our
Class A
8
common stock, its representation on our board of directors
and its rights under agreements we entered into in connection
with the IPO.
Our interests may conflict with those of Transocean in a number
of areas relating to our past and ongoing relationships,
including:
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the timing and manner of any sales or distributions by
Transocean of all or any portion of its ownership interest in us; |
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agreements with Transocean and its affiliates relating to
corporate services that may be material to our business; |
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business opportunities that may be presented to Transocean and
to our directors associated with Transocean; |
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competition between Transocean and us within the same lines of
business; |
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our dividend policy; and |
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the solicitation and hiring of employees from each other. |
We may not be able to resolve any potential conflicts with
Transocean, and even if we do, the resolution may be less
favorable than if we were dealing with an unaffiliated party.
Our certificate of incorporation provides that Transocean has no
duty to refrain from engaging in activities or lines of business
similar to ours and that Transocean and its officers and
directors will not be liable to us or our stockholders for
failing to present specified corporate opportunities to us.
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The terms of our separation from Transocean, the related
agreements and other transactions with Transocean were
determined in the context of a parent-subsidiary relationship
and thus may be less favorable to us than the terms we could
have obtained from an unaffiliated third party. |
Transactions and agreements we entered into after our
acquisition by Transocean and on or before the closing of the
IPO presented conflicts between our interests and those of
Transocean. These transactions and agreements included the
following:
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agreements related to the separation of our business from
Transocean that provide for, among other things, the assumption
by us of liabilities related to our business, the assumption by
Transocean of liabilities unrelated to our business, our
respective rights, responsibilities and obligations with respect
to taxes and tax benefits and the terms of our various interim
and ongoing relationships, as described under Certain
Relationships and Related Party Transactions
Relationship Between Us and Transocean; |
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the transfer to Transocean of assets that were not related to
our business as described under Certain Relationships and
Related Party Transactions Asset Transfers to
Transocean, Relationship Between Us and
Transocean Master Separation Agreement
TODCO Business and Transfer of Assets
and Assignment of Liabilities; and |
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charters of drilling units with Transocean, borrowings from
Transocean, administrative support services provided by
Transocean to us and other transactions with Transocean, as
described under Certain Relationships and Related Party
Transactions. |
Because these transactions and agreements were entered into in
the context of a parent-subsidiary relationship, their terms may
be less favorable to us than the terms we could have obtained
from an unaffiliated third party. See Certain
Relationships and Related Party Transactions
Relationship Between Us and Transocean.
9
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Some of our executive officers and directors may have
potential conflicts of interest because of their ownership of
Transocean ordinary shares or role as a director of
Transocean. |
Some of our executive officers and directors own Transocean
ordinary shares or options to purchase Transocean ordinary
shares which are of greater value than their ownership of our
common stock and options. Ownership of Transocean ordinary
shares by our directors and executive officers could create, or
appear to create, potential conflicts of interest when directors
and executive officers are faced with decisions that could have
different implications for Transocean than they do for us.
One of our directors also serves as a director of Transocean.
This director owes fiduciary duties to the shareholders of each
company. As a result, in connection with any transaction or
other relationship involving both companies, the director may
need to recuse himself and not participate in any board action
relating to these transactions or relationships.
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Our tax sharing agreement with Transocean Holdings could
require substantial payments by us in the event that a third
party becomes the owner of a majority of our voting power or any
of our subsidiaries are deconsolidated. |
Our tax sharing agreement with Transocean Holdings provides that
we must pay Transocean Holdings for substantially all
pre-closing tax benefits utilized subsequent to the closing of
the IPO. See Certain Relationships and Related Party
Transactions Relationship Between Us and
Transocean Tax Sharing Agreement. As of
December 31, 2004, we had approximately $368 million
of estimated pre-closing tax benefits subject to our obligation
to reimburse Transocean Holdings. See Note 12 to our
consolidated financial statements for the period ended
December 31, 2004 incorporated by reference herein from our
annual report on Form 10-K for the year ended
December 31, 2004.
Additionally, the tax sharing agreement provides that if any
person other than Transocean or its subsidiaries becomes the
beneficial owner of greater than 50% of the total voting power
of our outstanding voting stock, we will be deemed to have
utilized all of these pre-closing tax benefits, and we will be
required to pay Transocean Holdings an amount for the deemed
utilization of these tax benefits adjusted by a specified
discount factor. If an acquisition of beneficial ownership had
occurred on December 31, 2004, the estimated amount that we
would have been required to pay to Transocean Holdings would
have been approximately $294 million, or 80% of the
pre-closing tax benefits at December 31, 2004. In 2005,
this percentage of remaining pre-closing tax benefits that would
be payable to Transocean Holdings upon a change of beneficial
ownership is reduced to 70%, but will fluctuate between 70% and
100% in subsequent years. The resulting payment to Transocean
Holdings would be due even though we would not have derived, and
may not in the future derive, a corresponding benefit. Our
obligation to make a potentially substantial payment to
Transocean Holdings may deter transactions that would trigger a
payment under the tax sharing agreement, such as a merger in
which we are not the surviving company, a merger in which more
than 50% of the aggregate voting power of our stock becomes
owned by a single person or group of related persons or another
change of control transaction. Even if we complete such a
transaction, our obligation to make a substantial payment to
Transocean Holdings could result in a lower economic benefit of
such a transaction to our other stockholders than those
stockholders could have received if we had not entered into the
tax sharing agreement.
Our tax sharing agreement with Transocean Holdings also provides
that if any of our subsidiaries that join with us in the filing
of consolidated returns ceases to do so, we will be deemed to
have used that portion of any pre-closing tax benefits that will
be allocable to the subsidiary following that cessation, and we
will generally be required to pay Transocean Holdings the amount
of this deemed tax benefit, adjusted by a specified discount
factor, at the time the subsidiary ceases to join in the filing
of these returns.
Payment of amounts for the deemed utilization of tax benefits by
us could require additional financing. The amount of our
payments to Transocean Holdings will not be adjusted for any
difference between the tax benefits that we are deemed to
utilize and the tax benefits that we actually utilize, and the
difference between these amounts could be substantial. Among
other considerations, applicable tax laws may significantly
limit our use of these tax benefits, and these limitations are
not taken into account in
10
determining the amount of the payment to Transocean Holdings.
Additionally, Transocean Holdings right to receive this
payment could result in a conflict of interest between us and
Transocean and for one of our directors who is also a director
of Transocean in considering any potential transaction.
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Our tax sharing agreement with Transocean Holdings could
delay or preclude us from realizing tax benefits created after
the closing of the IPO. |
Our tax sharing agreement with Transocean Holdings provides that
we must pay Transocean Holdings for most pre-closing tax
benefits that we utilize on a tax return with respect to a
period after the closing of the IPO. If the utilization of a
pre-closing tax benefit defers or precludes our utilization of
any post-closing tax benefit, our payment obligation with
respect to the pre-closing tax benefit generally will be
deferred until we actually utilize that post-closing tax
benefit. This payment deferral will not apply with respect to,
and we will have to pay currently for the utilization of
pre-closing tax benefits to the extent of,
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up to 20% of any deferred or precluded post-closing tax benefit
arising out of our payment of foreign income taxes; and |
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100% of any deferred or precluded post-closing tax benefit
arising out of a carryback from a subsequent year. |
Therefore, we may not realize the full economic value of tax
deductions, credits and other tax benefits that arise
post-closing until we have utilized all of the pre-closing tax
benefits, if ever.
Risks Related to this Offering, the Securities Markets and
Ownership of Our Class A Common Stock
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Substantial sales of our common stock by Transocean or us
could cause our stock price to decline and issuances by us may
dilute your ownership interest in our company. |
We are unable to predict the amount or timing of sales by
Transocean of our common stock. Any sales of substantial amounts
of our common stock in the public market by Transocean or us, or
the perception that these sales might occur, could lower the
market price of our common stock. Further, if we issue
additional equity securities to raise additional capital, your
ownership interest in our company may be diluted and the value
of your investment may be reduced.
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We have no plans to pay regular dividends on our common
stock, so stockholders may not receive funds without selling
their common stock. |
We have no plans to pay regular dividends on our common stock.
We generally intend to invest our future earnings, if any, to
fund our growth. Any payment of future dividends will be at the
discretion of our board of directors and will depend on, among
other things, our earnings, financial condition, capital
requirements, level of indebtedness, statutory and contractual
restrictions applying to the payment of dividends, and other
considerations that our board of directors deems relevant. Our
credit facility also includes limitations on our payment of
dividends. Accordingly, investors may have to sell some or all
of their common stock in order to generate cash flow from their
investment. Investors may not receive a gain on their investment
when they sell our common stock and may lose the entire amount
of the investment.
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The price of our common stock may be volatile. |
The market price of our common stock could be subject to
significant fluctuations after this offering and may decline
below the public offering price. You may not be able to resell
your shares at or above the public offering price. Among the
factors that could affect our stock price are:
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our operating and financial performance and prospects; |
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quarterly variations in the rate of growth of our financial
indicators, such as earnings per share, net income and revenues; |
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changes in revenue or earnings estimates; |
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publication of research reports by analysts; |
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speculation in the press or investment community; |
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strategic actions by us or our competitors, such as acquisitions
or restructurings; |
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sales of our common stock by stockholders, including Transocean; |
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actions by institutional investors or by Transocean; |
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fluctuations in oil and gas prices; |
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general market conditions; and |
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U.S. and international economic, legal and regulatory factors
unrelated to our performance. |
The stock markets in general have experienced extreme volatility
that has at times been unrelated to the operating performance of
particular companies. These broad market fluctuations may
adversely affect the trading price of our common stock.
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Our rights agreement and provisions in our charter
documents may inhibit a takeover, which could adversely affect
the value of our common stock. |
Our amended and restated certificate of incorporation and bylaws
contain provisions that could delay or prevent a change of
control or changes in our management that a stockholder might
consider favorable. These provisions include:
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classification of the members of our board of directors into
three classes, with each class serving a staggered three-year
term; |
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requiring our stockholders, other than Transocean as long as it
owns at least 10% of our outstanding voting power, to give
advance notice of their intent to make nominations for the
election of directors or to submit a proposal at an annual
meeting of the stockholders; |
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limitations on the ability of our stockholders to amend
specified provisions of our amended and restated certificate of
incorporation and bylaws; |
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the denial of any right of our stockholders to act by written
consent in lieu of a meeting; |
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the denial of any right of our stockholders to remove members of
our board of directors except for cause; and |
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except for Transocean, the denial of any right of our
stockholders to call special meetings of the stockholders. |
We are also party to a rights agreement that could delay or
prevent a change of control that a stockholder might consider
favorable.
These provisions apply even if the offer may be considered
beneficial by some of our stockholders. If a change of control
or change in management is delayed or prevented, the market
price of our common stock could decline.
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Purchasers in this offering will experience immediate and
substantial dilution in net tangible book value per
share. |
Dilution per share represents the difference between the
offering price and the net consolidated book value per share
immediately after the offering of our common stock. Purchasers
of our common stock in this offering will experience immediate
dilution of $12.50 in net tangible book value per share as of
March 31, 2005, based on the offering price of
$20.50 per share.
12
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This prospectus contains and incorporates by reference both
historical and forward-looking statements. All statements other
than statements of historical fact are, or may be deemed to be,
forward-looking statements. Forward-looking statements include
information concerning our possible or assumed future financial
performance and results of operations, including statements
about the following subjects:
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our strategy; |
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improvement in the fundamentals of the oil and gas industry; |
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the supply and demand imbalance in the oil and gas industry; |
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the correlation between demand for our rigs and our earnings and
customers expectations of energy prices; |
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our plans, expectations and any effects of focusing on marine
assets and drilling for natural gas along the U.S. Gulf
Coast, pursuing efficient, low-cost operations and a disciplined
approach to capital spending, maintaining high operating
standards and maintaining a conservative capital structure; |
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the acquisition or disposition of assets; |
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estimated tax benefits and estimated payments under our tax
sharing agreement with Transocean Holdings; |
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expected capital expenditures; |
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expected general and administrative expense; |
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refurbishment costs; |
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our ability to take advantage of opportunities for growth and
our ability to respond effectively to market downturns; |
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sufficiency of funds for required capital expenditures, working
capital and debt service; |
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deep gas drilling opportunities; |
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operating standards; |
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payment of dividends; |
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competition for drilling contracts; |
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matters relating to derivatives; |
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matters related to our letters of credit and surety bonds; |
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future restructurings; |
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matters relating to our future transactions, agreements and
relationship with Transocean; |
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payments under agreements with Transocean; |
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interests conflicting with those of Transocean; |
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results and effects of legal proceedings; |
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future utilization rates; |
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future dayrates; and |
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expectations regarding improvements in offshore drilling
activity, demand for our drilling rigs, our plan to operate
primarily in the U.S. Gulf Coast, operating revenues,
operating and maintenance |
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expense, insurance expense and deductibles, interest expense,
debt levels and other matters with regard to outlook. |
Forward-looking statements in this prospectus are identifiable
by use of the following words and other similar expressions:
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anticipate; |
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believe; |
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budget; |
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could; |
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estimate; |
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expect; |
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forecast; |
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intent; |
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may; |
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might; |
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plan; |
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potential; |
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predict; |
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project; and |
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should. |
The following factors could affect our future results of
operations and could cause those results to differ materially
from those expressed in the forward-looking statements included
in this prospectus:
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worldwide demand for oil and gas; |
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exploration success by producers; |
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demand for offshore and inland water rigs; |
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our ability to enter into and the terms of future contracts; |
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labor relations; |
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political and other uncertainties inherent in
non-U.S. operations (including exchange controls and
currency fluctuations); |
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the impact of governmental laws and regulations; |
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the adequacy of sources of liquidity; |
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uncertainties relating to the level of activity in offshore oil
and gas exploration and development; |
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oil and natural gas prices (including U.S. natural gas
prices); |
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competition and market conditions in the contract drilling
industry; |
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work stoppages; |
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the availability of qualified personnel; |
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operating hazards; |
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war, terrorism and cancellation or unavailability of insurance
coverage; |
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compliance with or breach of environmental laws; |
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the effect of litigation and contingencies; |
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our inability to achieve our plans or carry out our strategy; |
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the matters discussed in Risk Factors; and |
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other factors discussed in this prospectus. |
Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results
may vary materially from those indicated. You should not place
undue reliance on forward-looking statements. Each
forward-looking statement speaks only as of the date of the
particular statement, and we undertake no obligation to publicly
update or revise any forward-looking statements.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-3 under the Securities Act of 1933, as amended (the
Securities Act), with respect to the securities
offered by this prospectus. In this prospectus, we refer to that
registration statement, together with all amendments, exhibits
and schedules to that registration statement, as the
registration statement.
As is permitted by the rules and regulations of the SEC, this
prospectus, which is part of the registration statement, omits
some information, exhibits, schedules and undertakings set forth
in the registration statement. For further information with
respect to us, and the securities offered by this prospectus,
please refer to the registration statement.
We file current reports, quarterly reports, annual reports,
proxy statements and other information with the SEC. You may
read and copy those reports, proxy statements and other
information at the public reference facility maintained by the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of this material may also be obtained from the Public
Reference Room of the SEC at 450 Fifth Street, N.W.
Washington, D.C. 20549 at prescribed rates. Information on
the operation of the Public Reference Room may be obtained by
calling the SEC at 1-800-732-0330. The SEC maintains a website
at www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that make
electronic filings with the SEC using its EDGAR system. You can
also obtain information about us at the offices of the New York
Stock Exchange (the NYSE), 20 Broad Street, New
York, New York 10005.
You may request a copy of our filings, which we will provide at
no cost, by writing to the Corporate Secretary of TODCO at the
following address:
TODCO
2000 W. Sam Houston Parkway South, Suite 800
Houston, Texas 77042
Attn: Corporate Secretary
15
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have previously been filed by us
with the SEC under the Securities Exchange Act of 1934, as
amended (the Exchange Act), are incorporated herein
by reference:
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(1) Our annual report on Form 10-K for the fiscal year
ended December 31, 2004 filed on March 15, 2005. |
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(2) Our quarterly report on Form 10-Q for the quarter
ended March 31, 2005 filed May 5, 2005. |
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(3) Our current reports on Form 8-K filed on
January 21, 2005, February 11, 2005, February 15,
2005 (only the information contained in Item 2.06),
February 24, 2005, March 2, 2005 and March 24,
2005. |
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(4) Our proxy statement for our annual meeting of
stockholders filed on April 8, 2005. |
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(5) The description of our common stock and preferred stock
purchase rights contained in our registration statement on
Form 8-A filed on February 5, 2004. |
All documents filed by us pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act (excluding any
information in those documents that is deemed by the rules of
the SEC to be furnished not filed) after the date of this
prospectus and prior to the termination of this offering shall
be deemed to be incorporated in this prospectus by reference and
to be a part hereof from the date of filing of such documents.
Any statement contained herein, or in a document incorporated or
deemed to be incorporated by reference herein, shall be deemed
to be modified or superseded for purposes of this prospectus to
the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
This prospectus incorporates documents by reference that are not
delivered herewith. Copies of these documents, other than the
exhibits thereto (unless such exhibits are specifically
incorporated by reference in such documents), are available upon
written or oral request, at no charge, from us. Requests for
such copies should be directed to the Corporate Secretary of
TODCO at 2000 W. Sam Houston Parkway South, Suite 800,
Houston, Texas 77042, or at (713) 278-6000.
16
USE OF PROCEEDS
We will not receive any proceeds from the sale of our common
stock by the selling stockholder in this offering.
DILUTION
The net tangible book value per share of our common stock will
be substantially below the offering price. You will therefore
incur immediate and substantial dilution of $12.50 per
share, based on the offering price of $20.50 per share. As
a result, if we are liquidated, you may not receive the full
value of your investment.
Dilution in net tangible book value per share represents the
difference between the amount per share of our common stock that
you pay in this offering and the net tangible book value per
share of our common stock. Net tangible book value per share
represents: (1) the total net tangible assets divided by
(2) the number of shares of our common stock outstanding.
Our net tangible book value at March 31, 2005 was
$485.3 million, or $8.00 per share. This amount
represents an immediate dilution in net tangible book value of
$12.50 per share to you. The following table illustrates
this dilution per share:
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Public offering price per share
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20.50 |
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Net tangible book value per share as of March 31, 2005
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8.00 |
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Dilution per share to you
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$ |
12.50 |
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17
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Merger with Transocean
We were incorporated in Delaware on July 7, 1997. On
January 31, 2001, we completed a merger transaction with
Transocean in which an indirect subsidiary of Transocean, TSF
Delaware Inc., merged with and into our company, which was then
named R&B Falcon Corporation. On December 13, 2002,
R&B Falcon changed its name to TODCO.
Asset Transfers to Transocean
For a description of the risks related to the transactions with
Transocean described below, see Risk Factors
Risks Related to Our Largest Stockholder, Transocean. The
terms of our separation from Transocean, the related agreements
and other transactions with Transocean were determined in the
context of a parent-subsidiary relationship and thus may be less
favorable to us than the terms we could have obtained from an
unaffiliated third party.
The following describes transfers of our assets to Transocean
between the date of our acquisition by Transocean and the
closing of the IPO. None of the drilling rigs transferred to
Transocean are currently involved in the business activities
that fall within the TODCO business as defined in the master
separation agreement. See Relationship Between
Us and Transocean Master Separation Agreement.
In August 2001, we sold, in separate transactions, the drilling
units Jack Bates, Deepwater Millennium, Deepwater Expedition,
Peregrine I, Deepwater Horizon, C. Kirk Rhein, Falcon 100,
Deepwater Navigator and Deepwater Discovery to
Transocean for net proceeds of $1,615.0 million. The sale
prices for these units were determined by Transocean based on
appraisals by R.S. Platou (U.S.A.) Inc., a third party valuation
firm. In consideration for the sales of these drilling units,
$1,190.0 million of debt we owed to Transocean was
cancelled. We incurred this debt in connection with the
retirement of some of our then-outstanding public debt. In
addition, Transocean delivered to us promissory notes due
August 17, 2011 bearing interest at 5.72% payable annually
in an aggregate principal amount of $425.0 million. In
December 2002, Transocean repaid to us the $425.0 million
aggregate principal amount of promissory notes plus accrued and
unpaid interest. At the time of the sales, each of the drilling
units was being utilized under a drilling contract between one
of our subsidiaries and a customer. These contracts were not
transferred and we secured the continued use of the drilling
units for the purpose of performing these contracts through
charters or other arrangements. These charters or other
arrangements were terminated or transferred to Transocean prior
to the closing of the IPO.
In April 2002, we sold, in separate transactions, the drilling
units Harvey H. Ward and Roger W. Mowell to
Transocean for an aggregate net price of $93.0 million. The
sale prices for these units were determined by Transocean based
on appraisals by R.S. Platou (U.S.A.) Inc., a third party
valuation firm. In consideration for the sales of these drilling
units, Transocean delivered to us promissory notes due
April 3, 2012 bearing interest at 5.5% payable annually in
an aggregate principal amount of $93.0 million. The notes
can be prepaid at any time at Transoceans option, without
penalty. In December 2002, Transocean repaid to us the
$93.0 million aggregate principal amount of promissory
notes plus accrued and unpaid interest.
In July 2002, we distributed as an in-kind dividend for no
consideration, in separate transactions, the drilling units
W.D. Kent, Charley Graves and J.W. McLean to
Transocean. Simultaneous with the distributions, we entered into
a demise party charter agreement with Transocean for each rig
whereby Transocean chartered the drilling units to us at a fixed
daily rate aggregating $49,800. Additionally, we entered into a
master brokerage agreement with Transocean for each drilling
unit whereby we marketed that drilling unit in exchange for a
fee equal to 2% of the payment due Transocean under the demise
charter. Both the master brokerage agreements and the demise
party charters were terminated on September 30, 2002.
18
Also in July 2002, we sold, in separate transactions, the
following subsidiaries to Transocean, in exchange for total cash
consideration of approximately $1.1 million: (1) RB
Mediterranean Ltd., which holds oil and gas interests outside
the United States, (2) RB Anton Ltd., which holds oil and
gas interests outside the United States, (3) RB Astrid
Ltd., which holds oil and gas interests outside the United
States, and (4) PT RBF Offshore Drilling, which has
drilling operations in Indonesia. The sale prices for RB
Mediterranean Ltd. and PT RBF Offshore Drilling were determined
by Transocean based on internal valuations. The sale prices for
RB Anton Ltd. and RB Astrid Ltd. were determined by Transocean
based on recommendations by Argonauta Exploration &
Production Services, a third party consulting firm that manages
the assets held by those entities.
Effective August 1, 2002, Transocean assumed sponsorship of
specified employee benefits plans, as more fully described in
Relationship Between Us and
Transocean Employee Matters Agreement.
In September 2002, we distributed as an in-kind dividend for no
consideration, in separate transactions, the stock of the
following subsidiaries to Transocean: (1) R&B Falcon
Canada Co., which has drilling operations in Canada,
(2) Shore Services, LLC, which has shore base operations in
Italy, (3) R&B Falcon Inc., LLC, which has a branch in
Saudi Arabia, (4) R&B Falcon (M) Sdn. Bhd., which
has drilling operations in Malaysia, (5) R&B Falcon
International Energy Services BV, which has drilling operations
outside the United States, (6) R&B Falcon BV, which has
operations outside the United States, (7) Transocean
Offshore Drilling Services LLC, which owns the drilling unit
J.T. Angel, and (8) RBF Rig Corporation LLC, which
owns the drilling unit C.E. Thornton. Additionally, in
September 2002, we distributed as an in-kind dividend for no
consideration, in separate transactions, the drilling units
F.G. McClintock, Peregrine III and Land Rig 34
as well as certain surplus equipment to Transocean.
Also in September 2002, we sold the stock of R&B Falcon
(Ireland) Limited, which has drilling operations outside the
United States, to Transocean for cash consideration of
approximately $1.4 million. The sale price was determined
by Transocean based on internal valuations.
In October 2002, we assigned our leasehold interest in the
drilling unit M.G. Hulme, Jr. to Transocean for no
consideration. Additionally, we assigned the drilling contract
for the drilling unit Deepwater Horizon to Transocean for
no consideration in the same month.
In November 2002, we distributed as an in-kind dividend for no
consideration the drilling unit Randolph Yost to
Transocean. Additionally, we assigned the drilling contract for
the drilling unit Deepwater Discovery to Transocean for
no consideration in the same month.
In December 2002, we distributed to Transocean as an in-kind
dividend for no consideration the stock of the following
subsidiaries: (1) Falcon Atlantic Ltd., which has
operations outside the United States; and (2) R&B
Falcon Drilling do Brasil, Ltda., which has shore base
operations in Brazil. Also in December 2002, we transferred the
drilling units D.R. Stewart and George H. Galloway
to Transocean for no consideration and we assigned our
rights and obligations under a rig sharing agreement for the
drilling unit Deepwater Millenium to Transocean for no
consideration.
Also in December 2002, we assigned the drilling contracts for
the drilling units Deepwater Navigator and Peregrine I
to Transocean for no consideration.
In January 2003, we assigned to Transocean for no consideration
a 12.5% undivided interest in an aircraft at net book value of
$1.0 million. The transaction was recorded as a decrease to
additional paid-in capital.
Also in January 2003, we distributed to Transocean as an in-kind
dividend for no consideration some accounts receivable balances
from related parties in the amount of $200.9 million. The
transaction was recorded as a decrease to additional paid-in
capital.
In February 2003, we distributed to Transocean for no
consideration the stock of our subsidiaries R&B Falcon
(A) Pty. Ltd., which owns the drilling unit Ron
Tappmeyer and Cliffs Drilling do Brasil Servicos de Petroleo
S/ C Ltda., a dormant Brazilian entity. The aggregate net book
value of $44.6 million for these transfers was recorded as
a decrease to additional paid-in capital.
19
In March 2003, we sold to Transocean the stock of Arcade
Drilling AS, a subsidiary that owns and operates the Paul B.
Loyd, Jr. and owns the Henry Goodrich, for net
proceeds of $264.1 million and recorded a net pre-tax loss
of $11.0 million. The sales price was determined based on
an appraisal by Professor Terje Hansen of the Norwegian School
of Economics and Business Administration, taking into account
the values of the drilling units provided by R.S. Platou
(U.S.A.) Inc. In consideration for the sale of the subsidiary,
Transocean cancelled $233.3 million principal amount of our
6.95% notes due April 2008. The market value
attributed to the notes, 113.21% of the principal amount, was
determined by Transocean based on available market information.
In March 2003, we assigned the drilling contract for the
Deepwater Frontier to Transocean for no consideration.
Additionally, in March 2003, we distributed to Transocean
miscellaneous deepwater assets with a value of $1.4 million
for no consideration. The transactions were recorded as a
decrease to additional paid-in capital.
In May 2003, we sold to Transocean Cliffs Platform Rig 1
in consideration for the cancellation of $13.9 million
principal amount of the 6.95% Senior Notes held by
Transocean. The sales price was determined based on an appraisal
by R.S. Platou (U.S.A.) Inc. We recorded the excess of the sales
price over the net book value of the rig of $1.6 million as
an increase to additional paid-in capital and a pre-tax loss on
the retirement of debt of $1.5 million.
In May 2003, we sold to Transocean our 50% interest in Deepwater
Drilling L.L.C. (DD LLC), which leases the drilling
unit Deepwater Pathfinder, and our 60% interest in
Deepwater Drilling II L.L.C. (DDII LLC), which
leases the Deepwater Frontier, in consideration for the
cancellation of $43.7 million principal amount of our debt
held by Transocean. The value of our interests in DD LLC and
DDII LLC was determined by Transocean based on a similar third
party transaction. We recorded the excess of the sales price
over the net book value of the membership interests of
$21.6 million as an increase to additional paid-in capital
paid the year ended December 31, 2003.
In June 2003, we sold to Transocean our membership interests in
our wholly owned subsidiary, R&B Falcon Drilling
(International & Deepwater) Inc. LLC, which owns the
following assets: (1) the drilling unit Jim
Cunningham, (2) all of the stock of R&B Falcon
Deepwater (UK) Ltd., which has specified charter rights
with respect to the drilling unit Deepwater Nautilus,
(3) all of the stock of RBF Exploration LLC, which is the
issuer of the Class A1 Notes due May 2005 and the
Class A2 Notes, repurchased and retired in May 2003,
related to the drilling unit Deepwater Nautilus,
(4) several dormant or near dormant subsidiaries, and
(5) other miscellaneous assets. As consideration for the
stock sold, Transocean cancelled $238.8 million of our
outstanding debt held by Transocean. The sales transaction was
based on a valuation by Transocean which takes into account the
valuations of the drilling units provided by R.S. Platou
(U.S.A.) Inc. We recorded the excess of the net book value over
the sales price of our membership interests of
$60.9 million as a loss on sale of assets and a pre-tax
loss on the retirement of debt of $48.0 million for the
year ended December 31, 2003.
At the time of the transactions, some of the drilling units
discussed above were being utilized in connection with drilling
contracts between our subsidiaries and customers. These
contracts were not transferred and we secured the use of the
drilling units for the purpose of performing these contracts
through charters or other arrangements. The costs of these
charters or other arrangements are included in discontinued
operations and totaled $0.8 million, $233.8 million
and $96.8 million for the years ended December 31,
2003 and 2002 and the eleven months ended December 31,
2001, respectively.
In August 2003, Transocean made a payment to us of
$11.4 million in order for us to have the amount of cash
and cash equivalents agreed to between us and Transocean, as
more fully described in Relationship Between
Us and Transocean Master Separation
Agreement Transfer of Assets and Assignment of
Liabilities.
In December 2003, Transocean made an equity contribution to us
of $84.7 million in return for intercompany payable
balances we owed to Transocean.
20
In February 2004, prior to the IPO, we exchanged $45,784,000,
$152,463,000 and $289,793,000 in principal amount of our
outstanding 7.375%, 6.750% and 9.500% notes, respectively,
held by Transocean for 3,940,406 shares of our Class B
common stock. Immediately following this exchange, we declared a
dividend of 11.1447508 shares of our Class B common
stock with respect to each share of our Class B common
stock outstanding immediately following the exchange. As a
result, 60,000,000 shares of our Class B common stock
were issued and outstanding immediately prior to the IPO. The
stock for debt exchange was exempt from registration pursuant to
Section 4(2) of the Securities Act.
Prior to the closing of the IPO, we completed the following
transactions:
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We assigned to Transocean for no consideration any other
agreements relating to drilling units and other assets not owned
by us or our subsidiaries upon the closing of the IPO. |
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We assigned to Transocean the rights to any receivables
outstanding upon the closing of the IPO which were not related
to the TODCO business as that term is used in the
master separation agreement. We will remit the proceeds from
those receivables as they are collected. |
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We transferred to Transocean any remaining miscellaneous
equipment and other assets that did not relate to our business
following the closing of the IPO. |
To the extent the transfer of legal title to any of the above
assets could not be completed prior to the closing of the IPO,
beneficial ownership of such assets was transferred to
Transocean, and we or our applicable subsidiary held such assets
as agent for the other party until such time as legal title
could be transferred. See Relationship Between
Us and Transocean Master Separation
Agreement Transfer of Assets and Assignment of
Liabilities.
Debt Retirement and Debt Exchange Offers
In March 2002, in conjunction with Transocean, we completed
exchange offers and consent solicitations for our
6.50% notes due 2003, 6.75% notes due 2005,
6.95% notes due 2008, 7.375% notes due 2018,
9.125% notes due 2003 and 9.50% notes due 2008. As a
result of these exchange offers and consent solicitations,
Transocean exchanged approximately $234.5 million,
$342.3 million, $247.8 million, $246.5 million,
$76.9 million and $289.8 million principal amount of
our outstanding 6.50%, 6.75%, 6.95%, 7.375%, 9.125% and
9.50% notes, respectively, for newly issued 6.50%, 6.75%,
6.95%, 7.375%, 9.125% and 9.50% notes of Transocean having
the same principal amount, interest rate, redemption terms and
payment and maturity dates. Approximately $38.8 million
principal amount of notes were not exchanged in the exchange
offers and $23.6 million principal amount of the notes
remains outstanding. Because the holders of a majority in
principal amount of each of these series of notes consented to
amendments to the indentures under which the notes were issued,
some covenants, restrictions and events of default were
eliminated from the indentures with respect to these series of
notes. In connection with the exchange offers, we made an
aggregate of $8.3 million in consent payments to holders of
our notes. At December 31, 2003 and December 31, 2002,
$488.1 million and $936.6 million principal amount of
the notes, respectively, was outstanding to Transocean. Interest
expense related to these notes was $3.1 million for the
year ended December 31, 2004, $42.7 million for the
year ended December 31, 2003 and $77.9 million for the
year ended December 31, 2002.
In December 2002, we repurchased all of the approximately
$234.5 million and $76.9 million principal amount of
the 6.50% and 9.125% notes payable to Transocean,
respectively, and approximately $189.8 million of the
principal amount of the 6.75% notes payable to Transocean
plus accrued and unpaid interest. We recorded a net after-tax
loss of $12.2 million in conjunction with the repurchase of
these notes. We funded the repurchase from cash received from
Transoceans repurchase of approximately
$518.0 million aggregate principal amount of the notes
receivable plus accrued and unpaid interest.
In March 2003, we acquired approximately $233.3 million
principal amount of the 6.95% notes due April 2008 in
exchange for the stock of Arcade. See Asset
Transfers to Transocean.
21
In April 2003, we repaid all of the $5.0 million principal
amount of the 6.50% notes, plus accrued and unpaid
interest, in accordance with their scheduled maturities. We
funded the repayment from a capital contribution received from
Transocean.
In May 2003, we repurchased and retired the entire
$50.0 million principal amount of the 9.41% Nautilus
Class A2 Notes due May 2005. We recorded a pre-tax loss on
retirement of debt of approximately $5.5 million. We funded
the repurchases from a capital contribution received from
Transocean as well as cash on hand.
In May 2003, we acquired $13.9 million principal amount of
the 6.95% notes in exchange for the sale of Cliffs
Platform Rig 1 to Transocean. We recorded a pre-tax loss on
retirement of debt of approximately $1.5 million. See
Asset Transfers to Transocean.
In May 2003, we acquired $43.7 million principal amount of
the 2.76% fixed rate promissory note issued by us to Transocean,
scheduled to mature on April 6, 2005 in exchange for the
sale of our 50% interest in DD LLC and our 60% interest in DDII
LLC to Transocean. See Asset Transfers to
Transocean.
In June 2003, we acquired $200.7 million principal amount
of the 7.375% notes, the remaining $37.5 million
principal amount of the 2.76% fixed rate promissory note and
$0.6 million principal amount of the 6.95% notes in
exchange for the sale to Transocean of our wholly owned
subsidiary R&B Falcon Drilling (International &
Deepwater) Inc. LLC, which owns the following assets:
(1) the drilling unit Jim Cunningham, (2) all
of the stock of R&B Falcon Deepwater (UK) Ltd., which
has specified charter rights with respect to the drilling unit
Deepwater Nautilus, (3) all of the stock of RBF
Exploration LLC, which is the issuer of the Class A1 Notes
due May 2005 and the Class A2 Notes repurchased and retired
in May 2003, related to the drilling unit Deepwater
Nautilus, (4) several dormant or near dormant
subsidiaries, and (5) other miscellaneous assets. We
recorded a pre-tax loss on retirement of debt of approximately
$48.0 million. See Asset Transfers to
Transocean.
As described above, Transocean exchanged a portion of the notes
it acquired in the exchange offer as consideration for the asset
transfers described in Asset Transfers to
Transocean. Prior to the closing of the IPO, Transocean
exchanged the balance of the notes for newly issued shares of
our Class B common stock. The determination of the number
of shares issued was based on a method that took into account
the initial public offering price. Prior to these retirement
transactions, our outstanding common stock was reclassified into
shares of Class B common stock. Following the
reclassification, the retirement transactions and a stock split,
Transocean held an aggregate of 60,000,000 shares of
Class B common stock prior to the closing of the IPO.
46,690,000 of these shares of Class B common stock were
sold and converted into shares of Class A common stock in
the IPO and offerings in September 2004 and December 2004. The
remaining 13,310,000 shares of Class B common stock
were converted into shares of Class A common stock in
connection with the December 2004 offering and are being offered
for sale under this prospectus.
Revolving Credit Agreement
We were a party to a $1.8 billion two-year revolving credit
agreement with Transocean, dated April 6, 2001. Amounts
outstanding under the revolver bore interest payable quarterly
at LIBOR plus 0.575% to 1.300% depending on our senior unsecured
public debt rating. In April 2001 we borrowed approximately
$1.3 billion under this credit agreement to retire some of
our then-outstanding public debt. This line of credit expired
April 6, 2003 and, as of that date, the approximately
$81.2 million then outstanding under the line was converted
into the 2.76% fixed rate promissory note. This note was
cancelled in connection with the sale of some of our assets to
Transocean, as described in Asset Transfers to
Transocean above.
22
Administrative Support Services
Prior to June 30, 2003, Transocean provided administrative
support services to us. Transocean charged us a proportional
share of its administrative costs based on estimates of the
percentage of work the relevant Transocean departments performed
for us. This arrangement was terminated prior to June 30,
2003. We no longer utilize any significant services from
Transocean under the transition services agreement. See
Relationship Between Us and
Transocean Transition Services Agreement.
Relationship Between Us and Transocean
We have provided below a summary description of the material
terms and conditions of a master separation agreement and
several other important related agreements between Transocean
and us. We encourage you to read the full text of these
agreements which have been filed with the SEC.
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Master Separation Agreement |
The master separation agreement between Transocean and us
provides for the completion of the separation of our assets and
businesses from those of Transocean. In addition, it contains
several agreements governing the relationship between us and
Transocean following the IPO and specifies the ancillary
agreements that we and Transocean signed.
The master separation agreement defines the TODCO business to
mean the following businesses and activities:
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contract drilling, workover, production and similar services for
oil and gas wells using jackup, submersible, barge (including
workover) and platform drilling rigs in the U.S. Gulf of
Mexico and U.S. inland waters, including maintenance and
mobilization activities to the extent related to rigs providing
these services; |
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contract drilling, workover, production and similar services for
oil and gas wells in and offshore Mexico, Trinidad, Colombia and
Venezuela (including the turnkey drilling services formerly
provided by our subsidiaries in Venezuela), including
maintenance and mobilization activities to the extent related to
rigs providing these services; |
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construction activities (including construction activities
involving an upgrade to, or modification of, a rig) in
connection with rigs owned by us or our subsidiaries after the
closing of the IPO; |
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office or yard facilities owned or used by us and our
subsidiaries to the extent related to the services and
activities described in this definition; |
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our joint venture interest in Delta Towing Holdings, LLC, the
operation of the business transferred to Delta Towing (a joint
venture that operates a fleet of U.S. marine support
vessels consisting primarily of shallow water tugs, crewboats
and utility barges) prior to that transfer and the notes issued
in connection with that transfer; |
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our investment in Energy Virtual Partners, Inc. and Energy
Virtual Partners, LP (both of which have been liquidated); |
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activities that were related primarily to the above activities
at the time those activities ceased; and |
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any business conducted by TODCO or any of its subsidiaries after
the closing of the IPO. |
The following businesses and activities are excluded from the
definition of the TODCO business to the extent they were
conducted prior to the closing of the IPO:
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contract drilling, workover, production or similar services for
oil and gas wells using semisubmersibles and drillships in the
U.S. Gulf of Mexico, including maintenance and mobilization
activities to the extent related to rigs providing these
services; |
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contract drilling, workover, production or similar services for
oil and gas wells in geographic regions outside of the
U.S. Gulf of Mexico, U.S. inland waters, Mexico,
Colombia, Trinidad and Venezuela, including maintenance and
mobilization activities to the extent related to rigs providing
these services and such services using land rigs; |
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construction activities (including construction activities
involving an upgrade to, or modification of, a rig) in
connection with rigs or other assets owned by
(1) Transocean or its subsidiaries (excluding us) after the
closing of the IPO or (2) neither Transocean nor us after
the closing of the IPO; |
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oil and gas exploration and production activities (but not
including our ownership interest in Energy Virtual Partners,
Inc. and Energy Virtual Partners LP, both of which have been
liquidated); |
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coal production activities; and |
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the turnkey drilling business that we formerly operated in the
U.S. Gulf of Mexico and offshore Mexico, except that
contract drilling services provided to that business which
otherwise fall within the definition of TODCO business are not
excluded. |
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Transfer of Assets and Assignment of Liabilities |
We have transferred the stock of various subsidiaries and other
assets to Transocean and Transocean has assumed liabilities
associated with the transferred assets and businesses. See
Asset Transfers to Transocean. The
master separation agreement provides for any additional
transfers of assets and assumptions of liabilities necessary to
effect the separation of the TODCO business from the business of
Transocean. The master separation agreement provides that assets
or liabilities that could not legally be transferred or assumed
prior to the closing of the IPO would be transferred or assumed
as soon as practicable following receipt of all necessary
consents of third parties and regulatory approvals. In any such
case, the master separation agreement provides that the party
retaining the assets or liabilities will hold the assets in
trust for the use and benefit of, or retain the liabilities for
the account of, the party entitled to the assets or liabilities
(at the expense of that party), until the transfer or assumption
can be completed. The party retaining these assets or
liabilities will also take any action reasonably requested by
the other party in order to place the other party in the same
position as would have existed if the transfer or assumption had
been completed. We refer to all of these transfers of assets and
assumptions of liabilities together as the
separation.
Except as set forth in the master separation agreement, no party
is making any representation or warranty as to the assets or
liabilities transferred or assumed as a part of the separation
and all assets were and will be transferred on an as is,
where is basis. As a result, we and Transocean each have
agreed to bear the economic and legal risks that any conveyances
of assets are insufficient to vest good and marketable title to
such assets in the party who should have title under the master
separation agreement.
The parties also agreed that for a period of one year following
the IPO, if Transocean determined in its good faith judgment
that:
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any assets owned by us or our subsidiaries were used primarily
during the prior 12 months in Transoceans business,
we would transfer those assets to Transocean without additional
consideration; or |
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any assets owned by Transocean were used primarily during the
prior 12 months in our business, Transocean would transfer
those assets to us without additional consideration. |
The master separation agreement contains an acknowledgement that
our cash and cash equivalents as of June 30, 2003 were
$25.0 million after giving effect to a subsequent payment
by Transocean to us of $11.4 million. The amount paid to us
by Transocean equals the difference between $25.0 million
and the amount of our cash and cash equivalents as of
June 30, 2003 prior to giving effect to the payment by
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Transocean. The master separation agreement provides that we
will retain all cash and cash equivalents generated by our
business following June 30, 2003. Transocean will not
be required to make any additional payments to us for our
working capital needs under the master separation agreement.
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Letters of Credit and Guarantees |
The master separation agreement requires that we and Transocean
use our reasonable best efforts to terminate (or have us or one
of our subsidiaries substituted for Transocean, or Transocean or
one of its subsidiaries substituted for us, as applicable) all
existing guarantees by one party of obligations relating to the
business of the other party, including financial, performance
and other guarantee obligations. We have also agreed with
Transocean that each party will use its reasonable best efforts
to have the other party substituted under letters of credit or
other surety instruments issued by third parties for the account
of either party or any of its subsidiaries issued on behalf of
the other partys business.
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Indemnification and Release |
The master separation agreement provides for cross-indemnities
that will generally place financial responsibility on us and our
subsidiaries for all liabilities associated with the businesses
and operations falling within the definition of TODCO business,
and that will generally place financial responsibility for
liabilities associated with all of Transoceans businesses
and operations with Transocean and its subsidiaries, regardless
of the time those liabilities arise. The master separation
agreement also contains indemnification provisions under which
we and Transocean each indemnify the other with respect to
breaches of the master separation agreement or any ancillary
agreements. We have also agreed to indemnify Transocean against
liabilities arising from misstatements or omissions in this
prospectus or the registration statement of which it is a part,
except for misstatements or omissions relating to information
regarding Transocean provided by Transocean in writing for
inclusion in this prospectus or the registration statement.
In connection with our separation from Transocean, the
allocation of liabilities related to taxes and employment
matters are governed separately in a tax sharing agreement and
an employee matters agreement. See Tax Sharing
Agreement and Employee Matters
Agreement.
Under the master separation agreement, we generally released
Transocean and its affiliates, agents, successors and assigns,
and Transocean generally released us and our affiliates, agents,
successors and assigns, from any liabilities between us or our
subsidiaries on the one hand, and Transocean or its subsidiaries
on the other hand, arising from acts or events occurring on or
before the closing of the IPO, including acts or events
occurring in connection with the separation or the IPO. The
general release does not apply to obligations under the master
separation agreement or any ancillary agreement or to specified
debt and other ongoing contractual arrangements.
Under the master separation agreement, we are strictly liable to
Transocean for any misstatements or omissions in information
supplied to Transocean in connection with filings and other
public disclosures.
The master separation agreement also contains provisions
relating to the exchange of information, provision of
information for financial reporting purposes, the preservation
of legal privileges, dispute resolution and provision of
corporate records.
Some of the rights granted to Transocean in the master
separation agreement would apply to and be binding upon any
entity that acquires control of us.
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The master separation agreement also contains several provisions
regarding our corporate governance that apply as long as
Transocean owns specified percentages of our voting power. These
provisions include:
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for so long as Transocean owns at least 10% of our voting power,
the right to designate a number of members to our board of
directors that is proportionate to its ownership of our voting
power; |
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for so long as Transocean is entitled to designate two members
of our board of directors (based on our current board size of
seven directors, it will be entitled to do so as long as it owns
at least approximately 21.5% of our voting power), any two
directors (including those designated by Transocean) may call
special meetings of our board of directors at any time; |
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unless otherwise provided by the Delaware General Corporation
Law, the right to call special meetings of our stockholders at
any time; |
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for so long as Transocean owns at least 10% of our voting power,
the right to designate at least one member of each committee of
our board of directors; |
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for so long as Transocean owns at least 10% of our voting power,
the right to bring business before any annual meeting of our
stockholders without complying with the applicable notice
procedures in our amended and restated bylaws; |
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for so long as Transocean is one of our stockholders, the right
to bring business before any special meeting of our stockholders
without complying with the applicable notice procedures in our
amended and restated bylaws; and |
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the allocation of specified business opportunities between
Transocean and us. |
The master separation agreement specified the form of our
amended and restated certificate of incorporation and bylaws to
be in effect at the time of the IPO. It also provides that for
so long as Transocean beneficially owns shares representing at
least 15% of the voting power of our outstanding voting stock,
we will not, without the prior consent of Transocean, adopt any
amendments to our amended and restated certificate of
incorporation or bylaws or take any action to recommend to our
stockholders certain actions which would, among other things,
limit the legal rights of Transocean, or deny any benefit to
Transocean or any of its subsidiaries as our stockholders in a
manner not applicable to our stockholders generally.
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Previously Terminated Corporate Governance Rights |
Certain rights of Transocean and certain of our obligations to
Transocean under the master separation agreement and other
related agreements terminated upon Transocean ceasing to own
specified percentages of our voting power. Among the rights and
obligations that have terminated as a result of previous
offerings are the following:
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Transoceans right to maintain its percentage ownership in
us by purchasing from us a portion of any newly-issued shares of
our capital stock; |
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Transoceans right to designate the chairman of our board
of directors; |
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Transoceans right to designate at least a majority of the
members of any committee of our board of directors; |
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our obligation to comply with the noncompetition provisions of
the master separation agreement, which restricted us from
engaging in specified business activities, as described above
under Master Separation Agreement
TODCO Business; |
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our obligation not to take any action in contravention of
Transoceans Memorandum of Association or Articles of
Association or any credit agreement or other material agreement
binding upon Transocean; |
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our obligation to maintain the same accounting principles and
practices as Transocean; |
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our obligation not to select a different accounting firm than
Transoceans to serve as our independent certified public
accountants; |
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Transoceans unlimited first-priority demand registration
rights; after completion of this offering, Transocean will have
two more first-priority demand registration rights with respect
to any remaining shares of Class A common stock; |
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our obligation to use the services of Transoceans internal
audit department to carry out routine and non-routine audits of
our organization and its activities; these services were billed
at a daily rate based on the annual compensation of the internal
audit team members performing the services; |
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our obligation to make an annual contribution of 1.5% of
compensation for all employees eligible to participate in our
U.S. savings plan; and |
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our obligation to pay Transocean aggregate monthly fees ranging
from $15,000 to $20,000 for access to Transoceans computer
systems and electronic accounting systems; our obligation to use
these systems terminated upon completion of the December 2004
offering and we are fully independent of Transoceans
computer systems and its electronic accounting systems. |
Transocean paid all out-of-pocket costs and expenses incurred in
connection with the separation, the IPO, the master separation
agreement and the ancillary agreements, except as otherwise
provided in the master separation agreement, the ancillary
agreements or any other agreement between us and Transocean
relating to the separation and the IPO. Transocean also paid all
of the out-of-pocket costs and expenses incurred in connection
with the offerings we concluded in September 2004 and December
2004. However, we will pay such out-of-pocket costs and expenses
in connection with this offering.
Until the closing of our IPO, we were included in Transocean
Holdings consolidated group for U.S. federal income
tax purposes. As of the closing of the IPO, we are not included
in Transocean Holdings U.S. federal consolidated
group because no U.S. subsidiary of Transocean owns at
least 80% of the aggregate voting power and value of our
outstanding stock.
We entered into a tax sharing agreement with Transocean Holdings
which governs Transocean Holdings and our respective
rights, responsibilities and obligations with respect to taxes
and tax benefits. References in this summary description of the
tax sharing agreement to the terms tax or
taxes mean taxes and any interest, penalties,
additions to tax or additional amounts in respect of such taxes.
The general principles of the tax sharing agreement include the
following:
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Except for special tax items discussed in the bullet below, all
U.S. federal, state, local and foreign income taxes and
income tax benefits (including income taxes and income tax
benefits attributable to the TODCO business) that accrued on or
before the closing of the IPO generally are for the account of
Transocean Holdings. Accordingly, we generally are not liable
for any income taxes accruing on or before the closing of the
IPO, but we generally must pay Transocean Holdings for the
amount of any income tax benefits, calculated as described
below, created on or before the closing of the IPO
(pre-closing tax benefits) that we use or absorb on
a return with respect to a period after the closing of the IPO.
We will have no obligation to pay Transocean Holdings for any
pre-closing tax benefits arising out of or relating to the
alternative minimum tax provisions of Sections 55 through
59 of the U.S. Internal Revenue Code, but we will be
required to pay Transocean Holdings for any pre-closing tax
benefits we use that are alternative minimum tax credits
described in Section 53 of the Internal Revenue Code. Our
obligation to pay Transocean Holdings for the use of pre-closing
tax benefits and our potential obligation to pay alternative
minimum tax to the Internal Revenue Service may result in our
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the Internal Revenue Service and to Transocean Holdings than we
would otherwise have paid if we had utilized no pre-closing tax
benefits. For purposes of the tax sharing agreement, deferred
tax liabilities reflected in our financial statements, which
represent the anticipated future tax effects of temporary
differences between the financial statement basis and the tax
basis of our assets and liabilities, are not considered to
constitute income tax liabilities accrued on or before the
closing of the IPO. As of December 31, 2004, we had
approximately $368 million of income tax benefits subject
to our obligation to reimburse Transocean Holdings. See
Note 12 to our consolidated financial statements
incorporated by reference herein from our annual report on
Form 10-K for the year ended December 31, 2004. The
amount of these tax benefits will be calculated as follows: |
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(1) in the case of a deduction used or absorbed, by
multiplying the deduction by the highest applicable statutory
tax rate in effect; and |
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(2) in the case of a credit used or absorbed, by allowing
100% of the credit. |
However, if the use or absorption of a pre-closing tax benefit
defers or precludes our use or absorption of any income tax
benefit created after the closing of the IPO (post-closing
tax benefit), our payment obligation with respect to the
pre-closing tax benefit generally will be deferred until we
actually use or absorb such post-closing tax benefit. This
payment deferral will not apply with respect to, and we will
have to pay currently for the use or absorption of pre-closing
tax benefits to the extent of:
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(1) up to 20% of any deferred or precluded post-closing tax
benefit arising out of our payment of foreign income
taxes; and |
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(2) 100% of any deferred or precluded post-closing tax
benefit arising out of a carryback from a subsequent year. |
If any person other than Transocean or its subsidiaries becomes
the beneficial owner of greater than 50% of the aggregate voting
power of our outstanding voting stock, we will be deemed to have
used or absorbed all pre-closing tax benefits, and we generally
will be required to pay Transocean Holdings an amount for the
deemed use or absorption of these pre-closing tax benefits. We
are required to make this payment even if we are unable to
actually use or absorb these pre-closing benefits. The amount
paid for the deemed use of these tax benefits will be calculated
by:
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(1) in the case of a deduction (including, for these
purposes, all pre-closing income taxes, whether claimed as a
deduction or credit), multiplying the deduction by the highest
applicable statutory tax rate in effect; |
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(2) in the case of a credit other than a pre-closing
foreign tax credit, allowing 100% of such credit; and |
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(3) multiplying the amounts by a specified discount factor. |
The specified discount factor will vary depending on the year in
which another person becomes the beneficial owner of greater
than 50% of the voting power of our stock: if in 2005 or 2006,
then the factor is 0.70; if in 2007 or 2008, then the factor is
0.80; if in 2009, then the factor is 0.85; if in 2010, then the
factor is 0.90; if in 2011 or 2012, then the factor is 0.95; and
if in 2013 or a later year, then the factor is 1.00). Moreover,
if any of our subsidiaries that join with us in the filing of
consolidated returns ceases to join in the filing of such
returns, we will be deemed to have used that portion of the
pre-closing tax benefits attributable to that subsidiary
following the cessation, and we generally will be required to
pay Transocean Holdings the amount of this deemed tax benefit,
calculated as described above with regard to an acquisition of
beneficial ownership, at the time such subsidiary ceases to join
in the filing of such returns. In the case of any of our
payments to Transocean Holdings resulting from another person
becoming the owner of greater than 50% of our voting stock or a
subsidiary ceasing to join in the filing of a consolidated
return with us, the payment will in no case be deferred,
regardless of whether the existence of the related pre-closing
tax benefit would or could defer or preclude our use or
absorption of any post-closing tax benefit. Moreover, the
payment will not be subsequently adjusted for any difference
between the tax benefits that we are deemed to use or absorb in
such case and the tax benefits that we actually use
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or absorb, and the difference between those amounts could be
substantial. Among other considerations, applicable tax laws
may, as a result of another person becoming the owner of greater
than 50% of our voting power, significantly limit our use of
such tax benefits, and these limitations are not taken into
account in determining the amount of the payment to Transocean
Holdings. A substantial portion of the pre-closing tax benefits
are net operating losses, most or all of which should be
eligible to be carried forward to at least 2019.
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We are responsible for all special tax items accruing on or
after the date on which we issued shares of our common stock to
Transocean in repayment of our notes, as described in
Debt Retirement and Debt Exchange
Offers. For this purpose, special tax items means taxes
with respect to items specified in U.S. Treasury regulation
section 1.1502-76(b)(2)(ii)(C) (generally referring to
transactions outside the ordinary course of our business).
However, special tax items do not include taxes with respect to
transactions to effect the separation of the TODCO business from
the business of Transocean. See Master
Separation Agreement. Moreover, there were no special tax
items that accrued during the period beginning on the date of
issuance of such shares to Transocean and ending on the date of
the closing of the IPO. |
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We and Transocean Holdings are not currently members of a
U.S. federal consolidated group or state, local or foreign
combined group. If we and Transocean Holdings (or any affiliate
of Transocean Holdings other than us) were to become members of
a U.S. federal consolidated group or state, local or
foreign combined group for any period after the closing of the
IPO, we would be responsible for all income taxes attributable
to us for that period, determined as if we had filed separate
U.S. federal, state, local or foreign income tax returns.
We would be entitled to reimbursement by Transocean Holdings for
any income tax benefits realized by Transocean Holdings or any
of its affiliates as a result of our being a member of any such
consolidated or combined group. |
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We must pay Transocean Holdings for any tax benefits
attributable to us resulting from (1) the payment by
Transocean Holdings, after the closing of the IPO, of any
additional taxes of the TODCO business that are not
U.S. federal income taxes or (2) the delivery by
Transocean or its subsidiaries, after the closing of the IPO, of
stock of Transocean to an employee of ours in connection with
the exercise of an employee stock option. We will generally be
required to pay the deemed value of these tax benefits within
30 days of the payment of such additional taxes or the
delivery of Transocean stock, whether or not we ever actually
use or absorb such tax benefits. However, items in excess of
$1.0 million will be subject to the same rules as discussed
above for pre-closing tax benefits, and therefore the payment of
these items may be deferred in some circumstances. |
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Apart from (1) income taxes and income tax benefits that
accrued on or before the closing of the IPO and (2) tax
benefits resulting from Transocean Holdings payment of our
taxes that are not U.S. federal income taxes or delivery of
stock to our employees, described above, Transocean Holdings is
responsible for all income taxes, and is entitled to all income
tax benefits, attributable to Transocean Holdings or its
affiliates (other than us), and we are responsible for all
income taxes, and are entitled to all income tax benefits,
attributable to us. |
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Our ability to obtain a refund from a carryback to a year in
which we and Transocean Holdings joined in a consolidated or
combined return is at the discretion of Transocean Holdings.
Moreover, any refund that we may obtain will be net of any
increase in taxes resulting from the carryback that are
otherwise for the account of Transocean Holdings. |
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We have the right to be notified of tax matters for which we are
responsible under the terms of the tax sharing agreement,
although Transocean Holdings has sole authority to respond to
and conduct all tax proceedings, including tax audits, relating
to any Transocean Holdings consolidated, or Transocean combined,
income tax returns in which we are included. |
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Transocean Holdings has substantial control over our filing of
tax returns for so long as there remains a present or potential
obligation for us to pay Transocean Holdings for pre-closing tax
benefits. Transocean Holdings retains these rights even if it no
longer owns any shares of our common stock. |
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We also are responsible for all taxes, other than income taxes,
attributable to the TODCO business, whether accruing before, on
or after the closing of the IPO. |
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We generally are required to pay Transocean Holdings for the
amount of pre-closing tax benefits that we use in determining
the amount of any installment of estimated taxes we pay to
Transocean Holdings or any tax authority within thirty days
after the installment of estimated taxes is or would have been
paid. If, after any installment payment of estimated taxes or
after the relevant return is due (with or without any
extensions), the estimated amount of pre-closing tax benefits
for which we have previously paid differs from the most recent
estimate or actual amount of pre-closing tax benefits that we
use or absorb on that return, we and Transocean Holdings must
make appropriate true-up payments between us. However, under
some circumstances, payments by us for the use of pre-closing
tax benefits, whether estimated or actual, may be deferred
(subject to an interest charge) under a subordination agreement
between us and Transocean in favor of our third-party lenders. |
The tax sharing agreement further provides for cooperation
between Transocean Holdings and us with respect to tax matters,
the exchange of information and the retention of records that
may affect the income tax liability of the parties to the
agreement. However, if we fail to cooperate with Transocean
Holdings in any tax contest with respect to taxes that are
otherwise for the account of Transocean Holdings, any additional
taxes resulting from such tax contest will be for our account,
notwithstanding any other provision in the tax sharing agreement.
Notwithstanding the tax sharing agreement, under
U.S. Treasury regulations, each member of a consolidated
group is severally liable for the U.S. federal income tax
liability of each other member of the consolidated group.
Accordingly, with respect to periods in which we have been
included in Transocean Holdings consolidated group, we
could be liable to the U.S. government for any
U.S. federal income tax liability incurred, but not
discharged, by any other member of Transocean Holdings
consolidated group. However, if any such liability were imposed,
we would generally be entitled to be indemnified by Transocean
Holdings for tax liabilities allocated to Transocean Holdings
under the tax sharing agreement.
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Registration Rights Agreement |
Because our shares of common stock held by Transocean are deemed
restricted securities as defined in Rule 144,
Transocean may only sell a limited number of shares of our
common stock into the public markets without registration under
the Securities Act. We entered into a registration rights
agreement with Transocean under which, at the request of
Transocean, we would use our best efforts to register shares of
our common stock that were held by Transocean after the closing
of the IPO, or were subsequently acquired, for public sale under
the Securities Act. After completion of this offering, and as
long as Transocean holds any shares of our common stock,
Transocean will be entitled to request a total of two additional
registrations. If Transocean sells more than 10% of our
outstanding shares of common stock to a transferee, Transocean
may transfer all or a portion of its rights under the agreement,
except that a transferee that acquires a majority of our
outstanding common stock can only request two additional
registrations after it owns less than a majority of our
outstanding common stock but greater than 25% of our outstanding
common stock. A transferee of between 10% and 25% of our
outstanding common stock can only request one registration.
Transocean may not transfer its registration rights to a
transferee of less than 10% of our outstanding common stock. The
transfer of rights under the agreement to a transferee does not
limit the number of registrations Transocean may request. We
also provide Transocean and its permitted transferees with
piggy-back rights to include its shares in future
registrations of our common stock under the Securities Act.
There is no limit on the number of these piggy-back
registrations in which Transocean may request its shares be
included. These rights will terminate once Transocean or a
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permitted transferee is able to dispose of all of its shares of
our common stock within a three-month period pursuant to the
exemption from registration provided under Rule 144 of the
Securities Act. We have agreed to cooperate in these
registrations and related offerings. We and Transocean have
agreed to restrictions on the ability of each party to sell
securities following registrations requested by either party.
The registration rights agreement provides that we will pay all
out-of-pocket expenses incurred in connection with any
registration pursuant to the agreement. Although Transocean paid
such expenses in connection with our September 2004 and December
2004 offering, we will be required to pay such expenses in
connection with this offering.
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Transition Services Agreement |
We entered into a transition services agreement with Transocean
under which Transocean provides specified administrative support
during the transitional period following the closing of the IPO.
In 2004, Transocean provided specified information technology
and systems, financial reporting, accounting, human resources,
treasury and claims administration services to us in exchange
for agreed fees based on Transoceans actual costs. We
replaced the computerized accounting system provided by
Transocean with our own system on January 1, 2005. We no
longer utilize any significant services from Transocean under
the transition services agreement.
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Employee Matters Agreement |
We entered into an agreement with Transocean and Transocean
Holdings to allocate specified assets, liabilities, and
responsibilities relating to our current and former employees
and their participation in Transoceans benefit plans.
Benefits under our U.S. pension plan ceased to accrue as of
July 1, 1999. As of August 1, 2001, our
employees existing accrued benefits under that plan were
fully vested. Sponsorship of that plan has been assumed by
Transocean Holdings effective August 1, 2002. Because we no
longer are a part of a controlled group of companies with
Transocean for U.S. federal income tax purposes, affected
employees are now entitled to take a distribution from that
plan, subject to the provisions of the plan and to taxation and
possible early withdrawal penalties. We do not expect to
establish a new pension plan for our employees.
Our employees became eligible to participate in our
U.S. savings plan effective November 1, 2002. Our
employees may make pre-tax contributions to that plan. Employees
who are not considered highly compensated for tax purposes may
also make post-tax contributions. We provide matching
contributions of up to 100% of the first 6% of participant
contributions. On or about January 1, 2003, liabilities for
our employees accounts under the Transocean
U.S. Savings Plan, and assets associated with those
liabilities, were transferred to our U.S. savings plan. Our
employees who have invested in Transocean ordinary shares under
the Transocean U.S. Savings Plan may retain that
investment, if they choose to do so, until December 31,
2005, but will not be eligible to acquire additional Transocean
ordinary shares under our U.S. savings plan.
Under the terms of the Transocean stock option awards granted
prior to the closing of the IPO, our employees will continue to
retain outstanding options to acquire Transocean ordinary shares
for the duration of their original term.
With some exceptions, we have agreed to indemnify Transocean for
employment liabilities arising from any acts of our employees or
from claims by our employees against Transocean and for
liabilities relating to benefits for our employees. Transocean
has agreed to similarly indemnify us.
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Service and Secondment Agreement |
In July 2004, we entered into an agreement with Transocean under
which we provided to Transocean specified administrative
services and seconded personnel in connection with a drilling
contract Transocean has for drilling oil and gas wells offshore
Trinidad and Tobago for a fee of $2,750 per day. The
agreement lasted for approximately three months, beginning in
early September 2004. In connection with the
31
provision of these services, we have agreed to indemnify
Transocean for liabilities pertaining to our employees
(excluding the seconded personnel), and Transocean has agreed to
indemnify us for liabilities pertaining to its employees
(including the seconded personnel).
In January 2005, we entered into an agreement with Transocean
under which we provide to Transocean specified administrative
services and seconded personnel in connection with a drilling
contract Transocean has for drilling oil and gas wells offshore
Venezuela, for a fee of $3,500 per day and for an expected
duration of 60 to 90 days, beginning in January 2005. In
connection with the provision of these services, we have agreed
to indemnify Transocean for liabilities pertaining to our
employees (excluding the seconded personnel), and Transocean has
agreed to indemnify us for liabilities pertaining to its
employees (including the seconded personnel).
32
SELLING STOCKHOLDER
We have filed the registration statement of which this
prospectus is a part to register the resale of up to
13,310,000 shares of our Class A common stock by
Transocean on a delayed or continuous basis under Rule 415
of the Securities Act pursuant to the registration rights
agreement between Transocean and us. The shares offered under
this prospectus represent all of the remaining shares of our
common stock owned by Transocean. The following table sets forth
certain information regarding Transoceans ownership of our
common stock as of May 11, 2005, and as adjusted to reflect
the assumed sale by Transocean of all of our common stock owned
by Transocean in this offering.
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Shares of Class A | |
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|
Common Stock | |
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|
Shares of Class A Common | |
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|
Beneficially Owned Before | |
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|
Stock Beneficially Owned | |
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the Offering | |
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|
After the Offering(1) | |
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| |
|
Number of | |
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| |
|
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|
Percentage of | |
|
Shares | |
|
|
|
Percentage of | |
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|
Number of | |
|
Shares | |
|
Being | |
|
Number of | |
|
Shares | |
Selling Stockholder |
|
Shares | |
|
Outstanding | |
|
Offered | |
|
Shares | |
|
Outstanding | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Transocean Inc.
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|
13,310,000 |
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|
22 |
% |
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13,310,000 |
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|
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|
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% |
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|
(1) |
Assumes the sale of all shares that may be sold under this
prospectus. |
33
PLAN OF DISTRIBUTION
The selling stockholder, including some of its transferees who
may later hold its interest in the shares of our common stock
covered by this prospectus and who are otherwise entitled to
resell their shares using this prospectus, may sell the shares
of common stock covered by this prospectus from time to time in
any legal manner selected by the selling stockholder, including
directly to purchasers or through underwriters, broker-dealers
or agents, who may receive compensation in the form of
discounts, concessions or commissions from the selling
stockholder or the purchasers. These discounts, concessions or
commissions as to any particular underwriter, broker-dealer or
agent may be in excess of those customary in the types of
transactions involved. The selling stockholder may act
independently of us in making decisions with respect to the
pricing, timing, manner and size of each sale of common stock
covered by this prospectus.
The selling stockholder has advised us that the shares may be
sold in one or more transactions at fixed prices, at prevailing
market prices at the time of sale, at prices related to the
prevailing market prices, at varying prices determined at the
time of sale and/or at negotiated prices. These sales may be
effected at various times in one or more transactions, which may
include:
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ordinary brokers transactions and transactions in which
the broker-dealer solicits purchasers; |
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transactions involving cross or block trades or otherwise on the
NYSE or in the over-the-counter market or any other stock
exchange, market or trading facility on which the shares are
traded; |
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transactions otherwise than on the NYSE or in the
over-the-counter market or any other stock exchange, market or
trading facility on which the shares are traded; |
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transactions in which brokers, dealers or underwriters purchase
the shares for resale; |
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|
transactions at the market to or through market
makers of our common stock or into an existing market for our
common stock; |
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|
transactions not involving market makers or established trading
markets, including direct sales of the shares to purchasers or
sales through agents; |
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privately negotiated transactions; |
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block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; |
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an exchange distribution in accordance with the rules of the
applicable exchange; |
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short sales; |
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a combination of any such methods of sale; or |
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any other method permitted pursuant to applicable law. |
In addition, the selling stockholder may also enter into hedging
and/or other monetization transactions. For example, the selling
stockholder may:
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enter into transactions with a broker-dealer or affiliate of a
broker-dealer or other third party in connection with which that
other party will become a selling stockholder and engage in
short sales of our common stock under this prospectus, in which
case the other party may use shares of our common stock received
from the selling stockholder to close out any short positions; |
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itself sell short our common stock under this prospectus and use
shares of our common stock held by it to close out any short
positions; |
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engage in short sales against the box (i.e. when the seller owns
securities that are the same as, or substantially identical to,
securities borrowed and sold short), puts and calls and other
transactions in our securities or derivatives of our securities
and may sell or deliver shares in connection with these trades; |
34
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enter into options, forward contracts or other transactions that
require the selling stockholder to deliver, in a transaction
exempt from registration under the Securities Act, our common
stock to a broker-dealer or an affiliate of a broker-dealer or
other third party who may then become a selling stockholder and
publicly resell or otherwise transfer our common stock under
this prospectus; or |
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|
loan or pledge our common stock to a broker-dealer or client of
a broker-dealer or other third party who may then become a
selling stockholder and sell the loaned shares or, in an event
of default in the case of a pledge, become a selling stockholder
and sell the pledged shares, under this prospectus. |
To the extent required, the shares to be sold, the name of the
selling stockholder, the respective purchase prices and public
offering prices, the names of any agent, dealer or underwriter,
and any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying prospectus
supplement filed with the SEC under Rule 424(b) under the
Securities Act or, if appropriate, a post-effective amendment to
the shelf registration statement of which this prospectus is a
part. The selling stockholder may sell any or all of the shares
of our common stock offered by it pursuant to this prospectus.
In addition, there can be no assurance that the selling
stockholder will not transfer the shares of common stock by
other means not described in this prospectus.
The selling stockholder also may transfer the shares of common
stock as a gift, pledge or other non-sale related transfer, in
which case the donees, pledgees, transferees or other successors
in interest will be the selling beneficial owners for purposes
of this prospectus and may sell the shares of common stock from
time to time under this prospectus after we have filed a
supplement or an amendment to this prospectus under
Rule 424(b)(3) or other applicable provision of the
Securities Act amending the list of selling stockholders to
include the donee, pledgee, transferee or other successors in
interest as selling stockholders under this prospectus.
There can be no assurance that the selling stockholder will sell
all or any of the shares of common stock pursuant to this
prospectus. In addition, any common stock covered by this
prospectus that qualifies for sale pursuant to an exemption from
the registration requirements of the Securities Act may be sold
pursuant to that exemption, including sales under Rule 144
(subject to the terms of the registration rights agreement),
rather than under this prospectus. The common stock may be sold
in some states only through registered or licensed brokers or
dealers. In addition, in some states the shares of common stock
may not be sold unless they have been registered or qualified
for sale or an exemption from registration or qualification is
available and complied with.
Broker-dealers engaged by the selling stockholder may arrange
for other brokers-dealers to participate in sales.
Broker-dealers may receive commissions or discounts from the
selling stockholder (or, if any broker-dealer acts as agent for
the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholder does not expect these
commissions and discounts to exceed what is customary in the
types of transactions involved.
The selling stockholder has acknowledged that it understands its
obligations to comply with the provisions of the Exchange Act
and the rules and regulations thereunder relating to stock
manipulation, including without limitation, Regulation M,
which may limit the timing of purchases and sales of any of the
common stock by the selling stockholder and any other such
person. In addition, Regulation M may restrict the ability
of any person engaged in the distribution of the common stock to
engage in market making activities with respect to the common
stock being distributed. This may affect the marketability of
the common stock and the ability of any person or entity to
engage in market-making activities with respect to the common
stock.
The selling stockholder and any broker-dealers who act in
connection with the sale of common stock hereunder may be deemed
to be underwriters as that term is defined in the
Securities Act, and any commissions received by them and any
profit on the resale of the common stock as principal might be
deemed to be underwriting discounts and commissions under the
Securities Act. If the selling stockholder is deemed to be an
underwriter within the meaning of the Securities
Act, it will be subject to the
35
prospectus delivery requirements of the Securities Act, which
may include delivery through the facilities of the NYSE pursuant
to Rule 153 under the Securities Act.
Subject to certain limitations, we have agreed to indemnify the
selling stockholder and each underwriter and their respective
directors and officers, and each other person who controls the
selling stockholder or the underwriter against certain
liabilities, including specified liabilities under the
Securities Act, or to contribute with respect to payments which
the selling stockholder may be required to make in respect of
such liabilities. Subject to certain limitations, the selling
stockholder has agreed to indemnify us for liabilities arising
under the Securities Act with respect to written information
furnished to us by it or to contribute with respect to payments
in connection with such liabilities.
We have agreed to pay all of the costs, fees and expenses
incurred by us incident to our registration of the resale of the
selling stockholders common stock as well as legal fees
and expenses of counsel to the selling stockholder. We will not
pay any commissions, fees and discounts of underwriters,
brokers, dealers and agents.
36
LEGAL MATTERS
Certain legal matters in connection with the common stock
offered hereby will be passed on for us by Porter &
Hedges, L.L.P., Houston, Texas and for the selling stockholder
by Baker Botts L.L.P., Houston, Texas. Any underwriters will be
advised by their own legal counsel.
EXPERTS
The consolidated financial statements and schedule of TODCO
appearing in TODCOs Annual Report (Form 10-K) for the
year ended December 31, 2004, have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon, included
therein and incorporated herein by reference. Such consolidated
financial statements and schedule are incorporated herein by
reference in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
37
12,000,000 Shares
Class A Common Stock
PROSPECTUS SUPPLEMENT
May 13, 2005
Citigroup
JPMorgan
UBS Investment Bank